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Was corporate profit growth a bubble inflated by "financial engineering"?

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Re: Was corporate profit growth a bubble inflated by "financial engineering"?

#41

Post by vzidex »

smolder wrote: post #28
vzidex wrote: post #11

Earlier quoted context omitted.

[flagged]

I don't think it will be so straight forward as that. Power is handed down, and people who have power generally don't want to give it up.

This is a good point, but I've been getting the feeling that the working class is getting more and more fed up with our conditions as we're squeezed for every last dollar of surplus value.

At the end of the day "the people in power" have power because the masses allow them to. If enough people refuse to participate in the system then the system will fall apart - e.g. the state only has the capacity to process so many evictions. This pandemic has been the greatest catalyst for class consciousness that I've seen in my life, and I think it has the potential to reshape our society after it's over.

Re: Was corporate profit growth a bubble inflated by "financial engineering"?

#42

Post by H8crilA »

Yes. Aggregate corporate profits have not gone up at all: https://fred.stlouisfed.org/series/A053RC1Q027SBEA

There's a long way to go down to normalize this situation. I'm not saying this will happen, but the downside potential is enormous.

Also, don't forget about the 50% of US GDP ($11T) that have been loaded into US capital markets (both debt and equity) by foreigners. This is also hugely out of balance: https://fred.stlouisfed.org/series/IIPUSNETIQ

Re: Was corporate profit growth a bubble inflated by "financial engineering"?

#43

Post by Retric »

enraged_camel wrote: post #26
jimmaswell wrote: post #17

Earlier quoted context omitted.

> They essentially are the government as they have a larger impact on your daily life than the actual government! Amazon and Wal Mart could disappear overnight and I would just shop elsewhere. Amazon isn't in charge of my water quality or road maintenance.

Keep in mind that over the past couple of decades, Walmart has replaced small mom-and-shops in most towns and small cities. An enormous amount of people in America would be utterly screwed if it went away.

For a few weeks possibly, but most of their items can be ordered online and their failure would open many doors for new stores.

Also, the overwhelming majority of people are driving to Walmart so even if significantly less convenient they can also drive somewhere else.

Re: Was corporate profit growth a bubble inflated by "financial engineering"?

#44

Post by JMTQp8lwXL »

They've buried the lede. In the last sentence, in the last 6 words.

> With Corporate profit growth unmasked and the Baby Boomer’s transition into retirement, it seems unlikely that stocks will make a quick return to their prior levels unless governments engage in massive asset inflation.

It is not the Federal Reserve's mandate to inflate asset values, however it tends to be a consequence of their mission to support low unemployment and some stable, positive inflation. We have $6 trillion in emergency stimulus arriving shortly -- two thirds of that support is monetary policy.

Re: Was corporate profit growth a bubble inflated by "financial engineering"?

#46

Post by nogabebop23 »

kaesar14 wrote: post #7

I find this scary and telling. "It is too early to say where the bottom is to this recession, but we have reason to believe the Millennials and Generation X do not have the resources to purchase the stock that Baby Boomers want to sell at prior market highs. With Corporate profit growth unmasked and the Baby Boomer’s transition into retirement, it seems unlikely that stocks will make a quick return to their prior lev…

Your average Gen-Xer is 50+ years old today, so your very bleak picture fails to acknowledge that they've also been the benficiary of all the public expenditures and national debt that funded it.

Outside of the US Millenials have enjoyed cheaper (when adjusted) education than ever before and better healthcare. I think you paint an unnecssarily bleak and defeatist future (coming from another in a similar situation)

Re: Was corporate profit growth a bubble inflated by "financial engineering"?

#47

Post by timlangeman »

LeoTinnitus wrote: post #6

It's certainly more nuanced than that. However, it does point out the fact that corporations focus too much on shareholder value as opposed to just making a good business system...except for the major players that is. These the so called "too big to fail" types of companies which borderline monopolize market sectors like Amazon and Walmart. But they don't care during recessions because they're fine. They essentially…

The first point I make is that profit growth has been flat since ~2014 but the stock market has gone up quite a bit.

My question is: Why had the stock market continued to go up despite flat profits?

Re: Was corporate profit growth a bubble inflated by "financial engineering"?

#48

Post by supercanuck »

jimmaswell wrote: post #17
LeoTinnitus wrote: post #6

It's certainly more nuanced than that. However, it does point out the fact that corporations focus too much on shareholder value as opposed to just making a good business system...except for the major players that is. These the so called "too big to fail" types of companies which borderline monopolize market sectors like Amazon and Walmart. But they don't care during recessions because they're fine. They essentially…

> They essentially are the government as they have a larger impact on your daily life than the actual government! Amazon and Wal Mart could disappear overnight and I would just shop elsewhere. Amazon isn't in charge of my water quality or road maintenance.

Are you sure about that? All the people in your town would also have to shop at those alternatives as well.

Do you think that there is enough inventory and stock to go around? Would those alternatives replenish their inventory in a timely fashion? Would you seek alternatives to your normal shopping?

I think people vastly overestimate the capabilities of their local options.

Re: Was corporate profit growth a bubble inflated by "financial engineering"?

#49

Post by treyfitty »

LatteLazy wrote: post #37

One man's bubble is another man's under valuation. Big moves when there is big news (like a global pandemic say) are normal events. The thing I find concerning is why the FED are "intervening". Dumping cash made sense during a cash shortage. But when there are actual, real, concerns about the future (coronavirus), price falls are perfectly correct. They don't need "fixing". Happy to be corrected if anyone knows?

The idea is similar to the previous financial crisis, except this time, it’s abstracted a layer higher. The previous crisis was a severe drying of credit that had (what they literally called it) a “contagion” and systemic effect. This time, there’s an actual contagious virus that is threatening the banking system if people can’t pay their bills, and the banks can’t pay who they owe because too many borrowers default. In other words, the Fed stepped in proactively because they saw the writing on the wall and wanted to avoid any drying of credit.

The idea was never to keep the economy afloat- it was to build a bridge to prevent being exposed to the rough waters.

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