Was corporate profit growth a bubble inflated by "financial engineering"? • Hacker News Board

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

#61

Post by Ididntdothis » Fri, Mar 27, 2020, 6:19 PM UTC

vzidex wrote: post #11

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…

[flagged]

“the young will be left to rebuild a more intelligent and caring society.”

Make sure they really do this. The boomers started out with “love and peace” before they turned to “greed is good”. I can easily imagine the next generation to create an even tougher society if they aren’t careful.

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

#62

Post by solotronics » Fri, Mar 27, 2020, 6:19 PM UTC

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?

It's happening at some layers above where personal finances occur. There is a massive demand for digital USD (bank liquidity) around the world, this is coming from a few directions such as domestic and international companies taking out new loans and calling in terms of existing loans to keep afloat without having income right now. International banks needing more USD to meet increased demand. It's like a perfect storm of massive hidden types of debt and leverage all came crashing down at once, there are 10x the amount of the stock market in derivatives such as futures and options so when these bets went bad it is causing the ultimate dollar black hole to occur worldwide at the same time.

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

#63

Post by abakker » Fri, Mar 27, 2020, 6:19 PM UTC

kqvamxurcagg wrote: post #27

The bubble has been enabled by the Federal Reserve. Quantitative easing and money printing has served to inflate asset prices over many years. For some reason markets going up is fine but when they inevitably decline sharply this is viewed as 'disorderly' and the Fed prints money to keep asset prices high. The Fed ensures that hedge funds have counter-parties to buy their toxic overvalued assets. It's now clear that…

Everyone always seems to knee-jerk forget that corporations are employers...the economy is run for people. People work for companies. Companies compete, and the financial gymnastics they do to get there is done by people also. Companies are not sentient. (you could argue that they have some meta-sentience, but it is pretty unspecific)

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

#64

Post by SketchySeaBeast » Fri, Mar 27, 2020, 6:19 PM UTC

nogabebop23 wrote: post #46

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)

> Outside of the US Millenials have enjoyed cheaper (when adjusted) education than ever before

Do you have a source for this? Considering the disparity between nations, that seems to be painting with an overly broad brush.

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

#65

Post by eanzenberg » Fri, Mar 27, 2020, 6:20 PM UTC

H8crilA wrote: post #42

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://f…

Profits don't (really) matter. If your revenue is growing 100% YOY, and your profit is -10%, who cares? If your costs aren't growing as fast as your revenue, then it's easy to turn a profit if you choose. Companies choose not to because it hurts them long-term. They choose to grow and enter new markets as fast as possible to get a foothold.

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

#66

Post by Enginerrrd » Fri, Mar 27, 2020, 6:20 PM UTC

timlangeman wrote: post #47

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?

My guess is that the answer to that is cheap debt from the fed keeping interest rates so low for so long. The stocks had value beyond what you'd expect from P/E ratiosand assets alone because there was added future value in the form of anticipated stock buy backs.

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

#67

Post by mathnovice » Fri, Mar 27, 2020, 6:20 PM UTC

H8crilA wrote: post #42

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://f…

Profits do not need to go up for the value of a business to go up.

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

#68

Post by skrebbel » Fri, Mar 27, 2020, 6:21 PM UTC

timlangeman wrote: post #47

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?

When you say profit growth was flat, that means that profit grew linearly, correct?

If true then that's pretty impressive and possibly much better than what the markets ~10 years ago expected?

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

#69

Post by eanzenberg » Fri, Mar 27, 2020, 6:21 PM UTC

supercanuck wrote: post #48

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.

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.

People also vastly underestimate how hard it is to produce commodities. Like, if Amazon disappeared overnight then we'd just all switch to something else and no issues would arise. What nuttiness!

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

#70

Post by peteradio » Fri, Mar 27, 2020, 6:21 PM UTC

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?

I personally think the FED is under political pressure to make the DOW look good because that is tied to certain politicians reelection. Perhaps I read too much bullshit or am too cynical but it seems like they are pushing for good looking but entirely bullshit numbers because a dollar won't be worth what it used to be.