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

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

#81

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

burntoutfire wrote: post #74

eanzenberg wrote: post #65

Earlier quoted context omitted.

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.

Are blue chips like Coca-Cola entering new markets so much?

People who invest in Coca-Cola are interested in dividend growth. People who invest in Amazon, Apple, Google, MSFT are interested in them entering new markets.

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

#82

Post by JackFr » Fri, Mar 27, 2020, 6:28 PM UTC

Enginerrrd wrote: post #66

timlangeman wrote: post #47

Earlier quoted context omitted.

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.

If debt is that cheap it would be irresponsible to finance the firm with equity.

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

#83

Post by dakna » Fri, Mar 27, 2020, 6:28 PM UTC

vzidex wrote: post #41

smolder wrote: post #28

Earlier quoted context omitted.

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…

I agree that this might catalyze awareness. But the people in power know they need the mass acceptance to stay in power. Which is why every new medium that reaches a big enough audience is infiltrated with agenda pushing content. It is absolutely critical to divide the masses to stay in power. It doesn't matter which side, as long as you have one side to identify with and another side to blame in this post-factum society. The percentage of people dropping out of the belief systems and trying to rationalize again is IMHO too small for large scale effects to not allow the people in power to continue. Its a handful of swing states that matter.

That being said, I have more hope for smaller, local circles, because then the partisan lines get blurry due to a common local identity.

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

#84

Post by bulletsvshumans » Fri, Mar 27, 2020, 6:28 PM UTC

eanzenberg wrote: post #65

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.

Growth only matters to the degree that it will eventually lead to higher dividends though, from the perspective of shareholders. At some point companies (or the companies that acquire them) need to yield a dividend or else it's all a Ponzi scheme.

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

#85

Post by zby » Fri, Mar 27, 2020, 6:29 PM UTC

tathougies wrote: post #15

Do people not expect the market to go down when business revenues have been forced lower due to unforeseen circumstances? The fact is a valuation made in November 2019 had no way of taking this into account. This isn't to say whether or not it's a bubble, but I am surprised at the number of people who think that stock prices going down is due to financial health of companies rather than people attempting to sell stoc…

"It's like, if there are four partners in a partnership and two decide to buy out the other's shares, their shares are now worth twice as much, assuming the corporation continues making revenue." - I don't understand how you calculate that. Let's say there is a company with 4 shareholders with equal shares and with discounted future earnings of $2 million plus $2 million of cash. That makes the company worth $4 million and each share worth $1 million. The company then buys two shares for the $2 million in cash it has. That makes the company worth $2 million (it has no more any cash and the discounted future earnings are worth $2 million) - and the two shares left are each worth $1 million - exactly like before the buy out.

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

#86

Post by _jal » Fri, Mar 27, 2020, 6:30 PM UTC

dsfyu404ed wrote: post #60

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 Walmart's power comes from being cheaper/better than the alternatives (though they may engage in unfair and unethical behavior as a means to that end). Government's power comes from having a monopoly on violence. These are very different and one has to be very far removed from government violenc…

This is definitionally correct, but frequently far from reality.

Desperate people with no practical negotiating leverage may have the theoretical power of foot-voting, but it provides zero practical value.

Given that a lot of regions outside of urban areas are varying degrees of labor-monopsonies with a very few large employers, not having an official right to shoot your workers really doesn't make a massive difference in the amount of control they can exert.

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

#87

Post by jki275 » Fri, Mar 27, 2020, 6:30 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]

Ah the misguided enthusiasm of youth.

You'll grow up, don't worry.

It will amaze you how much smarter your "boomer" parents get as you get older.

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

#88

Post by robmccoll » Fri, Mar 27, 2020, 6:30 PM UTC

eanzenberg wrote: post #65

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.

> If your costs aren't growing as fast as your revenue, then it's easy to turn a profit if you choose.

Doesn't that make a lot of assumptions about assets, expenditures, and business model?

If I start a business handing out $0.99 to anyone that gives me $0.90, I think I could easily grow revenue at a 10% loss for as long as investors were willing to fund it.

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

#89

Post by eanzenberg » Fri, Mar 27, 2020, 6:30 PM UTC

bulletsvshumans wrote: post #84

eanzenberg wrote: post #65

Earlier quoted context omitted.

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.

Growth only matters to the degree that it will eventually lead to higher dividends though, from the perspective of shareholders. At some point companies (or the companies that acquire them) need to yield a dividend or else it's all a Ponzi scheme.

Yep, and some stocks are priced for a date decades away.

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

#90

Post by H8crilA » Fri, Mar 27, 2020, 6:30 PM UTC

zxcb1 wrote: post #53

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…

It wont, they just showed that they rather let the system explode than implode; the balance, proper self-organization, invisible hand etc, was lost ten years ago

Sadly, I believe you're right, and this scares the shit out of me. To put it bluntly - we will not have capitalism any more. Capitalism must provision for and handle failures, and this is not currently allowed to happen.