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Yes. Aggregate corporate profits have not gone up at all: https://fred.stlouisfed.org/series/A053RC1Q027SBEA https://fred.stlouisfed.org/series/A053RC1Q027SBEA
by H8crilA 7y ago
Yes. Aggregate corporate profits have not gone up at all: https://fred.stlouisfed.org/series/A053RC1Q027SBEA 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 https://fred.stlouisfed.org/series/IIPUSNETIQ
- zxcb1 7y agoIt 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
- H8crilA 7y agoSadly, 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.
- riffraff 7y agoThe real question is: was it ever allowed to happen? There have been bailouts in some form since forever, it seems.
- engineer_22 7y agocan you provide a list of examples?
- H8crilA 7y agoEverything the Fed, the BOJ, the ECB, the SNB and what have you are doing, reducing all the rates that they can: - starting from short riskfree rates [all since 1981, but problems surfaced only in 2008] - to long riskfree rates [all since 2008] - to corporate default rates [ECB since 2012, the Fed since 2020] - and in some cases, even to equity risk premium rates [BOJ and SNB since 2008] Also China, but China is special, and has a much more fine grip on things that goes far beyond the general rates (they can target sectors specifically, or even individual companies). Expect more alphabet soup of pump facilities to materialize. I don't bother listing them here, it's all the same (reduce this or that rate).
- jazzyk 7y agoYes, but it all started in 2008 (to me, the starting point was really the 1998 government bailout of a private business - a hedge fund LTCM [1]). It was all downhill from there. Still, not "since forever", only since 1998, or so. 1. https://en.wikipedia.org/wiki/Long-Term_Capital_Management https://en.wikipedia.org/wiki/Long-Term_Capital_Management
- riffraff 7y agothe example I was directly thinking of was Italy's IRI from 1933[0] which was a conglomerate directly aimed at restructuring failing public companies through nationalization, it kept doing it for decades. AFAIK other countries had similar national behemoths. The US set up the Home Owners' Loan Corporation[1] during the great depression to refinance loans saving a lot of banks from disaster (tho helping common folks too), and there were also the savings and loan bailout in the '80s and '90s[2]. Chrysler was bailed out in 1979[3] and Lockheed in 1971. [0] https://en.wikipedia.org/wiki/Istituto_per_la_Ricostruzione_Industriale https://en.wikipedia.org/wiki/Istituto_per_la_Ricostruzione_... [1] https://en.wikipedia.org/wiki/Home_Owners'_Loan_Corporation https://en.wikipedia.org/wiki/Home_Owners'_Loan_Corporation [2] https://en.wikipedia.org/wiki/Savings_and_loan_crisis https://en.wikipedia.org/wiki/Savings_and_loan_crisis [3] https://www.investopedia.com/articles/economics/chrysler-bailout.asp https://www.investopedia.com/articles/economics/chrysler-bai...
- lotsofpulp 7y agoHistory has plenty examples of bailouts. “Invisible hand” was never there to begin with, much less 10 years ago.
- zxcb1 7y agoSure. The point is that a gardener can not force plants to grow, neither can he create them by himself; only assist in the proper conditions for growth. There is such a thing as too much water and fertilizer which is more problematic than none at all
- vimota 7y agoI thought the same, and had to ask some friends to provide another point of view: If a company like amazon generates very little corporate profit, is that unproductive growth? Aggregate corporate profits are not the only stat that matters when discussing economic growth/value.
- H8crilA 7y agoAmazon is truly exceptional, do not make a rule out of it. Bezos is kinda like Buffett, in their own league of master capital allocators. For example, Amazon got a lot of financial leverage on the "float" between credit card payments and sending the money to merchants. Again, kind of similar to Berkshire which is leveraged on the insurance "float". Also, heavy CAPEX or any other form of internal reinvestment does not mean there should be no profits. Look at Google, Facebook, Apple, Microsoft - all those companies were bootsrapped mostly through internal cash flow. All of those companies were profitable when IPOing (just look at historic S-1s).
- ksdale 7y agoHeavy CAPEX doesn't require no profits, but it can easily result in that.
- H8crilA 7y agoIf, over the long term, CAPEX spendings do not produce profits, it means that the purchased assets did not produce enough payoff to compensate for their depreciation charges. You could argue with the accounting depreciation rules (i.e. how much needs to be written off per year, i.e. you think the asset is longer lived than the accounting rules say), but the general idea stands - it is a sign of bad capital allocation.
- otoburb 7y ago>>If, over the long term, CAPEX spendings do not produce profits, it means that the purchased assets did not produce enough payoff to compensate for their depreciation charges. Even if CAPEX generates profits, if the returns were lower than your capital cost then company would have been better off not investing and returning that instead to shareholders.
- eanzenberg 7y agoProfits 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.
- burntoutfire 7y agoAre blue chips like Coca-Cola entering new markets so much?
- eanzenberg 7y agoPeople 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.
- bulletsvshumans 7y agoGrowth 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.
- eanzenberg 7y agoYep, and some stocks are priced for a date decades away.
- robmccoll 7y ago> 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.
- mathnovice 7y agoProfits do not need to go up for the value of a business to go up.
- pfraze 7y agoIf we assume that corporate value is relatively unchanged from 2014 and then assume that the government bails out the companies by paying off the debt, then the stock market's growth from 2014 would be a form of inflation, wouldn't it?
- alexpetralia 7y agoYes, asset inflation. Which we've seen (in corporate & startup valuations). We have not seen similar inflation of goods in the wider economy (except real estate, health care and higher education).
- jrs235 7y ago>(except real estate, health care and higher education). All also being assets. (Health care equating to health). Who has benefited the most from asset inflation? Those well off or the lower working class?
- jazzyk 7y agoReal-estate is assets, of course. But I think the inflation in health-care/education is caused by lack of competition. As in - you can choose to not buy a new coat this winter, but you HAVE to buy health insurance. You HAVE to buy college education for your kid or otherwise s/he won't be able to ever start a family (working as a barista, or some such). Also, none of these services were outsourced to cheaper location (because they can't. although a good number of people have been going abroad to get their medical degree, etc.)
- georgeecollins 7y agoNot only inflation. Certainly earnings increased in many cases due to tax cuts and tax forgiveness, such as allowing US tech companies to repatriate money at reduced tax rates. If you assume the tax cuts will continue, the stocks are more valuable.