16 ms·

The coming long-run slowdown in corporate profit growth and stock returns

174 points by Bostonian 4y ago

chiefalchemist 4y ago
> "I argue that the boost to corporate profits from lower interest and tax expenses is unlikely to continue, indicating notably lower profit growth, and thus stock returns, in the future." Given the author's CV this argument feels at least 10 years too late. https://www.federalreserve.gov/econres/michael-smolyansky.htm https://www.federalreserve.gov/econres/michael-smolyansky.ht... That is, aren't the organizations (e.g., The Fed) accountable for considering the impact of their decisions, as well as the broader context? That is, aren't they responsible for anticipating? This sounds like too little too late. More CYA than sincere insights. And while from early Sept, appropriately timed for early November impact.
- chrisgd 4y ago
  I don’t understand your argument. A guy who got his PhD 7 years after the GFC should have foreseen the impact of low interest rates. He is making a very rational argument that interest rates are rising and the share of corporate profits available for stockholders will be lower.
  - mellavora 4y ago
    I think you are right to criticize chiefalchemist, the comment is more snark than substance. The argument, as far as I understand it, is that if the Fed knew/believed in the arguments in the linked article, they would or should have acted differently over the last 10 years. The argument falls apart because no reason is given for the Fed acting differently. The Fed does not have a mandate to maintain corporate profitability nor does it set tax rates. They are surely aware that their actions have impacts on corporations, and they surely do consider this, but their mandate is clear: The Federal Reserve Act mandates that the Federal Reserve conduct monetary policy "so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates." https://www.federalreserve.gov/monetarypolicy/monetary-policy-what-are-its-goals-how-does-it-work.htm https://www.federalreserve.gov/monetarypolicy/monetary-polic...
    - chiefalchemist 4y ago
      What the mandate is and what is actually happening are not synonymous. Congress is also supposed to oversee The Fed and how often does that happen? Referencing theory is fine. But not as a substitute for reality. It's important we see and discuss reality.
    - chiefalchemist 4y ago
      The Fed has A LOT of power and influence both in the direct impact of its actions, as well as the leadership and "culture" it establishes among its group-think peers. You're naive to think otherwise. Why are you making excuses for them? Instead of holding them to the higher standard they claim to be.?
    - skippyboxedhero 4y ago
      All of the things mentioned in the article impact the Fed's mandate. It is like saying that the GFC didn't impact the Fed's mandate...but, ofc, we know it did because they cut rates to zero and gave hundreds of billions out. Funny how that works: the Fed has no responsibility when stock prices go up, but when they go down...immediate action. And 2008 happened, in part, because of the cut to 1% in 03-04 (no-one understand this today, synthetic CDO issuance pre that cut cycle was non-existent and suddenly went to tens of billions overnight because there was insufficient AAA securities with yields that could fund liabilities). We are just going through the same stuff over and over. These things have very real economic effects, they lead to massive volatility in employment, instability in prices, and have led to financial distortions that undermine basic aspects of how an economy functions (interest rates/the price of money no longer means anything outside of what the govt says it does, the result has been the most epic misallocation of capital in the history of the US economy).
  - chiefalchemist 4y ago
    He's not making an argument. He's stating the obvious. With zero sense of shame and humility. Right? So to what end? FFS, this isn't a random fluff piece on Medium. It's from the most power financial organization in the world. And we're supposed to get just nod and get behind this? I'm not speaking to the individual per. He's simply another (over-educated) representative of a mindset that creates more problems than it solves. The Fed coming out in Sept of 2022 and proposing the "argument" is comical at best. Apparently, not a single history course is requited to get those flashy degrees, nor is staying up on current events. Instead, they toss this out as something insightful and profound in a "oh we didn't see this coming sorta way"? Only the naive would buy this. The bottom line: The Fed is making decisions without a sense for the broader context and/or broader impact is negligent and irresponsible. This is too little too late.
    - chrisgd 4y ago
      We don’t know that. The Fed has been saying since 2021 they were going to raise rates. Thousands of people who get paid billions of dollars mostly missed it. Powell is either going to go down in history as someone who successfully transitioned to more normal rates or he wrecked the economy. This article isn’t the commentary of the FRB
      - chiefalchemist 4y ago
        > Thousands of people who get paid billions of dollars mostly missed it. Did they? In the 2007 sense? Where are the suicides? Where are any similar indicators? Anyone who didn't recognize the signals and the pressures being created is then highly overpaid. But being overpaid seems to be what happens when you happen to be in the right place at the right time. Regardless of what we don't know. We do know the income inequality gap keeps increasing. We do know more wealth is being concentrated in fewer hands. Well, we know this. Apparently the Fed likes to pretend otherwise. Where is the data that says thousands missed it? Sure it might not be the super easy money model the Fed shamelessly provided. But I don't see anyone leaving Wall Street, etc. cause the compensation and opportunity sucks.
- boppo1 4y ago
  > aren't the organizations (e.g., The Fed) accountable for considering the impact of their decisions They are not. Interest rate interventionism is bankrupt policy.
mellavora 4y ago
There is also an interesting relationship between government surplus/balance sheet and corporate profits. If you are non-cynical about it, and consider a theoretical model (closed system), then from basic economics if one actor is running a surplus than another actor must be running a deficit, otherwise the accounts don't balance. And while true, "it's only a model" (in the immortal words of John Cleese, looking at the model of Camelot in "MP and the Holy Grail"), if you chart the two against each other it holds up relatively well in reality. This is relevant because the Fed is also committed to shrinking its balance sheet, which, if that model holds, will also shrink corporate profits. Higher cost of capital, higher taxes, and less money in the pot. We've had a good run the last 40 years, the next 7 might not be so rosey.
- hgomersall 4y ago
  It's not really a model, it's accounting. The reason it holds up well is because it's an identity. If you represent all the flows they must sum to zero by definition. Those that ignore that (most people) miss some fundamental truths, which you allude to. No idea why you should be voted down other than to think those truths break much cherished dogma.
  - mellavora 4y ago
    well, downvotes for challenging dogma with mathematical identities is a long-standing tradition. I'll take them with pride on this issue. But thanks for the support, and for pointing out that I'm only stating identities, and that sometimes trends reverse.
- pessimizer 4y ago
  > We've had a good run the last 40 years, the next 7 might not be so rosey. The "good run" also relied on that identity. The national income accounting identity tells us that if we run massive trade deficits for 40 years, we get a massive trade debt that has to be borrowed in foreign currencies. It can be either borrowed by the government, or individuals/businesses. The government can't cut national debt without reducing (or better, reversing) the trade deficit, so what it's actually doing is shifting that borrowing to the private sector. So ultimately reduction of government spending amounts to selling the private sector to pay off government debt, which imo is not good. We shift from owing other countries paper that we have an infinite supply of, to owing them actual parts of the economy. We need to be shifting spending from all of the direct subsidy to the wealthy of course, but we shouldn't be reducing anything. Turns out that giving money to rich people isn't a good investment because they steer most of it to financial scams and rent-seeking ploys. The government needs to spend in a way that targets lowering the trade deficit, and that means investing in things with a return. Part of that should be trying to shift the debts of normal individuals to government, where they can be more strategically invested in a way that will reduce imports or increase exports. The debts of normal individuals are mostly wrapped up in housing, healthcare, and education. So we should be subsidizing those rather than the stock market.
photochemsyn 4y ago
Takes a bit of reading before the primary issue gets mentioned: > "Some of the improvement in profit margins may have come from sourcing cheaper inputs from abroad, enabled by increased globalization. Moreover, for output produced within the U.S., growth in labor productivity—i.e., real output per hour worked—exceeded real wage growth since the mid-2000s. This means that, for a given cost of labor, firms were able to produce more output, which would also likely have contributed to the improvement in profit margins." I's rewrite the introductory sentence for this article as follows: "Over the past two [four] decades, the corporate profits of stock market listed firms have been substantially boosted by ~~declining interest rate expenses~~ [outsourcing manufacturing abroad to sweatshop zones] and ~~lower corporate tax rates~~ [importation of cheap and often undocumented labor from poor countries]." That's the essence of what its dectractors (including myself) call the neoliberal economic model.
- theironhammer 4y ago
  Excellent analysis! I would add investment in low risk high returns ventures like software as opposed to high risk lower returns ventures like brick and mortar factories.
  - astrange 4y ago
    Calling things neoliberal isn’t an incisive economic analysis, it’s a way to get upvotes from people in SF who claim to be Marxists and whose parents are rich landlords. Many of the “neoliberal” things that supposedly happened did not actually happen. https://noahpinion.substack.com/p/was-there-really-a-neoliberal-turn https://noahpinion.substack.com/p/was-there-really-a-neolibe...
    - VictorPath 4y ago
      Speaking of Karl Marx, he made the exact same prediction as this paper does, only he did it a century and a half ago ( https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit_to_fall https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit... )
- 4y ago
NotYourLawyer 4y ago
What else is there to buy though, real estate?
- __MatrixMan__ 4y ago
  Do you not look around at the world and see problems in need of fixing? Spend your money on fixing them because then you get to live in a world with fewer problems (it's called investing).
  - hammock 4y ago
    What do you see? I believe that's what he was asking. You merely threw his same question back
    - __MatrixMan__ 4y ago
      I don't see problems that can be fixed by buying something. Or rather, by buying abstractions in hopes of being able to sell them for more more later on (i.e. gambling). Personally, I think that the declining state of privacy is increasingly incompatible with democracy. I want to live in a democracy when I'm old, so I'm saving up to take a few years "off" and work on some ideas that I have which I think will help. So I suppose I will be buying things along the way. Food. Healthcare. Energy. Internet access. But I'll be doing it because I want to live in the world that I'll be creating (i.e. I'm investing time in creating that world). Not because I think I'll end up with more money when it's all said and done. So maybe I'm putting words in ferdowski's mouth here but I really think that by "buy" they meant "allocate my money under the expectation that it will grow without me having to do any extra useful work along the way".
  - fullshark 4y ago
    I see a real big problem that needs fixing: How do I save enough to retire and make sure I don't have to work until I die? That problem kind of dominates all other problems for me.
    - 4y ago
deeptote 4y ago
"Companies have been pumping and dumping for years, buoyed by cheap labor, and have not been intelligent enough to invest long term. And now, they're sad." FTFY
- WastingMyTime89 4y ago
  But it goes beyond companies. Rich countries have had very myopic development strategies for the past thirty to forty years. I could blame incompetence but I think it’s mostly because it allowed some happy few to make good money and they don’t really care about the citizenry at large. My own country in Europe decided they were going to bet everything on high-end services and R&D while outsourcing all production. Apparently it wasn’t obvious to them that when you don’t produce you lose the culture and knowledge base necessary to do good R&D and that the countries they were outsourcing to would develop and stop relying on us.
  - lordnacho 4y ago
    This is because we've decided short term local optimization is somehow optimal. Just let every business maximize profits and everything will be good. Mention externalities and people will deny they exist, or try to tell you they're already accounted for.
    - mellavora 4y ago
      > Just let every business maximize profits and everything will be good Not quite right. You should have said maximize short-term profits. As an example from forestry. If you manage sustainably, such that cutting resembles natural loss, your forest produces high-quality wood for centuries and also provides revenue from i.e. lodges, salmon, and carbon offsets. So profit from that land over 100 years is X Or you clear-cut it, and realized 1/10th of X in 5 years. And make the land very low value for the remaining 95. The issue is short-term local optimization, as you claim.
      - lordnacho 4y ago
jmyeet 4y ago
Consider this: > The difference between EBIT growth and sales growth (3.6 percent vs. 2.0 percent) can be attributed to an improvement in profit margins. In other words, costs grew at a slower rate than sales. Some of the improvement in profit margins may have come from sourcing cheaper inputs from abroad, enabled by increased globalization. Moreover, for output produced within the U.S., growth in labor productivity—i.e., real output per hour worked—exceeded real wage growth since the mid-2000s.9 This means that, for a given cost of labor, firms were able to produce more output, which would also likely have contributed to the improvement in profit margins. Stagnation in real wages goes well beyond the mid-2000s. It starts in the late 1970s [1]. Another way to put the author's thesis is that interest rate costs have gone about as low as they can. Another part is by depressing real wages. The only way for profit growth to continue on this model is to further depress real wages. Exponential growth cannot continue forever. Consider the metric of net profit per employee [2]. Why is it the employees cannot share in the success of the enterprise that simply cannot exist without them? We saw this again recently with the averted rail workers strike. Rail companies were freaking out at giving 125,000 "essential" rail workers paid sick leave, the cost of which would've been 3-3.5% of profits. [1]: https://www.epi.org/publication/charting-wage-stagnation/ https://www.epi.org/publication/charting-wage-stagnation/ [2]: https://tipalti.com/profit-per-employee/ https://tipalti.com/profit-per-employee/
- sooheon 4y ago
  Great links. > interest rate costs have gone about as low as they can. Another part is by depressing real wages. The only way for profit growth to continue on this model is to further depress real wages. The third variable is taxes -- we could always reduce sales/income taxes, and replace them with economically efficient taxes like the land value tax.
  - jmyeet 4y ago
    > The third variable is taxes One of the charts in the submission shows that effective corporate tax rate continues to drop (from ~30% to ~15% over the last 2 decades). How much lower do you want it to go? Also, if you replace the method of taxation (eg sales/income to land value use as you suggested), that's still a tax, meaning the only way to lower taxes is to... lower taxes. Changing the method of taxation doesn't inherently do that.
hotpotamus 4y ago
One thing I've never understood is how stocks are expected to grow at ~8% annually indefinitely if the economy is expected to grow at ~3%.
- koyanisqatsi 4y ago
  It means other parts of the economy must shrink. Population is no longer increasing which means every percentage of growth in one sector is offset by losses in another. There are only finitely many people and each person can only be in one sector at a time vs the previous regime where population growth meant every sector could grow concurrently by hiring from a growing population. Modern capitalism requires an infinite supply of people to maintain economic growth. The model is entirely busted because it is at odds with physical constraints and dynamics of a finite planet. I personally consider the whole thing a collective delusion because infinite growth on a finite planet is a logical and physical impossibility. Unless everyone decides to live in VR where nothing matters then the economic models must at some point make a connection with reality and at that point it becomes obvious that the capitalist model of infinite growth is untenable unless there is a supply of people growing at a faster rate than whatever economic metrics are used to measure the real economy.
  - twblalock 4y ago
    This is entirely mistaken. Wealth creation is not zero-sum. Per-worker productivity is not static. The carrying capacity of the planet is not static either.
    - koyanisqatsi 4y ago
      Have you personally done any work to increase the planet's carrying capacity? More specifically, what is its current capacity and how is it calculated? Seems like you would know this based on what you have stated.
  - stocknoob 4y ago
    Do you think the economy is zero sum? Go back 50k years, all the current wealth must have been distributed among a mere 50k cavemen. Were they all billionaires? Quality of life must have been amazing for them. When you go into the woods and stack rocks into a house, you created value. What part of the economy shrank?
lob_it 4y ago
A healthy economic system does not need a constant supply of "economic steroids" or a manufactured crisis every few years to sustain. The negative effects of "economic steroids" would indicate that 2022 is just another hangover from a bender. Its easier to call it maff, since they obviously got two "F's" in the subject. https://fiscaldata.treasury.gov/americas-finance-guide/national-deficit/ https://fiscaldata.treasury.gov/americas-finance-guide/natio... The graph of "Federal Deficit Trends Over Time, FY 2001-2022" clearly shows the manufactured housing crisis and covid spending. REITs, foreign buyers and BnB's scooped up the scraps after 2008 and 0% efficacy with new covid variants have become more of a comedy than any rational thinking. The timeline(s) for healthy growth favor 21st century lean approaches, which don't move the graphs as much as "economic steroids". Mixing money with fabricated integers does not seem prudent in 2022. Libor rate much? Day traders and high frequency trading changed the variables of the stock market quite a bit already. Only the underfunded pensions and underfunded retirement accounts are still holding. Growff is just another pun for another day :)
deleted 4y ago
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status200 4y ago
Hopefully this does not come across as whining (as i managed to escape the debt cycle), but this really seems like they're saying "the investment money train is over", which is just another slap in the face to my generation, who were already dealt a pretty crummy hand.
- marginalia_nu 4y ago
  It's hardly uniquely shitty. There's bound to be people lived through the 1906 SF earthquake as a kid, the trenches of WW1 as a young adult (1917), then the Spanish Flu (1918) and then once things started looking up for them, either the 1929 stock market crash and/or the dust bowl came and took it all away again. Of course on the other hand, just because someone has had it worse doesn't make things not bad.
  - adhesive_wombat 4y ago
    And if you survived that, you got slapped with WWII. Which in Europe and Asia could have meant complete destruction all around you. In fact, in Asia, it didn't really improve from there for quite some time.
    - marginalia_nu 4y ago
      Yeah, it's basically 20th century Candide for much of that generation.
  - bradleyjg 4y ago
    How about being born in 1890 in China? If you lived until 80 you’d have gone through: the first Sino-Japanese war, the Boxer Rebellion, the 1911 Revolution, the Warlord Era, the Northern Expedition and Chinese Civil War, the Second Sino-Japanese War, the second part of the Chinese Civil War, the Communist Purges, the Great Leap Forward, and the beginning of the Cultural Revolution.
- tupac_speedrap 4y ago
  You aren't really whining, governments 20 years ago were worrying about "boom and bust" cycles but it feels like we only get "bust and bust" cycles at the moment.
paulpauper 4y ago
"The coming long-run slowdown in corporate profit growth and stock returns" And yet the S&P and DJIA posted one of the biggest weeks ever last week. Huge companies like McDonald's and Microsoft making record profits to no end, and I see no reason for this to change. This means more $ for shareholders even if interest rates rise. Stock did well in the 1980s and 1990s despite even higher interest rates than today. Not that his report is wrong, but experts , such as in 2009 or 1982, have a long history of making such predictions and being wrong. Being invested tends to pay off based on history.
- gchokov 4y ago
  No idea why you get downvoted. I agree 100%, even the FED experts get it wrong more often than not.
- wardedVibe 4y ago
  In the very long run, the growth rate of any subcomponent (publicly traded companies) of the economy must be smaller than the growth rate of the entire economy (GDP, which is ~3% in developed economies). It's not a question of if, but when.
  - eloff 4y ago
    That's not true though. Some companies will grow faster than others. Also companies expand into foreign markets that are growing faster. Plus that really long term is probably long after everyone commenting here is dead.
- peterth3 4y ago
  It could be a bear market rally, which would not be too unusual [0]. Jamie Dimon (JPMorgan) says the market could drop another 20% before we hit bottom [1]. Then there’s OPEC threatening to cut supply. So, there’s certainly a chance of more pain to come in the stock market, but it’s impossible to predict a bottom. I do agree with your overall sentiment though. After this economic storm passes there will likely be good times ahead for the US. There are lots of great companies selling at a discount right now and there will be more in the near future. It’s a great time for long-term investors to buy. (Apple is looking great!) With that being said, this may represent a permanent change in the tech industry. Especially for startups and private, VC-backed companies. Last year we saw private SaaS companies raise at 100x ARR. Those multiples have dropped back down to 8-10x and may never reach similar heights again. This could even be the end of the Unicorn era. We’ve had near 0% interest rates since 2008. This was the primary driver of high tech valuations and the proliferation of Unicorns. Now with rates closer to normal, profitability will be expected sooner from tech companies and startups. In fact, Bessemer is trying to retire the term “Unicorn,” which is valuation-based, and replace it with “Centaur,” which is ARR-based (ARR>=$100M) [2]. It hasn’t caught on yet, but I’m a fan of the punnier spelling (CentARR). [0] https://www.marketwatch.com/story/heres-how-big-of-a-bear-market-rally-in-stocks-you-can-expect-according-to-nine-decades-of-history-2020-04-01 https://www.marketwatch.com/story/heres-how-big-of-a-bear-ma... [1] https://www.barrons.com/articles/jp-morgan-jamie-dimon-51665508681 https://www.barrons.com/articles/jp-morgan-jamie-dimon-51665... [2] https://www.bvp.com/centaur https://www.bvp.com/centaur
darawk 4y ago
I have a belief that interest rates will be structurally higher for the entire world over the next decade, higher than the market currently expects. World population is declining in the countries that generate most current GDP, and are likely to in the future. China, in particular. Trade is fracturing, world trade isn't going to end, but it's going to compartmentalize, and that's going to make it less efficient at the margin. Energy is going to get more expensive as we address climate change, making everything else more expensive along with it. All of these things cause structural inflation, and thereby necessitate structurally higher interest rates. Not to mention the fact that at the very least, the tailwind of globalization is over, which means that the ultra low rate regime we have enjoyed over the past few decades absolutely cannot be sustained. Inflation is back as a problem for the fed unless and until we got another sustained source of cheap growth. There is one, and only one plausible such source imo, and that is powerful AI labor substitution. Hence the solution: Go long high interest rates, and make a levered long term bet on AI. These two things hedge each other. You don't have to believe AI labor substitution is going to happen (I'm not totally confident it will), all you have to believe is that it's our only out for structurally higher interest rates. A portfolio constructed to benefit in the right proportions from these two things is currently cheaper than it ought to be, in my opinion. I expect this bet to play out roughly over the next 10-15 years, and I am still not decided on exactly how I want to construct it in terms of specific assets. But broadly I think it's the right move. EDIT: Totally separately, i'd like to quibble slightly with this bit of analysis: > This suggests that, if interest and tax expenses had not declined as a share of EBIT (as shown in Figure 1), then the real growth rate of corporate profits would have been almost 2 percentage points lower each year (5.4 – 3.6 = 1.8 percentage points). In other words, the relative decline in interest and tax expenses is responsible for a full one-third of all profit growth for S&P 500 nonfinancial firms over the past two decades (1.8 / 5.4 = 1/3). This is a very substantial contribution This isn't quite accurate. Cheap debt decreases the hurdle rate for capital investment. In other words, if rates weren't so low, much of this debt wouldn't have been taken out, and only the higher returning projects on average would have been invested in. Stated another way, as interest rates decline, the profitability of the marginal debt-financed investment declines along with it. It can also lead to anti-productive debt-financed market share wars between companies, etc (think of the vc battles between uber and lyft). This complicates the picture they're painting a bit, and likely reduces the true number here somewhat, but doesn't alter the broader story.
parf02 4y ago
How would broad index funds with some bond exposure protect against this?
- mellavora 4y ago
  based on performance results this year, about as well as a set of steak-based armor would protect a person from a pack of wolves.
nightski 4y ago
I'm surprised, coming from the Fed, this article seems to completely ignore the effects of 8%+ inflation.
- wardedVibe 4y ago
  All of these are denoted in real terms, so yeah, you can just ignore inflation.
  - nightski 4y ago
    Real terms only work in the past. These are future predictions about interest rates staying high. They would need to be making estimates about future inflation then and if history is any indication the fed always gets it wrong. Remember, inflation has been extremely low during the period of low interest rates as well which they are referring to. If inflation stays high, even with high interest rates, that will make a big difference.
mmaunder 4y ago
Excellent article that paints a grim picture in an understated way. To put it differently: We've seen a huge run-up in the stock market thanks to cheap domestic and cheap foreign labor, globalization, historically low interest rates and historically low corporate taxes. Interest rates are rising massively and globally to combat inflation. Labor prices are increasing, globally. There is a global decoupling thanks to the Russia/Ukraine situation and the China/Taiwan tension. This is bringing the era of globalization to its end. Corporate US taxes have been as low as they'll get for a long time due to the TCJA and will most likely only go up from current rates. Given all these factors combined, it's unlikely that price/earnings will hold at the current high ratio i.e. stock prices have a long way to fall still. This article was published almost two months ago, but I believe it will be relevant for the next several years. We're in for a long slow decline and then a plateau. The era of cheap labor, free money, low taxes and open global markets has come to an end.
- Robotbeat 4y ago
  I hope the current era ends. Ukraine/Russia and China/Taiwan is resolved (relatively) peacefully in a way that maintains the norm of wars-of-conquest-don’t-work. And we get a resurgence of immigration and trade. I am heartened that a big cause of inflation, housing prices in the US (particularly California) may be addressed by recent reforms. We need to be automating way more. We’re behind.
  - zbrozek 4y ago
    California is broadening its housing crisis to the rest of the United States via remote working NIMBYs. It's a national problem now and it deserves a federal response. A century of property rights erosion has made it extremely difficult to erect the wide variety and large quantity of residential structures needed to serve demand. Congress needs to legislate away the Euclid v. Ambler decision pronto.
    - sdenton4 4y ago
      Ffs, if housing demand increases by epsilon due to a handful of relocating SF people, your housing market has bigger problems to begin with... 55k people left SF during the pandemic, 20% of whom stayed in the Bay Area, with many more moving as far away as Sacramento. New York was the largest destination outside California, with 1.7% of SF evacuees landing there. https://therealdeal.com/sanfrancisco/2022/09/22/where-do-people-go-when-they-leave-sf-not-far/ https://therealdeal.com/sanfrancisco/2022/09/22/where-do-peo...
dzink 4y ago
The stock market has many stocks. Many will crumple and suffer from higher interest rates, less globalization, etc. However people who got used to investing in the market easily are not going to move their money elsewhere for a while if at all. Instead it seems like many are pulling money out of index and small cap and moving them into a handful of monopoly stocks, thus concentrating the gains and potentially creating FOMO. Some stocks do well even in down markets and with high interest rates on real estate, they seem an easy target.
- deleted 4y ago
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gazarullz 4y ago
Based on some comments in this post and the posted article, it seems we are assisting to a power shift, I wonder who will replace the US and how long will it take.
- etempleton 4y ago
  Most money would have been on China, but the PRC has decided to sabotage itself.
refurb 4y ago
One thing to keep in mind is that post-tech crash in 2001, there was consensus (among many investment firms) that the future growth of the US economy going out decades would be lower than the 90’s, think a drop from 6-7% annual returns to 3-4%. That turned out to be be wrong.

174 points by Bostonian 4y ago

> "I argue that the boost to corporate profits from lower interest and tax expenses is unlikely to continue, indicating notably lower profit growth, and thus stock returns, in the future." Given the author's CV this argument feels at least 10 years too late. https://www.federalreserve.gov/econres/michael-smolyansky.htm https://www.federalreserve.gov/econres/michael-smolyansky.ht... That is, aren't the organizations (e.g., The Fed) accountable for considering the impact of their decisions, as well as the broader context? That is, aren't they responsible for anticipating? This sounds like too little too late. More CYA than sincere insights. And while from early Sept, appropriately timed for early November impact.

chrisgd 4y ago
I don’t understand your argument. A guy who got his PhD 7 years after the GFC should have foreseen the impact of low interest rates. He is making a very rational argument that interest rates are rising and the share of corporate profits available for stockholders will be lower.
- mellavora 4y ago
  I think you are right to criticize chiefalchemist, the comment is more snark than substance. The argument, as far as I understand it, is that if the Fed knew/believed in the arguments in the linked article, they would or should have acted differently over the last 10 years. The argument falls apart because no reason is given for the Fed acting differently. The Fed does not have a mandate to maintain corporate profitability nor does it set tax rates. They are surely aware that their actions have impacts on corporations, and they surely do consider this, but their mandate is clear: The Federal Reserve Act mandates that the Federal Reserve conduct monetary policy "so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates." https://www.federalreserve.gov/monetarypolicy/monetary-policy-what-are-its-goals-how-does-it-work.htm https://www.federalreserve.gov/monetarypolicy/monetary-polic...
  - chiefalchemist 4y ago
    What the mandate is and what is actually happening are not synonymous. Congress is also supposed to oversee The Fed and how often does that happen? Referencing theory is fine. But not as a substitute for reality. It's important we see and discuss reality.
  - chiefalchemist 4y ago
    The Fed has A LOT of power and influence both in the direct impact of its actions, as well as the leadership and "culture" it establishes among its group-think peers. You're naive to think otherwise. Why are you making excuses for them? Instead of holding them to the higher standard they claim to be.?
  - skippyboxedhero 4y ago
    All of the things mentioned in the article impact the Fed's mandate. It is like saying that the GFC didn't impact the Fed's mandate...but, ofc, we know it did because they cut rates to zero and gave hundreds of billions out. Funny how that works: the Fed has no responsibility when stock prices go up, but when they go down...immediate action. And 2008 happened, in part, because of the cut to 1% in 03-04 (no-one understand this today, synthetic CDO issuance pre that cut cycle was non-existent and suddenly went to tens of billions overnight because there was insufficient AAA securities with yields that could fund liabilities). We are just going through the same stuff over and over. These things have very real economic effects, they lead to massive volatility in employment, instability in prices, and have led to financial distortions that undermine basic aspects of how an economy functions (interest rates/the price of money no longer means anything outside of what the govt says it does, the result has been the most epic misallocation of capital in the history of the US economy).
- chiefalchemist 4y ago
  He's not making an argument. He's stating the obvious. With zero sense of shame and humility. Right? So to what end? FFS, this isn't a random fluff piece on Medium. It's from the most power financial organization in the world. And we're supposed to get just nod and get behind this? I'm not speaking to the individual per. He's simply another (over-educated) representative of a mindset that creates more problems than it solves. The Fed coming out in Sept of 2022 and proposing the "argument" is comical at best. Apparently, not a single history course is requited to get those flashy degrees, nor is staying up on current events. Instead, they toss this out as something insightful and profound in a "oh we didn't see this coming sorta way"? Only the naive would buy this. The bottom line: The Fed is making decisions without a sense for the broader context and/or broader impact is negligent and irresponsible. This is too little too late.
  - chrisgd 4y ago
    We don’t know that. The Fed has been saying since 2021 they were going to raise rates. Thousands of people who get paid billions of dollars mostly missed it. Powell is either going to go down in history as someone who successfully transitioned to more normal rates or he wrecked the economy. This article isn’t the commentary of the FRB
    - chiefalchemist 4y ago
      > Thousands of people who get paid billions of dollars mostly missed it. Did they? In the 2007 sense? Where are the suicides? Where are any similar indicators? Anyone who didn't recognize the signals and the pressures being created is then highly overpaid. But being overpaid seems to be what happens when you happen to be in the right place at the right time. Regardless of what we don't know. We do know the income inequality gap keeps increasing. We do know more wealth is being concentrated in fewer hands. Well, we know this. Apparently the Fed likes to pretend otherwise. Where is the data that says thousands missed it? Sure it might not be the super easy money model the Fed shamelessly provided. But I don't see anyone leaving Wall Street, etc. cause the compensation and opportunity sucks.
boppo1 4y ago
> aren't the organizations (e.g., The Fed) accountable for considering the impact of their decisions They are not. Interest rate interventionism is bankrupt policy.

mellavora 4y ago

There is also an interesting relationship between government surplus/balance sheet and corporate profits. If you are non-cynical about it, and consider a theoretical model (closed system), then from basic economics if one actor is running a surplus than another actor must be running a deficit, otherwise the accounts don't balance. And while true, "it's only a model" (in the immortal words of John Cleese, looking at the model of Camelot in "MP and the Holy Grail"), if you chart the two against each other it holds up relatively well in reality. This is relevant because the Fed is also committed to shrinking its balance sheet, which, if that model holds, will also shrink corporate profits. Higher cost of capital, higher taxes, and less money in the pot. We've had a good run the last 40 years, the next 7 might not be so rosey.

hgomersall 4y ago
It's not really a model, it's accounting. The reason it holds up well is because it's an identity. If you represent all the flows they must sum to zero by definition. Those that ignore that (most people) miss some fundamental truths, which you allude to. No idea why you should be voted down other than to think those truths break much cherished dogma.
- mellavora 4y ago
  well, downvotes for challenging dogma with mathematical identities is a long-standing tradition. I'll take them with pride on this issue. But thanks for the support, and for pointing out that I'm only stating identities, and that sometimes trends reverse.
pessimizer 4y ago
> We've had a good run the last 40 years, the next 7 might not be so rosey. The "good run" also relied on that identity. The national income accounting identity tells us that if we run massive trade deficits for 40 years, we get a massive trade debt that has to be borrowed in foreign currencies. It can be either borrowed by the government, or individuals/businesses. The government can't cut national debt without reducing (or better, reversing) the trade deficit, so what it's actually doing is shifting that borrowing to the private sector. So ultimately reduction of government spending amounts to selling the private sector to pay off government debt, which imo is not good. We shift from owing other countries paper that we have an infinite supply of, to owing them actual parts of the economy. We need to be shifting spending from all of the direct subsidy to the wealthy of course, but we shouldn't be reducing anything. Turns out that giving money to rich people isn't a good investment because they steer most of it to financial scams and rent-seeking ploys. The government needs to spend in a way that targets lowering the trade deficit, and that means investing in things with a return. Part of that should be trying to shift the debts of normal individuals to government, where they can be more strategically invested in a way that will reduce imports or increase exports. The debts of normal individuals are mostly wrapped up in housing, healthcare, and education. So we should be subsidizing those rather than the stock market.

photochemsyn 4y ago

Takes a bit of reading before the primary issue gets mentioned: > "Some of the improvement in profit margins may have come from sourcing cheaper inputs from abroad, enabled by increased globalization. Moreover, for output produced within the U.S., growth in labor productivity—i.e., real output per hour worked—exceeded real wage growth since the mid-2000s. This means that, for a given cost of labor, firms were able to produce more output, which would also likely have contributed to the improvement in profit margins." I's rewrite the introductory sentence for this article as follows: "Over the past two [four] decades, the corporate profits of stock market listed firms have been substantially boosted by ~~declining interest rate expenses~~ [outsourcing manufacturing abroad to sweatshop zones] and ~~lower corporate tax rates~~ [importation of cheap and often undocumented labor from poor countries]." That's the essence of what its dectractors (including myself) call the neoliberal economic model.

theironhammer 4y ago
Excellent analysis! I would add investment in low risk high returns ventures like software as opposed to high risk lower returns ventures like brick and mortar factories.
- astrange 4y ago
  Calling things neoliberal isn’t an incisive economic analysis, it’s a way to get upvotes from people in SF who claim to be Marxists and whose parents are rich landlords. Many of the “neoliberal” things that supposedly happened did not actually happen. https://noahpinion.substack.com/p/was-there-really-a-neoliberal-turn https://noahpinion.substack.com/p/was-there-really-a-neolibe...
  - VictorPath 4y ago
    Speaking of Karl Marx, he made the exact same prediction as this paper does, only he did it a century and a half ago ( https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit_to_fall https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit... )
4y ago

NotYourLawyer 4y ago

What else is there to buy though, real estate?

__MatrixMan__ 4y ago
Do you not look around at the world and see problems in need of fixing? Spend your money on fixing them because then you get to live in a world with fewer problems (it's called investing).
- hammock 4y ago
  What do you see? I believe that's what he was asking. You merely threw his same question back
  - __MatrixMan__ 4y ago
    I don't see problems that can be fixed by buying something. Or rather, by buying abstractions in hopes of being able to sell them for more more later on (i.e. gambling). Personally, I think that the declining state of privacy is increasingly incompatible with democracy. I want to live in a democracy when I'm old, so I'm saving up to take a few years "off" and work on some ideas that I have which I think will help. So I suppose I will be buying things along the way. Food. Healthcare. Energy. Internet access. But I'll be doing it because I want to live in the world that I'll be creating (i.e. I'm investing time in creating that world). Not because I think I'll end up with more money when it's all said and done. So maybe I'm putting words in ferdowski's mouth here but I really think that by "buy" they meant "allocate my money under the expectation that it will grow without me having to do any extra useful work along the way".
- fullshark 4y ago
  I see a real big problem that needs fixing: How do I save enough to retire and make sure I don't have to work until I die? That problem kind of dominates all other problems for me.
  - 4y ago

deeptote 4y ago

"Companies have been pumping and dumping for years, buoyed by cheap labor, and have not been intelligent enough to invest long term. And now, they're sad." FTFY

WastingMyTime89 4y ago
But it goes beyond companies. Rich countries have had very myopic development strategies for the past thirty to forty years. I could blame incompetence but I think it’s mostly because it allowed some happy few to make good money and they don’t really care about the citizenry at large. My own country in Europe decided they were going to bet everything on high-end services and R&D while outsourcing all production. Apparently it wasn’t obvious to them that when you don’t produce you lose the culture and knowledge base necessary to do good R&D and that the countries they were outsourcing to would develop and stop relying on us.
- lordnacho 4y ago
  This is because we've decided short term local optimization is somehow optimal. Just let every business maximize profits and everything will be good. Mention externalities and people will deny they exist, or try to tell you they're already accounted for.
  - mellavora 4y ago
    > Just let every business maximize profits and everything will be good Not quite right. You should have said maximize short-term profits. As an example from forestry. If you manage sustainably, such that cutting resembles natural loss, your forest produces high-quality wood for centuries and also provides revenue from i.e. lodges, salmon, and carbon offsets. So profit from that land over 100 years is X Or you clear-cut it, and realized 1/10th of X in 5 years. And make the land very low value for the remaining 95. The issue is short-term local optimization, as you claim.
    - lordnacho 4y ago

jmyeet 4y ago

Consider this: > The difference between EBIT growth and sales growth (3.6 percent vs. 2.0 percent) can be attributed to an improvement in profit margins. In other words, costs grew at a slower rate than sales. Some of the improvement in profit margins may have come from sourcing cheaper inputs from abroad, enabled by increased globalization. Moreover, for output produced within the U.S., growth in labor productivity—i.e., real output per hour worked—exceeded real wage growth since the mid-2000s.9 This means that, for a given cost of labor, firms were able to produce more output, which would also likely have contributed to the improvement in profit margins. Stagnation in real wages goes well beyond the mid-2000s. It starts in the late 1970s [1]. Another way to put the author's thesis is that interest rate costs have gone about as low as they can. Another part is by depressing real wages. The only way for profit growth to continue on this model is to further depress real wages. Exponential growth cannot continue forever. Consider the metric of net profit per employee [2]. Why is it the employees cannot share in the success of the enterprise that simply cannot exist without them? We saw this again recently with the averted rail workers strike. Rail companies were freaking out at giving 125,000 "essential" rail workers paid sick leave, the cost of which would've been 3-3.5% of profits. [1]: https://www.epi.org/publication/charting-wage-stagnation/ https://www.epi.org/publication/charting-wage-stagnation/ [2]: https://tipalti.com/profit-per-employee/ https://tipalti.com/profit-per-employee/

sooheon 4y ago
Great links. > interest rate costs have gone about as low as they can. Another part is by depressing real wages. The only way for profit growth to continue on this model is to further depress real wages. The third variable is taxes -- we could always reduce sales/income taxes, and replace them with economically efficient taxes like the land value tax.
- jmyeet 4y ago
  > The third variable is taxes One of the charts in the submission shows that effective corporate tax rate continues to drop (from ~30% to ~15% over the last 2 decades). How much lower do you want it to go? Also, if you replace the method of taxation (eg sales/income to land value use as you suggested), that's still a tax, meaning the only way to lower taxes is to... lower taxes. Changing the method of taxation doesn't inherently do that.

hotpotamus 4y ago

One thing I've never understood is how stocks are expected to grow at ~8% annually indefinitely if the economy is expected to grow at ~3%.

koyanisqatsi 4y ago
It means other parts of the economy must shrink. Population is no longer increasing which means every percentage of growth in one sector is offset by losses in another. There are only finitely many people and each person can only be in one sector at a time vs the previous regime where population growth meant every sector could grow concurrently by hiring from a growing population. Modern capitalism requires an infinite supply of people to maintain economic growth. The model is entirely busted because it is at odds with physical constraints and dynamics of a finite planet. I personally consider the whole thing a collective delusion because infinite growth on a finite planet is a logical and physical impossibility. Unless everyone decides to live in VR where nothing matters then the economic models must at some point make a connection with reality and at that point it becomes obvious that the capitalist model of infinite growth is untenable unless there is a supply of people growing at a faster rate than whatever economic metrics are used to measure the real economy.
- twblalock 4y ago
  This is entirely mistaken. Wealth creation is not zero-sum. Per-worker productivity is not static. The carrying capacity of the planet is not static either.
  - koyanisqatsi 4y ago
    Have you personally done any work to increase the planet's carrying capacity? More specifically, what is its current capacity and how is it calculated? Seems like you would know this based on what you have stated.
- stocknoob 4y ago
  Do you think the economy is zero sum? Go back 50k years, all the current wealth must have been distributed among a mere 50k cavemen. Were they all billionaires? Quality of life must have been amazing for them. When you go into the woods and stack rocks into a house, you created value. What part of the economy shrank?

lob_it 4y ago

A healthy economic system does not need a constant supply of "economic steroids" or a manufactured crisis every few years to sustain. The negative effects of "economic steroids" would indicate that 2022 is just another hangover from a bender. Its easier to call it maff, since they obviously got two "F's" in the subject. https://fiscaldata.treasury.gov/americas-finance-guide/national-deficit/ https://fiscaldata.treasury.gov/americas-finance-guide/natio... The graph of "Federal Deficit Trends Over Time, FY 2001-2022" clearly shows the manufactured housing crisis and covid spending. REITs, foreign buyers and BnB's scooped up the scraps after 2008 and 0% efficacy with new covid variants have become more of a comedy than any rational thinking. The timeline(s) for healthy growth favor 21st century lean approaches, which don't move the graphs as much as "economic steroids". Mixing money with fabricated integers does not seem prudent in 2022. Libor rate much? Day traders and high frequency trading changed the variables of the stock market quite a bit already. Only the underfunded pensions and underfunded retirement accounts are still holding. Growff is just another pun for another day :)

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status200 4y ago

Hopefully this does not come across as whining (as i managed to escape the debt cycle), but this really seems like they're saying "the investment money train is over", which is just another slap in the face to my generation, who were already dealt a pretty crummy hand.

marginalia_nu 4y ago
It's hardly uniquely shitty. There's bound to be people lived through the 1906 SF earthquake as a kid, the trenches of WW1 as a young adult (1917), then the Spanish Flu (1918) and then once things started looking up for them, either the 1929 stock market crash and/or the dust bowl came and took it all away again. Of course on the other hand, just because someone has had it worse doesn't make things not bad.
- adhesive_wombat 4y ago
  And if you survived that, you got slapped with WWII. Which in Europe and Asia could have meant complete destruction all around you. In fact, in Asia, it didn't really improve from there for quite some time.
  - marginalia_nu 4y ago
    Yeah, it's basically 20th century Candide for much of that generation.
- bradleyjg 4y ago
  How about being born in 1890 in China? If you lived until 80 you’d have gone through: the first Sino-Japanese war, the Boxer Rebellion, the 1911 Revolution, the Warlord Era, the Northern Expedition and Chinese Civil War, the Second Sino-Japanese War, the second part of the Chinese Civil War, the Communist Purges, the Great Leap Forward, and the beginning of the Cultural Revolution.
tupac_speedrap 4y ago
You aren't really whining, governments 20 years ago were worrying about "boom and bust" cycles but it feels like we only get "bust and bust" cycles at the moment.

paulpauper 4y ago

"The coming long-run slowdown in corporate profit growth and stock returns" And yet the S&P and DJIA posted one of the biggest weeks ever last week. Huge companies like McDonald's and Microsoft making record profits to no end, and I see no reason for this to change. This means more $ for shareholders even if interest rates rise. Stock did well in the 1980s and 1990s despite even higher interest rates than today. Not that his report is wrong, but experts , such as in 2009 or 1982, have a long history of making such predictions and being wrong. Being invested tends to pay off based on history.

gchokov 4y ago
No idea why you get downvoted. I agree 100%, even the FED experts get it wrong more often than not.
wardedVibe 4y ago
In the very long run, the growth rate of any subcomponent (publicly traded companies) of the economy must be smaller than the growth rate of the entire economy (GDP, which is ~3% in developed economies). It's not a question of if, but when.
- eloff 4y ago
  That's not true though. Some companies will grow faster than others. Also companies expand into foreign markets that are growing faster. Plus that really long term is probably long after everyone commenting here is dead.
peterth3 4y ago
It could be a bear market rally, which would not be too unusual [0]. Jamie Dimon (JPMorgan) says the market could drop another 20% before we hit bottom [1]. Then there’s OPEC threatening to cut supply. So, there’s certainly a chance of more pain to come in the stock market, but it’s impossible to predict a bottom. I do agree with your overall sentiment though. After this economic storm passes there will likely be good times ahead for the US. There are lots of great companies selling at a discount right now and there will be more in the near future. It’s a great time for long-term investors to buy. (Apple is looking great!) With that being said, this may represent a permanent change in the tech industry. Especially for startups and private, VC-backed companies. Last year we saw private SaaS companies raise at 100x ARR. Those multiples have dropped back down to 8-10x and may never reach similar heights again. This could even be the end of the Unicorn era. We’ve had near 0% interest rates since 2008. This was the primary driver of high tech valuations and the proliferation of Unicorns. Now with rates closer to normal, profitability will be expected sooner from tech companies and startups. In fact, Bessemer is trying to retire the term “Unicorn,” which is valuation-based, and replace it with “Centaur,” which is ARR-based (ARR>=$100M) [2]. It hasn’t caught on yet, but I’m a fan of the punnier spelling (CentARR). [0] https://www.marketwatch.com/story/heres-how-big-of-a-bear-market-rally-in-stocks-you-can-expect-according-to-nine-decades-of-history-2020-04-01 https://www.marketwatch.com/story/heres-how-big-of-a-bear-ma... [1] https://www.barrons.com/articles/jp-morgan-jamie-dimon-51665508681 https://www.barrons.com/articles/jp-morgan-jamie-dimon-51665... [2] https://www.bvp.com/centaur https://www.bvp.com/centaur

darawk 4y ago

I have a belief that interest rates will be structurally higher for the entire world over the next decade, higher than the market currently expects. World population is declining in the countries that generate most current GDP, and are likely to in the future. China, in particular. Trade is fracturing, world trade isn't going to end, but it's going to compartmentalize, and that's going to make it less efficient at the margin. Energy is going to get more expensive as we address climate change, making everything else more expensive along with it. All of these things cause structural inflation, and thereby necessitate structurally higher interest rates. Not to mention the fact that at the very least, the tailwind of globalization is over, which means that the ultra low rate regime we have enjoyed over the past few decades absolutely cannot be sustained. Inflation is back as a problem for the fed unless and until we got another sustained source of cheap growth. There is one, and only one plausible such source imo, and that is powerful AI labor substitution. Hence the solution: Go long high interest rates, and make a levered long term bet on AI. These two things hedge each other. You don't have to believe AI labor substitution is going to happen (I'm not totally confident it will), all you have to believe is that it's our only out for structurally higher interest rates. A portfolio constructed to benefit in the right proportions from these two things is currently cheaper than it ought to be, in my opinion. I expect this bet to play out roughly over the next 10-15 years, and I am still not decided on exactly how I want to construct it in terms of specific assets. But broadly I think it's the right move. EDIT: Totally separately, i'd like to quibble slightly with this bit of analysis: > This suggests that, if interest and tax expenses had not declined as a share of EBIT (as shown in Figure 1), then the real growth rate of corporate profits would have been almost 2 percentage points lower each year (5.4 – 3.6 = 1.8 percentage points). In other words, the relative decline in interest and tax expenses is responsible for a full one-third of all profit growth for S&P 500 nonfinancial firms over the past two decades (1.8 / 5.4 = 1/3). This is a very substantial contribution This isn't quite accurate. Cheap debt decreases the hurdle rate for capital investment. In other words, if rates weren't so low, much of this debt wouldn't have been taken out, and only the higher returning projects on average would have been invested in. Stated another way, as interest rates decline, the profitability of the marginal debt-financed investment declines along with it. It can also lead to anti-productive debt-financed market share wars between companies, etc (think of the vc battles between uber and lyft). This complicates the picture they're painting a bit, and likely reduces the true number here somewhat, but doesn't alter the broader story.

parf02 4y ago

How would broad index funds with some bond exposure protect against this?

mellavora 4y ago
based on performance results this year, about as well as a set of steak-based armor would protect a person from a pack of wolves.

nightski 4y ago

I'm surprised, coming from the Fed, this article seems to completely ignore the effects of 8%+ inflation.

wardedVibe 4y ago
All of these are denoted in real terms, so yeah, you can just ignore inflation.
- nightski 4y ago
  Real terms only work in the past. These are future predictions about interest rates staying high. They would need to be making estimates about future inflation then and if history is any indication the fed always gets it wrong. Remember, inflation has been extremely low during the period of low interest rates as well which they are referring to. If inflation stays high, even with high interest rates, that will make a big difference.

mmaunder 4y ago

Excellent article that paints a grim picture in an understated way. To put it differently: We've seen a huge run-up in the stock market thanks to cheap domestic and cheap foreign labor, globalization, historically low interest rates and historically low corporate taxes. Interest rates are rising massively and globally to combat inflation. Labor prices are increasing, globally. There is a global decoupling thanks to the Russia/Ukraine situation and the China/Taiwan tension. This is bringing the era of globalization to its end. Corporate US taxes have been as low as they'll get for a long time due to the TCJA and will most likely only go up from current rates. Given all these factors combined, it's unlikely that price/earnings will hold at the current high ratio i.e. stock prices have a long way to fall still. This article was published almost two months ago, but I believe it will be relevant for the next several years. We're in for a long slow decline and then a plateau. The era of cheap labor, free money, low taxes and open global markets has come to an end.

Robotbeat 4y ago
I hope the current era ends. Ukraine/Russia and China/Taiwan is resolved (relatively) peacefully in a way that maintains the norm of wars-of-conquest-don’t-work. And we get a resurgence of immigration and trade. I am heartened that a big cause of inflation, housing prices in the US (particularly California) may be addressed by recent reforms. We need to be automating way more. We’re behind.
- zbrozek 4y ago
  California is broadening its housing crisis to the rest of the United States via remote working NIMBYs. It's a national problem now and it deserves a federal response. A century of property rights erosion has made it extremely difficult to erect the wide variety and large quantity of residential structures needed to serve demand. Congress needs to legislate away the Euclid v. Ambler decision pronto.
  - sdenton4 4y ago
    Ffs, if housing demand increases by epsilon due to a handful of relocating SF people, your housing market has bigger problems to begin with... 55k people left SF during the pandemic, 20% of whom stayed in the Bay Area, with many more moving as far away as Sacramento. New York was the largest destination outside California, with 1.7% of SF evacuees landing there. https://therealdeal.com/sanfrancisco/2022/09/22/where-do-people-go-when-they-leave-sf-not-far/ https://therealdeal.com/sanfrancisco/2022/09/22/where-do-peo...

dzink 4y ago

The stock market has many stocks. Many will crumple and suffer from higher interest rates, less globalization, etc. However people who got used to investing in the market easily are not going to move their money elsewhere for a while if at all. Instead it seems like many are pulling money out of index and small cap and moving them into a handful of monopoly stocks, thus concentrating the gains and potentially creating FOMO. Some stocks do well even in down markets and with high interest rates on real estate, they seem an easy target.

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gazarullz 4y ago

Based on some comments in this post and the posted article, it seems we are assisting to a power shift, I wonder who will replace the US and how long will it take.

etempleton 4y ago
Most money would have been on China, but the PRC has decided to sabotage itself.

refurb 4y ago

One thing to keep in mind is that post-tech crash in 2001, there was consensus (among many investment firms) that the future growth of the US economy going out decades would be lower than the 90’s, think a drop from 6-7% annual returns to 3-4%. That turned out to be be wrong.