The Economist on the impact of lower interest rates and corporate tax rates on corporate profits (1989-2019)

If the boom has a home, it is America.  A hundred dollars invested in the S&P 500 on January 1st 2010 is now worth $600 (or $430 at 2010's prices).  However you measure them, American returns have outclassed those elsewhere.  Almost 60% of Americans now report owning stocks, the most since reliable data began to be collected in the late 1980s.

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Yet much of this strong performance is, in a sense, a mirage.  Politicians have reduced the tax burden facing corporations.  From 1989 to 2019 the effective corporation-tax rate on American firms dropped by three-fifths.  Since corporations were giving less money to the state, corporate profits rose, leaving them with more money to pass over to shareholders.  Meanwhile, over the same period borrowing became cheaper.  From 1989 until 2019 the average interest rate facing American corporations fell by two-thirds...  We find that in America the difference in profit growth between the 1962-1989 period and the 1989-2019 period is entirely due to the decline in interest rates and corporate-tax rates.

~ "Problems on the horizon: Stockmarkets are booming. But the good times are unlikely to last," The Economist, March 2, 2024

Jordan Peterson on the dangers of infringing on corporate speech

These corporations who should know far better, let these fifth columns into their organizations.  They think they're not going to pay for that.  They think they're going to stop with demands for the reconstruction of language - not like the demands for reconstruction of language by the way are trivial.  There may be the most important thing you can possibly demand.  "I want to reshape the way you speak.  I want to reshape the way you think."  It's like, "that's ok, as long as it doesn't interfere with the bottom line."  It'll interfere with the bottom line.  You let that fifth column in, it's a warning to corporate people.  You let that fifth column in, man, you're going to regret it. 

Jordan Peterson, "History Describes You!," (9:56-10:30), YouTube, April 9, 2018

Kevin Duffy on the impact of a decade of ZIRP on corporate America

A decade of zero interest rate policy has not only turned all traffic lights green, but many income statements red. Profitability and growth have become mutually exclusive terms. Apple sports a 25% operating margin, but revenues are declining as it surrenders market share in a saturated and competitive smartphone market. Meanwhile, newly public companies like Uber and Slack Technologies are growing revenues north of 40% while losses are counted in the billions.

~ Kevin Duffy, "Remembering a Year to Forget," The Market, July 8, 2019

Frank Veneroso on bubble in focusing on operating profits

The market looks only at the operating profits fiction. Last April in preparing a power point for a Ford Foundation Levy Institute conference I asked an assistant to go to the Bloomberg and get me the data on S&P operating profits and S&P reported GAAP profits. She came back and told me she could only find one series. I berated her and told her to contact the Help Desk. She came back and told me the Help Desk could only find one series. I got on the phone with the Help Desk. She was right; they had no notion of S&P GAAP profits. I sent them the data from the S&P web site. They were perplexed. Eventually all six Bloomberg technicians were on the phone with me saying they would find the GAAP series. Two months later they called me and said Bloomberg does not have on its pages the GAAP series.

The message from this story is not that Bloomberg was somehow deficient. It is that years and years had passed and none of the endless Bloomberg subscribers – basically the whole world of market professionals – ever called and drew this to their attention, as I had.

So, operating profits are a fiction, and literally everyone in today’s financial markets ignore generally accepted accounting principles and live and breathe this fiction.

As long as that is the market’s convention its participants can engage in another absurd and dangerous bubble. But some how, some way, reality will eventually surface – as it always does – and such market foolishness will end badly – as it always does.

~ Frank Veneroso, "More on the Unreality of U.S. Corporate Profits," RCM, January 21, 2014