Are corporate profits anomalously high, and will it last? Or revert?
resjudicata
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@baongoc1990 Name checks out, lmao
baongoc1990
New member
@resjudicata What about what I said do you believe is incorrect?
resjudicata
New member
@baongoc1990 https://insight.factset.com/sp-500-...t-margin-for-6th-straight-quarter?hs_amp=true
Read. Just because profits fell from 15-ish % to 11% doesn’t mean they’re not making money hand over fist. It’s still well above what should be happening, and is at the same rate (11.4%) it was in 2018, when companies recorded record breaking profits.
Read. Just because profits fell from 15-ish % to 11% doesn’t mean they’re not making money hand over fist. It’s still well above what should be happening, and is at the same rate (11.4%) it was in 2018, when companies recorded record breaking profits.
baongoc1990
New member
@resjudicata
So....saying profit margins fell by (actually 16.4% in the S&P500 source: JPM) in 2022, is actually correct then, isnt it?
Thus, you are just a raging asshole who wants everyone to know your beliefs about what corporate profits should be, telling people not to believe the data about what they actually are
So....saying profit margins fell by (actually 16.4% in the S&P500 source: JPM) in 2022, is actually correct then, isnt it?
Thus, you are just a raging asshole who wants everyone to know your beliefs about what corporate profits should be, telling people not to believe the data about what they actually are
resjudicata
New member
@baongoc1990 Fair, thanks for calling out me being biased.
@resjudicata Wow, that is a very levelheaded reply. 
resjudicata
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@resjudicata Nice to see!
alwayshavealwayswill
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@daniellea
Yep, as is the case with changes in technology (feel like something fundamentally changed right around Y2K..../r/hmmm). Tech companies are notoriously capex (and largely opex)-lite, so expanding margins makes total sense.
See above. Greater profit per unit sold generally implies greater real dollar value profit for corporations across the board. Other things equal (in terms of government spending, net imports, etc), it makes mathematical sense that corporate profits would command a greater % of real GDP.
Especially if you're using 2007 as your baseline year to compare against.....
Yep, the formerly high growth tech companies with novel ideas / products that are also cheap to produce, especially with an IP moat or first mover advantage are eventually going to slow down and mature. That generally means that it's time to reward those patient equity holders with some return on their capital in the form of divvy or share repo. Good example of this is when Apple initiated their divvy around 10ish years ago (I think)
Doesn't really have anything to do with low rates (why incur a greater cost of equity with increased buybacks and dividend hikes if baseline debt costs are basically 0%? And even cheaper when you think about tax deductibility of interest payments) or tax cuts (which have only been in effect for the last 4 - 5 years).
Yep, as is the case with changes in technology (feel like something fundamentally changed right around Y2K..../r/hmmm). Tech companies are notoriously capex (and largely opex)-lite, so expanding margins makes total sense.
See above. Greater profit per unit sold generally implies greater real dollar value profit for corporations across the board. Other things equal (in terms of government spending, net imports, etc), it makes mathematical sense that corporate profits would command a greater % of real GDP.
Especially if you're using 2007 as your baseline year to compare against.....
Yep, the formerly high growth tech companies with novel ideas / products that are also cheap to produce, especially with an IP moat or first mover advantage are eventually going to slow down and mature. That generally means that it's time to reward those patient equity holders with some return on their capital in the form of divvy or share repo. Good example of this is when Apple initiated their divvy around 10ish years ago (I think)
Doesn't really have anything to do with low rates (why incur a greater cost of equity with increased buybacks and dividend hikes if baseline debt costs are basically 0%? And even cheaper when you think about tax deductibility of interest payments) or tax cuts (which have only been in effect for the last 4 - 5 years).
@daniellea All those profits begin to sky rocket during the pandemic. People had a bit more disposable income when they were working from home and not in the daily grind. Corpo's took advantage of the situation and raised prices. Record profits, record inflation, clear as day with this graph, thank you.
marktina9767
New member
@sisterm
I don't think you have any understanding of how business works. If a business has higher expenses they have to charge more. Higher expenses include goods and staffing, both of which have increased dramatically. You say higher profits without giving any consideration to a weaker dollar. If I have been earning $1200 to pay rent and now rent costs $1800, I will need to earn $1800. That is "record earnings" and I have never earned so much; yet I still spend it in rent.
"Corpos" didn't take advantage of anything, if they thought you would have paid more in 2019 they would have priced things the same then too. And so would you, if your employer offered you a 20% raise would you say "that's too much, my costs are only 5% higher so lets just do that." Probably not.
I don't think you have any understanding of how business works. If a business has higher expenses they have to charge more. Higher expenses include goods and staffing, both of which have increased dramatically. You say higher profits without giving any consideration to a weaker dollar. If I have been earning $1200 to pay rent and now rent costs $1800, I will need to earn $1800. That is "record earnings" and I have never earned so much; yet I still spend it in rent.
"Corpos" didn't take advantage of anything, if they thought you would have paid more in 2019 they would have priced things the same then too. And so would you, if your employer offered you a 20% raise would you say "that's too much, my costs are only 5% higher so lets just do that." Probably not.
@marktina9767 What about the pandemic caused business' expenses to increase? Those things got more expensive because of inflation, which the person you're replying to is saying is due to predatory price increases.
Also, why do you think increasing prices just because they can doesn't count as "taking advantage"? That seems like the textbook definition to me...
Also, why do you think increasing prices just because they can doesn't count as "taking advantage"? That seems like the textbook definition to me...
marktina9767
New member
@seeker422 I didn't realize this pandemic impact on prices was considered controversial. I'm assuming you truly don't understand so I would recommend a google search.
As far as setting prices, how does any business set prices? And every business owner was faced with the same wage and inflation pressures so for them to still make money they had to keep up. That is why inflation is so problematic and why letting it go unchecked for 18 months was even more disastrous.
As far as setting prices, how does any business set prices? And every business owner was faced with the same wage and inflation pressures so for them to still make money they had to keep up. That is why inflation is so problematic and why letting it go unchecked for 18 months was even more disastrous.
@marktina9767 Sure I can go Google it but you're the one making the claim. You can't give a single example of a business expense that increased due to Covid but prior to our current state of inflation? I remember lumber got pretty expensive, some supply chains got screwed up. But I don't remember price increases across the board until inflation really started to rip
jimditto15
New member
@seeker422
...pretty much every supply chain got screwed up. The company I work for had to find new/more expensive suppliers for a lot of our inputs. Trucking costs increased 3-4x.
Price increases across the board is what caused inflation to rip. But it takes time. First 6 months of the pandemic you're still selling a lot of product based on pre-pandemic inventory and contracts. Then the trucking company you use charges 4x the normal cost so you have to increase price...or maybe you eat some of that margin. Then shipping containers go up 5x in price so all your imported components cost more. Then your annual contract for 2 or 3 components of what you make goes up 25%. All of a sudden you need to increase prices to offset all of that. Then it takes time for your distributor/retail location to sell through what they had at the new price, and then the price finally gets raised.
So it may look like all these increases weren't straight from COVID but instead because of "our current state of inflation". But also a lot of the price increases that have happened over the last 8 months or so are because of things that happened in 2020 and 2021.
...pretty much every supply chain got screwed up. The company I work for had to find new/more expensive suppliers for a lot of our inputs. Trucking costs increased 3-4x.
Price increases across the board is what caused inflation to rip. But it takes time. First 6 months of the pandemic you're still selling a lot of product based on pre-pandemic inventory and contracts. Then the trucking company you use charges 4x the normal cost so you have to increase price...or maybe you eat some of that margin. Then shipping containers go up 5x in price so all your imported components cost more. Then your annual contract for 2 or 3 components of what you make goes up 25%. All of a sudden you need to increase prices to offset all of that. Then it takes time for your distributor/retail location to sell through what they had at the new price, and then the price finally gets raised.
So it may look like all these increases weren't straight from COVID but instead because of "our current state of inflation". But also a lot of the price increases that have happened over the last 8 months or so are because of things that happened in 2020 and 2021.