Friday, December 7, 2007

Corporate Profits

Here are a few updated charts from the most recent Flow of Funds data.

This chart shows the total domestic financial, farm, and non-financial corporation profits (before taxes and adjusted for inflation) divided by the population. As can be seen quite clearly, the busting of the dotcom bubble has ushured in a new era of corporate profitability unprecedented in modern times. It is a wonder we didn't pop it sooner. *basic sarcasm*

Heck, why stop there? Let's pop the housing bubble! The sooner we do it the richer we will all become! It is quite clear that the Fed can inject extra prosperity into the monetary system any time we might require it. Helicopters are standing by. Woohoo! *expanded sarcasm*

As a side note, why are inflation adjusted corporate profits per capita seemingly stagnating and quite possibly in a down trend? That's some conundrum. *premium sarcasm*

Today's "on demand" sarcasm was based on Cable TV pricing. Perhaps that's worth another look.

You Sank My Comcast Battleship!
This year hasn't been as good to Comcast and its cable peers, including Time Warner Cable (NYSE: TWC) and Cablevision (NYSE: CVC). Economic softening has halted the previous brisk customer sign-up pace, while competition from telephone companies Verizon (NYSE: VZ) and AT&T (NYSE: T), along with satellite video providers DirecTV (NYSE: DTV) and EchoStar (Nasdaq: DISH), has intensified.

Forgive me for saying so, but isn't economic softness and intensified competition a rather bad combo for continued fat corporate profits?

This chart shows the total domestic financial, farm, and non-financial corporation profits (before taxes) divided by the total compensation of employees.

How long will it be before we return to the red trend line? Or is this a new permanent era of prosperity? Note that the long-term trend is down. I believe I can offer a simple explanation for that. I would think that in a capitalistic society, competition would eventually squeeze the life out of all profits.

If money can be made, someone will figure out a way to extract it. If a lot of money can be made (like right now it seems), MANY people will find MANY different ways to extract it. You know, just like homebuilders in California once were. Build them fast and sell them even faster!

I excluded the profits made off the "rest of the world" primarily because I'm interested in how our domestic economy is doing. Right now it is doing absolutely fantastic. Just look at all those fat profits ripe for the picking. You'll excuse me if I wait until the bottom falls out first though. I'm no thrill seeker these days.

I've been sitting on some cash awaiting an opportunity, and our recent "productivity miracle" mindset has me liking the look of the 2.13% real yield on the 20-year treasury inflation protected securities. Maybe that IS the opportunity. It just so happens the next auction is in January. Here's hoping Santa Claus can continue to push real rates higher because I'm really starting to like the looks of what he's offering.

This is not investment advice. No crystal balls can be found here. I'm just throwing darts at the board wondering where they might stick.

Source Data:
FRB: Flow of Funds Accounts


Anonymous said...


Awesome charts and insights. That corporate profits chart is looking parabolic. To good to be true or at least to good to be sustainable. Corporate profits tend to bounce above and below the mean, but this is a meteoric rise. Especially when you consider it is based only on domestic profits. Like the internet and housing bubbles, this is likely to test my patience. I just cannot invest in parabolas.

Anonymous said...

By the way, I remember Ross Perot and some others predicting that NAFTA and currency wars would devalue U.S. labor. Ever wonder what the REAL price of cheap imports is? I'm sure a chart of median wages/profits would be really scary. What's your GINI coefficient?

Anonymous said...

Without a gold standard, labor just has no chance of keeping up with big government spending and money creation. Globalization has only added to labors problems. Last year, Walmart wanted to launch a bankinkk operation. This plan was immediately squashed. By whom and Why?????

Stagflationary Mark said...

Ever wonder what the REAL price of cheap imports is?

I think we'll find out soon. When I say soon, I mean in my lifetime. I'm horrible at timing such things.