Posted on 02/05/2016 7:43:20 PM PST by Citizen Zed
Goldman Sachs is questioning everything it knows about capitalism in the wake of a growing debate over the sustainability of corporate profits.
Profit margins are extremely high, mirroring levels seen before the financial crisis of 2008 and the dot-com bubble at the beginning of the century. Today stock buybacks are also happening at record levels, increasing corporate debt.
The S&P 500 has continued to rise and maintain relatively high valuations despite these trends, prompting a Goldman Sachs analyst letter that questions how capitalism in the world is currently operating. Markets have been essentially rewarding corporations that assume more and more debt through stock buybacks, boosting profit margins, reports Bloomberg.
The issue is one of the hottest debates in the financial sector, with bulls arguing that market performance is not necessarily tied to profit margins, while bears maintain that economic rules dictate a major market adjustment in the near term. Goldman Sachs analyzes both arguments, but tends to agree that bearish arguments will eventually come to fruition.
If the market does not experience an adjustment in profit margins however and valuations continue to stay high, something could be fundamentally wrong with our current system of capitalism according to Goldman analysts. Profit margins should follow a pattern where they eventually revert back to a mean historical average, and if they don't, strange forces are at work in global markets, reports Bloomberg.
"We are always wary of guiding for mean reversion," reads the Goldman Sachs analysis. "But, if we are wrong and high margins manage to endure for the next few years (particularly when global demand growth is below trend), there are broader questions to be asked about the efficacy of capitalism."
Ut oh....did Heidi CRuz write this ‘theory’ for GS?
I bet this will be used by Sanders for his campaign.
What the hell does Heidi Cruz have to do with this story? Are you dreaming about her? Gee whiz! Talk about obsessed!
Perhaps we need an aristocratic system in which certain important people just own stuff and live in big houses while the peasants labor in the fields and the lords take what they want? Such a system may be more efficacious -— if you are a lord.
Capitalism is a pejorative term for “free markets”.
The financial markets around the world are highly manipulated by governments and are therefore by definition not transparent and free.
“our current system of capitalism”. WTH does that mean? That we should embrace one world socialism instead?
ugh.
It’s easy enough to understand. Because the American systme is losing it’s capitalistic and meritorious base, those in the position of influence are moving in the direction of oligarchy.
Evidently this was written before the current market crash, since he talks about growth in the S&P. The correction the bears predict may be what we are seeing now. Capitalism is the worst system of finance known to man, except for all the others. You can smooth out the busts at the price of choking the booms, but no tree grows to the sky.
Free markets have been the sustaining engine of human endeavor since the dawn of time.
Heidi was given a promotion by Goldman Sachs just 9 days after he won the election and given a half a million a year salary. That’s how they bought Teddy in the end, and part of Cruz’s astonishing 4 million networth on a hundred thousand (and whatever) senator’s salary.
I’ll translate it for you: We need a one world government and a one world religion with a strong man and his prophet running things to save the world.
If they tell you to join the world religion, and take the mark on your forehead or right hand so you can buy and sell, DO NOT DO IT!
They will cut your head off, but it is better to loose you head and gain eternity with YHWH, then to keep you head as spend eternity in the Eternal Lake of fire.
When you combine this with artificial inflation of the money supply, without a corresponding increase in productivity, *and* you curtail lending, so the velocity of money slows to a crawl...
and you just came off of a real estate bust, so the money can't go there...
then the money will needlessly inflate stock prices.
Excuse me? There is a connection.
No need to dream....ask most politically involved Americans who they think of when they hear the words Goldman Sachs....and I imagine 90% will say ‘Heidi CRuz’.
It’s operating on money made up out of thin air.
Derivative exosure at the big banks add up to more money than there has ever been or ever will be.
They have sliced and diced and sold and resold the same bad debt hundreds of times over.
Sooner or later someone’s going to be paying.
>> and I imagine
uh-huh. Those are the operative words in your post.
“You imagine”.
Jane-—unbelieveable how uninformed people are.
This is how you would expect corporate capital structures to evolve in a prolonged low-interest-rate environment. You will goose ROI through a leveraged capital structure...until interest rates rise, of course. Then you’re screwed.
You could imitate this effect in your own portfolio by borrowing broker call money at 2% and buying stocks that paid a 4-5% dividend. It would work great, so long as nothing changed. They call this “picking up pennies in front of steamroller”.
I bet they’re saying the government controls the markets, without saying it.
The welfare state is so heavily indebted it is the predominant factor in both demand and supply.
Will read tomorrow and see how close I came.
More and more our system is becoming one of privatizing the profits and socializing the losses.
I’m afraid your understanding of derivatives is somewhat lacking. You need to understand the difference between notional value and value at risk, and how the hedging and the financial strength of the counterparties limit value at risk. The derivatives they have now are pretty safe, they’re much more likely to lose their shirt on something else.
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