"You know, if there was [sic] no such thing as the written word, I'd be telling stories on street corners."
---------Harold Robbins

Tuesday, September 13, 2011

AMERICAN CORPORATIONS ARE DOING GREAT. YOU ARE IRRELEVANT: THEY NEITHER CARE FOR NOR NEED YOU.

The reports of 2nd quarter profits of American corporations were nothing short of amazing. In the decades following World War II any corporation that realized an increase in profits of 3-5% was consider a sure fire winner. Investors lined up and the stock price climbed. Then by the ‘80s and Ronald Reagan, such returns were no longer acceptable and 5-10% growth became the new baseline. Now in our Brave New Globalized World profits must grow by geometric proportions to be acceptable. Three fourth of companies reporting 2nd-quarter results show unprecedented jumps in profit:

>>GE Capital profit jumps 123%
>>MasterCard profit up 33%
>>Mattel net income jumps 56 %
>>Citigroup up 24% [$3.3 billion]
>> Caterpillar up 44% [$1 Billion]
>> Dow Chemical Profit up 74%
>>Visa up 40%
>>Exxon Earning up 41%
>>Starbuck's profit up 33%
>>Chevron profit jumps 43%
>>GM profits jump 89%
>>Dell Posts Flat Sales --Profits rise 63%

The figures for Dell computer are typical. Corporations with no gain in sales and in many cases with even lower sales figures are reporting vastly increased profits. The oblivious question is: What is the source of these sudden corporate gains?

The AP wire carried a brief story in a recent late Friday release [see my previous post for more on the "Friday Follies."] that revealed the extent of the share of the pie that corporations are taking. It summarised finding of the Center for Labour Market Studies at Northeastrn University, according to the director Andrew Sum:

                         Boom in Corporate Profits, A Bust in Jobs, Wages
Paul Wiseman, AP Economics Writer, On Friday July 22, 2011, 6:36 pm EDT http://finance.yahoo.com/news/A-boom-in-corporate-profits-a-apf-3135711604.html?x=0
[note: Yahoo news links tend to go dead after 1-3 days]


"I've never seen labor markets this weak in 35 years of research," says Andrew Sum....Wages and salaries accounted for just 1 percent of economic growth in the first 18 months after economists declared that the recession had ended in June 2009...Corporate profits, by contrast, accounted for an unprecedented 88 percent of economic growth during [the same time period]...
Director Sum cited several factors at work in this unprecedented disparity. The two most important being the expansion of American corporations to over seas market; and second, the surplus work force created by the army of unemployed Americans. As Sum noted: "...companies are squeezing more productivity out of staffs thinned by layoffs during the Great Recession. They don't need to hire. And they don't need to be generous with pay raises; they know their employees have nowhere else to go."

How extensive is this problem? Steve Davidoff in his "Deal Professor" column in the New York Times Dealbook on August 16,2011,section gives some amazing answers.

http://dealbook.nytimes.com/category/main-topics/legal/http://dealbook.nytimes.com/category/columnists/deal-professor/
 [The link is to Dealbook, which is not behind the NYT paywall.]
A recent Standard & Poor’s study found that 50 percent of sales by companies in the S.&P. 500-stock index are outside the United States. [Emphais added] Interestingly, the report also found that these companies paid more in foreign taxes than to the United States government....
In 2004, Congress enacted the American Jobs Creation Act, a tax holiday for companies to repatriate cash. The dividend tax was reduced to 5.25 percent from 35 percent. In exchange for this reduction, Congress required that any cash repatriated be invested in the United States. The cash could not be used for dividends or stock repurchases.
Alas, cash is fungible...[A study:]The Unintended Consequences of the Homeland Investment Act," found that in the year following the act, repatriations increased by $230 billion from the previous year, to $299 But the repatriation did not result in increased investment. Instead, companies largely repatriated the money and used their current United States holdings to pay out dividends or engage in share repurchases. This was contrary to what Congress had intended.
For those who can’t understand the nature of the war being waged on the majority of American citizens, it is only necessary to look to the professional financial advisory services. On October 8, 2009 the market advisor Rakesh Saxena writing on the site "Quote Platform" spelled out the facts of the Globalized economy.

Noting that India with a population of over one billion persons had hundreds of millions living on the edge of starvation, he said that those numbers do not matter. All that is important is the realization that India has over 350 million people with upper middle class incomes, who are in the market for new cars and flat-screen TVs,  and that that is a group larger than many other nations.  In other words, only those with money count. Those who have fallen off the apple cart can be safely forgotten. He concludes his market analysis:
At the same time, equity prices should face no risks from negative unemployment data. The thousands of desperate, unemployed workers who lined up in downtown Detroit [in Oct 2009]for housing assistance bitterly complained about the Obama Administration’s inability to generate jobs despite the promises made during, and immediately after, the last presidential elections. But, as a Wall Street hedge fund manager asked, "Who cares?"