"Get Ready For Margin Collapse" Goes Mainstream

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Sun, 02/13/2011 - 23:15 | 958740 Rahm
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Sun, 02/13/2011 - 23:19 | 958747 plocequ1
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Thanks for watching. Now back to our regularly scheduled POMO

Sun, 02/13/2011 - 23:20 | 958752 Haywood Jablowme
Haywood Jablowme's picture


Slowly it's all comin' together...



Sun, 02/13/2011 - 23:43 | 958784 hedgeless_horseman
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(sorry, companies can't fire their skeleton crew workers any further)

Our margins have indeed thinned, but I could fire more than 50% of our staff, if volume warranted it, and still make a profit.  I have contingency plans for a skeleton crew of 1/5 of what we have now.   

Obama will take care of the unemployed, right? 


Mon, 02/14/2011 - 08:09 | 959207 Miles Kendig
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No.  Actually the states will borrow the money from Obama who will borrow it from Bernanke, just like every other administration for years.  The states still owe all of this EUC back to Bernanke, at interest of course.  If the states declare bankruptcy then the fed will take the nominal loss, until it passes it along to the federal treasury.  One more bailout disguised as a get tough measure.  LOOOOL

Sun, 02/13/2011 - 23:16 | 958743 Astute Investor
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The change in Q4 10 incremental operating margins is probably more telling.

Sun, 02/13/2011 - 23:26 | 958759 Spaceman Spiff
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How many bubbles has it been and our MSM still practices willfully dishonest/ignorant economics in the lead up to the problem?


Just wanted to thank the zerohedge staff/creators/contributors for the umpteenth time.  Between the articles and the comments I actually learn something new most days.

Mon, 02/14/2011 - 04:03 | 959078 Red Neck Repugnicant
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Between the articles and the comments I actually learn something new most days....


Yeah, me too.  

I never knew so many rednecks had internet connection and could work a keyboard.  I also never realized how pronounced the "hoarding" gene was in redneck, hillbilly DNA.  I'm sure Gregor Mendel would be truly fascinated.  Has any geneticist ever found a mullet/hoarding pair?

Mullets/Bullets/Camaros and Libertarians!  2012




Sun, 02/13/2011 - 23:27 | 958762 Jason T
Sun, 02/13/2011 - 23:29 | 958765 No Mas
No Mas's picture

"sorry, companies can't fire their skeleton crew workers any further"

Wrong.  There are still American workers who are employed with their bloated salaries and benefits.

They will be canned in total and replaced with oversea's workers.  It is a no brainer ZH.

This market and the multi-nationals are going to continue to perform until there is no one left making enough money to buy their crap.

And that day is many, many years away.

Sun, 02/13/2011 - 23:37 | 958785 Mike2756
Mike2756's picture

With the all of the unrest (and potential unrest) overseas? It wasn't too long ago that workers in India and China were taking out management.

Mon, 02/14/2011 - 00:33 | 958865 sushi
sushi's picture

In support of your position:

1) US MNCs pioneered development in China both to obtain access to the future Chinese market and to use China as a low cost export platform to the US. This "export of jobs" took place over a 10 year period and the effects are now being felt in US employment weakness.

2) Chinese exports include less than 5% Chinese value added. The value add is primarily in final assembly labour. The rest of the embedded labour costs reflect US wages for product design, legal, logistics, accounting, marketing and all the rest. Expect to see chunks of this "upper echelon" work being moved elsewhere. India is already making inroads in legal and accounting outsourcing.

The implications are countinued "hollowing out" of the US workforce while Catastrophe Ben is madly printing off ever larger amounts of Bernanke Bucks. A good analogy is the last frame in Thelma & Louise. If Bernanke was in the car he would have the accelerator through the floor despite the car hovering mid-canyon.

Sun, 02/13/2011 - 23:29 | 958766 eigenvalue
eigenvalue's picture

Go long agricultural products and screw the Chinese! China is suffering from an extremely severe drought. If there is no sufficient rain in Feb and March, China's winter wheat crop will be utterly fucked!

Sun, 02/13/2011 - 23:41 | 958789 bankrupt JPM bu...
bankrupt JPM buy silver's picture

Wrong.  Just like they are buying the real physical metals, they will buy the real physical potash-no worries anymore about no sun, droughts, floods.  If all else fails they can make plastic rice and rubber pancakes.  And 69 was my entry on the CAPTCHA, whats up.



Sun, 02/13/2011 - 23:50 | 958800 walcott
walcott's picture

rubber pancakes! I bet they already have those.

Then styrofoam donuts.

Sun, 02/13/2011 - 23:53 | 958808 eigenvalue
eigenvalue's picture

Potash is not grains... Last year's winter wheat crop in China was not good. Chicoms released a large chunk of its official reserve to suppress the domestic wheat prices. The result is: less official reserves and less people wiling to grow wheat. Methinks plastic rice and rubber pancakes will only make the Chicoms suffer the same fate of Ben Ali.

Mon, 02/14/2011 - 01:56 | 958972 PY-129-20
PY-129-20's picture

Yes, but they are not allowed to riot. If they do anything, they will be killed or seen as a threat to the great society. Why should it be different than '89? And I wonder what would happen to all of these international companies that hire in China. Although I must admit, it would be good to see them getting a bloody nose.

Sun, 02/13/2011 - 23:31 | 958768 raya123
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As I have said many times, QE2 (and QE3) will go from being the safety net underneath the market to the hammer that drives it much lower.

Mon, 02/14/2011 - 05:02 | 959121 EscapeKey
EscapeKey's picture

In real terms, quite likely, in nominal terms I'm not so sure.

Mon, 02/14/2011 - 07:24 | 959200 Bendromeda Strain
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Dow/Gold 1:1

hello old friend...

Mon, 02/14/2011 - 08:06 | 959224 Snidley Whipsnae
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Yep, like Zimbabwe... stocks soar while currency heads south... adjust for inflation... returns negative... then the bust and currency is trash... gold, the once and future money.

Sun, 02/13/2011 - 23:33 | 958772 GottaBKiddn
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Let's see, that's raw materials, margins, wholesale prices, retail prices, then yippee, taxes. Such typical government.

Sun, 02/13/2011 - 23:35 | 958777 Mike2756
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Good point, i don't see how the pols can resist the pile of cash companies are sitting on. If they won't add to payrolls, are higher taxes on the way?

Sun, 02/13/2011 - 23:36 | 958780 system failure
system failure's picture

looks like we need to cut rates again from 0.25% to .00025%, then maybe credit can be expanded again. However, this would lead to the same outcome as the same periods as 2003 to 2007 and 2009 to 2011. Hmm. Well fuck, do we have another bubble derived from the "I don't see any bubbles" crew again, from our cartel central planning folks. These people (FED) would make Bubble Yum envious.

Sun, 02/13/2011 - 23:37 | 958783 buzzsaw99
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Fear not. The Bernank can fix this in less than 15 minutes.

Mon, 02/14/2011 - 00:19 | 958835 sushi
sushi's picture

Thanks to rampaging inflation he now has 16.3 minutes.

Mon, 02/14/2011 - 00:22 | 958838 sushi
sushi's picture

Correction: It is up to  17.8 minutes

What a difference a failed CAPTCHA makes!!

Mon, 02/14/2011 - 00:28 | 958858 ElTerco
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Heck, he can do it in 10 minutes.  He tacked on five minutes for a margin of error.

It's actually as easy as that old game show, "Name That Tune".  Instead of naming a number of notes, he just has to name a number of notes and bonds.

Sun, 02/13/2011 - 23:38 | 958787 Caveman93
Caveman93's picture

Who the fuck said I couldn't eat my gold?

Sun, 02/13/2011 - 23:48 | 958796 GlassHammer
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The thing about margin compression is: 

At some point "doing more with less" is just "going out of business".


Mon, 02/14/2011 - 00:00 | 958813 blunderdog
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Creative destruction of capitalism, baybee.  And eventually it's one company providing everything and buying all the political favors by paying for the election of the government and the...

...um.  Waitaminute.

Mon, 02/14/2011 - 07:01 | 959184 Zero Govt
Zero Govt's picture

a small point here you cannot "destroy capitalism" though i understand your point... capitalism are the economic rules of the game, you cannot avoid them you can fuk about with them (aka USSR and Washington-Wall Street) but capitalism eventually destroys the tossers... you can't run or hide from capitalism even behind the Berlin Wall, its laws work everywhere and will catch you up.

Those that do fuk with capitalism always get fuked... as Wall Street and Washington are about to find out  

Mon, 02/14/2011 - 08:19 | 959236 Snidley Whipsnae
Snidley Whipsnae's picture

Good points all. I prefer to think of 'capitalism' as Mr Market.

Mr Market applies to everyone, every gov, every soul on this earth, at all times. Mr Market may be twisted and tweaked for a time but Mr Market always comes roaring back with a vengance and runs over the twisters and tweakers.

The Fed and Keynes thought that Mr Market could be contained, controlled, made to follow rules contrived by a few men for a few men. Not!

Mon, 02/14/2011 - 13:12 | 959958 Zero Govt
Zero Govt's picture

in someway the best way to describe capitalism is by looking at socialism and communism.. we see in China, the USSR and North Korea deluded moguls pretending they can magician a strong socialist economy by centrally managing everything... the end result is always the same, debilitating bankruptcy.

You cannot hide from the rules of capitalism. Even behind a totalitarian wall it will not protect you. Piss on efficiency, productivity and deny the free competitive market and all the innovation and progress that provides and capitalism will slowly but surely grind you into the dirt... and that holds true for Western Govts too as they are the exact same basic monopoly power structure and everything they touch (healthcare, transport, mortgages etc) also turns to dust.

Capitalism (the free market) Rules 

Mon, 02/14/2011 - 00:10 | 958823 mcguire
mcguire's picture

actually, the hilarious punchline will be when the stock market and commodities fall, the boogie man 'deflation' will be dragged out again, and the following equasion gets into the alpha-wave brainwash machine:

1. margin collapse leads to decreased stock prices.

2. decreasing prices (in any asset class) is "deflation".

3. to avoid deflation, print money.

Mon, 02/14/2011 - 03:36 | 959058 Fazzie
Fazzie's picture

Yep, they gotta sell QE3 while pretending QE2 worked. The very thing that caused margin compression was QE2, but thats OK!


Mon, 02/14/2011 - 00:22 | 958844 spekulatn
spekulatn's picture

Stunningly, the computers doing all the trading are shocked, shocked, to find out there have been unpassable price increases going on in here.


Fukn brilliant. Well done ZH.

Mon, 02/14/2011 - 00:36 | 958854 Threeggg
Threeggg's picture

Hey TD have you ever thought about updating this Debt piece from 2009 to 2011 numbers.


I keep hearing on the MSM that all corporate entities have Gazzillions in cash stashed "just sitting and waiting" to invest and it will put everyone back to work.

I have often wondered what the Debt to Cash ratio is and is the MSM still full of shit as I suspect?



Mon, 02/14/2011 - 08:26 | 959239 Snidley Whipsnae
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Put simply, there is a lot of apparent "cash on the sidelines" because the government and many corporations have issued enormous quantities of new debt, often with short maturities, while other corporations have purchased it. It is an equilibrium. The assets that are held in the right hand represent debt that is owed by the left. You cannot call that pile of short-term marketable securities an asset without calling it a liability. The cash on the sidelines is evidence of debt incurred to fund economic activity that is already in the past. It will remain "on the sidelines" until the debt is retired. The government debt has been issued to finance deficit spending. At the same time, a great deal of corporate debt has been issued over the past year apparently as a pre-emptive measure against the possibility of the capital markets freezing up again."


Mon, 02/14/2011 - 00:27 | 958860 Oh regional Indian
Oh regional Indian's picture

Still so difficult to understand hwo a market and a system that is based on the presumption of perpetual growth can still be standing.

Till you realize it is not. It's being propped up.

Dead market walking....



Mon, 02/14/2011 - 00:39 | 958877 sschu
sschu's picture

Wow, maybe it is time to pull out the old financial management text books from back in the 80s when we discussed the pervasive effect inflation has on companies balance sheets and financial ratios.  Ugh.

Wait, a quick Google finds the following! 

In terms of accounting policies, firms using the LIFO inventory cost valuation are more closely matching costs and prices in an inflationary environment.  LIFO understates inventory value, overstates the cost of sales, and therefore lowers reported earnings.

Soooo, inflation lowers reported earnings, hmmm.  What else does inflation do that distorts the Quick Ratio and Debt/Equity etal?  Seems this was a problem back then too.

Inflation is the Satan of the financial world and company financial statements.  It is the great deceiver, it's pernicious nature hides the true costs it extracts.  Make no mistake, Bennie has taken us down a path that will take decades to fix, if we can at all.

All to satisfy a few equations he watches and to test his PHD thesis.  We are in for a wild ride for sure.



Mon, 02/14/2011 - 00:44 | 958884 Mark Noonan
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Someone explain to me how they can project falling commodity prices with all this fake, new money still hanging 'round the economy...

Mon, 02/14/2011 - 06:54 | 959176 Zero Govt
Zero Govt's picture

Simple, what goes up also comes down... the funny counterfeit Fed money is not neccessarily hitting the commodity sector, most of it is doing precisely what it's designed to do, bail out the 'Too Big to Fail' frauds of Wall Street, plug holes, stop leaks, repair their rotten hulls, buy new paddles so they can paddle a bit further up Shit Creek gathering executive bonuses from robbed taxpayers in the game of 'Pretend and Extend' that Washington, the Feds, the Regulators and Wall Street are playing at everyone elses expense... the usual criminal activity of Big Govt and Big Corps

Mon, 02/14/2011 - 00:48 | 958885 dogbreath
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"The intuition of many portfolio managers is that inflationary pressures will likely weigh on margins. However, the historical evidence does not support this view. Operating margins actually expanded by an average of 13 bp during episodes of PPI “crude materials” inflation. Technology and Materials registered the greatest margin expansion while Energy margins experienced the sharpest margin contraction.


 Yeah I know,  Its different this time.

Mon, 02/14/2011 - 00:55 | 958893 pitz
pitz's picture

One man's margin collapse...is another man's margin expansion.


Mon, 02/14/2011 - 01:03 | 958907 Shameful
Shameful's picture

Hmmm, good so the end product price increase fuse is fully lit and burning. Cannot wait for Zimbabwe Ben to explain how this is not because of QE but of incredible economic strength and recover.

Mon, 02/14/2011 - 01:11 | 958921 Caviar Emptor
Caviar Emptor's picture

Tyler, Tyler....I was the one who mentioned margin collapse over a year ago as a result of higher input prices but that can't be passed on to constrained US consumers, caught in the vice grip of biflation as their real wages and net worth continue to collapse. Let's spread some of the glow around, don't ya think? ZH is as much about group think and mind meld as it is about ego and snark. 

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