Weekly Chartology And The Amazing Levitating Corporate Profit Margins

Tyler Durden's picture

The core topic of this week's chartology (in addition to all the charts that Goldman sees it fit to print), is the amazing never shrinking corporate margin, which continues to hit new all time highs, despite a "tepid economy" and surging input costs. As Goldman's David Kostin points out, it primarily has to do with the ability of companies to gradually pass on costs to consumer, indicating once again that the primary variable in this economy has nothing to do with the jobs picture, or even wage inflation (a key variable that many have said is necessary for inflation to return), but with the ongoing green light by the administration and big banks to allow a substantial number of Americans to live mortgage free (as disclosed previously up to 900 days in the states of New York and New Jersey, a number which actually is 7 years if one considers the backlog in the judicial system, as we will shortly demonstrate), thus removing the primary use of funds for the American household, and allowing a substantial demand price inelasticity for key consumption products such as gasoline, and iPads. As long as the deadbeat rent component in the economy is in the high double digit billions, it will translate in quarter after quarter of surprise margin beats, and latent price increases which for lack of a better word translate into inflation.

Weekly Kickstart 1

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Soul Train's picture

The Fed monster creates one bubble after another, and lies lies lies.

The lyrics say it all:



and the tune:



It's one trillion dollar band aid to the bankster mafia with billion dollar patch-over bandaids. And those zero pay rent mortgage free home dwellers spending spending spending.


I have a late 60's buddy who tells me his friends in the same age group play the game - don't pay mortgages, max out credit cards, and then walk away from the house when the sheriff comes and bankruptcy on the maxed credit cards. They must have lived in New York before retiring in Florida, that's all I can imagine who these people are with zilch morals. But the sheriff hasn't come, and so they are rent free - maybe even buying silver '64s coins that they can carry with them in sacks and put in their car trunk as they drive away from their McMansion when the time comes.


Meanwhile, back at the Federal Reserve money cartel, Ben B continues to sing Mr Fantasy.



anynonmous's picture

This story is a must read and must comment


from Bloomberg/Businessweek

Wall Street: Not Guilty

Why have no executives gone to jail for their roles in the financial crisis? Perhaps because risk-taking and stupidity aren't criminal


JW n FL's picture

Leverage? will only allow for the bonuses to continue for so Long they need QE 1 thru infinity as a revenue source so that the Bonus Monies may flow like a Giant River! all courtesy of the Tax Payer Trough and Back Stopped by "We the Sheepeople"!

MORE!! Leverage!

MORE!! Risk!

MORE!! Bonus Monies!

MORE! QE to Infini-Timmy and Beyond!!!


0.04% skin in the game you say? v. 0.4% which still sucks you say?

how dare you cut into the bonus pool of monies, they are not making loans.. they have to show income some way! why not leverage the shit out of the cash already on hand! YAY!


****** "Who has an incentive to increase debt relative to equity in really big ways? Again, it’s the largest banks. The executives in these companies are paid based on their return on equity -- and the easiest way to increase that is to add leverage. Of course, this increases returns only when times are good. It also increases the potential losses when markets tumble. In other words, greater leverage increases risk." ******




Investment Bankers’ Culture of Ownership?

Sanjai Bhagat
University of Colorado at Boulder - Department of Finance

Brian J. Bolton
University of New Hampshire

August 24, 2010

We study the executive compensation structure in the largest 14 U.S. financial institutions during 2000-2008. Our results are mostly consistent with and supportive of the findings of Bebchuk, Cohen and Spamann (2010), that is, managerial incentives matter - incentives generated by executive compensation programs led to excessive risk-taking by banks leading to the current financial crisis. Also, our results are generally not supportive of the conclusions of Fahlenbrach and Stulz (2009) that the poor performance of banks during the crisis was the result of unforeseen risk.



Why not More! RISK!! I mean Leverage? 


****** "Dimon also wants JPMorgan to become more global, especially by expanding more into emerging markets. U.S. Treasury Secretary Timothy Geithner endorsed this approach in an interview he gave to the New Republic, effectively arguing that we should want big, highly leveraged U.S. banks to make large bets on highly volatile emerging markets." ******

rocker's picture

This is why they only raised margins on Oil by 30% compared to Silver margins raised by 230%.

Drain every fucking dollar they can from the stupid sheeple.

FreeNewEnergy's picture

The article is pure propaganda and speaks to the depravity and desperation of Wall Street and Washngton.

America is at war. The banksters and the government against the people. They started it, but, I reckon the people will finish it, one way or another.

Careless Whisper's picture

total bankster propaganda. very sophisticated spin. doesn't change the fact that goldie sold timberwolf to clients, knowing it was shitizzle, going short timberwolf at the same time, and a month later refused to let the clients sell their timberwolf. then there were the outright lies to congress a la roger clemens style.

max2205's picture

Funny how little time people in trouble figured out that staying in their house and not paying was better than walking away and having to actually pay rent or risk being thrown out. Amerika is the best

Neighborhood secrets.

blunderdog's picture

who these people are with zilch morals

This isn't a moral issue in any way.  This is BUSINESS.  It's just good business to stop paying on your debts, which is completely obvious if you look at *any* headline or consider *any* interpretation of recent events.

If the banks are rewarded for stealing, fraud, and destruction of the economy, and INDIVIDUALS are rewarded for defaulting on loans, what's "immoral" about any of it?

The business of 'Merka is business.  This is what keeps our economy afloat.  Don't get all preachy, just understand the system and accept it.  You don't have to like it, but let's not kids ourselves: no one cares what you or I like.

rocker's picture

Stealing, fraud and the destruction of the economy should not be a legal business.

Go to the gas station and steal without paying. Go to Jail.

Write undocumented mortages and sell them as good. Go to Jail.  We need the second one fixed and then move on.

When Goldman engages in secret cooperation between people in order to do something underhanded. Go to Jail.

We need this one fixed too. It's called Collusion and Fraud.

blunderdog's picture

Well, sure, I agree, but it looks like it might be awhile before the reins of society are returned to the people with any sense of social contract.

So in the meantime, recognize that as a society, we have *consciously* taken things to this point.  The only people who don't know that we've been pursuing corrupt financial policies for the past 20 years are people who have chosen not to know.

This is not ignorance.  It's complicity.

6 String's picture

Sure, close to all-time high net profit margins with u6 at 15.7% and labor participation rate at 30 year lows. And the Russell 2000 at 20x....okay, no problem. They can now take away the fiscal stimulus, the monetary printing, and ZIRP and the Russell 2000 will show all the bubble watchers where the real  bubble has been since March of '09.

LawsofPhysics's picture

Go ahead, print more.  Send the PMs to the moon.  Please, by all means print, print, print!

Do your part to help the banks out by not paying your mortgage.  Why should your neighbor live rent free and you should not!  < sarc off >

willien1derland's picture

This evidence clearly supports the fact that Federal Government & Federal Reserve policies favor the wealthy & can be considered a type of class warfare. I am weary of the bullsh*t published by OUR government - will vote against EVERY incumbent in my home state as well as the President - the only two Senators WORTH ANYTHING are Coburn & Levin -

kaiserhoff's picture

Zillow has some new graphics on five year estimates of real estate values.  Check it out for a neighborhood near you.  Entertaining or scary, depending on when you bought in.

Amish Hacker's picture

In many neighborhoods, Zillow has a tendency to understate prices. If you see that the listed sale price is way higher than the Zillow estimate, check the same neighborhood for recent sales prices vs. Zillow estimate. This will give you some idea of the spread between estimates and reality.

uno's picture

Zillow always overstates estimates, the only useful data is the recent sale price.

RobotTrader's picture

So far, the "Trade of the Century" is shaping up to be retail stocks.

Despite all the screechings and predictions of imminent scroomage by the shills like Jay Taylor, David Rosenberg, Jeffrey Gundlach, et al...

The most fantastic price gains seen in a generation are now visible on several retail stocks:

Ross Stores:  $30 to $85

Dillards:  $5 to $55

Costco:  $38 to $83

Estee Lauder:  $20 to $100

Ralph Lauren:  $35 to $135

Coach:  $10 to $60

And as of today, they are still the leading group and the best performing sector over the last 2 years, with no sign of technical weakness whatsoever.

The bears must stare at these charts in slackjawed amazement, wondering how stupid they feel about missing one of the greatest moves in history.


Caviar Emptor's picture

Nothing compared with Chinese Internet stocks: 

SINA: 29 to 140

SOHU 40 to 109

BIDU: 65 to 156

YOKU: 25 to 69


And if you're talking history, your memory (or knowledge) is short: 

In 1999 the average IPO went up 165% in One Day. 

There were 5 IPOs that went up 500% in One Day. 


The Fed at that time insisted that there were no signs of a bubble. We know what happened next as enthusiastic investors in these stocks got wiped out.

Were these good signs for investors, the economy or the country as a whole? 

topcallingtroll's picture

Great for swing traders and hot money that is also willing to go short.

Careless Whisper's picture

@ robo

don't forget tiffany's (TIF)

all have very bullish charts. but that may change. but it hasn't yet.

oddjob's picture

Silly me buying puts on the XRT last week,also bought puts on DRI,HOG,JJC and GLL.

oklaboy's picture

great link, much thanks!

Oh regional Indian's picture

Silvertrain, super link. This is how they do it everytime.

Back the destroyers with money. Then go throw crumbs at the destroyed and buy them, ha'pennies on the dollar.

Sick but in their metrics, successful formula.



Misean's picture

Or, they're just lying about things, and using accounting gimmicks like everyone else...

Silver Bug's picture

They are just flat out lyers, in a corrupt system. They will be brought to justice, once we return to a hard money system. The Silver and Gold Vigilantes are trying to ensure this. As are many other individuals.



tempo's picture

Add to deadbeats living rent free for 5 to 6 years, the near trillion dollars of student loans. If student loans were granted to only the qualified who are pursuing core engineering and medical related studies, the economy would also contract rapidly. Those receiving student aid also may qualify for $500/month food stamps. So alot of the aid goes for unnecessary consumer spending....ipads and smart phones. It will eventually end with a bang.

Caviar Emptor's picture

Like all bubbles this is all going to go.....BOOOM!

ElvisDog's picture

I don't know. For years I've been reading how the ponzi scheme will eventually end, but it just keeps going and going like the energizer bunny. TPTB seem to have a well-oiled deficit-spending, currency-devaluing machine. I think of all those cubicle survivalists watching their stores of rice, beans, and ammunition degrade in their rural farmland bunkers. I understand the logic of why the ponzi has to end. What is never explained is "when" and "what will be the trigger".

malek's picture

If the large majority of people can be made to still believe that all is well, inflation is not caused by the FED (or even better there is no inflation), and the future cuts in *real* value of SS and medical aid are due to... some unforeseeable external events or something, then the Ponzi can go on pretty much forever. Meaning things will continue to turn worse, but gradually and ignored by the masses through propaganda and self-delusion.

It all boils down to: when will the majority wake up?

Rynak's picture

There is another possibility which however as well allows no timing-prediction.... as most of us are aware, everything is on fire and they just need to make one or two fatal mistakes, and the only way out is hyperinflation. The way they bring out the big guns now without much hesistation, and the desperation behind it, does not give me the impression that the cartel has kept its cool.

One thing that is important to understand, is that for hyperinflation to occur (which just means a flight out of the dollar to occur), it is not the value of the dollar that matters... what matters is the perceived speed of inflation.

russwinter's picture

Lost in this profit margin discussion is that the infaltion pyschology has artifically pull forward demand to beat the next price hike.

Excerpt from Inflation Causes Boom, then Bust



In February, farmers moved “to beat the price hikes” by purchasing their fertilizer far in advance, OTR Global  commentary revealed. This is indicative of a classic inflationary environment, not a normal business cycle.

“Many US farmers are already buying nitrogen for applying in spring 2012, before this year’s spring crops have been sown,” OTR Global said. ”All sources said it is highly unusual for farmers to spend on next year’s crop before the current year’s crop is planted, but robust income and farmers’ desire to avoid higher fertilizer prices later is prompting the move,” the intelligence group said.

In response to the boom in orders, fertilizers producers like Potash are taking old facilities out of mothballs, misreading the market signals.

PotashCorp said it was to spend $158m over the next 18 months restarting anhydrous ammonia production at its Geismar plant in Louisiana, which has since 2003 been restricted to production of other nitrogen fertilizers.

The problem is that this  inflationary response infects, maladjusts or badly distorts economic signals. Inflation psychology is driving and pulling forward short-term demand. Demand at some point becomes more of an inflation-coping strategy. Prices reach a tipping point that take some industrial producers literally out of business , leaving the remaining so-called demand in the hands of hedge funds, huge speculative pools, or wherever else Wall Street can suck investors in on the “sustained global commodity bull.” Meanwhile, the real economy is badly weakened and a bust ensues. The Chicago PMI report offers succinct comments that add color to this phenomena.

“Prices on plastic resin and cotton continue to press suppliers to the point where they are increasing prices or refusing business – first time I’ve seen this in years.”


topcallingtroll's picture

In the meantime go long risk assets, after our brief summer deflationary scare.

topcallingtroll's picture

Houses are already free in many places in michigan. Just pay the back taxes. The government will bulldoze what doesnt sell.

Pretty soon you will see this in other parts of the country.

Reggie is right that banks are going to walk away from hundreds of thousands of houses in a couple of years, rather than take a hit to their balance sheet now.

Caviar Emptor's picture

Unfortunate side effect of mortgage free consumers: the banks are getting squeezed again. They'll come for more bailouts soon. You heard it here. QE3 is in the bag too. 

Rainman's picture

Moynihan's prognosis for housing went from optimistic to enormously challenging very quickly. It's hard to imagine that BofA can survive its numerous fuckups without life support. This sick puppy will be first in the bailout line for sure.



ThirdCoastSurfer's picture

The 2% reduction in FICA is far more of a cause, especially in retail. 

The withhold limit is $106,800.  At 2% this equals almost $200 more a month for those at or above the limit while for someone making $30,000 that 2% = $50. 

JW n FL's picture

how about instead of trying to cut into the middle class.. becuase the poor have already been milked dry..


how about we collect taxes from the top 1% instead of the top 1% not paying ay taxes?


how about we take away the public tax trough.. you know the taxes that "We the People" pay that the Triple AAA rated Corps then get back as subsidies?


How about instead fucking "We the People" some more.. we fuck those scumbag fucks who have the Billion Dollar Lobby's in place?


Why do the canidates track which industry collects the most and / or how much an industry collects? so that industry can be rewarded with Tax Dollars.. subsidies or tax breaks and / or whatever else the Lobby Whores can dream up!


How about instead of fucking over the bottom, we make the top pay thier fair share?


http://goo.gl/cgg4O General Electric $14.2 Billion in Profits, Pays $0 in U.S. Taxes

$39M Dollar Lobby in 2010 $14B in Profits =’s NO TAXES PAID! http://goo.gl/rZLDY

$10 billion sale of F.D.I.C.-backed debt http://dealbook.nytimes.com/2009/01/06/ge-capital-begins-10-billion-debt-sale/

CLOSE THE LOOPHOLE: Hedge Fund Manager John Paulson Earned $5 Billion In 2010, Paid Only 15% Tax http://goo.gl/soFL5

Why the rich are getting much, much richer, while regular people are at best treading water http://goo.gl/O4zzn

The 10 Biggest Tax Cheater in the United States of America! Wonder why we can Not Afford anything? Stop Wondering Why! http://goo.gl/PuoLH

http://goo.gl/zacwI 12 Corporations who Spent $1 Billion to Bribe the Lobby Whores into a 0% Tax Bracket thru Loopholes!


Here is $2.5 Trillion in IOU's that Social Security is PLUS! not negative like ya'll have been sold!

Social Security - Robbing The Middle Class http://goo.gl/m8QMq  $2.5 Trillion Dollar Surplus! Money! You have I.O.U.'s NOT! a Surplus!


Here's the Lobby Whores who are going to Rob US! ALL!! for the $2.5 trillion dollars!

The Gang of 6 Raising the Retirement Age & Reducing Social Security Benefits http://goo.gl/Aix0y  ALL! for the Surplus $

http://www.dickipedia.org/dick.php?title=The_Gang_of_Six Reducing Social Security Benefits All for YOUR! Surplus Money!


Sen. Ben Nelson [D(ick)-Neb.]

Gang of 6 Member Nelson, Ben (D-NE) $14 Million Dollar Lobby Whore http://goo.gl/i29tJ  And! who owns him http://goo.gl/DvBWP


Sen. Mary Landrieu [D(ick)-La.]

Gang of 6 Member Landrieu, Mary L (D-LA) $24 Million Dollar Lobby Whore http://goo.gl/dwFxO And! who owns her http://goo.gl/tM3bG



Sen. Ron Wyden [D(ick)-Ore.]

Gang of 6 Member Wyden, Ron (D-OR) $23 Million Dollar Lobby Whore http://goo.gl/GnQKf And! who owns him http://goo.gl/zNRvN 



Independent Dick Sen. Joe Lieberman, from Connectidick

Gang of 6 Member Lieberman, Joe (I-Conn) $49 Million Dollar Lobby Whore http://goo.gl/C7tSk And! who owns him http://goo.gl/XospA   

Sen. Olympia Snowe [R(eally big dick)-Me.]

Gang of 6 Member Snowe, Olympia J (R-ME) $10 Million Dollar Lobby Whore http://goo.gl/5ArgP And! who owns her http://goo.gl/zj2JJ



Sen. Susan Collins [R(eally big dick)-Me.]

Gang of 6 Member Collins, Susan, M (R-ME) $14 Million Dollar Lobby Whore http://goo.gl/X8I73 And! who owns her http://goo.gl/1dcLY


Why dont people wake the fuck up to the truth and stop arguing about what the powers that be have provided for you to argue about...


For every dollar that the top 1% can squeeze out of the Middle.. they get another $1 dollar of tax break, FACT!

Reese Bobby's picture

The S&P 500 tells us little about the average stock or the U.S. economy.  But time have been good for the large multi-nationals.  Too bad most of the world's consumption is still in the U.S. and developed Europe.  We'll see how that works out going forward...

Rainman's picture

Times are good for health insurer profits too. People are putting off going to the doctor due to higher copays. 


nah's picture

Fannie Freddie and .gov subsidized housing... big bailout republicans lolz whoda' thunk

farmer1's picture

Derivatives (swaps) pull forward future earnings into current periods. Both parties on a derivative contract have independent valuations so both sides can claim profits in the early years. The whole things is Enron, LTCM, ad nausea. Go back and re-read history based on what you know about financial markets, lending, derivatives, etc. You’ll see at least as far back as the French Revolution that it was backroom financial deals that got one party in trouble and enriched another. When the first went to collect and were told to back off it lead to war. Or the indebted party had to cut its standard of living so far that its own people revolted.

eureka's picture

Hmm, so "deadbeats" cause inflation...?

Are those the millionaire deadbeats, who walk from multi-million dollar homes under water - or the mid-six figure-income deadbeats, who walk from million dollar homes - or the median income deadbeats, who still have $20K a year jobs - or the unemployed no-income deadbeats who huddle up with friends and family?


Could it even be the homeless deadbeats, who abandonned their homes?

Who are these scummy deadbeats of the USA?

It couldn't possibly be the monied elite, who have received tens of trillions through their bankers, who run the Fed, could it?

Trillions, which could not possibly have been used to build better infrastructure - and joint ventures between private and public sectors - and energy independence projects - all creating tens of millions oj jobs - because that's against certain holy cow voodoo-nomics of republicanism and libertarianism, which believe that countries actually can run - or should run - and we're still waiting to see it but we do believe it - that only free markets private dollars should decide what gets spend.

And so, since structural considerations and intelligently regulated capitalism is forever taboo - it is back to morality and the convenient and multilateral blaming of everybody else, while keeping pure and speculating for personal salvation and self-agrandisement - never realizing the oxymoronic conceptual basis of the cult of "individualism" - which is really just porvincialism: no one above the individual but fuck the rotten individual who doesn't stay pure - he is a deadbeat, specifically and only for not using leverage in the appropriate, sanctified way.

So please continue:

Judge the deadbeat.

Use only sanctified leverage.

Be pure and prosper.

And for God's sake - do not try to think of solutions and socio-economic structural innovation - because everything - absolutely everything MUST be let to individual morality.

Okay, rinse and spit and have a nice continued delusional existence.

Ruffcut's picture

So many piles of shit around and nothing to cover them with.

No problems as "stated" profits are rising and also on the bullshit meter and the misery index.

All of it, is going to shit. THe only thing they can't improve is the durablity and strength of a huge steamin turd.

countryman's picture

Why cant the mfr,s that saved make out?I,m biut tired of all these creditors,living high on the hog,telling me how i need 2 live,I,m Southern but,Work with people in N.E,They,re tax,s seem Unreal.Fuck me,mebbe i,m 2 Simple

HistorySquared's picture

Jeremy Grantham's study show Profit Margins to be among the most mean reverting statistics in finance 

Grand Supercycle's picture

S&P500 Financials Index has been giving warning signals for a long time ...