If Companies Are Telling The Truth, Profit Margins Are About To Collapse The Most In The 21st Century
With the Fed hiking rates in order to signal a "return of confidence" to the economy, one - the most important - aspect of a recovering economy continues to be absent: rising wages.
As the following chart showing the annual growth in wages of production and non-supervisory workers (who make up 83% of the US workforce) reveals, wage growth is not only well below the Fed's goal of 4.5%, at 1.7% it is below the Fed's goal of 2% inflation, suggestion that on a real basis wages would be declining if the Fed had attained its 2% inflation mandate.
So instead of relying on actual, historical data (seasonally adjusted as it may be), the economic permabulls are pointing to surveys, and especially the respondents to the National Federation of Independent Business (NFIB) question showing what percentage of businesses are planning to raise worker compensation. As the chart below shows, while actual wage hikes remain non-existent, at least CEO promises to raise worker wages are the highest they have been since before the financial crisis (at which point wage hike intentions promptly tumbled to 0%).
If this were true, it would be great news for America's long-suffering workers, who as we showed previously are not only faced with stagnant wages, but are also facing hundreds of thousands of layoffs as a result of the record M&A wave which has resulted in over $5 trillion in global deals in 2015: great news for M&A bankers, terrible news for soon to be "synergzied" employees.
How rising wages make sense in a time when tens if not hundreds of thousands of skilled, well-educated workers are about to be the result of synergies is not exactly clear, but let's take the CEO's promises at face value.
Here, however, a problem emerges.
Because if companies are being honest about their intentions to raise wages, then US corporate profitability is about to fall off a cliff.
The reason: while companies continue to feel ever so generous when responding to the NFIB's survey, and increase raise intentions to boost wages with every passing month (just never this month) even they admit that it is impossible to pass through these wage hikes in the form of rising prices. As the chart below from JPM shows, the difference between "intentions to raise prices" less "intentions to raise wages" - a proxy for operating margins - has not been this negative in the 21st century.
This means that if companies are telling the truth about their business intentions in the near-term (raise wages, not raise prices), corporate profits are about to fall off a cliff.
The next question is "are companies telling the truth"? The answer: most likely not, and the truth is somewhere in between a 100% lie and a 100% truth. However, even if companies only follow through with a partial wage increase, what is most troubling is their pricing power self-evaluation. Clearly, US companies have never been this concerned about their ability to raise prices in the current stagnant economic environment, which also happens to be a far more accurate reading of the economy's true state than the Fed's rate hike "signaling."
Last but not least, if companies are indeed telling the truth, then one can forget about any earnings growth in 2016, leaving the entire "bull case" in the hands of P/E multiple expansion, expansion which will somehow have to take place as the Fed suggests it will hike rates at least 4 times in the brand new year...
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NIRP and more QE will fix everything again. The stock market cannot be allowed to fall.
The wealth effect from the stock market is the only thing sustaining the US economy Old Yeller will back up her put with infinite fiat.
Is The Stock Market Now "Too Big to Fail"?http://www.zerohedge.com/news/2015-09-02/stock-market-now-too-big-fail
Indeed, this blue collar dummy suspects that 2016 will usher in not only more marginal rate hikes but healthy sides of overt and stealth QE. CONfidence & Perversity are the only things holding this soup sandwich together now.
"You'll hear the printing presses from Mars." - Marc Faber
When the old rules don't work anymore, when no one (and no company) can have confidence that the future is somewhat predictable, and when .gov is ever more rapacious, then:
1) it's time to get very defensive, bring your assets closer to you
2) sell anything that will bve harmed in such an environment of .gov (also Fed) stealing.
Diversification in your personal assets! Gold, BTC, some CA$H should always be a part of a portfolio: stocks, bonds and real estate are no longer enough...
Mr. Yellen wiill go ahead and raise rates.....( well, raise rates like he did on excess reserves, which is a sleight of hand so as not to drain liquidity ).....a few more times for the impression that the Fed is in control. Only to turn around in 2017 when he has to whip out his tits and show his NIRPles. There will be one last bull run into 2020 and then the shit hits the fan.
Insane public perception management or bust and perverse financial and market manipulation, it's all over before 2020 I submit. Happy New Year and all the best BTW gents.
Anyone want to bet a Benjamin S%P will be up strong double digits 2016? We'll be talking this same shit next time next year.
Jim Rogers says Long China, Short US.
If in fact this 'New Silk Road' really begins to lay track, then yes, Mr. Rogers will be proven fantastically correct. Commodities will reverse course and so too will investment away from U.S. markets, again back to China, but this time in a much different way. We shall see.
http://fortruss.blogspot.com/2016/01/wolf-messing-predicts-collapse-of-u...
Who the fuck is Wolf Messing? Never heard of him.
"If Companies Are Telling The Truth"
"The truth"...now that is funny!
The whole system is one huuuge fucking lie!
"We" could not handle the truth.
I got my survey. I declined to participate in giving them any answers. It is optional.
Fuck the corporations! Stop buying as much as you can from them. Let their profit margins crash, let them burn.
i'm confused...do corporate profits have something to do stock valuations, economic outlook or some gernalized statement about economic health of the country?
People who have a company these days feel like they need to be succesfull and a millionaire.
If not, they feel like they failed. That's what daily television is telling us.
The number of business owners that are having a depression because of it, it extremely high.
And because most aren't millionaires, they feel like they're overpaying their staff and they'll take cheaper staff or increase the pressure to work harder.
It's another blip of society. And believe me, EVERYBODY!!! YES EVERYBODY would chose lot lower wages of their staff if they where put in the place of a business owner.
People in our society don't give a fuck about others or even family. People even enjoy the misfortune of others.
And don't look to for that. Just read this blog once a misfortune of a person is described. Everybody loves it when other people are down on their luck.
So NOBODY should blame a company for not raising wages. Especially if you're egocentric. And before you say you're not egocentric, what have you don't for somebody else last year?
Owning a business, especially a small business, is indeed very hard now. I hear you, and feel the same. Every other entity out there comes like a parasite to leech off of the productive.
It's gotten very bad to be a small businessman here in the USA, as well as in your part of the world SD (W Europe).
It's even getting more difficult in Peru.
Does your business make any money? Many are ready to come and help themselves to your earnings made by your efforts...
We're still making money but the pressure is insane.
And now, I've tried to explaine like a thousand times already to my staff that the gross money that comes in isn't pure profit.
Weirdly, most don't seem to grasp that and think I'm filthy rich. But 30% goes to the products, 50% goes to wages and infrastructure and not every month is a good month.
I certainly don't want to grow anymore this year or add staff. Now we're working for provisions for 2016.
I pay way over market prices to my staff, but now they all want more yet again.
I can't. I won't. And if their attitude doesn't change in the next 2 months, I'll fire 1 to make an example and hire a new one at market value.
They constantly complain why I have 3 cars, a swimming pool, a big house... and why they can't buy that.
Well... It's all on credit. I have more debt than anybody can imagine. But they don't want to hear that. And I work 16 hours a day, that's also all normal. But when it's time, most are gone home when the clock strikes 5.
Paying more isn't a motivator at all, it just convinces people to ask even more.
SD, you wrote:
"And I work 16 hours a day, that's also all normal. But when it's time, most are gone home when the clock strikes 5.
Paying more isn't a motivator at all, it just convinces people to ask even more."
Those two statements match my experience as well. Our two managers in Peru bust their butts too, long hours and more pressure.
MAYBE it's worth it to pay "important employees" somewhat higher than market. But, one of OUR important employees turned out to be cheating us on the side, we recently fired him. And, by Peruvian standards, he made good money.
Paying more isn't a motivator at all, it just convinces people to ask even more.
Yep. Crazy isn't it?
Its the same here in the States. And don't get me started on training them at X$ for 6 months before they want a raise or they walk to a competitor with a new skill set thanks to me. They look at my business like its a money tree that will keep giving to them. There's a limit. Sadly, I'm at it.
Paying more than market value without statistically significant evidence (several std dev) of an employee's increased work output vs the population = a form of something for nothing = entitlement.
Tell those losers to save their cash & take the risk of starting their own company. You, the owner, have the overwhelming majority of risk.
I'm not a business owner, but one day I hope to be. I know from experience with many different co-workers that the only way to maintain a stable work place is to keep EVERYONE busy with alligators up to their asses. These rebellions occur when people get too fat & happy.
Crack some skulls!
Sigh. I remembr when it all seemed to change in the 90s.
NAFTA
.....and GATT and coming up, TPP.
Only way to raise wages is to cut taxes and gut the regulatory agencies. The progressives have just spent the last 30 years getting things to where they like them. Progressives are not going to cut taxes except for their cronies. The progressives will not cut regulation.
The biggest lie. Corporations exist to maximize profits, nothing else. If you cut taxes they will increase their profits and executive compensation. They will only increase wages if needed to attract skilled workers or if mandated. Why in the world would a corporation willingly increase worker wages, from the goodness of their heart? That would go directly against their fiduciary responsibility to the shareholders.
good-will can be an asset.
For my entire life all heads of companies have consistently claimed they would raise hiring rates, and wages, if they received tax breaks from BIG Gubbermint. Furthermore, for my entire life all Corporate heads of industry have claimed that when they attain profits they always put those profits back into equipment, infrastructure, and new hiring. Moreover, at no point in my lifetime have Corporations actually accomplished what they have said they would do if they received tax breaks from BIG Gubbermint. Ergo, they collectively announce their lies, God damned lies, and statistics, each and every business quarter without fail. And each and every business quarter announcement is an exercise of pilling on the bullshit to feed a gullible, and unthinking ignorant, public. At no time has the convoluted rhetoric ever changed throughout my lifetime. Lastly, the best predictor of future behaviour is past behaviour, eh.
One thing that will be different this year is Trump calling out Yellen. He knows the Fed is trying to keep a bubble going and he does not want it going bust on his watch. He will start putting public pressure on Yellen and co not just for pumping up the bubble but for robbing savers to make profits for big banks.
He will rattle the Fed far more than Congress has and they do not operate well under political pressure.
They will shriek they are supposed to be politically independent and he will reply all that independence has been used to make money for the wealthy from the middle class and anyone who tries to defend them, such as Hillary, will be revealed as a defender of the .1%. Not a good position for Hillary. She may be forced to join him in attacking the Fed.
Huge shit sandwich... everyone take a nibble.
Many symptoms of a serious economic illness of the USA can be seen these days. More, a global elite broke a stick above US government and US citizens as voters for allowing psychopats to parasite on foreign countries in neocollonial style. USA are doomed by their national elites failure of responsibility, expoting chaos, financing extremists and harming oll the world. I seriously warn all the keen american people of a financial and economic terremoto expected for this year. Money must be separated from possesion and serve only as transaction instrument, no deposits and money market cannot be allowed. Big money is a poison intoxicating everyone having money as only at the forst place. Do not sell your morality and love for money!
Corporate profits to tumble? Couldn't happen to a nicer bunch of folk.