Sun Apr 28th, 2013 at 04:16:31 AM EST
Some random reading on the internet got me thinking today:
Apple's new pitch to investors | Felix Salmon
Apple is trading at an astonishingly low valuation, with a p/e ratio in single digits, because it has now become that animal investors like least: a slow-growing tech stock. Either one is fine on its own, and both slow-growing stocks and fast-growing tech stocks can support much higher multiples than Apple is seeing right now. But conservative investors, who like slow-growing stocks with high dividends, are constitutionally uncomfortable with the volatility inherent in the tech world. And technology investors, who are happy taking that kind of risk, want to see substantial growth. Apple, notwithstanding the fact that it's one of the most valuable companies in the world, is falling through the capital-markets cracks.
front-paged by afew
It got me wondering about profits and Aggregate Demand.
We know empirically that wages do more for AD than profits - but I wonder if profits have also reduced in their AD potential over the years.
First, as with Apple, we've constructed a sector of companies where dividends don't really exist. As a result corporate profits tend to go into the bank. Which leads us back to the banking-AD transmission problems we already know about.
As the same time in terms of the particular problem of immediate AD, it strikes me that even dividends are problematic. If, as is often asserted, many shares are owned by retirement funds then we have an extra problems.
(As an aside I'm not sure that the "retirement funds own the corporations" narrative is correct, but I haven't worked out how to prove/disprove it.)
Anyway, the extra problem - profits go into dividends, which go into retirement funds - some of which go to paying out pensions right now, but the majority of which still go (due to demographics) to further investing in assets. So with the expansion of private retirement funds it seems we've largely created an asset-profit-asset cycle, which actually sucks money out of the rest of the economy.
Of course, the first defence of the free-market economist is that profits being used to buy assets enables investment. However, since the asset classes in question rarely involve new cash into businesses, we need to view this with scepticism...