Wednesday, August 10, 2011

No Capital Gains Without Profits

and no profits without economic growth.

I will say it again for the cheap seats. The Dow should be trading at around 8,000.

8 comments:

I-RIGHT-I said...

I'm thinking 10 is the time to start looking. These people will sell their mother's before they allow it to go to 8. Obama and company should start watching their backs now.

Anonymous said...

Twice during the 20th century, the Dow Jones was valued at one ounce of gold. When all this debt is finally unwound, do not be surprised to see the Dow valued at one ounce of gold.
No one knows the number, perhaps a 4000 Dow and a $4000 ounce of gold. This ratio has always been a bottom indicator, the Dow at 35 in the depression, the Dow 800 in the early eighties. The talk at the time was of doom and gloom.

This debt unwinding process has still not really started. Stay tuned, there is a lot more on the way.

Ryan Fuller said...

You can have profits without economic growth, Captain.

If the same companies as last year produce the same amount of goods at the same cost and sell them for the same price, economic growth is zero. Profits will be whatever they were last year.

Hot Sam said...

It may get close. I have my DOW 10K hat ready for tomorrow.

I knew yesterday was a dead-cat bounce.

MrUNIVAC said...

It's easy to have profits without growth. Have a bunch of overseas operations, and then get Teh Bernank to crash the dollar with quantitative easing. When pricier foreign currency gets translated into U.S. dollars, even flat profits LOOK great!

h/t Charles Hugh Smith

ShreyasKaptan said...

Not entire related Cap, but you might enjoy this. Now is the right time to ask Obamasaurus where all the money for the Green jobs went.

http://news.yahoo.com/nasa-data-blow-gaping-hold-global-warming-alarmism-192334971.html

Anonymous said...

I'd like to mention here that quality of profits matter.

There are lots of companies that are making increased profits through cutting costs, mainly employees. Those are not quality profits.

There are other companies that are increasing profits through the art of financial engineering and tax avoidance. Those are not quality profits.

The key to quality profits is revenue increases - but even that can be bogus if the revenue increases come from acquiring another companies which has revenue.

I'm guessing that most of the "profit" being reported isn't due to growth of revenue, in which case the market is irrationally over-valued.

Ryan Fuller said...

"There are lots of companies that are making increased profits through cutting costs, mainly employees. Those are not quality profits."

Just what we need: another stupid pseudo-economic concept.

Profits are a measure of the difference between input and output. Whether they achieve that by reducing input or increasing output is irrelevant.

Companies that turn a profit through some special loophole of the government are just showing us that the government has screwed up and we need to fix that, not that we need to start distinguishing between good profits and bad profits.