Goldman Sachs forced to fundamentally question how capitalism is working

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http://www.theage.com.au/business/world-business/goldman-sachs-forced-to-fundamentally-question-how-capitalism-is-working-20160204-gmljq0.html?google_editors_picks=true

One of the most heated debates among investors is the question of whether corporate profit margins can maintain their elevated level, or whether they will inevitably mean revert.

A new note from Goldman Sachs Group analysts led by Sumana Manohar looks at the bull and bear arguments for the profit margins debate.

Manohar argues that profit margins have expanded thanks to three key trends: strong commodities prices, emerging market cost arbitrage (companies making things more cheaply in emerging markets), demand growth from emerging markets, and improved corporate efficiency driven by the use of new technology.

Continuing one of its major analytical themes of recent months, Goldman also notes that the market has rewarded companies that have undertaken mergers and share buybacks, compared to companies that have invested internally, further bolstering margins.

So will profit margins inevitably roll over?

Goldman goes through both sides of the argument. On the bull side, the bank says that ongoing consolidation in industries, cost deflation, and tighter purse strings help keep a floor under margins. Ultimately though, it thinks that the above trends, coupled with weak demand and general industrial overcapacity, mean that margins are likely to come down.

But what if margins stay elevated? That too is possible, and the implications could be unsettling.

Goldman says “we are always wary of guiding for mean reversion. But, if we are wrong and high margins manage to endure for the next few years (particularly when global demand growth is below trend), there are broader questions to be asked about the efficacy of capitalism.”

In other words, profit margins should naturally mean-revert and oscillate. The existence of fat margins should encourage new competitors and pricing cycles that cause those margins to erode while conversely, at the bottom of the cycle, low margins should lead to – weaker players exiting – the business and giving stronger companies more breathing space. If that cycle doesn’t continue, then something strange is taking place.

Needless to say, it’s not every day you see a major investment bank say they might have to start asking broader questions about capitalism itself.

 ———-

“Goldman also notes that the market has rewarded companies that have undertaken mergers and share buybacks, compared to companies that have invested internally, further bolstering margins.”

and we have seen M&A everywhere..

“Needless to say, it’s not every day you see a major investment bank say they might have to start asking broader questions about capitalism itself.”

wont matter what “ism” its called..GS will still be around the top of the pyramid..

401

~ by seeker401 on February 7, 2016.

8 Responses to “Goldman Sachs forced to fundamentally question how capitalism is working”

  1. What a load.

    “Manohar argues that profit margins have expanded thanks to three key trends: strong commodities prices,”
    Have you looked at commodities? How about the Baltic Dry Index which tracks the shipping of raw materials?

    “emerging market cost arbitrage (companies making things more cheaply in emerging markets),
    Which has destroyed The European & U.S. consumers by eliminating their jobs while keeping slave-wage levels in “emerging markets” so they have no middle class.

    “demand growth from emerging markets, and improved corporate efficiency driven by the use of new technology.”
    Demand growth in the so-called “emerging” markets is artificial and government-driven, as is evidenced by city after empty city being built in China & the MASSIVE debt they’ve accrued in a short period of time, to rival and eventually surpass even the unmanageable U.S. debt.

    The act of globalization and the merging of former corporate rivals has created a monster tottering on a tower of borrowed fiat cash, with no sales to support it from an increasingly destitute world population.
    And if you’ll notice, innovation and progress has already slowed down to a snail’s pace, with no new products being introduced since the flat-screen TV or “smart” phone.

    And it isn’t even simple greed that is driving this catastrophe, as those in charge are already wealthy beyond human comprehension, it is the simple desire to elevate their own status by impoverishing the rest of the global population…they no longer wish to climb higher on the ladder themselves, they only seek to kick everybody else off the ladder.

    • The act of globalization and the merging of former corporate rivals has created a monster tottering on a tower of borrowed fiat cash, with no sales to support it from an increasingly destitute world population.

  2. Mkts are diving again in the Chinese Lunar new year of the fire monkey..

  3. They gave us this hint in the 1988 Economist Mag. cover. . .

    2018? two more fine years..?

  4. http://www.dailymail.co.uk/news/article-3639497/Goldman-Sachs-paid-prostitutes-luxury-trips-lavish-parties-bid-win-800m-investment-Colonel-Gaddafi-s-Libyan-officials-court-hears.html

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