dazu von Kurt Richebächer The Profit Mystery

verfasst von Fontvieille, 05.01.2002, 18:18

Dr. Kurt Richebächer
The Profit Mystery

"Goodwill" in corporate balance sheets generally reflects the preposterous difference between the crazy prices paid for acquisitions in excess of the asset values shown in the books of acquired companies. The mystical profits never materialized. All of a sudden, multi-billion dollar"goodwill" write-downs and restructuring charges are littering American and British corporate income statements.
--------------------------------------------------------------------------------

CANNES, France - The bullish argument for the American profit miracle was that the alleged tech-driven acceleration in productivity growth would persist for years to come, leading to lasting, big gains in profit margins.

The productivity mirage was the first erroneous assumption of the New Era.

Productivity gains do not automatically accrue to business. Depending on conditions in the labor and product markets, they may be absorbed by lower prices or higher wages. We have argued all along, of course, for reasons explained, that there never was a productivity miracle in the first place.

There are three phases of the U.S. current business and profit cycle. As shown, the magnificent part happened between 1992-95, well before anybody spoke of a new paradigm economy. In actual fact, profits received their main boost during these years from a plunging interest rate bill and an unusual decline in depreciation charges.

Our focus has always been on the second phase from 1995 to 2000 as the cherished new paradigm boom years, during which profits according to the national income data rose overall just 20%, while the Dow Jones and the S&P 500 more than doubled. Not to speak of the Nasdaq, which more than quintupled.

All this confronts us with three pertinent questions:

1. First, how could Wall Street impose the perception of a profit miracle that flagrantly contradicted the poor performance shown by the official National Income and Product Accounts?
2. Second, how do we explain this unusually poor profit performance?
3. Third, what is the further profit outlook?
As to the first question, the answer lies in the rise of aggregate earnings per share as reported by the individual companies, and aggregate profits as calculated and reported within the framework of the NIPA. Over the last five to six years, they have differed like day and night.

Earnings per share more than quintupled between 1992 and 2000 from little more than $10 to a peak of $56. After 1997, the surge even turned vertical, while the government's NIPA figures went into a drastic slowdown. These phenomenal growth rates of earnings per share supposedly justified the sky-high price-to-earnings ratios that the booming stock market delivered during the past few years.

But the marvel was only in the quarterly corporate earnings reports.

Official NIPA figures revealed a less than mediocre profit performance even before the downward revision of late July, considering that the economy was booming. How could the glorious perception of a profit miracle endure in the face of this preposterous incongruity in the available numbers? Very simple: Completely ignoring the dismal NIPA figures, analysts and investors had their eyes exclusively fixed on the heavily manipulated company-reported earnings.

Observing this gross discrepancy between the two sets of figures, we have been sounding alarm all along. Very few others took offense. Most probably, the great majority of economists, analysts and investors never noticed. For believers in the new paradigm economy, the trumpeted profit miracle was in perfect conformity with the trumpeted productivity miracle.

Remarkably, it's now the company-reported earnings per share that are taking the worst beating, being actually down by more than 60% against a year ago. Whopping write-offs and extraordinary charges to earnings are ravaging company-reported profits.

All of a sudden, multi-billion dollar goodwill write-downs and restructuring charges are littering American and British corporate income statements."Goodwill" in corporate balance sheets generally reflects the preposterous difference between the crazy prices paid for acquisitions in excess of the asset values shown in the books of acquired companies.

Months ago, the Federal Accounting Standards Board decided to end the obligatory, gradual amortization of goodwill from the start of next year. Only when the assets lose value will they have to be written off.

Could it be a sudden outbreak of honesty that is causing CEOs to act like this? Hardly.

First of all, in hindsight it is all too obvious that the accumulated goodwill is in most cases truly worthless, adding nothing to profits. But there may be a second reason for this rush to write off goodwill. Though it may appear crazy to make losses look even worse, it is helpful in reducing expenses and enhancing earnings next year and thereafter.

All of which inherently raises the question of the causal connection between today's huge write-offs and yesterday's glorious profit performance. Along with tame inflation, stellar productivity growth and low unemployment, outsized corporate profits were seen as one of the pillars of the New Economy that underpinned the stock market's bull run.


<ul> ~ Quelle</ul>
<center>

<HR>

</center>

Thread gesperrt

 

gesamter Thread:

• Malik: Verbrannte Investitionen - Philipp Steinhauer, 05.01.2002, 17:09
  • Re: Malik: Verbrannte Investitionen / Perfekt, wenn auch uns allen nicht neu! (owT) - JüKü, 05.01.2002, 17:17
    • solche Wahrheiten kann man sich gar nicht oft genug reinziehen! (owT) - Fontvieille, 05.01.2002, 17:57
  • dazu von Kurt Richebächer The Profit Mystery - Fontvieille, 05.01.2002, 18:18