< HOME  Saturday, January 21, 2006

What comes first, the Profits or the Wage?

Apparently, you can't have both. Or, so it seems. Profits and wages, just like all other business outflows, come from the same revenue stream. Each necessarily impinges on the other, which creates a dilemma.
Digging out of the red will be a tall order for U.S. stocks next week after Friday's big losses unless the corporate profit picture improves and the international tensions driving oil prices through the roof ease.
Now, since we know oil prices aren't going to ease anytime soon, that means "improved profits" will have to be wrung from elsewhere. Wages and benefits are the first items on the corporate agenda.

But wait, you say, wages and benefits are already low, and if every corporation cuts jobs to increase profits, who will do all the work?

Well, they could close down some plants and move operations to cheap labor markets. This would get rid of excess capacity, solving the wage problem, and eliminate excess supply of goods, easing the deflationary pressures on prices as an added bonus! Two birds with one stone.

But wait, you say, corporations have already done these things on a fairly large scale. Could they possibly intend to do more of the same? That would be national economic suicide! (Or, more accurately, genocide.)

What about the alternative? What happens to stocks if corporate profits don't improve?
"Investors are having to deal with the reality of lower corporate profits," said Michael Strauss, chief economist at Commonfund in Wilton, Connecticut. "And the stock market is starting to feel that impact."
In other words, when profits aren't cutting it, those who wield the big bucks (institutional investors) deal with it, alright - they take their money elsewhere!

But wait, you say, you mean that investors don't give a damn what happens to domestic corporations after they pull the equity rug from underneath it? Clearly, no.

They owe allegiance to no one. They sell on a heartbeat. The price of stock tumbles and loyal investors are not only left with stock that's worth less, but they face an uphill battle to raise capital. The stocks are no longer attractive, and bond buyers demand higher interest rates on any new corporate bonds issued.

But, wait a minute. What's going on here? Is it the investors that don't give a damn, or is it the traders? Or, a combination of both?

Small-time individual investors tend to hold on to their stocks as long as the company's product or service is marketable and in demand (e.g., Independence Air). They don't look at the company's financial statement, their debt to equity ratio or consider the impact the terms of their loan agreements will have on interest payments when the Fed increases interest rates.

Also, many individual investors don't do their own trading. Professional brokerage houses do their trading. And brokers, of course, make money whether or not the stock's value plummets. Sure, they claim to please their clients. But after all, losses are the nature of the game. Most individual investors will not complain, even if they lose 50%, or more, of their investment because the amount at stake, in absolute terms, is not very big.

In contrast, institutional investors do keep a close eye on corporate financial statements and debt to equity ratios. They carry much of the corporate bonds, after all. And, they know what's going to happen to the supply of capital in the marketplace and its impact on the cost of doing business. They, along with the banks, ARE the supply of capital!

You see, profits and wages are not born in a vacuum. Other costs come into play: energy, raw materials, and of course, everyone's favorite -INTEREST - the elephant in the room that keeps raiding the pantry unnoticed. But, these other factors are all controlled by the same greedy bastards that control the securities markets.

So, when the media starts toeing the line that profits need to improve in order to save the stock market, they really mean that workers need to cough up more blood to satisfy the insatiable greed of those who control the financial markets (securities and money). And it's painfully obvious that that greed cannot be satisfied.

American industry is already gutted. And now these bastards want our city, state, and our federal government, which, by the way, are all corporations, to implement the same austerity measures as their for-profit counterparts. They not only want to export American jobs overseas, they want to shut down the entire nation! Standard operating procedure for vulture capitalists.

The securities market is nothing but a colossal game of Monopoly - and it's rigged in favor of those who control the money supply and those who control the trading. When they tell you we, as a nation, must increase profits to save the stock market, tell them that profits must stand in line. Wages and our lives come first.

3 Comments:

At Monday, January 23, 2006, Blogger Digital Spy said...

I live in South Australia and I can assure you the profits come first. There is a large hardware chain here in South Australia and this is how they treat their workers (during the hottest period since the 1940s). This is a three day period (out of a 20 day heatwave - all temps in celcius)

Day #1 44 degrees - staff allowed to remove aprons
Day #2 45 degrees - staff all given one ice block (cheap lemonade type $1 retail).
Day #3 46 degrees - staff told not to expect an iceblock as they (the company) don't want to set a precedent.

These are the temperatures INSIDE the large warehouse style store. Staff were not allowed to have extra short breaks through the day or to carry water with them as they worked.

Profit comes first

 
At Monday, January 23, 2006, Blogger qrswave said...

that's because our governments have been hijacked by ruthless purveyors of dishonesty and injustice.

This must end. It's a crime against humanity and nature and it's unsustainable.

 
At Monday, January 30, 2006, Anonymous Anonymous said...

well i like cheese and if you think hard enough about i like cheese you will realise something about the cooperation and save Jimmy!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

 

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