[conspire] HP Melt Down
Luke S. Crawford
lsc at prgmr.com
Sat Aug 27 02:36:06 PDT 2011
On Fri, Aug 26, 2011 at 12:59:24AM -0400, Edward Cherlin wrote:
> On Thu, Aug 25, 2011 at 21:26, Ruben Safir <ruben at mrbrklyn.com> wrote:
> >> One of the most important definitions of competition given by
> >> economists includes as an essential component getting out of
> >> unprofitable markets, and leaving them or selling that part of the
> >> business to those who develop a comparative advantage. As in
> >> IBM/Lenovo, and presumably HP and its so-far-nonexistent buyer (oops).
> >> No zombie corporations, as in Japan, no other forms of
> >> anti-competitive subsidy, etc.
> > The unit made a 7% profit over the last year which in most businesses is
> > a very considerable profit.
> This turns out not to be the case.
> In fact, the Dow Jones Industrial Average shows a long-term 11%
> growth. Similarly, the Vanguard S&P 500 Index Fund shows average
> returns of 10.55% since 1976. No "rational" investor will hold on to
> any stock or any line of business with long-term prospects
> substantially below that.
Well, yes. But last year was brutal. While I agree that we all want
more than 7% a year out of a stock during normal times with normal
inflation, but over the last year? I think most of us would settle for
any positive number, and if the yields on T bills have anything to do
with it, many of us are okay even if that positive number dips below the
official estimates of inflation. Current yields on T-bills would indicate
that many people with money feel that this situation will continue for
some time and that they'd rather lock in extremely low yields on safe
government debt rather than take the risk of owning stock in a public
company. (this also means that many people with money think that
we are in something like a Japanese-style liquidity trap and won't
be getting out for some time yet.)
I mean, I agree if 7% was the profit margin you'd expect selling
computers in a reasonable economy, when you have reasonable inflation,
by public company standards, that's kinda a dud; you can probably
find more profitable places to put your money and leave computer
building to guys like me who are okay working for next to nothing
to build up a business. I'm just saying; the last year? not a
reasonable economy. Not a reasonable amount of inflation. Making 7%
in a brutal downturn like we're seeing right now in the middle
of a liquidity trap? not bad at all.
the 10% gain since 1976 number is not telling the whole story;
There were some years where inflation was above 10%; Really, I think
that stocks should be measured as 'gains over and above T-bill yield'
or something like that. At the very least, gains should be adjusted
for inflation. A good yield on a stock today would have not been keeping
up with T-bills in the 80s.
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