Question for economists--why great "profits" and low stock market

[mistertrickster]

returns? I don't get it--the papers keep saying that the productivity increases are all going to "profits" and "capital," but the stock funds still pretty much suck just as they have ever since W=wrong took power.

Dow down several points over THREE YEARS and the S&P is much worse. NASDAQ is some 60 percent off its all time high (5000 to less than 2000).

What's up? Who's getting all the "profit"?

[wtmusic]

1. Stock market values are based on public's perception

much more than they are on actual earnings.

[mistertrickster]

3. nod, that makes sense . . . it was too high and now it's too low

So, the smart money is riding it out?

[wtmusic]

9. depends on when you need the money

if you have some cash to fall back on, just ride it out

[billbuckhead]

2. The dollar has collapsed against the euro

to foreigners the stock market is at 6700 instead of 10000

[rfranklin]

4. It means that Wall Street doesn't believe it for a minute...

that these are either real profits (books can be cooked as we all know) or they have zero faith in the future performance. And there are tens of thousands of really smart people on Wall Street who are figuring, figuring, figuring with models and projections and analyses up the ying yang and while they cannot predict the future they can pretty well know that if it smells like dead fish, it's probably dead fish.

[Professor_Moriarty]

8. Astute Wall street analysts look at what is called the quality of earnings

The quality of earnings involves whether the same corporations that have made money today are likely to continue their performance several years down the road when competitive pressures will heat up and pricing flexibility and margins may disappear as when the patents for several blockbuster drugs for the pharmaceutical industry expire.
The quality of earnings is likely to be dire for automotive companies
because of worldwide overcapacity,negative perceptions of American automobiles and the leap in hybrid technology taken by Japanese carmakers and the impending avalanche of cars coming from China.

[mistertrickster]

10. Thanks and welcome to the DU club, Professor

[Nite Owl]

5. The market's definition of what is

is depends on what the outlook is for the next quarter more than the present. Companies may meet this quarter and warn for the next. No one knows who will be President next year or what the policies will be, there is uncertainty in the future, will we be attacked, Iraq etc. so why put out now. It's a waiting game.

[On the Road]

6. Stock Market Was So Overvalued in 2000

that it's just starting to return to more reasonable values. Here's a target based on long-term valuations:

http://www.democraticunderground.com/discuss/duboard.php?az=show_topic&forum=114&topic_id=10381

On Edit: It probably has another 20-30% still to decline.

[Warpy]

7. "Profit" is kind of a slippery term

Most corporations have fancy accounting systems that let that let them offset net profit by things like subsidiary losses, depreciation, and other debit column fantasies. The profit is there, but the corporation makes damned sure none of their small stockholders see much of it.

[Yupster]

11. The markets are driven by emotion

and right now people are scared.

There just aren't enough buyers out there.

A company increases its profits 6 %, but people don't care. They're looking at all the things that could go wrong.

It's the exact opposite of the tech bubble in the late 90's when all these internet companies had never made a dollar profit, but people were buying them anyway.

It was emotion. They were seeing the possibilities of the future rather than the arithmetic of the present.

Then came the tech bubble and Enron, and the year 2000 was the worst in 20 years for the stock market and then 2001 was worse and 2002 was even worsier.

It will take a long time before people get their confidence back regardless of who just raised their dividend to 3 %.