Money For the Rest of Us
Dissecting Stock Returns: Financial Engineering or Genuine Growth?
Dec 6, 2023
Exploring the link between corporate profit growth and economic growth, the decline in publicly traded stocks, the impact of leveraged buyouts, and the relationship between GDP growth and stock returns. Also discusses the decline in manufacturing workers, financial engineering, and the volatility of stock market returns.
27:43
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Quick takeaways
- Financialization has influenced corporate profits and stock market performance through financial engineering.
- Recent stock market appreciation has primarily been driven by an increase in valuation, indicating investors' willingness to pay more for earnings.
Deep dives
Impact of Financialization on Stock Returns
The podcast episode discusses the concept of financialized growth, which refers to the role of financial motives and actors in driving economic growth and stock returns. The speaker reviews a paper by economist Michael Smoyansky, who predicts that stock returns will be lower due to the influence of financialization, specifically lower tax rates and interest rates. The analysis reveals that corporate profits tend to grow faster than the economy, which is unusual, indicating the impact of financialization on stock market performance.
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