Billion dollars a year, earned (or taken?)
|May 19, 2007||Posted by Jeffery J. Smith under Progress Report, The Progress Report|
Billion dollars a year, earned (or taken?)
Record Market, Record Salaries
Not long ago, there were no billionaires. Then came Gates and crew. Recently some managers of hedge funds received paychecks of more than $1 billion each, way more than theyve been paid in the past.
by Jeffery J. Smith
If you can pickem, youre set. While the Standard & Poor’s 500 index returned 15.8% last year, many hedge funds did 40%. Centaurus Energy, before fees, posted 317%; it hasn’t done less than 200% since its founding in 2002.
Hedge funds pool the capital of very rich individuals or institutions such as pension funds who meet financial minimums set by the SEC. Unlike the more regulated stocks and bonds bought by mutual funds, hedge funds buy derivatives and other exotic debts which can hit the jackpot or swallow an entire investment. Hedge fund managers typically take 2% of the fund’s assets and 20% of its returns. (AP writer Tim Paradis, 1 May 2007)
Even if you cant afford a hedge fund, your stock should be paying off big, since the biggest factor in share value is not individual company performance but overall stock market performance. And how it has performed! The Standard & Poor’s 500 index is flirting with its historic high of 1527.46 set in 2000. The Dow Jones Industrial Average crossed 13000 for the first time in its history.
Such booms on Wall Street defy factors that used to keep stocks down. GDP is slowing, due to the housing-market slump. Gasoline tops $3 a gallon.
Businesses merely shrug given markets beyond the US borders. China and other emerging giants are lucrative. Plus, US exports have found buyers enjoying the growth of the economy in Europe, where more than half of foreign-affiliate profits come from.
Are giant corporations any longer national? Companies like IBM, Coca-Cola, and Intel all among the 30 in the Dow Jones Industrial Average derive well over half their revenue from abroad. In the final quarter of 2006, US-based corporations saw the earnings of their foreign affiliates surge to an annualized level of $272 billion, up 38% from the pace in 2005s Q4. That amounts to 15% of all US corporate profits.
Flushed with global profits, companies buy back their own stock and purchase that of others they merge. Both actions pump up share value. Media companies such as Dow Jones and Yahoo are among the stocks that have surged on rumors of acquisition (by News Corp. and Microsoft, respectively).
If youre on the sidelines, its hard to watch records be set and not want to jump on the bandwagon. However, if its darkest before dawn, its also brightest before dusk.
- May 2007, the share price for the S&P index is about 16 times the earnings for its 500 companies. That not as outlandish as in early 2000, just before the dotcom stock bubble burst, but its not cheap either.
- Some of those stocks performing the best are companies that typically do well during downturns relatively “safe” industries such as healthcare, utilities, and telecommunications.
- An old adage on Wall Street advises, “Sell in May and go away.” Historically, from May through October share prices average lower than during the winter-to-spring period.
Like farming, football, and fashion, markets are cyclical, too. As the US economy the globe’s largest economy that imports the most goods slows, other economies must slow, too. Those places will quit returning such fat profits to US firms. (Mark Trumbull, The Christian Science Monitor, 8 May 2007)
All booms must bust. As the price of land and resources rise, consumers have less money to spend on goods and services, the things that people do produce. As producers lose customers and cut back, the rest of the economy recedes, too.
To temper our bipolar economy, dont let societys surplus collect in few pockets, enabling an elite to bid up the price of land, resources, stocks, and bonds. Instead, direct bounty into everyones pockets by (a) charging full market value for such privileges as everything from corporate charters to resource leases then (b) paying citizens a dividend, a la Alaskas oil share. Some guys might not make their billion a year, but everyone will be much better off.
Jeffery J. Smith runs the Forum on Geonomics.
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