Why do I think the stock market will plunge this year? Because most companies are boosting their stock prices not by developing new products or selling more goods and services but by slashing their payrolls and buying back their shares of stock. These steroidal tactics are generating temporary boosts in share prices, but they can’t be sustained. There are only so many workers to be sacked and so many stocks to be repurchased. These companies remain as incapable of generating things people want as before. Consider Hewlett-Packard, which yesterday announced plans to cut an additional 11,000 to 16,000 jobs. Wall Street is enthusiastic, pushing the stock up more than 6 percent today. But the tactic won’t work over the longer term because Hewlett-Packards PC sales are dropping and business customers are shifting toward cloud computing, where it’s not a major player. More to the point, as big companies across America continue to shed middle-class jobs in pursuit of lower costs, median household income continues to drop. Which means fewer Americans can afford to buy what these companies have to sell. Which means these companies profits are bound to shrink and their stock prices to drop. Get it? Workers are consumers. As these companies workers do worse, so do their customers, and so, ultimately, do they.
Posted on: Sat, 24 May 2014 04:03:05 +0000
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