Free-Money Party for Corporate Profits Turns into Hangover amid Rising Costs and Pressured Revenues

“We are entering an EBITDA recession”: S&P Global Ratings.

By Wolf Richter for WOLF STREET.

Inflation was supposed to be good for corporate profits, according to Wall Street lore, and it was until it wasn’t – until the rising costs and falling revenues caught up with them.

Corporate profits before taxes in Q1 fell for the third quarter in a row, this time by 1.3% from Q4, after having dropped by 4.8% in Q4, and by 4.9% in Q3, according to today’s release by the Bureau of Economic Analysis.

Over the three quarters from the peak in Q2 2022, corporate profits have now dropped by 10.7%, the steepest drop over three quarters since 2009. But back then, the economy was deep into the Great Recession. Now there’s raging inflation:

These pre-tax profits here are by all entities that are required to file federal corporate tax returns, including private corporations, LLCs, and S corporations, plus by some organizations that do not file corporate tax returns.

This measure of pre-tax corporate profits is called profit “from current production” because the profits exclude dividend income, capital gains/losses, and other financial flows to companies, and they also exclude some adjustments, such as deduction for “bad debt.”

We note with forever-amazement in the chart above the huge artificially inflated spike in corporate profits from Q2 2020 through Q2 2022, when the trillions of dollars in pandemic money-printing and in fiscal stimulus spending washed over the land.

We remember with forever-amazement the huge direct payments to companies, such as the $50 billion that was handed in 2020 to the airlines, that ultimately wash through to income, and the $790 billion paid out in PPP loans, of which $757 billion were then forgiven, at which point they also became income. The magnificent spike in corporate profits from Q2 2020 through Q2 2022 is testimony to that largess.

But the profit spike is also testimony to the phenomenon of companies suddenly jacking up prices because they could, and they could because consumers and businesses, afloat in free money, were suddenly willing to pay whatever. Good times were had by all.

Now comes the hangover, with inflation, higher interest rates and funding costs, higher wages, and generally higher input costs, squeezed profits, and pressured revenues.

“Entering an EBITDA recession.”

S&P Global Ratings, in its now up dated report for Q1 of rated nonfinancial companies, based on earnings reports so far, found that:

  • Revenues fell 0.6% year-over-year.
  • EBITDA fell 2.9% (earnings before interest, taxes, depreciation, and amortization). “We are entering an EBITDA recession,” it said.
  • Excluding oil and gas, metals and mining companies, EBITDA fell year-over-year for the third quarter in a row.
  • Cash interest payments, after falling year-over-year for eight quarters in a row through Q2 2022, have started to surge, and in Q1 spiked by 15% year-over-year, “as interest rate rises feed through,” it said.
  • “Margins are starting to compress but remain elevated with companies still retaining considerable pricing power,” it said.
  • But Capex growth surged up 16% year-over-year, “with oil, gas, metals, and mining in particular ramping up investment.”

So the Easy-Money party is over, in terms of profits. And the hangover is here, amid the bad breath of rising costs and pressured revenues.

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

  115 comments for “Free-Money Party for Corporate Profits Turns into Hangover amid Rising Costs and Pressured Revenues

  1. DocMo says:

    With the Nvidia and AI hype, this market can run higher for longer, defying fundamentals and frustrating bears and conservative bulls for sure.

    • Wolf Richter says:

      Wolf Street Corp announces that it will replace Wolf with AI and change the stock ticker of Wolf Street Corp from WSHW (Wolf Street the Hard Way) to WSAI. Stock spikes by 1,000% in afterhours trading. Wolf dumps all his shares and makes a ton of money, then unplugs the AI and goes back to work on his articles, under the new motto “By a human, for humans.” Shares crash, but it doesn’t matter because Wolf had sold his entire stake at the peak price to the AI jockeys.

      • Brendan says:


      • MitchV says:

        You joke but this this is essentially what tech companies have been doing for decades. Replace AI with electric cars, streaming, vaccinations, toilet paper during covid, fintech, internet based anything, etc, etc.

      • Nebukadnezar says:

        Let’s go.
        I’m in.
        Where can I buy shares of your company ? :)

        • Tanstaafl says:

          It’s not just “a company”, it’s the Wolf Street Media Mogul Empire.
          So, you have to pay more for the name alone.

      • BillTheCat says:

        Dewey, Cheetum & Howe LLP (aka Magliozzi Bros. Inc.) files a class action lawsuit on behalf of investors against Wolf Street AI……

      • 91B20 1stCav (AUS) says:

        …91B20 looking, again, at his expectorated afternoon cafe on the tablet screen, says (between gasps): “…dammit, Wolf!!!…”.

        may we all find a better day.

      • Cas127 says:

        The recent surge of AI hype (the “next big thing” for 40 years and 8 iterations) does indeed have the stink of Wall Street “what vaporous crap can we pitch next?!” emanating from it.

        I haven’t looked too deeply into the Nvidia AI “boom” but it does seem to be coming at a suspiciously similar time that Nvidia’s actual core crypto business may have the wheels coming off (crypto is a lot less appealing when DC will actually deign to pay you interest on your savings held in Treasuries).

      • SocalJimObjects says:

        I am disappointed because the words Crypto and Bezzle are missing from that new company name!!! Each is worth 100 Billion or so

        • bart says:

          You are behind the curve.. Adding Crypto reduces the value of your company, even when you only sell CryptoN – The gas

      • Bobbleheadlincoln says:

        Ah, Wolf Richter, the master of pointing out the Fed’s lack of integrity. It’s like watching a wolf howl at the moon, expecting some sort of profound revelation. But hey, maybe we should cut them some slack. After all, when it comes to integrity, the Fed seems to have a “reserve” of zero. They’re like the magician who keeps pulling rabbits out of their hat, except instead of rabbits, it’s just more financial shenanigans. It’s almost impressive how they can make a lack of integrity look like an art form. But hey, who needs integrity when you can just print more money, right? Keep howling, Wolf, someone’s gotta hold ’em accountable, even if they keep turning a blind eye.

        You laugh Wolf, but that right there was 100% written by ChatGPT.

        • Lynn says:


          I’m now imagining thousands upon thousands of AI catfish all catfishing each other on dating sites and bureaucracy to match what Author Dent went through when his house was scheduled for destruction.

        • cheifsittingduck says:

          That was awesome and scary at the same time.

        • Z33 says:

          ChatGPT is hilarious because when you ask it to provide references/citations it fabricates them. When you ask for the original document of the reference it provided, it also fabricates that. Fake it til you make it I suppose. They call it “hallucination,” but I call it lying…

        • Seba says:

          May 26, 2023 at 11:36 am

          ChatGPT is hilarious because when you ask it to provide references/citations it fabricates them…”

          That’s amazing, I didn’t even get those, it just said it used it’s vast database it was trained on or whatever. It did however fail to do some simple math for me, then argued with me that it is correct and then did some bad math to explain how it’s incorrect math was in fact right, until I finally provided it with the correct answer and it conceded

          Having said that it’s quite a step up from old chat bots for sure, it would do quite well as a FAQ or Help feature for a lot of companies who currently have bots whose only real purpose is to receive the “speak to a representative” command a couple times and provide contact to a human who can actually help. It’s not really AI as I understand it, but it’s definately progress

        • RichardW says:

          “until I finally provided it with the correct answer and it conceded”

          In my experience it doesn’t concede because you’ve proved it wrong. At some point it just decides to treat you as another learning source, and accepts what you say as fact. You can get it to accept BS.

          I tried asking it some questions about Diplomacy, a strategy board game I used to play in my youth. It claimed to know the rules of the game, but it only had some half- baked vague knowledge about it. I asked it to cite the first few paragraphs of the rules, and it responded with its own confused version of the rules. When I insisted that it quote the original text, it couldn’t do so. It may have had the original text among its source material, but it doesn’t eem to remember the material verbatim. It just “learns” from it. In this case its learning was cr*p. When I corrected its mistaken answers, it accepted my corrections, but continued to talk about the subject with the same apparent certainty as before.

          I expect this sort of AI will have some practical uses. But there’s a lot of hype. I’m old enough to remember when “expert systems” were going to replace many jobs in the 1980s. That turned out to be a nothing burger.

        • 91B20 1stCav (AUS) says:

          Richard W. – (wow, another ‘Diplomacy’ player!). Upon reflection, seems I’ve known many humans who’ve responded just like your encounter with ai (not excluding myself on the odd occasion…).

          may we all find a better day.

      • SoCalBeachDude says:

        Excellent and timely plan! A+++

      • CommonCents says:

        Good article, and great comment!

      • davejr says:

        I’m glad Wolf the human came back because Wolf the AI was a pretentious idiot, as witnessed from the consumer’s side of things.

      • MitchV says:

        Makes me pine for simpler days, when most the pump and dump schemes were related to new potential gold mines in Malaysia. Oh well, I wonder where the next subsidized battery plant will be announced.

        • phleep says:

          Oh, but the innovation is so exciting because you can sell something ((in circles) that is literally intangible, but Wow!!! It’s digital and networked!! And now, you completely don’t need humans for any part of it. The suckers and flim-flammers can all be digital too. Why watch a human e-gamer struggle and lose every time to a digital one?

      • Nat says:

        You joke, but if you were publicly listed and that were a real anouncement your stock would go up lik 30% or more automatically, even if the end result was that everything fell apart and Wolf street collapsed because of the decision. You would be trading at like 200 x P/E right up to the stock bail-in of your creditors.

      • Some Guy says:

        Nice one. Why do I feel like you only had such a big pile of shares in WSHW in the first place was from flipping your bed bath and beyond shares.

      • JX says:

        JPM is working on something-something-GPT to attract more investor money

    • Leo says:

      “Corporate profits before taxes in Q1 fell for the third quarter in a row.”

      And despite this Nasdaq has rallied 23% in last 5 months. Are our investors retards. Can they not distinguish crypto hype and spac hype from AI hype.

      Or does “the club” guarantee availability of a greater fool (the AI algorithms handling passive pension funds).

      • JeffD says:

        The problem is that chatGPT related AI is not hype. The underlying math is applicable to what is needed (pattern matching and template generation like in generating routine legal contracts or real estate documents). This is very different than autonomous vehicle hype, where they are trying to use pattern matching and template recognition to address a problem where more than that is needed (crashes happen because of the unexpected exceptions, not the routine templated driving situations). ChatGPT similar AI is real, and will put 80% of people out of work who don’t *really* understand their job, but just go through the motions based on some simple rules of thumb and basic info.

        • American Dream says:

          I doubt AI replaces even 8% of workers much less 80%.

          Maybe 80% of hack journalist that are out there.

          Only thing I’ve seen it do is media related and work as a search engine

          How does AI do sales jobs, or trade jobs, even mid manager responsibilities seem ambitious.

          Maybe in 20 or 40 or 60 years

          With any luck we’ll get a robot revolution to put the earth out of it’s misery

        • roddy6667 says:

          That’s what they said about every new thing to come down the pike.

        • phleep says:

          but not every new thing that came down the pike succeeded. Many have failed. As have the crowds which (ever-more-rapidly now) climb onto and off of those bandwagons.

        • Publius says:

          The hype of AI is that it’s not just code, it’s self-learning code, but it’s learning in the manner it was coded to learn. A step ahead, but GIGO still applies.

        • Miller says:

          What’s “real” about chatGPT and similar hyped chat-bot tech is the sheer volume and level of textual garbage they’re able to spew out–the fact that it can (occasionally) put a sheen of superficial utility on the mess that it constantly makes, actually makes its output that much worse, not better. Our team lately have been developing an attitude of cynical mocking for all this hype and over-selling of chatGPT and “Nvidia AI” because it’s become increasingly clear, to put it mildly and charitably, that a huge percent of the hype is coming from promoters and fanboys who don’t actually have to get real work done in the real world. And by “real work” what we mean is critical tasks that need to be done right, with quality and accuracy. That’s where chatGPT is really having an effect and it’s a very negative one–it floods the information space with so much misinformation and low-quality (but superficially appealing) takes that it crowds out the small amount of info and interpretation we actually need to really solve problems and make good decisions.

          That’s the main “contribution” of chatGPT and these other AI fiascoes lately, they add so much noise to the textual info space that they drown out the signal we actually need to get things done, leading to massive disorganization. It’s the digital equivalent of having a clean well maintained office, with the files you need carefully kept in organized folders, with minimal waste and with the info you need easy to find, differentiate and access–and then flooding that space with thousands of pretty looking but irrelevant documents and poorly screened data sources. Also of questionable accuracy that you now have to sort through. To the point that people no longer know what’s accurate and what they need or not. Don’t want to go into particulars but just to use one simple example, several of our SWE’s had well trusted sources they’d relied on for years to get the updated tools they need to manage process flows and production, a lot of it accessible by tailored querying.

          But now with the chat-bots utterly flooding that space with misinformation and junk, half of the “reliable” sources they turn up wind up being exactly what they don’t need and break the rest of their systems flow in subtle ways–so much that they’re wasting countless hours now sifting through to figure out what’s accurate and usable vs. what’s junk. And even worse, a major problem with the very nature of the chat-bots training sets and systems (this is basic to its very design, so not really a problem that can be surmounted with “better preparation or tech”) is that to answer requests, they’ll wind up slapping together answers that actually do look correct even though in terms of actual content, they frequently lead in the wrong direction. So the chat-bots for actual real-world tasks, actually are making everyone’s jobs harder by adding inefficiencies and increasing uncertainty about what’s reliable and useful vs. what’s not, while at the same time concealing the usual cues that make it easier to distinguish between junk and useful info. Their “breakthrough” is to make it harder to tell beneficial tools from garbage. ChatGPT and the AI developments are more like an pre-broken tool than a tool that can actually be used well, and again the freewheeling nature of their development and releases means that’s a fundamental problem in their core nature. Totally ridiculous that Wall Street is actually hyping this, at least all the hype with FSD and crypto didn’t infect and damage even the useful tools that engineers rely on.

        • JamesO says:

          100% @Miller
          and how much of this AI hype is AI generated… too funny! Wolf’s VC neighbors just trying to cash in and fleece more sheep before everyone learns what you already know! True innovation doesn’t happen by scraping everything that’s ever been written.

        • JeffD says:

          @American Dream

          Give it a decade. Right now, it just gives an answer without verifying it is true. It’s easy to verify by following sources using more computation. They have taught it how to play 0-ply chess/checkers/reversi. In a decade, it will be 8-ply by default, with an option to crank it higher.


          “the chat-bots for actual real-world tasks, actually are making everyone’s jobs harder by adding inefficiencies and increasing uncertainty about what’s reliable and useful vs. what’s not, while at the same time concealing the usual cues that make it easier to distinguish between junk and useful info.”

          So you are saying they can replace politicians and newscasters *today* with zero net effect?

        • JeffD says:

          One more thing — AI doesn’t have to generate the sale, just the sales lead, like something cold calling could do, except with a generated email based on all the information collected about you through your life history of social media interactions.

          Once a question comes back in email based on an AI cold call, a human can take over. I don’t know if you have tried one of the AI bots yet, but what they say is more interesting than what most people can say, and that’s enough to generate a lead.

          Same idea for any call center type roll — let the AI get to a point where it can no longer proceed, then turn the discussion over to a human with key interaction data summarized.

        • JimL says:

          I don’t think AI is going to displace 80% of workers anytime soon.

          I find AI to be interesting. It is very polarizing. People think it is either just all hot air hype or it is going to displace large chunks of the workforce very quickly.

          Instead, I think it will be much like most other innovations, it it will make current workers much more productive. Some of that increased productivity will go towards using less workers, but some of it will go towards lowering prices on goods and services where everyone benefits.

          There is a long history of jobs previously done by multiple humans now done by fewer humans and more by machines. In turn, this has created better jobs for humans to develop the machines, install the machines, maintain the machines, upgrade the machines, etc. It has also created huge benefits for all of society in terms of greater productivity and lower prices and time savings.

        • 91B20 1stCav (AUS) says:

          JimL – …if only truly adjusting for demographic earning-power displacement and its human cost among those ‘disrupted’ could be a more immediate aspect of technological ‘progress’ (TANSTAAFL, though I concede even Louis Quatorze would likely trade places with many of the ‘least’ of us in this modern age…).

          may we all find a better day.

  2. Ken says:

    Unfortunately most people don’t have a clue about the “ppp loans that were really grants”. Everyone aught to google or use some other search engine and simply type in PPP recipients and the name of the state and city they live in, to discover how the rich in almost every city in America were given millions of tax free money. One of my relatives was given $175,000.00 and another $350,000.00 and both of the families were already very wealthy. They paid no taxes, just free money. One built a new house on a lake and another a beautiful work shop with lifts and all. kg

    • NYguy says:

      You can report them, I forget if its the IRS or some other org but you can get a piece of their ill gotten gains upon recovery.

      • Depth Charge says:

        Nope. All they had to do was have the PPP money put into the payroll account, and pay payroll with it. Then the deposits they normally made for payroll could just go straight into a house purchase or whatever and there is absolutely NOTHING that can be done. Sickening.

        • phleep says:

          When the grifting hits that level, by people that sophisticated, the society is in trouble.

        • Miller says:

          There has been a lot of that sort of grift and it’s understandable to respond with bitter cynicism, but NYguy is right, these sorts of frauds are reportable and the authorities finally are going after the grifters more aggressively for things like this. It’s a matter largely of how carefully the regulators go through the books, but when a case is that blatant (and it’s that obvious that a PPP recipient has taken funds they clearly didn’t need, and simply shifted the accounting around for payrolls) then the regulators are cracking down on that a lot harder. It’s true that the early oversight in 2020 was terribly lacking and it allowed a lot of this fraud to go through, but the policies were also written to give the regulators a lot of latitude in investigating such cases down-the-line. On the one yes, it’s probably going to be too difficult to do much about small-potatoes cases or a shift of a few thousand dollars here and there from payroll to personal funds, they’re not going to go after gray areas given all the uncertainty with the pandemic at the time.

          But clear cases like those above, when a business didn’t need the PPP money but took it to shift to payroll and then pocketed it for other purposes–that’s straight up wire fraud in any other context, and the oversight boards are going after it now. The US has a national debt of $32 trillion–a lot of it accelerating further as we’re still paying for the costs of ex. the wars in Iraq and Syria that are going to hit us with $7 trillion by the time we pay off veterans support costs. Probably even more. And even if we get through this latest debt ceiling mess unscathed (which now looks more and more doubtful, as there’s basically no common ground and a push for at least a short-term default), that’s going to start exerting stresses with interest rates and crowding out investment. So even with all the shortcomings of the oversight, slam-dunk fraud cases like this are getting worked on much more intensively, and they are worth reporting.

    • Sandman says:

      This is the sad truth folks. Do not search if you easily anger. My blood was boiling seeing many business and Popeyes I know have received anywhere from50k-2million for their companies that made record profits these last couple of years. It’s sickening when it’s so unjust.

      This stolen money was used to drive up asset
      prices among other things. It wasn’t even hidden, just free hundred thousand dollar deposits made on a whim to any business with an ein.

      • SocalJohn says:

        Well, this is more proof that many asset prices are unsustainable, since the ppp is history. Yes, the money is still sloshing around, but it is naturally getting diffused (less concentrated). That means it can still contribute to general inflation, but is losing its ability to influence assets that require big lumps, like housing. Most likely outcome is continued inflation, continued interest rate support, continued house price declines, and a weak stock market, especially if the fed slows or pauses.

        • bulfinch says:

          Well, until some other whiz-bang financial instrument is cooked up to help tilt the table even further favor of augmenting The Haves.

          Why is it that so many people assume the worst BS is over; that it’s just a matter of a long, sobering walk back to sanity? It’s a version of the abuse cycle, where the markets continually think, “this time is different. They’ve really changed.”

          No way.

      • Depth Charge says:

        Yep. The already wealthy got a free house, a few free vehicles, and a boatload of cash to just blow. The working class and the poor got to pay for it all through inflation. But man, they better not hike rates a quarter point next meeting. Wouldn’t want those free assets to fall in value.

    • Mike says:

      Yip head similar story from my realtor. The agency got PPP and owner used it to buy holiday home.

      Talk about free money.

    • JimL says:

      A lot of people (rightfully) complain about the PPP loans, because despite the fact that there were supposed to be lots of qualifications to get the “loans”, there was also lots of fraud and mismanagement

      But what is often overlooked in the bubble of corporate profits is the money that went to the poor and unemployed during COVID. I am not saying that all of the unemployment bonuses that happened should or not should have happened (that is a complicated and very nuanced discussion), but I am just pointing out that subsidies that go to the poor and unemployed have a far bigger economic bang for the buck than subsidies for the rich.

      This is simply due to the velocity of money. Poor people quickly spend any extra money they come into. They generally spend it in ways that grow corporate profits and also increase the velocity of money. When rich people come into extra money they save or invest it.

      When the economy slows down, the best way to juice it up is to put money in the hands of poor people. Unfortunately that rarely happens. Instead it seems the “job creator” class has to get their cut first.

      For COVID though, both happened. The “job creator” class got theirs, but hundreds of billions were also run through poor people by means of unemployment. This had a huge effect of corporate profits

  3. Michael Engel says:

    King MSFT daily BB : Oct 19 hi/ Nov 01 lo 2021, 332.00/326.37.
    MSFT closed @325.92, after breaching the BB for funfunfun. King MSFT might move in or above

  4. Michael Engel says:

    MSFT BB : Oct 29/Nov 01 2021, 332/326.37.

  5. spencer says:

    Easy come. Easy go. Any administered price hike will be deflationary if the FED follows a restrictive money policy.

  6. spencer says:

    The FED can move in the wrong direction only for so long. The FED can rescue a few banks, but it cannot rescue the system.

  7. Tom V. says:

    So the numerator (cash flow) is getting smaller while the denominator (discount rate) is getting bigger, hence valuations should be shrinking. Alas, the Shiller PE remains over 29 (mean = 17) and the S&P is a slight (by historical standards) 13.3% off its recent peak. I contemplate this paradox daily.

    Is this simply a function of the culture of “buy the dip,” dollar-cost averaging, autopilot 401-k contributions or just too much money chasing too few public equities (there are literally 1,500 fewer publicly traded companies today than there were in FY2000)?

    • Cas127 says:

      I listed three possible constituencies (including 401k autopilots) propping up goofball SP 500 valuations in Wolf’s previous post.

      But the 500 is so top-heavy at this point (market cap weighting seems pretty Ponzi to me, especially if the whole indexing pitch is “diversification for safety”) that if Apple or Microsoft (or XXX PE Amazon…) gets taken out and shot, the whole index will feel it (maybe top 10 “500” members account for 25% of value of whole index…the other 75% is split among the other 490 companies…I guess that is *sorta* diversified…).

      Things are so bad that my first thought after Nvidia’s miracle AI earnings pop, was that the Street knows somebody in the Apple/MS/Amazon/etc crowd *is* about to take a real world big hit and that another player (Nvidia, XXXX PE) needed to be “rotated” into place to keep propping the 500.

  8. Michael Engel says:

    King AAPL : Jan 2022 hi minus June 2022 low = 53.
    Jan 2023 low + 53 ==> May 2023 high. The speed up in 2023 is much
    faster. Anomaly.
    Only few mega stock run up hill. The soldiers dispersed, hiding in the trees, down hill. The war mongers generals bark : AI, AI, AI….follow me.

  9. Doctor_ECE_Prof_Old_Fa_t says:

    Just eyeballing the graph, it is clear that though the EBITAD might have come down by $400B from the peak, probably it has to fall another $800B to reach what may be called a normal LT growth rate. Perhaps until then the market will keep roaring (or even after that), inflation will keep raging and all the fundamental theory we learned so far will look obsolete and proponents of facts will look like idiots (issuing a mea culpa like Carl Icahn). Perhaps we will end up with another 1930 at the end.

  10. Gary Fredrickson says:

    Most likely the corporation profits are shifting offshore, so it looks like the CEOs are poor victims of interest rates and supply chains that their purchasing department apparently have not figured out in decades.
    Look at the prices, they are rolling in profits like pigs in mud. Most of the “beverage” industry is just selling water with some to no flavoring, plus low cost sugar and preservatives. Real Estate of mink cage apartments with noise transferring walls for comraderie that make concrete Soviet construction look futuristic.

    • Nacho Bigly Libre says:

      “just selling water with some to no flavoring, plus low cost sugar and preservatives”

      We can find equivalents of this across industries now. Era of cheap money has caused so much damage to humanity due to malallocation of capital.

      At the elevated interest rates, I am hoping money is only used where it can provide long term actual value.

    • rojogrande says:

      I don’t think it’s shifting profits offshore to any significant extent because the vast majority of businesses don’t have overseas operations. The article says: “These pre-tax profits here are by all entities that are required to file federal corporate tax returns, including private corporations, LLCs, and S corporations, plus by some organizations that do not file corporate tax returns.”

      Some large multinationals may not be repatriating offshore profits, but they often do that anyway.

  11. WaterDog says:

    The AI hype train.

    Remember when we were all going to be riding in self driving cars, riding in the Hyperloop, staying in WeWork and getting our Theranos blood tests?

    AI sounds awesome… in 10 years when it starts making money.

    Also, IBM has been hyping Watson since like 2013 hahaha.

    • Cas127 says:

      Well, so far, I’m mainly hearing underpants-gnome level explanations of how exactly current AI manifestations are supposed to make bajillions.

      I suppose the AI’s will be much, much, much better at stealing underpants.

      In the metaverse.

    • w.c.l. says:

      I’m still waiting for the “paperless office”.

      • Wolf Richter says:

        My offices have been essentially paperless for over 20 years. Nearly everything is digitized. I have practically no paper files, I get very little on paper, I send out almost nothing on paper, and there are no papers on my desk. And I love it, saves a huge amount of time.

        • bulfinch says:

          A clean desk is nice, but for posterity — especially in the event of a mass extinction — you really want some kind of analog means for recording your archives.

        • Wolf Richter says:

          Nah. My data backup in my deposit box at the bank is more likely to survive than paper around the house. That’s in part why I do it. I have everything stored on a solid-state drive, one copy at the house, the other copy at the bank. They’re small, the size of a thumb, fit into my pocket. If we have to evacuate quickly due to an earthquake/fire destroying the house, for example, I’ll just take it with me, along with the other essentials, such a passport, DL, credit cards, and cash.

        • w.c.l. says:

          Good for you going digital, I get it. In my small corner of the planet I still routinely run into paper forms (doctors office and others). Maybe this will change in time, but out here for now they’re alive and well. I’m not a luddite, I routinely pay may bills online, long ago converted my old paper I bonds to a digital account on Treasury Direct, and have scanned and digitized many an old receipt and document I need to keep a copy of and shredded the original to reduce clutter. I still routinely carry a pen with me out of habit and still find a need for it now and then out in my world.

    • Gattopardo says:

      “Remember when we were all going to be riding in self driving cars, riding in the Hyperloop, staying in WeWork and getting our Theranos blood tests?”

      I do! And I didn’t believe any of it, because I’m a huge skeptic. But AI, different story, already proving to be useful. Some things actually DO happen….

      • bulfinch says:

        Provide five solid non-subjective examples of AI improving something and how.

        • Nacho Bigly Libre says:

          Healthcare: AI algorithms like convolutional neural networks are used to interpret medical images with high accuracy, assisting doctors in early disease detection.

          Transportation: Autonomous vehicles use AI for real-time data processing and decision-making, reducing human error and enhancing road safety.

          Agriculture: AI tools analyze data from agricultural sensors, enabling precise irrigation and fertilization, thereby maximizing crop yield and minimizing waste.

          Customer Service: AI chatbots handle simple customer queries around the clock, freeing human agents for more complex issues and improving overall response times.

          Financial Fraud Detection: AI algorithms analyze transaction patterns and identify anomalies that may indicate fraudulent activities. This enhances security in banking and financial services by promptly detecting and mitigating fraud.

          AI bot gave the above examples (plus the work of looking these up and summarizing them for you)

        • Vadim says:

          The examples from Nacho are achieved using statistics: pixel images, words, or numbers
          The widely circulated notion of AI implies something more than just counting numbers using computers. It’s sold to the public as a general artificial intelligence which is not.

        • dougzero says:

          And it is a goofy incorrect list that confuses simple table lookup software as “AI”. As does most of the world.

        • Nacho Bigly Libre says:

          Everything in actual computation is really just flipping zeros and ones. Knowing which bits to flip is where the complexity is.

          AI/ML can do quite a bit – has anyone tried doing high recall cancer detection in medical images with just stats or with table lookup?

          What AI can do and what it is sold as are two different domains (engineering vs marketing).

        • bulfinch says:

          Speaking empirically, 2 and 4 are not anything like solid examples and actually compound the latitudes of error & misery. The other examples are debatable.

        • NBay says:

          If you think about it Henry Ford’s assembly line was AI. It had an algorithm that was probably updated often by “coders” for improved results.

          What’s the big deal now that algorithms live in J-K flip flops and D-latches?
          Faster fuck-ups?
          It’s still just eliminating jobs that is going on…that’s ALL…..does it entertain you? That’s a job.

          Shove that feared singularity up it’s own ass so it disappears.

      • Swamp Creature says:

        I’m sticking with the paper. A decade ago some slimeball investor tried to sue us for an appraisal of a property where the roof caved in and destroyed the place. We had a backup copy where the lender waved the roof replacement requirement on the appraisal. That one piece of paper saved us $50K.

      • Miller says:

        Nope, AI like chatGPT is overhyped for different reasons but still being massively oversold, see above. If anything the AI hype is even worse than most of the other next big thing hypes because so much of what it outputs is hard to distinguish garbage, that winds up breaking and damaging formerly efficient and well working data and decision driven systems. In fact it’s funny that one of the very reasons that fanboys use to pump up chatGPT so much (“wow, it can produce text that really kinda looks like a person did it”) is also one of the things that makes it so damaging to actual working systems in terms of throwing pretty looking but misleading garbage and monkey wrenches into the gears, that’s harder to sort out. So in that sense the AI hype is much worse because it not only doesn’t add much in real value, it often takes a lot of it away by filling information spaces with junk. And a lot of it.

    • Miller says:

      “Remember when we were all going to be riding in self driving cars, riding in the Hyperloop, staying in WeWork and getting our Theranos blood tests?”

      lol love that summary, super-concise and does about a good job as any article in summarizing the serial overhypes and disasters sucking away investor money over “the next big thing” that was on thin ice to begin with. Investors should take note. There’s probably another Theranos sucking up hundreds of millions in venture capital right now as we speak.

    • Immutable says:

      Yes, it was odd how all of the hype of autonomous vehicles disappeared after a couple of fatal accidents!

  12. THEWILLMAN says:

    Part of this change might be that stocks actually have to start paying some dividends again.

  13. Putter says:

    We are witnessing a second wave in the markets. Investors become as hyped up as they were at the final top. The Russell, Dow and Dow Transports have topped first. The S+P and Nasdaq will top soon. Let There Be Blood!!!! Welcome to the decade of Fear and Loathing>

  14. Petunia says:

    All the layoffs are starting to catch up with them. Ordered from a Canadian website which had layoffs in Jan and they can’t seem to ship their orders. This site was known for rapid delivery, not any more.

  15. Lynn says:

    I wonder how many of these corporations have adjustable loans? And how many of them that buy residential RE have adjustable loans?

  16. SoCalBeachDude says:

    Fortunately and thankfully, the House of Representatives adjourned for the session to go on a lovely Memorial Day Weekend out of town where they can totally forget about that obnoxious and annoying ‘debt thang’ and just have a good old time chowing down on BBQ and yeehawing with the folks in their districts talking about sports and all of the other nonsense that folks find far more interesting and ‘relevant’ in the US these days!

  17. TrBond says:

    So weird, could have sworn that I was told that companies were consistently beating estimates in Q1. A record I recall.
    How can it be that actual revenues and ebitda
    actually fell year over year??
    Oh yeah, Street estimates start very high one year forward ( so forward P/E ratios don’t look high) and then those same estimates fall continuously until just before earnings are released.
    Nice scam the Street and major companies got going, eh?

    • NYguy says:

      AI is a great cover story for companies whose businesses are in decline. They can claim that AI will drive efficiency gains and as a result they’re going to conduct large layoffs. Much better to investors ears than layoffs are due to crummy business conditions.

      The nvidia claims of huge revenue growth sounds extremely sus to me.

      • WaterDog says:

        1. Remember when companies sucked and then just said “Blockchain” or “crypto” during earning calls?

        2. Their stocks quadrupled… cause “crypto.”

        It’s not going to impact earnings for years.

        Seems like same hype.

  18. ShiningSea says:

    I watched greedflation play out up close and personal in my former firm. Newly installed PE management (who couldn’t even explain our business) demanded 20% price increases overnight. Client reaction fell into three segments: dumbest clients paid (partly because of once a-century windfall events) – and now all those managers are being replaced, median clients screamed and sucked up the pain for a couple quarters – until they lined up replacements that they’re now moving to, smartest clients said “later *******s” immediately. By Q3, the best 40% of the internal talent also quit and moved to brighter pastures (which actually suggests some reasons for hope, though all the monopoly protections in my industry – crooked/stupid procurement people, roll-ups eliminating competition, vast implementation of overbroad noncompetes – make recursion to market based economic sanity slow).

    • 91B20 1stCav (AUS) says:

      …sometime, even the Morlocks slide into Eloi-ness and overplay their hand…

      may we all find a better day.

  19. old school says:

    I have seen some interesting data on how stock market price and real economy can diverge over a long time period.

    From the bottom in 2009 until the top in Dec 2022 the compounded price people paid for a dollar of SP500 revenue was more than 10% compounded annually. In other words most of the return during that period was multiple expansion (Thanks Zirp and QE).

    You know Fed has too much power when the multiple becomes more important than the real economy (revenue).

  20. Michael Engel says:

    When the Fed raided in”other” people bank accounts and CDs it was paperless. The Fed is borrowing paperless for 15Y since Oct 2008 in return for paperless IOU. Only the Fed have the password.
    Just imagine how many trucks loaded with real bills, hauling cash, trillions dollars in several caravans, avoiding the media howling about it.

  21. Michael Engel says:

    Nansi the Ripper lost $500M on NVDA

  22. Xavier Caveat says:

    There’s nothing worse than a sixer of tall-boy Olde English 800’s and free money, they simply don’t mix.

    • phleep says:

      > a sixer of tall-boy Olde English 800’s and free money

      Sort of my life in the 80s. Sordid memories. Ultimately they didn’t mix. Lovely though, a universe peppered with second chances. Always head-scratching when the additional chances might be spent though, on micro and macro levels.

  23. George W says:

    Content curation is dying and is to be replaced by chatgpt.

    Dying nonsense news site like buzzfeed, zerohedge as well as many current main street media news site, rely on content curation as their main source of content origination. Programs such as chatGPT hope to improve upon this nonsense (IMO).

    Garbage in will always result in garbage out no matter how sophisticated the algorithm.

    • George W says:

      Sorry, this is an article that I will need to re-read several times, unfortunately as usual, I end up lost in the comments section.

  24. George W says:

    GAAP accounting debasement is what is letting corporate balance sheets to shine.

    Accounting is boring, not well understood and because of those two factors and several others have allowed the accounting profession to become exploited.

    Numbers matter, they always will. The accounting world has been forced into the underworld where it does not belong(IMO).

  25. Artful Dodger says:

    Based on this fine article and others similar, it is truly beyond belief that the stock market is all antsy about the mean old Fed even thinking about another 1/4% hike this summer, smelling salts time if they do 50 basis points. If the banks and the financial markets and the economy are so fragile that 25 basis points is going to push the speculating beasts over the cliff, then we got big, big trouble in River City. And we do.

    If we are already in a Profits Recession, what about the Economic Recession. Still not enamored with the value of the labor market statistics from the last several quarters because we got one bizarre and messed up U.S. labor market because of the bad habits adopted during the totally ineffective Covid economic shutdowns.

    Not work from home only, but play from home and don’t go back to work. A ton of early, but much deserved, retirements to boot. When this recession is finally called from on high, the economy and Americans’ standards of living will be so affected that even a blind bureaucrat in The Swamp can see them.

    The early 2022 Bear Market in stocks and bonds ain’t done with investors by any stretch. Just a tech-driven bear market rally putting in a more water tortured top, but stocks are going to lose folks a lot more money before any tradeable bottom comes in. Bonds look like my late Uncle’s EKG before he went to the Promised Land, but I think the fate of the Dollar, to much lower and Beyond, will seal the fate for interest rates even in a declining economy. Default Risk and Inflation Risk and now, Currency Risk are once again back in vogue in the pricing of this never-ending sea of debt, debt, and more debt surging around us.

    And don’t forget that the Regional Banks have not sold their bond portfolios to the Fed at par yet, so we got more excitement coming from that quarter before the dust clears. Ain’t one series and done by a long shot.

Comments are closed.