Darren Winters welcomes you to a new era of corporate aristocracy.
Today there are just 30 public corporations in the US feasting on 50% of the entire profit pie all to themselves. It appears that corporate aristocracy is yet another new norm in these unconventional unglued times of polarized politics and monetary policy lunacy.
So what does corporate aristocracy mean for investors?
Big is beautiful. Suckling on the corporate monopolistic teat can be profitable. The world’s top value investor, Warren Buffett’s best-kept secrets were his eagerness for funding monopoly companies. See Why Warren Buffett loves monopolies natural and unnatural. Why?
Low risks and high returns, in terms of monopoly profits. Moreover, the central bank’s easy money policy supports corporate aristocracy. The big corporations, near the cheap money, have the means to hire powerful lobby groups to pressure the government to pass laws that favor their commercial interests.
The lion’s share of the earnings pie is increasingly being earned by a smaller number of companies.
So corporate aristocracy means half of all corporate profits go to just a fewer number of companies
For example, the number of firms generating 50% of the earnings in 1975 amounted to 109. The US had a total of 4,819 companies in 1975.
Darren Winters fast forwards to four decades later and a very different story emerges. In 2015 only 30 companies in the US contributed to 50% of the earnings generated by US public companies. Moreover, the number of total public US companies has shrunk to 3,766, which is a contraction of more than 1,000 since 1975.
In this brave new world of the corporate aristocracy, it means that only 30 companies are contributing to half of the earnings
What’s more, American public corporations are vanishing from the corporation landscape at an alarming average rate of 25 per year, since 1975. Perhaps this helps explain the demise of middle class wages with job security.
The top ten on the corporate aristocracy list today consists of only 4 American companies
Saudi Aramco is number one making $3,519 in profits per second. Then there is a huge gap with Apple coming as the second most profitable corporation with $1,888 in profits per second. The third is the Industrial & Commercial Bank of China with profits per second $1,427. Fourth is Samsung Electronics with profits per second $1,265.
JPMorgan Chase & Co. is sixth on the list with profits per second $ 1,030. But China Construction Bank is 5th on the list-making $1,221 of profits per second. That’s is more profitable than Bank of America Corp which ranks position 9 making $893 per second. Find a full list here.
So the rise of the corporate aristocracy, a few mega-companies dominating the global landscape is a product of globalism
As Darren Winters explains, free trade, open borders and a lack of trade barriers such as tariffs and quotas have benefited corporate giants to explore markets beyond their borders.
Moreover, with globalization comes global monetary policy, a race to zero interest rates. So the cheap money for those at the top supports corporate aristocracy.