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With Their Back to the Future: Will Past Earnings Trigger the Next Crisis?

Author

Listed:
  • Nitzan, Jonathan
  • Bichler, Shimshon
Abstract
The U.S. stock market is again in turmoil. After a two-year bull run in which share prices soared by nearly 50 per cent, the market is suddenly dropping. Since the beginning of 2018, it lost nearly 10 per cent of its value, threatening investors with an official ‘correction’ or worse. As always, there is no shortage of explanations. Politically inclined analysts emphasize Trump’s recently announced trade wars, sprawling scandals and threatening investigations, as well as the broader turn toward ‘populism’; interest-rate forecasters point to central-bank tightening and china’s negative credit impulse; quants speak of breached support lines and death crosses; bottom-up analysts highlight the negative implications of the Face-book/Cambridge Analytica debacle for the ‘free-data’ business model; and top-down fundamentalists indicate that, at near-record valuations, the stock market is a giant bubble ready to be punctured. And on the face of it, these explanations all ring true. They articulate various threats to future profits, interest rates and risk perceptions, and since equity prices discount expected risk-adjusted future earnings, these threats imply lower prices. But there is one little problem. Unlike their pundits, capitalists nowadays tend to look not forward, but backward: instead of matching asset prices to the distant future, they fit them to the immediate past.

Suggested Citation

  • Nitzan, Jonathan & Bichler, Shimshon, 2018. "With Their Back to the Future: Will Past Earnings Trigger the Next Crisis?," Working Papers on Capital as Power 2018/01, Capital As Power - Toward a New Cosmology of Capitalism.
    • Handle: RePEc:zbw:capwps:201801
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    References listed on IDEAS

    as
    1. Nitzan, Jonathan & Bichler, Shimshon, 2009. "Capital as Power. A Study of Order and Creorder," EconStor Books, ZBW - Leibniz Information Centre for Economics, number 157973, December.
    2. Bichler, Shimshon & Nitzan, Jonathan, 2012. "The Asymptotes of Power," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue 60, pages 18-53.
    3. Bichler, Shimshon & Nitzan, Jonathan, 2018. "With their Back to the Future: Will Past Earnings Trigger the Next Crisis," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue 18, pages 41-56.
    4. Nitzan, Jonathan & Bichler, Shimshon, 2014. "Can Capitalists Afford Recovery? Three Views on Economic Policy in Times of Crisis," Review of Capital as Power, Capital As Power - Toward a New Cosmology of Capitalism, vol. 1(1), pages 110-155.
    5. Bichler, Shimshon & Nitzan, Jonathan, 2010. "Systemic Fear, Modern Finance and the Future of Capitalism," EconStor Preprints 157830, ZBW - Leibniz Information Centre for Economics.
    6. Kliman, Andrew & Bichler, Shimshon & Nitzan, Jonathan, 2011. "Systemic Crisis, Systemic Fear: An Exchange," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue 4, pages 61-118.
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    Cited by:

    1. Bichler, Shimshon & Nitzan, Jonathan, 2018. "With their Back to the Future: Will Past Earnings Trigger the Next Crisis," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue 18, pages 41-56.
    2. Nitzan, Jonathan & Bichler, Shimshon, 2019. "The Harder They Fall," EconStor Preprints 191311, ZBW - Leibniz Information Centre for Economics.
    3. Julien Vastenaekels, 2024. "Degrowth and capitalist power: A step towards a theory of change," Post-Print hal-04584989, HAL.
    4. Martin, Ulf, 2018. "The autocatalytic sprawl of pseudorational mastery (version 0.12)," Working Papers on Capital as Power 2018/04, Capital As Power - Toward a New Cosmology of Capitalism.

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    More about this item

    Keywords

    asset pricing; capitalization; capitalized power; major bear markets; stock market; systemic fear;
    All these keywords.

    JEL classification:

    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • G01 - Financial Economics - - General - - - Financial Crises

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