Walmart Stock Plunge Shows Wall St Dysfunction

Michael HiltzikOn Wednesday, Walmart stock went down by over 10%. And over the following two days, it has slowly gone down another 3%. Walmart did announce that earnings for the next year will be 6% to 12% less. But as Michael Hiltzik pointed out, this is primarily due to investments that the company is making. In particular, Walmart is raising wages and improving its ecommerce capabilities. To offset this, the company is going to do a $20 billion stock buyback, which should increase shareholder value. But that was apparently not good enough. And clearly, this wasn’t an impetuous reaction from Wall Street — the slide continues.

What the whole thing shows is how American finance is razor focused on short term profits. The things that Walmart is doing are undoubtedly good for its long term profitability. In fact, this has traditionally been the point of having stocks. It is a way for businesses to raise money so that they can invest in their infrastructure. But today, it seems the only point of stocks is to have a quarterly return. The stock traders figure that they can always buy back into Walmart after it is done with its worker and capital improvements. They don’t need to be part of the process, because actual business investment is scary.

As I write this, the total value of Walmart stock is down over 12%. Supposedly, this means that the company is worth that much less than it was Wednesday morning. You know: the perfection of markets and all. But this just shows that Wall Street doesn’t actually reflect the value of companies. It is some kind of sick and twisted notion of wealth where companies are worth only what they can bring in immediately. It is this kind of thinking that never would have gotten us to the Moon or even to civilization.

Although I think this is a particular dysfunction of modern Wall Street, this has actually always been the problem with capitalism. It really is great at doing the minutia of production and distribution. If you need to produce and distribute disposable diapers, capitalism is absolutely the best way there is for getting them to new parents. When it comes providing prenatal care for mothers, capitalism is a particularly bad system. So that ought to be settled. But as a society, we seem incapable of looking objectively at capitalism, and see it rather as a law of the universe that can’t be questioned.

But it is very disturbing that as proven a moneymaker as Walmart can’t look out for its long term interests without being savaged. Investors would rather use their money to get certain immediate profits than do the work of actual investment. There are only two possibilities in the Walmart case. It’s either that the investors are panicking over nothing — they care only about profits in the next year and not at all about Walmart’s long term profitability. Or it is that investors greatly overvalued it before based only on short term considerations, not calculating its need to continue to invest in order to grow.

This is a great example of the failure of capitalism. And part of it is that the rich understand that they don’t need to worry about the long term. If things go wrong, the government — which they spend so much time complaining about — will be there to bail them out. So they base everything on a three month time frame. Squirrels plan further ahead.

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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

6 thoughts on “Walmart Stock Plunge Shows Wall St Dysfunction

  1. Of course we don’t look at capitalism objectively. That requires effort to think and change our behavior. It also requires giving time to anything to develop and our society really hates that. The sentence of “I am an American and I expect instant gratification” pretty much sums it up.

    I wonder what will happen to Wal-Mart’s tiny changes to not hurt as many people as possible now that the primary stockholders lost so much money even though it does not mean they are going to suffer at all since it was all paper wealth and they probably were not going to be buying anything that would cost $9 billion.

    • I’ve always figured that Walmart paying more was part of their PR campaign. But again, it comes back to Wall Street being shortsighted.

      Did you see the troll (on a gun article) calling us all communists? The fact that people feel so free to throw out words like that bothers me. It was from a 42 year old, based upon his email. Clearly, such people are surrounded by their own echo-chamber and think that it is just a given if someone believes in any gun regulations at all, it means they are communists who are Americans In Name Only. We are doomed.

      • I saw it and I saw that you did a pretty nice job of telling him to go away unless he wants to play nice. I also thought it was a sad attempt at insulting someone with a word that does not have the bite it once did. Had he bothered to read anything else you wrote he would clearly know to call you a circumlocutory capitalist.

        But at least when you say we are doomed I get to look up Bender:

        • Circumlocutory: definitely. Capitalist: I don’t even know what it means anymore. The people who best understand capitalism seem to be Marxists. I want a hybrid. And it turns out: so does everyone else. It’s just that most don’t know it.

          Ah, Bender! Never has a robot who wants to kill all humans been so charming. I especially liked his “evil” twin, who was, of course, good.

          • It is a situation of them not wanting to know. Americans like easy simple solutions since they are usually too busy playing Until Dawn or in my case, watching a play through of the game. Probably has to do with how most people leave school and promptly forget everything they learned not related to their chosen career including what the differences are between the different economic systems. I just used that as an insult because it seemed like it was not true.

            That show was awesome and he made it the delight it was. I used to use his laugh as a ring tone for a while.

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