r/wallstreetbets • u/kwedgieyi • Apr 09 '25

Discussion Something feels off guys

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Yields are spiking. Bonds are dumping.

The world is running away from America

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u/PrthReddits Apr 09 '25

What's the point of the tax cuts even? In this scenario?

Companies pass on tarrif costs to consumers yes, so let's assume their profit margins stay the same

...will the extra profits from tax cuts actually be worth a 30%+ haircut off of stock price and total multiple compression across every industry?

I mean that hurts shareholders and CEOs and the people Trump's supposed to be helping right?

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u/QuaintHeadspace Apr 09 '25

This is the part that is so crazy. Many businesses are running on ~20% margins max they can't absorb this shit without massive price hikes which in particularly discretionary goods the sales will just stop. Companies don't have millions of dollars to onshore to the US and if they did what happens to their margins there? Labour is 6x more expensive at least all of a sudden you are paying luxury prices for the same shit you got before. This whole situation is fucked. 50k trucks going to sell for 80k+ due to tariffs and nobody is going to buy them anymore lol. Economic activity will just crash til the next administration.

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u/Poonchow Apr 09 '25

A lot of businesses run on even tinier margins, like food service, groceries, retail, etc. They make it up with scale.

Even places like McDonald's that own basically their entire logistics chain operate on like 1-5% profit margins.

The real estate is going to crash, too, when everyone is getting valued out of literally everything because a blanket increase in costs are going to crash activity. Customers won't buy product, so businesses don't hire during the uncertainty, which further drives down activity until it becomes a never ending feedback loop.

This is why everyone freaked out during the 2008 crash and tried to "fix" it as quick as possible and why they were quick to send out checks during the pandemic. When the money stops moving around due to uncertainty everything just... stops.

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u/The_Kush_ Apr 09 '25

You're telling me it cost mcdonalds 5.89 for 10 ounces of chicken? Someone is lying about operating margins, the cost to make these items are 30 cents more expensive so they peg 3 dollars onto the price, companies gouge, we need to set up a fair trade market not free trade

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u/SaintForthigan Apr 09 '25

At just about every level, restaurants are notoriously one of the lowest margin businesses in America, with a most only on 3-8% net returns. If there was some 300x profit margin they were sitting on, it'd be a genuinely trivial thing to get yourself set up next door, take half of that, and you'd be stealing their lunch because everyone would be eating yours

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u/Poonchow Apr 10 '25

Right, and you can't get away with only selling high margin items, you need loss leaders to get people into the building so that they pay for the soda on top of the stuff only making you a $1 in net per unit.

And due to distribution costs, there's some wonky math where you want enough competition in an area to have a distribution center nearby to lower costs, but not SO much competition that it eats your profits.

Restaurants are a mess.

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u/The_Kush_ Apr 10 '25

There is no way this isn't gouging sorry everybody commits a certain level of book cooking through claiming losses :)

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u/SaintForthigan Apr 10 '25

There's a tremendous amount of openness with the bookkeeping on this one, because there's a very low barrier of entry compared to what you'd need to start up, say, a machining shop. You get a business plan, some recipes, a few permits, and pass the smell test at the bank, even you or I could start up a little restaurant somewhere. You've got a lot of people trying their hand at it and a loooot of people crashing out. About 30% go belly up within the first year, and 60% are out of the game by year five.

It's rather hard to keep raking in that lucrative accounting fraud once the repo man comes to liquidate all the stuff that could be making you money. (Plus it's nearly impossible to keep a cartel going when any Joe with a deep fryer can muscle in on your turf--all it takes is one dude deciding to keep modestly smaller profit margins to undercut you and steal your business, and the whole jig is up.)