- German lender is said to plan global cuts as from early July
- Equities cuts expected to be part of broader job dismissals
DB is up over 2% on this announcement. Ford was up over 2% on yesterday’s job cut announcement…
That’s expected to be nearly 20,000 jobs (not all USA). Add that to the 12,000 jobs Ford is planning to cut (Europe).
Both these stocks rallied heavily on these announcements as analysts likely see increased cost savings from these activities. Yet apparently, they think there won’t be further top-line revenue deceleration or other issues in the future…
I’m not one to say that history is going to repeat exactly, but major investment banks cutting jobs, and major auto manufacturers cutting jobs while both are performing poorly without any visible means for a turnaround from increased demand. Historically, this hasn’t led to good things in the global economy.
To me, this is just another flaw in how analysts discount or value stocks. You see this across the broad economy where stocks rally on rate cut projections due to financial discount model formulas using rates as a denominator. In theory, yes, this totally makes sense as it means there is a lower cost of capital and the risk free alternative offers a worse tradeoff. The flaw however is that there is a large ignorance around the idea that rates are decreasing because the bond markets are sniffing out a deceleration in the growth rate, which will impact top-line revenues, sometimes strongly. As a result, the discount models are accounting for a lower denominator, but they’re not adjusting their discount models for a slowing numerator (slowdown in growth).
This is of course similar to what we’re seeing here w/ these big job cuts. You’re getting a change in the valuation metrics due to cost savings, but there doesn’t seem to be enough accounting for the fact that these job cuts are forecasting shitty top line growth in secularly declining companies.
h/t cbus20122