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Tuesday, January 3, 2017

A New Kingdom: Can You Profit From The New Corporate State

In the lecture above, Noam Chomsky discusses the state of human relations and our existence within an international and historical context.

The most interesting aspect of the lecture is the discussion of the corporate state and its ownership of over 50% of the world's assets. Since corporations own more than the collective state, perhaps it can also be said that the world has a new king.

Kings and Corporations

Our historical record tells us that kings and their nobility once ruled the world. The king had unlimited power. The nobility helped the king to carry-out his/her mission of gaining greater power. This has been an effective power-grabbing model over the centuries and we continue to use the same model today, but in a slightly different way. Instead of kings we have investors. Instead of nobility, we have corporations.

Why Is This Important

To impact change we must know who is truly in power. This isn't a referendum on the corporate state. It isn't bad or good. It is an acknowledgement of the emergence of a new power. The top 12 companies in the world by market share are the owners of the new corporate state.

The corporate state has no official geography and its constitution is a compilation of trade deals. Each corporation is a noble and at the head of all nobles sits the king. The king, in this case, is the investor and the religion of the investor is profitability.

In many ways, the relationship between investor and profitability is a beneficial one. Profitability, and the solutions that drive profitability, provide direct access to the king. Even more powerful is the realization that profitability is driven by 'the people' buying the product.

Though there are many loopholes in this new form of government, profitability is more reliable than the whims of the king. Whatever you believe, we have a stable system for progressive change, but it is important to pull the right lever; it is important to know the role of profitability in our new kingdom.

The Top 12 Corporate Nobles of the Corporate State

Top 12 Companies by Market-cap as of 1/2/2017:

Company NameIndustryPrior Close

Mkt Cap 
AAPLApple Inc.Communications Equipment116.73

622.4 B
MSFTMicrosoft CorporationSoftware & Programming62.90

489.0 B
XOMExxon Mobil CorporationOil & Gas Operations90.35

374.6 B, Inc.Retail (Catalog & Mail Order)765.15

363.5 B
JNJJohnson & JohnsonBiotechnology & Drugs115.49

314.1 B
JPMJPMorgan Chase & Co.Investment Services85.89

307.3 B
GEGeneral Electric CompanyAerospace & Defense31.71

280.5 B
NSRGY Nestle SA (ADR)Beverages (Nonalcoholic)71.395

277.0 B
WFCWells Fargo & CoRegional Banks54.84

275.4 B
FBFacebook IncComputer Services116.35

272.3 B
TAT&T Inc.Communications Services42.66

261.9 B
GOOGL Alphabet IncComputer Services802.88

237.7 B

These 12 companies own a great deal of wealth in the world and the owners of the corporate state have full control over it. When the price of stock in these companies falls, it impacts the entire economy, which means the owners of the corporate state are the investors.

The good and bad news is that investors are almost entirely concerned with profitability. In this way, profitability can be a double-edged sword as investors often decide to choose short-term profitability over long-term firm viability. In other words, the going concern of the firms above is not a large concern for the average investor with the ability to get in and out of stock positions at the click of a mouse. What investors will grow to count on, however, is the impact of consumer demand on earnings and stock price. The irony is that as we enter into a new era of a corporate state, never before in history will the consumer have more power.

How Can Investors Profit From The Coming Trend

Investors reward profitability, so those companies that are able to stay in touch with consumer demand will be the rulers of the new corporate state. This may sound grim to some, but it gives hope that the world can change if the investor does. Even more interesting is the connection between investor and consumer. It is the investor that can decide to move funds to smarter, more agile pockets. For example, I advise my clients to move away from business models driven by store count and price comparison like Wal-Mart and Dollar General, to business models driven by speed and agility, like Amazon.