Today’s New York Times features an article entitled “Industries Find Surging Profits in Deeper Cuts.” The article notes that:

Among the S.& P. 500 companies that have reported second-quarter results, more than one in 10 had higher profits on lower sales, nearly twice the number in a typical quarter before the recession … Even at corporations where both the top and bottom lines are expanding, the focus remains on keeping profits high, not rebuilding work forces decimated by the recession. 

One possible interpretation of this ongoing “right-sizing” is that large, U.S.-based firms are adjusting to the “new normal” by finding ways to remain sustainably profitable in the face of permanently lower demand. 

Alternatively, it may be that many of the companies exhibiting this behavior are engaging in the corporate equivalent of eating “the seed corn” (the seed saved from one year’s harvest to use for planting in the following year) by grabbing whatever short-run profits they can get their hands on, despite the negative long-term consequences.

In either case, the implications for investors are the same.  While firms that are exhibiting this behavior will generate tidy returns in the short-run, they are a much riskier bet in the long-run.  Eating the seed corn is never a smart strategy – unless your existence is in peril.