{"id":11221,"date":"2014-10-30T03:43:44","date_gmt":"2014-10-30T07:43:44","guid":{"rendered":"http:\/\/goldstocksforex.com\/?p=11221"},"modified":"2014-10-30T03:43:44","modified_gmt":"2014-10-30T07:43:44","slug":"are-corporate-profit-margins-sustainable","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2014\/10\/30\/are-corporate-profit-margins-sustainable\/","title":{"rendered":"Are corporate profit margins sustainable?"},"content":{"rendered":"<p>Market capitalization as a percentage of (US) GNP is climbing and some commentators have been predicting a reversion to the mean &mdash; a substantial fall in market cap.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" width=\"525\" height=\"341\" alt=\"US Market Cap to GNP\" title=\"US Market Cap to GNP\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/2014-10-30-marketcap-gnp.png?resize=525%2C341&#038;ssl=1\" \/><\/p>\n<p>But corporate profits have been climbing at a similar rate.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" width=\"525\" height=\"341\" alt=\"US Corporate Profits to GNP\" title=\"US Corporate Profits to GNP\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/2014-10-30-profits-gnp.png?resize=525%2C341&#038;ssl=1\" \/><\/p>\n<p>Wages surged as a percentage of value added in the first quarter (2014) and profit margins fell sharply, adding fresh impetus to the bear outlook. But margins recovered to 10.6% in the second quarter.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" width=\"525\" height=\"341\" alt=\"Employee Compensation and Profits as Percentage of Gross Value Added\" title=\"Employee Compensation and Profits as Percentage of Gross Value Added\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/2014-10-30-us-labor-profits.png?resize=525%2C341&#038;ssl=1\" \/><\/p>\n<p>Further gains in the third quarter would suggest that profits are sustainable. Research by Morgan Stanley supports this view, revealing that improved profit margins are largely attributable to the top 50 mega-corporations in the US:<\/p>\n<blockquote><p>Mega cap companies (the largest 50 by size) have been able to pull their margins away from the smaller companies through globalization, productivity, scale, cost of capital, and taxes, among other reasons. We argue against frameworks that call for near-term mean reversion and base equity return algorithms off the concept of overearning. Why? The margins for the mega cap cohort in the last two downturns of 2001 and 2008 were well above the HIGHEST margins achieved during the 1974-1994 period. To us, this is a powerful indication that the mega cap cohort is unlikely to mean revert back to the 1970s to 1990s average level.<\/p><\/blockquote>\n<p>(From Sam Ro at <a href=\"http:\/\/www.businessinsider.com.au\/ms-why-profit-margins-wont-mean-revert-2014-10\" title=\"MORGAN STANLEY: This Chart Shows Why Fat Profit Margins Aren't Doomed To Collapse\" target=\"_blank\">Business Insider<\/a>)<\/p>\n<p>Also interesting is The Bank of England&#8217;s surprise at <a href=\"http:\/\/goldstocksforex.com\/2014\/10\/29\/surprising-lack-of-inflation-as-unemployment-falls-bank-of-england\/\" title=\"Surprising lack of inflation as unemployment falls | Bank of England\" target=\"_blank\">the lack of inflation in response to falling unemployment<\/a>. One would expect wage rates to rise when slack is taken up in the labor market, but this has failed to materialize. It may be that unemployment is understated &mdash; and a rising participation rate will keep the lid on wages. If this happens in the US it would add further support for sustainable profit margins.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Market capitalization as a percentage of (US) GNP is climbing and some commentators have been predicting a reversion to the mean &mdash; a substantial fall in market cap. But corporate profits have been climbing at a similar rate. Wages surged as a percentage of value added in the first quarter (2014) and profit margins fell &hellip; <\/p>\n<p class=\"link-more\"><a href=\"https:\/\/thepatientinvestor.com\/index.php\/2014\/10\/30\/are-corporate-profit-margins-sustainable\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;Are corporate profit margins sustainable?&#8221;<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[37,57,34],"tags":[831,1577,2234,3629],"class_list":["post-11221","post","type-post","status-publish","format-standard","hentry","category-active-investing","category-stock-markets","category-us-canada-countries-regions","tag-corporate-profits","tag-gnp","tag-market-capitalization","tag-wage-rates"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.2 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Are corporate profit margins sustainable? - the patient investor<\/title>\n<meta name=\"robots\" content=\"noindex, follow\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Are corporate profit margins sustainable? - the patient investor\" \/>\n<meta property=\"og:description\" content=\"Market capitalization as a percentage of (US) GNP is climbing and some commentators have been predicting a reversion to the mean &mdash; a substantial fall in market cap. 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I have modified this slightly, replacing GDP with GNP, because the former excludes offshore earnings \u2014 a significant factor for multinationals. The ratio of stock market capitalization to GNP now exceeds the\u2026","rel":"","context":"In &quot;Banks &amp; Interest Rates&quot;","block_context":{"text":"Banks &amp; Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"US stock market capitalization to GNP","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2015\/2015-06-25-marketcap-gnp.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2015\/2015-06-25-marketcap-gnp.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2015\/2015-06-25-marketcap-gnp.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":13774,"url":"https:\/\/thepatientinvestor.com\/index.php\/2015\/06\/25\/are-us-stocks-really-over-valued-2\/","url_meta":{"origin":11221,"position":1},"title":"Are US stocks really over-valued?","author":"ColinTwiggs","date":"June 25, 2015","format":false,"excerpt":"Let us start with Warren Buffet's favorite market valuation ratio: stock market capitalization to GDP. I have modified this slightly, replacing GDP with GNP, because the former excludes offshore earnings \u2014 a significant factor for multinationals. The ratio of stock market capitalization to GNP now exceeds the highs of 2005\/2006,\u2026","rel":"","context":"In &quot;Market Insights&quot;","block_context":{"text":"Market Insights","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/market-insights\/"},"img":{"alt_text":"US stock market capitalization to GNP","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2015\/2015-06-25-marketcap-gnp.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2015\/2015-06-25-marketcap-gnp.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2015\/2015-06-25-marketcap-gnp.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":9845,"url":"https:\/\/thepatientinvestor.com\/index.php\/2014\/05\/21\/is-the-market-overpriced-episode-v\/","url_meta":{"origin":11221,"position":2},"title":"Is the market overpriced? Episode V","author":"ColinTwiggs","date":"May 21, 2014","format":false,"excerpt":"In my last post I concluded that the same factors driving rising inequality \u2014 new technologies and access to cheap labor through increased globalization \u2014 may also be driving a sustainable increase in corporate profits. While we may be understandably wary of \"this time is different\", consider the following: The\u2026","rel":"","context":"In &quot;Economy&quot;","block_context":{"text":"Economy","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/"},"img":{"alt_text":"US Imports from China","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/2014-05-22-china-imports.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/2014-05-22-china-imports.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/2014-05-22-china-imports.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":13721,"url":"https:\/\/thepatientinvestor.com\/index.php\/2014\/05\/21\/is-the-market-over-priced\/","url_meta":{"origin":11221,"position":3},"title":"Is the market over-priced?","author":"ColinTwiggs","date":"May 21, 2014","format":false,"excerpt":"In my last post I concluded that the same factors driving rising inequality \u2014 new technologies and access to cheap labor through increased globalization \u2014 may also be driving a sustainable increase in corporate profits. While we may be understandably wary of \"this time is different\", consider the following: The\u2026","rel":"","context":"In &quot;Market Insights&quot;","block_context":{"text":"Market Insights","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/market-insights\/"},"img":{"alt_text":"US Imports from China","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/2014-05-22-china-imports.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/2014-05-22-china-imports.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/2014-05-22-china-imports.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":9840,"url":"https:\/\/thepatientinvestor.com\/index.php\/2014\/05\/21\/is-the-market-overpriced-episode-iv\/","url_meta":{"origin":11221,"position":4},"title":"Is the market overpriced? Episode IV","author":"ColinTwiggs","date":"May 21, 2014","format":false,"excerpt":"In my last post I said that, with interest rates, tax rates and real wages at historic lows, corporations are likely to make fat profits over the next few years and stocks remain reasonably buoyant. But at least one of these factors can be expected to change. Recovery of the\u2026","rel":"","context":"In &quot;Economy&quot;","block_context":{"text":"Economy","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":580,"url":"https:\/\/thepatientinvestor.com\/index.php\/2013\/12\/02\/what-is-contributing-to-the-surge-in-us-corporate-profits\/","url_meta":{"origin":11221,"position":5},"title":"What is contributing to the surge in US corporate profits?","author":"ColinTwiggs","date":"December 2, 2013","format":false,"excerpt":"Some concern has been expressed in the media about the rising level of margin debt in the US. When expressed as a percentage of GDP, NYSE margin debt is approaching 1999\/2007 levels. But not only margin debt is rising. Market capitalization, while not as fast, is also on the increase.\u2026","rel":"","context":"In &quot;Market Insights&quot;","block_context":{"text":"Market Insights","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/market-insights\/"},"img":{"alt_text":"NYSE Margin Debt as percentage of GDP","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2013\/2013-12-02-margin-debt-gdp-us.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2013\/2013-12-02-margin-debt-gdp-us.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2013\/2013-12-02-margin-debt-gdp-us.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]}],"_links":{"self":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/11221","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/comments?post=11221"}],"version-history":[{"count":0,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/11221\/revisions"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=11221"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=11221"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=11221"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}