Are Corp Profits Sustainable? Interview With Bruce Greenwald
Source: Valuewalk

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Bruce Greenwald is the professor of

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economics and finance at Columbia

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University of Robert harbor and

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professor of economics and finance

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Bruce has also been recognized across

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all of wall street as the Guru to the

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gurus and so we are delighted that he’s

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here with us today so Carl Icahn has

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said that what’s going on right now is

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in effect a replication of what took

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place in 2007-2008 and in fact the

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market is about to go off a cliff and

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that people are going to find themselves

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and dramatically worse shape going

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forward than they did at that point time

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and I want to have you about that

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ok so let’s talk about that in detail ok

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the first thing is that the valuations

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are actually not as rich as they were in

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two thousand that’s based on PE yeah

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second thing is that the craziness where

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nobody thought there was any risk so

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that for example in 2007 you could buy

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credit default swaps on dubai sovereign

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down the riskiest region in the world

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dependent on the most unstable commodity

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in the world which is oil for four basis

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points which is 1 in 2,500 years they’re

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going to go completely under so that

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craziness is not in the market

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the real issue is the earnings power of

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these companies so that if you look at

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people like Jeremy Grantham sure who has

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been now 49 years doing the car like am

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your story their view is that these

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earnings levels are not sustainable and

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what you’ve seen is that is a share of

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total US income corporate profits which

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pre-1990 were about 8am percent are now

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around 13 and after 14 so there’s been

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this huge increase in profits if that

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increase in profits is sustainable and

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it’s likely to continue then we may have

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a flat market for a while we may not

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have the kind of

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increase in prices that we’ve had but

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we’re probably not going to see the kind

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of crash we saw in 2008-2009 now I think

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that profits are going to stay where

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