Value Investing, Videos

What Record Corporate Profit Margins Imply For Future Profitability and The Stock Market


Corporate profit margins are presently 70 percent above the historical mean going back to 1947, as I’ve discussed earlier (see, for example, Warren Buffett, Jeremy Grantham, and John Hussman on Profit, GDP and Competition). John Hussman attributes it to the record negative low in combined household and government savings:

The deficit of one sector must emerge as the surplus of another sector. Corporations benefit from deficit spending despite wages at record lows as a share of economy.

John Hussman spoke recently at the 2013 Wine Country conference. Here he describes the relationship between corporate profits, and government, and household savings (starting at 22.08):

Hussman’s whole talk is well worth hearing.

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h/t Meb Faber