Industrial Insight

returns on equities and stocks could be poor…. | November 16, 2010

http://www.hussmanfunds.com/wmc/wmc101115.htm

*/November 15, 2010 /* */*/The Cliff
/*/**/
/*/John P. Hussman, Ph.D.
All rights reserved and actively enforced./

The chart above underscores the relationship between high current profit margins and poor subsequent earnings growth. The blue line shows U.S. corporate profits as a percentage of GDP (left scale), which is currently just over 8% and at the highest level since 2007. The red line depicts subsequent 5-year growth in profits, but on an /inverted /right scale (higher values are more negative). In effect, it should not be a surprise if present levels of corporate profits are followed by /negative /profit growth over the coming 5 years. Indeed, the 2009 burst of stimulus spending is most probably the only factor that has prevented profit growth from being negative over the most recent 5-year period.

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