Sunday, June 9, 2013

"Profiting From Foreign Profits: Are Corporate Profit Margins Abnormally Elevated Or Sustainable?"

Excellent look in more detail at elevated corporate profit margins:

"So what are the implications of all this? The actual extent and pace of mean reversion in profit margins will depend on other factors besides fiscal consolidation and unemployment: trade deficits, credit creation, tax policy, antitrust enforcement, etc. Setting all that aside, if we assume that profit margins of domestic businesses are, say, 30 percent higher than where they should be and will be, then we also need to figure out what percentage of equity market index earnings come from domestic operations. If we assume that, say, 1/3 of index earnings are from international operations that will not be affected by mean reversion in US profits, then the total drop in index earnings might only be 15 percent (since mean reversion from a 30 percent higher level implies a 23 percent drop, but only on 2/3 of earnings)."
Another observation: "Credit Suisse did a pretty in depth analysis of the situation and they are saying 50% of the increased margin is attributed to lower interest rates."

1 comment:

Steve said...

Finally, some action:

Trondheim Capital Partners LP and Michael Meixler filed the suit in New York State Supreme Court in Manhattan yesterday. They’re requesting a pretrial ruling ordering Wuxi, China-based Suntech to pay $550,000 in principal due on 3 percent 2013 convertible senior notes, plus interest, costs, expenses and legal fees, according to court filings.