http://bit.ly/1rCy5pt
Worth reading the whole thing and checking out the charts but here are the key points...
This is just the trouble, however. The robust rate of profit growth during recent years reflects a one-time gain in the profit share of factor income. This gain in all probability cannot be replicated again during the next decade, and, in fact, is extremely vulnerable to the mean reversion so evident in the historical data above. Indeed, that may have already begun during the first quarter of 2014 when the profit share dropped sharply as shown in both charts above.
The same can be said of low interest rates. After an unprecedented 33-year descent, the yield on the 10-year treasury benchmark has nowhere to go but higher; and after hitting a QE induced rock bottom of 1.5% in mid-2012, the benchmark yield has, in fact, bottomed and begun a climb toward normalization. No amount of money printing and financial repression by the central banks can keep yields on the current massive trove of $12 trillion of publicly held treasury debt at a negative after-tax and after-inflation rate indefinitely.
This all adds up to a case for capitalizing corporate earnings at a rate well below the historical norms, not at the tippy-top of prior experience. But the Wall Street casino is so juiced-up on the Fed’s promise of endless liquidity and puts under the stock averages that it is uninterested in the fundamentals, and will keep buying the dips until some confidence shattering black swan comes flying in from out of the blue.
And that points to the real evil of monetary central planning and the serial financial bubbles that it inexorably produces. Bubbles are now only recognized after they burst into a flaming crash.
Worth reading the whole thing and checking out the charts but here are the key points...
This is just the trouble, however. The robust rate of profit growth during recent years reflects a one-time gain in the profit share of factor income. This gain in all probability cannot be replicated again during the next decade, and, in fact, is extremely vulnerable to the mean reversion so evident in the historical data above. Indeed, that may have already begun during the first quarter of 2014 when the profit share dropped sharply as shown in both charts above.
The same can be said of low interest rates. After an unprecedented 33-year descent, the yield on the 10-year treasury benchmark has nowhere to go but higher; and after hitting a QE induced rock bottom of 1.5% in mid-2012, the benchmark yield has, in fact, bottomed and begun a climb toward normalization. No amount of money printing and financial repression by the central banks can keep yields on the current massive trove of $12 trillion of publicly held treasury debt at a negative after-tax and after-inflation rate indefinitely.
This all adds up to a case for capitalizing corporate earnings at a rate well below the historical norms, not at the tippy-top of prior experience. But the Wall Street casino is so juiced-up on the Fed’s promise of endless liquidity and puts under the stock averages that it is uninterested in the fundamentals, and will keep buying the dips until some confidence shattering black swan comes flying in from out of the blue.
And that points to the real evil of monetary central planning and the serial financial bubbles that it inexorably produces. Bubbles are now only recognized after they burst into a flaming crash.
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