Comments on: The Future of Corporate Profits. The "E" in the P/E Equation http://ContrarianEdge.com/2007/02/08/the-future-of-corporate-profits-the-e-in-the-pe-equation-5/ Vitaliy Katsenelson blog on the economy, stock market, and stocks. Applying Active Value Investing approach. Wed, 02 May 2012 15:01:00 +0000 hourly 1 http://wordpress.org/?v=3.2.1 By: Joe Z http://ContrarianEdge.com/2007/02/08/the-future-of-corporate-profits-the-e-in-the-pe-equation-5/comment-page-1/#comment-1657 Joe Z Sun, 25 Feb 2007 22:33:49 +0000 http://ContrarianEdge.com/2007/02/08/the-future-of-corporate-profits-the-e-in-the-pe-equation-5/#comment-1657 Vitaliy writes that ""in the long run high margins and thus above average return on capital will attract new competition which will force companies to lover prices..." This is a well known and accepted argument, but it applies to specific industries with above average profitability - not to the economy as a whole. New competition requires capital, and since economy-wide margins and profitability is higher, no new capital will flow into any industry. Another way to see this is by asking, Where would the capital come from? Vitaliy writes that “”in the long run high margins and thus above average return on capital will attract new competition which will force companies to lover prices…”

This is a well known and accepted argument, but it applies to specific industries with above average profitability – not to the economy as a whole. New competition requires capital, and since economy-wide margins and profitability is higher, no new capital will flow into any industry. Another way to see this is by asking, Where would the capital come from?

]]> By: Shawn Allen http://ContrarianEdge.com/2007/02/08/the-future-of-corporate-profits-the-e-in-the-pe-equation-5/comment-page-1/#comment-1573 Shawn Allen Fri, 23 Feb 2007 21:21:15 +0000 http://ContrarianEdge.com/2007/02/08/the-future-of-corporate-profits-the-e-in-the-pe-equation-5/#comment-1573 Agreed high profit margins may revert, hurting stock indexes. I wonder if Corporate American earnings can really be compared to American GDP. Many American corporations earn substantial profits outside the U.S. Is this possibly part of the reason for the apparent rise in margins? Could we get a world profits divided by world GDP and see if that margin is trending up? Agreed high profit margins may revert, hurting stock indexes.

I wonder if Corporate American earnings can really be compared to American GDP. Many American corporations earn substantial profits outside the U.S. Is this possibly part of the reason for the apparent rise in margins?

Could we get a world profits divided by world GDP and see if that margin is trending up?

]]> By: Vitaliy http://ContrarianEdge.com/2007/02/08/the-future-of-corporate-profits-the-e-in-the-pe-equation-5/comment-page-1/#comment-1572 Vitaliy Fri, 23 Feb 2007 20:40:47 +0000 http://ContrarianEdge.com/2007/02/08/the-future-of-corporate-profits-the-e-in-the-pe-equation-5/#comment-1572 Jay Z, Lower labor costs will be available to all companies large and small. Though in a short-run (the last couple years) companies get to keep the costs savings that come from lower labor costs. However, in the long run the high margins and thus above average return on capital will attract new competition which will force companies to lower prices or spend more money on differentiation. Companies that have strong competitive advantage will be impacted less by inroads of new competitors and thus may get to keep their margins for a longer period of time. -Vitaliy Jay Z,

Lower labor costs will be available to all companies large and small. Though in a short-run (the last couple years) companies get to keep the costs savings that come from lower labor costs. However, in the long run the high margins and thus above average return on capital will attract new competition which will force companies to lower prices or spend more money on differentiation.

Companies that have strong competitive advantage will be impacted less by inroads of new competitors and thus may get to keep their margins for a longer period of time.

-Vitaliy

]]> By: Joe Z http://ContrarianEdge.com/2007/02/08/the-future-of-corporate-profits-the-e-in-the-pe-equation-5/comment-page-1/#comment-1531 Joe Z Thu, 22 Feb 2007 17:00:38 +0000 http://ContrarianEdge.com/2007/02/08/the-future-of-corporate-profits-the-e-in-the-pe-equation-5/#comment-1531 Grantham is a fine researcher, but perhaps he overlooks the significance of the major structural change in the world economy - the tremendous increase in the supply of labor. Labor is the primary input, and this supply increase will dampen labor costs for another two decades. We may thus expect profit margins not to revert for a very long time. Grantham is a fine researcher, but perhaps he overlooks the significance of the major structural change in the world economy – the tremendous increase in the supply of labor. Labor is the primary input, and this supply increase will dampen labor costs for another two decades. We may thus expect profit margins not to revert for a very long time.

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