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Monthly Archives: May 2014
Profit Margins: Accounting for the Effects of Wealth Redistribution
In the previous piece, I addressed a popular argument for the necessity of profit margin mean-reversion grounded in the Kalecki-Levy profit equation: Profit/GNP = Investment/GNP + Dividends/GNP – Household Saving/GNP – Government Saving/GNP – ROW Saving/GNP I made three points. … Continue reading
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Profit Margins Don’t Matter: Ignore Them, and Focus on ROEs Instead
Mean-reversion in a system doesn’t happen simply for the sake of happening. It happens because forces in the system cause it to happen. With respect to profit margins, the following questions emerge: What are the forces that cause profit margins to … Continue reading
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Profit Margins: Accounting for the Impact of a Changing Financial Share
In a prior piece, I argued that that the frequently-cited macroeconomic expression “CPATAX/GDP”, shown below in maroon (FRED), is a flawed way of measuring the aggregate profit margin of U.S. corporations. When a U.S. corporation earns profit from foreign operations, … Continue reading
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Why A 66% Crash Would Be Better than a 200% Melt-up
Suppose that you’re a middle-aged professional with a 30 year retirement time horizon. Your portfolio is 100% invested in U.S. equities–it consists of 100 shares of the S&P 500, worth $187K at current market prices. Assuming that the fundamentals remain … Continue reading
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