Archive - January 1, 2015

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High Corporate Margins Unsustainable and Will Lead to a Crash

High Corporate Margins Unsustainable and Will Lead to a Crash

Regarding the question “are stocks overpriced?” the topic usually is debated around the concept of sustainable corporate profit margins. High corporate profits are really the only good defense of the bulls’ opinion. If today’s record high corporate profit margins are sustainable then stocks may only be modestly overvalued. On the other hand, if today’s margins are going to revert to the mean, which is typical for corporate profit margins, then stocks need to go down 50% to reach equilibrium. Mean reversion of profits may be a lumpy experience where they stay high for some time and then suddenly fall as …

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