I wrote: >>IMHO, the strength of the US stock market first and foremost reflects the >>strength of the US profit rate Rob writes: >I get confused here. Many 1998 annual reports within the Fortune 500 >pointed at DECLINING profits, no? right. But the trend from the recovery from the Bush-era recession until 1998 has been for the profit rate to rise. Even though it didn't reverse the profit-rate trend, the current small fall in profits is part of the basis for the uncertainty about future profit rates. This fits well with my view that the current profit-led growth path of the US economy is becoming increasingly shaky. (The profit-led growth path is what I previously called the "Tugan-Baranowsky path," "false prosperity," and "bootstrap growth.") >And might we not be conflating 'core >business' performance with profits made on the stock markets? I mean, if a >firm spends a heap on buy backs (& other stocks, too, I s'pose) on a >roaring Wall St, simply because of CEO stock options and the fact that >making the widgets of yore doesn't offer the returns you can get from >shares - why, wouldn't profit statements actually be reflecting Wall St >(and a bubble at that) rather than underpinning it? One reason why corporations are able to buy back their stocks these days is because of abundant cash flow, which is partly the result of high profit rates. Another factor is that interest is currently grabbing a smaller chunk of pre-interest profit income than it a few years ago. Relatively low interest rates help encourage buy-backs. I don't think the profitability of producing widgets is down (except in the limited fall during 1998). Private investment has surged relative to consumer demand in the current business cycle. Jim Devine [EMAIL PROTECTED] & http://clawww.lmu.edu/Faculty/JDevine/jdevine.html
