Corporate Profits Inflation Adjusted has been falling as expected when I first published this chart.
But unlike the first chart I have inflation-adjusted it this time to get a more accurate reading. Something we have not needed to do for decades.
Before I continue can you chart corporate profits and like charts? Answer yes you can which is why I added the patterns.
As you can see we have double topped sitting on a rising 3rd gear trendline right now. The likelihood it will fail and CP will continue to contract. However, stock prices are rising while profits are falling which tells us we are in a Euphoric, FOMO, multiple expansion market.
Multiple Expansion simply means people are paying more and more for less and less earnings. This is not a good sign for bulls even if they expect higher earnings in the future. Any pump in future earnings will be short-lived simply bc we are at max employment. Unless you can find more workers with more wages or workers get higher wages in the aggregate (which would be inflationary cutting into profits as labor unit costs rise) then we should not expect CP to blast off anytime soon. Another way CP could rise is to once again use helicopter money, QE massive deficits, lending programs etc.. which would also be inflationary. Pick your poison.
Having said all that Multiple Expansions can and have run for a while bc markets are irrational. If you haven't figured that out by now. Read extraordinary popular delusions and the madness of crowds.
But unlike the first chart I have inflation-adjusted it this time to get a more accurate reading. Something we have not needed to do for decades.
Before I continue can you chart corporate profits and like charts? Answer yes you can which is why I added the patterns.
As you can see we have double topped sitting on a rising 3rd gear trendline right now. The likelihood it will fail and CP will continue to contract. However, stock prices are rising while profits are falling which tells us we are in a Euphoric, FOMO, multiple expansion market.
Multiple Expansion simply means people are paying more and more for less and less earnings. This is not a good sign for bulls even if they expect higher earnings in the future. Any pump in future earnings will be short-lived simply bc we are at max employment. Unless you can find more workers with more wages or workers get higher wages in the aggregate (which would be inflationary cutting into profits as labor unit costs rise) then we should not expect CP to blast off anytime soon. Another way CP could rise is to once again use helicopter money, QE massive deficits, lending programs etc.. which would also be inflationary. Pick your poison.
Having said all that Multiple Expansions can and have run for a while bc markets are irrational. If you haven't figured that out by now. Read extraordinary popular delusions and the madness of crowds.
Comment:
Corporate profits YOY down -5% plus.
Real Macro Economic Investing
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