Monday, March 12, 2012

Profit Margins

I tend to worry more about the downside than the upside.

This may be genetic. Or, it might be a continuing after-effect of advice that a kind stranger once gave me at a bowling alley, when I was a boy: "Focus on getting spares, and the strikes will take care of themselves."

Here is a good piece from Reuters that lays out some of the downside risks to corporate profitability in the U.S. This is one of those pieces that I think is, at least, asking the right questions. Profit margins are very wide now, and if they revert to the long-term historical levels, the stock market should go down.

Is it crystal-clear that profit margins should revert to their historical levels? No, but that's the correct concern, and if they are not going to, there needs to be a reason.