by VeryStableGenius
I was reading this politifact post from December and I came across some striking graphs.
- Profit per unit of real gross value added has blown up since 2000, from 5% to 16% of every dollar of value added (which is output value minus input costs, if I’m reading this right).
- Corporate profits as a fraction of GDP are at near record levels, about 10%. The historical norm might be 6%, but it shot up around 2007, fell sharply, then recovered and went higher.
- Buybacks and dividends grew by a factor of about 2.5 from 2009 to 2019, and then shot up some more in 2020, with a lot of variation across industries.
I’m thinking this was driven by a mix of low rates and corporate tax cuts.
Another manifestation of this might be divergence between trailing-12-month P/E (a relatively sane 21), vs CAPE (very high at 28), suggesting that current profits are high compared to CAPE’s 10 year window.
This makes me think the that the wonderful 10 year, 10%+ per annum nominal returns I’ve seen in some funds I want to buy (SPHD, VYM, SPY) was not driven by growth, but by better extraction of profits from existing production. It seems earnings growth might be policy-driven, and thus unlikely to continue, and probably reversible.
Thoughts?
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