Hussman: Profits Will Fall and Stocks Will Tank

“Fund manager John Hussman of the Hussman Funds has been hammering on what is probably the biggest risk to future stock performance:

The risk that today’s record-high profit margins will fall, taking corporate earnings down with them.

Those who want stocks to keep charging higher have come up with a list of many reasons why it’s “different this time” and today’s profit margins will keep on increasing. These include:

• Almost half of big corporate profits now come from international operations, so profit-to-US GDP measures aren’t meaningful
• The source of the high profit margins is efficiency and low labor costs, and those gains will continue (labor glut, high unemployment, etc.)
• There is no law that says profit margins HAVE TO drop…

Those points have some merit.

But the idea that it really is “different this time” and that corporate profit margins will now remain at record levels forever seems, at best, dreamy.

After all, this is what profit margins (blue) have done in the past….”

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