What Warren Buffet said 16 years ago stills hold true today

“You know, someone once told me that New York has more lawyers than people. I think that’s the same fellow who thinks profits will become larger than GDP. When you begin to expect the growth of a component factor to forever outpace that of the aggregate, you get into certain mathematical problems. In my opinion, you have to be wildly optimistic to believe that corporate profits as a percent of GDP can, for any sustained period, hold much above 6%.” Well, so much for that. As you can see in the chart, courtesy of the St. Louis Fed, corporate profits have now nearly doubled the levels that Buffett believed to be unsustainable. But while Buffett might have been a little off on the numbers, his logic was pretty solid. Companies cannot continue to take an ever-bigger slice of the economic pie. Eventually, this creates political backlash, as we see today. The basic laws of economics also start to rain on the parade. High profits attract competition…which crimps margins and ultimately lowers profits. (VIEW LINK)


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