The Most Important Charts…

Here’s a really nice compilation of charts from some good market strategists and economists via Business Insider’s Matthew Boesler.  I contributed the following:

“The following chart shows the sector contribution of corporate profits as a % of GDP.  What this chart is showing us is that corporate profits have been primarily driven by private investment historically, but the housing bubble and bust caused an unprecedented decline in private investment.

In the last 5 years this decline was offset primarily by government spending which added directly to corporate profits and has helped send profits to record highs.  The risk to corporate profits, in my opinion, appears to be to the downside as the deficit is shrinking quickly and we’re unlikely to see an equally offsetting increase from any other component barring another housing bubble and investment boom.”

cp

Enjoy.

 

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Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

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Comments

  1. This is one of the most informative charts ever. I’ve to thank you a lot because before reading this blog I was unaware of that. Very usefull work.

  2. Bernanke said clearly that even if things turn out rosy, it doesn’t mean Fed will tighten. He emphasized that people would make a mistake by assuming if criteria set by Fed met, tighten follows.

    It is trend change. Government simply cannot do anything to stop it. There is a bond market which checkmate US government from monetization of bonds. As I read from media, while Fed conducted QE, China used QE to retire all its long term US bonds and purchased short term bonds. Lots of short term bonds could force Uncle Sam to tame.

  3. A california judge ordered the release of 10,000 prisoners. Overcrowding is considered cruel punishment. I wonder if people will wise up and quit this war on drugs and make marajuana legal? A decision has to be made about which prisoners are least likely to reoffend, I would think that means the pot smokers are most likely to reoffend and therefore wont be released. Funny how things work. Who the heck needs tax money from it anyway, or the jobs it would create.

  4. Nice chart. You can easily see how the small private investor and his 401K has been crowded out of the market.
    The wealth effect isn’t for everybody it seems.

  5. A bubble in the making?!? Sounds terrible. Why isn’t the government doing anything about it? Oh, maybe the government is the part of the whole scheme.

  6. How do government deficits help Coca-Cola or Ford Motor’s profits?
    Isn’t it far more likely that corporate profits have increased because of restructuring their work force, low interst rates and downward pressure on wages?
    Ford got its house in order by stripping down its operations and now buyers are back. Where is the direct relationaship between deficit spending and Joe Public going out to buy a car?
    Government deficits haven’t come close to replacing the lost output in the ongoing recession. (Fwiw, I believe we are still in recession in everything outside the financial markets.)
    And since GDP is flat, it may seem that profits are somehow connected to deficits. I suspect the chart only works if you take it on faith that deficits increase GDP.