Perma-bear Albert Edwards hits on the nail again, this time with an interesting chart on corporate margins. Other perma-bears have cried wolf before but a closer analysis negated their thesis (see MARGIN CALL!).

For this call, I added 2 of my own charts to verify the validity of the indicator. Not fool proof but nevertheless a good warning.

(Bloomberg)- U.S. companies have reached a “tipping point” that will shrink earnings growth and profit margins, according to Albert Edwards, a global strategist at Societe Generale.

The shift has occurred because labor costs have started rising faster than prices as the economy struggles to expand, Edwards wrote yesterday in a report.

Average labor expense for every unit of output increased 1.9 percent last quarter from a year earlier, while the deflator for businesses other than farms rose 1.8 percent. The labor-cost gauge climbed more than prices for the first time since 2008.




  • During the 1990 squeeze, quarterly profits had actually peaked in mid-1989, troughing in early 1992.
  • No impact in 1995-96.
  • Profits flattened in 1997-98, reaccelerated in 1999 to peak in mid-2000.
  • No impact in 2004.
  • Profits peaked in May 2007 and troughed at the end of 2008.


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