Here's a chart that made the rounds this weekend that I found interesting. For decades, corporate profits made up about 6% of GDP. That was the norm -- a stable share of the economic pie.
Then something broke.
Briefly in the mid aughts, and then again near the launch of the first QE programs, corporate profits surged to 10–12% of GDP and stayed there. That’s not a blip. That’s a sea change.
But here’s the catch: profits don’t rise in a vacuum. If corporations are getting more, someone else is getting less -- usually labor, small business, or the public sector.
So what looks like success is really imbalance.
Cheap debt, globalization, tax loopholes, financialization -- they’ve all propped up margins. But this isn’t just about business thriving. It’s about extraction replacing productivity.
If 6% was the long-term mean, and we’re now at 12%, then either we’ve built a new normal on systemic distortion… or we’re headed for a brutal mean reversion.
What this chart really shows isn’t health. It’s dependency. We've built an entire asset ecosystem, a political cycle, and a fiscal regime on the back of profit levels that may not be sustainable. And if indeed they’re not -- if they even begin to revert -- the ripple effects could be massive.
This kind of chart strongly implies that the system is unbalanced. And that stocks are priced for perfection based on a profit regime that may not hold.
In short, this isn’t a chart of prosperity. It’s a canary in the coal mine. And it’s been dead for years -- but we’ve hooked it up to an air compressor and have convinced ourselves it’s whistling Dixie.
Worth keeping in the back of one's mind as another suggestion that even though bears have taken a lot of beatings in these intervening years of imbalance... things won't stay that way forever.
Market-wise, we're still basically in the same place we were on Friday:
Not much else to add to the past couple updates. Trade safe.
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