Albert Edwards and Societe Generale aren’t household names, but both are important right now, because they’re proof that the rules of economics are changing very fast.
Edwards is an accomplished and respected economist, and he’s recently written a report noting some significant developments. For one, corporate profits have not only been continually rising, but at accelerating growth rates over a long period, while margins are soaring. The Fortune 500 yields $1.8 trillion in profit off $16.1 trillion in revenue, an 11.2% profit margin that has been rising for a long time.
On the surface, the conclusion that investors should buy Fortune 500 stocks is undeniable, but there is an additional externality to consider. Edwards notes that this profit growth has happened during and after the pandemic, when earnings should have been strained by less efficient operations throughout the supply chain and sales funnel. Instead, profits went up in many sectors, with aggressive acceleration in profits in some cases.
Edwards is brutal, arguing that the greedflation we are seeing is unprecedented and astonishing. Those are his words. His conclusion: this is unsustainable.
It’s also hidden. Very little from the mainstream press has focused on corporate profits despite the large inflation we’ve seen for two years, which again points to the opportunity for analysts like Edwards to map out these trends, explain them to clients, and profit significantly as a result. And there’s room for others to question Edwards, come to different conclusions, and find their own clients. Thus, the financial marketplace, as it is wont to do, becomes a marketplace for ideas where being right is rewarded with riches.