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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: Freedom Fighter who wrote (146)	4/5/1998 7:37:00 PM
From: Shane M	Read Replies (1) \| Respond to of 1722

Wayne, Good point concerning wage inflation eventually closing the ROE gap. Or at least it should. As long as we're not seeing any wage inflation would you say that we're alright? In addition, when we start talking wage inflation we have to consider productivity gains, (which I don't think anybody knows how to properly measure.) Productivity gains in excess of wage increases could be behind ROE surge. And on final thought. Increased international trade. More efficient world markets now remove some pre-existing artificial barriers that could have produced abnormally low ROE in the past. Lets see how much ROE can improve when the governments get out of the way and let the businesses do what they do best - make money. I have a friend in a PhD program in Economics right, now, and I'm gonna ask him what he thinks about long run margins/return on equity. I really don't know that I have a feel for why a 12-15% ROE should be a better baseline ROE than any other. My gut tells me that a more efficient economic structure should allow higher returns, but I can't justify. I agree with you on companies w/ debt. They'd better be producing a better ROE to justify the debt. Reducing debt might lower ROE but also lower risk. I don't know if company leverage has increased or decreased over time. (I'd guess it's decreasing currently). Shane