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

To: Shane M who wrote (147)	4/5/1998 8:24:00 PM
From: Freedom Fighter	Respond to of 1722

Shane, >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 heard this argument before but I'm not convinced. It certainly could be a factor short term, but you would tend to think over the long haul margins will still narrow. What I do agree with is that if govt. would get out of the way we could grow faster. That is a little different than the margins. The same holds true for productivity. If productivity is indeed surging and continues to rise, that is a wonderful thing for us all. We can all have a better standard of living. That too is a growth thing and maybe not related to margins. It may hold margins high for a while longer than would otherwise be the case but I wouldn't think indefinitely. Again, I am being intuitive. I am not sure there is a rule on the difference between cost of capital and return on capital. I am more concerned about the downside risk. Keep one other thing in mind. If you view the whole income stream as one big pie, if corporations are achieving higher ROE then they are getting a bigger piece of the pie than employees relative to the past. One could question the sustainability of that. What happens when lots of the customers are broke because the income stream is not being shared in the same proportions?