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  • Bears like to point to the unsustainable level of corporate profits in a slow-GDP economy, but the S&P 500 - trading at just 14.7X earnings vs. a long-run average of 16.6 - may have priced this in, writes Scott Grannis. If the economy stays slow - but avoids recession - stocks should do just okay, but if we get a pickup in growth, look out for far higher prices. [View news story]
    My own experience in business has been that an expectation of demand drives investment decisions. Personal or business tax rates, in my experience, affect the absolute level of expected net profitability but the existence of demand is always the key driver in moving forward on hiring or investing. Put another way, decreasing my taxes does not in anyway motivate me to invest in my business. The argument is made that lowered taxes indirectly improves demand, which is true to a degree. This effect is actually the smallest in the higher income groups who will just add most of it to savings. Stimulating demand through direct infrastructure investment by government is the most effective way to drive demand and will directly motivate businesses to hire and invest. The business investment by the wealthy will occur even if their taxes are increased to pay for the infrastructure costs. This is due to the observation stated above that tax rates really are only a secondary consideration for a business in deciding to expand; increasing demand is real driver for business investment, not taxes.
    Sep 30 05:34 PM | Likes Like |Link to Comment
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