Monday, April 23, 2007
As a mirror image to the previous post about how profits of U.S. companies are rising in their foreign subsidiaries while falling in domestic operations comes this observation from Michael Mandel of Business Week that investment spending from U.S. companies are much stronger than government statistics of U.S. investment spending indicates. The reason for this is that they are in fact investing a lot more-only they do so outside of America. This makes of course perfect sense. The main reason why corporate profits affect investment spending is because they make it more plausible in the mind of management that there is a strong incentive for additional investments. And if previous investments outside of the U.S. are more profitable, then this means that U.S. corporations will tend to invest more outside of the U.S. This means that U.S. stock prices will be increasingly disconnected to the strength of the U.S. economy.