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Title is self explanatory. No need to look further than BBY's report yesterday to realize that retailers may be getting product out the door but if it's deeply discounted than gross margins are negatively impacted. Deteriorating margin trends are one thing I look for when shorting names (RIMM, SNDK, BBY, LRCX, etc...). Difficult to realize multiple expansion and long term stock price appreciation if your margins are contracting.


Corporate margins are at record levels and this is probably one of the reasons the S&P is trading at 17x earnings. But, all good things must come to an end or at least mean revert. Mean reversion in profit margins, earnings growth and earnings multiples is likely where we're headed over the next two to three years in my opinion. If this prediction comes true the market is going no where and cash / bonds and income producting stocks will likely outperform.

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