It is probably fair to say that the “rule of law” is one of the key pillars of our government and financial system. Wikipedia defines the rule of law as “the legal principle that the law should govern a nation, as opposed to arbitrary decisions by individual government officials”.
As investment advisors, we are well aware of the strong stock market recovery over the last several years. Much of the market recovery can be attributed to strong earnings growth. A significant portion of the recent strength in corporate earnings reflects margin improvement, as earnings gains have outstripped revenue progress. This is very unlikely to continue indefinitely. Future operating gains will have to come from increased revenues.
Generally, revenue growth requires investment. Investment, to a significant degree, depends on investor confidence in future expectations.
Investment usually occurs over the short term while the benefits flow through over a period of years. While the future is always subject to uncertainty, greater clarity is likely to encourage increased investment.
Just tell me what the rules are.
Walter J. Kirchberger, CFA®