by Charles Hugh Smith
Of Two Minds
Since stock markets are ultimately underpinned by corporate profits, let’s ask: What factors could crush profits in 2016?
The basic idea of a balance sheet recession (attributed to Richard Koo) has been well-publicized: when the liability (debt) side of household and business ledgers reach danger heights, stakeholders respond by reducing debt and increasing savings rather than increasing spending and debt.
The result is a slowdown, a balance sheet recession.
What do we call a recession triggered by a collapse in profits? Corporate profits have soared to unprecedented heights in the “recovery” of 2009-2015: it’s certainly been more than a recovery in terms of corporate profits: