Who To Believe?

Via Ritholtz, Bloomberg looks at corporate profits.  First, Jeremy Grantham:

“Lower margins are the great threat to market performance,” he wrote in the August newsletter. Grantham is known for his bearish investment outlook and for his successful record in identifying stock-market bubbles.
Margins have been propped up by a “great surge” in government spending that fueled consumption, Grantham said. As political pressures force the U.S. to cut its budget deficit, the economy will suffer and margins will drop, Grantham predicted without laying out a timetable.
GMO expects U.S. large-capitalization stocks to return 1.8 percent a year above inflation over the next seven years, according to its website.

Then, Allen Sinai:

High margins are here to stay, said Allen Sinai, chief economist at Decision Economics Inc. in New York.
Cloud computing, which provides access to software and computing tasks remotely over the Internet, rather than through a company’s own system, is just the latest tool corporations can use to keep costs in check, Sinai said.
“This is the way of the world now,” he said in a telephone interview. “CEOs are paid to maximize profits.”

I have to side with Grantham on this.  Who will continue to buy from the companies if workers don't see wage increases?  Consumers are squeazed by oil prices every time it looks like the economy is picking up, and food prices are increasing.  Government spending decreases will slow down the economy and hurt corporate profits.  So, this Sinai guy gives two explanations of corporate profits, cloud computing and CEO magic.  To me, that feels like internet bubble-type talk.  I can't give a lot of credit to CEOs after watching so many drive their companies into the ditch.  And clound computing sounds like the most recent "internet commerce" or "housing shortage."  High margins are here to stay sounds amazingly like housing prices don't go down.  But hey, that's just a gut feeling.