Market bears take the position that stocks are expensive, citing a variety of indicators and arguing that profit margins should “mean revert” from record highs. On the other side, market bulls dispute the indicators and propose that fat margins are no big deal – they might just remain at record highs indefinitely.
“High margins reflect a long-term structural change, not a short-term cyclical one,” according to one account of a popular position. Or “It’s a mistake to think that margins will revert to a long-term mean just for the sake of reverting to a mean.”
The message seems to be that mean reversion is for losers. This is a new era, or it’s a new economy, or whatever. We're paraphrasing, but the story sounds a lot like the capital letter New Economy of the late 1990s. There’s even a technology angle once again, along with huge confidence in monetary policy and recession-free growth. Above all, there’s a notion that the world might be different. Needless to say, the new, new economy story comes with plenty of red flags.