In a very interesting article written by Bloomberg Goldman Sachs reflects on their profit margin analysis.

Looking at why profit margins are expending, Goldman analysts refer to four key points:

• Strong commodity prices
• Emerging market cost arbitrage
• Demand growth from emerging markets
• New technology driving corporate efficiency

This is where we want to use some of our economic theory.  We would expect that profit margins at some point would roll over and mean revert.  Why? Because of competition.  We would expect firms to enter markets and bolster competition; thus eroding profits.  If we don’t see that happening and margins remain high, does that mean capitalism is broken?