Here's What The Bears Get Dead Wrong About This Controversial Corporate Profits Chart

The implication is that record high profit margins are an anomaly thanks to too few workers working too many hours for too little pay.

Stock market bears warn margins are doomed to revert to some long-term average. And ultimately, this is also supposed to translate into collapsing earnings, which would cause stocks to tank.

However, stocks and are not the economy.

And Citi's Tobias Levkovich takes issue with those who compare stock market measures to U.S. economic measures.

"Market cap to GDP measures also miss out on the growing impact of foreign earnings from non-US GDP sources making that approach far less useful as well," wrote Levkovich in his weekly note to clients. "Because corporate profit as a proportion of GDP is at a 65-year record high, there is a legitimate view that margins are so stretched that they can only go down."

"[B]ut this ignores the earnings growth coming out of S&P 500 constituents from international sources that may have been produced internationally and do not even enter the US GDP calculation," he added. "Similarly, high margins also reflect sales outside the US that were produced outside the US even though the profits accrue to US entities (which may not be repatriated and thus tax rates are much lower). As a side note, both the national income account profit margin data and the GDP figures include privately held companies that are not represented in the S&P market cap, but that issue never gets addressed by the critics."

Profit margin bulls acknowledge that margins are historically high, and most agree that there will be some give back especially if there's a recession.

However, all margin bulls agree that margins are on a secular upswing thanks to increasing overseas exposure among other things.