The correlation in the chart 'Trend profitability and capex growth in the S&P 500' is obviously there but I am asking myself whether the causality is not the other way round
- If the causality were as suggested, there would be a substantial time lag between capex and profitability (investments need time to pay off). One cannot see that in the chart.
- If the causality were the other way round, no time lag would show (as is the case in the diagram): High profits (for any reason) make management immediately more optimistic and increase capex.
This is not in contradiction to the argument that capex increases profitability in the long run, it just reverses cause and effect in the short term.
The correlation in the chart 'Trend profitability and capex growth in the S&P 500' is obviously there but I am asking myself whether the causality is not the other way round
- If the causality were as suggested, there would be a substantial time lag between capex and profitability (investments need time to pay off). One cannot see that in the chart.
- If the causality were the other way round, no time lag would show (as is the case in the diagram): High profits (for any reason) make management immediately more optimistic and increase capex.
This is not in contradiction to the argument that capex increases profitability in the long run, it just reverses cause and effect in the short term.