sponsored firms such as Fannie Mae and Freddie Mac also became pub-
lic corporations. The sum of corporate profits and proprietors’ income is
only slightly higher than its long-term average.
Another consideration is that the fraction of corporate profits of
U.S.-based firms that come from abroad has also been increasing. In
2006, over 44 percent of the sales of S&P 500 companies were foreign. As
the U.S. economy shrinks relative to the size of the world economy, the
corporate profits of U.S. multinational corporations should rise relative
to the GDP.
116 PART 2 Valuation, Style Investing, and Global Markets
FIGURE 7–5
Market Value, Replacement Cost, and the GDP