Resetting the monetary system

[bronx43]

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This is still missing the point. There are companies with significant debt that fail. There are companies with significant debt that have become tremendous successes. There are no companies either private or public that have become tremendous successes without debt. Debt is a financial instrument that is indispensable when trying to start a business, and trying to make a blanket statement that implies that all debt is intrinsically "bad" is just plain silly.



I'm not implying they are what they are solely because of their debt. I am saying that an extremely desirable product/service and debt are the sine qua nons of a successful megacap company. Again I'll ask- tell me a successful megacap (either growth or value) that did not have significant debt in their "hypergrowth" phase?

The problem isn't the fact that corporate debt is so high, it's the fact that corporate debt is high and capital expenditures are down. I don't think anyone has a problem with credit when it is used to invest in capital goods or infrastructure, given that such investments will likely increase future productivity. The point made by a lot of investors in the current market is that corporate debt is being used for financial engineering in order to raise asset prices. The reason for this isn't entire clear, but it's probably a combination of lower interest rates and the perception of negative economic outlook.

I agree that debt for debt's sake is ridiculous. I also agree that a government should run budget surpluses whenever possible. I suspect, though, that "whenever possible" certainly varies based on user interpretation.

The government should run surpluses when there is the threat of inflation, especially in a situation with near capacity or full employment. However, if credit growth in the private sector (with the exception of corporate entities) is anemic, then there needs to be government deficits to shore up aggregate demand. The main problem with the economy of the US right now is low aggregate demand, and low velocity of money. The Fed (as well as all other central banks) are having trouble creating their target inflation rate. Monetary policy is at its logic end, and there are limited options for central banks. The only way forward is strong handed fiscal policy which is essentially deficit spending. From a macro standpoint, this is the main reason I can't allocate most of my capital into equities right now. The fundamentals aren't there in the medium to long term without fiscal policy. I don't see deficit spending as a viable political option, but if it was, then I would be back in equities.

 

[bronx43]

I sure hope so. I would like for interest rates to be over 5%. 10% to 15% even better. The savers need to be compensated for the travesty that was allowed to happen in the past 5 years. Gold would go to nothing if that ever happened, and that would be a good thing.

The 0.25% that they might increase, or decrease, is basically nothing.

I may be a bit pessimistic but without **** hitting the fan, I don't see interest rates normalizing to the degree that you're talking about. 15% interest rates would be almost Paul Volcker territory, after which we saw stagnation in the 80s. From a foreign exchange and global growth perspective, rate normalizing would be completely de-stabilizing. It would force China to de-peg given their problem with capital flight, and disrupt other exporting nations. Furthermore, rate normalization of this degree would tank global trade, as it would essentially suck out liquidity from every corner of the world. The US and the USD, being the foundation of the post-Bretton Woods era, can't allow this to happen.

 

[bronx43]

It's actually pretty easy to argue with these guys. Kudos to the amount of money he made historically, but I pay no heed to guys who make predictions about impending crashes at some nebulous future date. Druckenmiller has been spouting the same "we're in a debt crisis, sell everything, buy gold!" nonsense since late 2012/early 2013. The S&P returned 30% in 2013 and a further 10% in 2014 if I recall correctly, and that doesn't include dividends. Investors lose significant amount of money over their lifetimes not just by being fully invested at the start of a crash, but also by being in cash during sharp bull markets.

Paul Samuelson:

"To prove that Wall Street is an early omen of movements still to come in GNP, commentators quote economic studies alleging that market downturns predicted four out of the last five recessions. That is an understatement. Wall Street indexes predicted nine out of the last five recessions! And its mistakes were beauties."

You make cogent arguments, vector2. But in the current situation, would you really be heavy into equities? I don't see a crash on the horizon, but I also don't see the markets breaking new highs... unfortunately. There's no yield on fixed income, and commodities are too volatile and difficult for my taste. Maybe we've hit stagnation a la Japan for the past two decades. I would really love some perspectives.

 

[Mman]

You make cogent arguments, vector2. But in the current situation, would you really be heavy into equities? I don't see a crash on the horizon, but I also don't see the markets breaking new highs... unfortunately. There's no yield on fixed income, and commodities are too volatile and difficult for my taste. Maybe we've hit stagnation a la Japan for the past two decades. I would really love some perspectives.

plenty of good evidence you should determine an asset allocation based on your risk tolerance and stick with it. Trying to predict the future movement of the stock market is how you underperform long term.

 

[bronx43]

plenty of good evidence you should determine an asset allocation based on your risk tolerance and stick with it. Trying to predict the future movement of the stock market is how you underperform long term.

You're probably right, but I don't know if I believe in conventional wisdom for the sake of conventional wisdom. The fundamentals right now make no sense, and only point to asymmetrical risk.

 

[Mman]

You're probably right, but I don't know if I believe in conventional wisdom for the sake of conventional wisdom. The fundamentals right now make no sense, and only point to asymmetrical risk.

fundamentals aren't terrible. At some point in the next 10 years we will likely either have a decent sized correction followed by good growth or stagnation of stock prices for a while until earnings catch up later followed by more growth.

If you are trying to figure out what to do with money you won't need for 20 or 30 years, hard to find a better place than equities. If you will need it in the next 10-20 years than you should have a different asset allocation with it anyways. The conventional wisdom about asset allocation is based on your time frame. The fundamentals of this market are perfectly fine for a good long term return on dollars invested today, you just need a long enough time frame.

 

[bronx43]

fundamentals aren't terrible. At some point in the next 10 years we will likely either have a decent sized correction followed by good growth or stagnation of stock prices for a while until earnings catch up later followed by more growth.

If you are trying to figure out what to do with money you won't need for 20 or 30 years, hard to find a better place than equities. If you will need it in the next 10-20 years than you should have a different asset allocation with it anyways. The conventional wisdom about asset allocation is based on your time frame. The fundamentals of this market are perfectly fine for a good long term return on dollars invested today, you just need a long enough time frame.

Our debt burdens are too big for the kind of unbridled growth that we've seen in the last 50 years. I'm not saying this from a goldbug doomsday perspective. I'm stating quite the obvious that we are in what appears to be a longterm debt cycle in which we are currently seeing 250-300% debt to GDP in most developed nations in the world. I don't care so much for public debt in this circumstance as I do the private sector debt. From a public debt perspective, it doesn't matter what your debt looks like as long as there is confidence in your central bank. As far as I can tell, there hasn't been too much erosion in that department to necessitate any concern. Private debt, on the other hand, is crippling when it isn't growing. In fact, as certain post-Keynesian economists like Steve Keen has shown, not only does private sector debt have to grow, but it has to continually accelerate in order to prevent recessions. And the problem is that once you're at certain ridiculously high levels of private debt, the room for growth simply isn't there anymore. We saw a small dip after 2008 where the private sector de-leveraged, but now it's growing again. The problem this time is that it isn't growing at nearly the same rate as it was pre-crisis. To make matters worse, households have barely levered up at all, and most of the private credit is going to corporations, who aren't using it on capital expenditures and investments. There are only two things that can drive another long bull market, in my opinion - increased rate of private or public sector debt growth or increased wages. Neither is likely for different reasons, and the both have severe political constraints. I would, obviously, be the first to jump into equities if one of these problems is addressed.

 

[Mman]

Our debt burdens are too big for the kind of unbridled growth that we've seen in the last 50 years. I'm not saying this from a goldbug doomsday perspective. I'm stating quite the obvious that we are in what appears to be a longterm debt cycle in which we are current seeing 250-300% debt to GDP in most developed nations in the world. I don't care so much for public debt in this circumstance as I do the private sector debt. From a public debt perspective, it doesn't matter what your debt looks like as long as there is confidence in your central bank. As far as I can tell, there hasn't been too much erosion in that department to necessitate any concern. Private debt, on the other hand, is crippling when it isn't growing. In fact, as certain post-Keynesian economists like Steve Keen has shown, not only does private sector debt have to grow, but it has to continually accelerate in order to prevent recessions. And the problem is that once you're at certain ridiculously high levels of private debt, the room for growth simply isn't there anymore. We saw a small dip after 2008 where the private sector de-leveraged, but now it's growing again. The problem this time is that it isn't growing at nearly the same rate as it was pre-crisis. To make matters worse, households have barely levered up at all, and most of the private credit is going to corporations, who aren't using it on capital expenditures and investments. There are only two things that can drive another bull market, in my opinion - increased rate of private sector credit growth or increased wages. Neither is likely for different reasons, and the latter has severe political constraints.

US corporations have thrived for a long time despite the Civil War, WW1, Great Depression, WW2, oil embargo, stagflation, mortgage/financial crisis, etc. The odds that they perform poorly over the next 50-100 years are exceedingly low. There are all kinds of reasons to be skeptical, but we have way more than 50 years worth of data suggesting you shouldn't worry too much about it.

Pick an allocation that fits your risk tolerance and go with it. If you thought stocks were a good idea 5 or 10 years ago, they remain so if you are looking long term.

 

[bronx43]

US corporations have thrived for a long time despite the Civil War, WW1, Great Depression, WW2, oil embargo, stagflation, mortgage/financial crisis, etc. The odds that they perform poorly over the next 50-100 years are exceedingly low. There are all kinds of reasons to be skeptical, but we have way more than 50 years worth of data suggesting you shouldn't worry too much about it.

Pick an allocation that fits your risk tolerance and go with it. If you thought stocks were a good idea 5 or 10 years ago, they remain so if you are looking long term.

The point I'm trying to make is that the growth we've seen in the past 50 years was the world riding a large credit cycle, at which we are either at or near the peak. I hope you see my problem with the argument "stocks are good for the next 50 years because they have been good for the past 100 years."

 

[Mman]

The point I'm trying to make is that the growth we've seen in the past 50 years was the world riding a large credit cycle, at which we are either at or near the peak. I hope you see my problem with the argument "stocks are good for the next 50 years because they have been good for the past 100 years."

I'm saying we've seen 200 years of growth that outlasts any and every cycle. The only question is whether you believe US companies can continue to earn money year after year, and whether they can increase those earnings over time. There are plenty of companies that have almost no debt and have been growing for a long time.

You are free to disagree and bet your long term savings on bonds or gold or CDs or real estate or ammunition. I'm just pointing out that I think it is unlikely any alternative ends up being better than equities. Hard to envision it playing out differently.

 

[bronx43]

I'm saying we've seen 200 years of growth that outlasts any and every cycle. The only question is whether you believe US companies can continue to earn money year after year, and whether they can increase those earnings over time. There are plenty of companies that have almost no debt and have been growing for a long time.

You are free to disagree and bet your long term savings on bonds or gold or CDs or real estate or ammunition. I'm just pointing out that I think it is unlikely any alternative ends up being better than equities. Hard to envision it playing out differently.

Without political action, I actually don't think corporations can increase earnings over the medium term, let alone the long term. I'm not saying equities are not a good longterm option, I'm saying that without change in the political sphere, equities are not a good longterm option. America has made the correct political decisions historically, hopefully this can continue...

 

[Mman]

Without political action, I actually don't think corporations can increase earnings over the medium term, let alone the long term. I'm not saying equities are not a good longterm option, I'm saying that without change in the political sphere, equities are not a good longterm option. America has made the correct political decisions historically, hopefully this can continue...

the US has had worse times and come out stronger on the other end

 

[vector2]

Without political action, I actually don't think corporations can increase earnings over the medium term, let alone the long term. I'm not saying equities are not a good longterm option, I'm saying that without change in the political sphere, equities are not a good longterm option. America has made the correct political decisions historically, hopefully this can continue...

I agree 100%. As for the question you asked earlier, I definitely do not think now is a good time to be fully invested. About 30% of my portfolio are in index funds which I'm probably not going to touch short of a 2008 recession. I'm still in the Buffet camp at the moment in that the US's 50 year horizon still appears relatively positive. The rest I allocate selectively to stocks or other ETFs based on momentum strategies that limit my downside. From a technical perspective, the bull market of the last six years is tired. Indeed, we're stuck in an unfortunate situation where the deleveraging that should've occurred post-financial crisis was not deep enough, and now we're saddled with 300 companies like IBM who keep increasing buybacks so they can synthetically manufacture EPS growth. It's been over a year since new highs were printed, and I think it's certainly reasonable to hedge by selling calls.

 

[vector2]

I sure hope so. I would like for interest rates to be over 5%. 10% to 15% even better. The savers need to be compensated for the travesty that was allowed to happen in the past 5 years. Gold would go to nothing if that ever happened, and that would be a good thing.

The 0.25% that they might increase, or decrease, is basically nothing.

I'll pass on 15% rates.

 

[Mman]

now we're saddled with 300 companies like IBM who keep increasing buybacks so they can synthetically manufacture EPS growth.

Stock buybacks are not "synthetically manufacture(ing) EPS growth". It's the same gain as growing earnings, just by reducing shares. If you are a shareholder, there is literally no difference to the end value to your ownership stake. You just sit back and own a higher percentage of the company without doing anything. Is it possible to have higher EPS on lower profits? Sure. But that's like complaining about having 100 $1 bills instead of 1 $100 bill. Same thing in the end and as long as the EPS goes higher (all things being equal like debt and what not) your value goes up as well.

 

[vector2]

Stock buybacks are not "synthetically manufacture(ing) EPS growth". It's the same gain as growing earnings, just by reducing shares. If ytou are a shareholder, there is literally no difference to the end value to your ownership stake. You just sit back and own a higher percentage of the company without doing anything. Is it possible to have higher EPS on lower profits? Sure. But that's like complaining about having 100 $1 bills instead of 1 $100 bill. Same thing in the end and as long as the EPS goes higher (all things being equal like debt and what not) your value goes up as well.

I am not against share repurchases and I think they are a very useful tool when used wisely, but they absolutely are synthetic manufacturing. Say you have two scenarios: 1) a company has a profit of $100 and 10 shareholders, EPS is $10/share. Over the course of a year, the company repurchases 5 shares but yet still only produces a $100 profit. EPS this year is now $20/share. Scenario 2) the same company with a $100 profit a year ago absolutely kills it this year and spits out a $200 profit, but does not repurchase any shares. EPS this year is also now $20/share.

EPS doubled YoY in both scenarios, ergo both are equivalent results, right? Hell no. I use the term synthetic because scenario 2 is the actual holy grail of EPS growth: the organic kind. Actually making more money YoY instead of distributing the same amount of money to a smaller pool is what equity markets value and reward in the form of out of proportion forward multiple expansion. The kicker line in your post is "(all things being equal like debt and what not)". IBM heavily leveraged themselves to keep repurchasing shares (at ridiculous valuations) and maintain a fat divvy. The debt never stays the same for bloated, stagnant companies with declining revenue who feel the need to polish their bottom line number. Buybacks become truly evil when they are employed solely because the managers don't have a clue how to deploy capital wisely in other ways to grow the business. Shareholders eventually wised up to the lipstick on a pig and realized that declining revenue is eventually insurmountable. The stock has been punished accordingly.

IBM

 

[Mman]

I am not against share repurchases and I think they are a very useful tool when used wisely, but they absolutely are synthetic manufacturing. Say you have two scenarios: 1) a company has a profit of $100 and 10 shareholders, EPS is $10/share. Over the course of a year, the company repurchases 5 shares but yet still only produces a $100 profit. EPS this year is now $20/share. Scenario 2) the same company with a $100 profit a year ago absolutely kills it this year and spits out a $200 profit, but does not repurchase any shares. EPS this year is also now $20/share.

EPS doubled YoY in both scenarios, ergo both are equivalent results, right? Hell no. I use the term synthetic because scenario 2 is the actual holy grail of EPS growth: the organic kind. Actually making more money YoY instead of distributing the same amount of money to a smaller pool is what equity markets value and reward in the form of out of proportion forward multiple expansion. The kicker line in your post is "(all things being equal like debt and what not)". IBM heavily leveraged themselves to keep repurchasing shares (at ridiculous valuations) and maintain a fat divvy. The debt never stays the same for bloated, stagnant companies with declining revenue who feel the need to polish their bottom line number. Buybacks become truly evil when they are employed solely because the managers don't have a clue how to deploy capital wisely in other ways to grow the business. Shareholders eventually wised up to the lipstick on a pig and realized that declining revenue is eventually insurmountable. The stock has been punished accordingly.

1) plenty of companies repurchase shares without issuing debt
2) it's irrelevant to a share holder if they own 5% of $100 or 10% of $50. It's the same thing. Distributing the same cash to a smaller pool rewards you the same in the short and long term.
3) often shares are repurchased not because the managers "don't have a clue how to deploy capital wisely to grow the business" but because the shares are so damn cheap relatively speaking that it's a better use of money to repurchase shares than to spend the money inefficiently.


The absolute worst managers you want are ones that spend cash for the sake of spending it and refuse to return it to the owners even when it makes financial sense to do so.

As to IBM, I'd hesitate to use a few years worth of share price as evidence of anything. Plenty of amazing companies have had shares decline for all sorts of reasons for years before skyrocketing higher. The best investors in history have all had a great appreciation for the power of share repurchases. Warren Buffett himself has a standing order to buy loads of Berkshire back when it's price declines sufficiently. At some point, investing in your own company's shares is as wise as any other investment you can make. The point of a company is to generate money for it's owners, not to waste money for the sake of pushing higher top line growth at the expense of a worse bottom line.

 

[vector2]

I think we're saying the same thing. If you have a good company that's in a short cyclical downturn and being unfairly punished by the market, by all means do some repurchasing. I hold berkshire in my IRA because I know that short of some major catastrophe there is a floor on the stock whenever it trades 1.2 price to book. However, if you have a company (IBM) that has 6 years of declining revenue, long-term industry headwinds (tepid PC growth), a failure by managers to adapt to a changing climate (late to the cloud game), significant debt issuance (currently 2.7 debt to equity ratio), and a ballooning dividend payout ratio, maybe buybacks aren't the best way to go. Look, IBM may have a turnaround in the next 5-10 years and no one can really predict that at this point. What I do know is that all the warning signs were flashing, and there were fundamentally much stronger dividend paying/buyback heavy companies to be invested in during the last 5 years.

 

[Mman]

I think we're saying the same thing. If you have a good company that's in a short cyclical downturn and being unfairly punished by the market, by all means do some repurchasing. I hold berkshire in my IRA because I know that short of some major catastrophe there is a floor on the stock whenever it trades 1.2 price to book. However, if you have a company (IBM) that has 6 years of declining revenue, long-term industry headwinds (tepid PC growth), a failure by managers to adapt to a changing climate (late to the cloud game), significant debt issuance (currently 2.7 debt to equity ratio), and a ballooning dividend payout ratio, maybe buybacks aren't the best way to go. Look, IBM may have a turnaround in the next 5-10 years and no one can really predict that at this point. What I do know is that all the warning signs were flashing, and there were fundamentally much stronger dividend paying/buyback heavy companies to be invested in during the last 5 years.

That all may be true, but when Buffett bought a large chunk of IBM in 2011, he openly wished for the share price to remain flat or fall so the upcoming buybacks could buy as much stock as possible and increase his ownership percentage as much as possible. IBM's old business is obviously not the star it once was but they have been making good progress in newer areas that should continue to grow well for them. Wouldn't surprise me at all to see them continue to earn more money per share going forward for another 20+ years.

 

[vector2]

That all may be true, but when Buffett bought a large chunk of IBM in 2011, he openly wished for the share price to remain flat or fall so the upcoming buybacks could buy as much stock as possible and increase his ownership percentage as much as possible. IBM's old business is obviously not the star it once was but they have been making good progress in newer areas that should continue to grow well for them. Wouldn't surprise me at all to see them continue to earn more money per share going forward for another 20+ years.

He may have wished for a decline under the assumption that it would be a temporary blip, not a multi-year decline. All the shares bought by IBM since mid 2011 are currently underwater. I remember this interview he gave a few months ago regarding his IBM position...he sounded pretty ambivalent about his current position, and he certainly tried to dodge Joe Kernen's question about whether he or anyone else should or would be buying the dip. He also wouldn't give a straight answer to Sorkin on what factors would actually cause him to eat the ~$2b loss and move on.

http://www.cnbc.com/2016/02/29/warren-buffett-buying-ibm-a-mistake-dont-think-so-but.html

 

[dhb]

1) some inflation is good. end of story. Deflation is terrible. No inflation is not helpful. There is no good argument.

Why is paying more for the same thing good?
Why is deflation bad? We have been raising our standard of living on debt, major chnages would have to take place for any government budget to be balanced.
Clearly moderate inflation is not helping much in financing the balloning debt.

 

[Mman]

Why is paying more for the same thing good?
Why is deflation bad? We have been raising our standard of living on debt, major chnages would have to take place for any government budget to be balanced.
Clearly moderate inflation is not helping much in financing the balloning debt.

Paying more for the same thing in the future encourages consumers to increase demand by spending money now instead of more later. That stimulates production of things. Deflation is bad because then nobody has any incentive to ever spend any money if they can help it since things will be cheaper later.

As for inflation helping with financing the debt, it clearly is. Unfortunately our politicians keep spending even more than they take in. So while inflation helps, it can't cure stupid behavior from Congress.

 

[Mman]

He may have wished for a decline under the assumption that it would be a temporary blip, not a multi-year decline. All the shares bought by IBM since mid 2011 are currently underwater. I remember this interview he gave a few months ago regarding his IBM position...he sounded pretty ambivalent about his current position, and he certainly tried to dodge Joe Kernen's question about whether he or anyone else should or would be buying the dip. He also wouldn't give a straight answer to Sorkin on what factors would actually cause him to eat the ~$2b loss and move on.

http://www.cnbc.com/2016/02/29/warren-buffett-buying-ibm-a-mistake-dont-think-so-but.html

Berkshire just bought more shares of IBM this past quarter. Perhaps he was dodging the question because he was in the process of adding to his position.

 

[BLADEMDA]

The point I'm trying to make is that the growth we've seen in the past 50 years was the world riding a large credit cycle, at which we are either at or near the peak. I hope you see my problem with the argument "stocks are good for the next 50 years because they have been good for the past 100 years."

Stocks are good because of the growth in Emerging markets. Think of the billions of people across the globe which still don't have access to all the goods and services we do.
Those basic items you buy everyday from multi-national corporations are still not part of those people's lives.

 

[pgg]

Why is deflation bad?

I gave two reasons earlier in this thread.

Here's a third - wages are hard to cut in a deflationary environment, even when they should be. It's easier to gradually cut wages by not increasing pay during times of low inflation.

If deflation runs at 2%/year for a while, it's hard to tel your employees you need to cut their pay 2% per year but it's OK because their buying power is unchanged.

 

[bronx43]

Stock buybacks are not "synthetically manufacture(ing) EPS growth". It's the same gain as growing earnings, just by reducing shares. If you are a shareholder, there is literally no difference to the end value to your ownership stake. You just sit back and own a higher percentage of the company without doing anything. Is it possible to have higher EPS on lower profits? Sure. But that's like complaining about having 100 $1 bills instead of 1 $100 bill. Same thing in the end and as long as the EPS goes higher (all things being equal like debt and what not) your value goes up as well.

From a macroeconomic standpoint, share repurchasing is nothing more than financial engineering in order to benefit shareholders. Is that always wrong? No, obviously not. But, when it is a market-wide practice that takes the place of capex, then it obviously suppresses potential for future growth and productivity. What jobs are added by buy backs? What capital goods are being invested in? What innovation is being created?

 

[bronx43]

Stocks are good because of the growth in Emerging markets. Think of the billions of people across the globe which still don't have access to all the goods and services we do.
Those basic items you buy everyday from multi-national corporations are still not part of those people's lives.

That's fine, and I completely support this argument, but the political structure has to support this. Globalization is deflationary by nature, and this is what you are seeing firsthand in the US driven by labor arbitrage. If your advanced economies can't support this kind of labor displacement, then your aggregate demand will invariably suffer, which we are also seeing right now. Again, I'm bearish on equities because of political myopia. I would become bullish if this changes.

 

[Mman]

From a macroeconomic standpoint, share repurchasing is nothing more than financial engineering in order to benefit shareholders. Is that always wrong? No, obviously not. But, when it is a market-wide practice that takes the place of capex, then it obviously suppresses potential for future growth and productivity. What jobs are added by buy backs? What capital goods are being invested in? What innovation is being created?

stock buybacks should not be analyzed from a macroeconomic POV. Company by company is the only way to analyze something like that.

 

[urge]

Why is paying more for the same thing good?
Why is deflation bad? We have been raising our standard of living on debt, major chnages would have to take place for any government budget to be balanced.
Clearly moderate inflation is not helping much in financing the balloning debt.

Deflation stimulates savings. Inflation stimulates debt.

One of those two is self sustaining, the other is a ticking time bomb.

 

[pgg]

Ignoring the problems with deflation doesn't make them go away.

 

[bronx43]

stock buybacks should not be analyzed from a macroeconomic POV. Company by company is the only way to analyze something like that.

Everything can be analyzed from a macro perspective. When buybacks are contributing to glut of savings and shortage of investment/ expenditures /aggregate demand, then that's a macroeconomic issue. Just because you only care about it from a personal investment standpoint doesn't mean it doesn't have significant macroeconomic impacts.

 

[bronx43]

Deflation stimulates savings. Inflation stimulates debt.

One of those two is self sustaining, the other is a ticking time bomb.

Lol please stop spouting non-sense. The only thing deflation sustains is economic inactivity.

 

[Mman]

Everything can be analyzed from a macro perspective. When buybacks are contributing to glut of savings and shortage of investment/ expenditures /aggregate demand, then that's a macroeconomic issue. Just because you only care about it from a personal investment standpoint doesn't mean it doesn't have significant macroeconomic impacts.

that's all well and good but I thought this whole discussion was about personal investment decisions

 

[dhb]

Paying more for the same thing in the future encourages consumers to increase demand by spending money now instead of more later. That stimulates production of things.

We need less buying of stupid stuff no one needs, not more. Why should we stimulate the production of crap from china?
Growth & inflation? Sounds a lot like a giant ponzi scheme

 

[urge]

We need less buying of stupid stuff no one needs, not more. Why should we stimulate the production of crap from china?
Growth & inflation? Sounds a lot like a giant ponzi scheme.

Exactly what it is.

 

[Mman]

We need less buying of stupid stuff no one needs, not more. Why should we stimulate the production of crap from china?
Growth & inflation? Sounds a lot like a giant ponzi scheme

Growth is a good thing. What someone buys and where it comes from is a separate and not necessarily related issue.

 

[urge]

Growth is a good thing. What someone buys and where it comes from is a separate and not necessarily related issue.

Your problem is that you confuse inflation for growth.

Inflation is just too much currency seeking the same goods.

 

[BLADEMDA]

That's fine, and I completely support this argument, but the political structure has to support this. Globalization is deflationary by nature, and this is what you are seeing firsthand in the US driven by labor arbitrage. If your advanced economies can't support this kind of labor displacement, then your aggregate demand will invariably suffer, which we are also seeing right now. Again, I'm bearish on equities because of political myopia. I would become bullish if this changes.

I'm bearish on equities due to valuation; they are over-priced based on the expected earnings. If the economy turns around and earnings improve then the PE ratio falls making equities a buy.

I'm bullish long term because the emerging economies WANT the good services which we take for granted. As those economies grow the multi-nationals will make a lot of money.
Hence, I'm bullish long term on the US stock market and emerging markets. But, right now the equity market is over-valued and due for a pullback.

 

[BLADEMDA]

Current Valuations Matter

US stocks are anticipated to return slightly lower than their historical average. The US equity market is trading at a moderately high valuation level, but not extraordinarily high. Stock prices have increased 35 percent since their peak in 2007 while corporate earnings have increased by only 25 percent, according toS&P Dow Jones Indices. The outsized gain in prices has pushed the S&P 500 price-to-earnings ratio (PE) to about 20 times trailing 12-month earnings.

Investors should be prepared for lower than average returns when asset prices are higher than average. It doesn’t matter if the asset is stocks with high PE or bonds with low yield, the outcome is the same. Higher prices today mean lower long-term returns. There is no free lunch on Wall Street.

The flipside of PE is earnings. An increase in earnings would lower PE. Earnings come from a combination of sale growth, productivity gains, lower borrowing costs, lower taxes, and other factors.

 

[BLADEMDA]

and it has zero chance of happening. There is literally no way to make it work. You can't just say well our dollar is convertible to this physical amount of gold in Fort Knox. The fact that the idea is obsessed over by a remote minority of the population fascinates me.

http://www.gldcoin.com/about/

 

[pgg]

http://www.gldcoin.com/about/

Are you kidding me?

Do you have any idea what this is?

You linked this in response to Mman's comment about converting currency to physical gold. This is a crypto currency that has nothing to do with gold except for the four letters in its name.

Do you even read the things you link?

 

[BLADEMDA]

Are you kidding me?

Do you have any idea what this is?

You linked this in response to Mman's comment about converting currency to physical gold. This is a crypto currency that has nothing to do with gold except for the four letters in its name.

Do you even read the things you link?

What I meant to post was that it is possible to link a cryptocurrency to Gold. The concept is that the value of the cryptocurrency is backed by hard asset GOLD. I do agree that right now there isn't an easy way to use GOLD as a currency but that doesn't mean in the future a "Zuckerberg" type individual won't revolutionize the monetary system with a currency that can't just be created from thin air.

 

[Mman]

Your problem is that you confuse inflation for growth.

Inflation is just too much currency seeking the same goods.

I'm not confusing anything. Small sustained inflation is a good thing for an economy. There is no way around it. It stimulates demand from consumers and helps slowly ease our debt burden. Growth is also good. Deflation is terrible as it a massive currency weight preventing growth.

You seem to be confusing what is best for an individual person with cash stuffed under a mattress with what is best for the economy as a whole.

 

[BLADEMDA]

Are you kidding me?

Do you have any idea what this is?

You linked this in response to Mman's comment about converting currency to physical gold. This is a crypto currency that has nothing to do with gold except for the four letters in its name.

Do you even read the things you link?

Here you go Slim:

It may seem as though products like this are designed for gold bugs and technophiles, but there’s reason to believe they’ll play a big part in our monetary future. Last November, formerFederal Reserve Chairman Alan Greenspan said, “Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can match it.” If developers have melded the monetary properties of gold with the convenience of digital currencies, we could be looking at a viable alternative to the modern banking system. Of course there are drawbacks, like the inability to earn interest, but with real interest rates below zero in much of the world, the opportunity cost is non-existent. Even if interest rates start to rise in a material fashion, which is unlikely anytime soon, the lack of counter-party risk will make digital gold irresistible for many looking to protect their savings.

http://www.forbes.com/sites/michael...-and-gold-when-worlds-collide/2/#4421de75b642

 

[Mman]

Here you go Slim:

It may seem as though products like this are designed for gold bugs and technophiles, but there’s reason to believe they’ll play a big part in our monetary future. Last November, formerFederal Reserve Chairman Alan Greenspan said, “Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can match it.” If developers have melded the monetary properties of gold with the convenience of digital currencies, we could be looking at a viable alternative to the modern banking system. Of course there are drawbacks, like the inability to earn interest, but with real interest rates below zero in much of the world, the opportunity cost is non-existent. Even if interest rates start to rise in a material fashion, which is unlikely anytime soon, the lack of counter-party risk will make digital gold irresistible for many looking to protect their savings.

http://www.forbes.com/sites/michael...-and-gold-when-worlds-collide/2/#4421de75b642

that link doesn't talk about your "goldcoin" site at all

 

[Mman]

I do agree that right now there isn't an easy way to use GOLD as a currency but that doesn't mean in the future a "Zuckerberg" type individual won't revolutionize the monetary system with a currency that can't just be created from thin air.

So it's OK to pull more currency out of the ground, but not to create it from "thin air"?

 

[BLADEMDA]

that link doesn't talk about your "goldcoin" site at all

Correct. I've now made 2 posts showing that there is interest in a cryptocurrency backed by GOLD. While I'm not interested in such a cryptocurrency at this time perhaps in the future a real, commonly used GOLD BACKED cryptocurrency will be in use throughout the world.

 

[BLADEMDA]

So it's OK to pull more currency out of the ground, but not to create it from "thin air"?

There isn't enough Gold in the ground to allow the manipulation of the monetary system which the major world powers now engage in. There is a finite amount of Gold which means fiscal restraint and a monetary system which is not easily manipulated by any one country.

Must I remind you that getting this new gold out of the ground is fairly expensive with the most recent figures of about $1200 per ounce of Gold. How much does it cost to print a Billion US dollars on paper vs mining a billion dollars of Gold?

 

[BLADEMDA]

 

[pgg]

Correct. I've now made 2 posts showing that there is interest in a cryptocurrency backed by GOLD. While I'm not interested in such a cryptocurrency at this time perhaps in the future a real, commonly used GOLD BACKED cryptocurrency will be in use throughout the world.

Nope.

I'm fascinated by the notion of cryptocurrencies, though I remain very skeptical they'll ever be anything other than a novelty, for lots of reasons ... political, practical, and mathematical.

There are things they are, and there are things they aren't. One of the things they aren't is some kind of special unique not-fiat case where linkage to a hard good works. One of the things they aren't, but might be at some point in the future, is a viable alternative fiat currency, backed by the faith of people who want to have and use a currency not linked to any particular government.


It's a gimmick, a lie. "Goldcoin" uses a nifty font in a metallic yellowish color and has G O L D in its name, but it's all marketing. Gold has nothing to do with it. And you fell for it. Don't be so gullible, McFly!

It amuses me to no end that the primary supporters and cheerleaders for cryptocurrencies, which are fundamentally nothing but 1s and 0s on the internet, are the same people who rail against unbacked "fiat" currencies.