Fed Prints Another $205B This Week, M2 Growing at Fastest Pace on Record(thesoundingline.com)
thesoundingline.com
Fed Prints Another $205B This Week, M2 Growing at Fastest Pace on Record
https://thesoundingline.com/fed-prints-another-205-billion-this-week-m2-growing-at-fastest-pace-on-record/
152 comments
The Bank of Japan’s balance sheet is at 110 percent of GDP.
I was about to make a joke that it looked like they could go about another 69.8%. Now I'm glad I waited.
What does that even signify, a federal bank owning >100% of its attached country's GDP? Debt in excess of produced value, i.e., the country being underwater?
What does that even signify, a federal bank owning >100% of its attached country's GDP? Debt in excess of produced value, i.e., the country being underwater?
GDP is per year. Analogous to a person making $100k/yr with a $110k mortgage.
Edit: Although perhaps not that analogous because is this even technically "debt"?
Edit: Although perhaps not that analogous because is this even technically "debt"?
The analogy has always been strained, since national debt just doesn’t work like personal debt.
Also, when you can borrow at sub-inflation rates, there’s rarely an incentive to stop.
Also, when you can borrow at sub-inflation rates, there’s rarely an incentive to stop.
It's the Bank of Japan who decide the borrowing rates, so, not problem in that regard.
Ok, but they don't control inflation. At some point, I think it's obvious that printing money becomes counterproductive. But where exactly is that line?
The Bank of Japan, can actually control inflation, because, as we have determined, they control the interest rate. Also, if necessary, the government could raise taxes and run a surplus to diminish inflationary pressures.
But those are moot points, because the problem of Japan for the last 20 years has been deflation, not inflation. Despise that, as you can see in the comments here, there are people that still predict inflation in the future.
But those are moot points, because the problem of Japan for the last 20 years has been deflation, not inflation. Despise that, as you can see in the comments here, there are people that still predict inflation in the future.
They don’t control inflation. But all of the warnings about hyperinflation being “right around the corner” have remained hilariously false. So who knows?
They only control their inefficiency around an increasing trajectory
[deleted]
It's not debt, it's only a number that reflect the accumulate of past government deficits.
A government is the issuer of the currency, so, nothing to do with the debt of a household or a business.
A government is the issuer of the currency, so, nothing to do with the debt of a household or a business.
What if we alter that analogy to a person who makes 100k/yr with a 110k mortgage, and next year they make 101k with a 115k mortgage, and next year they make 102k with a 120k mortgage, and so on?
Then I think we should rename it from "mortgage" to "student loans". As long as they keep making minimum payments, this is technically fine.
Misses the point, but sure, "student loans" is a fair comparison. The name doesn't matter to me, it's all debt.
I don't see it as "technically" fine that the rate at which the debt grows consistently exceeds the rate at which the income grows. There comes a point in time in which the principal of the debt is large enough that minimum payments exceed income.
I don't see it as "technically" fine that the rate at which the debt grows consistently exceeds the rate at which the income grows. There comes a point in time in which the principal of the debt is large enough that minimum payments exceed income.
The US government doesn’t make 100% of GDP. GDP is $21 trillion. US government takes in $3.46 trillion.
Fjolsvith(7)
Why are the feds able to inject so much money into the system these days without much push back? While during the 2008 Crisis Hank Paulson had such difficulty with getting 700 billion injected?
That 700 billion was Treasury money. The Fed at the time also engaged in trillions of dollars of quantitative easing, similar to what they’re doing now. I would guess the reason the Fed is going all in this time is because there was consensus among the decision makers that last time we were too slow - we did QE but it took years. I assume they think that if we hit it hard now, we can shorten the recession period. Also this time there is more unified and obvious support from “the people”. Rather than bailing out bankers and all the hazards that come with that, everyone is getting a check, so everyone is more on board.
Interesting. What is the difference between Treasury Money and money coming from the Federal reserve? Was the 700 billion of Treasury money at that time a loan that had to be paid back while today, they're simply increasing the money supply?
> Why are the feds able to inject so much money into the system these days without much push back? While during the 2008 Crisis Hank Paulson had such difficulty with getting 700 billion injected?
Hank Paulson was the Secretary of the Treasury. Both the Fed and the Treasury have the power to create money, but in different ways (and the side-effects of each method are different).
Hank Paulson was the Secretary of the Treasury. Both the Fed and the Treasury have the power to create money, but in different ways (and the side-effects of each method are different).
It didn't crash the first time. Let's do it again /s
One interesting fact I learned the other day:
IBM did 140 billion in stock buy backs in the last decade.
They have a 100 Billion dollar market cap.
I think that is a bit of what we have going on right now. A system propped up by injected cash, which works for now because everyone plays along. Most of this injected money goes into the pockets of the rich, who are the ones holding the assets that the FED is bailing out. Modern extreme economic inequality is a function of monetary policy, not political policy.
IBM did 140 billion in stock buy backs in the last decade.
They have a 100 Billion dollar market cap.
I think that is a bit of what we have going on right now. A system propped up by injected cash, which works for now because everyone plays along. Most of this injected money goes into the pockets of the rich, who are the ones holding the assets that the FED is bailing out. Modern extreme economic inequality is a function of monetary policy, not political policy.
> IBM did 140 billion in stock buy backs in the last decade.
And? What is the alternative, and is it any better?
> IBM has effectively been dead money for the last decade. They’re up 20%, including dividends, versus 315% for the tech index (XLK). IBM currently has a market cap of ~$100 billion, so when people hear they spent $45 billion on buybacks while their share price went down 38%, people get angry. I get it, it’s an easy argument to make.
> But a better argument, which Jake made recently is that poorly managed companies like IBM are doing the right thing by returning cash to shareholders. That’s $45 billion into the hands of investors who can then take that money and actually invest it in companies that are, you know, not terrible. Would the anti-buyback crowd be happier if IBM invested that $45 billion and had a negative ROI? And what about the $76 billion they “wasted” on dividends? Why does this return of capital to shareholders escape criticism? More on this in a minute.
* https://theirrelevantinvestor.com/2020/04/22/returning-cash-...
And? What is the alternative, and is it any better?
> IBM has effectively been dead money for the last decade. They’re up 20%, including dividends, versus 315% for the tech index (XLK). IBM currently has a market cap of ~$100 billion, so when people hear they spent $45 billion on buybacks while their share price went down 38%, people get angry. I get it, it’s an easy argument to make.
> But a better argument, which Jake made recently is that poorly managed companies like IBM are doing the right thing by returning cash to shareholders. That’s $45 billion into the hands of investors who can then take that money and actually invest it in companies that are, you know, not terrible. Would the anti-buyback crowd be happier if IBM invested that $45 billion and had a negative ROI? And what about the $76 billion they “wasted” on dividends? Why does this return of capital to shareholders escape criticism? More on this in a minute.
* https://theirrelevantinvestor.com/2020/04/22/returning-cash-...
If IBM invested the money into actual research and product development - that would mean the money still enters the economy via the workers doing the research and development. I feel like this point isn't emphasised well enough in the quote above - and I wonder if the "anti buyback crowd" would have anything to say against that.
Sure, but that would be research done by IBM. That would still be money spent - the researchers still get paid - but it might be less likely to result in usable technology and sellable products than if someone else did it.
The point isn't just to give people money to spend. IBM is not a basic income operation. The point is to develop and make stuff that people want to buy, and IBM arguably has been doing less well at that than others. So letting the money go to the others who are doing better seems like a reasonable plan.
(I doubt that IBM was thinking of it in this way, though...)
The point isn't just to give people money to spend. IBM is not a basic income operation. The point is to develop and make stuff that people want to buy, and IBM arguably has been doing less well at that than others. So letting the money go to the others who are doing better seems like a reasonable plan.
(I doubt that IBM was thinking of it in this way, though...)
That presumes that IBM knows how to create something of value with its R&D department. If the R&D department is just finding faster ways to answer Jeopardy questions, real resources are going to waste. Those smart people could be doing important work somewhere else.
> that would mean the money still enters the economy via the workers doing the research and development.
How much is it IBM's job to have more money 'enter the economy' versus for it to make money for its owners at a good ROI?
How much is it IBM's job to have more money 'enter the economy' versus for it to make money for its owners at a good ROI?
Bingo. Would you rather have a poorly managed company hold on to their cash and spend it internally, or return it to shareholders?
> Bingo. Would you rather have a poorly managed company hold on to their cash and spend it internally, or return it to shareholders?
It's not an either/or. A poorly managed company can make itself more dysfunctional by neglecting investment and returning too much cash to shareholders.
It's not an either/or. A poorly managed company can make itself more dysfunctional by neglecting investment and returning too much cash to shareholders.
A poorly managed company can spend money internally on inappropriate things as well. It's not like IBM doesn't spend on R&D:
* https://www.macrotrends.net/stocks/charts/IBM/ibm/research-d...
AAPL spends on R&D, and dividends, and buybacks.
* https://www.macrotrends.net/stocks/charts/IBM/ibm/research-d...
AAPL spends on R&D, and dividends, and buybacks.
>Bingo. Would you rather have a poorly managed company hold on to their cash and spend it internally, or return it to shareholders?
I think it's a bunch of bs the way you are wording this. I know these are not your words alone, it's what people say.. but it's so misleading!
You say "return it to shareholders". Well, no. A dividend is returning to shareholders.. that's what a dividend is.
A stock repurchase is basically nothing more than the company buying back stock, and giving holders the option to sell theirs to the company..
The investor can sell the damn stock any time they want... this is NOT "returning it to shareholders".
It is a completely convoluted way to arbitrarily do a bunch of fancy things to both use cash, get stock, prop up the price even more since there is a buy pressure..
I think it's a bunch of bs the way you are wording this. I know these are not your words alone, it's what people say.. but it's so misleading!
You say "return it to shareholders". Well, no. A dividend is returning to shareholders.. that's what a dividend is.
A stock repurchase is basically nothing more than the company buying back stock, and giving holders the option to sell theirs to the company..
The investor can sell the damn stock any time they want... this is NOT "returning it to shareholders".
It is a completely convoluted way to arbitrarily do a bunch of fancy things to both use cash, get stock, prop up the price even more since there is a buy pressure..
> A stock repurchase is basically nothing more than the company buying back stock, and giving holders the option to sell theirs to the company.
The point of a stock repurchase program is to decrease the number of shares on issue and therefore increase the value of each share. Theoretically share price = market cap / shares on issue.
The point of a stock repurchase program is to decrease the number of shares on issue and therefore increase the value of each share. Theoretically share price = market cap / shares on issue.
Market cap equals share price times number of shares. But that equation can't be rearranged. Share price equals what the last person was willing to buy the stock at.
Buying back stock does raise the price. But only because it clears out the sellers that are willing to sell at lower prices and leaves the higher ask prices.
Buying back stock does raise the price. But only because it clears out the sellers that are willing to sell at lower prices and leaves the higher ask prices.
You're not giving the whole picture if you don't mention that IBM's market cap has seen very significant decline over that time period.
IBM has been producing insane cash-flow over this period and their strategy was to pay out dividends/buybacks rather than to invest in new markets
Is IBM even getting bailout money? What does IBM have to do with the bailouts?
IBM has been producing insane cash-flow over this period and their strategy was to pay out dividends/buybacks rather than to invest in new markets
Is IBM even getting bailout money? What does IBM have to do with the bailouts?
IBM may or may not be a good example, but I think the overall critique holds here.
Stock buy backs weren't a thing until a SEC rule change in the 80's, this is a relatively new phenomenon and not intrinsic to a functioning market.
Home Depot could have given their employees massive raises with the amount they've spent on buybacks (15 billion in buybacks in February 2019 alone). With ~400,000 employees, that could be a $37,500 bonus to every employee for the year...
The scale of that is breathtaking - and instead of spreading the love around, it goes to the shareholders and C level alone.
Stock buy backs weren't a thing until a SEC rule change in the 80's, this is a relatively new phenomenon and not intrinsic to a functioning market.
Home Depot could have given their employees massive raises with the amount they've spent on buybacks (15 billion in buybacks in February 2019 alone). With ~400,000 employees, that could be a $37,500 bonus to every employee for the year...
The scale of that is breathtaking - and instead of spreading the love around, it goes to the shareholders and C level alone.
>Stock buy backs weren't a thing until a SEC rule change in the 80's, this is a relatively new phenomenon and not intrinsic to a functioning market.
Buybacks and dividends are essentially equivalent. This comment shows a distinct lack of understanding. Of course home depot could return their profits to employees, but then it wouldn't be a business. Home depot's sole reason for existing is to return money to shareholders. If they don't do that leadership would be fired.
Buybacks and dividends are essentially equivalent. This comment shows a distinct lack of understanding. Of course home depot could return their profits to employees, but then it wouldn't be a business. Home depot's sole reason for existing is to return money to shareholders. If they don't do that leadership would be fired.
Ahh the old "shareholders are the only thing that matters" argument.
Buybacks and dividends are not equivalent, buybacks are tax advantaged in ways that dividends are not.
We've allowed numerous companies to get to a size where they are "too big to fail". They know they are too big to fail, and they get to take advantage of this position. They get to go into near unlimited amounts of debt to finance buybacks to enrich shareholders and C levels, and when times are good this all works out. When the economy enters a downturn and they don't have cash on hand to weather the storm, they know the Fed will be there to bail them out.
Something is fundamentally broken here. You can reasonably argue whether it is with the buybacks, or the bailout, but this system is fucked.
For more in depth reporting on this, I highly recommend checking out Matt Taibbi. https://taibbi.substack.com/p/resetting-the-bomb
Buybacks and dividends are not equivalent, buybacks are tax advantaged in ways that dividends are not.
We've allowed numerous companies to get to a size where they are "too big to fail". They know they are too big to fail, and they get to take advantage of this position. They get to go into near unlimited amounts of debt to finance buybacks to enrich shareholders and C levels, and when times are good this all works out. When the economy enters a downturn and they don't have cash on hand to weather the storm, they know the Fed will be there to bail them out.
Something is fundamentally broken here. You can reasonably argue whether it is with the buybacks, or the bailout, but this system is fucked.
For more in depth reporting on this, I highly recommend checking out Matt Taibbi. https://taibbi.substack.com/p/resetting-the-bomb
Companies like Home Depot and IBM aren't usually considered 'too big to fail', so these aren't really great examples for the point you're trying to make.
Its not that buybacks have a tax advantage, dividendes rather have a tax disadvantage
> Buybacks and dividends are not equivalent, buybacks are tax advantaged in ways that dividends are not.
[citation needed; location specific]
Here in Canada both capital gains and dividends of Canadian companies have special tax treatments.
Also remember: in both cases the money leaving the company are profits, which are (should be?) taxed at the corporate tax rate. So the government should be/is getting a cut already. The recipient of the money (either buyback or dividend) is then getting taxed again(?) potentially.
[citation needed; location specific]
Here in Canada both capital gains and dividends of Canadian companies have special tax treatments.
Also remember: in both cases the money leaving the company are profits, which are (should be?) taxed at the corporate tax rate. So the government should be/is getting a cut already. The recipient of the money (either buyback or dividend) is then getting taxed again(?) potentially.
I still don't get how a stock buyback is functionally any different from a dividend.
Replace dividend with buyback or v versa and everything else is true, except for forced dividend tax.
Replace dividend with buyback or v versa and everything else is true, except for forced dividend tax.
> Home Depot could have given their employees massive raises with the amount they've spent on buybacks
Each company can decide how they pay their employees. If Home Depot had wanted to pay their employees with stock options, they would have been free to do so.
It turns out it usually works out best for both the company and the employees to receive a fixed amount of cash. If the employee wants to use the cash to buy shares or options, that's up to them.
Each company can decide how they pay their employees. If Home Depot had wanted to pay their employees with stock options, they would have been free to do so.
It turns out it usually works out best for both the company and the employees to receive a fixed amount of cash. If the employee wants to use the cash to buy shares or options, that's up to them.
And dividends/buybacks are a reasonable choice. It moves the choice of whether to invest into new markets to the investors instead of dictating it from above. Companies like Google are blown out of proportion in comparison to the part that actually makes the money, all in order to find the next toothbrush product that may never come. The core Google products barely changed in the last 5 years, yet the employee count almost doubled. Great for the engineers who get the cushy 200k comp jobs, but not great for investors.
Even if we take at face value the idea that the products have barely changed, which I completely disagree with, this explanation vastly underestimates how many engineers it takes to scale the infrastructure it takes to run Google Search, Google Cloud, YouTube, etc.
Saying "Google hasnt changed" is somewhat of a disservice to what Alphabet is. Its an investment firm / publicly traded venture capital stock, and one of their main holdings is Google. Their future growth potential is much more than just Google, despite Google being their current source of revenue. I would hope, over time, Google Ads being 80% of Alphabets revenue drops and drops, and if I were investing in Alphabet that would be the reason, not to buy into Ad Words ownership.
https://www.forbes.com/sites/oliviergarret/2019/09/27/if-you...
https://www.forbes.com/sites/oliviergarret/2019/09/27/if-you...
> The core Google products barely changed in the last 5 years
Frontend development and UI updates are not the only way progress is made on the technical infrastructure in technology companies. How do we know that Google isn't battling an adversarial web with 1000s of engineers just to keep the search quality where it is? It must be quite an arms race to behold between Google teams and the coordinated and well motivated spammers, scammers and other bad actors (who also might be leveraging automation, AI and more!)
Frontend development and UI updates are not the only way progress is made on the technical infrastructure in technology companies. How do we know that Google isn't battling an adversarial web with 1000s of engineers just to keep the search quality where it is? It must be quite an arms race to behold between Google teams and the coordinated and well motivated spammers, scammers and other bad actors (who also might be leveraging automation, AI and more!)
Google annual revenue in billions of dollars[1]:
If you think that's "not great for investors", then I don't know what to tell you.
It's a little hard to eyeball, but profits per employee has been on a long upward trend too, except for 2019, where it fell substantially, but note the revenue gains above--that didn't just magically appear [2].
[1] https://www.statista.com/statistics/266206/googles-annual-gl... [2] https://www.theinformation.com/articles/after-hiring-binges-...
Revenue
2019: 160.74
2018: 136.36
2017: 110.55
2016: 89.98
2015: 74.54
If you think that's "not great for investors", then I don't know what to tell you.
It's a little hard to eyeball, but profits per employee has been on a long upward trend too, except for 2019, where it fell substantially, but note the revenue gains above--that didn't just magically appear [2].
[1] https://www.statista.com/statistics/266206/googles-annual-gl... [2] https://www.theinformation.com/articles/after-hiring-binges-...
Also great for all the managers and VPs who get to put on their CV that they managed a team of n engineers that worked on X to increase Y key metric by an insignificant amount or that they created a new product that will get the can in 9 months
Part of what allows a company to have insane cashflow is issuing corporate bonds at artificially low prices because the Treasury is manipulated by the Fed.
That doesn't inherently follow at all. It very much depends on the company in question. IBM has a very profitable business and has for the past decade.
They're paying around mid 2.x% interest on their debt ($1.3b interest expense last fiscal year). You can double that rate, and IBM can safely handle the cost. They can afford to pay far higher interest rates on their debt while still producing excellent profitability.
They're paying around mid 2.x% interest on their debt ($1.3b interest expense last fiscal year). You can double that rate, and IBM can safely handle the cost. They can afford to pay far higher interest rates on their debt while still producing excellent profitability.
The interest on their debt would be 6-8% if the US Treasury yield wasn't artificially manipulated by the Fed to ~0%.
They'd be paying 3-4x that on interest. That's a decent chunk of their profits / buybacks.
They'd be paying 3-4x that on interest. That's a decent chunk of their profits / buybacks.
Not sure I follow. What does the US Treasury have to do with private debt issuances? Did you mean that interest rates are manipulated by the Fed?
US Bonds are usually referred to as Treasury bonds, which the Fed buys, to manipulate the yield.
New Fed programs have been stood up in the last month that directly buy corporate debt.
I have the impression that onlyrealcuzzo was referring to something longer term than the last month, though.
A stock buyback is theoretically the same as a dividend, in that it should reduce market cap by roughly the amount of the buyback.
I do agree with your sentiment though. I feel like the wealthy in this country have developed the perfect scheme for leeching the wealth from this country. We will only know how bad it was after the postmortem, at which point, we will be (figuratively) dead.
I do agree with your sentiment though. I feel like the wealthy in this country have developed the perfect scheme for leeching the wealth from this country. We will only know how bad it was after the postmortem, at which point, we will be (figuratively) dead.
Is it too jaded to say that it most likely has always been, for all time? And that we are simply more aware of it these days?
I think it's more subtle now, though, and harder to be aware of.
Back in the day, robber-barons simply exploited the working class through substandard working conditions, and outright theft of money or property [citation needed].
Now, though, you need a deep understanding of global monetary policy, tax law, and labor laws to be able to connect the dots.
So I would argue that now is different from earlier times in history, because those who are exploiting the system have finally figured out how to a) hide it well enough, and b) co-op members of the classes being exploited to fight for those doing the exploiting through misdirection and propaganda.
Back in the day, robber-barons simply exploited the working class through substandard working conditions, and outright theft of money or property [citation needed].
Now, though, you need a deep understanding of global monetary policy, tax law, and labor laws to be able to connect the dots.
So I would argue that now is different from earlier times in history, because those who are exploiting the system have finally figured out how to a) hide it well enough, and b) co-op members of the classes being exploited to fight for those doing the exploiting through misdirection and propaganda.
That's the craziest part of all of this. The exploited actively support the politicians who cause maximum exploitation and vilify those who would actually help them. It's insane.
Isn't that why they are politicians though? Because they were able to promise one thing to the masses and deliver another to their funders? If they were bad at that, they wouldnt get propped up.
Honestly, it just doesn't make sense. And my experience, when you sit down with, and I'm going to say extremely conservative people because they are the ones I would put in this category, and explain it to them using facts, they just dig in their heels and ignore you. Humans. What weird things.
Source: I talk politics with family all the time; I'm vilified as the weirdo, brainwashed, college liberal in a family of conservatives.
Source: I talk politics with family all the time; I'm vilified as the weirdo, brainwashed, college liberal in a family of conservatives.
Only it isn’t the same. Dividends are taxable, capital gains are only taxable upon closing a position.
Ok, so it's even better than a dividend. That would explain why it's used.
Yes. The reason I say theoretically is because, from a business perspective, they aren't different. Whether you buy your own stock or distribute a dividend shouldn't matter from a market cap perspective. It's still cash the company used to have, but no longer does and the market cap will reflect both equally.
Now some investors prefer buybacks for tax reasons, others may not. It depends entirely upon how they invest. If you're a buy-and-hold, then it's favorable due to lack of taxes, but if you rebalance a lot (which most mutual funds do), then it doesn't matter.
Now some investors prefer buybacks for tax reasons, others may not. It depends entirely upon how they invest. If you're a buy-and-hold, then it's favorable due to lack of taxes, but if you rebalance a lot (which most mutual funds do), then it doesn't matter.
>A stock buyback is theoretically the same as a dividend
I don't think that is true at all.
A dividend is literally "We are paying out some amount of cash. If our stock price is $40 and we give $5 to each shareholder the shares should immediately go down to $35". Although since the stock price should be a NPV of the company's cash flow, they technically have even less working capital to create returns over the years, so I think the price should go down by even more than $5.. but that's a different discussion...
In a stock buyback.. let's say the price is $40 and they buy the equivalent of $5 back from the market. Well.. yes they gave away $5 but they also gained $5 of value because they are now holding the shares. It's a net zero transaction if their stock price doesn't change from it. Which.. it shouldn't unless you think it's a signal of something. Yes there's a bit more details, but value is not "given away" in the same sense.
In the dividend example, the company gave away money.
In a stock repurchase, they gave away money in return for shares of (almost) equal value.
I don't think that is true at all.
A dividend is literally "We are paying out some amount of cash. If our stock price is $40 and we give $5 to each shareholder the shares should immediately go down to $35". Although since the stock price should be a NPV of the company's cash flow, they technically have even less working capital to create returns over the years, so I think the price should go down by even more than $5.. but that's a different discussion...
In a stock buyback.. let's say the price is $40 and they buy the equivalent of $5 back from the market. Well.. yes they gave away $5 but they also gained $5 of value because they are now holding the shares. It's a net zero transaction if their stock price doesn't change from it. Which.. it shouldn't unless you think it's a signal of something. Yes there's a bit more details, but value is not "given away" in the same sense.
In the dividend example, the company gave away money.
In a stock repurchase, they gave away money in return for shares of (almost) equal value.
When companies do buybacks they don't control the shares they buyback, the shares disappear. The market cap of the company decreases because they know have less assets but the stock price doesn't because the cap is split over less shares. Either way, the market cap theoretically decreases by the amount paid out.
21st century IBM is effectively a labor arbitrage firm. They buy labor in low cost countries and sell it in high cost countries. They are not the platform tech company they were in the 60s to the 80s. Labor arbitrage can be a good business, but there is much more competition than in platform technology. The competition constrains both profits and growth.
I’m not sure what your last paragraph has to do with the first three.
A main purpose of buying a stock is to receive dividend payments. Buybacks are just a tax efficient dividend.
The latest craze to make paying dividends sound evil is just strange.
A main purpose of buying a stock is to receive dividend payments. Buybacks are just a tax efficient dividend.
The latest craze to make paying dividends sound evil is just strange.
Paying dividends is fine if you aren't firing workers or taking bailouts.
Why is firing workers inconsistent with paying dividends? They kind of feel like two sides of the same coin: a company can't find a better return on its capital so it divests itself of the resource (labor or cash).
It's not. It's just that these companies shouldn't get handouts.
Buy back stocks in the good times, issue new stock when the going gets rough.
Right now it's "buy back stocks in the good times, get bailouts then the bad times come".
Buy back stocks in the good times, issue new stock when the going gets rough.
Right now it's "buy back stocks in the good times, get bailouts then the bad times come".
One strategy is dividends.
Another is to buy a stock at X, sell later at Y and hope Y > X
Both are valid. Oddly they are taxed differently.
Another is to buy a stock at X, sell later at Y and hope Y > X
Both are valid. Oddly they are taxed differently.
> Oddly they are taxed differently.
Most dividends are treated as 'qualified,' meaning that they are taxes as LT cap gains. So in that respect, the tax treatment is the same as selling the appreciated stock at a profit.
The big difference is that you're forced to pay taxes on a dividend the year you receive it, while you can theoretically defer capital gains taxes forever in a reinvestment scenario. Practically speaking though, most people own mutual funds that rebalance every year or so (think, S&P500 index fund), and pay out LT Cap Gains quarterly/yearly. So for most investors, there's not a huge difference between the two.
Additionally, there are schemes to allow for different tax treatment on dividends, such as capital dividends or stock dividends.
Most dividends are treated as 'qualified,' meaning that they are taxes as LT cap gains. So in that respect, the tax treatment is the same as selling the appreciated stock at a profit.
The big difference is that you're forced to pay taxes on a dividend the year you receive it, while you can theoretically defer capital gains taxes forever in a reinvestment scenario. Practically speaking though, most people own mutual funds that rebalance every year or so (think, S&P500 index fund), and pay out LT Cap Gains quarterly/yearly. So for most investors, there's not a huge difference between the two.
Additionally, there are schemes to allow for different tax treatment on dividends, such as capital dividends or stock dividends.
However this saves us from inflation, since the money circulates among the wealthy and corporations rather than among the common person.
It also puts assets with positive rates of return out of the hands of the common person. Kind of like how an overheated housing market makes it so you'll never own a home and are stuck paying rent forever. If you ever wanted to own a piece of America's economy and get dividends in the future, now it's priced out of reach. This inflation in investment assets further cements the division between those that have to work 9-5 for a living, and those that have enough investments to live off their returns and not worry about becoming destitute. Jumping that gap between renter and owner is harder than ever.
Precisely right.
That's why printing cash (whether in the form of UBI or any other cash printing social program) is not a sustainable solution for lifting people out of poverty or building a healthy economy. There are always negative long term effects that end up hurting the poor and middle classes even more. Even if there's not inflation of consumer goods, there's inflation of investment grade assets.
That's why printing cash (whether in the form of UBI or any other cash printing social program) is not a sustainable solution for lifting people out of poverty or building a healthy economy. There are always negative long term effects that end up hurting the poor and middle classes even more. Even if there's not inflation of consumer goods, there's inflation of investment grade assets.
I don't think this is a sound argument for further enriching the rich and leaving the common person to struggle. An oligarchy is not a desirable model any more than a monarchy is.
it doesn't save us from inflation, it just changes the path it takes. Rich people buy stuff too, which employee us peasants. But by the time us peasants see the money, its already inflated so we don't get the benefits.
Yes.... they have a small market cap because they are returning cash to shareholders. That is literally the idea of a buyback - to shrink the market cap.
Wouldn't a stock buyback reduce the number of outstanding shares, but keep market capitalization roughly constant? The company has less cash, but it has bought an asset of equal value with it (the shares).
Companies aren't allowed to hold shares in themselves. Once the shares are purchased the company cancels them.
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Hard to disentangle monetary policy from political policy. They are strongly interlinked.
Sure but what does it matter if it's "monetary policy" or "political policy"? They work hand in glove and as @mywittyname aptly states above:
"...I feel like the wealthy in this country have developed the perfect scheme for leeching the wealth from this country."
The perfect scheme involves a bailout mechanisms without question. And too many Americans are falling for the scheme with hands out for a piece of welfare from the wealthy. They are selling out the future of their country in exchange for a pittance in the process.
The scheme doesn't stop, it only exacerbates as long as the bailouts continue...bailouts for wall street, bailouts for mains street, bailouts for every day individuals = all part the scheme by design.
I'm in constant awe of how many otherwise intelligent people can't grasp the role that these "bailouts" play in perpetuating the inequality gap. That, or they happen to be on a certain side of things and don't want to know what it's like to be on the other when the gravy-train stops flowing...
"...I feel like the wealthy in this country have developed the perfect scheme for leeching the wealth from this country."
The perfect scheme involves a bailout mechanisms without question. And too many Americans are falling for the scheme with hands out for a piece of welfare from the wealthy. They are selling out the future of their country in exchange for a pittance in the process.
The scheme doesn't stop, it only exacerbates as long as the bailouts continue...bailouts for wall street, bailouts for mains street, bailouts for every day individuals = all part the scheme by design.
I'm in constant awe of how many otherwise intelligent people can't grasp the role that these "bailouts" play in perpetuating the inequality gap. That, or they happen to be on a certain side of things and don't want to know what it's like to be on the other when the gravy-train stops flowing...
Oh I agree with all your conclusions. However, I think politicians have leveraged monetary policy to gain political points for decades. Rather than tell people we have to cut programs and we have to live within our means, we've got an endless series of wars and unsustainable social programs that don't work in a world where a large chunk of the population is old (boomers), while the young population have inherited a consumption-based economy that is currently eating itself.
Other countries are failing, too. It's not a unique feature of the U.S. We're going to see a lot of nation-states struggle under the weight of their existing programs when the debt-fueled growth stops. People have lost all sense of sustainable fiscal and monetary policy.
Spot on
I watched an interview on YouTube with Stephen A. Schwarzman from 'The Blackstone Group' which was really eye opening. There is a part where he explains how to multiply ROI on any investment using bank loans https://www.youtube.com/watch?v=7kThTbLUQdU
When you take into account that the credit is printed by banks out of thin air (and more so given the latest 0% reserve requirement), it's not difficult to see why the ROI surplus derived from this 'magic trick' (as Schwarzmam refers to it) is basically free money.
Corporations and financial firms with a lot of capital have access to huge loans on favorable terms; this puts them on a different playing field than small companies which don't have much capital and can't use this 'magic trick' to multiply their earnings in the same way. Earning 30% ROI is simply not possible for most individuals and small businesses.
I suspect this is the same trick which Renaissance Technologies uses for their 'Medallion fund' to hit 66% ROI per year on average... Maybe they're able to take loans against collateral owned by their other mainstream funds.
If I have $1K in cash and I can find a bank to loan me an additional $5K... If I invest that in an asset which returns just 10% per year, given the 0% interest rate environment, I can make $600 per year in pure profit on my investment... Which is 60% ROI! Anyone can be a legendary investor... You just need to find a bank which can give you 5x leverage.
These leveraged loans which yield free surplus ROI are impossible for small businesses to access. This is why they're fundamentally unfair. The efficiency advantages of economies of scale are greatly exaggerated. The real advantage is mostly financial.
And remember, that 'leverage' credit was printed out of thin air by the bank... So any extra profit which can be derived from it by an individual or company is by definition also 'printed out of thin air'... Especially when you know you're going to get bailed out every 10 years when things go wrong - There is no risk.
When you take into account that the credit is printed by banks out of thin air (and more so given the latest 0% reserve requirement), it's not difficult to see why the ROI surplus derived from this 'magic trick' (as Schwarzmam refers to it) is basically free money.
Corporations and financial firms with a lot of capital have access to huge loans on favorable terms; this puts them on a different playing field than small companies which don't have much capital and can't use this 'magic trick' to multiply their earnings in the same way. Earning 30% ROI is simply not possible for most individuals and small businesses.
I suspect this is the same trick which Renaissance Technologies uses for their 'Medallion fund' to hit 66% ROI per year on average... Maybe they're able to take loans against collateral owned by their other mainstream funds.
If I have $1K in cash and I can find a bank to loan me an additional $5K... If I invest that in an asset which returns just 10% per year, given the 0% interest rate environment, I can make $600 per year in pure profit on my investment... Which is 60% ROI! Anyone can be a legendary investor... You just need to find a bank which can give you 5x leverage.
These leveraged loans which yield free surplus ROI are impossible for small businesses to access. This is why they're fundamentally unfair. The efficiency advantages of economies of scale are greatly exaggerated. The real advantage is mostly financial.
And remember, that 'leverage' credit was printed out of thin air by the bank... So any extra profit which can be derived from it by an individual or company is by definition also 'printed out of thin air'... Especially when you know you're going to get bailed out every 10 years when things go wrong - There is no risk.
If you want to take the risk of losing a multiple of sectors losses, its incredibly easy to invest in leveraged etfs. They take out loans at 2x their value, and buy 2 more shares of everything inside. So they sit on 3x stock and 2x debt.
http://www.direxion.com/leveraged-inverse-etfs
https://www.proshares.com/3xetfs/
https://www.investopedia.com/articles/investing/020816/top-1...
Look at something like TQQQ, which is 50% FAAAMIN stocks 3x. Was a 488% return in the last 5 years till the crash, now its at 330%. Regular QQQ is only up 192%.
http://www.direxion.com/leveraged-inverse-etfs
https://www.proshares.com/3xetfs/
https://www.investopedia.com/articles/investing/020816/top-1...
Look at something like TQQQ, which is 50% FAAAMIN stocks 3x. Was a 488% return in the last 5 years till the crash, now its at 330%. Regular QQQ is only up 192%.
And it's still not even remotely enough. 5-year inflation expectations running at 0.67%, CPI falling. The shock to aggregate demand is being allowed to exceed the supply shock. https://fred.stlouisfed.org/series/T5YIE
How is that supposed to work? I can understand if this were a normal cyclical pullback, but this isn't a normal times; there is actual economic destruction wrought by a real (non-monetary) shock to supply. In order to believe this helps, you have to imagine it happening by this mechanism:
"Can you lend to our business that's not allowed to operate and probably won't pay you back?"
'lol no. ... wait, I just got off the phone with our credit line. We can borrow at 3% instead of 3.25%. What's your business model again?'
"Can you lend to our business that's not allowed to operate and probably won't pay you back?"
'lol no. ... wait, I just got off the phone with our credit line. We can borrow at 3% instead of 3.25%. What's your business model again?'
Usually, destroying some of the supply, but holding the flow of money fixed, means that the remaining items will be bid up. If instead prices are falling, it means that the secondary financial effects of the real shock are exceeding the impact of the real shock itself. If the flow of money is slowing down, one should create more money to avoid worsening the real shock through financial reverberations.
If there are actual, viable ventures right now, given the new conditions, then their lenders' investment probably doesn't hinge on whether the Fed is slightly more lose with credit than the ultra-loose policy it's had for the past year.
Fiscal policy is the obvious solution to aggregate demand problems, not monetary policy.
Fiscal policy creates debt that needs to be repaid. Ordinary monetary policy involves swapping new currency for very stable assets like Treasury bonds that can be sold back later to destroy the currency. As much aggregate demand as possible should therefore be created by ordinary monetary policy, since it's cheaper (and faster and easier).
But monetary policy is quite unfair in that it benefits the wealthy / institutionals most (e.g. through buying of junk bonds) while inflating the money of all other people
That's not how it works(1).
As the QE programs have showed, you don't get any demand by creating more reserves in a depression. For those reserves to get traction over the economy you need somebody that borrow from the banks.
(1) - http://bilbo.economicoutlook.net/blog/?p=661
http://bilbo.economicoutlook.net/blog/?p=29140
As the QE programs have showed, you don't get any demand by creating more reserves in a depression. For those reserves to get traction over the economy you need somebody that borrow from the banks.
(1) - http://bilbo.economicoutlook.net/blog/?p=661
http://bilbo.economicoutlook.net/blog/?p=29140
And there will be NO inflation because this money is largely going to corporations who will figure out ways to maximize ROI -> invest it in the financial market. So although there might inflation of equity prices (as seen by the recovery of the S&P and other equities), the world is still out of work and starving and without the dollars to drive demand and price increases of goods and services.
We need to separate financial money flows (Gross Financial Product?) from the GDP to really know what is going on.
We need to separate financial money flows (Gross Financial Product?) from the GDP to really know what is going on.
Real state prices will explode. That’s what happened after 2009 due to QE.
I have a hard time believing that real estate prices will explode.
From what i can see the prices are expected to go down, mostly due to the fact that there's less ppl able to buy due to many being out of work(some for a good while probably as i doubt some jobs/positions will be immediately re-filled). This same thing will cause many to go into foreclosure, this adding new supply to the real estate market. Also banks already tightening credit/loans requirements and availability. All this means larger supply than demand, no reason for real estate to go up.
This is all just starting, curious to see what the end of 2020 will bring and start of 2021.
Also the market doesn't represent the economy and right now most of the money goes into the market creating a false-positive idea that everything's fine. Just my 2 cents.
Also the market doesn't represent the economy and right now most of the money goes into the market creating a false-positive idea that everything's fine. Just my 2 cents.
Agree. It turns out that jumbo mortgage rates are higher than regular mortgages. Banks cannot find buyers for the jumbos because of the anticipated drop in real estate value from the COVID freeze. No one wants to lend to people who might find themselves underwater on a mortgage. AGAIN.
There is quite a lot of stuff going on here, but I think it can still swing both ways. An adverse effect to the one you mentioned could be the flux of debt / bonds to the central banks and the flux of printed money to the investors. This money is looking to be invested (which happened to find real estate post 2008)
What's the saying these days? Money printer goes brrrrrrr?
Is the song that plays on this website commonly known? The only other time I've heard it is in the video that the New Zealand mass shooter recorded, and it makes me uncomfortable that it's the same song if it is indeed not common.
Not super well-known, but it has been used in a few dozen Youtube videos (mostly based on Japanese manga or Pokemon).
I believe the song - artist is: Gas Gas Gas - Manuel
I believe the song - artist is: Gas Gas Gas - Manuel
I think it's some eurobeat song from the Manga initial D. It's quite common in memes. Go search it up on YouTube, might help wash that stigma away
Here’s how I see this going (obviously just a guess): the entire corporate financial system is now unprofitable without being bailed out with zero interest loans every 10 years. This time around, the recovery will be slow, 10 years, then another, bigger bubble will form, that will pop and get bailed out again, but the next time around it will cause fast rising inflation. The fed will have to choose between either allowing hyperinflation to happen, which will crash the dollar, or saving the dollar by jacking up interest rates but allowing a second Great Depression to occur. I think they’ll choose the latter. At that point, the right wing, funded by the desperate corporate state which needs to stem the rising tide of labor activism, will blame coastal elite liberals and immigrants for their problems and there will be some kind of fascist coup, followed potentially by war, (but probably not). This will be right at the same time as lots of mass movement of people due to climate change is happening. If a war does happen it will be because of tensions caused by people flooding across various borders. I cannot see any further ahead than that.
> At that point, the right wing, funded by the desperate corporate state which needs to stem the rising tide of labor activism, will blame coastal elite liberals and immigrants for their problems and there will be some kind of fascist coup, followed potentially by war, (but probably not).
You had me until "funded by the desperate corporate state", who want absolutely nothing to do with the right wing. If anything, we'll see a continued rise in Totalitarian Liberalism rather than any kind of right-wing renaissance.
> there will be some kind of fascist coup
You need a Great Man for that, and there are none on the horizon.
You had me until "funded by the desperate corporate state", who want absolutely nothing to do with the right wing. If anything, we'll see a continued rise in Totalitarian Liberalism rather than any kind of right-wing renaissance.
> there will be some kind of fascist coup
You need a Great Man for that, and there are none on the horizon.
The corporate state in Weimar Germany was faced with a popular communist movement, and to defeat it they threw money at the fascists, who they saw as the only credible opposition. But, history never repeats, it may go down differently next time. Just look at how the supposedly left wing media responded to Bernie Sanders. When money is on the line, they will align with the right wing. Plus, left wing is by definition a movement that opposes the current power hierarchies in society. Look it up on Wikipedia.
https://en.m.wikipedia.org/wiki/Left-wing_politics
By that standard, none of the people you would call totalitarian liberals are left wing at all, they’re just corporatists with socially liberal virtue signaling. Trust me when I say that those people are the very first to suppress labor strikes or call the cops on protesters. They would absolutely support a fascist coup if it was their only way to keep their money, power and influence.
https://en.m.wikipedia.org/wiki/Left-wing_politics
By that standard, none of the people you would call totalitarian liberals are left wing at all, they’re just corporatists with socially liberal virtue signaling. Trust me when I say that those people are the very first to suppress labor strikes or call the cops on protesters. They would absolutely support a fascist coup if it was their only way to keep their money, power and influence.
> Plus, left wing is by definition a movement that opposes the current power hierarchies in society. Look it up on Wikipedia.
A foolish movement that doesn't recognize that power and competency hierarchies are endemic to nature and are a part of any human organization. The moment the current system is torn down, the rhetoric of the Left fails as it offers no actual method towards constructing anything meaningful - this is left to men who actually build and maintain things, who all recognize the fundamental nature of the hierarchy if anything is to actually be accomplished. A few years after every leftist revolution, there's a shittier version of the same basic hierarchy in place, equality is never achieved, and as many people starve as before.
> none of the people you would call totalitarian liberals are left wing at all
Agreed, they're just the left-side position in the false dichotomy. And probably none of the people you'd consider "right wing" are at all right wing by the standards of the real right, they're just the right-side of the same dichotomy, established to prevent anyone from actually upsetting the applecart in the name of real change.
> They would absolutely support a fascist coup if it was their only way to keep their money, power and influence.
So would just about every normal working class citizen, if they had the opportunity and if the populist values were sufficiently representative of their own. The problem is that fascism has been grossly misrepresented as simply being totalitarianism, when it is actually an ethos and aesthetic towards the upward construction of a nation in the interest of its families that is (obviously) considered undesirable by globalists.
A foolish movement that doesn't recognize that power and competency hierarchies are endemic to nature and are a part of any human organization. The moment the current system is torn down, the rhetoric of the Left fails as it offers no actual method towards constructing anything meaningful - this is left to men who actually build and maintain things, who all recognize the fundamental nature of the hierarchy if anything is to actually be accomplished. A few years after every leftist revolution, there's a shittier version of the same basic hierarchy in place, equality is never achieved, and as many people starve as before.
> none of the people you would call totalitarian liberals are left wing at all
Agreed, they're just the left-side position in the false dichotomy. And probably none of the people you'd consider "right wing" are at all right wing by the standards of the real right, they're just the right-side of the same dichotomy, established to prevent anyone from actually upsetting the applecart in the name of real change.
> They would absolutely support a fascist coup if it was their only way to keep their money, power and influence.
So would just about every normal working class citizen, if they had the opportunity and if the populist values were sufficiently representative of their own. The problem is that fascism has been grossly misrepresented as simply being totalitarianism, when it is actually an ethos and aesthetic towards the upward construction of a nation in the interest of its families that is (obviously) considered undesirable by globalists.
This is one of two last-resorts mechanisms by which the U.S. will maintain its hegemony. It may suck, but it is way better than the alternative.
What's the other last resort? WWIII? It seems that's brewing too.
Attempt to maintain.
>by which the U.S. will maintain its hegemony
By printing money?
By printing money?
Why is printing money a bad thing at this point in time?
I see two strong reasons that printing money is the right move:
1) Wealth inequality is high relative to recent history. Printing money is a very effective way to even some of that out. Possibly the only form of 'wealth tax' that can actually be executed successfully.
2) The US debt / GDP fraction is still relatively low compared to many other countries.
I see two strong reasons that printing money is the right move:
1) Wealth inequality is high relative to recent history. Printing money is a very effective way to even some of that out. Possibly the only form of 'wealth tax' that can actually be executed successfully.
2) The US debt / GDP fraction is still relatively low compared to many other countries.
> Printing money is a very effective way to even some of that out. Possibly the only form of 'wealth tax' that can actually be executed successfully.
This only holds if the wealthy are holding their wealth as USD, not assets. This is not the case. The wealthy do not typically have Scrooge McDuck-style vaults of cash laying around waiting to be inflated away.
This only holds if the wealthy are holding their wealth as USD, not assets. This is not the case. The wealthy do not typically have Scrooge McDuck-style vaults of cash laying around waiting to be inflated away.
The wealthy do not typically have vaults of cash, but they do invest most of their money in companies which often do have large USD reserves. The vast majority of their wealth is greatly impacted by the relative value of USD.
Inflation hurts the poorer the most - they don't have assets that are being priced up due to inflation, while the cost of everyday life goes up.
This also may not actually cause inflation. The QE performed by the fed during the 2008 financial crisis did not create much inflation.
But their debt might devaluate?
> The US debt / GDP fraction is still relatively low compared to many other countries.
Is the relative ratio a good way to evaluate it? Does it mean anything to talk about the debt:GDP ratio in isolation?
Is the relative ratio a good way to evaluate it? Does it mean anything to talk about the debt:GDP ratio in isolation?
GDP is somewhat close to a nation's income. Those with higher incomes can typically safely afford larger loans.
So what would be different between two similar countries, one with a debt:GDP ration of 0.1 and the other with a ratio of 2? Is the only difference that the first country has more options in a time of crisis?
The country with the ratio of 0.1 can pay off its debt 20x more quickly/easily. Much less risky of that country defaulting.
How much further can they go?
26 million or so recent unemployment applications and the stock market is not off much from recent all time highs.
This is more concerning than the initial falling knife mid-March.