These cycles are not as consistent nor as predictable as your comment suggests. Your link and the bloomberg article both mention how cycles have been changing (e.g. lengthening on average recently) and how once important economic correlations of the past continue to break down toward being uncorrelated.
There are many reasons for a cycle, some we think we understand, some we clearly do not. Everyone agrees we cannot predict the future. By the way, books are written about cycles, people writes their thesis on this topic, it is difficult to summarize.
The short answer is we have a list of things that have caused cycles in the past. And we have a calculation how often and how likely a new cause is to be added to that list (tech bubble was not on the list in the 80s, now it is). From this list of known causes and calculating the odds a new cause will come along, economics try to predict cycle peaks and valleys as best they can. Their track record is atrocious and a joke at best. Despite what is reported in the press sometimes, economics are actually getting worse at analyzing cycles. Ray Dalio is mentioned in a few comments, Dalio does not have a good track record when it comes to macro economics though his hedge fund has performed well in some years (don't believe marketing BS).
No one knows how innovation will effect boom and busts. Research on this is heavily manipulated. One can find strong connections between innovation and cycles if you want to AND one can find almost no connection between innovation and cycles. So unfortunately the real answer to this one is "it depends", all else equal (ceteris paribus) if innovation in tech slows it is likely part of many things slowing down and hence the lengthening of cycles we have seen MAY continue (again ceteris paribus).
TL;DR pattern is not predictable nor consistent. Tech and innovation has little to no effect except in extreme cases, the pace of innovation should not have a major impact. Demographics and population factors show strong evidence for warranting a majority factor weight.
Lastly, analogy: have you heard of yo-yo dieting? How long do most dieters last on a diet before failing that diet? What is the common causes of failing a diet? How long after failing to diet do they try again? Why do some people succeed when dieting on the first try and never regain the weight, why some on the 5th try? why some never? The economy acts just a person trying to yo-yo diet but it's 300 million people making and losing money instead of fat (well also fat).
Clearly more companies are using debt and using more of it. US corporate debt market is now around $8 Trillion dollars outstanding [1] and new debt issuance in 1Q 2017 was up 70% [2], and even this article mentions multiple examples of recent "mega bond deals" by other companies [3].
I'm not sure how Eurozone debt came up. I didn't read anything about Amazon and Eurozone issuance in the article, did I miss it? Though, technically Amazon did issue an unregistered private placement of debt in this case, so the debt was not eligible to be sold in the US or sold to US persons unless exempt of course [4].
As for the claim that investment grade corporate issues can get 0% in the EU or that junk bonds have lower yields than treasuries, or any sort of ideas like that where it is "cheaper" to borrow in Europe because spot rates are printing lower (and negative) there - that's a miscalculation and debt markets doesn't work like that. First, at a basic theoretical level there is a concept of interest rate parity which is maybe worth reading about but not really super important after freshman year of college [5].
I could not find a public non-paywall link with current EURUSD basis swap rates (basis swaps would help show the adjusted rates foreign borrowers pay) but the following links from the ECB show how much they are sucking right now suffering from low GDP and low inflation (remember debt that one borrows is paid back with future money that has inflated (and sometimes deflated) so if inflation is relatively high between the time money is borrowed and paid back that is good for the borrower) [6] [7]. According to this link option adjusted spreads on EU high yield are around 275 basis points not lower than treasuries, that is +275, as of right now [8].
While off the subject for a sec, it appears currency FX risk hedging also came up in this thread, with some people talking about hedging currency FX on a company's non-USD denominated debt being a good thing and/or inexpensive and/or easy for a company to do. IMHO that is a misleading interpretation of what corporate currency FX hedging is. A company "hedging" a financial risk like a currency depreciation going against them does not elimate risk nor lock in some sweet profits like people seem to think hedging accomplishes. What happens is future currency moves can lead to uncertain GAINS OR LOSSES for a company, but nobody knows which way it will go. So company management can choose to reduce their potential gains and potential losses from currency FX in the NEAR future in exchange for taking a certain definite loss right now. A company can only do this for the near future, 3-24 months or so, on a rolling basis if they choose. (Amazon issued for 40 year bonds, there is no such thing as 40 year currency hedging forwards, nothing is locked over this time, a lot can happen).
It's important to note a company will have paid money to eliminate downside and eliminate upside. The company has also added a new risk, the risk from the hedge project itself, as currency hedging doesn't always work as expected. Investment banks make mistakes (Citi and UBS are notably error prone, GS may or may not screw up on purpose) or central banks and gov regulators do weird things a FX hedge didn't factor in when started (Za Sviss). The list goes on.
I'm not anti corporate FX hedging, I see companies using currency hedging in the right way and to their advantage every day. I just was hoping to clarify that hedging is not an elimination of risk for a small cost. It's the reduction of potential profit and loss in exchange for a certain loss, this loss can be expensive and the process can go wrong making things worse.
Q: Is a certain relatively small cost every month better for a company than an uncertain gain or uncertain loss every month?
I would say sometimes. Depends on the company and the context.
One thing we do know is Amazon has foreign currency risk and Amazon has chosen NOT to hedge it or at least not hedge a huge chunk of it. Their latest SEC filing reports a loss of at least -$450 million due to foreign currency changes going against them.
Ok, sorry for the long post, bathroom break over, I just want to add one thing: companies cannot just borrow as much as they want for no reason just because rates are low. Many companies with low or no debt are not borrowing because they have no f'ing clue what to do with the money if they did take on debt. Companies need to do something with borrowed money AND they need to tell lenders more or less what that something is. (Amazon said clearly in their filing they want to borrow this money to buy a chain of overpriced health food stores, Apple has tons of cash saved up but Apple has made clear they are issuing debt anyway so Carl Icahn will shut up).
If a company can't think up a worthwhile making or selling of something new to invest their capital into (a problem many companies today are suffering from) company existing debt doesn't have to just sit in the bank earning nothing. The company can pay back loans early, or this money can be re-invested into other bonds! Yes, Debt on debt. Though these bonds a company's corporate cash invests in are going to be better-rated more-boring bonds lower yielding than their own (often just treasuries and short term other quasi's). Thus this limited corporate cash investing universe all but eliminates a scheme where it would be worthwhile for a company to borrow cheap debt and then try to earn a spread by reinvesting that $ into risky securities or bitcoins or sports bets or R&D into flying cars etc.
That "predictor" or monetary stock and flow theory that blog post describes is well over 100 years old now and very well known (pre-Keynesian and going back to at least Irving Fisher). It has also been studied in detail in academia for decades if anyone wants to look up proper research studies about it. The blog author maybe should have mentioned that this is already a well known and tested predictor, and if the author hadn't heard of before writing that blog post I would question that entire site.
There are also several companies that specialize in providing this exact cash/equity data research to financial firms to help them manage their trading strategies and offering more practical details in their data than FRED data offers. For example TrimTabs [1] (no affiliation) has been around since 1990 according to their website [1] trimtabs.com
Not sure what you're exactly building here, is it for fun or profit or both?
I heard when Sotheby's bought the Mei Moses Database/Index last year, the valuation they paid for it was in the 7 figures. This type of data analysis is on people's minds more and more and potentially quite lucrative, good luck.
Just want to second this comment, their data processes are the key strength of Medallion. Grandparent comment by murbard2 also talks about the importance of this component to quant work (in the last paragraph: "finding new data feeds that provide valuable information")
While Jim Simons is a mathematician and Rentec clearly has hired many brilliant people with PhDs, it's maybe worth mentioning the actual mathematics being used in their work isn't super high level difficult, impossible or secretive. Many of the PhD's working there do not have a PhD in math, but rather something like Physics, so I would say if you are familiar with graduate level math courses you can understand the math needed for this type of work. Math isn't where their edge comes from. Also Medallion is 30 years old, their early work in the mid 80s was done on computers with less processing power than your phone, "Machine Learning" as the term is being used lately or access to supercomputing hardware no one else knows about is also not where their edge came from.
I agree that comment was poorly worded and confusing. I think what they might have meant was AMZN would have to earn $500B of profit over the next several years and based on 3% profit margin that would need $16T in revenue to earn that amount of profit.
The math works out to approximately 7 years, though the comment just wrote "some time in the future".
I have no position in AMZN besides passive index holdings but clearly not "everyone" agrees the stock price is overvalued as many continue to hold onto shares at the current price.
More importantly, in what world does a stock price need to justify a "10% ROI" or it's overvalued?
This isn't the 1960s anymore, and even if it was a 10% ROI would not be the equity risk premium, maybe 5-7% ROI. One also needs to adjust for inflation which AMZN does better than Treasuries. Looking at profits and ROI is no longer standard practice for many market participants, particularly in technology it's clear secular N/A dividend and negative P/E are now accepted practices, for better or worse.
The price of AMZN may go down, way down, or it might not, but either way your valuation technique is a dangerous one and I am very curious what stocks you do like if you are looking for a 10% ROI?
There are many reasons for a cycle, some we think we understand, some we clearly do not. Everyone agrees we cannot predict the future. By the way, books are written about cycles, people writes their thesis on this topic, it is difficult to summarize.
The short answer is we have a list of things that have caused cycles in the past. And we have a calculation how often and how likely a new cause is to be added to that list (tech bubble was not on the list in the 80s, now it is). From this list of known causes and calculating the odds a new cause will come along, economics try to predict cycle peaks and valleys as best they can. Their track record is atrocious and a joke at best. Despite what is reported in the press sometimes, economics are actually getting worse at analyzing cycles. Ray Dalio is mentioned in a few comments, Dalio does not have a good track record when it comes to macro economics though his hedge fund has performed well in some years (don't believe marketing BS).
No one knows how innovation will effect boom and busts. Research on this is heavily manipulated. One can find strong connections between innovation and cycles if you want to AND one can find almost no connection between innovation and cycles. So unfortunately the real answer to this one is "it depends", all else equal (ceteris paribus) if innovation in tech slows it is likely part of many things slowing down and hence the lengthening of cycles we have seen MAY continue (again ceteris paribus).
TL;DR pattern is not predictable nor consistent. Tech and innovation has little to no effect except in extreme cases, the pace of innovation should not have a major impact. Demographics and population factors show strong evidence for warranting a majority factor weight.
Lastly, analogy: have you heard of yo-yo dieting? How long do most dieters last on a diet before failing that diet? What is the common causes of failing a diet? How long after failing to diet do they try again? Why do some people succeed when dieting on the first try and never regain the weight, why some on the 5th try? why some never? The economy acts just a person trying to yo-yo diet but it's 300 million people making and losing money instead of fat (well also fat).