There is the famous Benjamin Graham quote, "In the short run, the market is a voting machine but in the long run, it is a weighing machine."
This article is trying to say "I think the stock market is broken because it should be a weighing machine at all times, including of factors that aren't being weighed".
That's a fine argument, but it's misunderstanding how the stock market has worked up until now.
It is an equity exchange where investors, tax payers, the Federal government, and the fixed income market subsidize stock buy backs and executive bonuses.
I'm joking but it is alarming how many resources we seem to be sacrificing for a meager 5-7% average ROI. We are trying to eliminate market corrections at the expense of ??? who knows. It's cheap capital for business that are probably creating too many services and products that don't add a ton of value to anyone's lives.
If I want to invest my money somewhere it will earn a return, what are my options?
Bonds, CDs, and other fixed income pay very little.
"What about a 50% crash?" people ask (about equity-heavy portfolios.) Given that the Fed has seemingly adopted an additional mandate of supporting equity prices (see: 2009, 2012, 2016, 2020), I don't think there's any political will for a sustained dip in equity prices; therefore, the most rational choice seems to be to invest into the market.
I feel like the NYT is no longer breaking big stories/going deep on little known things. Recently it feels so opinionated and not nuanced at all. Maybe I only think this because I disagree with a few of the most recent articles I’ve read, but I wonder if others agree with me (or not).
No matter how much qe the fed does , there will be no inflation. The money goes to banks and financial institutions. They do not spend it on real goods and services. Rather they implement financial tools to get higher roi. Thus too many dollars chase too few financial tools resulting in equity inflation (a rising stock market) The real market of goods and services is unmoved and as a result wages and prices are stable (stagnant). The fed only helps banks because they use a system designed in the 1930s. Back then before credit cards, internet banking, before the repeal of Glass Steagall, banks drove the economy by lending to people. (See ‘It’s a Wonderful 𝐋𝐢𝐟𝐞’) To move the economy, the fed has to put money into the hands of people who will spend it. Each taxpayer should get a fed account with a monthly stipend of fed-coin. Fed-coin will have a half-life to encourage people to spend it. Once spent its value will be fixed as it gets converted to regular dollars
The inflation after 2008 was low, and we pumped in a ton of cash in then. I don’t know how everything will end up, but I don’t think massive inflation is guaranteed.
The inflation was in assets, real estate, medicine, education, etc. Some consumer goods went down. Guess which the indexes count? This time they'll pump in an order of magnitude more cash.
Yeah real estate plays a huge role in financial markets and ROI-chasing and it has really blown up in value. That’s the main place the average person will feel it.
A continually decaying value would be complex to manage, but perhaps you could achieve a similar impact following a version of the approach used in Brazil to target runaway inflation. (please jump in if you know the details better than I recall) Prices and salaries were struck in a notional currency the Plano Real, but in daily life people used the Cruzeiro Real, and a daily price was struck for the conversion from Cruzeiro real to a Plano Real.
Fed bank accounts balances could be in Cruzeiro Dollars, with a weekly conversion rate published to Plano Dollars
What will happen, is the CEOs push up the stock prices. They get a nice payout in the millions of dollars. The upper management get nice bonuses, in the hundreds of thousands of dollars each, which adds up to millions in total.
Then, they start to buy things in the real world, like houses, or apartments. Or they invest in businesses that buys houses and apartments. This drives up housing costs, which drives up rental costs, which drives up the prices for everything else.
And there you have it. Inflation that eats up your paycheck.
You work hard to try to make more money on one hand, and society just takes the money out of your pocket while you’re not looking.
As a finance and stock market novice, it makes a lot of sense. Buybacks seem like one of the main contributors to the funneling of money from the working class to the ownership class.
Is there any way you can ”win”? Staying privately traded and owned?
It's just a more tax-efficient way of distributing dividends. Like how water tends to find the lowest point. Describing it in class-warfare terms is not necessarily helpful, as the poor were never participants.
It may not be intentional class warfare, but it has the same consequences. The rationale for lowering taxes was to make it possible for corporations to invest more and produce lots of better-paying jobs. Instead they took the money and invested it in stock buy-backs, which benefit only the stock-holders.
I mean, the mandate of a public company is _only_ to benefit the stockholders by increasing the stockholders' wealth. The question is whether they do that via growing the business or via returning money to stockholders. The choice to buy back stock just reflects the apparent lack of good investment opportunities in the market.
The question not if as a corporation they should be doing that, the question is if the tax cuts should have been passed when the corporations were not going to do what the tax cutters promised would happen.
That's opening a can of worms. Some corporations invested in new opportunities, some bought back stock. The ones which bought back stock presumably didn't see any profitable investment opportunities. In the absence of monopolies (an important caveat), profitable investment opportunities create value (the service is worth more to the customer than the price, and the supplier's cost of providing the service is less than the price). A company could pay one person to dig a hole and another person to fill it back in, and they'd be creating jobs but they wouldn't be creating value -- that money would be better spent paying them to do something that people actually wanted. When a company buys back stock, they're returning capital to their investors and essentially saying 'we're already doing all we can, your capital is better allocated elsewhere.' If the government steps in and forces companies to make investments that don't create value rather than return capital to investors to be allocated elsewhere, you've created an inefficient planned economy.
It's really much simpler than that. The people who pushed the tax cut said it would lead to a huge increase in companies making investments that would lead to more good jobs in the US, and it just didn't happen.
You have the ideological position that what investors do is always good for the country. It's not. Sometimes it is, sometimes people invest in things like bubbles that ultimately burst and damage the economy, sometimes they invest overseas in enterprises that take jobs away from the US, sometimes they waste money on investments that fail, very often the invest part of their money on lobbying to get rid of regulations that protect the public, and so on.
I am not saying investment is bad for the country. Often it is good, but it is not nearly as simple as you think it is, so you need to think things out on a case-by-case basis, and the gigantic tax cuts that the corporations and rich people were given was clearly wrong.
>The people who pushed the tax cut said it would lead to a huge increase in companies making investments that would lead to more good jobs in the US, and it just didn't happen.
Right, so are these the same people you want to have in charge of capital allocation? Because that's basically what it comes down to.
Yes, I think there are a lot of better things the government could be doing with that money, like building infrastructure, which is in bad shape in the US.
So the people who you don't trust to understand what the effect of a tax cut will be and/or to lie about it to benefit their rich pals are the ones you want directing the economy?
the problem with that thinking is that no revenue-generating investments are made that can allow the company to pay off the debt. It creates fragility in these companies because it assumes access to credit markets and/or bailouts.
I disagree. The good or great performance of the workers is rarely as well rewarded as the good ”performance” of a stockholder.
If I were to demand much better pay as a worker, I’d get treated as a squeaky wheel – making a big fuss and even greedy. Stagnated wages and record income inequality say a lot about which class is being rewarded for performing.
The original claim was that stock buybacks are a contributor to the problem. I said they're simply an alternative to dividends, which are not as vilified perhaps due to being older.
That management takes too much of the pie is a different issue, one that I agree with.
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[ 3.0 ms ] story [ 82.2 ms ] threadNow I ask "Who reads this sensationalist junk?"
This article is trying to say "I think the stock market is broken because it should be a weighing machine at all times, including of factors that aren't being weighed".
That's a fine argument, but it's misunderstanding how the stock market has worked up until now.
I'm joking but it is alarming how many resources we seem to be sacrificing for a meager 5-7% average ROI. We are trying to eliminate market corrections at the expense of ??? who knows. It's cheap capital for business that are probably creating too many services and products that don't add a ton of value to anyone's lives.
Bonds, CDs, and other fixed income pay very little.
"What about a 50% crash?" people ask (about equity-heavy portfolios.) Given that the Fed has seemingly adopted an additional mandate of supporting equity prices (see: 2009, 2012, 2016, 2020), I don't think there's any political will for a sustained dip in equity prices; therefore, the most rational choice seems to be to invest into the market.
https://www.nytimes.com/2019/07/11/business/stock-market-rec...
I feel like the NYT is no longer breaking big stories/going deep on little known things. Recently it feels so opinionated and not nuanced at all. Maybe I only think this because I disagree with a few of the most recent articles I’ve read, but I wonder if others agree with me (or not).
If you want unemotional summaries of what everyone else is covering, I really like NPR (they have written articles on npr.org)
https://www.npr.org/sections/money/2015/12/02/458222801/epis...
Is that some research paper? If not, have you considered doing real research on it?
Asset prices for stocks, and housing, will go up.
What will happen, is the CEOs push up the stock prices. They get a nice payout in the millions of dollars. The upper management get nice bonuses, in the hundreds of thousands of dollars each, which adds up to millions in total.
Then, they start to buy things in the real world, like houses, or apartments. Or they invest in businesses that buys houses and apartments. This drives up housing costs, which drives up rental costs, which drives up the prices for everything else.
And there you have it. Inflation that eats up your paycheck.
You work hard to try to make more money on one hand, and society just takes the money out of your pocket while you’re not looking.
Is there any way you can ”win”? Staying privately traded and owned?
You have the ideological position that what investors do is always good for the country. It's not. Sometimes it is, sometimes people invest in things like bubbles that ultimately burst and damage the economy, sometimes they invest overseas in enterprises that take jobs away from the US, sometimes they waste money on investments that fail, very often the invest part of their money on lobbying to get rid of regulations that protect the public, and so on.
I am not saying investment is bad for the country. Often it is good, but it is not nearly as simple as you think it is, so you need to think things out on a case-by-case basis, and the gigantic tax cuts that the corporations and rich people were given was clearly wrong.
Right, so are these the same people you want to have in charge of capital allocation? Because that's basically what it comes down to.
If I were to demand much better pay as a worker, I’d get treated as a squeaky wheel – making a big fuss and even greedy. Stagnated wages and record income inequality say a lot about which class is being rewarded for performing.
That management takes too much of the pie is a different issue, one that I agree with.