[HN Gopher] "What if your entire worldview was just because of n...
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"What if your entire worldview was just because of near-zero
interest rates?"
Author : antonomon
Score : 4 points
Date : 2022-12-11 19:09 UTC (3 hours ago)
(HTM) web link (novum.substack.com)
(TXT) w3m dump (novum.substack.com)
| dangus wrote:
| I think the article brings up too many separate concepts without
| sufficiently tying them together.
|
| One of the most basic concepts you have to accept to agree with
| the premise of the article is that the Fed kept interest rates
| low to transfer wealth to the wealthy.
|
| > After the Great Recession, the Federal Reserve instituted a
| zero or near-zero interest rate regime. The philosophy behind it
| was simple:
|
| > > The Fed's "strong and creative measures" would inflate stock
| prices, which would lead those holding stocks to feel wealthier
| and more confident, and then they'd spend a little more, and some
| droplets of this might trickle down to the people that are
| working in the real economy.5
|
| Of note is the fact that the citation for this quote is some
| random dude Wolf Richter's website. The guy's a former car
| dealership manager, and that's the extent of his financial
| background.
|
| A much less sinister and simpler explanation exists: high
| inflation rates are bad for pretty much the entire economy
| regardless of level of wealth. We already saw this in action in
| the 1970s.
|
| I also take issue with a lot of the numbered points in the
| article. These points seem to avoid the more nuanced multiple
| factors behind those specific developments:
|
| 1. Tech companies are flushed with cash because it's the highest
| margin business out there. There was no such thing as software
| company profit margins in the olden days of corporate behavior.
|
| 3. The buyback graph didn't show R&D spending decreasing at all
| or otherwise being impacted by stock buybacks. The cited HBR
| article doesn't directly link the lack of R&D expenditures to
| stock buybacks. Aren't there companies out there that have
| minimal R&D expenses? S&P 500 companies like Dollar General,
| Costco, Robert Half, and CBRE Group?
|
| 4. Isn't the biggest reason to link CEO pay to stocks to avoid
| personal income tax? That's just a tax efficiency issue.
|
| 5. Aren't there other reasons why Vanguard is popular besides the
| popularity of stocks in general? I always thought it was because
| the Boglehead ideology spread and Vanguard's low expense ratios
| proved to be attractive. I see this as "passive versus active
| investing" not "investing in stocks versus investing in something
| else."
|
| 7. Who says FIRE isn't productive? Where do you think those "tech
| companies flush with cash" got the cash from?
| s1artibartfast wrote:
| I never understood the negative attention stock buybacks have
| received relative to dividends. They do basically do the same
| thing, but nobody is offended when companies pay a dividend.
| salawat wrote:
| In a stock buyback, the investor only is made whole by
| "exiting" the stock. I.e., if that stock has voting rights,
| and you're more interested in being able to influence as a
| shareholder, you're left out of the "lifting of every risk
| sinker" when a company does a buyback. In fact, it guarantees
| that the amount of shareholder influence as a whole
| decreases, because if someone were to reacquire that share it
| would be more expensive now.
|
| Stock buybacks are basically attempts to shirk leashes,
| freeing execs/other shareholders from the ongoing influence
| of exiting shareholders.
|
| Dividends on the other hand, are straightforward returns on
| what was a commitment to sink risk. An ongoing source of
| income for the shareholder as a result of the company
| thriving. It's a straight up payment of a coupon off a bond.
| There is no need to exit/re-enter required. Your # of shares
| do not move. Therefore your relative investment stays as it
| was, whereas with the buyback, you're handing back your
| ongoing leash and influence on the company.
|
| Stock buybacks are therefore not equivalent in any way to
| paying of dividends. I don't know why this is so hard to
| understand.
| s1artibartfast wrote:
| If a company does a buyback, shouldn't you still have a
| higher percent control if you dont sell any of your
| holdings, and the same % control if you do sell the
| equivalent
|
| Imagine a company has 100 shares and I own 10. If they
| company buys back 50, the stock price will double, and my %
| ownership goes up from 10 to 20%. I can sell down to 10%,
| the same control I had before to take my profits.
|
| What am I missing here?
| antonomon wrote:
| The old economic world may be leaving us, but its pathologies
| stubbornly remain.
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