Charles A. Smith

Charles A. Smith
Contributor since: 2010
Company: Fort Pitt Capital Group
Oh...OK. Find a company "bleeding money" and put your hard-earned savings into it, because you "value" a particular social outcome. We have those already..they're called "charities".
"This confirms that the renewal is a totally speculative asset of questionable value."
Understatement of the century.
"Economics is not morality"
But it does have a moral component. And the self-reinforcing wealth and political power which accrues to the establishment as a result of implementing "nominal" inflation IS immoral.
Also I said nothing about debtors being "bad people". In a just system, debtors could default and creditors would take the loss. Instead, we string debtors along with low-grade asset inflation. Creditors are made whole, while the people "managing" the process get wealthy by virtue of their political positions. Borrowing and lending are certainly moral acts. Rigging the outcome to benefit a few is not. The rising levels of popular anger which accompany the current economic malaise are exhibit A that it's not working.
"Your failure to understand how nominal inflation transmits real price declines is the conflation."
I fully understand how a longer term decline in real prices can be overlaid by nominal inflation. The problem is, I understand it TOO well. Well enough to know that the corrosive effects of this process on the values of thrift, entrepreneurship and industry more than offset whatever good might come from preventing money hoarding. Corrosive effect number one is the massive financial benefit that flows to the people lucky enough to IMPLEMENT this process. Exhibit A: the current lopsided financial gains accruing to people in Washington DC (the Fed finances a deficit with nearly free money and all the bureaucrats stick their heads in the trough) and New York City (the Fed purchases $ trillions in mortgage and Treasury bonds and all the bankers stick their heads in the trough). This while the publicly stated goal of these same policies (i.e.; steady 2% inflation) is to PREVENT the "transitory" real income gains accruing to everyday wage earners from collapsing energy prices from becoming permanent!
"I have no idea what point you are making about "skim.""
Maybe you do now.
I didn't say anything about the S&P. In January, stocks were within a few % of either side of fair value, IMO, depending upon the day. Stocks might not go anywhere this year. or end up down 5% or 6%. All I said was the economy will not get a lot worse.
I would agree. Energy & materials weakness metastasized to industrial beginning around Labor Day of last year. We've had a quick but very sharp inventory correction, and are now stabilizing. The folks who think this is 2008 all over again are out to lunch. The financial system is night and day better shape, and eventually lower oil is really going to benefit consumer.
No, YOU are conflating real and nominal prices. I've been speaking of the real value added by innovative entrepreneurs, and the benefits that flow through to consumers via falling real prices as a result of said innovations.. I used George Mitchell's fracking as my example. You, on the other hand, are referring to nominal (i.e. "named") prices which are controlled (mostly upward) by bankers and bureaucrats. Besides funding cushy lifestyles for bankers and bureaucrats, you say this artifice has the purpose of "goading" people into spending more than they otherwise might, at least in the short run. This in the name of "protecting" them from their own propensity to save. It sounds more like money illusion or theft to me. Other than demonstrating a mechanism whereby said bankers and bureaucrats can more clandestinely skim some portion of the value added by the free marketplace (taxes and straightforward positive real rates are way to transparent and politically difficult), you've not demonstrated that this skim adds any real value to the system over time. Obviously I would argue just the opposite.
"Deflation is bad...It reduces demand,..."
Right.
"Taxes reduce the thing there's too much of. In scarcity, that's money; in abundance, that's goods. What could be easier to understand?"
Here's what's easier: LOWER PRICES reduce "the thing there's too much of", as supply and demand both react to clear the market. Taxes/spending/government don't have to be part of the equation at all. Of course, once government, public debt (and the banks which facilitate it) become a large and powerful enough part of the economy to PREVENT this dynamic (we MUST have 2% inflation, said the Fed!) in order to protect their own interests, dynamic growth is over, and the entrepreneurial/middle class is lost. Case in point: the economic benefit to the average consumer from the fracking revolution and lower energy costs could (and may still be) one of the most significant in recent years, yet it is poo-pooed and thwarted at nearly every turn by government.
"And what makes you think anyone is proposing that taxes be raised to such heights?"
EK1949: "As for the need, TAX IT BACK to find out what the need is. Of course you can't, you get a depression..."
EK1949 was suggesting that we "tax back" the entirety of the public debt. Of course this would be depressionary.
What exactly is "financial savings"? There is only debt or equity. Debt can be short term (cash) or long term. And when you raise taxes high enough (no matter for WHAT purpose), you always get a depression. I'll take your "word" when it creates a logical construct that comprehends basic human nature.
"In order for there to be net private savings, for the private sector to save in the aggregate, there must be liabilities corresponding to those assets..."
Not at all. Those NET assets could consist entirely of equity, and there is no need for public debt. For transactions purposes, private banks could (and did) issue currency as well. No matter how hard you try, you cannot reach the convoluted conclusion that public debt is the driver of the economy. It's just silly.
"It taxes dollars, and if it didn't tax less of them than it creates we wouldn't have any."
Come again? It has to first EXIST to be taxed...end of story. The rest of the sentence is some of the most convoluted garbage I've ever seen. Yes, a "private surplus" (people's savings) exists. Government borrows some of these savings when tax revenues do not match expenditures. The OPPOSITE process, by which somehow economic activity happens, and net "new" savings is created BECAUSE government debt exists is a complete non sequitur. The savings are THERE IN THE FIRST PLACE. They may not be being utilized in the way that the economic overlords wish at any given moment.
"Now you may argue that was done with tax revenue..."
Hello? Built with debt capital (in this case public), but PAID FOR by the private sector, as is EVERY investment ever made. Whether we were "running a deficit" at the time is completely immaterial. If this is not a basic truth, we can all stop writing checks to the IRS every April. No way around this one Dana...
"Public debt creates the private surplus we need."
A public entity never created anything. It only taxes what is first created by others. Yes, government can just as readily bring money/debt into creation as the private sector, but no government ever brought economic value into creation. It must rely on private enterprise for that, which it then taxes. You have economic value creation exactly backwards.
"It's the private side that is dangerous, even though some people don't discriminate between them because they think debt is a big blob of badness."
How are public debts any less "dangerous" than private? Any debt which is too large to be serviced by future cash flows is dangerous. Just because central banks can (for a while) create the cash to service said debt doesn't make it less dangerous. I would argue that it is MORE dangerous, because it represents a hidden form of theft from savers.
"I find it amusing the debt alarmist are out in full force on an article about deflation."
Why wouldn't they be? If sustained deflation exists (as you seem to believe it does), then it creates great risk that pre-crisis liabilities cannot be paid, let alone the additional trillions of dollars, euros and yen in liabilities added since.
"The point of this is that the importance of being emotionally comfortable with one's investment style is huge."
If you don't know who you are, Wall Street is a very expensive place to find out.
The company has $2 billion more in gains from the appliance sale for use in offsetting restructuring costs in oil and gas biz in 2016 than they thought a month ago - $0.20 per share. This will cover a lot of pain in O&G.
"PNC reported that more than half (55%) of its customers used non-teller alternatives (ATMs, online, etc.) for the majority of transactions in the fourth quarter..."
Demchak gets it on the technology score. He knows this number will be pushing 70% within 2 years, and branches will be cut accordingly. Legacy PNC has also been a leader in systems for corporate payments and cash management, and they aim to be the same at retail with their investments/interest in clearXchange and blockchain. The expense ratio is headed lower.
You're basically saying that socialism is the future, because capitalism created it.
"History suggests that we will not make the transition gracefully, if at all."
Of course we won't, because the world doesn't function at the macro level. The "transition" to abundance (as you blithely call it) isn't in any shape or form a "macro" phenomenon. It is not engineered by some group on high, nor is it built by bureaucratic hand waving. Instead it is created by individuals executing their ideas via real work. And the people who create this abundance have a limited interest in paying for the compounded mistakes of past cycles. The "claims on future outputs" you speak of include significant claims on PAST outputs (executed at higher real cost levels, btw) that have been rolled, deferred and (only partly) inflated away. The Fed has $4.25 TRILLION of such claims on its own balance sheet, for goodness sake, equal to about 24% of GDP! What did we get for this "investment", other than a nation full of overpriced bankers, bureaucrats and real estate? The people who issued and purchased these claims are NOT the same people who will be responsible for creating the wealth to pay them, so of course the "transition" to abundance cannot happen gracefully.
"When the debt can't be sustained you write it down or write it off."
But this has decidedly NOT been the policy choice of politicians and central bankers around the world. Instead, the PRINT, PRAY and DELAY mode has been the choice, so the problem gets ever larger. Markets can see this, and risk taking (other than the "endorsed" investment of share buybacks made safe by QE) tanks. There is no easy way out. Let the deflation happen; reset the system and move on. Otherwise we're all Japan.
Abundance SHOULD be an unadulterated GOOD thing. An economy is best measured by how it treats final consumers, after all, and abundance should mean widespread lower prices for ALL consumer goods, driving up REAL wages. But because we have a massive debt structure that cannot be repaid (let alone paying the interest), even under the current price regime, prices are not PERMITTED to fall to market clearing levels. Instead, central banks, like Sisyphus, push the inflationary rock up the hill - all to protect the overgrown financial system.
All part of the 3rd party payer morass. Insurance cos. institute copays to short circuit moral hazard, and "specialty" pharmas (basically subsidiaries of the drug makers) pervert them. Great big game, with the object of getting between the payer and the customer to scrape $ billions. Regulators will forever be one step behind.
"When its thousands, its a bigger deal, and when it gets into the 10s of thousands it becomes a major revenue loser."
And NV pushed back the best way they knew how - by getting the politicians to change the rules. Solar lost this battle, but the war is far from over.
In the short run the question that matters is: Who has more political pull...the utes or the solar providers? Since the business model of the latter effectively bankrupts the former over time, the longer term question is already answered. Solar wins, but not without a lot of lobbying money spent in the interim.
Funny...GE's lighting biz, viewed as an "orphan", is one of the largest and fastest growing LED cos. on earth.
You're kidding, right? We've already seen the "writedown" more than 5X over! The value of the company is down $5.1 billion since the day this article was written.
Absolutely. The premise of this article is flat wrong.
25 years ago an investor could focus on market dynamics (product features, supply & demand, management aptitude, etc.). Now it seems the regulators call the tune in one industry after another. Crony capitalism is everywhere.
2.15 billion shares tendered...proration is ~ 31%