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  • Why This Is The Most Hated Bull Market Of All Time - Understanding The Folly Of Financial Engineering [View article]
    MI

    What Krugman predictions are you talking about that you say are spot on?

    JS
    Jul 27, 2014. 12:04 AM | 1 Like Like |Link to Comment
  • Why This Is The Most Hated Bull Market Of All Time - Understanding The Folly Of Financial Engineering [View article]
    Red

    "The money that goes into MMFs does not just lie there. As I stated, it is used to buy short-term paper. That short-term paper is issued by businesses to satisfy their working capital needs or by the government. So, the money does get spent by the government, business, or either’s employees if it is used to help meet payroll, It can then cycle around and go back into an MMF and again be used to buy more short-term paper. Rinse and repeat."

    Today that money supports the shadow system at various levels. It doesn't go significantly into commercial paper as in the past. It goes to fund the various stages of the credit transformation process that takes high risk junk debt and converts it into liquid assets. It then provides the short term financing for various versions of the carry trade in these assets as well as stocks.

    Big corporations are awash in cash and those that desire more find it in the shadow system as well. What makes these low grade investments work is short term funding and derivatives. Investors can engage in leveraged carry trades and buy puts through the derivative market that protect against downside risk - a least that is what they hope they are doing. We know that didn't work to well the last time they blew a bubble as those writing the puts weren't able to pay-off when called to do so - think AIG.

    The world has changed and not for the better.

    JS
    Jul 26, 2014. 11:52 PM | 1 Like Like |Link to Comment
  • Why This Is The Most Hated Bull Market Of All Time - Understanding The Folly Of Financial Engineering [View article]
    David

    I so hate it when readers extract one or two comments, take it out of context, and then label me a certain way or extrapolate a few words into something that goes well beyond my thesis.

    Some choose to take note of my comments on the Marx conflict and extend that to mean that I am a socialist/communist. Others take my position on capitalistic efficiency to skew things to their advantage and assume I am a democrat, a liberal, and a socialist.

    I am not those things. I am just a passionate researcher who is more than willing to look at the evidence, define the problem, and offer solutions.

    And the problem today is that too much of the money supply that exists is held by those who have no way to spend it. If they don't spend it to buy goods then we don't need to produce goods at the same rate. if we drop goods production then we lay off workers who then have no money to buy goods. It ends up getting worse and worse over time to the point where the whole system collapses on itself - a point we are very close to right now.

    You can cling to whatever belief you choose - Keynesian, Austrian, Classical, Marx, supply side, market based - whatever. There are elements in each school of thinking that are useful but none that is all encompassing. If unions were so strong that their collective bargaining power was enough that corporations couldn't make a profit then that side of the equation would be out of control and we would need to move the needle back the other way.

    And I would advocate for that if that was the case. Today that is not the case and so we need to move the needle the other way. Tax policy is just one way to do so and doesn't constitute the whole of my solution to the problem. Aggressive enforcement of anti-trust laws would be another area that would produce good results.


    JS
    Jul 26, 2014. 09:03 PM | 11 Likes Like |Link to Comment
  • Why This Is The Most Hated Bull Market Of All Time - Understanding The Folly Of Financial Engineering [View article]
    Alpha

    You mean Austrian school thinking on "malinvestment" resulting from low interest rates as one example. I think I did hit on that pretty thoroughly. Sorry I didn't assign credit.

    Consider that the article is rather long. I had to decide what not to elaborate on.

    JS
    Jul 26, 2014. 08:12 AM | Likes Like |Link to Comment
  • Why This Is The Most Hated Bull Market Of All Time - Understanding The Folly Of Financial Engineering [View article]
    You just did remind them and thanks.
    Jul 25, 2014. 04:39 PM | 1 Like Like |Link to Comment
  • Why This Is The Most Hated Bull Market Of All Time - Understanding The Folly Of Financial Engineering [View article]
    Stephen

    Agreed and I probably shouldn't have focused exclusive on the idea of higher taxes. The goal should be to create a balance between the capitalists and those that work for them.

    And to be fair, many of them do understand the problem. Buffet was attacked for his views on taxing the rich at higher rates but he was fine with it. Many are in fact OK with it.

    Zuckerberg gave away $1.5 billion in the last 2 years. Gates and Buffet are giving the majority of their wealth away too. These aren't bad people but the system is so skewed in their favor that no matter how much they give away, the money they do give away comes right back to them.

    My thought on high corporate taxes wasn't to get the corporations to pay money to the government as that isn't a solution. My thought is that they will choose to spend it rather than pay the tax and that is a good thing. Especially if they spend it on higher wages.

    I really like your suggestions Stephen.

    JS
    Jul 25, 2014. 04:21 PM | 1 Like Like |Link to Comment
  • Why This Is The Most Hated Bull Market Of All Time - Understanding The Folly Of Financial Engineering [View article]
    Stephen

    "I don't think taxation will lead us there. It has to come from within."

    Good luck with that. The management of these mega corporations are so focused on rewarding upper management through stock option bonuses that they are literally willing to spend all their cash to buy back their own stock to squeeze one more years worth of mega bonuses out of the publicly owned companies they manage.

    Somehow Ronald Reagan was sold the idea that if you lower taxes at the upper end of the scale that the wealth would trickle down to the lower end. That idea was a bust and those who advocated such nonsense now know it and acknowledge it.

    I am not suggesting taxation is the solution. I am suggesting that we need to do all we can to keep as much of the money we create through private and public debt creation circulating in the economy. As far as I am concerned we should abandon taxation all together and we could if we abandon the fractional reserve money creation system.

    But even if we did that how would we stop all the money from flowing to the wealthy except through legislation that forced publicly owned mega corporations to distribute profits in the form of dividends or to pay it through to labor.

    I am open to any suggestion that will solve the problem but think it more than a little naive to assume that these big companies and big banks have any sovereign allegiance at all. They are run as if they were private family corporations - not public companies, and our lawmakers seem to think that is fine.

    JS
    Jul 25, 2014. 03:39 PM | 2 Likes Like |Link to Comment
  • Why This Is The Most Hated Bull Market Of All Time - Understanding The Folly Of Financial Engineering [View article]
    ac

    It is indeed difficult to get out of the mindset that taxation is a bad thing. I've struggled with it myself. On the other hand if you understand the main thrust of the argument it should seem more clear.

    The point is this - we must expand money supply to accommodate increases in population, increases in productivity, and new products. The goal should be to keep all those who want to work in position to do so at close to their maximum potential capacity.

    For that to happen the money we create needs to move around in the economy in a way that creates reasonable money velocity levels. When we expand money supply to achieve these goals and all the money simply moves to those who already have so much that they can't spend it on goods and services then we end up with a version of the Keynesian liquidity trap.

    That dampens GDP growth (demand for goods and services) which results in a smaller labor force or a labor force working at levels substantially below capacity. That means that the consumer - the ones who will spend and drive growth - can't drive growth. That produces a reduction in demand that produces more lay-offs or reduced compensation levels.

    We have kept the consequence of this dynamic at bay by fiscal stimulus but the money we created simply moved into the hands of those who can't spend it. That dynamic will continue and we are stuck with more borrow and spend and higher debt, or in the alternative, a downward spiral as corporations lay off more and more workers.

    There is no solution to this except to figure out a way to balance the scale between the working class who spends money and the capitalists who don't.

    Taxation is only part of the solution. Aggressive enforcement of anti-trust laws that break up these massive companies would probably do more than anything else. The goal here isn't to punish the rich, it is to protect them from themselves. Eventually, based on the path we are on they will end up so undermining the consumer that there will be no one left to buy what they have to sell.

    And the solution can't be just more borrow and spend. It solves nothing in the long run.

    JS
    Jul 25, 2014. 09:41 AM | 3 Likes Like |Link to Comment
  • Why This Is The Most Hated Bull Market Of All Time - Understanding The Folly Of Financial Engineering [View article]
    MI

    Yes, and I plan to short all the way to the top and leverage positions aggressively all the way back down to the bottom. In hindsight, and lacking a crystal ball, I would have been well served to have been long but then the game isn't over - we are just in the middle innings now.

    What I know for sure is that my cash allocation is such that I can stay the course, and so I will be fine in the long run - much better than those long term investors that believe in the economic recovery spin. And probably better than those who think they can time the market.

    JS
    Jul 24, 2014. 08:27 PM | 4 Likes Like |Link to Comment
  • Why This Is The Most Hated Bull Market Of All Time - Understanding The Folly Of Financial Engineering [View article]
    Red

    Walmart is a high volume, low margin company earning roughly 3.3% on sales. They employee roughly 2 million people and the average pay is $27,000 annually.

    If they gave those employees a 10% across the board pay hike it would reduce their profit from 3.3% to 2.2%. Some would argue that they would just lay off employees but I doubt it as they are, by necessity, required to keep employee numbers at optimum levels based on their business model.

    In other words, they probably couldn't lay off many people. They could though recapture that loss by increasing sale prices by 1.1%. That would add 28 cents to a $25 pair of jeans. I doubt that the sale of jeans would fall appreciably by increasing the price 28 cents.

    Of course that would mean that those spending that extra 28 cents at Walmart wouldn't be able to spend it someplace else leaving GDP flat. However, those who received the wage increase would now have $5.4 billion to spend that they didn't have before (leaving this simple so forget taxes for now). Using the M2 velocity of 1.5, that would mean a GDP spike of $8.1 billion in the aggregate and Walmart is still making the same dollar profit they were before.

    That makes sense to me.

    JS
    Jul 24, 2014. 08:08 PM | 8 Likes Like |Link to Comment
  • Why This Is The Most Hated Bull Market Of All Time - Understanding The Folly Of Financial Engineering [View article]
    eagle

    Very good point as it relates to the shares being bought by those who won't ever sell them as it relates to corporate buybacks. Of course the market moves based on the float, not the stock held in the hands of those who won't sell at any point.

    So, with that in mind what happens if we print a minus 2 on GDP for the first estimate of the 2nd quarter? What happens to those float shares at that point? Do you really think market makers, corporations, institutional investors, etc. will welcome a recession sell off as an opportunity to just buy the dip? More important, what happens to those who own shares using leverage?

    I'm not sure so just asking - not trying to make a point.

    JS
    Jul 24, 2014. 06:42 PM | Likes Like |Link to Comment
  • Why This Is The Most Hated Bull Market Of All Time - Understanding The Folly Of Financial Engineering [View article]
    Jack

    The corporations - those that are left - have more cash than at anytime in history. That cash is doing nothing to drive GDP growth which drives top line sales which drives profits. And with each passing day they get more cash they can't spend.

    The idea that we have a high corporate tax rate on public companies relative to the rest of the world only means that the rest of the world is in a lot more trouble than we are and we are in a lot of trouble. That is true by the way - the rest of the world is in more trouble than we are in many respects.

    If the we don't do something to correct this imbalance the rich will end up with all the money and have no one left to buy the goods they would like to sell. That is a fact - not a theory.

    If we were to raise taxes on mega corporations what would be the worst thing that could happen and the best. The best would be that they decided that it made more sense to pass profits through to workers than to hoard the money. That would be a good thing in that those receiving the income would spend it keeping the demand for goods up and these companies in business.

    On the other hand if they just shut the doors and said they weren't going to do business anymore - which they wouldn't do - then smaller companies would spring up to fill the demand. That would be an even better outcome in that small businesses could thrive again.

    Again, I am weary of the nonsense that suggests we will somehow be harmed by such a move. It is just not true and nothing more than propaganda. We would be a lot better off with a lot of small companies and small banks than we are today.

    JS
    Jul 24, 2014. 06:18 PM | 3 Likes Like |Link to Comment
  • Why This Is The Most Hated Bull Market Of All Time - Understanding The Folly Of Financial Engineering [View article]
    hybrid

    i certainly hope that isn't the case. There are so many good solutions for solving these problems. Unfortunately our political class does succumb to those with the money.

    I love capitalism and understand why it is the best system, without exception, but it fails to be that when it is allowed to operate without constraints. It is not unlike a good thoroughbred race horse. They are bred to run and will do so to the point where they hurt themselves so bad they need to be put to sleep if the jockey keeps spurring them on. It is the jockey's role to rein them in before that happens.

    The same applies to the political class. They are the only group that can implement laws that keep the capitalists from killing the system and themselves in the process. But just like the bad jockey who keeps spurring the race horse, our politicians keep spurring the capitalists by giving them whatever they ask for.

    Hopefully they will wake up and see what they have done before it is to late.

    JS
    Jul 24, 2014. 05:31 PM | 4 Likes Like |Link to Comment
  • Why This Is The Most Hated Bull Market Of All Time - Understanding The Folly Of Financial Engineering [View article]
    Global

    You said:

    "You make the same argument that progressive liberal economists make; tax rates don't affect investment decisions! My belief is that high tax rates are retarding business investment, especially small companies that normally create the most jobs."

    You make my point although I don't think you realize it. I am not talking of small business tax hikes. In fact I think policy should do all it can to prevent big business from completely eliminating small business.

    If Walmart were broken up into a 1,000 small companies doing $26 million a year in sales it is likely the number of people employed per dollar of sales would double even though the total sales volume in the aggregate would be the same. That means a lot more money in the hands of those who would spend it to drive growth.

    And nobody I know of is arguing for what I am arguing for so don't be to quick to slot me. I think the most egregious mistake made by our political class is the failure to enforce our anti-trust laws that has allowed these huge international companies to destroy small business. The same applies to community banks. They have systematically been swallowed up by the big banks.

    In just a few short years we have expanded money supply by $10 trillion through deficit spending designed to keep the demand for goods and services high for these huge conglomerates. The effect is that all the money we borrowed flowed through to these companies and they don't have anything to do with all the money except buy back their own stock at all time highs. They sure as hell won't make capital expenditures just because they have the money. They will only do so when demand requires it. They are capitalists after all.

    JS
    Jul 24, 2014. 05:17 PM | 3 Likes Like |Link to Comment
  • Why This Is The Most Hated Bull Market Of All Time - Understanding The Folly Of Financial Engineering [View article]
    Rigorous

    "They will invest heavily in automation and off shore in order to reduce costs."

    They've already done that. I don't fault capitalists and consider myself a capitalist but the truth is capitalists don't have a lot of benevolent blood coursing through their veins. Their goal is to exploit all things to their advantage and they have done so.

    And there is no such thing as a large cap domestic company anyway. Big companies see the world as their market and the world population as their work pool.

    I do get weary of the propaganda that suggests these companies will retaliate in some way if taxes are raised. Walmart is a good case in point - they can't use workers in China to sell goods in their stores in the US. And I doubt that GM, Ford, Toyota or any of the other car makers who have factories in the US do so because they have a sovereign loyalty that compels them to do so. They do so because it is the most efficient and cost effective way to build cars that will be sold in the US. Were that not so certainly Toyota would choose to build them elsewhere and import them to the US.

    JS
    Jul 24, 2014. 04:55 PM | 11 Likes Like |Link to Comment
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