Shareholders Unite

Small-cap, macro, value, momentum
Shareholders Unite
Small-cap, macro, value, momentum
Contributor since: 2008
Company: Shareholdersunite
Thanks ubihlee, I'll have a look
[""The world economy is plagued by excess savings" I don't think so. Interest on savings is awful. "]
You just know that off hand, right? No need to look at the figures, or even read the article carefully (which would have revealed that it is savings relative to investments that is the topic here, not savings in isolation).
["I do not think its a Central Bank balance sheet problem"]
I've not been clear enough because this is a misunderstanding. When I talk about balance sheet problems, I'm not talking about the balance sheets of central banks, but those of public and private sectors and occasionally about commercial bank balance sheets.
Overstretched balance sheets leads to less willingness (or even ability) to borrow and spend, and it renders monetary policy near powerless.
It's quite another question how we arrived in this situation. The Austrians say it's all the fault of central banks but for me they are not the main responsible. I believe we have created a sort of Frankenstein financial system with misaligned incentives and overleveraging as the norm.
["One thing that I think is definitely lost on a lot of the American readers at SA is that they are likely part of the savings problem - these so called "job creators" that are really just wealth hoarders. And, yeah, I am probably one of them (on a very small scale)."]
Start spending! :)
Thanks, change.
Actually the diagnosis, so to speak, is a little more broader than just a balance sheet recession. Whilst many balance sheets are undoubtedly very stretched, the problem is broader, it is a world savings glut and stretched balance sheets are only one contributing factor (although probably the main one, in my opinion) contributing to this.
But like you, I see several structural problems which, in the confines of a single article, which theme is that central banks cannot fight this, I cannot deal with. I also see finance as having large dysfunctional characteristics, as well as the corporate governance system. Both have not been conducing to fomenting the real economy and one might be positively a drag on it.
But since central banks can do little about these either, they're not included in the article.
You just say these things without any substantiation.
The reality is simply that the uninsured rate has plummeted since ACA by 16M.
You might also want to keep in mind that uninsured people still get ill, and still go to medical facilities like emergency rooms. Who pays for that?
It's much better to insure them so they don't only go when its too late and use preventive care as well. Keeps cost down and, more importantly, people in better health.
I've also told you already and substantiated that, that since ACA healthcare cost have risen much slower, but you keep arguing the contrary, without any substantiation.
The rest is just your simpleton bumpersticker level. By now, I already know you hate govt...
And that hate is so deep that any fact that might contradict that is simply ignored, the definition of an ideologue..
You keep repeating this, it doesn't therefore become true.. and ignoring stuff like:
- The rise in healthcare cost has actually moderated since ACA (see links I provided above, which you keep ignoring)
- ACA has greatly reduced the number of uninsured and would have reduced that number further if all states would sign for medicaid expansion
- ACA has ended discrimination on the basis of pre-existing conditions
- People now can change jobs or start their own firms without having to worry about getting health insurance
Is it perfect? No, but certainly the benefits outweigh the negatives.
But I guess it will be back to the bumper stickers..
These are really not a replacement for economic analysis though.
Actually Sanders wants to change the US into Denmark, which happen to work pretty well.
I understand it's not for all, especially Americans, but you can't say it doesn't work. It clearly does.
I know, I know, you are more comfortable with bumper sticker slogans..
[This is an ECONOMIC argument? Seriously?"]
No it isn't, but as arguments go, it's a pretty good one nevertheless.
[""The power to taxis the power to destroy" If that's not a moral dilemma then what is ?"]
I don't really have much use for this kind of bumper sticker approach to economics..
["The ACA is a Tax even if you don't accept that fact . It will be our largest tax ever,and particularly unfair to the poorest people in America."]
1) I never argued it isn't a tax..
2) I just showed you it has come much cheaper than anyone expected
3) The poorest get subsidies, or can be on medicaid, at least in those states that haven't bumped this.
You are just saying stuff, without any substantiation whatsoever. When I show you you're wrong, with substantiation, you simply repeat them and call me a liar.
["Stop, please stop with your attempt to make conservatives to be bad people."]
I made an economic argument, not a moral one or political one.
There was a guy arguing that Obamacare produced the largest tax increase ever. He didn't substantiate and it's simply not true.
That's all I did.
And believe it or not, I wouldn't vote for Sanders. He wants to change the US into Denmark. While there is actually little wrong with Denmark, I know it's not what many people in the US want.
A am far more OK with conservatives on a political level, but as soon as they argue economic nonsense (that open letter to the Fed in 2011 comes to mind, or these wonderful tax plans of the conservative candidates), I call a spade a spade.
It's ok for me what you just argued, that you want a smaller state, really. No problem, as long as it is in the name of liberty or something. It's a political philosophy.
But don't argue that there is some really compelling economic rationale for it, because then I will have to call it out, as there isn't. Not in the US at least.
In fact, what I want is some diversity, as I look at the world as a sort of open air lab, to see what collection of institutions work, and which don't.
And don't call me a statist. I really do not have any desire for an ever larger state, not out of economic logic and neither out of any political ideals I might have.
I am a market loving economist, but unlike some here, I am familiar with the fact that markets are not the solution for every problem under the sun, and that they can also fail under certain circumstances. There is really an extensive literature on that and what so often strikes me is that those who are most in love with free markets are least familiar with it.
["THEN gave America the largest tax increase ever. it's called the ACA TAX. You won't even be able to calculate how much it cost us."]
I don't have to calculate, others have:
["In January 2010, the Congressional Budget Office projected that the federal health spending would total a bit more than $11 trillion between 2011 and 2020.
Today, the Congressional Budget Office thinks it made a mistake. Costs are coming in lower-than-expected, and the CBO's newest projectionssuggest the federal government will spend $600 billion less on health care than they predicted back in 2010.
So far, so good: projections are always wrong by at least a bit, and it's nice to have the extra $600 billion in America's pocket.
But here's the incredible thing: as Paul Van de Water, a health care expert at the Center on Budget and Policy Priorities, points out, the January 2010 projection didn't include any of the spending associated with Obamacare. The latest projections include all of the spending associated with Obamacare."]
["Reducing overall health-care costs. Obamacare actually had two different fiscal responsibility goals. The first was simply to offset the cost of new coverage with a combination of spending cuts and higher taxes — which, according to the Congressional Budget Office, it did. The second, more ambitious goal was to change the incentives that made doctors and hospitals eager to charge more money regardless of its effect, and that gave people who pay for that insurance little means to shop for better deals. Obamacare’s architects hoped that, on top of merely paying for the cost of new coverage, they could “bend the cost curve” downward.
When the law passed, conservatives insisted it would increase rather than decrease health-insurance costs. (Esteemed conservative intellectual Yuval Levin, in 2010, insisted it “completely fails” to reduce overall health-care spending.) Since the law passed, health-care inflation has fallen to historically low levels. Conservatives have repeatedly insisted this was a blip that would soon be reversed, and seized upon any apparent evidence for this case. When health-care spending spiked in the first quarter of 2014,Megan McArdle announced vindication: “After all the speculation that Obamacare might be bending the cost curve, we now know that so far, it isn’t.” (It turned out the first-quarter spike in health-care spending was a preliminary miscount that has since been corrected.)
Also yesterday, the Centers for Medicare and Medicaid reported that health inflation in 2013 not only remained in, it fell to the lowest level since the federal government began keeping track"]
["Insurance competition. Obamacare is based on an old Republican plan, developed by the Heritage Foundation and first tried by Mitt Romney, whose central feature was market competition. The animating premise was that forcing insurance companies to lure customers on an open, regulated marketplace would bring prices down.
In all fairness, liberals did not place much faith in this dynamic. They didn’t accept a health-care plan that gave insurance companies a central role out of ideological conviction, but out of necessity — appeasing the industry, they calculated, offered them the only viable way to pass a bill through Congress. But the dynamic has turned out to work much better than expected. (The most natural ideological allies of the market function, conservatives, all committed themselves to the Republican Party’s totalistic opposition to every facet of the law.)
A new Kaiser Health News analysis released this week finds:
A surge in health insurer competition appears to be helping restrain premium increases in hundreds of counties next year, with prices dropping in many places where newcomers are offering the least expensive plans … In counties that are adding at least one insurer next year, premiums for the least expensive silver plan are rising 1 percent on average. Where the number of insurers is not changing, premiums are growing 7 percent on average."]
Like I said, you guys are obsessed with the size of the state and tax cuts for those that need it the least and give the least buck for the bang. All out of ideological, not economic imperative that completely blindsides.
["Just change the words Tax ,spend 'govt. provided' with the word CONTROL ,and you will see the end game of Keynesianism ."]
Conservatives are obsessed with "the state" and think that reducing it's size is the answer to most economic problems.
Therefore they think Keynesians must be the opposite, but this is simply nonsense, a projection of their own ideology.
Apart from the fact that Keynesianism does not equal liberalism. The first is an economic view, the latter a political one.
I might be seen as a Keynesian, but I'm certainly not obsessed with the size of the state. Why? Simply because I see a fairly wide margin in which countries still function pretty well. Countries like Sweden, Denmark, Germany, The Netherlands, while certainly not problem free, are fairly well functioning economies producing solid levels of economic well-being for many if not most of their citizens and that with a substantially bigger public sector.
But there are also countries functioning well with a substantially smaller public sector, like Switzerland, Taiwan, etc.
I think it's more the quality of the public sector that matters than its size (within certain limits), as do the quality of institutions.
If I'm obsessed with anything then it is with filling output gaps, not the size of the state. And I'm sure most Keynesians feel the same.
[""By definition liberals/Keynsians want more government spending. This increased spending comes from increased taxes and borrowing. Do you deny?"]
It really depends on the economic circumstances. Yes, more spending if there is a severe output gap, like in the wake of the 2008 financial crisis, especially under circumstances when monetary policy is relatively powerless (when there is a lot of deleveraging and interest rates are already very low).
No if the economy is close to full capacity and/or has bottlenecks and/or accelerating inflation.
Keynesianism is an economic view (and in the post 2008 circumstances, the only one which could explain, and even predict, rather odd phenomena, like giant public deficits and debts not leading to bond market crashes or rampant money printing not leading to accelerating inflation, currency "debasement" etc. etc.)
It's not a political philosophy, nor is it arguing for an ever increased state.
For example, here is a Keynesian arguing against misapplied Keynesianism:
Actually you have a fair point. If US isn't going to raise rates anymore, this provides pressure release for the yuan, but whether it is sufficient is anyone's guess.
["Well there you have it. The IMF, the handmaiden of the central banks, refuge of mediocrities, and instrument of Keynsian economics has declared that "rampant inequality hurts growth." Impressive. That settles everything."]
Here is why I call you an ideologue. Apart from identifying yourself as a conservative, which is a political, not an economic term, anything that doesn't fit into your scheme you don't inspect to look whether there is something of value here, but mock it and dismiss it off hand.
I give it to you that you're not as extreme in this as our Archie Bunker (whose analysis can be summed up by:
- US; free markets; good
- Europe; socialism; bad
- SU is European, so he's a socialist and therefore bad)
But still..
Whilst I am indeed a Keynesian, simply because it is a framework that best explained the post 2008 world (rampant money printing but no inflation, or currency debasement, or bond market crash as those conservatives writing an open letter to the Fed in 2011 had it, nor did huge public deficits and debts lead to spiraling upwards bond yields).
But at least I try to be open to things, like in the article where I deliberate on the negatives of high levels of debt, which isn't the first thing most Keynesians would look at. I might be a Keynesian, but I'm not bound by its limitations. I am aware that every perspective has its limitations (Keynesianism loses much of its value producing relevant insights when economies produce at full capacity, for instance. It also has a simple view if the financial system, and, as I implicitly argue above, isn't sufficiently sensitive to balance sheet issues)
["between SOE's and local government financing vehicles, you could easily be talking around 5 trillion in debt that is now not just non-performing, but will never be performing."]
I am aware of that, but they are actually reducing debt in dollars pretty substantially, which is part of the capital outflow.
Devaluation will not make a difference for yuan debt and will make life a little easier for many SOE's.
But agreed, there are no good options here.
["In addition to China's problems, I wonder when the Hong Kong dollar peg will collapse. Cannot be far off..."]
Haven't looked at that, but I suppose it's those property values..
[""And if they were so ineffective, why did obama permanently extend them for 99.5% of the taxpayers."
I don't know; maybe for the reasons he stated. Because it would have slammed a still fragile economic recovery? And because the bottom needed those cuts because they had not had growth in their incomes?"]
Because otherwise the stimulus wouldn't have gotten through congress.
Tax cuts will be helpful in Italy or France, but were ineffectual in the US 2009 (especially tax cuts for the rich) when it was in the midst of severe deleveraging, that is, much of it was simply saved.
Deleveraging means people saving, not spending more, and certainly not borrowing more (hence monetary policy being ineffectual) in order to repair balance sheets.
One can either led that run its course, but there are two severe risks attached to that:
- The process feeding on itself leading to ever reduced spending, incomes, worsening balance sheets, forced asset sales, increasing bad loans and ultimately bank failures. Even if that can be avoided it can turn into a slow-motion process:
- A huge and persistent output gap reducing the incentives to expand capital and slowly deteriorating future quantity and quality of production capacity.
Or you try to combat the deleverage. Not by monetary means, but fiscal ones, simply spend on stuff that is useful, like infrastructure, education, research. It:
- increases spending when all other parties are decreasing, so at least plugging part of the output gap.
- reinforces the supply side in and by itself.
Yes, devaluation will create big problems, but it's very questionable whether it can be avoided. Perhaps with ratcheting up capital controls, but even that will be taken as a sign of panic and will only create an urge to leave, and no capital controls are watertight.
If they accompany a one off devaluation with a credible restructuring of 'old China' (getting rid of excess capacity and non-performing loans at least to a meaningful degree), it might be making the best of a bad situation and calm fears.
If not, we wait for next month forex figures, currently reducing at $100B a month..
["Excerpt: “This chart shows shares of income and income taxes by quintile. Note that the bottom 40% is ACTUALLY GETTING MONEY (emphasis is mine).
[See chart in linked piece.]"]
You might have noticed I wrote exactly the same, go and have a look for yourself:
Slogans don't replace analysis, even the IMF, that old left-wing rag, has come to the conclusion that rampant inequality hurts growth:
["Twice in the 20th century we bail the sorry bastards out else there would have been annihilation. Their economies don't create jobs, have high unemployment and huge govt. bureaucracies that stifle freedom. No wonder they don't grow, but they can call us idealogues. They of course are not when they nominate such great leaders as Obama, Carter and Algore for Nobel prizes, statist, collectivists all, just like they are. They are great bureaucrats, terrible at creating new businesses."]
Is this you or Archie Bunker, or there might not be any difference, as both of you can only talk in stereotypes..
There are actually several well functioning economies in Europe that are innovative and have created as many if not more jobs than the US, but let those fact not interrupt your bubble..
Did you read up on the vast literature on market failures which you claimed is irrelevant even without being aware it exists?
["You claim these are market failures but all you do is claim that 1- mortgage borrowers were too stupid to know what they were doing, 2-Fannie mae ( which bought and sold trillions of mortgages) was too stupid too know what they were doing and 3-institutions which manged billions of dollars were too stupid to understand the MBS's they were buying.
Furthermore - you clearly do not understand how the mortgage market works based on your ridiculous description
1-a mortgage is a contract, it is not sold to the borrower"]
I'm aware a mortgage is a contract thank you very much, but these were then securitized into inscrutinizable tradable instruments.
You are not aware of a well known market failure called asymmetrical information.
Many people go to banks in the assumption that they know how creditworthy they are, after all, it is supposed to be a risk to the bank.
But not if they can get rid of that risk by conning another set of investors, after they have enticed borrowers with all kinds of sweetners, it's called predatory lending.
["I admire economic inequality. Why should the little red hen have to share the results of her initiative and efforts with the onlookers who did absolutely nothing?"]
Morals apart (the rest are not necessarily "onlookers"), there are very good economic reasons for not letting inequality running amok, and we've already seen some of these in action.
Median wages have been stagnant for four decades, household spending has only increased by:
- women taking jobs
- people taking two jobs
- and especially in the 2000s, people indebted themselves.
Pity no figures can be placed in comments, but savings rate for the bottom 90%(!) went negative around 2005.
Since these mechanisms have basically exhausted themselves we're stuck with the stagnant median wages and now also stagnant spending, whilst the gains are concentrated at the top, which is not invested sufficiently in the real economy exactly because the stagnant wages.
So it is distributed in the form of share buybacks and dividends (with payout ratios of over 90%, unheard off), concentrating even more income at the top (or leaving to tax havens), reinforcing the problem. Capitalism grinding to a halt..
And of course CEO-worker pay was like 10:1 or perhaps 20:1 in the 1960s, it's 400:1 now, but are companies better run, has society benefited? Do we have a better form of capitalism compared to the 1950s and 1960s? For a few, yes, but did I mention already that median wages have been essentially stagnant for four decades?
The point is simple that you need people to buy your products, if all of the gains from economic growth are concentrated at the top you need to pull tricks to pull that off, and we did that for a while, on credit, working more jobs, longer hours, etc. but the limits have clearly been hit there.
And if you don't have growing markets, you don't have much reason for investing, which is why investment growth is tepid even when companies sitting on record cash, raking in record profits, and capital cost are the lowest in five centuries.
And the funny thing is, we know from behavioural finance that that super high top pay isn't really necessary as an incentive:
- Do the Bill Gates or Steve Jobs of this world just work for the money? Would they have been better if they did?
- It's relative, not absolute pay that counts, beyond a certain level pay is a measure of status ("mine is bigger than yours") which means that you can cut everybody's pay in half whilst leaving incentives the same (and we know that because that was the world in the 1960s, when inequality was much less and the economy worked better for more people).
Executive pay is basically a collective action problem, people sitting in a stadium watching the football. One gets up to get a better view, others follow, and others have to get up because now they don't see much anymore and in the end everybody stands up and have the same view as before but everybody is worse off.
I know, I know, in your fantasy world of perfect markets such collective action problems cannot really occur, but in the real world they do.
And didn't you define yourself as a conservative above? That probably means you're going to vote for a candidate who wants to give these people who are already raking in almost all the gains from economic growth trillions of dollars in tax breaks, and expect economic miracles for that (you know, like the last time that was tried in the early 2000s) and of course it won't do anything to public finances, hahaha. Good luck to that..
My pleasure, thanks.
In my view, there was room for monetary financing some spending, as there was a large output gap and slack in the labor market, inflation was very low and growth moderate.
It would have given much more bang for the buck than QE, while reducing the risks.
How it is done is a technicality (that is either direct monetary finance or the way you suggest), I don't even care too much how it is called (monetary policy, fiscal policy, or both).
["We've been through this before. What matters is who BOUGHT the subprime mortgages. That is who provided the fuel for the crisis. Who cares who issued them? That's pointless."]
Actually, it isn't. What happened is really quite simple. Some financial institutions (the countrywides of this world) profited from information asymmetries on two markets.
First, they sold mortgages to people who could clearly not afford them, enticing them with all sorts of stuff (no downpayments, low rates the first years, etc.)
Then, these mortgages were packaged into inscrutinizable tradable instruments and sold, almost certainly to unsuspecting buyers, who thought they were buying triple A instruments.
Yes, Fannie and Freddie were among those unsuspecting buyers, but basically they were conned and moved in late to protect their market share, which was falling precipitously in this great con game.
There were of course those who profited three times from this con, they were also able to design the tradable instruments, sell them to unsuspecting investors, and then short them.
That's three market failures, but I know, in your universe that cannot happen. BY DEFINITION, and then arguing backwards from that.
And then you say this:
["And as 204427 points out above, the Recovery Act of 2009 involved credits not rates which had been the topic. A real economist would know the difference. If you're an economist, Starbucks are full of them."]
I mentioned tax cuts. I didn't specify whether these involved rates or credits, and I didn't even read 2004427 post, so another straw man. Almost half of the Recovery Act where tax cuts, while you argued none. Who cares whether they were rates or credits?
[" Only the debt increases under Obama can made Bush look reasonable."]
As it happens:
1) Most of the debt growth under Obama is a direct result of the 2008-9 financial crisis, a crashing economy is what produced most of the deficits
2) Since then, the deficit has been decreased from 10% of GDP to less than 3% of GDP, one of the fastest, if not the fastest declines in history.
3) Over the period, public spending as a percentage of GDP has only increased marginally and public employment has actually gone down (which is unprecedented as this has NEVER happened in any recovery).
Actually Europe is pretty diverse. But one thing we have less off is simpleton ideologues who start with the axiom that markets can NEVER be wrong, so EVERYTHING that goes wrong in society MUST be the fault of government, BY DEFINITION, and then always argue back from that assumption, no matter what the facts.
["CRA, Fannie Mae, and Freddie Mac were at ground zero in the housing debt crisis of 2008. "]
This is complete nonsense, it's simply a political point informed by simpleton ideology (the market MUST always be right and EVERYTHING that goes wrong MUST be caused by government, BY DEFINTION), not facts.
The CRA exists since the 1970s and it doesn't exist in places like Spain, Ireland where there were equal housing bubbles.
Fannie and Freddie were late to subprime and minor players, basically forced into the game:
["More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions... Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year."]
["From 2002-2005, [GSEs] saw a fairly precipitous drop in market share, going from about 50 percent to just under 30 percent of all mortgage originations. Conversely, private label securitization [PLS] shot up from about 10 percent to about 40 percent over the same period."]
GSE stands for Government Sponsored Entities, that is, Freddie and Fannie.
And then the Fed, should it have increased interest rates and throttle economic growth even in the absence of inflation and when growth was fairly moderate just because Wall Street couldn't contain itself?
Of course not.
If you say that, you assume that the Fed is able to identify bubbles way before they popped, while markets clearly could not, so this is actually counter to your ideology.
Apart from that, there is a much better alternative, some simple regulation to prevent such housing bubbles from happening (downpayments, relating mortgages size to income, putting brakes on financial sector leverage, etc.).
But of course, I understand, ideology informs that markets do not warrant regulation and that they're always right so we can sweep away these simple solutions..
["Capitalism died in this country when we bailed the banks out (probably with FDR actually). Risk taking is no longer incentivized and even frowned upon."]
The real error was made in letting the financial system leveraging up to such an extent that it became dangerously overleveraged, not the bail-out itself.the alternative (not bailing out the banks) would have been far worse.
We let a financial system develop where people could enrich themselves with one way bets, heads: they win, tails: all of us lose (one way or another, with bail-out, or even worse without it)
Herb, with all respect, I'm aware what he asked. Perhaps I wasn't clear enough in the answer, but what I meant was the financing coming from central banks, not the tax payer. Helicopter money, basically. But instead of pumping it into the financial system, where it does very little (and might very well be counterproductive), we could pump something into useful stuff into the real economy. Even a fraction of QE spending would likely produce way more traction.