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Capital Is No Longer Scarce

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Re: Capital Is No Longer Scarce

#111

Post by ChuckMcM »

ArkyBeagle wrote: post #101
ChuckMcM wrote: post #51

Earlier quoted context omitted.

I don't think you can look at a subset of capital expenditures and then conclude "capital is misallocated." You would have to look at all the businesses funded and see where the money is going. Also I would caution you about falling into the trap of confusing "valuation" with "capital". SnapChat might have had a $16B valuation but really only "allocated" a bit more than a billion dollars. If you subscribe to the 'too…

But we used to have a large number of $20-$40 million-per-year companies where people had decent jobs and worked. When that becomes a marque of a schmuck then we have a problem. I think some of these overvalued... frankly, Pet Rock companies aid and abet this. Don't get me wrong, WE are the problem here but the effects are not good.

I read this that you have a preference for a number of mid-cap companies which employ modest numbers of people at "decent" jobs. (decent in quotes because as a subjective description it's hard to pin down what a given individual considers decent and another individual doesn't).

The current economy supports a large number of those. And they provide steady employment for a large number of people. But often times in this forum (HN) companies providing jobs which are considered "CRUD" are not held in high esteem and so you don't hear about them. So perceptions can be biased as well.

I worry more about non-allocation when you can't get credit from banks and you companies sit on giant hordes of cash. That slows the economy down and makes it hard for new experiemental companies to get going.

Re: Capital Is No Longer Scarce

#112

Post by Retric »

ChuckMcM wrote: post #90
Retric wrote: post #68

Earlier quoted context omitted.

Risk adjusted ROI. The bond market is the classic example, if you look at the class of bonds paying 10% vs 2%. If your risks where in line with the 10% bonds, but the payouts where inline with the 2% bonds it's a low ROI investment. Now, looking ahead you don't know what the risks are. But, you can examine the ROI for 1990 investments and you can see which 2010 investments have already failed.

Ok, fair enough, but today's Risk Adjusted ROI is quite low. And comparing returns from a couple of decades in the past with current returns seems unhelpful to me. My point is that your standard has to be for your choices of the capital today versus historical returns. So if you compute for expected value of a million dollars sitting in a bond fund today, versus sitting in a basket of startups, are the returns less i…

PS: The 2/20 aka 2% management fee and 20% performance is the real killer. Huge VC funds are a great way for VC's to get rich so they are all about selling them. There are also a few back channels to do insider deals.

Re: Capital Is No Longer Scarce

#113

Post by danans »

lintiness wrote: post #79
ryandrake wrote: post #59

It's a sad situation. The world, in total, has more money than it needs, distributed to a wildly disproportionate few, who have no idea what to do with it, yet there are billions of people who suffer and struggle with issues that that money could solve. But "redistribution is bad", so we all just accept the status quo.

those few who have disproportionate capital consume and invest. they don't stuff the money in their mattresses.

This is true, but if you take Piketty's argument that historically the return on that capital is greater than overall economic growth, then labor, being primarily reliant on economic growth for increasing their wealth, never catch up to the capitalists.

Re: Capital Is No Longer Scarce

#114

Post by ArkyBeagle »

ChuckMcM wrote: post #111
ArkyBeagle wrote: post #101

Earlier quoted context omitted.

But we used to have a large number of $20-$40 million-per-year companies where people had decent jobs and worked. When that becomes a marque of a schmuck then we have a problem. I think some of these overvalued... frankly, Pet Rock companies aid and abet this. Don't get me wrong, WE are the problem here but the effects are not good.

I read this that you have a preference for a number of mid-cap companies which employ modest numbers of people at "decent" jobs. (decent in quotes because as a subjective description it's hard to pin down what a given individual considers decent and another individual doesn't). The current economy supports a large number of those. And they provide steady employment for a large number of people. But often times in thi…

I have seen a lot of mid-cap companies trashed by people trying to go for the brass ring.

There is absolutely nothing wrong with CRUD. It's all CRUD to an extent.

To your last sentence - yep.

Re: Capital Is No Longer Scarce

#115

Post by gozur88 »

joshuaheard wrote: post #46
badsock wrote: post #37

And yet there's a 50% tax break for capital gains in my country. What possible reason is there for such a massive subsidy for something that we don't need, other than corrupt influence on the political system by the wealthy to give themselves a tax break?

Letting you keep your own money is not a subsidy. That being said, labor and capital should be taxed at the same rate, there being no reason to distinguish them for tax purposes.

I think capital gains should be taxed at a lower rate because of inflation. Let's say I buy something (anything, really) and hold onto it for ten years. In that time the CPI goes up 20%. If I sell that thing I bought for 20% more than I paid I really haven't gained anything - the spending power I have after ten years is the spending power I had in the beginning.

Re: Capital Is No Longer Scarce

#116

Post by LyndsySimon »

tootie wrote: post #36
mohanmcgeek wrote: post #32

The article overlooks the sovereign debt. The world has a total sovereign debt of about 50 trillion. The Government bonds and their derivatives account for most of the difference between available capital and GDP. "Capital is no longer scarce" sounds very absurd. There will always be more people chasing limited resources and whenever less men (labor) are required for a task, the society directs that "capital" to eith…

But are they really chasing a limited resource? If investors think you're product is going to be profitable, you're virtually guaranteed to get funding. The only reason chasing capital is difficult is because that's frequently a hard sell. Lots of capital doesn't mean investors are going to throw money at losing propositions.

> But are they really chasing a limited resource?

Of course. There is not infinite value in existence, nor is there a means of creating value from nothing.

> If investors think you're product is going to be profitable, you're virtually guaranteed to get funding.

Well... this is always the case. The only difference is that as capital is more scarce, potential investors are more critical in their analysis of the product's potential.

> Lots of capital doesn't mean investors are going to throw money at losing propositions.

Right. As available capital approaches infinity, the expected ROI of ventures which obtain successful funding approaches zero.

This is an oversimplification of course - if an asset is deflationary, the limit is the rate at which the asset gains value; if an asset is inflationary, the limit is the rate at which the asset loses value (i.e., a negative rate). The mechanic holds true, though.

Re: Capital Is No Longer Scarce

#117

Post by zardo »

bko wrote: post #45
cryptica wrote: post #20

Misallocation is a massive problem. I think a significant amount of money is going into advertising, pointless startups, entertainment and social media. Basically, we are spending huge amounts of money getting numbed out of our minds instead of solving real fundamental problems. In general, I think it reveals a deeper problem about capitalism; none of us understand value anymore (we have more junk in our lives than w…

Why would a cure for cancer be a small return on investment? You're assuming that the only people who could enter the market and find a cure would be the current players who are profiting from the current treatment or some global conspiracy to keep the cure hidden. If someone were to discover a very effective treatment, they would surely profit nicely. Hepatitis C was recently cured, a brutal disease that affected so…

>If someone were to discover a very effective treatment, they would surely profit nicely.

That would depend on how much it cost them to develop the treatment, and how much money the patients can pay. It's not sure that it would be profitable.

Re: Capital Is No Longer Scarce

#118

Post by latencyarb »

vlehto wrote: post #4

High frequency trading gets shat on frequently. It's stupid. This is only a tool that evens out price differences across geological distance. If someone buys significant amount of AAPL stock in New York, the price goes up in NY. Then someone from London can profit by buying small amount of AAPL stock in London and selling it in NY. High frequency trading is this, but with very high speeds and lots of competition. Thi…

Latency arbitrageurs do not provide the value you claim they provide.

They consume liquidity by identifying that one individual is willing to buy at $10.02 at point A and one who is willing to sell at $10.00 at point B. These individuals would discover each other naturally in (literally) the blink of an eye; but HFTs pay to colo everywhere, they pay for 40Gb connects and ASICs. They pay for the fastest possible connections between those colos.

This means that instead of those individuals who truly create liquidity and who truly drive the market finding each other; the HFTs are able to wedge themselves into the middle of the transactions. This works because the NBBO system is slower than their systems. It works because of complex order types that benefit only HFTs (no actual investor requires a hide not slide... that's just a tool for HFTs to cut the line).

HFT does not create liquidity. It does not even out price differences. It is an entirely predatory tool to extract value that was generated by other, better men.

HFT is a place where self-righteous nerds pick everyone's pockets.

HFT is useless trash.

The only place I agree with you is that HFT-based theft, like car radio theft, is a relatively minor crime and one that is declining over time.

True market making is often algorithmic and automated, and it operates quickly. But it is completely different from the nonsense that is HFT.

Re: Capital Is No Longer Scarce

#119

Post by mohanmcgeek »

graeham wrote: post #60
mohanmcgeek wrote: post #32

The article overlooks the sovereign debt. The world has a total sovereign debt of about 50 trillion. The Government bonds and their derivatives account for most of the difference between available capital and GDP. "Capital is no longer scarce" sounds very absurd. There will always be more people chasing limited resources and whenever less men (labor) are required for a task, the society directs that "capital" to eith…

One man's capital (credit) is another man's debt.

Governments and corporations also take loans.

Re: Capital Is No Longer Scarce

#120

Post by HiLo »

CJefferson wrote: post #12
HiLo wrote: post #11

Earlier quoted context omitted.

>there are heaps of evidence >links to zerohedge credibility = destroyed

Whenever I see a discussion like this a HFT-supporter, like yourself, will usually come along and say that any links which are made to suggest HFT is bad are terrible (often the book flash boys is mentioned), but I never see any evidence of this terribleness, or alternative information sources. Do you have any?

Sorry, I'm on my phone, but you could start with "Trading and Exchanges" which is available on Amazon (really, any of the highly rated books on market microstructure are pretty good IMO). Also IMO, It would be helpful to use traditional market makers as a baseline when making any kind of comparison to HFT, and asking if it's really worse. For example, total HFT profits have declined from like $5 billion to a little over $1 billion per year, whereas vanguards fees alone allow savers to keep roughly $40 billion per year. There are also a multitude of interviews with large, institutional investors who are extremely sophisticated and who are arguably the main people affected by HFT activities, for example this interview with cliff asness of AQR, which manages $100 billion ++ in quant strategies. https://soundcloud.com/bloombergview/masters-in-business-aqr... I think he starts talking about it around the 30min mark.

Also, my own experience working on a trade floor as a source.

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