IBM Stops Buybacks to Pay for Red Hat • Hacker News Board

Re: IBM Stops Buybacks to Pay for Red Hat

#21

Post by lbotos » Sat, Aug 10, 2019, 3:58 PM UTC

gridlockd wrote: post #5

What laypeople need to realize is the following relation: Low federal funds rates allow companies to acquire huge amounts of debt very cheaply. Huge amounts of cheap debt allow companies to buy lots of stock, driving up prices. Stock prices inflated in such a way are not supported by fundamentals and so the downside risk greatly increases. Once the downside eventually materializes, markets drop violently. At first, t…

I, lay person here, to see if I get it:

> Huge amounts of cheap debt allow companies to buy lots of stock, driving up prices.

> Stock prices inflated in such a way are not supported by fundamentals and so the downside risk greatly increases.

The price is driven up by "demand" but the demand is not "real" because it wasn't due to the business actually _innovating_ but actually just "stock changing hands"?

> Once the downside eventually materializes, markets drop violently. At first, the FED ignores this, but eventually it bails. The funds rate is once again lowered, so the game can continue.

When/how does that happen?

> All of this causes massive asset price inflation.

There is no way for it to "not" right? It's sort of like measuring volume of action, but the action didn't actually produce any real "value"?

> The CPI doesn't immediately reflect this kind of inflation, so the FED gets to claim "there is no inflation" and everything is "just fine". Well, it's not fine and they know it, they just can't really do anything about it.

Is there a better measure that _does_ reflect it? It sounds like it can be modeled with corporate debt / buyback on a graph?

Again, layperson here, hoping to learn stuff.

Re: IBM Stops Buybacks to Pay for Red Hat

#22

Post by streetcat1 » Sat, Aug 10, 2019, 4:00 PM UTC

orev wrote: post #18

streetcat1 wrote: post #14

Earlier quoted context omitted.

There is nothing to drag. A single server distro is becoming irrelevant as the unit of computation resources is the kubernetes cluster. I.e. all the app see is a set of kubernetes nodes, it does not really care what server disto you are running on.

You do realize that those containers eventually need to be hosted somewhere , right? That somewhere is a server running an operating system. Containers are more a threat to virtual machine OSes than ones that host containers.

Right. All I need from a node is the CPU / Memory and a docker daemon. The less I know about an OS or any other services / patches, etc the better. I.e. I want my nodes to be cattles.

Re: IBM Stops Buybacks to Pay for Red Hat

#23

Post by o-__-o » Sat, Aug 10, 2019, 4:01 PM UTC

orev wrote: post #18

streetcat1 wrote: post #14

Earlier quoted context omitted.

There is nothing to drag. A single server distro is becoming irrelevant as the unit of computation resources is the kubernetes cluster. I.e. all the app see is a set of kubernetes nodes, it does not really care what server disto you are running on.

You do realize that those containers eventually need to be hosted somewhere , right? That somewhere is a server running an operating system. Containers are more a threat to virtual machine OSes than ones that host containers.

So why run a full os for container runtime? Wouldn’t a hypervisor be more efficient? What is the point of red hat at that point

Re: IBM Stops Buybacks to Pay for Red Hat

#24

Post by jnordwick » Sat, Aug 10, 2019, 4:03 PM UTC

gridlockd wrote: post #5

What laypeople need to realize is the following relation: Low federal funds rates allow companies to acquire huge amounts of debt very cheaply. Huge amounts of cheap debt allow companies to buy lots of stock, driving up prices. Stock prices inflated in such a way are not supported by fundamentals and so the downside risk greatly increases. Once the downside eventually materializes, markets drop violently. At first, t…

The overnight rate does not effect real long term rates, they are fucking inverted. Real rates are set by return on capital (plus inflation for nominal rates) in the long end. Pensions and retirement funds are only affected by the overnight rates in so much they use hold short term reserves as cash equivalents.

> Stock prices inflated in such a way are not supported by fundamentals

Inflation - what your describing, more dollars chasing same production - is a fundamental factor and doesn't affect rate of return in the time scales you are talking about.

> All of this causes massive asset price inflation. Stock prices are detached from actual revenue,

No, then there would be an arbitrage opportunity (if you so easily see it obviously the smart, deep pocketed money would see it too). Stock prices are still set by future income streams but now that is nominally pumped by inflation so they are bid up. Since equity prices are forward looking their prices rise faster than the backwards looking cpi.

There really isn't a lot of extra dollars sloshing around though. All the forward looking indexes of inflation are down: commodity crb index, metals index (including gold), tips spreads - all down in the last six months.

Re: IBM Stops Buybacks to Pay for Red Hat

#25

Post by chr15p » Sat, Aug 10, 2019, 4:03 PM UTC

_delirium wrote: post #6

mrtksn wrote: post #4

Can someone explain why Red Hat is so valuable? Why would IBM put such a big bet?

The general strategy seems to be: IBM's customers have been slowly transitioning from proprietary IBM OSs (AIX, z/OS) to Linux for a lot of their workloads, and IBM has accommodated this out of necessity, but wants to retain licensing revenue and some degree of branding/control in that situation by having such customers on an Enterprise IBM Linux. RHEL more or less already owned the Enterprise Linux space, so IBM jus…

Other way round, IBM are hoping that a lot of their customers who aren't already big Red Hat customers can be converted to using RHEL and (especially) Openshift. They already have all the sales and delivery relationships in place that they need to do really big (like 100 million to billion dollar big) deals, much bigger then anything Red Hat has been able to sell on their own. They also have relationships to sell RHEL/Openshift to IBM customers that RH struggled to get through the door of. So if they can get big growth in the number and size of Red Hat deals by selling to their existing customers then they can grow RH massively and of course all growth in Red Hat deals is growth in IBMs profits.

And if they can sell some of them RHEL on POWER9 they will be very happy to take that money as well :)

Re: IBM Stops Buybacks to Pay for Red Hat

#26

Post by streetcat1 » Sat, Aug 10, 2019, 4:05 PM UTC

lbotos wrote: post #21

gridlockd wrote: post #5

What laypeople need to realize is the following relation: Low federal funds rates allow companies to acquire huge amounts of debt very cheaply. Huge amounts of cheap debt allow companies to buy lots of stock, driving up prices. Stock prices inflated in such a way are not supported by fundamentals and so the downside risk greatly increases. Once the downside eventually materializes, markets drop violently. At first, t…

I, lay person here, to see if I get it: > Huge amounts of cheap debt allow companies to buy lots of stock, driving up prices. > Stock prices inflated in such a way are not supported by fundamentals and so the downside risk greatly increases. The price is driven up by "demand" but the demand is not "real" because it wasn't due to the business actually _innovating_ but actually just "stock changing hands"? > Once the d…

You will not see market dropping or any sudden move. Basically there is no alternative to risk (the riskless rate will drop below 0) . There will also be no inflation (maybe deflation due to the increasing part of software in products)

Re: IBM Stops Buybacks to Pay for Red Hat

#27

Post by Jabbles » Sat, Aug 10, 2019, 4:06 PM UTC

criddell wrote: post #20

gridlockd wrote: post #5

What laypeople need to realize is the following relation: Low federal funds rates allow companies to acquire huge amounts of debt very cheaply. Huge amounts of cheap debt allow companies to buy lots of stock, driving up prices. Stock prices inflated in such a way are not supported by fundamentals and so the downside risk greatly increases. Once the downside eventually materializes, markets drop violently. At first, t…

Are there buyback limits? Is it possible that company could buy all of it's stock?

This is known as "going private".

https://www.investopedia.com/terms/g/going-private.asp

One example is Dell: https://en.wikipedia.org/wiki/Dell#2013_buyout

Also see Elon Musk's infamous tweet about Tesla: https://en.wikipedia.org/wiki/Tesla,_Inc.#Securities_Litigat...

Re: IBM Stops Buybacks to Pay for Red Hat

#28

Post by koolba » Sat, Aug 10, 2019, 4:07 PM UTC

orev wrote: post #18

streetcat1 wrote: post #14

Earlier quoted context omitted.

There is nothing to drag. A single server distro is becoming irrelevant as the unit of computation resources is the kubernetes cluster. I.e. all the app see is a set of kubernetes nodes, it does not really care what server disto you are running on.

You do realize that those containers eventually need to be hosted somewhere , right? That somewhere is a server running an operating system. Containers are more a threat to virtual machine OSes than ones that host containers.

But the hosts no longer need the full distro stack traditionally provided by a RHEL. Just a thin enough veneer for a container runtime with live kernel updates.

Maybe there’s a market for intra container licenses but it’s a harder sell as even there the goal is to go slim.

Re: IBM Stops Buybacks to Pay for Red Hat

#29

Post by [deleted] » Sat, Aug 10, 2019, 4:07 PM UTC

criddell wrote: post #20

gridlockd wrote: post #5

What laypeople need to realize is the following relation: Low federal funds rates allow companies to acquire huge amounts of debt very cheaply. Huge amounts of cheap debt allow companies to buy lots of stock, driving up prices. Stock prices inflated in such a way are not supported by fundamentals and so the downside risk greatly increases. Once the downside eventually materializes, markets drop violently. At first, t…

Are there buyback limits? Is it possible that company could buy all of it's stock?

[deleted]

Re: IBM Stops Buybacks to Pay for Red Hat

#30

Post by jnordwick » Sat, Aug 10, 2019, 4:10 PM UTC

mruts wrote: post #10

gridlockd wrote: post #5

What laypeople need to realize is the following relation: Low federal funds rates allow companies to acquire huge amounts of debt very cheaply. Huge amounts of cheap debt allow companies to buy lots of stock, driving up prices. Stock prices inflated in such a way are not supported by fundamentals and so the downside risk greatly increases. Once the downside eventually materializes, markets drop violently. At first, t…

Absolutely spot on. Banks love inflation because it allows them to arbitrage between the CPI and the rest of the economy. Also the higher inflation, the more valuable a bank's services become.

What? Inflation means debtors make out comparative to creditors since they get to pay debt back in less expensive dollars. Banks are usually the creditor.