What if your entire worldview was just because of near-zero interest rates?
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Re: What if your entire worldview was just because of near-zero interest rates?
#2The old economic world may be leaving us, but its pathologies stubbornly remain.
Re: What if your entire worldview was just because of near-zero interest rates?
#3I think the article brings up too many separate concepts without sufficiently tying them together.
One of the most basic concepts you have to accept to agree with the premise of the article is that the Fed kept interest rates low to transfer wealth to the wealthy.
> After the Great Recession, the Federal Reserve instituted a zero or near-zero interest rate regime. The philosophy behind it was simple:
> > The Fed’s “strong and creative measures” would inflate stock prices, which would lead those holding stocks to feel wealthier and more confident, and then they’d spend a little more, and some droplets of this might trickle down to the people that are working in the real economy.5
Of note is the fact that the citation for this quote is some random dude Wolf Richter's website. The guy's a former car dealership manager, and that's the extent of his financial background.
A much less sinister and simpler explanation exists: high inflation rates are bad for pretty much the entire economy regardless of level of wealth. We already saw this in action in the 1970s.
I also take issue with a lot of the numbered points in the article. These points seem to avoid the more nuanced multiple factors behind those specific developments:
1. Tech companies are flushed with cash because it's the highest margin business out there. There was no such thing as software company profit margins in the olden days of corporate behavior.
3. The buyback graph didn't show R&D spending decreasing at all or otherwise being impacted by stock buybacks. The cited HBR article doesn't directly link the lack of R&D expenditures to stock buybacks. Aren't there companies out there that have minimal R&D expenses? S&P 500 companies like Dollar General, Costco, Robert Half, and CBRE Group?
4. Isn't the biggest reason to link CEO pay to stocks to avoid personal income tax? That's just a tax efficiency issue.
5. Aren't there other reasons why Vanguard is popular besides the popularity of stocks in general? I always thought it was because the Boglehead ideology spread and Vanguard's low expense ratios proved to be attractive. I see this as "passive versus active investing" not "investing in stocks versus investing in something else."
7. Who says FIRE isn't productive? Where do you think those "tech companies flush with cash" got the cash from?
Re: What if your entire worldview was just because of near-zero interest rates?
#4I think the article brings up too many separate concepts without sufficiently tying them together. One of the most basic concepts you have to accept to agree with the premise of the article is that the Fed kept interest rates low to transfer wealth to the wealthy. > After the Great Recession, the Federal Reserve instituted a zero or near-zero interest rate regime. The philosophy behind it was simple: > > The Fed’s “s…
I never understood the negative attention stock buybacks have received relative to dividends. They do basically do the same thing, but nobody is offended when companies pay a dividend.
Re: What if your entire worldview was just because of near-zero interest rates?
#5I think the article brings up too many separate concepts without sufficiently tying them together. One of the most basic concepts you have to accept to agree with the premise of the article is that the Fed kept interest rates low to transfer wealth to the wealthy. > After the Great Recession, the Federal Reserve instituted a zero or near-zero interest rate regime. The philosophy behind it was simple: > > The Fed’s “s…
I never understood the negative attention stock buybacks have received relative to dividends. They do basically do the same thing, but nobody is offended when companies pay a dividend.
In a stock buyback, the investor only is made whole by "exiting" the stock. I.e., if that stock has voting rights, and you're more interested in being able to influence as a shareholder, you're left out of the "lifting of every risk sinker" when a company does a buyback. In fact, it guarantees that the amount of shareholder influence as a whole decreases, because if someone were to reacquire that share it would be more expensive now.
Stock buybacks are basically attempts to shirk leashes, freeing execs/other shareholders from the ongoing influence of exiting shareholders.
Dividends on the other hand, are straightforward returns on what was a commitment to sink risk. An ongoing source of income for the shareholder as a result of the company thriving. It's a straight up payment of a coupon off a bond. There is no need to exit/re-enter required. Your # of shares do not move. Therefore your relative investment stays as it was, whereas with the buyback, you're handing back your ongoing leash and influence on the company.
Stock buybacks are therefore not equivalent in any way to paying of dividends. I don't know why this is so hard to understand.
Re: What if your entire worldview was just because of near-zero interest rates?
#6Earlier quoted context omitted.
I never understood the negative attention stock buybacks have received relative to dividends. They do basically do the same thing, but nobody is offended when companies pay a dividend.
In a stock buyback, the investor only is made whole by "exiting" the stock. I.e., if that stock has voting rights, and you're more interested in being able to influence as a shareholder, you're left out of the "lifting of every risk sinker" when a company does a buyback. In fact, it guarantees that the amount of shareholder influence as a whole decreases, because if someone were to reacquire that share it would be mo…
If a company does a buyback, shouldn't you still have a higher percent control if you dont sell any of your holdings, and the same % control if you do sell the dividend equivalent
Imagine a company has 100 shares and I own 10. If they company buys back 50, the stock price will double, and my % ownership goes up from 10 to 20%. I can sell down to 10%, the same control I had before to take my profits.
What am I missing here?
Re: What if your entire worldview was just because of near-zero interest rates?
#7Earlier quoted context omitted.
I never understood the negative attention stock buybacks have received relative to dividends. They do basically do the same thing, but nobody is offended when companies pay a dividend.
In a stock buyback, the investor only is made whole by "exiting" the stock. I.e., if that stock has voting rights, and you're more interested in being able to influence as a shareholder, you're left out of the "lifting of every risk sinker" when a company does a buyback. In fact, it guarantees that the amount of shareholder influence as a whole decreases, because if someone were to reacquire that share it would be mo…
Buybacks and dividends both return capital to shareholders. In each case, the board and management are making the conscious choice to return capital rather than reinvest in the business. Mostly because they don't have a good internal investment to make that will generate returns. Investors can diversify and risk allocate for themselves.
Dividends are nothing like bond coupons. Coupons are guaranteed, tax treatment for both payor and payee is quite different.
Re: What if your entire worldview was just because of near-zero interest rates?
#8Earlier quoted context omitted.
In a stock buyback, the investor only is made whole by "exiting" the stock. I.e., if that stock has voting rights, and you're more interested in being able to influence as a shareholder, you're left out of the "lifting of every risk sinker" when a company does a buyback. In fact, it guarantees that the amount of shareholder influence as a whole decreases, because if someone were to reacquire that share it would be mo…
If a company does a buyback, shouldn't you still have a higher percent control if you dont sell any of your holdings, and the same % control if you do sell the dividend equivalent Imagine a company has 100 shares and I own 10. If they company buys back 50, the stock price will double, and my % ownership goes up from 10 to 20%. I can sell down to 10%, the same control I had before to take my profits. What am I missing…
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Re: What if your entire worldview was just because of near-zero interest rates?
#9[deleted]
Re: What if your entire worldview was just because of near-zero interest rates?
#10Earlier quoted context omitted.
In a stock buyback, the investor only is made whole by "exiting" the stock. I.e., if that stock has voting rights, and you're more interested in being able to influence as a shareholder, you're left out of the "lifting of every risk sinker" when a company does a buyback. In fact, it guarantees that the amount of shareholder influence as a whole decreases, because if someone were to reacquire that share it would be mo…
If a company does a buyback, shouldn't you still have a higher percent control if you dont sell any of your holdings, and the same % control if you do sell the dividend equivalent Imagine a company has 100 shares and I own 10. If they company buys back 50, the stock price will double, and my % ownership goes up from 10 to 20%. I can sell down to 10%, the same control I had before to take my profits. What am I missing…
Wouldn't that friend on who's voting the stock that company holds in itself?
Is it the CEO? The board? The chairman? Or are the stocks cancelled from the total?