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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?

#41

Post by lesam »

bialpio wrote: post #30
s1artibartfast wrote: post #23

Earlier quoted context omitted.

Of course unrealized gains won't be taxable, but they can't be spent either. For me, it makes a lot more sense to tax realized profit, or better yet consumption, than wealth itself. I don't think it is desirable to force realization just to increase tax revenue.

My understanding is that you can play tricks with stocks so that you don't really need to realize the gains to benefit from them. They can be used as collateral for loans, directly donated to charities (lowers down your tax bill w/o forcing you to realize the gain), there's also the step-up basis loophole (or was it already closed?). I may be missing some details (and other creative ways to do "tax optimization") tho…

I never see anyone complaining about buybacks because of tax reasons though. In particular, the author is complaining companies are not spending enough on R&D because of buybacks.

It is true that buybacks are more tax efficient than dividends, which is why companies generally do buybacks instead of dividends.

The US tax on capital gains is definitely a mess though.

Re: What if your entire worldview was just because of near-zero interest rates?

#42

Post by blockwriter »

lambic2 wrote: post #39
blockwriter wrote: post #32

My friend that has been a general contractor for around ten years acts like it's not even worth doing his job anymore now that interest rates are going up.

why is that? what kind of contractor?

His firm develops multi-unit buildings in Chicago, mostly residential. I think he is just annoyed that the easy money is drying up, and that it hurts his bottom line or business in general. Based on his attitude, though, I'm just amazed that the type of project his firm takes on were so dependent on money being cheap. They also operated a lot on a fixed cost basis, and sudden price increases were not accurately factored into those contracts.

He wants without price stability and cheap money and has neither.

Re: What if your entire worldview was just because of near-zero interest rates?

#43

Post by positr0n »

blockwriter wrote: post #32

My friend that has been a general contractor for around ten years acts like it's not even worth doing his job anymore now that interest rates are going up.

Interesting. I just asked the builder that built my house* and he said his business hasn't slowed down at all.

His primary location since I'm sure that matters a lot: suburbs north of Dallas.

* We got the land right before the boom in prices. Paid super inflated prices for materials. Finalized a mortgage before the recent rate increases. I guess overall we came out ahead?

Re: What if your entire worldview was just because of near-zero interest rates?

#44

Post by lokar »

Proven wrote: post #25
lokar wrote: post #13

People who complain about extreme fed policy should look to congress. The inability of congress to address core economic and financial issues forces the feds hand.

Complete nonsense. The Fed isn't supposed to address any "issues", but simply be neutral. Instead they've spent a century saving entities that socialized private losses.

That is a pretty hostile reply to a neutral post.

They have sought to prevent large scale economic crisis, which would dramatically impact unemployment. And they have commented while doing so that this is not the ideal way to manage things.

Re: What if your entire worldview was just because of near-zero interest rates?

#45

Post by fredophile »

s1artibartfast wrote: post #6
salawat wrote: post #5

Earlier 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…

There are a few reasons some companies prefer buybacks over dividends.

Probably the smallest reason is that buybacks can save investors money on their taxes.

A much bigger reason is that buybacks are viewed as one time events. When a company starts paying a dividend investors often expect that dividend to be paid regularly. If the company chooses to stop paying a dividend or decreases the dividend the share price drops.

Finally, there is executive compensation. Let's say my compensation package let's me buy shares at $100 each. If the share price is currently $110 and the company does a $10 dividend then the share price goes to $100 and my options are worthless. If the company does a stock buyback then the share price goes up and my options are worth more. As CEO which do you push for?

Re: What if your entire worldview was just because of near-zero interest rates?

#46

Post by [deleted] »

realityking wrote: post #16
s1artibartfast wrote: post #4

Earlier 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.

Dividends create an immediately taxable event, the value gained in a stock buyback is only taxed when the stock is sold. It’s one contributor to the low amount of taxes paid by the so-called 1%.

[deleted]

Re: What if your entire worldview was just because of near-zero interest rates?

#47

Post by 015a »

awinder wrote: post #11

“All of this has led to weird idiosyncrasies, euphoria, and contradictions. Stocks ballooned, tripling in value since 2009” This is like 9% compounded for 13 years, which is in line with historic averages.

The iShares S&P 500 ETF has returned about 11.6% annualized over the past ten years. Their Ex-US ETF: 2.8%.

Point being: the third variable no one ever takes into account when considering Buffett's advice: "just invest in broad market indexes" literally only works in the US, and only has worked historically. It's not a coincidence that the US is the youngest developed economy on the planet.

In other words: How high would US stock returns have been if interest rates were near-0% throughout the 1900s? Have interest rate adjusted returns actually decayed in the past ten years? How long before the US stock markets stop behaving "historically" and start behaving "globally"?

I'm not asserting entire bearishness on the us economy. The US is still the nerve center of global finance, software technology, education, retail spending, every economic metric you look at the US leads in. That doesn't disappear. Just that: the story of the next twenty years may be the US financial indicators trending more toward historical global norms.

Re: What if your entire worldview was just because of near-zero interest rates?

#48

Post by neilv »

> It became the new normal, and the generation that entered Wall St. during this time is now disoriented, for they “do not know a world without cheap money.” [...] Whenever people are humbled by the melting away of things they took for granted, now that’s a topic worth exploring.

I'm trying to figure out parallels and implications for tech jobs.

Where in tech jobs will be first to decide they need to "rediscover the ways of our ancestors", and willing to pay to speed that up.

Re: What if your entire worldview was just because of near-zero interest rates?

#49

Post by CoastalCoder »

> "What if your entire worldview was just because of near-zero interest rates?"

Worldviews typically include who we are, why we're here, what purpose (if any) we have in life, etc. It seems strange to me that someone's worldview could be thoroughly based on interest rates.

Re: What if your entire worldview was just because of near-zero interest rates?

#50

Post by MonkeyMalarky »

thatguy0900 wrote: post #38
mensetmanusman wrote: post #35

Just wait until we enter the ‘decades long workforce population decline’ period. Once GDP growth decreases by population shrinkage, investing will be fun again!

Well just keep desperately importing people from other countries, unlike Japan and Co. Or, for the other side of the political spectrum, ban abortions/birth control.

The first option reminds me of the Netflix show 3%.
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