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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?

#331

Post by FooBarBizBazz »

Animats wrote: post #113
benjaminwootton wrote: post #106

I definetly think a lot of the startup world view is just a function of low rates. Startups could run for decades with $billions in losses and only a passing focus on eventual profits. All of those losses flowed into the bank accounts of big tech (via AWS credits, Google and Facebook Ads). All of the high salaries, employee expectations and leverage in tech startups and big tech derive from that spigot of cheap money…

> I definitely think a lot of the startup world view is just a function of low rates. Startups could run for decades with $billions in losses and only a passing focus on eventual profits. Yes. Buying growth at a loss is so over. A stock is worth the present value of future dividends.

You don't need to pay a dividend to return value to a shareholder. You can also tacitly agree to buy back the share later at a higher price. Since this is taxed as LTCG instead of as dividend income, this is incentivized by the tax code.

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

#332

Post by areyousure »

miguelazo wrote: post #111
rayiner wrote: post #73

I suspect near-zero interest rates for a decade also contributed to the political realignment of affluent suburbs trending Democrat. So long as the Fed would buy federal debt cheaply and there was no significant inflation, Democrats could advocate multi-trillion social programs while promising to maintain Reagan-era tax rates on even quite affluent folks.

What multi-trillion dollar social programs? What country are you talking about— I want to live there, sounds a lot better than the pittance we have in the US. Unless you think the Defense Department is a social program.

The reference is possibly to the Green New Deal or to Build Back Better. Both probably qualify as "multi-trillion social programs", but perhaps the former fits the description better.

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

#333

Post by thebradbain »

smitty1e wrote: post #317
thebradbain wrote: post #160

Earlier quoted context omitted.

Congress can barely agree on a debt ceiling without playing football every year. Having them vote on the price tiers of postal service package weights or Amtrak route schedules seem like a surefire way to bring the management of every public agency to a standstill. In fact, the only example we really have of our congress being in charge of setting rules for a public agency is the tax code— and its a mess of carve-out…

Great thoughts, but you invite the question: should techies like the readers of this site attempt to offer a more coherent system? People seem to scale poorly, and the US government needs reform. What to do?

Eliminate the amount of people. Unrealistic, but I think the US should get rid of state governments and only have a federal and county governments. Municipal governments can still exist, but really only in regards to city planning and infrastructure decisions. Issues like schools, police, social, the environment should really be consolidated at the county level anyways.

Barring that, I think the current system is definitely better than adding congress to the list of decision makers. In fact, that increases the too many cooks in the kitchen problem even more.

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

#334

Post by s1artibartfast »

em500 wrote: post #281
s1artibartfast wrote: post #268

Earlier quoted context omitted.

This looks like capital gains to me. Taxation on income from wealth, not wealth itself. https://www.belastingdienst.nl/wps/wcm/connect/en/income-in-...

It's not a capital gains tax. The Netherlands has been taxing net wealth (with some exemptions, most notably for primary residences and vehicles) at around around 1.2%/year. This was implemented as a 30% levy on an assumed 4% investment return on net wealth, regardless of actual or realized returns and regardless of how the wealth was held (stocks, bonds, savings account, bitcoins). I suppose you could say that the t…

You say it is a distinction without a difference, but it seems like it is very relevant to me. For one, the fictional assumed income is based on the type of asset. Second, it seems like the fictitious rate is calculated based on Market conditions and changes over time. Lastly, the entire premise of the tax is to be levied on income. The assumed rate is just a simplification to calculate that. It seems that the legal proceedings were decided in favor of the taxpayers specifically because of this.

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

#335

Post by s1artibartfast »

erwincoumans wrote: post #276
s1artibartfast wrote: post #268

Earlier quoted context omitted.

This looks like capital gains to me. Taxation on income from wealth, not wealth itself. https://www.belastingdienst.nl/wps/wcm/connect/en/income-in-...

No, they use hypothetical yield (of over 5%). It applies to savings accounts, that had negative interest rates... See my reply above.

Looking at your links, it says that savings are taxed at 0.01%. What am I missing here

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

#336

Post by s1artibartfast »

fredophile wrote: post #45
s1artibartfast wrote: post #6

Earlier quoted context omitted.

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 dro…

I agree that a smart CEO holding options would favor to dividends but don't see how this is an argument against it.

It seems that it benefits stockholders and CEOs alike. Stockholders get the same value as a dividend without the immediate taxable income, and CEOs and other option holders like employees get some of the value when their options mature.

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

#337

Post by s1artibartfast »

recursive wrote: post #68
s1artibartfast wrote: post #6

Earlier quoted context omitted.

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…

Stock price can't double. The amount of cash the company has must decrease by an amount equal to half its market cap. That should do something roughly equivalent to the value of the company.

The doubling is relative to if they had paid a dividend of the same value.

Stock price can double with the same market cap if you reduce the number of outstanding shares by half.

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

#338

Post by llanowarelves »

miguelazo wrote: post #111
rayiner wrote: post #73

I suspect near-zero interest rates for a decade also contributed to the political realignment of affluent suburbs trending Democrat. So long as the Fed would buy federal debt cheaply and there was no significant inflation, Democrats could advocate multi-trillion social programs while promising to maintain Reagan-era tax rates on even quite affluent folks.

What multi-trillion dollar social programs? What country are you talking about— I want to live there, sounds a lot better than the pittance we have in the US. Unless you think the Defense Department is a social program.

Also over $4 trillion between CARES Act and the "American Rescue Plan".

Do you feel Cared about and Rescued?

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

#339

Post by zamfi »

BeetleB wrote: post #95
zamfi wrote: post #74

Earlier quoted context omitted.

Maybe it only works in the US equity markets , but that's not "only works in the US" -- the S&P 500's companies are: not all based in the US, and in total derive only 75% of their revenues from outside the US. For reference, the US share of world GDP is about 25%. It would not surprise me at all if the most scalable, profitable, and growth-oriented companies ended up on the S&P 500 regardless of where in the world th…

The point he's making, which is well known, is that while in the US stocks and index funds derived from them dominated all other forms (bonds, real estate, etc), it's almost never the case in any other developed country. For most of the recent past (recent meaning the last century), putting money in index funds would have been suboptimal in almost every country out there. The fact that the companies get a lot of thei…

Yes I didn't make any claims about this fact.

My post was in response to the prior poster's claim that US exceptionalism here doesn't have a clear rationale, and that one might expect some sort of "reversion to the mean" where "mean" there is the performance of broad equity markets in other countries.

In my post, I'm saying that one shouldn't expect that broad markets indices to grow comparably in other countries, and the fact that they don't says little about how well they do/should/will perform in the US.

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

#340

Post by zamfi »

executesorder66 wrote: post #271
BeetleB wrote: post #95

Earlier quoted context omitted.

The point he's making, which is well known, is that while in the US stocks and index funds derived from them dominated all other forms (bonds, real estate, etc), it's almost never the case in any other developed country. For most of the recent past (recent meaning the last century), putting money in index funds would have been suboptimal in almost every country out there. The fact that the companies get a lot of thei…

What is typically the highest performing long term investment outside the US?

Rents.

/s (maybe?)

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