11–20 of 204 posts
I find this scary and telling. "It is too early to say where the bottom is to this recession, but we have reason to believe the Millennials and Generation X do not have the resources to purchase the stock that Baby Boomers want to sell at prior market highs. With Corporate profit growth unmasked and the Baby Boomer’s transition into retirement, it seems unlikely that stocks will make a quick return to their prior lev…
Earlier quoted context omitted.
Corporations are the largest net purchasers of stock. The narrative was never "generations of ordinary people will support prices". Because ordinary people control proportionally small amount of the nation's total wealth.
But those stock prices can never go down because of how much generational retirement wealth is locked up in financial markets.
The last month of cliff-fall would suggest your premise is wrong: prices absolutely can go down.
It's certainly more nuanced than that. However, it does point out the fact that corporations focus too much on shareholder value as opposed to just making a good business system...except for the major players that is. These the so called "too big to fail" types of companies which borderline monopolize market sectors like Amazon and Walmart. But they don't care during recessions because they're fine. They essentially…
It’s the C Suite members, and it’s the board members... it’s a small group of people at the top who are trying to enrich themselves at the expense of the company and at the expense of the people who actually run the company.
"When a measure becomes a target, it ceases to be a good measure." (Goodhart's law) Does this apply here? It seems you could argue that profit is the one true number that _is_ a good measure, but it seems even that can be 'hacked' so that it isn't good anymore.
This isn't to say whether or not it's a bubble, but I am surprised at the number of people who think that stock prices going down is due to financial health of companies rather than people attempting to sell stocks either in a panick or because they suddenly need the liquid cash on hand (due to job loss) and are thus willing to sell at a loss.
And regardless of their merits or demerits, share buybacks do increase actual earnings per share, which is one method to valuate shares. It's like, if there are four partners in a partnership and two decide to buy out the other's shares, their shares are now worth twice as much, assuming the corporation continues making revenue.
Then I hear about corporate debt and how that forces layoffs. The fact is companies are not going to retain employees when they cannot conduct business, regardless of cash on hand. It's not even a moral concern. Companies can simply layoff their employees and have them receive unemployment insurance. Even if they wanted to be 'ethical' and provide health insurance, the cost of a severance package with 18 months of health insurance is less than paying them and providing health insurance. From a corporation's perspective, irrespective of how much cash or debt they have, layoffs are simply superior.
It's certainly more nuanced than that. However, it does point out the fact that corporations focus too much on shareholder value as opposed to just making a good business system...except for the major players that is. These the so called "too big to fail" types of companies which borderline monopolize market sectors like Amazon and Walmart. But they don't care during recessions because they're fine. They essentially…
Amazon and Wal Mart could disappear overnight and I would just shop elsewhere. Amazon isn't in charge of my water quality or road maintenance.
"When a measure becomes a target, it ceases to be a good measure." (Goodhart's law) Does this apply here? It seems you could argue that profit is the one true number that _is_ a good measure, but it seems even that can be 'hacked' so that it isn't good anymore.
So in principle there's nothing wrong with the buybacks. However, investors can have the mistaken impression that these buybacks would continue into the future, and predictions of the future -- and thus the fair stock price -- can change in a heartbeat.
The problem is that systemic risk is then distilled out of the priced instruments that are created, yet those instruments are significantly more vulnerable to systemic risk than simple equities, etc.
I find this scary and telling. "It is too early to say where the bottom is to this recession, but we have reason to believe the Millennials and Generation X do not have the resources to purchase the stock that Baby Boomers want to sell at prior market highs. With Corporate profit growth unmasked and the Baby Boomer’s transition into retirement, it seems unlikely that stocks will make a quick return to their prior lev…
I agree with you, and I'm especially concerned about this "unless". Markets are supposed to reward accurate predictions, but I would not be willing to put my money where my mouth is now. How can we trust the stock market will not be massively manipulated by the US government, by bailouts, and by measures like stock buybacks?