Anyone have any book recommendations for learning economics?
When buying the dip doesn’t work: An analysis of the dot-com crash
371–380 of 408 posts
Re: When buying the dip doesn’t work: An analysis of the dot-com crash
#372Earlier quoted context omitted.
The entirety of human history since prehistoric times to the present gives evidence contrary to your claim. Human societies have experienced exponential growth since forever, with only occasional brief temporary setbacks. Even the Black Death is a blip on the exponential curve of economic progress.
Exponential growth, indeed economic growth at all, started with the industrial revolution. For instance, many places in Eurasia had the same GDP in 500 that they had in 1400.
Nope. The industrial revolution was a phase change in how economies operated and how wealth was distributed, but if you chart back thousands of years you get the same exponential trends.
Re: When buying the dip doesn’t work: An analysis of the dot-com crash
#373Earlier quoted context omitted.
The entirety of human history since prehistoric times to the present gives evidence contrary to your claim. Human societies have experienced exponential growth since forever, with only occasional brief temporary setbacks. Even the Black Death is a blip on the exponential curve of economic progress.
> The entirety of human history since prehistoric times Extrapolating from the past doesn't always work. There are real limits. Take the rate of energy consumption of human civilization for example, which is currently about 17 terawatt[1]. Thermodynamics tells us that after doing useful work, practically all of that energy ends up as waste heat. (A small fraction is stored, e.g. aluminium stores some energy. I assume…
Technology can produce goods with greater intrinsic value for less energy and fewer materials. A modern CPU is vastly more capable that the supercomputers of the 90’s, but costs less to produce and consumes far less energy. More importantly it means the market for CPUs and their contribution to GDP has exploded.
There are ultimate physical limits to how much information can be processed with a fixed amount of energy, but we aren’t near those limits yet. I’d argue that if you factor in technological growth you could go for much longer than 500 years before running out of energy, even if you limit yourself to a type 1 civilisation.
Re: When buying the dip doesn’t work: An analysis of the dot-com crash
#374Earlier quoted context omitted.
> The entirety of human history since prehistoric times Extrapolating from the past doesn't always work. There are real limits. Take the rate of energy consumption of human civilization for example, which is currently about 17 terawatt[1]. Thermodynamics tells us that after doing useful work, practically all of that energy ends up as waste heat. (A small fraction is stored, e.g. aluminium stores some energy. I assume…
Technology can produce goods with greater intrinsic value for less energy and fewer materials. A modern CPU is vastly more capable that the supercomputers of the 90’s, but costs less to produce and consumes far less energy. More importantly it means the market for CPUs and their contribution to GDP has exploded. There are ultimate physical limits to how much information can be processed with a fixed amount of energy,…
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Re: When buying the dip doesn’t work: An analysis of the dot-com crash
#375Earlier quoted context omitted.
The value of stocks is pinned to two events that you often don’t directly participate in but are absolutely connected to in a real way. 1. The IPO. While it’s true that only the people who buy at the IPO directly finance the company, if there wasn’t the promise of someone else in the future to sell the shares to, nobody would buy at the IPO. The existence of future second-hand buyers makes the direct funding at the I…
Point 2 is false: shares of stock derive their value from the fact that they represent ownership in a company. If the company is profitable or owns valuable assets beyond their liabilities, then the shares themselves are valuable. Their value does not depend on current or future dividends, but on the company’s current assets and the market’s estimation of the value of the company’s future cash flows. Your point about…
If a company was somehow set up in a way that prevented it from transferring wealth back to the owners by any means (buyback, dividends, salaries, or even creative ways, such as buying assets owned by it's owners), it's stock "value" would be close to zero, regardless of how much it owned in terms of assets. (One could imagine a non-profit trust set up this way.)
In other words, the reason why a company's assets and expected future cash flow does set its valuation, is precisely the expectation that it will lead to dividends/buybacks at some point in the future.
Re: When buying the dip doesn’t work: An analysis of the dot-com crash
#376Earlier quoted context omitted.
There were structural/regulatory reasons that helped the bubble grow last time, are there any indications of this now? If they are there we probably won't know until it's too late, but this housing bubble feels a little more like an everything bubble
Artificially low interest rates for a decade could have a similar effect
the inflation target was barely met (and according to arguments about service degradation) it was undershot, so no, the interest rate was not too low. (there's no non-artificial rate in a central bank managed economy)
Re: When buying the dip doesn’t work: An analysis of the dot-com crash
#377Earlier quoted context omitted.
> if money is plowed into housing, the homeowner has more cash when they sell. but it's not expensive _everywhere_. It's expensive in some of the most desirable places. And housing has some issues unrelated to the market - such as NIMBYs stopping new constructions.
> but it's not expensive _everywhere_. It's expensive in some of the most desirable places. I disagree with this. I think this was true for the mid 00s property bubble, but now prices are exploding not just in the usual suspects like SF, LA and NYC. Pretty much every place that's not a total shithole is experiencing huge home price appreciation. I made a post on a different thread making this point, and I used Flint,…
spillover from the super hot areas
also the US population is growing, urbanization is happening, and ...
... there are not enough houses being built.
plus the monthly mortgage payment is about the same (because the lower interest rate allows for lending more money for the same monthly cashflow)
Re: When buying the dip doesn’t work: An analysis of the dot-com crash
#378Earlier quoted context omitted.
>but it's not expensive _everywhere_. It's expensive in some of the most desirable places. The fact that the median and average house prices have exploded signifies that the housing market is in a bubble. It's not relevant that house prices have not increased equally everywhere. Ultimately, after the bubble eventually bursts, it will leave a lot of people indebted to banks with their real ownings not matching the deb…
> The fact that the median and average house prices have exploded signifies that the housing market is in a bubble. It doesn't signify that. The US has long since switched over to a permanently low interest rate environment due to the extreme national debt that the Fed has to manage. Housing is going to stay artificially expensive on a longer-term basis accordingly. Housing only deflates on a sustained basis if inter…
the Fed has a dual mandate, there are still a lot of people who doesn't have a job due to the pandemic.
this inflation spike due to the combined effects of overspending on products in quarantine (partly fueled by unemployment checks, that should have been sent in monthly installments to discourage spending it on big items), and the energy market chaos thanks to the war in Europe. (and even though a small portion of the supply disappeared the price curve is steep, the new price point is much higher up as we see.)
should have the Fed done more about this? yes, definitely. but just as you observed, the low rates are here to stay on the long run. (mostly because aging population of the developed countries as pension funds buy bonds to get the fixed cashflow they need to pay the pensions.)
Re: When buying the dip doesn’t work: An analysis of the dot-com crash
#379Earlier quoted context omitted.
Point 2 is false: shares of stock derive their value from the fact that they represent ownership in a company. If the company is profitable or owns valuable assets beyond their liabilities, then the shares themselves are valuable. Their value does not depend on current or future dividends, but on the company’s current assets and the market’s estimation of the value of the company’s future cash flows. Your point about…
If a company was somehow set up in a way that prevented it from transferring wealth back to the owners by any means (buyback, dividends, salaries, or even creative ways, such as buying assets owned by it's owners), it's stock "value" would be close to zero, regardless of how much it owned in terms of assets. (One could imagine a non-profit trust set up this way.) In other words, the reason why a company's assets and…
> set up in a way that prevented it from transferring wealth back to the owners by any means
and i noticed you omitted the method of the owner selling the share (to a third party).
This is the primary way to transfer wealth generated from a company.
> expectation that it will lead to dividends/buybacks at some point in the future.
it doesn't need to be an expectation of such at all, as long as there is someone else in the market willing to purchase the share, at a price they and the owner deem acceptable.
You could have the opinion that the lack of any possible cashflow returns to the owner as a proxy for the share being valueless, but as long as everyone else disagrees with you, and continue to transact the share in the secondary market, it has value.
Re: When buying the dip doesn’t work: An analysis of the dot-com crash
#380Earlier quoted context omitted.
I think you reference only considers the index adjusted for inflation, but without taking the dividends into account. Optimists tend to consider the dividends too small to matter when buying stocks, but it turns out that over time, the dividends tend to be a large part of the inflation adjusted returns: According to this article [0], the profit of investing just before the .com bust would be only 12.9% by mid 2017, w…
People (and tool developers) forget that the purpose of a stock is to ultimately produce dividends. It is like buying a house for rental income and forgetting to include the rent. When I retired I had to switch from a growth-stock mindset to an income-stock mindset. I have made the switch but none of the free tools makes that easy. The closest I came was TOS will do this calculation for stocks but not ETFs. Oh well.…
>People (and tool developers) forget that the purpose of a stock is to ultimately produce dividends.
It would be more accurate to say that they distribute profits back to shareholders. Buying shares back is equivalent to dividends. What's questionable are attempts to borrow money to boost the stock price as those then generate a hype cycle which lets the company sell its shares back for a profit which is exactly backwards to how it should work.