economy

[Script]

Next meeting is June 13/14

Will watch it.

bank stocks

In EU and Japan, just forget them, except for maybe one or two. But there are better alternatives to even those.

back in the day, stocks like that would have split by now

Yes, have been waiting for that. Didn't grab Starbucks when they split, but I don't regret, as they don't sell coffe but subsidized milk foam.  8)

PS: Speaking of banks Banco Santander (spain) just bought Banco Popular for 1 Euro.... Bank capitalization remains an issue in the EU IMO.

Not entirely voluntary. Rather symptomatic of condition of banks across EU. It's weird but they could have let some banks go bankrupt without huge implications a few years ago, but I guess they wanted to avoid 'panic', as they used to call it. And while the US ran QE and pumped  banks full of money after Lehman (for leverage I'd think), the ECB started QE much later, too late maybe. And still too many banks.

 

[JohnRoberts]

Yes, have been waiting for that.

I think splitting stocks has gone out of fashion for several reasons.  Cutting a pizza pie into 16 pieces doesn't give you more pie, BUT back in the day stocks would bounce after a split to more than 1/2 the former price so it inflated the stock price. There used to be a cost premium for trading "odd lots" (less than a full block of 100 shares). This encouraged companies to manage their per share price... $100 a share used to be a psychological barrier considered pricey  These days there is no trading premium for odd lots and many stocks are above the old $100 mark..

Further some companies who did split when their stocks were hot got burned later when the stock price retreated. Some institutional investors are not allowed to hold stocks priced at less than $5. Several companies have actually done reverse splits to bundle cheap shares together to get the nominal price up, but this is often too little too late.  Citibank is the poster boy for this and hopefully an exception (I have some)... after a number of splits increasing the number of shares, in 2011 they did a reverse 1 for 10. After all this drama  (9  splits) an original 100 share purchase ended up with 240 shares.  :

Didn't grab Starbucks when they split, but I don't regret, as they don't sell coffe but subsidized milk foam.  8)

I'm not long starburnt (lousy coffee) but the founder is a decent retailer.  Not sure where more growth can come from. 

Not entirely voluntary. Rather symptomatic of condition of banks across EU. It's weird but they could have let some banks go bankrupt without huge implications a few years ago, but I guess they wanted to avoid 'panic', as they used to call it.

IIRC the Cypress bank shut down in 2012-2013 only insured deposits up to 100,000 EU .. Many foreign investors had their deposits reduced by tens of percent. Not sure of all the details but reportedly Cypress was a tax haven for wealthy Russians. The ECB and IMF propped up the other cypress banks to prevent a wider run on banks in the EU.

And while the US ran QE and pumped  banks full of money after Lehman (for leverage I'd think), the ECB started QE much later, too late maybe. And still too many banks.

EU banks are also large holders of EU sovereign debt so that is also a factor.

JR

 

[Phrazemaster]

One of the fallacies of the modern economic (Capitalist) systems is everyone can share the prosperity.
But what if everyone was wealthy?
Since inflation has always been strongly correlated with people's income and wealth, inflation would skyrocket.
This is a serious, thought provoking question about our world and something I've been thinking about lately.
The current norm depends on the majority of people having relatively stagnant wages, to keep inflation in check.

Great point. Money only works through inequality. If we all had the same amount it would be worth-less. The system is terrible. There has to be some better way than capitalism. I'm putting on my flame suit now.

 

[micaddict]

No need, Mike. You're on the rigt track if you ask me.

Just think twice before you vote. 



Henk

 

[JohnRoberts]

Great point. Money only works through inequality. If we all had the same amount it would be worth-less. The system is terrible. There has to be some better way than capitalism. I'm putting on my flame suit now.

No problem... question everything.

Capitalism sucks, but it is still better than everything else (so far). All of the easy alternates have been tried before, but keep coming around again as campaign promises for more free stuff... (nothing in life is free, and the rich do not have unlimited money to tax). We already have some socialism in our system, the difficult thing is finding a sustainable balance that doesn't throttle economic growth, while caring for those in need. 

Capitalism is an economic system, based on private ownership of assets (vs the government owning everything). If you have unlimited faith that government can do no wrong, then in theory ceding them more control could be good.  In my experience government is not as good at running stuff as private organizations (post office vs fedex or UPS). Right now we are negotiating how much of our healthcare will be run like the motor vehicle dept.

Unfettered capitalism can lead to excesses, just like unlimited power corrupts, there is a place for regulation but must be reasonable and not kill the golden goose.. or is that a bitcoin goose these days? 

JR

 

[Script]

But what if everyone was wealthy?
Since inflation has always been strongly correlated with people's income and wealth, inflation would skyrocket.
The current norm depends on the majority of people having relatively stagnant wages, to keep inflation in check.

(1) Why would inflation skyrocket?
(2) And how do stagnant wages kept inflation in check? Wouldn't wages be rather kept stagnant to produce cheaper than (overseas) competitors? Which in itself is a serious problem, the stagnant wages I mean.

Money only works through inequality. If we all had the same amount it would be worth-less.

Yes, people are different. Some like spending now, others like saving and spending later. Some like driving cars, others like riding bicycles. Some drink beer, other drink scotch.
(3) Anyway, why would money be worthless, if everybody had the same amount? BTW, it's not the amount of money that counts but the purchasing power of that money. And everybody is who exactly? All people living within one national border or all people worldwide?

I'm sure I'm missing out on sth here, not sure what though.

 

[Phrazemaster]

...
(3) Anyway, why would money be worthless, if everybody had the same amount? BTW, it's not the amount of money that counts but the purchasing power of that money. And everybody is who exactly? All people living within one national border or all people worldwide?

I'm sure I'm missing out on sth here, not sure what though.

Because money only works through a gradient - one party has to want/need it and the other party has to have it. If both parties have the same amount there is nothing to exchange as neither party has anything the other needs/wants. If everyone had $10M there would be no incentive to exchange it. Plus our money has no intrinsic value, another factor. Fiat is a sham. Anyways that's my thinking what do others think?

 

[Winetree]

There is no real money. The definition of money is a coin bearing so many grams of silver or gold.
Today  money is either a paper federal debit note,  some numbers on a computer screen or a paper statement.
Paper money is  called Hope Dollars. You hope someone will accept them for a good or service.
I have paper money that says "pay to the bearer in gold" or silver." They were issued Instead of carrying around the heavy metal coins, you were given a piece of paper saying that they will hold your gold or silver and you could get it whenever you needed it.
Do you think I could redeem them for gold or silver today?  Gold and silver isn't even considered legal tender.
Today the coins are made of cheap metal not even  worth the face value of the coin.
As long as people accept the inked numerical credits, I'll keep trading them for real property or services that has intrinsic value.
Someday the ink could disappear. Keep the faith.

 

[Script]

Because money only works through a gradient - one party has to want/need it and the other party has to have it.

I read that to mean that the gradient is the outcome of human activity, to which I agree. And I'd also say that people don't want 'the money'. What they want is what they can do with it now and in future.

 

[JohnRoberts]

I read that to mean that the gradient is the outcome of human activity, to which I agree. And I'd also say that people don't want 'the money'. What they want is what they can do with it now and in future.

There is an old joke about money... "I don't want money, I give mine away for stuff that I want more. "  8)

JR

 

[JohnRoberts]

This is an old topic we have discussed before but a recent study by the University of Washington into the Seattle minimum wage increase to $15 has revealed that after the first phase ($11 to $13) low wage workers annual pay dropped and number of low wage jobs dropped also.

The study has been criticized because it didn't capture all low income workers at businesses with multiple locations like fast food operators and chain stores (perhaps because the minimum wage for employers with over 500 workers is still only $11 so not an easy comparison). Critics of this study claim a study performed by Berkeley of fast food restaurants showed the expected (by them) rising pay.  Neither study was peer reviewed so we'll need to keep watching for more results. One important difference about the U of Wash study that showed a negative result, was that they tracked actual hours, so workers receiving higher pay rate but getting less hours, took home less money.  We are still not at the final $15 rate across the board (actually $15 gets bumped by inflation even higher later).

This study is complicated by the fact that the minimum wage is different for different sized companies with another  differential for companies that offer health coverage. So the two studies are not easily comparable, and we can't ASSume that minimum wage is the only changing variable in the Seattle labor market.

So as usual the headlines do not tell the whole story. The bad news is we are probably seeing a chronic decline in part time entry level summer jobs for kids, to get their feet wet in the workplace.  As the first rung on the ladder gets higher for regular jobs, less people can get on the ladder and start climbing. Many entry level workers will be replaced by ordering kiosks at fast food restaurants, and bricks and mortar department stores will continue to lose business to web sales, so I expect less low wage workers there too. 

JR

PS:  FWIW Walmart started increasing pay to their low wage workers a while back and is enjoying lower turnover and reduced training costs. Their profit margins (revenue)  took a hit at first but the stock market got over it (I think).

 

[JohnRoberts]

We rarely get clear cut examples of economic principles in markets, there are often multiple confounding factors, but recently in Hong Kong they dropped the tax exemption for buying Teslas and sales fell off the proverbial cliff...

They stopped the tax exemption (incentive)  in April... in March customers registered 2,900 Teslas. In April , zero, zippo, nada, no teslas...  :

The 2,900 units was a high compared to previous sales so I suspect a number of people looked at this as a one time opportunity to get a deal... The cost jumped from $75,000 to $130, 000 , that's even noticeable in Hong Kong.

Odd that the government thinks it's a good idea to help people buy $130k cars for only $75k... 

I can also tell you how many Teslas I've ever seen in Hickory, MS... the same number as sold in HK in april (zero).  8)

JR

 

[Script]

Have been reading several Tesla-bashing articles recently. Well, not bashing, but seriouslyy questioning the value of that company.

Personally I have met only one person so far who actually owns a Tesla car. What can I say: he#s a really great guy, very down-to-earth, and superrich, an owner of a massive  estate including at least one entire lake. So, well, not the average guy at all. I think Tesla cars are for the rich only. Musk's efforts in building car batteries is a good approach, I guess, but overall Tesla is not interesting.

I'm more impressed by B. Gate's efforts/support/investments into harvesting photosynthesis.

 

[JohnRoberts]

Elon Musk is a very (very) smart guy and one of his specialties is harvesting government subsidies... (EV, solar panels, space delivery, etc). He is still a very smart guy...

The car company is priced crazy as just a car company, but the bet is that he is de-fossilizing the electrical grid by also selling huge storage batteries and solar shingles (another good idea).  No doubt the government will again subsidize these efforts.

Musk is in the news for promising to deliver a huge battery storage installation to OZ so they can store electricity from wind/solar(?) and use it later to handle peak power..(he promises it free if he is late).  They are literally having brown outs because they can get enough NG when they need it, while coincidentally they are increasing exports of LNG... 

Perhaps we could learn a lesson from that as we ramp up our own LNG exports..  The world price for NG is a bunch higher than we enjoy here because of surplus supplies... as that supply gets exported our local prices will eventually increase to near world prices... This is not going to happen any time soon but will eventually....

The good news is that our increasing oil and NG exports will help our trade balance. China buys a lot of cheap oil from us.

JR 

 

[dmp]

As I recall:
- subsidies in US cap out at 200k vehicles and are not brand specific.
- EV subsidies were created during GWB admin, not intended at all for tesla

Musk has said from the beginning that the only way the business model worked was to build luxury cars for the wealthy as a launching plan for an affordable EV car  (model 3).

While you are talking about Government subsidies and how it effects Mississippi in general, Mississippi has one of the lowest GDP per capita in the nation and receives about $3 for every $1 they pay in taxes. Seems like there are much more egregious issue with government subsidies than pioneering alternative energy technology, imo.

There was also a Nissan Subsidy of a few billion that MS handed out a few years ago.  I'm not a fan of corporations taking advantage of taxpayers with a race to the bottom competition between states. The best use of Gov subsidies, IMO, is to do them without company affiliation, like the EV subsidy, home insulation subsidy, etc
But with the current status quo, there is no reason Tesla should not work for Gov subsidies to build a battery factory, for instance, when every other competitor is playing the same games.

For some reason conservatives have a intense dislike for Tesla and have been running a disingenuous propaganda campaign against them for years. I'm really starting to wonder if conservative just dislike anything that is more sustainable, less polluting, and disrupting the economic status quo that they are comfortable with. Change is hard.

 

[JohnRoberts]

As I recall:
- subsidies in US cap out at 200k vehicles and are not brand specific.
- EV subsidies were created during GWB admin, not intended at all for tesla

I never said they were created for him, only that he is very "smart" about harvesting them.  In Hong Kong his $130k car only cost $75k before the program was abandoned.

Musk has said from the beginning that the only way the business model worked was to build luxury cars for the wealthy as a launching plan for an affordable EV car  (model 3).

The world is awash with too much automobile manufacturing capacity, this situation will just get worse in the future as ride-sharing reduces the demand for private car ownership.  Starting a new car company in this environment suggests a massive ego, but he is a very smart man and I like to see him engaged in something productive (his work with space vehicles is more impressive IMO).  Apple, google, et all are nibbling around the edges for the AI brains needed for self driving vehicles, so the future auto industry will not remain centered in Detroit, or likely be dominated by legacy auto makers..  Tesla looks like he has a head start but don't underestimate silicon valley.

While you are talking about Government subsidies and how it effects Mississippi in general, Mississippi has one of the lowest GDP per capita in the nation and receives about $3 for every $1 they pay in taxes. Seems like there are much more egregious issue with government subsidies than pioneering alternative energy technology, imo.

;D ;D  I wasn't talking about that but since you bring it up... that is one insidious thing about legislators who keep score and get rewarded for bringing home the federal pork...  Authority in congress generally grows with duration and MS had a number of long serving senators in high positions, the better to suck more from that government teat.

I am opposed to all earmarks (still in moratorium since 2011) but they are a small fraction of discretionary spending they still smell bad.

Yes MS is poor... duh. Makes me feel less poor.... like hanging out with my 88 YO neighbor makes me feel younger.  8)

There was also a Nissan Subsidy of a few billion that MS handed out a few years ago.  I'm not a fan of corporations taking advantage of taxpayers with a race to the bottom competition between states. The best use of Gov subsidies, IMO, is to do them without company affiliation, like the EV subsidy, home insulation subsidy, etc

competition between states for jobs is just them doing their job, but they should be smart about it. The federal government only has authority over commerce, not state promotions.  Lots have states have spent money unwisely... Support for the movie industry is an obvious money sink. That jumps from state to state when they figure that out (I suspect state legislators also have visions of hanging out with the cool hollywood types.)

I am too lazy to do the research but MS has more than one alternate energy program that was surely subsidized and encouraged by government. The $7B clean coal white elephant power plant is now officially a NG plant (that could have been built for more like $2B). Ratepayers (like me) will pay that bill.  I seem to recall an alternate fuel plant in MS that takes pump wood (pine) as input to return a bio-fuel...

This does not strike me as good use of one of the poorest states resources.  Supporting car/truck plants is a recent trend to move auto jobs out of the unionized rust belt, to more business friendly locations. Jobs are good...

The new auto factories actually drew skilled workers from Peavey... The BMW plant in Alabama (last century) was a desirable job upgrade for many Peavey supervisors, that Peavey did pay much, because they didn't have too...(before).

But with the current status quo, there is no reason Tesla should not work for Gov subsidies to build a battery factory, for instance, when every other competitor is playing the same games.

especially when it is legal and very smart business... but I still wouldn't buy Tesla stock with all your money. The don't even have a price to earnings ratio because there are no earnings predicted until 2019 and then they predict an astronomical P/E in the 70s (not good).

For some reason conservatives have a intense dislike for Tesla and have been running a disingenuous propaganda campaign against them for years. I'm really starting to wonder if conservative just dislike anything that is more sustainable, less polluting, and disrupting the economic status quo that they are comfortable with. Change is hard.

I would love to own a Tesla, but they are expensive (I'd love to own a $450k ford GT too  8) ). Back here in the real world I am still driving my 1997 mustang cobra.  I think Elon Musk is brilliant and would love to have a few beers with him.  My brother bought a Tesla for his wife years ago so she could use the diamond lane out in  lala land traffic while commuting to her job.

Change is as hard as you make it... the washington elites are not adjusting to change very well...

JR

 

[JohnRoberts]

Fed chief Yellen mentioned in recent testimony that she feels we are approaching neutral interest rates (the rate that neither increases or decreases economic growth). Suggesting that future interest rate increases may be moderated.

Trying to make sense of this, it seems like the economy has become dependant on low interest rates if this is the new normal (neutral).  I guess we should forget about ever earning useful interest from our bank deposits. 

JR

PS: The debt portfolio still held by the central bank, and expected to be sold off in the near future may be distorting this "neutral" interest rate.  How markets will respond to this debt sale is unknown (never happened before) so good luck to us all.

 

[Script]

PS: The debt portfolio still held by the central bank, and expected to be sold off in the near future may be distorting this "neutral" interest rate.  How markets will respond to this debt sale is unknown (never happened before) so good luck to us all.

Here are my grains of salt:
(1) Sell off very slowly to control onset and development of inflation. Meanwhile keep interest rate artificially low (i.e., below real inflation rate).
(2) Threaten with a (debt) default.
(3) Pass a new law declaring that the volume of the debt portfolio has become 'illegal' and therefore all debts above a 'floating' threshold have to be either erased or converted to negative return.
(4) Bundle the debt portfolio into a novel financial product and sell them off with a discount to banks as part of a reinsurrance scheme (e.g. 'bail-off guarantee' for future crashes).
(5) Stop buying. Instead start selling, but continue 'printing'.
(6) Keep 'printing' and invest heavily into Bitcoins. Then torpedo and confiscate the entire train.
(6) Convert debts into another novel cryprocurrency and inflate heavily, making the debts disappear into infinity.

Anyone with more ideas?

 

[Phrazemaster]

Here are my grains of salt:
(1) Sell off very slowly to control onset and development of inflation. Meanwhile keep interest rate artificially low (i.e., below real inflation rate).
(2) Threaten with a (debt) default.
(3) Pass a new law declaring that the volume of the debt portfolio has become 'illegal' and therefore all debts above a 'floating' threshold have to be either erased or converted to negative return.
(4) Bundle the debt portfolio into a novel financial product and sell them off with a discount to banks as part of a reinsurrance scheme (e.g. 'bail-off guarantee' for future crashes).
(5) Stop buying. Instead start selling, but continue 'printing'.
(6) Keep 'printing' and invest heavily into Bitcoins. Then torpedo and confiscate the entire train.
(6) Convert debts into another novel cryprocurrency and inflate heavily, making the debts disappear into infinity.

Anyone with more ideas?

I like your (last) number 6 option.

Classy.

 

[JohnRoberts]

Here are my grains of salt:

The issue is not what they will do but how the market will react, they have telegraphed their intent.

(1) Sell off very slowly to control onset and development of inflation. Meanwhile keep interest rate artificially low (i.e., below real inflation rate).

in fact they will just start buying less, since this is short term debt it will naturally roll off their balance sheets as it matures. This will reduce downward pressure on rates effectively tightening, without raising interbank rate.

(2) Threaten with a (debt) default.

not going to happen

(3) Pass a new law declaring that the volume of the debt portfolio has become 'illegal' and therefore all debts above a 'floating' threshold have to be either erased or converted to negative return.

nah

(4) Bundle the debt portfolio into a novel financial product and sell them off with a discount to banks as part of a reinsurrance scheme (e.g. 'bail-off guarantee' for future crashes).

I already said they don't have to sell it, just stop buying so much.

(5) Stop buying. Instead start selling, but continue 'printing'.

money supply will still expand to match the weak GDP growth. I had hoped for faster GDP growth but tax reform appears like it will be delayed.

(6) Keep 'printing' and invest heavily into Bitcoins. Then torpedo and confiscate the entire train.

huh?  The GOT exchange guy is finally going to trial to explain where the missing bitcoins went...

(6) Convert debts into another novel cryprocurrency and inflate heavily, making the debts disappear into infinity.

?

Anyone with more ideas?

I was being serious, or serious for me.  8) This is something to pay attention to IMO.

JR