QE Encourages Stock Buy Backs, Discourages Hiring and Stunts the Housing Market
invite response
2014 Jun 1, 8:54am 13,026 views 58 comments
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indigenous
2014 Jun 1, 11:29am
So for them the malinvestment pays.
Ok, how many are doing this? Do these executives have previous "public service" experience?
smaulgld
2014 Jun 1, 11:32am
So for them the malinvestment pays.
Ok, how many are doing this? Do these executives have previous "public service" experience?
There are so many examples of conflicts of interest in companies and the executives that run them.
If the executives focus on boosting the share price in a legal way (like buying back shares) it's hard to say there is a conflict as boosting share value is consistent with a company's goals, even though such a practice may be detrimental long term
indigenous
2014 Jun 1, 11:38am
So they are no different than government workers, except that the business will go BK, with the obvious exceptions. Have to wonder about the board of directors in such a company.
smaulgld
2014 Jun 1, 11:43am
So they are no different than government workers, except that the business will go BK, with the obvious exceptions. Have to wonder about the board of directors in such a company.
no difference , if men were angels...
Board members have shares and options too- "everyone has a share" and everyone wins!
indigenous
2014 Jun 1, 11:48am
no difference , if men were angels...
Board members have shares and options too- "everyone has a share" and everyone wins!
The only transgression would be in bailing them out.
smaulgld
2014 Jun 1, 11:50am
The only transgression would be in bailing them out.
Yep, private companies are free to loot subject to shareholder approval and law suits, if they fail there is no bail out, just perhaps a class action law suit
Low interest rates spurs economic growth.
Yeah, fuck all those interest dependent seniors and savers.
Let 'em get on board some risk trade or die already.
smaulgld
2014 Jun 1, 12:39pm
Yeah, fuck all those interest dependent seniors and savers.
Let 'em get on board some risk trade or die already.
It forces them into the stock market with the hope that they can cash out before the execs do
smaulgld
2014 Jun 1, 5:46pm
China to Launch QE- Daily Telegraph http://www.telegraph.co.uk/finance/china-business/10868381/China-explores-bond-buying-in-first-hint-of-QE.html
smaulgld
2014 Jun 1, 10:25pm
Low interest rates spurs economic growth.
Artificially Low interest rates-those set by the Fed have their own set of issues: http://smaulgld.com/the-dark-side-of-artificially-low-interest-rates/
Strategist
2014 Jun 2, 12:10am
Low interest rates spurs economic growth.
Yeah, fuck all those interest dependent seniors and savers.
Let 'em get on board some risk trade or die already.
If interest rates take a huge jump someone will be telling me...yeah, fuck all those first time home buyers who can no longer afford to buy homes and cars.
There are 320 million Americans, you can never make them all happy at the same time. Never.
smaulgld
2014 Jun 2, 2:22am
If interest rates take a huge jump someone will be telling m
Higher interest rates would be a short term negative, but long term positive as capital would get reallocated more evenly and more productively throughout the economy
Strategist
2014 Jun 2, 2:38am
If interest rates take a huge jump someone will be telling m
Higher interest rates would be a short term negative, but long term positive as capital would get reallocated more evenly and more productively throughout the economy
Because interest rates are artificially low, yes, I would agree.
smaulgld
2014 Jun 2, 3:37am
Because interest rates are artificially low, yes, I would agree.
but that is the selling point of QE- to set the fed funds rate low and to buy mortgage backed securities and US Treasury bonds to maintain low interest rates.
Do you favor that policy?
Low interest rates spurs economic growth.
They don't build productive capacity -witness what companies are doing with cash- instead of investing it to meet demand (that hasn't materialized) they are buying back their own shares as their best use of capital.
It's true many public companies have been beefing up their balance sheets as a result of the market run up. I have not seen a significant increase in R&D budget and hiring as a result. In theory the lower rates should stimulate, not sure how well it is working.
smaulgld
2014 Jun 2, 3:58am
have not seen a significant increase in R&D budget and hiring as a result. In theory the lower rates should stimulate, not sure how well it is working.
That's the point -since the economy cant support growth, there is no reason to invest cash in hiring and R&D especially if boosting your stock price is a slam dunk way of increasing the share price.
have not seen a significant increase in R&D budget and hiring as a result. In theory the lower rates should stimulate, not sure how well it is working.
That's the point -since the economy cant support growth, there is no reason to invest cash in hiring and R&D especially if boosting your stock price is a slam dunk way of increasing the share price.
Yes, it is an easy way of making your company appear to be doing well. My company is very selective in how they are spending cash and hiring, and are being quite conservative.
smaulgld
2014 Jun 2, 4:02am
Yes, it is an easy way of making your company appear to be doing well. My company is very selective in how they are spending cash and hiring, and are being quite conservative.
A free gift from the Fed that according to Fed theory will boost stock prices and in turn boost hiring- it hasnt
indigenous
2014 Jun 2, 4:05am
it hasnt
Because there is no wealth effect, why do people hate the government taking care of them?
Strategist
2014 Jun 2, 5:03am
Because interest rates are artificially low, yes, I would agree.
but that is the selling point of QE- to set the fed funds rate low and to buy mortgage backed securities and US Treasury bonds to maintain low interest rates.
Do you favor that policy?
Until we hit escape velocity, yes.
I'd go along with the Fed on this.
smaulgld
2014 Jun 2, 5:04am
Until we hit escape velocity, yes.
I'd go along with the Fed on this.
It's been five years and not only have we not hit "escape velocity" but the economy is slowing. How long will you support it, How long till you admit it doesn't/didn't work?
Strategist
2014 Jun 2, 5:07am
Until we hit escape velocity, yes.
I'd go along with the Fed on this.
It's been five years and not only have we not hit "escape velocity" but the economy is slowing. How long will you support it, How long till you admit it doesn't/didn't work?
It is working, slowly. I'll admit....too slowly.
We don't have much of a choice, but to go on.
smaulgld
2014 Jun 2, 5:17am
It is working, slowly. I'll admit....too slowly.
We don't have much of a choice, but to go on.
We never had the choice of printing trillions, why do you think we have to carry on?
indigenous
2014 Jun 2, 5:18am
How long till you admit it doesn't/didn't work?
Some one was saying that is why Bernanke retired as he doesn't want to be the whipping boy for his handiwork. He will be happy with re inflating RE.
smaulgld
2014 Jun 2, 5:22am
Some one was saying that is why Bernanke retired as he doesn't want to be the whipping boy for his handiwork. He will be happy with re inflating RE.
No one expected it to be a $4 trillion five year program of printing money . Here is Bernanke in 2009:
https://www.youtube.com/watch?v=odPfHY4ekHA&t=8m21s
Strategist
2014 Jun 2, 5:22am
It is working, slowly. I'll admit....too slowly.
We don't have much of a choice, but to go on.
We never had the choice of printing trillions, why do you think we have to carry on?
If we stop prematurely we go into a depression.
We are not fools like Spain.
Strategist
2014 Jun 2, 5:23am
How long till you admit it doesn't/didn't work?
Some one was saying that is why Bernanke retired as he doesn't want to be the whipping boy for his handiwork. He will be happy with re inflating RE.
He is being praised for averting a depression.
smaulgld
2014 Jun 2, 5:31am
How long till you admit it doesn't/didn't work?
Some one was saying that is why Bernanke retired as he doesn't want to be the whipping boy for his handiwork. He will be happy with re inflating RE.
He is being praised for averting a depression.
Fed President Volker caused a depression of about two years that was followed by growth. Bernanke may have averted a depression but permanently wrecked any chance for growth for years.
indigenous
2014 Jun 2, 5:46am
No one expected it to be a $4 trillion five year program of printing money . Here is Bernanke in 2009
Bernanke says that the FED did not keep up the money supply in 1929 and in 1933 when the banks failed.
Which did cause some problems the real question is so what.
If not for the meddling by FDR it would have fixed itself.
Although I'm not sure how quickly as the real underlying problem was mercantilism that the US practiced and the real problem was that there had to be a fair amount of re-balancing. Which is what Japan is going through now and China and Germany are about to go through.
smaulgld
2014 Jun 2, 5:50am
If not for the meddling by FDR it would have fixed itself.
True. His destruction of crops and livestock to keep prices high harmed the economy and the populace. The tariffs were also foolish. 12 years of tinkering by an admitted economic ignoramus ( he used to personally set the gold price!) worsened the longest depression ever in US history
Strategist
2014 Jun 2, 6:16am
How long till you admit it doesn't/didn't work?
Some one was saying that is why Bernanke retired as he doesn't want to be the whipping boy for his handiwork. He will be happy with re inflating RE.
He is being praised for averting a depression.
Fed President Volker caused a depression of about two years that was followed by growth. Bernanke may have averted a depression but permanently wrecked any chance for growth for years.
You must be joking, mate.
Volcker raised interest rates like crazy to squeeze inflation out of the economy. He created a recession, not a depression. It was a brilliant strategy that set the stage for growth with low inflation for many years.
Bernanke, averted a severe depression by pumping massive amounts of money into the economy. We may, we may not have the growth as in the past, but averting a depression was the goal. It worked, we have no depression.
hanera
2014 Jun 2, 4:52pm
Bernanke, averted a severe depression by pumping massive amounts of money into the economy. We may, we may not have the growth as in the past, but averting a depression was the goal. It worked, we have no depression.
:).
smaulgld
2014 Jun 5, 9:16pm
If artificially low rates stunt job growth and the real estate market, what would negative interest rates do?
Strategist
2014 Jun 6, 12:17am
If artificially low rates stunt job growth and the real estate market, what would negative interest rates do?
It's not the artificially low rates that stunts job growth and real estate. It's confidence and lack of appropriate lending standards for both businesses and real estate.
Artificially low rates due to massive money supply increases helped the economy by preventing a depression.
indigenous
2014 Jun 6, 12:33am
It's not the artificially low rates that stunts job growth and real estate. It's confidence and lack of appropriate lending standards for both businesses and real estate.
Artificially low rates due to massive money supply increases helped the economy by preventing a depression.
I love this article posted by Bubba.
IMO this along with not allowing the market to clear are the root causes.
smaulgld
2014 Jun 6, 12:34am
Artificially low rates due to massive money supply increases helped the economy by preventing a depression.
Conversely artificially low rates or negative rates prevent savings that could go towards production and profitable investment, as the extra free money flows towards boosting asset prices and speculation
indigenous
2014 Jun 6, 3:05am
Conversely artificially low rates or negative rates prevent savings that could go towards production and profitable investment, as the extra free money flows towards boosting asset prices and speculation
Exactly, and to consume more than should be at the high end.
This talk was over my head but what I understood was intriguing, he talked about re-balancing and demographics and bonds as a predictor i.e. with fed influence or not. the Jacobsen talk
https://www.youtube.com/watch?feature=player_detailpage&v=guzi2GAyDxI
smaulgld
2014 Jun 8, 6:25am
he talked about re-balancing and demographics and bonds as a predictor i.e. with fed influence or not. the Jacobsen talk
thanks will check it out
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Artificially low interest rates encourage companies to use their cash to buy back their own shares to drive up their share prices, rather than to invest in their businesses. This explains why the economy is showing limited growth but the stock market is hitting record highs. According to CapitalIQ data, the single biggest buyer of stocks in the first quarter was not a mammoth hedge or pension fund, but the companies of the S&P 500 itself, which cumulatively repurchased a $160 billion of their own stock.
When companies make the determination that they get a better and more immediate return on investment in the form of higher share prices from buying back their own shares than hiring new employees or making capital investments in their business, workers are not hired and additional productive capacity is not built. Buying back shares often offers a company the greatest return on investment.
http://smaulgld.com/qe-encourages-stock-buy-backs-discourages-hiring/
#housing