patrick.net

Overall corporate profits were only up about 4% for the year 2019 with GDP growing about 2%, so of course it makes sense that the stock market would go up about 30%.

… or there could be massive speculation.

Misc says

Overall corporate profits were only up about 4% for the year 2019 with GDP growing about 2%, so of course it makes sense that the stock market would go up about 30%.

… or there could be massive speculation.

The stock market is a short-term voting machine and a long-term weighting machine.

The markets are heavily manipulated right now. People with serious money are not investing for profits, they are investing for liquidity. As an example, there is about $15 trillion in negative yielding debt. If even 1% of that were to move into gold (a non-yielding asset) without there being a massive price change, it would be about 50% of the gold reserves of the United States. There simply isn't enough liquidity in most markets to justify serious money being moved around.

The Democrats spent the last 35 years telling us that trickle down economics was bogus, and then they spent the past 25 years trying to establish that system as an institution.

Yes, both the democrats and republicans have been heavy users of trickle down economics. Capital gains are the rich mans welfare. It is money they didn't work for.

Patrick says

Trump, bless his bizarre orange soul, has shown us the right way way to Make America Great Again, by looking after our own citizens first. Business profits follow once our working class has jobs again. The economy is on an epic roll due to Trump now. May it continue!

Exactly Patrick. Trump is "reforming globalization" so that the work and middle class in the USA are strengthened, just like "free-for-all globalization" strengthened China and Mexico's working class.

Biden already has been on camera stating that
(1) he does not think China is a threat or economic adversary to the USA
(2) he wants to undo Trump's immigration and border policies
(3) he wants to go after investments by raising the capital gains tax to the normal or marginal tax rates. He stated the capital gains taxes "are very low".

Misc says

Yes, both the democrats and republicans have been heavy users of trickle down economics. Capital gains are the rich mans welfare. It is money they didn't work for.

If you become rich enough anything makes you money for less to no work. You could also buy a few houses instead of a stock, hire a manager and rent them out. Or put your money into a CD. When you raise capital gains taxes you prevent those working hard and overtime and investing some of that money from becoming financially independent by double taxing the shit out of them. What we need is low income taxes no matter how you make your income and tax anything as income. I'd be fine with a max. 20% flat tax (the lower the better) on any sort of income, maybe even better to tax income at 20% and capital gains at 0% on a sliding scale up to 20% depending on the ratio of income from work vs capital gains. This stuff is not hard to figure out and would make filing taxes a breeze instead of the typical leftoid taxing of capital gains until nobody invests anymore and all vertical mobility has been destroyed.

Misc says

As an example, there is about $15 trillion in negative yielding debt.

The I-series savings bond rate is 2.22%, which is on par with inflation.

What negative yielding debt ? You mean investing in European bonds like German treasury notes ?

If you are investing in I-series savings bonds, you are not investing for a profit. After factoring out taxes, you are losing money even if just a little bit. Not as bad as negative yielding bonds (most European sovereigns and investment grade bonds) along with the Japanese debt instruments. The folks investing in these can invest in our markets as well. Again there is about $15 trillion of them. Any small percentage of movement out of these assets would cause the market they are moving into to have massive price changes.

Misc,

Yep as far as any outflow out of treasury notes and bonds will drive up interest rates. Look at how the 10 year note's interest rate has decreased because of the sudden increase in demand for it (i.e., "flight to safety" ?).

https://www.bloomberg.com/graphics/negative-yield-bonds/

At end of 2019, about $11 trillion was invested in negative yield bonds.

mell says

Misc says

Yes, both the democrats and republicans have been heavy users of trickle down economics. Capital gains are the rich mans welfare. It is money they didn't work for.

If you become rich enough anything makes you money for less to no work. You could also buy a few houses instead of a stock, hire a manager and rent them out. Or put your money into a CD. When you raise capital gains taxes you prevent those working hard and overtime and investing some of that money from becoming financially independent by double taxing the shit out of them. What we need is low income taxes no matter how you make your income and tax anything as income. I'd be fine with a max. 20% flat tax (the lower the better) on any sort of income, maybe even better to tax income at 20% and capital gains at 0% on a sliding scale up to 20% depending on the ratio of income from work vs capital gains. This stuff is not hard to ...

When corporate profits increase by 4% for the year, the GDP increases by about 2% and forecasts are for GDP to increase less than 2% for 2020, having the stock market go up by 30% just reeks of mal-investment and manipulation. For the latest figures I can come across capital gains for the US are about $800 billion for the year. This corresponds closely to the much reviled amount spent on welfare. Again this is free money given to the rich.

I have no problem with people investing in houses and renting them out (in most places you get about 6% on your money, but in California it is much lower). What I have a problem with is people investing in housing and having the house prices increase 20% a year. Massive capital gains do not reward working and saving. They reward speculating. The same with the stock market.

Capital gains creates incentive for risk taking and investment in industries like technology which improve the overall standard of living.

Speculating of course is part of that risk vs reward investment environment. Overspeculation results in volatility and eventually correction and return to the mean.

You could say there has been a lot of volatility over the last 20 years with the S&P 500. Look at how it dropped 20% at the end of 2018, and then recovered in 2019.

On a larger timeline, the S&P 500's average total annual return is 6% over the last 20 years. Now the historical average is about 11% annually since the late 19th century.

TrumpingTits says

Again this is free money given to the rich.

Its not free money. It is a reward for making a risky investment.

A risk premium is the return in excess of the risk-free rate of return an investment is expected to yield; an asset's risk premium is a form of compensation for investors who tolerate the extra risk, compared to that of a risk-free asset, in a given investment.

I think the benchmark is 5% over inflation for someone willing to invest in an asset like a stock, real property, etc.

TrumpingTits says

Misc says

Again this is free money given to the rich.

Fine. Let's have an experiment.

Say, have Calizuela tax the shit out of cap gains. Like 100%.

See how much tax revenue the state loses. I'd say it will be enough to KILL the entire state government.

We could also run an experiment where we remove all social spending for residents of Cali and see what happens. Yes, America is addicted to free money policies for both the poor and the rich.

AD says

TrumpingTits says

Again this is free money given to the rich.

Its not free money. It is a reward for making a risky investment.

A risk premium is the return in excess of the risk-free rate of return an investment is expected to yield; an asset's risk premium is a form of compensation for investors who tolerate the extra risk, compared to that of a risk-free asset, in a given investment.

I think the benchmark is 5% over inflation for someone willing to invest in an asset like a stock, real property, etc.

If government policy has been pretty much to continuously reduce interest rates to prop up "risk" asset prices, then it is manipulation by the government in favor of the rich (hence trickle down) not any risk premium inherent in the investment itself.

Misc says

AD says

TrumpingTits says

Again this is free money given to the rich.

Its not free money. It is a reward for making a risky investment.

A risk premium is the return in excess of the risk-free rate of return an investment is expected to yield; an asset's risk premium is a form of compensation for investors who tolerate the extra risk, compared to that of a risk-free asset, in a given investment.

I think the benchmark is 5% over inflation for someone willing to invest in an asset like a stock, real property, etc.

If government policy has been pretty much to continuously reduce interest rates to prop up "risk" asset prices, then it is manipulation by the government in favor of the rich (hence trickle down) not any risk premium inherent in the investment itself.

I agree on the low interest rate policy, but that is a world-wide addiction because politicians long ago abandoned telling their constituents the truth, the countries are racing each other with ZIRP/NIRP. Wrt to speculation I have to disagree, many of the companies trade at reasonable forward P/S ratios, except for a few there's no bubble or over-speculation. The US economy simply has been running hot and people who invested accordingly got rewarded. I'm very critical of TSLA but I don't understand why you would want to tax all the people's gains away - it took a lot of guts, foresight and patience to invest your hard earned money in a company like TSLA while many called for bankruptcy and $5 stock price. Capital gains are nothing but double taxation and thus ideally only those who have no regular income or get the majority of their income from cap gains should be paying cap gains taxes, as explained above simple sliding scale with a maximum would take care of excess.

Patrick says

The real irony in Trump's presidency is that the corporate-owned Democrats who hate him so much were all taking bribes from businesses to drive down wages by importing illegals from Mexico ("Sanctuary!") and exporting jobs to China ("Free trade!").

Still sticking with this lie I see. Oh well.

Misc says

We could also run an experiment where we remove all social spending for residents of Cali and see what happens.

Illegals would move out. Homeless would move on. Sounds pretty good, actually.

AMZN trades at 4 times sales
MSFT trades at 8 times sales
FB trades at 8 times sales
NFLX trades at 8 times sales

The stock price of these could lose 50% and they could still be considered expensive. That is over a trillion dollars of fluff valuation. There are plenty of others trading at unrealistic prices. However, the laws of physics were violated on September 17th so the Fed went into crisis mode again.

The_Weeping_Ayatollah says

Misc says

We could also run an experiment where we remove all social spending for residents of Cali and see what happens.

Illegals would move out. Homeless would move on. Sounds pretty good, actually.

It wouldn't go smoothly. It would be Venezuela. Removing $200 billion from the state economy would cause unintentional side effects.

Misc says

If government policy has been pretty much to continuously reduce interest rates to prop up "risk" asset prices, then it is manipulation by the government in favor of the rich (hence trickle down) not any risk premium inherent in the investment itself.

Yes, I remember in high school during the 1980s how certificates of deposit offered attractive rates of return above inflation.

The fiat currency governments have to keep interest rates low. Think about if the 10 year note rose to 4% or 5% and its impact perhaps on debt service by the US government.

As a result, I agree, they essentially force the senior citizen or retiree savers to at least invest in a "fund of funds" like Vanguard Target Income Fund (30% stocks/70% investment grade bonds) or Vanguard Lifestrategy Conservative Growth Fund (i.e., 40% stocks/60% investment grade bonds). The target income fund averages about 5.5% a year since 2003.

I put a lot of time into a comment on this in another thread, so I'm going to repost it here in response to what I see as the silliness of your argument.

Patrick says

taking bribes from businesses to drive down wages by importing illegals from Mexico ("Sanctuary!") and exporting jobs to China ("Free trade!").

In my view, this is fantasy island propaganda. As I tried to explain in another thread, but I know you don't want to hear it:

It's true that it's harder for poor folks to make a decent living then 50 years ago, but here are several bigger factors leading to this other than some ridiculous corporate America conspiracy to keep poor people down by bringing in cheap labor.

1) Real Estate, housing in general has been bid up in price - primarily the land component of the price - as population of US nearly doubled in the the past 50 years.

2) Women going to work en masse. Immigrants coming in pale in comparison in adding to labor supply

3) Globalization. We now compete globally as manufacturers with cheap labor from all over the world. WE won the war against communism based in large part on the idea of global free trade and capitalism.

I'm sure there are others, but in the end immigrants are not nearly the biggest factor in how hard it is to for many to make a decent living in America. It's not just a small factor in how we got here, but undoing it (AS IF ?) is not going to fix it.

The truth is that yes, we need those workers. You complain about service from non-white people at airports ? I don't think you could imagine the service you would see out there if all of those permanently unemployed types had to pick up the slack.

The real fact of the matter: We need those workers becasue our system depends on economic growth. That's the real reason it happens, not just here but in Europe too. We are so fortunate to have our southern neighbors ! It's not conspiracy to keep the poor poor. It's not even a conspiracy. IT's simply a continuation of growth based policies. The necessity of growth is so built in to our economic system, that nobody ever tries to argue how we continue (with debt build up etc) without continued exponential growth in the economy.

No offense, but from my point of view, you must know these things or have an inkling of what's really going on, but out of fear of changing demographics, you make up these laughable arguments that make absolutely no sense whatsoever.

:
I'm not arguing for open borders when I say that we needed those workers. But if there is a reason it has been allowed to the extent it has, it's becasue of that.

With the advent of robots, perhaps that era is coming to an end. But robots don't consume or pay taxes, so the problem isn't solved.

Misc says

AMZN trades at 4 times sales
MSFT trades at 8 times sales
FB trades at 8 times sales
NFLX trades at 8 times sales

The stock price of these could lose 50% and they could still be considered expensive. That is over a trillion dollars of fluff valuation. There are plenty of others trading at unrealistic prices. However, the laws of physics were violated on September 17th so the Fed went into crisis mode again.

Nasdaq.com allows you to check the price to earnings to growth (PEG) ratio for these companies. PEG was used by Peter Lynch to select stocks for his Magellan Fund.

Misc says

AMZN trades at 4 times sales
MSFT trades at 8 times sales
FB trades at 8 times sales
NFLX trades at 8 times sales

The stock price of these could lose 50% and they could still be considered expensive. That is over a trillion dollars of fluff valuation. There are plenty of others trading at unrealistic prices. However, the laws of physics were violated on September 17th so the Fed went into crisis mode again.

Why? Those are normal multipliers for profitable companies. No fluff there. Tsla is fluff.

Patrick says

But trickle up works, because the working class spends the income, then businesses benefit, and profits go up.

Agree, but what did the Republican party of whomTrump has almost total control do to make this happen? Ok the USMCA is a minimal improvement over NAFTA, the Chinese phase one is quite unclear as to its results. And? I suppose if you consider fucking up the enviromental regs. to allow more extraction and pollution helps the working man. Yeah until they die from environmentally caused disease. He gave 28 billion mostly to rich farmers is that trickle up or down or just buying votes?

The signature issue and definitely most important economic program was the tax bill. And it was mostly trickle down, even Trump would say that, though not in those terms.
While the Dems use trickle down too though less, it is the fundamental idea that infoms Republican economic ideology.

Chiromancer says

Patrick says

But trickle up works, because the working class spends the income, then businesses benefit, and profits go up.

MEanwhile the government is running trillion dollar deficits, so claiming that it's corporations that benefit is disingenuous.

Again, it's simply about our growth based system.

Population growth

Consumption growth

GDP growth.

Immigration adds to all of these, but I still say illegal immigration is not encouraged, it's not a conspiracy. In fact border security has been increasing steadily for 10 years now.

GDP Growth, population growth, etc. does not automatically translate into improvement of standard of living or quality of living.

mell says

Why? Those are normal multipliers for profitable companies. No fluff there. Tsla is fluff.

Facebook's PEG is 1.27.

A PEG of 0 to 1 means undervalued, 1 to 1.5 is fairly valued, and above 1.5 is overvalued. That is what Peter Lynch used to pick stocks.

https://www.nasdaq.com/market-activity/stocks/fb/price-earnings-peg-ratios

Amazon's PEG is 2.79

https://www.nasdaq.com/market-activity/stocks/amzn/price-earnings-peg-ratios

AD says

GDP Growth, population growth, etc. does not automatically translate into improvement of standard of living or quality of living.

In fact, we will need a stabilized population if we want to keep a 1st World lifestyle. I am amazed at the cognitive dissidence of the Left who keep banging the drum of unfettered immigration while complaining about man made global warming. Obviously, more industrialized population means more pollution, more resource depletion, more demand on housing, and so on. Kinda shows that for the Left it is really about cheap labor and packing the voter roles.

AD says

mell says

Why? Those are normal multipliers for profitable companies. No fluff there. Tsla is fluff.

Facebook's PEG is 1.27.

A PEG of 0 to 1 means undervalued, 1 to 1.5 is fairly valued, and above 1.5 is overvalued. That is what Peter Lynch used to pick stocks.

https://www.nasdaq.com/market-activity/stocks/fb/price-earnings-peg-ratios

P/E is different from P/S you must be talking about P / S where for growth stocks anything 10 and below is normal and not overvalued at all for fast growth sectors. You can't find a 1/1 valued stock that is profitable. P/E for profitable stocks can be anywhere from 10-100+. I believe Lynch was mainly talking about utility and AG sectors and other old school sectors where 1-3 multipliers are more common as growth is generally not anywhere as fast as in tech or pharma stocks for example.

At a P/ E of 1 for a profitable co. you could buy it out for a multiplier of 2-3 and make tons of money if you keep selling/making profit at the same rate for at least 5-10 years. 1 is extremely cheap. I only found 1 biotech trading at 1 currently, that is NEOS. And I screened many.

HeadSet says

Kinda shows that for the Left it is really about cheap labor and packing the voter roles.

I agree. Its a perfect storm between the open border Democrats and the growth-at-any-cost, chamber-of-commerce Republicans. They both allowed the immigration crisis to occur.

For the Dems its cognitive dissonance as they cynically rather trade off the ill-effects of population growth if they can make America more representative of the 3rd world and less European in origin.

They want to see Central America and Mexico benefit at the expense of the USA's middle and working class. How ? We send our jobs to them and they in turn send their unwanted, illiterate masses to the USA in exchange. That is how they become richer as 35% of their countries are illiterate, that is cannot read and write in Spanish.

Where are all the Democrats promoting abortion services in 3rd world regions like Central America ?

Ah PEG is p/E divided by growth rate. That is an entirely different measure. P/E alone is like 50.

mell says

P/E is different from P/S you must be talking about P / S

I agree earnings and sales growth are both important. You need to make sure the company is steadily growing sales as well and not just relying on cost cutting, stock buy backs, etc. Part of that may be investing in a company with an "economic moat".

But I rather focus on earnings growth that is why I like P/E to Growth ratio (PEG) as a company can be very unprofitable yet be a leader as far as sales or revenue.

I think the same Peter Lynch rubric for PEG applies to technology companies as it does to banks and real estate companies.

mell says

Ah PEG is p/E divided by growth rate. That is an entirely different measure. P/E alone is like 50.

Exactly Mell. A company can have a high PE ratio (trailing 12 months) but its forecasted 12 month earnings growth rate that is very high.

So a company with a stock price of $50 and earnings per share of $1 has a PE ratio of 50 (i.e., $50 per share / $1 earnings per share).

If its forecasted 12 month earnings growth rate is 10%, then its PE to Growth ratio (PEG) is 50/ 10 or 5.

Since the PEG is over 2 then it is extremely over valued.

I think some analysts use a forecasted annual growth rate for the next 5 years instead of next 12 months.

What is a good tool is to compare actual PEG to forecasted PEG to see how accurate the forecasting is. I think you can plot that using Guru Focus without having to pay for a subscription.

Chiromancer says

Agree, but what did the Republican party of whomTrump has almost total control do to make this happen? Ok the USMCA is a minimal improvement over NAFTA, the Chinese phase one is quite unclear as to its results. And? I suppose if you consider fucking up the enviromental regs. to allow more extraction and pollution helps the working man. Yeah until they die from environmentally caused disease. He gave 28 billion mostly to rich farmers is that trickle up or down or just buying votes?

The signature issue and definitely most important economic program was the tax bill. And it was mostly trickle down, even Trump would say that, though not in those terms.
While the Dems use trickle down too though less, it is the fundamental idea that infoms Republican economic ideology.

1)the 28 billion paid to farmers care out of the 125 billion collected from the tariffs. It is the cost of having a trade war. A trade war that all the elite assholes said was UN winnable. A trade war that Trump won.
2)Yes, trickle down is a GOP ideology. Trump has been working to change that prevailing theory and bring the Republicans into a new era of supporting working families.

Offshoring and illegal-immigrant labor is a form of tragedy of the commons. If only a single company does it, that company gets the benefits but they tiny downside is felt by everyone. If every company does it, then downside becomes enormous and completely outweighs the benefits. A tragedy-of-the-commons situation is something where government might have a useful role in either outlawing the situation or reworking the laws so that the beneficiaries of the bad behavior are the ones that feel the entire effect of the downside.

AD says

GDP Growth, population growth, etc. does not automatically translate into improvement of standard of living or quality of living.

Who said it has to?