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re: Economics Book Club (EBC): Book 4 Starts Aug 21 (The Smartest Guys in the Room)
Posted on 6/6/17 at 7:57 am to RedStickBR
Posted on 6/6/17 at 7:57 am to RedStickBR
I thought people must have thought it had something to do with my negative money printing thoughts. I'm jaded that we haven't had a real crash yet for 2008. Maybe too much zerohedge in my life... It is admirable to start an educational book club though, so kudos to you
I've started believing long term stock holding is almost entirely making money via inflation or money printing:
What is the con? The con is that economic growth is both good and real. It is most often neither. The long con is nominal returns versus real returns.
What keeps the con going? Apart from greed? Money printing.
Please, understand that if the amount of money in a closed system doubles, the value of each monetary unit halves, and the price of everything, including stocks, increases 100%.
I've started believing long term stock holding is almost entirely making money via inflation or money printing:
What is the con? The con is that economic growth is both good and real. It is most often neither. The long con is nominal returns versus real returns.
What keeps the con going? Apart from greed? Money printing.
Please, understand that if the amount of money in a closed system doubles, the value of each monetary unit halves, and the price of everything, including stocks, increases 100%.
Posted on 6/6/17 at 8:58 am to zatetic
There's no doubt expansion of the monetary base has led to a sustained rise in stock prices, but that's not the most proximate cause, in my opinion. Sure, it may be the ultimate cause, but the more direct cause is that historically low interest rates have allowed companies to engage in a level of financial engineering that is perhaps unprecedented in modern history. This ranges from simple refinancings to recapitalizations and even to debt issuances for the express purpose of funding share buybacks and dividends. In the aggregate, we've seen a market-wide and relatively massive decrease in the weighted average cost of capital which, given the lower implied discount rate, has resulted in higher equity valuations. As the tide goes back out, we'll see who can actually support the debt. The only thing that will burst the bubble will be a large increase in interest rates or reaching the point of maximum aggregate debt capacity. We could be close to both, but where else is there to put your money? The bond market is also arguably in bubble territory.
This post was edited on 6/6/17 at 9:24 am
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