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RedStickBR
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Member since Sep 2009
13873 posts

Interesting Business, Econ and Finance Links
I'm proposing a new thread that simply contains links to interesting business, economics and finance articles, books, blog posts etc., along with discussion thereon. That's it - a virtual "bookshelf" of sorts for the MT to refer back to over time. This isn't meant to replace any other threads; it's simply meant as a repository of interesting stuff that doesn't rise to the level of needing its own thread. Also, there is not even any need to provide any commentary or explanation for what you link (as might be expected when one creates a new thread). A link with the title contained within it will suffice. If this takes off, it very well may come to replace my use of "bookmarks" in Google Chrome. My thought there is that if something is interesting enough to bookmark for myself, why not share it with others and potentially generate some discussion / different takes in the process.

Good read from 2014 on meritocratic corporate cultures:

Meritocracy: The workplace culture that breeds success


Douglas Quaid
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Mars
Member since Mar 2010
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re: Interesting Business, Econ and Finance Links
Great idea.

Here is an apropos paper for todays market valuaions titled The Big Market Delusion: Valuation and Investment Implications


As a bonus, one of the paper's authors, a professor at NYU, has a web page which basically has an entire course in corporate finance and valuation. Video lectures and notes...

LINK


RedStickBR
LSU Fan
Member since Sep 2009
13873 posts

re: Interesting Business, Econ and Finance Links
Good stuff. I’ll check it out. I’m a big Damodaran fan - he’s done an immense amount of work sorting out where financial theory stands on a whole host of different topics. In addition to making a huge number of his own contributions, he’s effectively catalogued and organized a huge swath of the discipline.


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RedStickBR
LSU Fan
Member since Sep 2009
13873 posts

re: Interesting Business, Econ and Finance Links
quote:

The Big Market Delusion: Valuation and Investment Implications


A lot of good stuff in this paper. It's not the most groundbreaking research, but it proves my previous point that Damodaran is really good about summarizing the financial industry's collective knowledge about a topic and then repackaging it in a highly accessible way (such as with this paper). A few of the notes I took:

pp. 6-7: I love the way they sum up value vs. price here, with value being determined by "expected cash flows which incorporate growth and the risk that these cash flows will not materialize [this is effectively a DCF or DDM model]." Price they characterized as being a function of "demand and supply," but also "mood and momentum." They then drew a distinction between value being derived from methods which seek to measure intrinsic value, while price is often derived using relative value methodologies (i.e. multiple-based approaches). There's not much new in all of this, but I like how they tell that story and I couldn't agree more with the intrinsic vs. relative approaches.

p. 7: I like how they question EMH here. You're seeing more and more people come out against EMH. That is a good thing for the evolution of the financial industry, in my opinion.

p.7: As a value investor, the convergence of the gap between price and value is something I've come to rely on; however, the current market would have one go insane in terms of waiting for the current gap (price >>> value) to correct

p.8: I love the corporate life cycle approach to price and value. I had not thought about this in these terms before.

p. 17: I love how they characterized the prevailing mood at the height of the dot.com boom such that companies were "boasting about how much money they were losing to signal to markets that they were aspiring for more growth" and/or "arguing that making money was an overrated business idea." And then I read where they said that "portfolio managers promised to never again fall for the siren song of growth" again and question how we are where we are today. Of course, the big difference is less the "portfolio managers" and more the index funds and algos that dominate the markets today vs. 2000.

p. 24: I love the credit they give to short selling and put buying here as healthy developments vs. 2000. These are necessary tools in a well functioning market and can, in my opinion, assist in the "sobering of market expectations."

p 32: This was one of my favorite parts of the paper. I completely agree with the authors that "bubbles are part and parcel of markets" and "not necessarily a negative." What's more negative than the bubbles themselves, in my view, is not allowing them to pop. As Lacy Hunt recently said on Grant Williams' End Game podcast, "[the Fed's efforts to prevent bubbles from popping] thwart a couple of important mechanisms that make the free enterprise system work: creative destruction and moral hazard." As long as we are going to have bubbles, we should want them to periodically pop. Bubbles that don't pop result in behavior over time that is even more reckless than before and interferes with the economy's ability to allocate capital towards the highest and best use.

Final point on pp. 33-34 that people should print out and tape to their computer screens, "For valuation professionals, ... the key lesson is that pricing based upon multiples and the peer group can lead to significant over pricing. Put simply, companies can look fairly priced relative to other companies in a big market, but they can all be overvalued. While many ... professionals avoid in depth valuation [due to the associated difficulty] the very act of [attempting to perform the exercise] can prove to be the first step in recognizing the big market delusion, and perhaps correcting for it."

Again, good read, and thanks for sharing


Douglas Quaid
TBD Fan
Mars
Member since Mar 2010
2946 posts
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re: Interesting Business, Econ and Finance Links
Wow! great notes you have there.

Agree that there is nothing groundbreaking in the paper but thought there are some good lessons to be reminded of in today's frothy market-- particularly tech sector valuations.

EMH has never felt right to me and I tend to side with anyone who thinks of it as intellectual BS.




RedStickBR
LSU Fan
Member since Sep 2009
13873 posts

re: Interesting Business, Econ and Finance Links
God help this market if it decides to start trading on fundamentals vs. magic money. Perhaps we saw the start of that today:

The global coronavirus economy: How bad will it get?

Large jump in unemployment claims this week
This post was edited on 9/3 at 10:21 pm


RedStickBR
LSU Fan
Member since Sep 2009
13873 posts

re: Interesting Business, Econ and Finance Links
Great read from the FT; sorry if it’s paywalled - it works for me.

The Fed abandons the idea low unemployment stokes inflation


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SanJoseTigerFan
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re: Interesting Business, Econ and Finance Links
Wish I could read that


RedStickBR
LSU Fan
Member since Sep 2009
13873 posts

re: Interesting Business, Econ and Finance Links
Here are the relevant bits from Powell’s speech at Jackson Hole:

quote:

With regard to the employment side of our mandate, our revised statement emphasizes that maximum employment is a broad-based and inclusive goal. This change reflects our appreciation for the benefits of a strong labor market, particularly for many in low- and moderate-income communities.23 In addition, our revised statement says that our policy decision will be informed by our "assessments of the shortfalls of employment from its maximum level" rather than by "deviations from its maximum level" as in our previous statement.24 This change may appear subtle, but it reflects our view that a robust job market can be sustained without causing an outbreak of inflation.

In earlier decades when the Phillips curve was steeper, inflation tended to rise noticeably in response to a strengthening labor market. It was sometimes appropriate for the Fed to tighten monetary policy as employment rose toward its estimated maximum level in order to stave off an unwelcome rise in inflation. The change to "shortfalls" clarifies that, going forward, employment can run at or above real-time estimates of its maximum level without causing concern, unless accompanied by signs of unwanted increases in inflation or the emergence of other risks that could impede the attainment of our goals.25 Of course, when employment is below its maximum level, as is clearly the case now, we will actively seek to minimize that shortfall by using our tools to support economic growth and job creation.

We have also made important changes with regard to the price-stability side of our mandate. Our longer-run goal continues to be an inflation rate of 2 percent. Our statement emphasizes that our actions to achieve both sides of our dual mandate will be most effective if longer-term inflation expectations remain well anchored at 2 percent. However, if inflation runs below 2 percent following economic downturns but never moves above 2 percent even when the economy is strong, then, over time, inflation will average less than 2 percent. Households and businesses will come to expect this result, meaning that inflation expectations would tend to move below our inflation goal and pull realized inflation down. To prevent this outcome and the adverse dynamics that could ensue, our new statement indicates that we will seek to achieve inflation that averages 2 percent over time. Therefore, following periods when inflation has been running below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time.


quote:

The historically strong labour market did not trigger a significant rise in inflation. Over the years, forecasts from FOMC participants and private-sector analysts routinely showed a return to 2 percent inflation, but these forecasts were never realized on a sustained basis. Inflation forecasts are typically predicated on estimates of the natural rate of unemployment, or “u-star,” and of how much upward pressure on inflation arises when the unemployment rate falls relative to u-star. As the unemployment rate moved lower and inflation remained muted, estimates of u-star were revised down. For example, the median estimate from FOMC participants declined from 5.5 percent in 2012 to 4.1 percent at present.


New Economic Challenges and the Fed’s Monetary Policy Review

Here is an article from the Economist on the same topic. It’s paywalled for me, but maybe you’ll get lucky:

Why does low unemployment no longer lift inflation?

Here’s the theoretical Phillips curve:



Of course, actual economic data isn’t always as neat as the theory suggests. But you can clearly see the same general trend in this “actual Phillips curve” for France:



And here are some excerpts from the FT article tying it all together. Note, however, that I don’t necessarily buy this notion that the Phillips curve has all of a sudden flattened. See the Fed liquidity thread for more thoughts on the topic.

quote:

The long-held view that you cannot have a tight labour market without wage growth outstripping productivity growth — inflating prices in the process — is often expressed by the Phillips Curve.


quote:

The Phillips Curve matters because it feeds into policymaking, leading central bankers, for instance, to prematurely hike rates in the expectation that inflation will soon surge on the back of the labour market’s strength.

Indeed another Fed policymaker Lael Brainard has acknowledged that the rate hikes the central bank made in the years leading up to the pandemic were missteps. The abandonment of the curve has helped drive Powell’s view that it should shoot for an average inflation rate of 2 per cent, rather than targeting a rate of 2 per cent in the medium term regardless of whether prices were lower in the preceding years.

What that means in terms of monetary policy in the years ahead is that rates will stay lower for longer, even if unemployment falls back to where it was pre-pandemic.
This post was edited on 9/8 at 9:28 am


RedStickBR
LSU Fan
Member since Sep 2009
13873 posts

re: Interesting Business, Econ and Finance Links
Good read from a few months ago at the intersection of macro, energy and policy:

Why a great reset based on green energy isn't possible

Of course, those in the fossil fuels industry shouldn't get too excited, because the greenies will absolutely drive us towards the failures the article mentions.

Also, if wutang happens upon this thread, this quote from the article is for him:

quote:

Each country has its own way of providing subsidies to renewables. Most countries give wind and solar the subsidy of “going first.” They are often given a fixed rate as well. Both of these are subsidies. In the US, other subsidies are buried in the tax system. Recently, there has been talk of using QE to help wind and solar providers lower their cost of borrowing.


This post was edited on 9/14 at 9:45 am


wutangfinancial
LSU Fan
Dallas, TX
Member since Sep 2015
4534 posts

re: Interesting Business, Econ and Finance Links


So predictable! Climate change is now a racket for Wall Street, Congress and the Treasury for more stimulus it's so obvious. Nothing like more government debt crowding out the private sector.

That article needs to be shared. It's spot on.
This post was edited on 9/14 at 6:50 pm


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RedStickBR
LSU Fan
Member since Sep 2009
13873 posts

re: Interesting Business, Econ and Finance Links


RedStickBR
LSU Fan
Member since Sep 2009
13873 posts

re: Interesting Business, Econ and Finance Links
Not many V-shapers in the real economy:



Shapes of Recovery: When Will the Global Economy Bounce Back?
This post was edited on 9/20 at 12:06 pm


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callofthewild
Member since Jul 2019
17 posts

re: Interesting Business, Econ and Finance Links
Big thank you for the link to the NYU professor’s page. Absolutely will be going through those courses, as I’ve been wanting to access this kind of material without enrolling in formal classes.


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