The Economy and Economics

OP
johnlocke

johnlocke

Well-known member
Joined
Jan 11, 2008
Messages
13,251
Reaction score
4,850
Points
113
Age
48
Location
Salisbury, NH
This has gone on far too long. The extra unemployment is having significant impacts on companies. It is basically welfare and almost a Universal Basic Income and Dems are pushing for more of it.

You give people more than they make and those with small minds won't work.

Production or creativity is essential to self-esteem of which the progressives want to destroy. Because a person of high self-esteem can not be ruled.

 

aloyouis

at least generally aware
Joined
May 27, 2006
Messages
8,672
Reaction score
2,763
Points
113
Location
Michigan
This has gone on far too long. The extra unemployment is having significant impacts on companies. It is basically welfare and almost a Universal Basic Income and Dems are pushing for more of it.

You give people more than they make and those with small minds won't work.

Production or creativity is essential to self-esteem of which the progressives want to destroy. Because a person of high self-esteem can not be ruled.

Can't completely destroy the economy without rampant inflation....
 
OP
johnlocke

johnlocke

Well-known member
Joined
Jan 11, 2008
Messages
13,251
Reaction score
4,850
Points
113
Age
48
Location
Salisbury, NH
Last edited:
OP
johnlocke

johnlocke

Well-known member
Joined
Jan 11, 2008
Messages
13,251
Reaction score
4,850
Points
113
Age
48
Location
Salisbury, NH
DIVERSITY is the irrational, immoral, false Marxist-Leninist NOTION that PROFITS rise by FORCING businesses to match population %s regardless of MERIT and MOTIVATION.
 

aloyouis

at least generally aware
Joined
May 27, 2006
Messages
8,672
Reaction score
2,763
Points
113
Location
Michigan
No, they are not employees. They voluntarily enter into a contract as an independent contractor. All these rules will do is price gig workers out of competition.

The left will regulate capitalism when then can't otherwise control it.
 

HSanders

omitted out of respect to Mrs.Jastremski
Joined
Jun 15, 2006
Messages
27,347
Reaction score
6,286
Points
113
Location
on Pats Planet
this no 1099 jobs thing started being more of a force with obamacare. i guess they have to get their taxes up front. it is no one's responsibility but an employee's to figure out if a company's policies work for them. i HATE the thought that a company is your parent and owes it to you to provide a platform for your politics, gender issues, family increasing choices, health choices, etc.
 
OP
johnlocke

johnlocke

Well-known member
Joined
Jan 11, 2008
Messages
13,251
Reaction score
4,850
Points
113
Age
48
Location
Salisbury, NH

Yellen Says She Isn’t Predicting Higher Interest Rates​

Treasury Secretary walks backs comments she made earlier suggesting that rates might rise​



Treasury Secretary Yellen Doesn't Anticipate Inflation to Be a Problem

Treasury Secretary Yellen Doesn't Anticipate Inflation to Be a Problem

Treasury Secretary Yellen Doesn't Anticipate Inflation to Be a Problem

At The Wall Street Journal's CEO Council Summit, Treasury Secretary Janet Yellen expressed her confidence that the U.S. economy and employment will return to normal by next year.
By
Kate Davidson
Updated May 4, 2021 7:14 pm ET


WASHINGTON—Treasury Secretary Janet Yellen said Tuesday she is neither predicting nor recommending that the Federal Reserve raise interest rates as a result of President Biden’s spending plans, walking back her comments earlier in the day that rates might need to rise to keep the economy from overheating.

“I don’t think there’s going to be an inflationary problem, but if there is, the Fed can be counted on to address it,” Ms. Yellen, a former Fed chairwoman, said Tuesday at The Wall Street Journal’s CEO Council Summit.

Ms. Yellen suggested earlier Tuesday that the central bank might have to raise rates to keep the economy from overheating, if the Biden administration’s roughly $4 trillion spending plans are enacted.

Ms. Yellen’s remarks come as lawmakers debate the merits of the administration’s spending proposals, which many Republicans have said are too costly and risk stoking inflation. Consumer prices jumped 2.6% in the year ended in March, compared with a 1.7% rise in February. And long-term Treasury yields have risen on signs of economic strength and expectations that the Fed will have to raise rates sooner than officials have signaled.

“It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat, even though the additional spending is relatively small relative to the size of the economy,” she said in a prerecorded interview at the Atlantic’s Future Economy Summit.
Yellen: Avoiding a Corporate Tax 'Race to the Bottom'


U.S. Treasury Secretary Janet Yellen tells WSJ's Gerald Seib that raising corporate taxes and the global minimum tax will help countries fund programs such as infrastructure and education.

Ms. Yellen told The Wall Street Journal that she expects any near-term increases in inflation will be temporary. She echoed remarks from Fed Chairman Jerome Powell last week that the central bank isn’t worried about a persistent rise in inflation and that he expects that price increases over the coming months will subside.

The U.S. economy is poised for a rapid recovery this year, as newly vaccinated Americans flush with hundreds of billions of dollars in federal stimulus money increase spending. Gross domestic product climbed at a 6.4% seasonally adjusted annual rate in the first quarter, bringing the U.S. economy within 1% of its pre-pandemic peak.

Despite an improving economic outlook, most Fed officials expected to maintain ultralow interest rates through 2023, according to projections submitted at their March policy meeting. Just seven of 18 policy makers anticipated lifting rates in 2022 or 2023.
Some economists, including former Treasury Secretary Larry Summers, have warned that a burst of federal spending this year stemming from the $1.9 trillion Covid-19 relief package enacted in March could prompt unwelcome inflation.

Ms. Yellen said she expects to see some price pressures over the next six months, largely because of supply-chain bottlenecks, higher energy prices and a near-term demand for workers, as normal economic activity resumes. But she said she disagreed with Mr. Summers that the relief package would overheat the economy.


Yellen Says Crypto Regulatory Framework 'Not Up to the Task'

Yellen Says Crypto Regulatory Framework 'Not Up to the Task'

Speaking at The Wall Street Journal's CEO Council Summit, the U.S. treasury secretary said she didn't believe there was adequate regulatory framework for cryptocurrencies, but that the Federal Reserve was cautiously considering a digital currency.

“It’s something we’re watching very carefully, and there are tools to address it in the event that that occurs,” she said at the Journal summit. “But I really feel that this is necessary to make sure that the pandemic doesn’t result in permanent scarring of workers and families in our economy, that we’re able to get back on track quickly.”

She also played down concerns that Mr. Biden’s two new economic plans—one focused on infrastructure spending and another on families—would spur uncontrolled inflation. The spending, while large, would be spread out evenly over eight to 10 years, she said. The Biden administration has also proposed tax increases on corporations and the wealthy that officials say would pay for the plans over 15 years.

She emphasized that Mr. Biden’s proposed spending plans—such as on worker training, free community college and research and development—would help make the U.S. economy competitive and more productive.

Ms. Yellen’s remarks were unusual because White House officials typically refrain from commenting on monetary policy. Such was the norm for decades, starting in the Clinton administration, until President Trump began weighing in on the Fed’s actions and urging Mr. Powell to cut rates before the pandemic.

“If anybody appreciates the independence of the Fed, I think that person is me,” she told the Journal, adding that it is entirely up to the central bank how it manages monetary policy. “It’s not something I’m going to give opinions about.”

Stimulus Checks Alone May Not Spur Inflation. Here’s What Could.

Stimulus Checks Alone May Not Spur Inflation. Here’s What Could.

The IRS sent roughly 90 million stimulus checks to Americans in March. WSJ’s chief economics commentator Greg Ip explains why stimulus checks alone are unlikely to spur inflation. Photo Illustration: Carlos Waters

Stocks dipped after Ms. Yellen’s comments to the Atlantic, paring early declines, with the Dow Jones Industrial Average eventually posting a small gain. The yield on the benchmark 10-year U.S. Treasury note ended lower for a third consecutive session, settling at 1.591%, according to Tradeweb, down from 1.606% Monday. Yields on shorter-term Treasurys, which are especially sensitive to changes in monetary policy, were little changed—suggesting the remarks had little impact on investors’ interest-rate expectations.

Ms. Yellen’s message was that “rates may need to be slightly higher if the economy overheats. So I don’t think that was a major change from the outlook,” said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co.

Asked whether President Biden agreed with Ms. Yellen’s comments to The Atlantic, White House spokeswoman Jen Psaki told reporters Tuesday afternoon that the president certainly does.

“We also take inflationary risks incredibly seriously, and our economic experts have conveyed that they think this would be temporary and that the benefits far outweigh the concern,” she said.

In the Atlantic interview, Ms. Yellen appeared to be addressing the mechanics of interest rates and what she believed is likely to happen, not offering a critique of Fed policies, said Peter Conti-Brown, an assistant professor at the University of Pennsylvania’s Wharton School who has studied Fed independence. In that regard, her remarks weren’t unusual for a Treasury secretary, he added.


“Secretary Yellen’s statement—even to acknowledge that threshold exists, or that it is looming—risks taking sides in a debate where she undoubtedly has strong views but that strategically the Biden administration may want to avoid,” Mr. Conti-Brown said.
 

aloyouis

at least generally aware
Joined
May 27, 2006
Messages
8,672
Reaction score
2,763
Points
113
Location
Michigan

Yellen Says She Isn’t Predicting Higher Interest Rates​

Treasury Secretary walks backs comments she made earlier suggesting that rates might rise​



Treasury Secretary Yellen Doesn't Anticipate Inflation to Be a Problem

Treasury Secretary Yellen Doesn't Anticipate Inflation to Be a Problem't Anticipate Inflation to Be a Problem

Treasury Secretary Yellen Doesn't Anticipate Inflation to Be a Problem

At The Wall Street Journal's CEO Council Summit, Treasury Secretary Janet Yellen expressed her confidence that the U.S. economy and employment will return to normal by next year.
By
Kate Davidson
Updated May 4, 2021 7:14 pm ET


WASHINGTON—Treasury Secretary Janet Yellen said Tuesday she is neither predicting nor recommending that the Federal Reserve raise interest rates as a result of President Biden’s spending plans, walking back her comments earlier in the day that rates might need to rise to keep the economy from overheating.

“I don’t think there’s going to be an inflationary problem, but if there is, the Fed can be counted on to address it,” Ms. Yellen, a former Fed chairwoman, said Tuesday at The Wall Street Journal’s CEO Council Summit.

Ms. Yellen suggested earlier Tuesday that the central bank might have to raise rates to keep the economy from overheating, if the Biden administration’s roughly $4 trillion spending plans are enacted.

Ms. Yellen’s remarks come as lawmakers debate the merits of the administration’s spending proposals, which many Republicans have said are too costly and risk stoking inflation. Consumer prices jumped 2.6% in the year ended in March, compared with a 1.7% rise in February. And long-term Treasury yields have risen on signs of economic strength and expectations that the Fed will have to raise rates sooner than officials have signaled.

“It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat, even though the additional spending is relatively small relative to the size of the economy,” she said in a prerecorded interview at the Atlantic’s Future Economy Summit.
Yellen: Avoiding a Corporate Tax 'Race to the Bottom'


U.S. Treasury Secretary Janet Yellen tells WSJ's Gerald Seib that raising corporate taxes and the global minimum tax will help countries fund programs such as infrastructure and education.

Ms. Yellen told The Wall Street Journal that she expects any near-term increases in inflation will be temporary. She echoed remarks from Fed Chairman Jerome Powell last week that the central bank isn’t worried about a persistent rise in inflation and that he expects that price increases over the coming months will subside.

The U.S. economy is poised for a rapid recovery this year, as newly vaccinated Americans flush with hundreds of billions of dollars in federal stimulus money increase spending. Gross domestic product climbed at a 6.4% seasonally adjusted annual rate in the first quarter, bringing the U.S. economy within 1% of its pre-pandemic peak.

Despite an improving economic outlook, most Fed officials expected to maintain ultralow interest rates through 2023, according to projections submitted at their March policy meeting. Just seven of 18 policy makers anticipated lifting rates in 2022 or 2023.
Some economists, including former Treasury Secretary Larry Summers, have warned that a burst of federal spending this year stemming from the $1.9 trillion Covid-19 relief package enacted in March could prompt unwelcome inflation.

Ms. Yellen said she expects to see some price pressures over the next six months, largely because of supply-chain bottlenecks, higher energy prices and a near-term demand for workers, as normal economic activity resumes. But she said she disagreed with Mr. Summers that the relief package would overheat the economy.


Yellen Says Crypto Regulatory Framework 'Not Up to the Task''Not Up to the Task'

Yellen Says Crypto Regulatory Framework 'Not Up to the Task'

Speaking at The Wall Street Journal's CEO Council Summit, the U.S. treasury secretary said she didn't believe there was adequate regulatory framework for cryptocurrencies, but that the Federal Reserve was cautiously considering a digital currency.

“It’s something we’re watching very carefully, and there are tools to address it in the event that that occurs,” she said at the Journal summit. “But I really feel that this is necessary to make sure that the pandemic doesn’t result in permanent scarring of workers and families in our economy, that we’re able to get back on track quickly.”

She also played down concerns that Mr. Biden’s two new economic plans—one focused on infrastructure spending and another on families—would spur uncontrolled inflation. The spending, while large, would be spread out evenly over eight to 10 years, she said. The Biden administration has also proposed tax increases on corporations and the wealthy that officials say would pay for the plans over 15 years.

She emphasized that Mr. Biden’s proposed spending plans—such as on worker training, free community college and research and development—would help make the U.S. economy competitive and more productive.

Ms. Yellen’s remarks were unusual because White House officials typically refrain from commenting on monetary policy. Such was the norm for decades, starting in the Clinton administration, until President Trump began weighing in on the Fed’s actions and urging Mr. Powell to cut rates before the pandemic.

“If anybody appreciates the independence of the Fed, I think that person is me,” she told the Journal, adding that it is entirely up to the central bank how it manages monetary policy. “It’s not something I’m going to give opinions about.”

Stimulus Checks Alone May Not Spur Inflation. Here’s What Could.

Stimulus Checks Alone May Not Spur Inflation. Here’s What Could.

The IRS sent roughly 90 million stimulus checks to Americans in March. WSJ’s chief economics commentator Greg Ip explains why stimulus checks alone are unlikely to spur inflation. Photo Illustration: Carlos Waters

Stocks dipped after Ms. Yellen’s comments to the Atlantic, paring early declines, with the Dow Jones Industrial Average eventually posting a small gain. The yield on the benchmark 10-year U.S. Treasury note ended lower for a third consecutive session, settling at 1.591%, according to Tradeweb, down from 1.606% Monday. Yields on shorter-term Treasurys, which are especially sensitive to changes in monetary policy, were little changed—suggesting the remarks had little impact on investors’ interest-rate expectations.

Ms. Yellen’s message was that “rates may need to be slightly higher if the economy overheats. So I don’t think that was a major change from the outlook,” said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co.

Asked whether President Biden agreed with Ms. Yellen’s comments to The Atlantic, White House spokeswoman Jen Psaki told reporters Tuesday afternoon that the president certainly does.

“We also take inflationary risks incredibly seriously, and our economic experts have conveyed that they think this would be temporary and that the benefits far outweigh the concern,” she said.

In the Atlantic interview, Ms. Yellen appeared to be addressing the mechanics of interest rates and what she believed is likely to happen, not offering a critique of Fed policies, said Peter Conti-Brown, an assistant professor at the University of Pennsylvania’s Wharton School who has studied Fed independence. In that regard, her remarks weren’t unusual for a Treasury secretary, he added.


“Secretary Yellen’s statement—even to acknowledge that threshold exists, or that it is looming—risks taking sides in a debate where she undoubtedly has strong views but that strategically the Biden administration may want to avoid,” Mr. Conti-Brown said.
After she tanked the market yesterday...

She is an idiot and exactly the kind od DC sewer rat one would expect of the handlers of Biden to make him choose.
 
OP
johnlocke

johnlocke

Well-known member
Joined
Jan 11, 2008
Messages
13,251
Reaction score
4,850
Points
113
Age
48
Location
Salisbury, NH
"The rich should pay their fair share."

This term, "fair share", is an anticoncept. It's rationally unusable term designed to replace and obliterate some legitimate concept.

One legitimate concept is: the purpose of government.

Another is actual fairness. Fairness is when you get what you deserve. But in this catch-phrase, fairness is when you're harmed by the right amount.

This phrase smuggles the premise that it is a metaphysically-given fact of existence, that govt locks down economies, and subsidies people by the hundreds of millions.

What does fair mean? It means more. More than they currently pay. Then more than that. Then more. A blank check until the rich are drained of all blood.
 
OP
johnlocke

johnlocke

Well-known member
Joined
Jan 11, 2008
Messages
13,251
Reaction score
4,850
Points
113
Age
48
Location
Salisbury, NH
This way of thinking is insane. It never worked before and won't work again. Such short memories people have.

 

foobahl

Well-known member
Joined
Mar 6, 2007
Messages
4,329
Reaction score
1,853
Points
113
Location
the only Henniker on earth
This way of thinking is insane. It never worked before and won't work again. Such short memories people have.

Well for all jobs plans we must ask are the temporary jobs or permanent jobs. Once it is built or the contract is signed does the job go away.
 
OP
johnlocke

johnlocke

Well-known member
Joined
Jan 11, 2008
Messages
13,251
Reaction score
4,850
Points
113
Age
48
Location
Salisbury, NH
Well for all jobs plans we must ask are the temporary jobs or permanent jobs. Once it is built or the contract is signed does the job go away.

I don't think it matters as I think all works programs are a net drain on a country as they are taxpayer-funded. These are not private-sector jobs creating wealth. They are the public sector draining it.
 

foobahl

Well-known member
Joined
Mar 6, 2007
Messages
4,329
Reaction score
1,853
Points
113
Location
the only Henniker on earth
I don't think it matters as I think all works programs are a net drain on a country as they are taxpayer-funded. These are not private-sector jobs creating wealth. They are the public sector draining it.
I understand and somewhat agree with the post. I stated that because whenever there is a discussion of fossill fuels infrastructure that is one of the arguments against it. You know like in the end only 35 permanent will be created.
 

AkPatsFan

Well-known member
Joined
Dec 3, 2013
Messages
7,762
Reaction score
1,873
Points
113
Location
Eagle River, Ak
With the gov handing out money like it's candy, people would rather stay home and collect free money instead of working for it. Job gains were expected to hit close to a million but the real number is much, much lower at 277k. More winning from the Biden administration.

 
OP
johnlocke

johnlocke

Well-known member
Joined
Jan 11, 2008
Messages
13,251
Reaction score
4,850
Points
113
Age
48
Location
Salisbury, NH

What Happens to Stocks and Cryptocurrencies When the Fed Stops Raining Money?​

An unprecedented fiscal and monetary stimulus led by the Federal Reserve is fueling a new investor euphoria. Is this a new bubble? And when could it burst?​

NICOLAS ORTEGA



To veterans of financial bubbles, there is plenty familiar about the present. Stock valuations are their richest since the dot-com bubble in 2000. Home prices are back to their pre-financial crisis peak. Risky companies can borrow at the lowest rates on record. Individual investors are pouring money into green energy and cryptocurrency.

This boom has some legitimate explanations, from the advances in digital commerce to fiscally greased growth that will likely be the strongest since 1983.

But there is one driver above all: the Federal Reserve. Easy monetary policy has regularly fueled financial booms, and it is exceptionally easy now. The Fed has kept interest rates near zero for the past year and signaled rates won’t change for at least two more years. It is buying hundreds of billions of dollars of bonds. As a result, the 10-year Treasury bond yield is well below inflation—that is, real yields are deeply negative —for only the second time in 40 years.


There are good reasons why rates are so low. The Fed acted in response to a pandemic that at its most intense threatened even more damage than the 2007-09 financial crisis. Yet in great part thanks to the Fed and Congress, which has passed some $5 trillion in fiscal stimulus, this recovery looks much healthier than the last. That could undermine the reasons for such low rates, threatening the underpinnings of market valuations.

“Equity markets at a minimum are priced to perfection on the assumption rates will be low for a long time,” said Harvard University economist Jeremy Stein, who served as a Fed governor alongside now-chairman Jerome Powell. “And certainly you get the sense the Fed is trying really hard to say, ‘Everything is fine, we’re in no rush to raise rates.’ But while I don’t think we’re headed for sustained high inflation it’s completely possible we’ll have several quarters of hot readings on inflation.”
Since stocks’ valuations are only justified if interest rates stay extremely low, how do they reprice if the Fed has to tighten monetary policy to combat inflation and bond yields rise one to 1.5 percentage points, he asked. “You could get a serious correction in asset prices.”

 
OP
johnlocke

johnlocke

Well-known member
Joined
Jan 11, 2008
Messages
13,251
Reaction score
4,850
Points
113
Age
48
Location
Salisbury, NH

‘A bit frothy’​

The Fed has been here before. In the late 1990s its willingness to cut rates in response to the Asian financial crisis and the near collapse of the hedge fund Long-Term Capital Management was seen by some as an implicit market backstop, inflating the ensuing dot-com bubble. Its low-rate policy in the wake of that collapsed bubble was then blamed for driving up housing prices. Both times Fed officials defended their policy, arguing that to raise rates (or not cut them) simply to prevent bubbles would compromise their main goals of low unemployment and inflation, and do more harm than letting the bubble deflate on its own.

As for this year, in a report this week the central bank warned asset “valuations are generally high” and “vulnerable to significant declines should investor risk appetite fall, progress on containing the virus disappoint, or the recovery stall.” On April 28 Mr. Powell acknowledged markets look “a bit frothy” and the Fed might be one of the reasons: “I won’t say it has nothing to do with monetary policy, but it has a tremendous amount to do with vaccination and reopening of the economy.” But he gave no hint the Fed was about to dial back its stimulus: “The economy is a long way from our goals.” A Labor Department report Friday showing that far fewer jobs were created in April than Wall Street expected underlined that.
The Fed’s choices are heavily influenced by the financial crisis. While the Fed cut rates to near zero and bought bonds then as well, it was battling powerful headwinds as households, banks, and governments sought to pay down debts. That held back spending and pushed inflation below the Fed’s 2% target. Deeper-seated forces such as aging populations also held down growth and interest rates, a combination some dubbed “secular stagnation.”

The pandemic shutdown a year ago triggered a hit to economic output that was initially worse than the financial crisis. But after two months, economic activity began to recover as restrictions eased and businesses adapted to social distancing. The Fed initiated new lending programs and Congress passed the $2.2 trillion Cares Act. Vaccines arrived sooner than expected. The U.S. economy is likely to hit its pre-pandemic size in the current quarter, two years faster than after the financial crisis.
And yet even as the outlook has improved, the fiscal and monetary taps remain wide open. Democrats first proposed an additional $3 trillion in stimulus last May when output was expected to fall 6% last year. It actually fell less than half that, but Democrats, after winning both the White House and Congress, pressed ahead with the same size stimulus.


The Fed began buying bonds in March, 2020 to counter chaotic conditions in markets. In late summer, with markets functioning normally, it extended the program while tilting the rationale toward keeping bond yields low.
At the same time it unveiled a new framework: After years of inflation running below 2%, it would aim to push inflation not just back to 2% but higher, so that over time average and expected inflation would both stabilize at 2%. To that end, it promised not to raise rates until full employment had been restored and inflation was 2% and headed higher. Officials predicted that would not happen before 2024 and have since stuck to that guidance despite a significantly improving outlook.

Running of the bulls​

This injection of unprecedented monetary and fiscal stimulus into an economy already rebounding thanks to vaccinations is why Wall Street strategists are their most bullish on stocks since before the last financial crisis, according to a survey by Bank of America Corp. While profit forecasts have risen briskly, stocks have risen more. The S&P 500 stock index now trades at about 22 times the coming year’s profits, according to FactSet, a level only exceeded at the peak of the dot-com boom in 2000.
Other asset markets are similarly stretched. Investors are willing to buy the bonds of junk-rated companies at the lowest yields since at least 1995, and the narrowest spread above safe Treasurys since 2007, according to Bloomberg Barclays data. Residential and commercial property prices, adjusted for inflation, are around the peak reached in 2006.


Stock and property valuations are more justifiable today than in 2000 or in 2006 because the returns on riskless Treasury bonds are so much lower. In that sense, the Fed’s policies are working precisely as intended: improving both the economic outlook, which is good for profits, housing demand, and corporate creditworthiness; and the appetite for risk.
Nonetheless, low rates are no longer sufficient to justify some asset valuations. Instead, bulls invoke alternative metrics.

Bank of America recently noted companies with relatively low carbon emissions and higher water efficiency earn higher valuations. These valuations aren’t the result of superior cash flow or profit prospects, but a tidal wave of funds invested according to environmental, social and governance, or ESG, criteria.

Conventional valuation is also useless for cryptocurrencies which earn no interest, rent or dividends. Instead, advocates claim digital currencies will displace the fiat currencies issued by central banks as a transaction medium and store of value. “Crypto has the potential to be as revolutionary and widely adopted as the internet,” claims the prospectus of the initial public offering of crypto exchange Coinbase Global Inc., in language reminiscent of internet-related IPOs more than two decades earlier. Cryptocurrencies as of April 29 were worth more than $2 trillion, according to CoinDesk, an information service, roughly equivalent to all U.S. dollars in circulation.


Financial innovation is also at work, as it has been in past financial booms. Portfolio insurance, a strategy designed to hedge against market losses, amplified selling during the 1987 stock market crash. In the 1990s, internet stockbrokers fueled tech stocks and in the 2000s, subprime mortgage derivatives helped finance housing. The equivalent today are zero commission brokers such as Robinhood Markets Inc., fractional ownership and social media, all of which have empowered individual investors.

Such investors increasingly influence the overall market’s direction, according to a recent report by the Bank for International Settlements, a consortium of the world’s central banks. It found, for example, that since 2017 trading volume in exchange-traded funds that track the S&P 500, a favorite of institutional investors, has flattened while the volume in its component stocks, which individual investors prefer, has climbed. Individuals, it noted, are more likely to buy a company’s shares for reasons unrelated to its underlying business—because, for example, its name is similar to another stock that is on the rise.

While such speculation is often blamed on the Fed, drawing a direct line is difficult. Not so with fiscal stimulus. Jim Bianco, the head of financial research firm Bianco Research, said flows into exchange-traded funds and mutual funds jumped in March as the Treasury distributed $1,400 stimulus checks. “The first thing you do with your check is deposit it in your account and in 2021 that’s your brokerage account,” said Mr. Bianco.

 
OP
johnlocke

johnlocke

Well-known member
Joined
Jan 11, 2008
Messages
13,251
Reaction score
4,850
Points
113
Age
48
Location
Salisbury, NH

Facing the future​

It’s impossible to predict how, or even whether, this all ends. It doesn’t have to: High-priced stocks could eventually earn the profits necessary to justify today’s valuations, especially with the economy’s current head of steam. In the meantime, more extreme pockets of speculation may collapse under their own weight as profits disappoint or competition emerges.

Bitcoin once threatened to displace the dollar; now numerous competitors purport to do the same. Tesla Inc. was once about the only stock you could buy to bet on electric vehicles; now there is China’s NIO Inc., Nikola Corp. , and Fisker Inc., not to mention established manufacturers such as Volkswagen AG and General Motors Co. that are rolling out ever more electric models.


But for assets across the board to fall would likely involve some sort of macroeconomic event, such as a recession, financial crisis, or inflation.
The Fed report this past week said the virus remains the biggest threat to the economy and thus the financial system. April’s jobs disappointment was a reminder of how unsettled the economic outlook remains. Still, with the virus in retreat, a recession seems unlikely now. A financial crisis linked to some hidden fragility can’t be ruled out. Still, banks have so much capital and mortgage underwriting is so tight that something similar to the 2007-09 financial crisis, which began with defaulting mortgages, seems remote. If junk bonds, cryptocoins or tech stocks are bought primarily with borrowed money, a plunge in their values could precipitate a wave of forced selling, bankruptcies and potentially a crisis. But that doesn’t seem to have happened. The recent collapse of Archegos Capital Management from reversals on derivatives-based stock investments inflicted losses on its lenders. But it didn’t threaten their survival or trigger contagion to similarly situated firms.
“Where’s the second Archegos?” said Mr. Bianco. “There hasn’t been one yet.”

That leaves inflation. Fear of inflation is widespread now with shortages of semiconductors, lumber, and workers all putting upward pressure on prices and costs. Most forecasters, and the Fed, think those pressures will ease once the economy has reopened and normal spending patterns resume. Nonetheless, the difference between yields on regular and inflation-indexed bond yields suggest investors are expecting inflation in coming years to average about 2.5%. That is hardly a repeat of the 1970s, and compatible with the Fed’s new goal of average 2% inflation over the long term. Nonetheless, it would be a clear break from the sub-2% range of the last decade.

Slightly higher inflation would result in the Fed setting short-term interest rates also slightly higher, which need not hurt stock valuations. More worrisome: Long-term bond yields, which are critical to stock values, might rise significantly more. Since the late 1990s, bond and stock prices have tended to move in opposite directions. That is because when inflation isn’t a concern, economic shocks tend to drive both bond yields (which move in the opposite direction to prices) and stock prices down. Bonds thus act as an insurance policy against losses on stocks, for which investors are willing to accept lower yields. If inflation becomes a problem again, then bonds lose that insurance value and their yields will rise. In recent months that stock-bond correlation, in place for most of the last few decades, began to disappear, said Brian Sack, a former Fed economist who is now with hedge fund D.E. Shaw & Co. LP. He attributes that, in part, to inflation concerns.

The many years since inflation dominated the financial landscape have led investors to price assets as I
f inflation never will have that sway again. They may be right. But if the unprecedented combination of monetary and fiscal stimulus succeeds in jolting the economy out of the last decade’s pattern, that complacency could prove quite costly.
 
Top