The economy, the policies and a couple stock updates
The world’s economies are struggling, but corporate profits are through the roof, at all time highs and still climbing.
Why would we ever expect the stock market to reflect mediocrity of the economy when corporate earnings themselves are what drive the stock market and while the broader global economy isn’t strong, corporate earnings, margins, and growth have been thru the roof since 2009? This is why I’ve banged the table for the last five years as a big bull predicting this ongoing bubble blowing bull market we’ve living through.
In the long run, it’s also corporate profits that drive economies, (thinking of George Soros’ “Reflexivity” theories here). Isn’t it likely the broader economies improve and not just the possibility that the corporate earnings fall?
Without Central Bank printing, 0% interest rates, bailouts and trillions in corporate welfare syphoning off the prosperity gains from technology in the last two or three decades….the DJIA would more than half full of companies that came public in the last ten years and would be at 30,000 and people in rural and inner city US would be much wealthier and prosperous and the entire nation’s citizenry would be much better off.
If the government/FED had never bailed out LTCM, Citibank, or the entire financial sector’s shareholders in 2008, there would be trillions of dollars that wouldn’t have then been misallocated. If homeowners weren’t subsidized by renters via tax breaks, there’d be trillions of dollars that wouldn’t have been misallocated….Every major bank would have been bankrupted, Buffett wouldn’t be worth billions, and there would have been new banks, new models, new companies that thrived in the face of those losers. Trillions of dollars not destroyed thru misallocation and redistribution upward in a $15 trillion annual economy would result in a much more prosperous and bigger overall GDP and the DJIA would be 70% technology companies including Google, Netflix and Facebook and would be at 30,000 or who knows how high.
The government should have punished executives at banks who were lying about their asset prices and inflating bonuses and so on. The government should have let every bank that was going under, simply go under and let smarter execs and shareholders buy up the assets at pennies on the $ and ensure the bank depositors would be made whole before any lenders or shareholders saw a penny.
Governmental movement/control of money from one pocket to another destroys wealth and misallocates the capital into a smaller, more connected, less efficient group of hands.
Homeowners tax breaks are evil upward redistributions of wealth and always have been. Sending money to homeowners who were rich enough to have poorly risked money buying real estate at the top wouldn’t have been fair either. Are we communists? Socialists? What the hell kind of justification has there ever been for welfare for the rich?
Renters lose when real estate owners benefit from government largesse. There’s always somebody paying for any governmental redistribution of wealth upward or downward. People rich enough to risk money on real estate should have to deal with the consequences of their decisions regardless of what happens to the price of their assets.
Homeowners is another word for “people rich enough to have risked money buying real estate.”
The pain should go to those who risked and lost, period. Getting “Ripped Off” means having someone steal from you without your choosing that risk. Buying real estate, whether for the first time or tenth time, is a risk and those who risk it should lose every time the market crashes on them. That’s not being ripped off. That’s being wrong. I chose not to buy real estate until 2010, when I was 38 years old. Because I wasn’t rich enough and/or I didn’t want to to risk that money.
Many very smart, very wealthy friends of mine avoid owning real estate at all costs — the upkeep, the risk of losses, the taxes, the lack of liquidity are just some of the reasons that people should think twice before risking their money on real estate including home ownership. I spent thousands of dollars a month in rent on my Soho apartment back in 2007-2009 and didn’t feel like it was wasted money — I was able to move when I wanted to and never had to worry about trying to sell the place.
No free lunches when government moves money around, as somebody always has to pick up the tab. Interest on trillions that still need to be repaid are no joke in the long-run too. So many moving pieces to the policy/economic debate — the powers that be have made it as complicated and wonky as they can, but it’s all usually rather straight forward in the end.
A couple notes on some of our stocks putting on big moves:
Sony – the stock is up more than 50% since we added it to the portfolio last summer and hit another new 52-week high yesterday. There’s no real new news that I see as a catalyst for the latest big pop, rather I think the markets are realizing how valuable the film and TV (and music too) libraries are at Sony.
Twitter – Twitter is now in the driver’s seat as perhaps the single best pureplay on the wearables revolution. I own Twitter since I bought common stock and call options in it when TWTR’s stock was in the low $30s and continue to hold my common stock position in it steady. The stock looks like it’s trying to break out and head to the $60s, but I wouldn’t be surprised to see a headfake sell-off back to the $50 level or below, if only to freak out the newfound longs and bulls in the stock.
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