> The timing of the IPOs only serves to further stoke the suspicions of those Wall Street observers who see a plot to transfer a private-market bubble into public hands.
In a world of ample private capital, there are only two real reasons to IPO: providing an exit for investors and raising monies that can't be raised in private. Neither reflect well on the future prospects of the company.
A third option - raising capital from a public market may be cheaper holistically. Perhaps the private money is heavy into competition, and you’re worries about onerous terms.
I’m sure we could think of other options if we tried really hard.
The whole business model of modern capitalism seems to be to exernalize every cost and privatize every profit, so just par for the course. At least let the public pension funds eat that bubble pop and not the VCs.
The 2009 fiscal stimulus gave us negative interest rates which fueled high equity valuations. Add in 2016 US tax law, and that’s why we’re where we are today.
Agreed. I'm curious how it is all going to break. Is it just the pension funds that will be left holding the bag? How much of a bailout is going to be required? It seems like companies are in a cycle of extracting all equity and selling worse debt to make payments on the already created bad debt.
When a company buys something (a capital expense) they are allowed to deduct its loss in value from their income every year to reduce their taxes. Calculating the exact value of things is hard to do without selling them, so for tax purposes things typically lose some fraction of their initial value every year. The number of years it takes the item to lose all of its value is typically 3, 5, 7, or 10 -- or my sample is biased. I am not an accountant.
In any case, the new "bonus depreciation" rules let companies take all of the depreciation in the first year. Effectively, they were able to shift their deductions from tax year 2019, 2020, 2021... into tax year 2018. I am sure many did/will. It's a nice trick to score a quick bump in profit, but it only works once.
If the market is full of dumb models that inappropriately extrapolate this bump into future years, the people investing money on the basis of those dumb models will be disappointed.
For those that are not as familar with depreciation. You have to pay taxes on profits, when you buy equipment/machines/buildings/etc. (called PP&E) that last for many years the tax code forces you to recognize the expense for tax purposes over the useful life of the asset. So you pay $100 for a new piece of equipment that will last ten years, every year for ten years you get to recognize $10 of expenses, so your taxable income is lowered by $10 each year. The tax law let everyone expense the entire value in the first year, so it encouraged purchases of PP&E as $1 dollar saved today is worth more then $1 saved ten years from now.
Three plus 2 is five! Five plus two is seven! Seven plus two is nine! What happened to nine you ask? Seven ate nine! This appears to be set notation in python.
If I've learned anything about the stock market, it's that no one knows what it's going to do. The only good plan is to make sure that you're going to be able to stay afloat if the market tanks tomorrow.
I closely align with 'Boglehead' investing philosophy. This school of thinking tries to minimize risk by emphasizing consistent investment over time, avoiding attempts to time the market and pick stock 'winners'.
One of the best parts of Boglehead culture is a set of short, easily remembered phrases that describe core principles. In this case, I think of the phrase "Nobody knows Nothing!", which means there has never been anyone who can consistently tell when the market is about to spike upward or downward.
As the saying goes, the markets can stay irrational longer than you can stay solvent. Even if someone can correctly predict a market crash, correctly timing it to make money is extremely difficult. You could go all in on far out of the money January 2020 puts only for the market to continue climbing and then crash hard in February 2020.
One could keep rolling the puts forward, though it would be a drag on returns if the market stays above the strike and the options stay out of the money.
Susquehanna made a killing during the dotcom crash by selling near-dated options and buying longer-dated options. Essentially, the majority of the market was pricing the dotcom crash to be very similar to the 1987 crash. Instead, it was closer to a slow bleed.
The flip side of "The markets can stay irrational..." is "Someone will probably get lucky anyway. But just because they did, doesn't mean you can learn anything useful from them."
I honestly don't know how we've been in a bull market this long. Trump's been turning a lot of economic knobs and the market hasn't really responded drastically like it has in the past. When it does crash, it's going to crash hard. Just my opinion.
Why would it crash hard unless interest rates go up by a significant amount? The financial industry is filled with tons of money that is looking for returns - it's just not going not sit in a bank and let inflation rot its value. If there's a downturn, it will be very temporary as Wall Street is so anxious/trigger happy. They'll immediately get greedy and buy any dips.
Everyday, there is new money flowing into the system automatically, without any conscious decision. It's coming from 401Ks, IRAs, etc. That money needs to be put into action.
> Why would it crash hard unless interest rates go up by a significant amount?
The 2008-era crisis in theory should have resulted in a whole heap of financial managers taking their companies bankrupt/to a place of horrid returns and being blacklisted from ever managing a lemonade stand. But they were bailed out, so now they got promotions instead for record returns or whatever it is they've been doing since. Since the finance industry has substantial control over what everyone else does, that leaks out into the real world.
So, the intuition is that the system is being corrupted and people with no ability to make good decisions are being put in charge. At some point that should boil over. You can fit math models to that and guess which metric will blow out first.
I'm not sure how much I buy that argument; people have an incredible ability to put up with suboptimal circumstances. But when you put idiots in charge there is always a risk that they do something spectacularly stupid so my personal guess is at some point the pensions crack and trigger something. It is a spectator sport in a way. Maybe America is productive enough that they can cope with a few bad eggs in the financial markets. Maybe the taxpayers can shoulder all burdens!
My interpretation is that something went wrong with bank regulation in the late 70s or early 80s. That is when the too-big-to-fail snowball started rolling; since then the stresses in the system seem to have been building. 2008 was a nasty blow.
>My interpretation is that something went wrong with bank regulation in the late 70s or early 80s. That is when the too-big-to-fail snowball started rolling; since then the stresses in the system seem to have been building. 2008 was a nasty blow.
Yes, it's called "Ronald Wilson Reagan" and was worsened when Glass Steagall was repealed by Clinton in a remarkably short-sighted move. Another poster already mentioned the Savings and Loan crisis that happened in the 90s that took taxpayers for a ride to the tune of 130 billion dollars (around 250 billion dollars today). We should have learned from it but for some reason (probably greed) we made the same mistakes again with Glass-Steagall and then not even 10 years after repealing that we reaped our rewards: subprime mortgages falling apart and taxpayers footing the bill while thousands were foreclosed on. The same is happening with auto loans right now.
For some reason, if you are a white collar criminal, the rules don't apply to you. No matter how much you fuck up and how much illegal shit you do, none of it sticks. Look at Boeing. 346 people died, but I honestly bet the worst thing that happens to any of the managers that OK'd that plane is they lose their jobs; realistically they probably won't even lose that. Maybe not get a bonus.
The common thread here is not just with deregulation being seen as the magical cure all that fixes all our problems (because as it turns out, sometimes we have regulations for very good reasons!) but that there are simply no consequences for doing bad things if you are stealing from or hurting the average American taxpayer. The only difference between Bernie Madoff and the bankers in 2008 that grifted us all is that Madoff made the mistake of trying to steal from the rich.
IIRC, that was when banks first were allowed to operate across state lines. Before that you might have "national associations" (banks that were connected to banks in other states), but the banks in each state were separate corporations.
Did you even bother reading the article? It basically states that we haven't learned out lessons from 2008. Was the 2008 crash because of fed interest rates? No, it was because of poorly designed high-interest junk bonds. The article says the same behavior that caused the market to tank in 2008 in happening again. Furthermore, if we take a look at past crashes we can see that there has been quite a few that were caused by the same issue, the early 80s Savings and Loan Crisis, the 89 bust of the high-yield bond market, the Dot Com Bubble of the early 2000s, and the Financial crisis of 2008 we all caused by Junk Bonds NOT the Fed.
Additionally the idea that new money flowing into the system from 401Ks, IRAs, etc is extremely naive. These are long term investment instruments sure but as they are generally not actively managed they are not immune to fluctuations in the market and the market is not immune to people who have the misfortune to retiring in an economic bust. I have observed this in the second person as my grandfather was well to do before 2008, did not listen to my advice to allocate his retirement money to a guaranteed interest plan until after the market hit bottom (which was the wrong time to do that) he basically lost 500k.
the big reason why the economy cyles is due to speculative cycle in land values, the booms/busts that aren't, are more like tulip bulb manias than real recessions/depressions
you could fix it by raising land value taxes high enough to extract all land rent and thus almost eliminating land speculation. At the same time you could get rid of most of our other taxes like capital gains and income taxes.
> the big reason why the economy cyles is due to speculative cycle in land values
Baloney. The last one was, true. The Great Depression wasn't land, though - it was the stock market.
And rents these days don't primarily come from land. Your land value tax fits the economy of a few centuries ago, where the income primarily came from land, but it doesn't fit today, where the income primarily comes from other kinds of assets. (The value of the land it occupies is not how Amazon makes money.) All your land tax would do is penalize land compared to other asset classes. And, since you are wrong in your first point (that economic cycles are driven by speculation in land), you would do this for no good reason. That's probably not going to end well.
The current default isn't going to end well either.
The obvious solution is a wealth tax instead of income taxes. Take back the money that's been privatised, end the pointless and inefficient boom and bust hamster wheel, and spend bigly on productive social investment - education, gamechanger R&D, small business development, aerospace, robotics, AI, renewables, and other physical infrastructure.
bullshit.
a big part of the assets the stock market is valuing is land/property. Banks lend out... mortgages... mcdonalds has... stores.
There was totally a land value bubble preceding the great depression.
Right now we have a land value bubble AND a nifty fifty style stock market bubble... but compare the dot com bust to the great recession. One was way more devastating than the other.
Right now, tech companies have very high pe ratios... BUT if and when those profits actually materialize, they will be capitalized into land values.
Even 10000 years from now, when civilization consists of a bunch of satellites orbiting the sun in a dyson swarm, an analogous orbit value tax will be the most logical source of tax revenue for a far future government.
Land is always a prequisite for doing business, and absent an LVT, private sector actors will benefit from the network effects inherent therein, instead of the community that that value was actually generated by.
What's your alternative to a LVT, a sales tax? A vat? Income tax? Deadweight loss, deadweight loss, deadweight loss.
Don't lose sight of the fact that in the case of 2008, we had absolute fraud taking place in both the mortgage bond market (abetted by the ratings agencies) as well as in the banks through fraudulent loan originations. Not only were there no-doc mortgages (NINJA loans), but also just outright fake people in the end. I don't think the same level of fraud is going on right now, okay maybe in cryptos...
Also, your grandfather shouldn't have had all his money in equities. He should have retired and lived out of a savings account while the markets rebounded then re-balanced into bonds/CDs as the market bounced back. I got whacked in '08, but then made it all back and more. 2 yrs. of living expenses in cash would have prevented losing 500K.
Every dollar in issues debt is effectively multiplied. When you turn back the knobs even a little bit, you’d be surprised by the amount of contraction. The “dodgy” money being described is more or less the froth that ends up at the very top.
The danger is that with such a long bull market, only God knows how many non-survivable companies there are beyond the Ubers and Lyfts.
What’s unsustainable will have to end eventually. Pushing money into the system doesn’t make the economy magically better by itself.
Unless the fed raises interest rates by 15% in one day raising interest rates dont cause crashes. Interest rates are raised partly in effort to stem the damage caused by economic downturns.
Same as any crash: If people think the market is going to do worse than a bank account in the near term, they sell. If enough people agree, it's a self-fulfilling prophecy.
Market Crashes are not that simple. More often than not they are a form of liquidity crisis on debt instruments that are poorly designed and lack the advertised returns after long term investment. Typically these bonds have low security collateral and high risk. In 2008 this was related to the subprime mortgage bubble, the coming bubble is sometimes referred to as the everything bubble. This will probably be escalated by the Trump Tax Cuts as many in the middle class ended up paying more in the last year than in previous years due to punitive removal of certain deductions designed to punish blue states.
> as many in the middle class ended up paying more in the last year than in previous years due to punitive removal of certain deductions designed to punish blue states.
I believe that the cap on deductions was a deliberate attack on blue states; I also believe a lot of people who received a tax cut believe that their taxes had risen.
Most of my co-workers who own a home paid additional taxes than we did last year. For a politically motivated myth it sure looks like $1.5k more than paid last year.