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#11
05-06-2007, 11:47 PM
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Re: M3 = stealing from the laborer to give to the investor?
[ QUOTE ]
In some economic circles, it's accepted as a given that one of the main reasons the stock market continues to climb even as the subprime market melts down and economic growth is slowing is because the fed keeps pumping money into the system at a rate far exceeding current economic growth. This will, of course, eventually result in inflation, but in the meantime those who are wealthy enough to have considerable amounts of money invested in equities get to take the bubble for a ride and get nice returns. In this context then, I wonder if we could say that the financing of an equity bubble through jacking up M3 is a policy that harms those that have nothing invested more than it harms those who own considerable amounts of stocks. [/ QUOTE ] Out of curiosity, regarding an "equity bubble" what is your criteria for one? Also the amount of money involved in sub prime defaults is tivial when compared to the money involved in financing mortgages in the aggregate. 
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#12
05-07-2007, 12:11 AM
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Re: M3 = stealing from the laborer to give to the investor?
[ QUOTE ]
Based on CPI and the S&P 500 the adjusted increase is actual greater than 2.3% per year [/ QUOTE ] we're basically in agreement I think, except perhaps for measuring inflation. I mean, I'm pretty sure CPI underestimates inflation, I mean just look at the hedonic adjustments and stuff, but hey, I could be wrong. The dividend argument is pretty good though on the plus for stocks. On the minus for stocks of course is the capital gains tax. But the problem I have is that I have actually been in a university economics course where the professor is extolling the virtues of the stock market and bascially said it was a guaranteed 10% return per year over the long haul, which, quite bluntly, is simply not true at all.
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#13
05-07-2007, 01:46 AM
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Re: M3 = stealing from the laborer to give to the investor?
Haven't read up much on M3's correlation with stock prices, but M1...
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#15
05-07-2007, 02:33 AM
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Re: M3 = stealing from the laborer to give to the investor?
[ QUOTE ]
Haven't read up much on M3's correlation with stock prices, but M1... [/ QUOTE ] This could equally be evidence that the Fed is very good at their job. The market and the money supply are both supposed to trend with economic growth, so efficient stock markets and good monetary policy should produce lockstep outcomes. Also, that graph is sketchy. It's graphing "stocks"? And what is the "normalised scale" they're using? Does that mean they just distorted the results to get the best-looking fit?
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#16
05-07-2007, 02:49 AM
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Re: M3 = stealing from the laborer to give to the investor?
[ QUOTE ]
[ QUOTE ] Based on CPI and the S&P 500 the adjusted increase is actual greater than 2.3% per year [/ QUOTE ] we're basically in agreement I think, except perhaps for measuring inflation. I mean, I'm pretty sure CPI underestimates inflation, I mean just look at the hedonic adjustments and stuff, but hey, I could be wrong. The dividend argument is pretty good though on the plus for stocks. On the minus for stocks of course is the capital gains tax. But the problem I have is that I have actually been in a university economics course where the professor is extolling the virtues of the stock market and bascially said it was a guaranteed 10% return per year over the long haul, which, quite bluntly, is simply not true at all. [/ QUOTE ] If you combine growth, dividends and dont adjust for inflation then youre around 10% with a standard deviation of about 15.5%. using "guaranteed" is pretty far out there though. Most large portfolio managers are assuming about 8% for a balanced fund heavy on equities long term, so the stock component of that has to be approaching 10% as well. Im not sure what the capital gains tax comment was referring to. At least under current tax law stocks are more tax effective than fixed income investments because of the lower capital gains tax rate.
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#17
05-07-2007, 02:55 AM
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Re: M3 = stealing from the laborer to give to the investor?
[ QUOTE ]
Haven't read up much on M3's correlation with stock prices, but M1... [/ QUOTE ] Id also question what their "normalization" is. The money watch article talks about M1, M2, and M3 having no useful correlation. Unless the issue is that the money supply figures trail the markets so they have no predictive value, which fits with the prior observations that money supply responding to the economy is a goal of the Fed.
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#18
05-07-2007, 03:23 AM
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Re: M3 = stealing from the laborer to give to the investor?
[ QUOTE ]
If you combine growth, dividends and dont adjust for inflation then youre around 10% with a standard deviation of about 15.5%. using "guaranteed" is pretty far out there though. Most large portfolio managers are assuming about 8% for a balanced fund heavy on equities long term, so the stock component of that has to be approaching 10% as well. Im not sure what the capital gains tax comment was referring to. At least under current tax law stocks are more tax effective than fixed income investments because of the lower capital gains tax rate. [/ QUOTE ] Well the point is that in the real world there is inflation and you do have to pay taxes, so that 10% figure gets bumped down by each to the point where the anti-papermoney crowd can claim that stocks actually lose you real purchasing power. Obviously a fringe view, but much more correct than saying stocks will make you 10% a year, imo.
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#19
05-07-2007, 03:28 AM
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Re: M3 = stealing from the laborer to give to the investor?
[ QUOTE ]
[ QUOTE ] If you combine growth, dividends and dont adjust for inflation then youre around 10% with a standard deviation of about 15.5%. using "guaranteed" is pretty far out there though. Most large portfolio managers are assuming about 8% for a balanced fund heavy on equities long term, so the stock component of that has to be approaching 10% as well. Im not sure what the capital gains tax comment was referring to. At least under current tax law stocks are more tax effective than fixed income investments because of the lower capital gains tax rate. [/ QUOTE ] Well the point is that in the real world there is inflation and you do have to pay taxes, so that 10% figure gets bumped down by each to the point where the anti-papermoney crowd can claim that stocks actually lose you real purchasing power. Obviously a fringe view, but much more correct than saying stocks will make you 10% a year, imo. [/ QUOTE ] If you also correctly adjust bank accounts and bonds for the same inflation and higher tax rates the real after tax differential between them and the stock market makes the comparison much more favorable to stocks than just saying "10%". The trade off obviously is the high standard deviation.
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#20
05-07-2007, 04:41 AM
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Re: M3 = stealing from the laborer to give to the investor?
[ QUOTE ]
If you also correctly adjust bank accounts and bonds for the same inflation and higher tax rates the real after tax differential between them and the stock market makes the comparison much more favorable to stocks than just saying "10%". The trade off obviously is the high standard deviation. [/ QUOTE ] Yeah that's why I said the antipapermoneycrowd who advise hard assets, real estate, etc., over dollar denominated assets. I think it's interesting that if you told most people that the stock market would only give you a 2% or less return they would look at you like youre crazy. I mean even if the figures are off it's only 3-3.5%, I doubt people would even believe that. On the other hand I doubt things like gold are the answer, cause just look at e-gold, the guy got indicted again and all his assets(gold) frozen by the feds. with the thing about good money driving out bad money, I doubt the government would let gold get out of control when they can just use police powers, declare gold a terroriist weapon or something.
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