Comments on: In answer to my question about economic issues…. by guestblogger Robert Arvanitis

By: Ymarsakar

Ymarsakar — Tue, 05 Feb 2013 05:25:59 +0000

I suspect that while some will suffer, many of the companies with rising stocks are technology based, such as Green energy, internet semi monopolies backed by Democrat politicians, and so forth.

This economy is not an equal well of depression and recession. Some people are making a lot more money than they would ever have under a Republican admin.

By: SADIE

SADIE — Tue, 05 Feb 2013 01:54:52 +0000

Momma Mia – I want one for my kitchen!

By: JKB

JKB — Tue, 05 Feb 2013 00:45:53 +0000

A burger flipping robot that turns out 340 gourmet burgers and hour without human involvement. In fact, it doesn’t slice the tomato until it is ready to put on the burger
globaleconomicanalysis.blogspot…robot-wars-in-china-bugger-flipping.html

And check out this pizza kiosk. 3 minutes, no human involvement. I assume a human must load the vacuum packed bags of ingredients every once in a while.

By: JKB

JKB — Sat, 02 Feb 2013 21:44:14 +0000

Not really an answer but an observation that I’ve been pondering.

During the Great Depression, after the initial wipeout, productivity in companies went up even as the weren’t hiring. A lot of innovations that were incorporated to make the remaining employees more productive. It really is the only way a company could survive.

I believe we are in a similar situation today. Unemployment is high but companies are making higher profits on higher productivity. Some claim this comes from working the remaining employees harder but that isn’t accurate. The remaining employees are using technology front-loaded by innovation before the collapse. As well as, unskilled labor is getting replaced by automation.

Now here is something that worries me. We had a world war that used up and forced improvement in the stagnant labor. Plus, we had the post-war period where few countries could supply the needs to rebuild or to race against the Cold War. So, what cataclysm awaits us? What crisis will push past the increase in productivity to need more production using more labor? Of course, now the threshold for taking on new human labor is much higher with the government mandates as well as government taking a larger bite out of the pie: labor (wages/benefits/obamacare), capital (ROI), government (direct taxes, employer portion of payroll taxes, worker insurance, etc.), that productivity is divided among.

By: SADIE

SADIE — Sat, 02 Feb 2013 19:55:45 +0000

Picking up where Danny began…”Their international sales are in currencies that don’t devalue against the dollar and may, in fact, appreciate against the dollar. This would be reflected in their stock prices.”

Early in the 4th century, Emperor Diocletian issued an infamous decree to control spiraling wages and prices in the rapidly deteriorating Roman Empire.As part of his edict, Diocletian commanded that any merchant or customer caught violating the new price structures would be put to death.

S&P finally downgraded the US one notch in August 2011, the SEC and Justice Department announced that S&P was under investigation, just two weeks later.
Egan-Jones, a smaller rating agency, has been even more aggressive, downgrading the US credit rating three times in 18 months. And while the federal government may not have imposed Diocletian’s death penalty, they are just as willing to squash dissent.

Egan-Jones is banned for the next 18 months from rating US government debt.

My question for brighter heads than mine: What currency, if any is real. Europe is on an austerity-lite diet, Japan’s population is contracting and every few months there’s the “swindle of century” in a headline from money managers from here to there. Wallstreet and Washington make the Gambino family look like small potatoes. Anyone asking why Germany, Switzerland … want to take physical possession of gold stored in the U.S. by 2020.

By: Danny Lemieux

Danny Lemieux — Sat, 02 Feb 2013 18:53:38 +0000

Two other factors to consider – yes, inflation increases prices and devalues the currency. However, many companies are global. Their international sales are in currencies that don’t devalue against the dollar and may, in fact, appreciate against the dollar. This would be reflected in their stock prices. Walmart, for example, is engaged in a major push into China. A Chinese friend recently told me that every major Chinese city now has a Walmart and that they are very popular.
Second, there is always money to be made in any market. There are companies doing well in the U.S., Europe and Japan, even though our respective economies are in the tank.
Third, markets are NOT efficient: a significant part of a stock’s price reflects consumer and institutional biases, which can be founded on very ephemeral assumptions. Thus, every time our government announced a new “stimulus”, there tends to be an irrational exuberance about the economy’s future.

By: nathan

nathan — Sat, 02 Feb 2013 18:19:03 +0000

Please allow me to register a slight exception to your stock market theory. Yes, today’s stock values, like all asset prices, are not worth as much because of inflation. And if the Dow Jones Industrial Average was expressed in dollars, the number of ounces of gold needed to buy the Dow has fallen over the past three years.
At current market prices it is difficult to find new stocks to buy. But, if you look at a stock as a bond-like investment with a growing coupon, and keep track of the yield you are now getting on your original cost, the results can be dramatic.
I keep a spreadsheet with detailed records of what I paid for a stock, estimates of what the underlying company will earn in the coming 12 months – or, in some cases, its free cash flow or expected increase in intrinsic value when those figures give a truer economic picture – to arrive at my yield on original cost (YOC). My average YOC is 17 percent, ranging from 7.5 to 35 percent.
If the managements of these companies do a reasonable job of reinvesting cash back into their business, I will eventually benefit, even if inflation gets worse. If a company repurchases shares, that also works for me. Dividends are the worst outcome because I must pay tax (outside of a retirement account) before reinvesting them.
Even now you can find a handful of quality companies, that may be held for the long-term, with a starting YOC of slightly over 10 percent. But these stocks are disappearing fast as investors figure out that “look-through earnings” – what Warren Buffett calls a shareholder’s proportionate share of the underlying company’s profits – is one of the last areas that can escape taxes, at least until a stock is sold.
It is important to maintain discipline when you buy, and to be vigilant for a time when stock prices reach ridiculously overvalued levels.

By: David Foster

David Foster — Sat, 02 Feb 2013 15:31:16 +0000

Re Book's post of a couple weeks ago on robots...I increasingly see robotics being used as an excuse for Obama's lame economy. I haven't heard much in the way of coherent arguments, though, as to why today's robotics technology would really be a breakpoint from the vast productivity improvements which have already been going on over the last 2+ centuries. An article on robotics and the economy which is better than most, HERE....although there are still some problems with the analysis, some of which I point out in comments there.

By: SADIE

SADIE — Sat, 02 Feb 2013 14:17:31 +0000

Feds aren’t using “real” money. QE 4 starting pumping [read: pimping and printing $85 billion …pause, take a breath…per month beginning Dec. 2012 into government bonds. A brief comment on insurance (Medicare supplemental). Premiums are rising and in the past two years, Ive seen a 40% increase. Enough of an increase that I changed from one plan to another to decrease payments. The change in no way really protects me within a policy year, since insurance companies can “adjust” rates to any change in Medicare rules and regs. along with age. I spent sometime with an insurance agent recently and asked, “what percentage of clients are asking questions” – the answer came back: Out of 100, eighty-seven have their head in the sand.

Robert Arvanitis:
Banks paying 2-3%? It’s fractional here on the east coast and less than 1/2% and the depositor must keep a minimum of $2,000. If the minimum deposit drops below said amount, one is charged monthly. Imagine, a penalty for keeping your money in a bank. The days of wine and roses and free toasters … kaput! Zimbabwe dollars here we come!

Obama called for a “level playing field” and he’s going to bulldoze the entire economy to get it. Note: XL Pipeline is on hold for another six months (minimum). What the hell…unemployment is up, gas is up, food is up and Obama’s mantra is UP YOURS!

By: David Foster

David Foster — Sat, 02 Feb 2013 13:52:15 +0000

One thing to remember is that: people who manage large amounts of money (that is not their own) need to constantly worry about keeping their jobs.

Let’s say James keeps 70% of his fund’s money in money market funds and short-duration bonds, with only 30% in equities….and Sandra, who is running a fund of the same category, puts 45% in equities and 45% in long-duration bonds (higher yields but also more exposed to price declines in event of increased inflation.) After a year, James has generated a return of 3% for his investors, but Sandra’s number comes in at 7%.

James is now worried about getting fired. He knows that if he follows a Sandra strategy, he is increasing the risk to his investors due to either (a)a sharp decline in stock prices, or (b)a rapid increase in inflation. But investors are migrating away from his fund, his management is not happy, and he figures maybe things will work out if he follows a Sandra strategy and tries to react very quickly if/when things turn to the downside….