Highlights from February — Third Wave Finance on Twitter

third wave finance 2-28-2017

Highlights from February — Third Wave Finance on Twitter

  • Comments by Bill Gross:
    • Comment on the erosion of capitalism and its effect on the financial system
    • Comment on temporarily elevated stock prices
    • Comment on banking deregulation, leverage, & risk

  • Comment on the breakdown of democracy and capitalism
    • Article also discussing the issue

  • Comment on the erosion of economic growth due to the misallocation of capital

  • Reminder that the majority of people are weighed down by unproductive debt; the majority of people do not own the majority of tradable securities — those securities are concentrated & held by a small minority of the population.

  • Reminder of demographic constraints on U.S. economy, and similarities with Japan — an economy that has suffered low growth due to debt and poor demographics for years

  • Comment from Seth Klarman on risks associated with the popularity of indexing and ETFs

  • Chart showing little — if any — correlation between long-term interest rates & stock valuations

  • Fantastic article by Van Hoisington & Lacy Hunt, summarizing the current economic and investment environment.

  • Reminder of growth constraints in over-indebted economies

  • Chart & Comment detailing consistently-overoptimistic expectations for rate rises; currently unable to meaningfully raise Fed funds rate without causing a crisis — an over-indebted economy is punished when the Fed rate target is moved up (larger interest payments, more money has to go to paying loans instead of spending to boost economic growth, defaults ensue)

  • Comment on social issues affected by broad over-indebtedness in a country

  • Example of often-misconstrued corporate tax rates; effective tax rates much lower than what is implied by listed tax rate — see chart and article.

  • Comments from Mark Yusko:
    • Comment on economic constraints due to demographics
    • Comment on asset bubbles and the “eyeballs” metric of the tech bubble

  • Comment on currency devaluations of the 1920s & 1930s; not so different from today in that this tactic is being used to “export” economic strain to other countries

  • Chart showing composition of U.S. debt

  • Chart showing 7-year real return forecast for various asset classes from Grantham, Mayo, Van Otterloo

  • Chart of S&P500 adjusted for inflation

  • Comment on how credit expansion has been associated with every asset bubble in history

  • Comment on the factors that affect velocity of money

  • Chart and comment on leverage/excessive-risk-taking via margin & corporate debt

  • Comment and additional comment showing scale of market loss required to get back to average historical valuation — this does not have to happen quickly, it can be drawn out with years of lackluster returns, but there is potential for it to occur (valuations have more predictive accuracy over time) — discussed further in Stock Market Bubble Valuations.

  • Fantastic article and highlight covering investing and the misrepresentation of data in the finance industry; also see this quote and chart

  • Chart showing employment/wage strain