The Economist no longer buys the anti-European hype | 69 comments (69 topical, 0 editorial, 0 hidden)

Even in that article, the logic is that of favoring the "soft landing" and avoiding (mentioning) a crash,

In the US, most business publications, WSJ for example, have been debating the soft landing versus crash discussion for the last six months. It certainly is not an underplayed issue. Of course where you can really see what people think, is how they invest their money, and investors have been betting the last several months on a soft landing, and you can see that in the trends in the US stock markets since August. Of course as new data comes in, people adjust their bets. Personally I've been betting on a soft landing for more than a year now,,,,though continually reviewing the data.

by wchurchill on Sat Dec 2nd, 2006 at 10:47:20 AM EST
[ Parent ]

Soft landing (none / 1)

I did not see that as a debate: it's been a one-sided conversation, with all the supposedly serious publications falling in line to argue that there would be a soft landing, and that the bears were doing silly scaremongering. Even today it is the case - as this Economist article suggests.

It amounts to self-serving self-suggestion: keep on spending money (to our profit) you don't have, all will be well.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sat Dec 2nd, 2006 at 12:05:22 PM EST
[ Parent ]

Re: Soft landing (4.00 / 2)

The facts don't matter, only consumer and investor confidence matter.

Those whom the Gods wish to destroy They first make mad. -- Euripides

by Migeru (migeru at eurotrib dot com) on Sat Dec 2nd, 2006 at 12:16:55 PM EST
[ Parent ]

Re: Soft landing (none / 1)

oh it's very definitely a debate over here--big time!! This is one of those debates where fortunes can be made and lost, and a lot of smart guys are doing their best to figure it out, and be on the +fortune side of this.

It amounts to self-serving self-suggestion: keep on spending money (to our profit) you don't have, all will be well.

One other place where I think we disagree, (and with Migeru as well) is on this point of the main stream media having any real influence over the investment community. On the one hand, I definitely agree that MSM has points of view and pounds them unmercifully. But no serious investor pays attention to that rubbish, nor do people running the major businesses in the US, and around the world. Referencing Migeru's comment

The facts don't matter, only consumer and investor confidence matter.

I only wish that were true, because I'd be wealthier than Bill Gates if it were. Consumers will also make decisions based on their personal situation--income, expenses, etc. Yes some small short term influence which people try to gauge with consumer confidence,,,,,,but the facts catch up quickly with those consumers ignoring their personal situation and looking at the world through rose colored glasses.

And those investors, CEO's who call the trends correctly, are invariably the winners.

It's about understanding reality,,,,,it always has been--IMHO.

by wchurchill on Sat Dec 2nd, 2006 at 01:56:36 PM EST
[ Parent ]

Re: Soft landing (none / 0)

This is one of those debates where fortunes can be made and lost

Is it because of the fundamentals, or because whether the landing is soft or hard depends on some sort of consensus? Can a consensus of opinion drive the fundamentals? That is basically what I meant by The facts don't matter, only consumer and investor confidence matter, which is a facetiously naarrow rendering of Keynes, by the way.

Those whom the Gods wish to destroy They first make mad. -- Euripides

by Migeru (migeru at eurotrib dot com) on Sat Dec 2nd, 2006 at 05:13:51 PM EST
[ Parent ]

Re: Soft landing (none / 0)

It's a combination of understanding today's reality (the fundamentals) and who can project, in this vary complex world of many moving parts, the future most accurately.

A simple example, let's say I own the Coco Cola Company and you want to buy it. I look at my sales and profit projections and calculate NPV's, risks, etc, and I think the value of the company and its future earning stream is $10 billion. And I think that basically because I see sales growth at 3%. you do the same analysis and think that young people in China are going to go crazy over coke, and you use all the same numbers I do to calculate value, except that you see sales growing at 15% per year--you value the company at $20 billion. So you offer me $12, I take it thinking you are a fool. Some say we have different perceptions--perhaps true right now today. But 2 years down the road, sales have grown 15%, not 3%, you are a genius and have a company that can likely be sold for your $20 billion.

Both of us had an understanding of the current reality, but you understood a trend better than I, and you capitalized on it. The consensus of opinion was likely with me, the owner of the business. sales had been growing 3% per year for years, why should it change? You went against my opinion and the consensus, and you were right. The winner often bets against the consensus of opinion. he may look wrong in the present period,,,,but in time the trends play out, and we see who was right.

Often the best way to make money is to bet against the consensus. When people are so depressed about a falling stock price that it's hard to get anyone to buy the shares you hold, that often means prices have fallen to rock bottom, and the market is very undervalued. If you can see that moment, and act on it, fortunes can be made.

Obviously a very simple example holding all kinds of variables constant, which economists love to do.

by wchurchill on Sun Dec 3rd, 2006 at 03:15:02 AM EST
[ Parent ]

Re: Soft landing (none / 0)

Beautifully lucid.

I'm interested in how corporate earnings can be packaged and/or sold BEFORE the management gets its hands on them.

The entire Canadian Capital market has gone down this road - through the "Income Trust" phenomenon - which demonstrates quite how attractive such a "pre-distributive" model is to investors, particularly pension funds.

My thesis is that a "Capital Partnership" - ie the selling of proportional shares (through a partnership between "Capital User" and Investor in LLP or LLC vehicles) in revenues or production - is possibly an optimal asset class.

And of course, the valuation of such "Equity Shares" - as I call them for want of anything better - is entirely in line with the approach you set out with such clarity.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun Dec 3rd, 2006 at 06:15:32 AM EST
[ Parent ]

Re: Soft landing (none / 0)

Thank you for your gracious comment. I'm not very familiar with this asset class, but your comments sparked my interest and I did some quick reading here. If this correctly describes the Canadian trusts you are describing, i would agree that it has some very interesting features. It seems to combine, or blend, some of the features of equities and bonds,,,allowing the investor to get higher than bond returns, without the full risk of equities. That could be particularly attractive, as you say, for investors such as pension funds and perhaps retirees investing their own funds.

I don't know the Canadian tax laws, but it appears that the vehicle allows the penalty of double taxation to be avoided. That would be a very large benefit, if the tax rates on corporations, and then a second tax on distributions to shareholders in Canada are particularly high. This double taxation is a foolish idea in a capitalist system, imho, because it just creates unintended consequences, in the sense that corporations take other alternatives to avoid this double taxation. Unfortunately, to those that react to sound bites on the news (rather than understanding the economics), something like "only the rich get dividends, so they should pay high taxes on their dividends" is very appealing. But right now, in the US, we have lowered taxes on dividends to 15%, rather than taxing them at the higher ordinary income tax rates. So though it is still a problem, it is less so,,,and corporations are starting to pay dividends at higher levels now.

I'm hoping to go through your diary, which looks very interesting, but I need some time to spend on it. I started, but it requires some thought--ie. is not a quick read. So I'm putting it off until I can spend some time with it, and absorb it. Thanks for writing it.

by wchurchill on Sun Dec 3rd, 2006 at 11:36:09 AM EST
[ Parent ]

The Economist no longer buys the anti-European hype | 69 comments (69 topical, 0 editorial, 0 hidden)

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