Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: porcupine --''''> who wrote (1509)	4/3/1999 6:00:00 PM
From: Freedom Fighter	Read Replies (1) \| Respond to of 1722

Porc, >>Then why not get rid of money entirely, and go back to barter, thus eliminating the business cycle, unemployment, and any and all "monetary" problems.<< Money serves a very useful purpose. It facilitates exchange. Ex. If I produce computers I can't very well cut one of them in half to exchange it for something I need that is worth one half the value of my computer etc.... However, the amount of money in the system that facilitates that exchange need not vary to accomplish the task. Money makes things more efficient. >>Thus, wages were falling as output per worker was going up, a very perverse situation, both economically and politically. << Aside from the perceptions of a public that may not understand reality, I have no problem with falling wages as long as the prices for goods and services are falling faster. I have no stats on nominal wages, but real wages must have been rising. Personally, I would gladly take a 3% pay cut every year in dollar terms and accept no interest on my cash balances if prices were falling by 7% annually. No one is offering that deal though. >>Btw, as you know, in last week's Barron's AS devotee Gene Epstein argued that signs of malinvestment are not yet showing up in the macro economy. What is your reaction?<< It had no effect on my investment decisions for a variety of reasons. I get at the values from a different approach. My own view on the matter is that most of the misallocation in this cycle is in the financial asset area. (highly leveraged stock and bond positions etc..) So I am highly skeptical of the profitability of businesses that have benefited from the Wall St. boom. I would also "guess" that there are consumption excesses related to many people not understanding market valuation, expected future returns and the sort. Some people are living beyond their means but don't know it yet. I am requiring a higher margin of safety in my restaurant investments. That's the only place I venture that I think is vulnerable. I generally make these sorts of judgments by looking at aggregate returns in the industry and trying to estimate the sustainable levels. I am also not at all surprised that the stats show that everything is cool. That's what I would expect. Credit is stimulative and we are still in an easy credit environment. Wayne

To: porcupine --''''> who wrote (1509)	4/3/1999 6:37:00 PM
From: David C. Burns	Respond to of 1722

The conventional wisdom about the historical record (about which there are honest differences of opinion, as in everything else) is that when the US was as close to a gold standard as it has ever been (late 19th century to early 20th century), those with the coziest old-boy relationships with financial institutions (i.e., big industry) did "grow like crazy". And, prices were different -- they kept falling. This was not only due to real increases in productivity. In porx understanding, if you increase output while holding the base money supply constant, and assume a constant transaction velocity of money (granted, a major assumption, but regardless of how elastic it is, there must be some upper limit to the transaction velocity if output is growing at 4% to 6% annually, and the stock of gold is growing at a slower rate), then prices, not only of goods and services, but also of labor, must fall. Thus, wages were falling as output per worker was going up, a very perverse situation, both economically and politically. In a country with an almost insatiable demand for newly invented consumer goods, industry could keep increasing output to increase gross revenues. But, half or more of the US economy was still based upon agriculture at that time. Though the population was growing, food consumption per person, unlike consumer goods, also had upper limits (even for hungry porcupines). Thus, even if the farm sector only produced as much food as the population wanted to eat (another big assumption, not always warranted), the fixed supply of money in the face of growing output meant that farmers constantly saw food prices fall below the cost of the seed, fertilizer, equipment, and labor used to produce the food. They could also ramp up output, but in the face of relatively constant per capita demand for food, this only increased their losses. The one great economic advantage of owning a farm is that, no matter how bad everything else gets, you're the closest to the food supply. But, once the bank that takes your deposits and lends them to industrialists has foreclosed on your mortgage, you don't even have the food. This is not some hypothetical horror story -- this is what actually happened for the better part of the last half century of the gold standard. It went right on happening throughout the 1920's, while industrial output was growing like crazy, and farmers were using shotguns in a last ditch effort to keep banks from foreclosing on their farms. My cousin, a Mr. Bryan, once addressed this: jefferson.village.virginia.edu