Pastimes
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The Big Picture - Economics and Investing
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| An SI Board Since March 1997 |
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This is a forum for those who wish to explore a number of topics that go, I guess, under the heading of economics. By that I DON'T mean what the next statistic out of Washington will be. I am thinking more in terms of big picture issues that impact your investment strategies, such as:
To what extent is the strength in the economy the result of a booming stock market and the easy availability of venture capital and IPO financing? If the market crashed or entered into a long bear market, might we enter a downward spiral, where the drying up of that financing weakens the economy, sending stocks even lower? In other words, is there a "proper" level of stock prices, and are we above it?
To what extent is the spread of capitalism worldwide helping us, by expanding markets and demand for our goods and services, or hurting us, by developing lower cost competitors? Is labor's share of corporate income going to decline forever, or might corporate profits as a percentage of sales be topping out? Can stock prices continue to grow at a rate that far exceeds the growth of the economy? Might bonds be a better investment than stocks over the next decade?
How should we really measure risk? Is there any merit to the various academic theories of investing?
While I expect this thread will mostly cover general topics, I'd also like see people apply micro-economics to particular industries. Supply, demand, fixed costs, variable costs, capital investment, barriers to and ease of entry - if you understand how these things operate, and have your facts correct, then no matter what the industry, you have an edge for predicting how its stocks will do. Wall Street's usual mistake - focusing on demand and ignoring supply - plays into the hands of those of us who do remember Econ. 101. So if you know any situations where basic economic principles create a great investment opportunity, long or short, please tell us about it here.
I'll start below with an intriguing recent argument that returns from investing in equities are bound to decline. Thanks.
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