Too much money and too few places to invest it

https://www.axios.com/money-companies-investors-assets-buybacks-dividends-f0a4d79b-bfa7-4205-9d27-f09b50266307.html

by rndmize • 7 years ago

62 101 7 years ago

Ironically the best thing they can do to create new investment opportunities is pay their workers more, but they never will because they are too short sighted.

fastball6• 7 years ago

If you pay your workers more you have less money for investment opportunities...

Waterluvian• 7 years ago

Your workers buy your cars.

maxxxxx4• 7 years ago

But you have more opportunities.

skywhopper2• 7 years ago

This is a reason why increasing the minimum wage or providing health coverage for low-wage workers is a great way to improve everyone's situation. Sure, Walmart has to pay their workers more, but every low-wage worker who works for someone other than Walmart suddenly has a lot more money to spend... at Walmart. On net, companies like Walmart will benefit far more than they lose. But they aren't willing to unilaterally increase wages and benefits, reasonably enough. That's why you do it across the board.

NTDF9• 7 years ago

If you pay your workers more you have less money for investment opportunities...

Why are workers not an investment? Are your workers only encouraged to hit nails with hammer or can you think of ways to incentivizee them to innovate and do better than competition?

Oh wait, you must be a short-sighted employer.

rhizome3• 7 years ago

If you pay your workers more they can start new companies to invest in.

jayd16• 7 years ago

Paying your workers is the whole trickle down part of this ridiculous system. If you skip that part, why should we tolerate an investment class?

astazangasta2• 7 years ago

To repeat the basic premise of the article, the lack of money is not the problem, the lack of investment opportunities is. That lack is due to insufficient demand in the economy. You can stimulate that demand most easily by increasing the income of the lowest paid workers, who spend money the fastest. It also would produce productivity growth which would boost profits.

imtringued3• 7 years ago

There are no investment opportunities. Otherwise you would have invested in those and wouldn't complain about not knowing what to do with the money.

internet_user10• 7 years ago

I feel sympathetic to this argument, but running of money just short of take off/finding market fit/etc would lower workers pay to zero.

The real issue is that we live in such uncertain times it's very difficult to plan ahead, both employees and employers have become quite risk-averse.

chiefalchemist6• 7 years ago

"How we got here:

    The Fed's quantitative easing program pushed the cost of borrowing money to next to nothing for nearly a decade, allowing companies to splurge on debt for mergers and acquisitions and to boost revenue."

Put another way, the Fed made the rich richer, and the lack of significant "trickle down" has created a socio-political Charlie Foxtrot; of which the Fed is not accountable for.

cstrat• 7 years ago

I can't see how the continued erosion of the middle-class is not going to have huge impacts on the livelihood of everyone else.

dev_dull4• 7 years ago

Precisely why I’m a big fan of tariffs and America-first foreign policy.

We need a way to restore manufacturing industry to the US, the loss of which played a large role in the erosion of the middle class. Protecting manufacturing and factory jobs used to be a selling point for Democrats but things have been a little turned upside down lately.

internet_user10• 7 years ago

It already has? We are living it right now.

Spooky232• 7 years ago

There was a thread earlier today where people on a site catering to tech people were commenting on how they cannot afford to have children.

When people are rejecting reproduction and family to play video games and go on vacation, that’s an impact.

dev_dull4• 7 years ago

It’s trickled down but in narrow bands. For example, starting salaries in the Bay Area are up big in the last decade, partly because of an influx of easy money into tech growth tech companies.

However, much of that goes directly into the pockets of land owners.

Ultimately the winners in QE are those that own the finite resources.

siculars• 7 years ago

Ya, and? Isn't that always the case - the owners of finite resources profit. Is there some other way it would be?

rhizome3• 7 years ago

I thought ZIRP was the culprit, with QE being a response to the 2008 crashes that stacked up on it.

internet_user10• 7 years ago

and QE is just kicking the can down the road a little further. We are the new Japan.

theturtletalks5• 7 years ago

The Fed is against raising the minimum wage because it will make inflation increase above the allowed 2% per year. Which kind of makes sense because paying workers more will make things more expensive especially service businesses. But, they should still raise the minimum since most service businesses are heading for automation and the bump will help workers have a better job transition.

AnthonyMouse5• 7 years ago

Wouldn't it just make the automation viable more quickly?

rb808• 7 years ago

Source? I dont believe they ever said that.

tdfx• 7 years ago

Could you elaborate how the timing of a minimum wage hike now could help with the adjustment to the arrival of automation related job loss? Note: No snark on my part, it seems plausible and I'm generally looking to be able to debate the topic more intelligently.

repsilat2• 7 years ago

above the allowed 2% per year.

The US Fed's inflation target is symmetric about 2%, though it has almost consistently undershot it in recent years.

Some argue that higher inflation is less scary than deflation because "interest rates can always go higher", but I would agree the Fed does seem to be more worried about upside inflation risks. Possibly because monetary policy has been "accommodative" (in their view) for so long, and "normalisation" has been a clear long-run goal. There are signs those tendencies have changed, though -- they've been talking about being "data driven" since last year, and recent messaging has smoothed the road to possible rate cuts too.

nickbecker• 7 years ago

To the best of my knowledge, the Federal Reserve has no official position in favor of or against raising the minimum wage. Claiming otherwise is speculation and likely misinforming people.

Disclosure: Former researcher at the Federal Reserve Board

guelo• 7 years ago

The article also mentions globalization and Trump's tax cuts.

Maarten88• 7 years ago

The "trickle down" story keeps coming up, but it's untrue. It simply doesn't work that way.

If someone who is already rich gets even more, it won't be spent in a way that is good for someone poor. More likely, the excess money will be invested in a way that provides yield, like buying real estate, driving up prices and rent. Or merging businesses to lower competition and costs. Leading to money streming 'up' instead of trickling down.

The trickle down story is a hoax that needs to die.

jlawson• 7 years ago

It 'keeps coming up' because it's a strawman people love to punch. People literally only bring up this concept in order to tear it down - because it was only created in order to be torn down.

Nobody actually argues for 'trickle-down' policies. It's a sneer term signifying a deliberately oversimplified version of right-wing economic policies. It's not a real position people hold and push for.

I guess it's a lot easier and more fun to feel righteous attacking strawmen than it is to do the work of interacting with real ideas with serious intellectual backing and real influence.

internet_user10• 7 years ago

and literally every asset class exploded. Isn't this the very definition of inflation...?

Another view would be that money is simply losing value. a million is not what it used to be.

repsilat2• 7 years ago

That holds for houses, but most inflation measures index housing on rent, not house price, possibly to account for the sensitivity of house prices to interest rates.

From another angle, look at consumer goods a year ago compared to today. This year you can get a better car/tv/phone/computer for the same price, or the same one for less. Isn't that the very definition of deflation? Another view is that money is simply gaining in value -- a thousand bucks is worth a lot more than it once was :-).

(Funnily enough, I'd agree with you at a million because of house prices, and at a hundred because of food, haircuts, clothing etc. 1k-100k is weirdly different though.)

internet_user10• 7 years ago

prices of "houses" is really mostly land. the replacement of the building itself is a very small fraction in most in-demand locations.

So yes, land went up. All other examples you are citing are depreciating, non-scare items. It's not that it's "better" or anything, but we can make way more of iphones/etc.

However, there is only one Switzerland and only one Manhattan.

jakelazaroff2• 7 years ago

If people and companies have so much money that they literally don't know what to do with it… is giving it away so ridiculous? There are so many worthy causes in the world. Is there really a point to acquiring more wealth if you're that rich?

conanbatt• 7 years ago

Giving it away for them would be to pay out dividends. I'm guessing its too tax disadvantaged to do that.

bitxbit• 7 years ago

The biggest consequence of easy money is market concentration afforded by stock repurchases of the past decade. I don’t know if we will ever be able to return to anything even close to normalized ten-year rate. People couldn’t “deal” with 3% and this goes back to the fact that corporate America simply do not develop high-risk high-return businesses because the hurdle rate is so low. These two factors will lead to a dramatic decrease in innovations.

quickthrower2• 7 years ago

What about investing it in the planet. Fund lobby groups. Fund companies working on alternative energy tech. There was a (YC funded?) startup on here recently looking to turn air and water into fuel in an efficient enough way. That sort of stuff. Unless the goal is purely to maximise gains of course. Announce "I am investing 10Bn in climate change startups over 50 years", so that people can plan their career around this.

weddpros2• 7 years ago

I don't think there's too much money: there are not enough GOOD ways to spend it.

Investors don't refuse to fund ethical businesses or finance saving the planet, if it can make them money. It's just that there's no good opportunity on the market.

When investors can make more money saving the planet that destroying it, the planet will be saved.

internet_user10• 7 years ago

Maybe there is just too many paper bills (or more like 0 and 1s) chasing relatively slower growing amount of value?

qwerty456127• 7 years ago

Why not invest in R&D to invent what to invest in then?

tryptophan• 7 years ago

Ugh. These sort of pseudo-intellectual articles that mix economics and politics are my least favorite things to see on this site. They are super misleading and play towards people's biases about how they view the world while selectively interpreting the sparse data they present to do so.

An example:

If there was too much money, you would think that bond yields would go down. Look here: https://www.cnbc.com/quotes/?symbol=US30Y -- looks like they are! Guess we can all go blame the fed and "trickle down". But oh wait, scroll out to a longer time-span. Looks like yields have been falling ~linearly from 1989 till today, 2019. Show me where QE/ZIRP started based on the chart. You can't, because the trend didn't change at 2008/9. All this "blame the fed, im smarter than them and would've not done QE" nonsense maybe isn't as supported by evidence as some would like. The world is a little more nuanced than that. On the surface level, the data seems to agree, but you look a little deeper and it quickly becomes apparent it's all bullshit trying to spin a narrative.

weirdstuff• 7 years ago

I urge you to look at this chart: https://www.financialsamurai.com/wp-content/uploads/2015/07/...

There's a strong correlation there. Fed funds rate seems to lead a bit.

I agree with you about the all the bad writing. It's pernicious.

internet_user10• 7 years ago

At which point these charts become entirely meaningless? When the fed owns 50%+ of sp500?

The fed, BOJ and ECB are already busy painting yield curves full time, the market has become so distorted it's not trivial to even orient yourself, nevermind to develop conclusions.

SteveGregory• 7 years ago

I've wondered if, in this context that we are in, it actually starts to make sense to both raise interest rates and simultaneously monetize government debt.

We want some inflation, but we also do not want a late-1980s-style Japanese asset price bubble.

I cannot find a real answer to this question anywhere - would this plan produce any negative effect? The plan would, as far as I can tell, help the long-term outlook of our currency and economy while incentivizing wealthy people to stay invested.

I might be missing something obvious. Maybe this would lead to businesses having a harder time employing because of the higher borrowing cost (but we are at full employment now), or maybe the effect is just too uncertain on the money supply. Either way, I really want to know the answer, so I'm asking it here.

To be clear, I am not suggesting that politicians have direct control over monetizing debt, but rather that the central bank deems this to be best for the economy in the long term.

lostmsu• 7 years ago

Companies with money can definitely invest into/buy my deep learning startup at any time. :)

It enables .NET developers to use full TensorFlow and some other Python frameworks.

$1.5M e-checks can be forwarded to email: contact AT losttech.software :-D

fallenfallacy• 7 years ago

How misleading.. There are a ton of places to invest money. My personal favourite are businesses and real estate.

There's two things in common with businesses and real estates as a form of investment:

1. They build equity for you in two ways: cash flows and appreciation

2. Businesses & real estate are some of the most transparent vehicles when it comes to doing research on whether it's a good investment or not. This is in comparison to investments like stocks where information might not be as transparent or as easily accessible as doing research for a real estate or a business.

Not only that but when it comes to an investment like real estate, some people are unknowingly leveraging in an environment where real estate has consistently appreciated 4% per annum for the past hundred years.

Consider this:

If you purchase a $100,000 house at fair market value for 10% down, you borrow $90,000 and drop $10,000 as down payment.

If it appreciates at the historical average rate of 4% per annum, your house is worth $104,000 next year.

You sell your house at $104,000, and paying off your mortgage ($90,000), you pocket $14,000, a 25% return on investment ($4000/$10,000).

Obviously this excludes variables like rent, interest, or mortgage but the illustration shows how a simple real estate investment can turn out to be a far better investment than it would otherwise show on paper (4%).

If there are 'too few places' to invest your money, there's always businesses or real estate. There's a compelling article here that further suggests why real estate might be the most consistent way of building wealth: https://digitalyse.io/why-real-estate-investing-is-the-most-...

Too much money and too few places to invest it

Related Stories