May
26
Some Things To Consider, from Victor Niederhoffer
May 26, 2007 |
Amidst the bearish and bullish voices of present, there are three subjects that I believe are important which have received little consideration:
1. The tremendous hedged long/short (both direct and indirect) pool of funds still trying to capture an alpha of a few percent, that has not bought into the 10% a year rise in stocks. There is also considerable capital with the foreigners who either hate Bush, or are just uninterested in the US.
2. The moves to cut taxes all over the world, as countries try to compete with China where they have no capital gains tax, and an income tax of 15% (there is even talk of abolishing this).
3. The incredible increase of wealth in such things as real estate and equity holdings, as well as firm values, mutual fund values (and a dozen other such 'values' that are indirect signals of the US's great wealth), collectibles, investment in intangibles such as patents, education, or brand names, and improvements in homes. Also, spending in the stock market due to the Wealth Effect has increased to an inordinate extent, and there has been great rises in almost every other stock market around the world, offering great untapped reservoirs of liquidity. I believe that the much denigrated and unstudied Wealth Effect is a greater source of spending on stocks, and a driver of stock values, than the normallly used Income Effect explanations, that economists and officials of the doomsday persuasion like to pay attention to and study.
Comments
3 Comments so far
Archives
- May 2013
- April 2013
- March 2013
- February 2013
- January 2013
- December 2012
- November 2012
- October 2012
- September 2012
- August 2012
- July 2012
- June 2012
- May 2012
- April 2012
- March 2012
- February 2012
- January 2012
- December 2011
- November 2011
- October 2011
- September 2011
- August 2011
- July 2011
- June 2011
- May 2011
- April 2011
- March 2011
- February 2011
- January 2011
- December 2010
- November 2010
- October 2010
- September 2010
- August 2010
- July 2010
- June 2010
- May 2010
- April 2010
- March 2010
- February 2010
- January 2010
- December 2009
- November 2009
- October 2009
- September 2009
- August 2009
- July 2009
- June 2009
- May 2009
- April 2009
- March 2009
- February 2009
- January 2009
- December 2008
- November 2008
- October 2008
- September 2008
- August 2008
- July 2008
- June 2008
- May 2008
- April 2008
- March 2008
- February 2008
- January 2008
- December 2007
- November 2007
- October 2007
- September 2007
- August 2007
- July 2007
- June 2007
- May 2007
- April 2007
- March 2007
- February 2007
- January 2007
- December 2006
- November 2006
- October 2006
- September 2006
- August 2006
- Older Archives
Resources & Links
- The Letters Prize
- Pre-2007 Victor Niederhoffer Posts
- Vic’s NYC Junto
- Reading List
- Programming in 60 Seconds
- The Objectivist Center
- Foundation for Economic Education
- Tigerchess
- Dick Sears' G.T. Index
- Pre-2007 Daily Speculations
- Laurel & Vics' Worldly Investor Articles
A striking confirmation of the wealth vs income effect is when you compare Japan with the US.
If you start with an average household in 1991 having a house worth 500′000 (whatever unit) and a portfolio worth 50′000 and then look at what happened over the next 15 years.
The house and portfolio of the hard working Japanese salaryman would have suffered a value loss almost each year, while the average US-Joe would have seen his total wealth increase each year. No wonder Nihon San was forced to save, while the Johns could afford to be more confident in the future and enjoy comsumption.
The only exception (decrease both in house and stock value) for the US are the “911″ and post-dotcom years (2001-2003) while the only exception for the Japan (meaning simultaneous increase in house and stocks value) are over the past three years.
Why would there be much correlation between Bush hatred and avoidance of US equities? The Palindrome himself now owns 2% of Halliburton, last I saw.
WRT China, I knew they had no capital gains tax, but a 15% income tax?? I thought it was in the 30-40% range…
China does not tax savings (or interest on savings) at all. Maybe after adjusting for this zero taxation of savings, China has an effective income tax rate of 15%.
This has led to colossal savings pools in “private” banks, which have loaned the money out (to mostly state-owned enterprises) with a wanton disregard for risk and future profit. (Hence China’s stupendous NPL problem, the actual extent of which nobody has any idea-35% of GDP? 50%?)
China recently passed a deregulatory rule which, if I understand it correctly, unshackles about 50% of those savings to be invested in equity markets. The savings deposits were earning negative real interest, so almost any asset class seems preferable. But with hordes of Chinese taxi drivers and manicurists now making six figures by “day trading,” it’s a matter of when, not if, the Chinese equity bubble implodes spectacularly. Unfortunately, it’s illegal to short Chinese stock, and in the near term, there is a big wave of savings deposits hitting the equity markets, so it’s too scary to short unless you are a really big fish.
Also, some decent-sized economies are subject to enormous political instability. Musharraf’s days in Pakistan are pretty clearly numbered. Thailand’s paranoiac junta is rapidly losing popular (not to mention royal) support. And Ukraine’s Victor Yuschenko, whose popular support has collapsed to barely double digits, has brought the army into Kiev and dissolved the parliament.
So there’s a lot of instability to go around, on top of the Chinese bubble. The bears have a lot of facts backing up their side at the moment.
[…] I seriously doubt this is leading anywhere near a libertarian paradise or anything like it, but it’s certainly worth paying attention to. Sources in a position to know such things claim that even now there are moves to cut taxes all over the world over fear of China attracting all the capital. […]