The Economy

Financial conditions right now are looser than they were when the Fed began its "tightening." After yesterday's performance by Jay Powell. ... it gave people the greenlight again. He signaled that he is Arthur Burns, not Paul Volcker.

I completely understand why someone would pile into Facebook stock based on the buyback-triggered change to EPS in that kind of environment. It's not an "investment decision" in the Graham and Dodd sense of investment. But when liquidity is being artificially pumped into markets and it is creating financial conditions that heavily favor rampant speculative behavior, it's actually pretty rational to run with it. It's been a "strategy" for more than a decade that has made a lot of money for people.

The fact that it eventually won't end well for SOMEONE (duh) doesn't change the fact that you have a few choices today: 1) Follow the money flows, a strategy that has worked pretty well in a cheap money environment, 2) Sit on the sidelines (and lose money in real terms) or 3) Fight reality and get run over.

 

Just to add to that, @doctorquant

By any "investment decision" metric, Facebook's stock is still historically very expensive. If you were doing any kind of fundamental analysis, you would not see value there. But earnings don't drive stock prices in this kind of environment. Money flows do, due to the distortions.

They just announced that despite the stock being super expensive (it is well off a peak and it is still expensive), they are making themselves a forced buyer of it. And not just a forced buyer of it, but they are introducing so much demand for their stock (from themselves) that it is going to put a floor under the price of the stock. I think the people who see that and go long the stock (with that kind of risk - reward profile) are being fairly rational.

We can have a conversation about how fucked up it is that financial conditions are being manipulated to create an environment like that; where the thing that it makes the most sense for Facebook to do with its cash is those buybacks despite the stock being so expensive. There is a financial crisis at the end of the road because of it. And it's obviously a small example of the kinds of misallocation of capital the monetary manipulation spurs.

It could lead to big losses for people if anything about the monetary environment (the obvious being a credit-induced accident) changes abruply.

But the speculative behavior itself is perfectly rational in this kind of environment. It's paid well for people for too long and there is a lot of muscle memory.

 

Because taxation shouldn't be a necessary evil, in which our government has to force people to hand over a part of their income to pay for vital public goods that don't get provided for otherwise, due to a free rider problem.

We are at the stage, where taxation (a "windfall" tax) becomes a tool to punish others based on populist rhetoric.

 

The inflation rate in the UK is still 8 percent. Last year, the cost of FOOD in the UK jumped close to 17 percent (not a typo). This goes beyond Putin and Ukraine.

But if people want to turn their pitchforks somewhere, it would be a lot more productive for them to start by looking toward Andrew Bailey, not Shell (or any other company involved in voluntary exchange with people).