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Investors are seeking high ROI and low risk too, though. This creates challenges for "putting money to work". If risk is ignored and the money is thrown down a
by buzzybee 9y ago
Investors are seeking high ROI and low risk too, though. This creates challenges for "putting money to work".
If risk is ignored and the money is thrown down a pit through ineffectual business, it's pushing on a string, velocity-wise. The company added the same kind of temporary stimulus you'd get by hiring people to dig ditches or do a cash transfer, but in a less efficient way than either one of those. Sometimes you get a hit, but dealing with direct investments is high overhead and introduces more conflicts of interest.
Capital that prefers lower-risk bets, on the other hand, ends up pooling in financial instruments designed for a low nominal risk: indexes, bonds, treasuries, real estate, and more sophisticated cocktails like the repackaged subprime mortgages that contributed to the 2008 crisis. These tools act indirectly on businesses, and so the money only gets "spent" in the sense that someone in finance is getting paid to handle the trades, somewhere along the way. Hence you get the effect of "velocity at the top", because money is sloshing around in a musical chairs game disconnected from goods and services, going from one large institutional investor to another. Each trade raises the pressure to speculate, allowing the market to trend upwards without actually doing much of anything for consumers, gradually increasing the likelihood of a crash.
And that is why Apple can end up sitting on $246B at the same time that the economy runs at less than full employment. Their strategy is already executing at full funding. They're financed for anything they could ask for, so if they're not doing it, they didn't want to do it. So they have to make a decision as an investor instead, and one of those options is to sit out if they perceive the market to be too risky.
- WalterBright 9y ago> Investors are seeking high ROI and low risk too, though. This creates challenges for "putting money to work". Hoarding cash has a negative ROI (inflation). They are still going to put it to work. Apple is not sitting on $246B in idle cash. > Each trade raises the pressure to speculate, allowing the market to trend upwards without actually doing much of anything for consumers, gradually increasing the likelihood of a crash. There's no evidence of that.
- intended 9y agoSimple evidence for that is from the experience of many funds - there are only so many investments that can be made around the world that have higher than benchmark returns. So its normal for funds to return their capital back to investors as they say "hey, we really cant find more targets". You seem adamant on assuming that investment = money at work. This is like saying that pressing on the pedal = accelarate, while magicking away all the work done by the engine, and various other moving parts. The transmission mechanism. Investment, is not consumption. It is investment, in order to take advantage of consumption. Directly providing consumption, is a far better method of improving economic activity, than by investment, in the current market scenario. Oh wait - maybe I have a bead on where you are coming from: In the scenario where all infrastructure and all factories were working at max capacity, any further investment in Infra/capex, will lead to an improvement in demand. In the current scenario though, that is not the case, and adding more factories will not result in an increase in economic output. Simply put, building a factory, but having no customers is investment with 0 return.