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There's no such thing as asset price inflation -- it's a pre-modern Austrian notion. The value of an asset is the discounted value of its future cash flows (th
by QuesnayJr 7y ago
There's no such thing as asset price inflation -- it's a pre-modern Austrian notion. The value of an asset is the discounted value of its future cash flows (the net present value). If an asset is worth more than its future cash flows, then you have an asset price bubble.
The rich think they are rich because they actually are rich, and they expect to be rich in the future. The value of the stock market is high because profits are high, and the owners of stock expect them to remain high. They could be overoptimistic about the future, but its driven by future expectations about the real economy.
- corporate_shi11 7y agoWhat are the future cash flows of a stock with no dividend? They are 0. Does that mean that all stock price inflation for such securities is just a bubble? Of course not.
- QuesnayJr 7y agoStock buybacks also count as cash flows. But stock that will never pay a dividend (or do a buyback) in a million years? That is as pure a bubble as you will ever find.
- wallacoloo 7y agoIsn’t it reasonable to consider a company’s assets in addition to cash flows? If a company has $1B of assets (and no loans, for simplicity), might indirect ownership/control over those assets via stock be worth something?
- QuesnayJr 7y agoThat's actually a really good point. But you have to be able to eventually convert the assets into cash (maybe through selling the assets to another company, rather than through dividends).