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I'm no economist, but companies putting their cash away into assets like this is a bad sign right? My understanding is that money flowing indicates a healthy ec

I'm no economist, but companies putting their cash away into assets like this is a bad sign right? My understanding is that money flowing indicates a healthy economy of people unafraid to spend.

missedthecue 5y ago
When Palantir buys $50 million in gold, it means that $50 million dollars has flowed to some gold broker, who will now spend it buying something else (labor, inventory, market research, sales, etc...)
- defgeneric 5y ago
  Still, on the other end of the trade the capital remains parked or "hoarded" in gold. It is removed from circulation.
  - missedthecue 5y ago
    I don't understand what you're saying. If Palantir buys $50MM in gold, they are not removing $50MM from circulation. They are giving $50MM to another entity, and receiving a piece of paper that says they own x number of gold bars in a vault somewhere. The gold doesn't move. The gold isn't doing anything different than it was before Palantir owned it. The fifty million dollars continues to flow and buy goods and services. It is not removed from circulation. If you go out and buy a bar of gold do you think you are removing money from circulation?
- Ericson2314 5y ago
  Something else could be more gold if it looks like another stupid asset bubble.
- c7DJTLrn 5y ago
  Well, yes, obviously the money doesn't vaporise. My question is whether these companies are taking a bearish position by investing into assets (instead of employees/new ventures), and whether this could be a sign of an economic storm approaching.
- javert 5y ago
  To add to that: when people buy gold to hold onto it as an investment, it takes gold off the market and puts dollars into the market. Gold is more scarce, and dollars are less scarce. This has two effects. 1) reduces the price of dollars and increases the price of gold. 2) Incentivizes more gold mining, which means that purchasing power that could fund science or innovation is instead being used to dig metal out of the ground. Maybe gold miners are getting higher wages while some professor has less money to pay grad students. Oil is being directed to power mining machines which makes all other energy use more expensive. And so on.
- nitwit005 5y ago
  It's not as if it always re-circulates. People often sit on cash if there are no obvious productive investments.
  - missedthecue 5y ago
    By "sit on cash" you mean put it in a bank account where it is loaned out to businesses and homebuyers and governments who then spend it and continue circulating it.
    - nitwit005 5y ago
      Or simply held as excess reserves, as has been happening recently: https://en.wikipedia.org/wiki/Excess_reserves#/media/File:FedExcessReserves1984to2019.png https://en.wikipedia.org/wiki/Excess_reserves#/media/File:Fe...
- mbesto 5y ago
  Not really. Gold is an asset and has very little utility. Unless the gold broker physically dug up the material from the ground themselves (unlikely) then they would likely have had to put up dollars themselves to acquire the asset in the first place. Worse, if they bought the gold a year ago, they would have created negative value. Wealth creation (which then flows to those things you mentioned) is typically seen when you use a scarce material to create goods and services that drive profits that then are used for those activities. For example, let's say you bought $50M worth of gold bars, melted them and and sold them as earrings for $100M. NOW you have $50M to pay for labor, inventory, sales, etc.
  - missedthecue 5y ago
    The gold broker likely bought them for $49.5 million and sold them for $50 million, much like market makers in any other market. (Or it could have just been a private party transaction). Either way, the $50MM still exists and is circulating, facilitating the buying and selling of things. It did not disappear or go out of circulation.
    - mbesto 5y ago
      > The gold broker likely bought them for $49.5 million and sold them for $50 million If they bought a year ago, they not only would have lost money on the transaction just from the transaction alone, but would have lost even more money due to inflation. This is why assets that provide no utility (gold) rarely create value long term.
      - missedthecue 5y ago
        well no one is saying a metal create value, they're a store of value
        mbesto 5y ago
        FYI - the parent comment implied that $50M of value was created.
- deleted 5y ago
  [deleted]
hermannj314 5y ago
Most SV companies are trading at at double digit price to sales ratios. Palantir is at almost 30x. You'd think the best thing for SV to do with cash is pass keep passing it around in same circle of companies or create new companies. If every dollar spent is creating $30 of valuation, you don't stop spending under your umbrella of corporations. The music isn't showing any signs of stopping.
relax88 5y ago
Currently the US economy has the stimulus knob turned to max. It’s almost expected to see this kind of stuff in the interim as markets are awash in liquidity. Check out the Fed RRP use lately… There is over $1 TRILLION dollars going through the Feds reverse repo system right now. If you’re interested in this stuff I’d suggest following @arishisays

I'm no economist, but companies putting their cash away into assets like this is a bad sign right? My understanding is that money flowing indicates a healthy economy of people unafraid to spend.

missedthecue 5y ago

When Palantir buys $50 million in gold, it means that $50 million dollars has flowed to some gold broker, who will now spend it buying something else (labor, inventory, market research, sales, etc...)

defgeneric 5y ago
Still, on the other end of the trade the capital remains parked or "hoarded" in gold. It is removed from circulation.
- missedthecue 5y ago
  I don't understand what you're saying. If Palantir buys $50MM in gold, they are not removing $50MM from circulation. They are giving $50MM to another entity, and receiving a piece of paper that says they own x number of gold bars in a vault somewhere. The gold doesn't move. The gold isn't doing anything different than it was before Palantir owned it. The fifty million dollars continues to flow and buy goods and services. It is not removed from circulation. If you go out and buy a bar of gold do you think you are removing money from circulation?
Ericson2314 5y ago
Something else could be more gold if it looks like another stupid asset bubble.
c7DJTLrn 5y ago
Well, yes, obviously the money doesn't vaporise. My question is whether these companies are taking a bearish position by investing into assets (instead of employees/new ventures), and whether this could be a sign of an economic storm approaching.
javert 5y ago
To add to that: when people buy gold to hold onto it as an investment, it takes gold off the market and puts dollars into the market. Gold is more scarce, and dollars are less scarce. This has two effects. 1) reduces the price of dollars and increases the price of gold. 2) Incentivizes more gold mining, which means that purchasing power that could fund science or innovation is instead being used to dig metal out of the ground. Maybe gold miners are getting higher wages while some professor has less money to pay grad students. Oil is being directed to power mining machines which makes all other energy use more expensive. And so on.
nitwit005 5y ago
It's not as if it always re-circulates. People often sit on cash if there are no obvious productive investments.
- missedthecue 5y ago
  By "sit on cash" you mean put it in a bank account where it is loaned out to businesses and homebuyers and governments who then spend it and continue circulating it.
  - nitwit005 5y ago
    Or simply held as excess reserves, as has been happening recently: https://en.wikipedia.org/wiki/Excess_reserves#/media/File:FedExcessReserves1984to2019.png https://en.wikipedia.org/wiki/Excess_reserves#/media/File:Fe...
mbesto 5y ago
Not really. Gold is an asset and has very little utility. Unless the gold broker physically dug up the material from the ground themselves (unlikely) then they would likely have had to put up dollars themselves to acquire the asset in the first place. Worse, if they bought the gold a year ago, they would have created negative value. Wealth creation (which then flows to those things you mentioned) is typically seen when you use a scarce material to create goods and services that drive profits that then are used for those activities. For example, let's say you bought $50M worth of gold bars, melted them and and sold them as earrings for $100M. NOW you have $50M to pay for labor, inventory, sales, etc.
- missedthecue 5y ago
  The gold broker likely bought them for $49.5 million and sold them for $50 million, much like market makers in any other market. (Or it could have just been a private party transaction). Either way, the $50MM still exists and is circulating, facilitating the buying and selling of things. It did not disappear or go out of circulation.
  - mbesto 5y ago
    > The gold broker likely bought them for $49.5 million and sold them for $50 million If they bought a year ago, they not only would have lost money on the transaction just from the transaction alone, but would have lost even more money due to inflation. This is why assets that provide no utility (gold) rarely create value long term.
    - missedthecue 5y ago
      well no one is saying a metal create value, they're a store of value
      - mbesto 5y ago
        FYI - the parent comment implied that $50M of value was created.
deleted 5y ago
[deleted]

hermannj314 5y ago

Most SV companies are trading at at double digit price to sales ratios. Palantir is at almost 30x. You'd think the best thing for SV to do with cash is pass keep passing it around in same circle of companies or create new companies. If every dollar spent is creating $30 of valuation, you don't stop spending under your umbrella of corporations. The music isn't showing any signs of stopping.

relax88 5y ago

Currently the US economy has the stimulus knob turned to max. It’s almost expected to see this kind of stuff in the interim as markets are awash in liquidity. Check out the Fed RRP use lately… There is over $1 TRILLION dollars going through the Feds reverse repo system right now. If you’re interested in this stuff I’d suggest following @arishisays