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This example is bad because few companies have fixed potential like earning $200M in nominal dollars. More companies will be able to earn $200M (real year-0 dol

This example is bad because few companies have fixed potential like earning $200M in nominal dollars. More companies will be able to earn $200M (real year-0 dollars). The real change you see is with interest rates rising, the cost of capital also rises (fewer big investors investing borrowed money or using leverage) and safe alternatives become much more readily available (if a bond or savings account pays money it is safe and you earn a return - as opposed to all the 0% real returns you had in the past).

dragontamer 5y ago
> This example is bad because few companies have fixed potential like earning $200M in nominal dollars. More companies will be able to earn $200M (real year-0 dollars). This suggestion only tilts the argument into my favor. Apple makes 190 million iphones/year or so. In an inflationary environment, Apple will still make 190 million iphones and probably still sell them all. Those 190 million iPhones will cost 7% more to make, but also sell at 7% higher prices. So we see that Apples expected profits will rise by 7% or whatever inflation is. But the factory loans that Apple bought 5 or 10 years ago are in 2010 dollars and will remain so. We can see that inflation helps established companies regardless. ------- It is the growth companies who don't own factories yet, who are raising money today that get hurt by inflation.
- fennecfoxen 5y ago
  I'm not against your idea, but your arguments are a little wobbly. > It is the growth companies who don't own factories yet, who are raising money today that get hurt by inflation. Yep. They, too, compete with opportunities like bonds and savings account. > But the factory loans that Apple bought 5 or 10 years ago are in 2010 dollars and will remain so. Lots of companies have issued bonds at very good interest rates. They're not mostly for factories. Apple's been borrowing money at rock-bottom rates to do share buybacks, because the money's basically-free. > It is the growth companies who don't own factories yet, who are raising money today that get hurt by inflation. So how many growth stocks are investing big into building massive manufacturing operations, Elon? I can think of around one, but certainly not Apple.
  - dragontamer 5y ago
    Moderna, Rivian, Peloton, Wework (not factories but buying up real estate), Intel, TSMC, ASML. Even things like Backblaze buy up hard drives and data centers to sell services to us in the future. Buying up thing to make more money later is the age old strategy. ------ Changing the balance of Growth vs Establishment is the biggest effect of inflation (and interest rates). Established companies like Intel can rely upon older factories if the new factory turns out to be a bad bet. Growth companies are 100% all in on future factories (or future equipment, like Backblaze).

dragontamer 5y ago

> This example is bad because few companies have fixed potential like earning $200M in nominal dollars. More companies will be able to earn $200M (real year-0 dollars). This suggestion only tilts the argument into my favor. Apple makes 190 million iphones/year or so. In an inflationary environment, Apple will still make 190 million iphones and probably still sell them all. Those 190 million iPhones will cost 7% more to make, but also sell at 7% higher prices. So we see that Apples expected profits will rise by 7% or whatever inflation is. But the factory loans that Apple bought 5 or 10 years ago are in 2010 dollars and will remain so. We can see that inflation helps established companies regardless. ------- It is the growth companies who don't own factories yet, who are raising money today that get hurt by inflation.

fennecfoxen 5y ago
I'm not against your idea, but your arguments are a little wobbly. > It is the growth companies who don't own factories yet, who are raising money today that get hurt by inflation. Yep. They, too, compete with opportunities like bonds and savings account. > But the factory loans that Apple bought 5 or 10 years ago are in 2010 dollars and will remain so. Lots of companies have issued bonds at very good interest rates. They're not mostly for factories. Apple's been borrowing money at rock-bottom rates to do share buybacks, because the money's basically-free. > It is the growth companies who don't own factories yet, who are raising money today that get hurt by inflation. So how many growth stocks are investing big into building massive manufacturing operations, Elon? I can think of around one, but certainly not Apple.
- dragontamer 5y ago
  Moderna, Rivian, Peloton, Wework (not factories but buying up real estate), Intel, TSMC, ASML. Even things like Backblaze buy up hard drives and data centers to sell services to us in the future. Buying up thing to make more money later is the age old strategy. ------ Changing the balance of Growth vs Establishment is the biggest effect of inflation (and interest rates). Established companies like Intel can rely upon older factories if the new factory turns out to be a bad bet. Growth companies are 100% all in on future factories (or future equipment, like Backblaze).