You've been a markets reporter for years and years, and you're still astonished that equities have certain embedded assumptions about future growth and so on, and when those assumptions are reversed there can be dramatic repricing?
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Replying to @TheStalwart @felixsalmon
I think each year what happens is gargantuan amounts of wealth accumulate to very few, they need to have something to do with this wealth. There is no wealth tax, so they just shove the wealth into the equities and bonds markets. Dividends and coupons are just UBI for the rich.
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The idea that equity prices reflect the "discounted future earnings" of companies is ludicrous.
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Discounted future cash flow, not earnings. But that is absolutely what equity prices reflect - imperfectly, because it requires predicting the future. But unquestionably. That's why even Robert Shiller has argued, following Samuelson, that the market is micro-efficient.
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Economists toss around the term "efficient" all the time, but I don't think they put much thought into what it even means.
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In a micro-efficient market, individual companies' stock prices would be reasonably good predictors of their future free cash flows.
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Except if you bounce around from $17 to $95 and then back to $49, who knows what you’re predicting
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Obviously the market's expectations about
$GOOS' various potential futures have been very volatile. But at any given moment, there's still no reason to think that the price isn't the market's best attempt at putting a price on the company's future cash flows.3 replies 0 retweets 7 likes -
My question for you would be: If this kind of volatility and unpredictability doesn’t disprove your thesis, what would? I kinda believe this too, but it feels much more like an article of faith than an empirical fact or falsifiable thesis.
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What would disprove my thesis is if there were some outside pundit who could routinely identify stocks that the markets was substantially mispricing. But I've never come across such a person.
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A stronger, and equally true, claim is that we constantly run a tournament to find this person, where the rules are objective and simple, and the prize for pulling the sword from the stone is several billion dollars. The sword is right over there if anyone wants a go at it.
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