Recent John Bogle Quote

LewisBraham

I found this one pretty damning from a June speech he gave to the CFA Society:
"Capital formation, as this process is known, is largely represented by the raising of equity capital for new and existing companies. In recent years, total public stock issuance (IPOs, etc.) has averaged some $250 billion annually. On the other hand, during the same period, the annual volume of stock trading has averaged $35 trillion. Thus, capital formation has represented just 7/10ths of 1% of the activities of our financial system, trading activity 99.3%. And much of that trading, to state what must be obvious, has nothing to do with long-term investment. In fact, much of that frenzied activity is merely short-term speculation. Our challenge is to return long-term investing to its starring role in the financial movie, not merely as a co-star or in a cameo role, nor as a mere extra."
What does this say about the functioning of our capitalist system to spur job creation, innovation and true economic growth when so much money is devoted to just paper trading hands and so little is actually devoted to new capital formation?

scott

LewisBraham said:

I found this one pretty damning from a June speech he gave to the CFA Society:
"Capital formation, as this process is known, is largely represented by the raising of equity capital for new and existing companies. In recent years, total public stock issuance (IPOs, etc.) has averaged some $250 billion annually. On the other hand, during the same period, the annual volume of stock trading has averaged $35 trillion. Thus, capital formation has represented just 7/10ths of 1% of the activities of our financial system, trading activity 99.3%. And much of that trading, to state what must be obvious, has nothing to do with long-term investment. In fact, much of that frenzied activity is merely short-term speculation. Our challenge is to return long-term investing to its starring role in the financial movie, not merely as a co-star or in a cameo role, nor as a mere extra."
What does this say about the functioning of our capitalist system to spur job creation, innovation and true economic growth when so much money is devoted to just paper trading hands and so little is actually devoted to new capital formation?

People who complain about things like this are labeled as "doomers" until the issue can't be ignored and then we hear about it as a "crisis" and the financial media of course goes, "who could have known?"

Hey, ZIRP was really great at creating something sustainable and not just another boom/bust, right? The fact that the dollar volume of ETFs traded has now gone past US GDP (and as you mention above, capital formation has represented just 7/10ths of 1% of the activities of our financial system, trading activity 99.3%) shows an economy not built on sand, right?



Yeah, Reckless monetary policy powered by absurdly short-term thinking only results in positives. Right.

It wouldn't surprise me if this is the "ultimate" bubble and things in the global economy look very different on the other side.

Now the he Chinese have devalued, the economy is weak, it would appear that there's a bust going on in oil that will very likely get worse and the Fed seems less and less likely to raise interest rates, or they'll raise 50 basis points only to come back down to zero which will look awful. Yeah, the economy couldn't take a rise in the interest rate of 50 basis points, but everything's just a-okay.

If we have another crisis at or near the zero bound after several years or ZIRP and multiple QEs, the Fed will have some explaining to do.

So hey, what's next? John Kerry is making threats about how the dollar may not be the reserve currency if the Iran deal isn't passed. Wouldn't surprise me if it just happened anyways.



So, again, my view is that this period ends badly. It's not a question of if, but a question of when.

PRESSmUP

Curiously, I ran across a shareholder report for the FMI group this morning, who echoed similar sentiments. The first 5 pages of the linked document are pretty sobering if financial engineering makes you a bit queasy. They don't have a great deal of confidence in a good slice of the biotech sector either.

But....that's what makes a market.

http://www.fiduciarymgt.com/funds/shrpt/qly_shrpt_063015.pdf