I’m a little late getting around to this, but here’s some of the answers to last week’s Q&A:
Q: If Scotland votes to separate, but continues to use the Pound, what’s the f-ing point?
Good question. I haven’t been following the situation there too closely, but maintaining the Pound would turn Scotland into Greece. They’ll have no free floating exchange rate and no ability to create the currency they use. It’s not an optimal currency arrangement.
Q: Are you still bullish on bonds?
I really shouldn’t discuss specific market positions. In general, bonds have had an amazing year already. Let’s just say that I’d be happy to pack it in and go on vacation for the rest of the year as a fixed income trader.
Q: Are stock buybacks deflationary? Assuming they’re not financed by loans, that is, but purchased with cash from operations.
It seems to me like they have the same effect as paying off a loan, and something “money-like” is destroyed in the process.
And if so, how much of an impact would this have in the big scheme of things?
Well, a loan repayment isn’t always deflationary. But it could be a sign of bigger problems if done in aggregate. That is, if people are all paying back loans because the economy is in trouble then that’s a sign of bigger problems. Likewise, if companies aren’t issuing shares or issuing debt then it’s probably a sign that something healthy isn’t going on. Stock buybacks are generally a sign of a healthy situation at the corporate level. And since buybacks should boost EPS then it shouldn’t hurt the aggregate economy. Then again, corporations could buyback shares for the wrong reasons which would be deflationary in that it would be bad for the company and its shareholders….So I guess it depends.
Q:Any observations on this chart?
https://research.stlouisfed.org/fred2/graph/?g=IX6
Looks to me like a standard cyclical trend. Companies issue more liabilities as profits expand. Not sure it tells us much about the environment though.
Q: I graduate next May. What kind of entry level job should I be applying for if I want to work in finance/economic theory?
Hard to say without more detail. But in general, you’ll have to work your way up unless you have connections or get lucky. So work you buns off no matter where you end up. In this industry work ethic will make up for a lot of short comings.
Q: What’s your thoughts on the drought/water issue in California? Why does the state waste financial resources on high speed trains instead of desalination plants?
San Diego is ahead of the trend there. We are building a huge desalination plant in Carlsbad that will crank out 50 million gallons of water a day.
https://www.cnn.com/2014/05/26/tech/city-tomorrow-desalination/
Not sure about the rest of the state, but I think San Diegans are pretty aware of the problem and generally try not to waste too much water.
That’s all for today. I’ll post the rest of the Q&A tomorrow.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.