[davelj]

[quote=davelj]
While TARP was, admittedly, just a part of the overall “assistance” given to financial institutions… this thread was about TARP, so I’m sticking to the topic at hand. TARP may be a horrible program in all sorts of ways (particularly with respect to moral hazard), but… the CPP money will get paid back, which few of you believed would happen. Not to worry, I don’t expect anyone to post acknowledging they were wrong about this.[/quote]
[quote=briansd1]
I always believed you Dave. Mathematically, it makes sense.

Infuse banks with huge capital, then lend them unlimited amounts of money at near zero % which they can turn around and lend at a nice margin. [/quote]

Sorry to nitpick, but this is factually incorrect. The “lending” that your referencing here are discount window borrowings and these are matched up on the asset side of the balance sheet with cash and short-term securities, on which there is no meaningful spread (if any at all). Now… as the Fed lowers rates, deposit rates and FHLB borrowing rates ALSO decline, on which the banks then make a “nice margin” (using your words). But… there is no margin on the discount window borrowings – that’s just for liquidity. Just making a technical point.

[quote=briansd1]
Notice that while banks’ cost of capital is near zero, the cost of debt for everybody else has not proportionately dropped. [/quote]
This is also incorrect. The banks’ “cost of capital” is most certainly not near zero. In fact, it’s quite high historically (recall that cost of equity, which is high right now, is a major component of the overall cost of capital). Discount window borrowings are just one small part of the “cost of capital” calculation, and the biggest liability on a bank’s balance sheet is deposits – which are not “capital.” I think what you meant to say is that the cost of borrowing money – from whatever source – for the large banks is low (but not near zero) from a historical perspective. But overstating your case doesn’t make it stronger.
[quote=briansd1]
I was against the bank bailouts at first, but after some reflection, I believe that it was the right thing to do to save our financial system from collapse. I only wished that at least the top bank excecs had been fired.[/quote]

Who knows. I agree that far more folks should’ve been fired. The TBTF execs are, for the most part, a bunch of dirtbags protecting their turf at all costs.

[davelj]

[quote=davelj]
While TARP was, admittedly, just a part of the overall “assistance” given to financial institutions… this thread was about TARP, so I’m sticking to the topic at hand. TARP may be a horrible program in all sorts of ways (particularly with respect to moral hazard), but… the CPP money will get paid back, which few of you believed would happen. Not to worry, I don’t expect anyone to post acknowledging they were wrong about this.[/quote]
[quote=briansd1]
I always believed you Dave. Mathematically, it makes sense.

Infuse banks with huge capital, then lend them unlimited amounts of money at near zero % which they can turn around and lend at a nice margin. [/quote]

Sorry to nitpick, but this is factually incorrect. The “lending” that your referencing here are discount window borrowings and these are matched up on the asset side of the balance sheet with cash and short-term securities, on which there is no meaningful spread (if any at all). Now… as the Fed lowers rates, deposit rates and FHLB borrowing rates ALSO decline, on which the banks then make a “nice margin” (using your words). But… there is no margin on the discount window borrowings – that’s just for liquidity. Just making a technical point.

[quote=briansd1]
Notice that while banks’ cost of capital is near zero, the cost of debt for everybody else has not proportionately dropped. [/quote]
This is also incorrect. The banks’ “cost of capital” is most certainly not near zero. In fact, it’s quite high historically (recall that cost of equity, which is high right now, is a major component of the overall cost of capital). Discount window borrowings are just one small part of the “cost of capital” calculation, and the biggest liability on a bank’s balance sheet is deposits – which are not “capital.” I think what you meant to say is that the cost of borrowing money – from whatever source – for the large banks is low (but not near zero) from a historical perspective. But overstating your case doesn’t make it stronger.
[quote=briansd1]
I was against the bank bailouts at first, but after some reflection, I believe that it was the right thing to do to save our financial system from collapse. I only wished that at least the top bank excecs had been fired.[/quote]

Who knows. I agree that far more folks should’ve been fired. The TBTF execs are, for the most part, a bunch of dirtbags protecting their turf at all costs.

[davelj]

[quote=davelj]
While TARP was, admittedly, just a part of the overall “assistance” given to financial institutions… this thread was about TARP, so I’m sticking to the topic at hand. TARP may be a horrible program in all sorts of ways (particularly with respect to moral hazard), but… the CPP money will get paid back, which few of you believed would happen. Not to worry, I don’t expect anyone to post acknowledging they were wrong about this.[/quote]
[quote=briansd1]
I always believed you Dave. Mathematically, it makes sense.

Infuse banks with huge capital, then lend them unlimited amounts of money at near zero % which they can turn around and lend at a nice margin. [/quote]

Sorry to nitpick, but this is factually incorrect. The “lending” that your referencing here are discount window borrowings and these are matched up on the asset side of the balance sheet with cash and short-term securities, on which there is no meaningful spread (if any at all). Now… as the Fed lowers rates, deposit rates and FHLB borrowing rates ALSO decline, on which the banks then make a “nice margin” (using your words). But… there is no margin on the discount window borrowings – that’s just for liquidity. Just making a technical point.

[quote=briansd1]
Notice that while banks’ cost of capital is near zero, the cost of debt for everybody else has not proportionately dropped. [/quote]
This is also incorrect. The banks’ “cost of capital” is most certainly not near zero. In fact, it’s quite high historically (recall that cost of equity, which is high right now, is a major component of the overall cost of capital). Discount window borrowings are just one small part of the “cost of capital” calculation, and the biggest liability on a bank’s balance sheet is deposits – which are not “capital.” I think what you meant to say is that the cost of borrowing money – from whatever source – for the large banks is low (but not near zero) from a historical perspective. But overstating your case doesn’t make it stronger.
[quote=briansd1]
I was against the bank bailouts at first, but after some reflection, I believe that it was the right thing to do to save our financial system from collapse. I only wished that at least the top bank excecs had been fired.[/quote]

Who knows. I agree that far more folks should’ve been fired. The TBTF execs are, for the most part, a bunch of dirtbags protecting their turf at all costs.

[davelj]

[quote=davelj]
While TARP was, admittedly, just a part of the overall “assistance” given to financial institutions… this thread was about TARP, so I’m sticking to the topic at hand. TARP may be a horrible program in all sorts of ways (particularly with respect to moral hazard), but… the CPP money will get paid back, which few of you believed would happen. Not to worry, I don’t expect anyone to post acknowledging they were wrong about this.[/quote]
[quote=briansd1]
I always believed you Dave. Mathematically, it makes sense.

Infuse banks with huge capital, then lend them unlimited amounts of money at near zero % which they can turn around and lend at a nice margin. [/quote]

Sorry to nitpick, but this is factually incorrect. The “lending” that your referencing here are discount window borrowings and these are matched up on the asset side of the balance sheet with cash and short-term securities, on which there is no meaningful spread (if any at all). Now… as the Fed lowers rates, deposit rates and FHLB borrowing rates ALSO decline, on which the banks then make a “nice margin” (using your words). But… there is no margin on the discount window borrowings – that’s just for liquidity. Just making a technical point.

[quote=briansd1]
Notice that while banks’ cost of capital is near zero, the cost of debt for everybody else has not proportionately dropped. [/quote]
This is also incorrect. The banks’ “cost of capital” is most certainly not near zero. In fact, it’s quite high historically (recall that cost of equity, which is high right now, is a major component of the overall cost of capital). Discount window borrowings are just one small part of the “cost of capital” calculation, and the biggest liability on a bank’s balance sheet is deposits – which are not “capital.” I think what you meant to say is that the cost of borrowing money – from whatever source – for the large banks is low (but not near zero) from a historical perspective. But overstating your case doesn’t make it stronger.
[quote=briansd1]
I was against the bank bailouts at first, but after some reflection, I believe that it was the right thing to do to save our financial system from collapse. I only wished that at least the top bank excecs had been fired.[/quote]

Who knows. I agree that far more folks should’ve been fired. The TBTF execs are, for the most part, a bunch of dirtbags protecting their turf at all costs.

[davelj]

[quote=davelj][quote=davelj]
I said many moons ago (I’ll try to find the thread) that we’d likely get back 80%-110% of the bank-related TARP. I think I can tighten that band to 90%-110%.
[/quote]

Found it: http://piggington.com/tarp_has_lost_40_since_inception

While we’re not out of the woods by any stretch and I expect continued ugliness and perhaps even a mini-crisis… I think the hysteria over bank-related TARP by certain Piggs in this thread was misplaced. But, again, we’re still only in the middle innings of this thing.[/quote]

An update:

**************************

KBW TARP Tracker – 76th Edition: “Oh So Close”

Summary–

We update our TARP Tracker to review the cost and returns to the Treasury to date from the TARP program. Specifically we review the TARP CPP program, the primary program supporting banks.

Key Points–

* The Treasury Is Very Close To Breaking Even on the TARP CPP as it invested $204.9B in 707 banking institutions, and earned back $204.1B to date. In total, Treasury received repayments totaling over $179B, earned income of $25B from dividends, interest, and warrant dispositions, and posted losses of $2.6B. The Treasury currently has about $23B remaining in outstanding CPP capital investments in 559 banking institutions.
* For the 101 banks that fully repaid CPP (inclusive of warrant disposition), Treasury’s average return on investment (ROI) is 9.3%, with seven investments yielding ROIs >=20%: First ULB Corp. (29%), Centra Financial Holdings (28%), FPBF (26%), AXP (23%), LNC (23%), FMWC (21%), and GS (20%). SBIB’s $125M CPP TARP investment has the lowest ROI of 2.9%.
* The Treasury posted a $2.6B loss on CPP investments in CIT, Pacific Coast National Bancorp, The South Financial Group and TIB Financial Corp.
* In aggregate, through February, the Treasury collected $10.6B in CPP dividends and interest, and tallied $204.3M in missed dividend and interest payments.
* A total of 163 institutions contributed to this $204.3M in non-current TARP dividend/interest payments.
* For the entire TARP program, Treasury invested $410.9B and has received $305.7B in repayments and income (inclusive of dividends, interest, warrant income, and other income). Treasury currently still has $142.5B in TARP investments outstanding.

**********************

So, with the passage of time I think I can say with a high degree of confidence that We the People are going to get back at least 105% of our principal on the TARP’s CPP (that is, the “bank-related TARP”), comfortably inside my initial prediction of 80%-110% of principal, or roughly break-even (perhaps a small loss) in real terms. I suspect that the entire TARP program will result in a loss of about 10% of principal… but that could be too high. We’ll know in about 18 months.

While TARP was, admittedly, just a part of the overall “assistance” given to financial institutions… this thread was about TARP, so I’m sticking to the topic at hand. TARP may be a horrible program in all sorts of ways (particularly with respect to moral hazard), but… the CPP money will get paid back, which few of you believed would happen. Not to worry, I don’t expect anyone to post acknowledging they were wrong about this.

[davelj]

[quote=davelj][quote=davelj]
I said many moons ago (I’ll try to find the thread) that we’d likely get back 80%-110% of the bank-related TARP. I think I can tighten that band to 90%-110%.
[/quote]

Found it: http://piggington.com/tarp_has_lost_40_since_inception

While we’re not out of the woods by any stretch and I expect continued ugliness and perhaps even a mini-crisis… I think the hysteria over bank-related TARP by certain Piggs in this thread was misplaced. But, again, we’re still only in the middle innings of this thing.[/quote]

An update:

**************************

KBW TARP Tracker – 76th Edition: “Oh So Close”

Summary–

We update our TARP Tracker to review the cost and returns to the Treasury to date from the TARP program. Specifically we review the TARP CPP program, the primary program supporting banks.

Key Points–

* The Treasury Is Very Close To Breaking Even on the TARP CPP as it invested $204.9B in 707 banking institutions, and earned back $204.1B to date. In total, Treasury received repayments totaling over $179B, earned income of $25B from dividends, interest, and warrant dispositions, and posted losses of $2.6B. The Treasury currently has about $23B remaining in outstanding CPP capital investments in 559 banking institutions.
* For the 101 banks that fully repaid CPP (inclusive of warrant disposition), Treasury’s average return on investment (ROI) is 9.3%, with seven investments yielding ROIs >=20%: First ULB Corp. (29%), Centra Financial Holdings (28%), FPBF (26%), AXP (23%), LNC (23%), FMWC (21%), and GS (20%). SBIB’s $125M CPP TARP investment has the lowest ROI of 2.9%.
* The Treasury posted a $2.6B loss on CPP investments in CIT, Pacific Coast National Bancorp, The South Financial Group and TIB Financial Corp.
* In aggregate, through February, the Treasury collected $10.6B in CPP dividends and interest, and tallied $204.3M in missed dividend and interest payments.
* A total of 163 institutions contributed to this $204.3M in non-current TARP dividend/interest payments.
* For the entire TARP program, Treasury invested $410.9B and has received $305.7B in repayments and income (inclusive of dividends, interest, warrant income, and other income). Treasury currently still has $142.5B in TARP investments outstanding.

**********************

So, with the passage of time I think I can say with a high degree of confidence that We the People are going to get back at least 105% of our principal on the TARP’s CPP (that is, the “bank-related TARP”), comfortably inside my initial prediction of 80%-110% of principal, or roughly break-even (perhaps a small loss) in real terms. I suspect that the entire TARP program will result in a loss of about 10% of principal… but that could be too high. We’ll know in about 18 months.

While TARP was, admittedly, just a part of the overall “assistance” given to financial institutions… this thread was about TARP, so I’m sticking to the topic at hand. TARP may be a horrible program in all sorts of ways (particularly with respect to moral hazard), but… the CPP money will get paid back, which few of you believed would happen. Not to worry, I don’t expect anyone to post acknowledging they were wrong about this.

[davelj]

[quote=davelj][quote=davelj]
I said many moons ago (I’ll try to find the thread) that we’d likely get back 80%-110% of the bank-related TARP. I think I can tighten that band to 90%-110%.
[/quote]

Found it: http://piggington.com/tarp_has_lost_40_since_inception

While we’re not out of the woods by any stretch and I expect continued ugliness and perhaps even a mini-crisis… I think the hysteria over bank-related TARP by certain Piggs in this thread was misplaced. But, again, we’re still only in the middle innings of this thing.[/quote]

An update:

**************************

KBW TARP Tracker – 76th Edition: “Oh So Close”

Summary–

We update our TARP Tracker to review the cost and returns to the Treasury to date from the TARP program. Specifically we review the TARP CPP program, the primary program supporting banks.

Key Points–

* The Treasury Is Very Close To Breaking Even on the TARP CPP as it invested $204.9B in 707 banking institutions, and earned back $204.1B to date. In total, Treasury received repayments totaling over $179B, earned income of $25B from dividends, interest, and warrant dispositions, and posted losses of $2.6B. The Treasury currently has about $23B remaining in outstanding CPP capital investments in 559 banking institutions.
* For the 101 banks that fully repaid CPP (inclusive of warrant disposition), Treasury’s average return on investment (ROI) is 9.3%, with seven investments yielding ROIs >=20%: First ULB Corp. (29%), Centra Financial Holdings (28%), FPBF (26%), AXP (23%), LNC (23%), FMWC (21%), and GS (20%). SBIB’s $125M CPP TARP investment has the lowest ROI of 2.9%.
* The Treasury posted a $2.6B loss on CPP investments in CIT, Pacific Coast National Bancorp, The South Financial Group and TIB Financial Corp.
* In aggregate, through February, the Treasury collected $10.6B in CPP dividends and interest, and tallied $204.3M in missed dividend and interest payments.
* A total of 163 institutions contributed to this $204.3M in non-current TARP dividend/interest payments.
* For the entire TARP program, Treasury invested $410.9B and has received $305.7B in repayments and income (inclusive of dividends, interest, warrant income, and other income). Treasury currently still has $142.5B in TARP investments outstanding.

**********************

So, with the passage of time I think I can say with a high degree of confidence that We the People are going to get back at least 105% of our principal on the TARP’s CPP (that is, the “bank-related TARP”), comfortably inside my initial prediction of 80%-110% of principal, or roughly break-even (perhaps a small loss) in real terms. I suspect that the entire TARP program will result in a loss of about 10% of principal… but that could be too high. We’ll know in about 18 months.

While TARP was, admittedly, just a part of the overall “assistance” given to financial institutions… this thread was about TARP, so I’m sticking to the topic at hand. TARP may be a horrible program in all sorts of ways (particularly with respect to moral hazard), but… the CPP money will get paid back, which few of you believed would happen. Not to worry, I don’t expect anyone to post acknowledging they were wrong about this.

[davelj]

[quote=davelj][quote=davelj]
I said many moons ago (I’ll try to find the thread) that we’d likely get back 80%-110% of the bank-related TARP. I think I can tighten that band to 90%-110%.
[/quote]

Found it: http://piggington.com/tarp_has_lost_40_since_inception

While we’re not out of the woods by any stretch and I expect continued ugliness and perhaps even a mini-crisis… I think the hysteria over bank-related TARP by certain Piggs in this thread was misplaced. But, again, we’re still only in the middle innings of this thing.[/quote]

An update:

**************************

KBW TARP Tracker – 76th Edition: “Oh So Close”

Summary–

We update our TARP Tracker to review the cost and returns to the Treasury to date from the TARP program. Specifically we review the TARP CPP program, the primary program supporting banks.

Key Points–

* The Treasury Is Very Close To Breaking Even on the TARP CPP as it invested $204.9B in 707 banking institutions, and earned back $204.1B to date. In total, Treasury received repayments totaling over $179B, earned income of $25B from dividends, interest, and warrant dispositions, and posted losses of $2.6B. The Treasury currently has about $23B remaining in outstanding CPP capital investments in 559 banking institutions.
* For the 101 banks that fully repaid CPP (inclusive of warrant disposition), Treasury’s average return on investment (ROI) is 9.3%, with seven investments yielding ROIs >=20%: First ULB Corp. (29%), Centra Financial Holdings (28%), FPBF (26%), AXP (23%), LNC (23%), FMWC (21%), and GS (20%). SBIB’s $125M CPP TARP investment has the lowest ROI of 2.9%.
* The Treasury posted a $2.6B loss on CPP investments in CIT, Pacific Coast National Bancorp, The South Financial Group and TIB Financial Corp.
* In aggregate, through February, the Treasury collected $10.6B in CPP dividends and interest, and tallied $204.3M in missed dividend and interest payments.
* A total of 163 institutions contributed to this $204.3M in non-current TARP dividend/interest payments.
* For the entire TARP program, Treasury invested $410.9B and has received $305.7B in repayments and income (inclusive of dividends, interest, warrant income, and other income). Treasury currently still has $142.5B in TARP investments outstanding.

**********************

So, with the passage of time I think I can say with a high degree of confidence that We the People are going to get back at least 105% of our principal on the TARP’s CPP (that is, the “bank-related TARP”), comfortably inside my initial prediction of 80%-110% of principal, or roughly break-even (perhaps a small loss) in real terms. I suspect that the entire TARP program will result in a loss of about 10% of principal… but that could be too high. We’ll know in about 18 months.

While TARP was, admittedly, just a part of the overall “assistance” given to financial institutions… this thread was about TARP, so I’m sticking to the topic at hand. TARP may be a horrible program in all sorts of ways (particularly with respect to moral hazard), but… the CPP money will get paid back, which few of you believed would happen. Not to worry, I don’t expect anyone to post acknowledging they were wrong about this.

[davelj]

[quote=davelj][quote=davelj]
I said many moons ago (I’ll try to find the thread) that we’d likely get back 80%-110% of the bank-related TARP. I think I can tighten that band to 90%-110%.
[/quote]

Found it: http://piggington.com/tarp_has_lost_40_since_inception

While we’re not out of the woods by any stretch and I expect continued ugliness and perhaps even a mini-crisis… I think the hysteria over bank-related TARP by certain Piggs in this thread was misplaced. But, again, we’re still only in the middle innings of this thing.[/quote]

An update:

**************************

KBW TARP Tracker – 76th Edition: “Oh So Close”

Summary–

We update our TARP Tracker to review the cost and returns to the Treasury to date from the TARP program. Specifically we review the TARP CPP program, the primary program supporting banks.

Key Points–

* The Treasury Is Very Close To Breaking Even on the TARP CPP as it invested $204.9B in 707 banking institutions, and earned back $204.1B to date. In total, Treasury received repayments totaling over $179B, earned income of $25B from dividends, interest, and warrant dispositions, and posted losses of $2.6B. The Treasury currently has about $23B remaining in outstanding CPP capital investments in 559 banking institutions.
* For the 101 banks that fully repaid CPP (inclusive of warrant disposition), Treasury’s average return on investment (ROI) is 9.3%, with seven investments yielding ROIs >=20%: First ULB Corp. (29%), Centra Financial Holdings (28%), FPBF (26%), AXP (23%), LNC (23%), FMWC (21%), and GS (20%). SBIB’s $125M CPP TARP investment has the lowest ROI of 2.9%.
* The Treasury posted a $2.6B loss on CPP investments in CIT, Pacific Coast National Bancorp, The South Financial Group and TIB Financial Corp.
* In aggregate, through February, the Treasury collected $10.6B in CPP dividends and interest, and tallied $204.3M in missed dividend and interest payments.
* A total of 163 institutions contributed to this $204.3M in non-current TARP dividend/interest payments.
* For the entire TARP program, Treasury invested $410.9B and has received $305.7B in repayments and income (inclusive of dividends, interest, warrant income, and other income). Treasury currently still has $142.5B in TARP investments outstanding.

**********************

So, with the passage of time I think I can say with a high degree of confidence that We the People are going to get back at least 105% of our principal on the TARP’s CPP (that is, the “bank-related TARP”), comfortably inside my initial prediction of 80%-110% of principal, or roughly break-even (perhaps a small loss) in real terms. I suspect that the entire TARP program will result in a loss of about 10% of principal… but that could be too high. We’ll know in about 18 months.

While TARP was, admittedly, just a part of the overall “assistance” given to financial institutions… this thread was about TARP, so I’m sticking to the topic at hand. TARP may be a horrible program in all sorts of ways (particularly with respect to moral hazard), but… the CPP money will get paid back, which few of you believed would happen. Not to worry, I don’t expect anyone to post acknowledging they were wrong about this.

[davelj]

[quote=CA renter]

So, there was “no meaningful Bubble Action between 1995 and 1998”? What about the stock/internet bubble?[/quote]

Ok, going back to 1995, the S&P 500 is up 6.8% annualized including dividends (about 2.5%). So, that’s about 4% real return, and 3% real after taxing the dividends. Don’t get me wrong, 3% real after-tax is much better than nothing. But, again, it’s nothing to write home about in absolute or historical terms where the stock market is concerned (and barely worth the risk involved).

[quote=CA renter]
You mention stocks, as if that’s all that the wealthy own. How about bonds, gold, real estate (foreign and domestic — HUGE run-ups in foreign RE this past 10-15 years), foreign currencies, commodities, foreign stocks, etc.? THAT is where much of the wealth belonging to “The Rich” has been going this past 10-15 years. I’m quite sure the return has been a tad over the 1.7% annualized real return you quoted for the stock market.
[/quote]

Commodities aren’t heavily owned by the Rich (or any one particular group, for that matter, except for farmers and commodity producers), although clearly they have some exposure. But, 90% of the wealth is in cash (where there is no real after-tax return – it’s zero by design), stocks (covered that above), bonds (about 1.5% real after-tax return over the last 15 years), and real estate. We covered residential, so that leaves CRE. The fact is that CRE values are up from 1995, but the annual appreciation is quite low after the recent 40%+ decline. So, the return has been from CASH FLOW… which brings me to my larger point: While the primary assets of the Rich have increased fairly modestly in value over the last 15 years in real terms… it’s the CASH FLOW that increased enormously over that time. Whether as an executive getting paid a lot of money, a financial services professional getting paid a lot of money, or a CRE investor getting cashflow from properties… it’s the CASH generation that’s really made the Rich richer over the last 15 years. Again, I’m not saying that assets haven’t played a role, but it’s been modest in the whole scheme of things – the CASH is what’s played the major role. And that cash flow has grown at a rate much greater than that of Joe Sixpack and what has fueled much of the growing inequality.

Now, in 2006 – prior to the stock and property bubbles bursting – your argument would have been much stronger. But post-correction, it’s the cash that’s played the major culprit. Although if we get another bubble (or bubbles) then you’ll be able to make the charge against asset inflation again. But my suspicion is that stocks and real estate are in for low returns for quite some time.

[davelj]

[quote=CA renter]

So, there was “no meaningful Bubble Action between 1995 and 1998”? What about the stock/internet bubble?[/quote]

Ok, going back to 1995, the S&P 500 is up 6.8% annualized including dividends (about 2.5%). So, that’s about 4% real return, and 3% real after taxing the dividends. Don’t get me wrong, 3% real after-tax is much better than nothing. But, again, it’s nothing to write home about in absolute or historical terms where the stock market is concerned (and barely worth the risk involved).

[quote=CA renter]
You mention stocks, as if that’s all that the wealthy own. How about bonds, gold, real estate (foreign and domestic — HUGE run-ups in foreign RE this past 10-15 years), foreign currencies, commodities, foreign stocks, etc.? THAT is where much of the wealth belonging to “The Rich” has been going this past 10-15 years. I’m quite sure the return has been a tad over the 1.7% annualized real return you quoted for the stock market.
[/quote]

Commodities aren’t heavily owned by the Rich (or any one particular group, for that matter, except for farmers and commodity producers), although clearly they have some exposure. But, 90% of the wealth is in cash (where there is no real after-tax return – it’s zero by design), stocks (covered that above), bonds (about 1.5% real after-tax return over the last 15 years), and real estate. We covered residential, so that leaves CRE. The fact is that CRE values are up from 1995, but the annual appreciation is quite low after the recent 40%+ decline. So, the return has been from CASH FLOW… which brings me to my larger point: While the primary assets of the Rich have increased fairly modestly in value over the last 15 years in real terms… it’s the CASH FLOW that increased enormously over that time. Whether as an executive getting paid a lot of money, a financial services professional getting paid a lot of money, or a CRE investor getting cashflow from properties… it’s the CASH generation that’s really made the Rich richer over the last 15 years. Again, I’m not saying that assets haven’t played a role, but it’s been modest in the whole scheme of things – the CASH is what’s played the major role. And that cash flow has grown at a rate much greater than that of Joe Sixpack and what has fueled much of the growing inequality.

Now, in 2006 – prior to the stock and property bubbles bursting – your argument would have been much stronger. But post-correction, it’s the cash that’s played the major culprit. Although if we get another bubble (or bubbles) then you’ll be able to make the charge against asset inflation again. But my suspicion is that stocks and real estate are in for low returns for quite some time.

[davelj]

[quote=CA renter]

So, there was “no meaningful Bubble Action between 1995 and 1998”? What about the stock/internet bubble?[/quote]

Ok, going back to 1995, the S&P 500 is up 6.8% annualized including dividends (about 2.5%). So, that’s about 4% real return, and 3% real after taxing the dividends. Don’t get me wrong, 3% real after-tax is much better than nothing. But, again, it’s nothing to write home about in absolute or historical terms where the stock market is concerned (and barely worth the risk involved).

[quote=CA renter]
You mention stocks, as if that’s all that the wealthy own. How about bonds, gold, real estate (foreign and domestic — HUGE run-ups in foreign RE this past 10-15 years), foreign currencies, commodities, foreign stocks, etc.? THAT is where much of the wealth belonging to “The Rich” has been going this past 10-15 years. I’m quite sure the return has been a tad over the 1.7% annualized real return you quoted for the stock market.
[/quote]

Commodities aren’t heavily owned by the Rich (or any one particular group, for that matter, except for farmers and commodity producers), although clearly they have some exposure. But, 90% of the wealth is in cash (where there is no real after-tax return – it’s zero by design), stocks (covered that above), bonds (about 1.5% real after-tax return over the last 15 years), and real estate. We covered residential, so that leaves CRE. The fact is that CRE values are up from 1995, but the annual appreciation is quite low after the recent 40%+ decline. So, the return has been from CASH FLOW… which brings me to my larger point: While the primary assets of the Rich have increased fairly modestly in value over the last 15 years in real terms… it’s the CASH FLOW that increased enormously over that time. Whether as an executive getting paid a lot of money, a financial services professional getting paid a lot of money, or a CRE investor getting cashflow from properties… it’s the CASH generation that’s really made the Rich richer over the last 15 years. Again, I’m not saying that assets haven’t played a role, but it’s been modest in the whole scheme of things – the CASH is what’s played the major role. And that cash flow has grown at a rate much greater than that of Joe Sixpack and what has fueled much of the growing inequality.

Now, in 2006 – prior to the stock and property bubbles bursting – your argument would have been much stronger. But post-correction, it’s the cash that’s played the major culprit. Although if we get another bubble (or bubbles) then you’ll be able to make the charge against asset inflation again. But my suspicion is that stocks and real estate are in for low returns for quite some time.

[davelj]

[quote=CA renter]

So, there was “no meaningful Bubble Action between 1995 and 1998”? What about the stock/internet bubble?[/quote]

Ok, going back to 1995, the S&P 500 is up 6.8% annualized including dividends (about 2.5%). So, that’s about 4% real return, and 3% real after taxing the dividends. Don’t get me wrong, 3% real after-tax is much better than nothing. But, again, it’s nothing to write home about in absolute or historical terms where the stock market is concerned (and barely worth the risk involved).

[quote=CA renter]
You mention stocks, as if that’s all that the wealthy own. How about bonds, gold, real estate (foreign and domestic — HUGE run-ups in foreign RE this past 10-15 years), foreign currencies, commodities, foreign stocks, etc.? THAT is where much of the wealth belonging to “The Rich” has been going this past 10-15 years. I’m quite sure the return has been a tad over the 1.7% annualized real return you quoted for the stock market.
[/quote]

Commodities aren’t heavily owned by the Rich (or any one particular group, for that matter, except for farmers and commodity producers), although clearly they have some exposure. But, 90% of the wealth is in cash (where there is no real after-tax return – it’s zero by design), stocks (covered that above), bonds (about 1.5% real after-tax return over the last 15 years), and real estate. We covered residential, so that leaves CRE. The fact is that CRE values are up from 1995, but the annual appreciation is quite low after the recent 40%+ decline. So, the return has been from CASH FLOW… which brings me to my larger point: While the primary assets of the Rich have increased fairly modestly in value over the last 15 years in real terms… it’s the CASH FLOW that increased enormously over that time. Whether as an executive getting paid a lot of money, a financial services professional getting paid a lot of money, or a CRE investor getting cashflow from properties… it’s the CASH generation that’s really made the Rich richer over the last 15 years. Again, I’m not saying that assets haven’t played a role, but it’s been modest in the whole scheme of things – the CASH is what’s played the major role. And that cash flow has grown at a rate much greater than that of Joe Sixpack and what has fueled much of the growing inequality.

Now, in 2006 – prior to the stock and property bubbles bursting – your argument would have been much stronger. But post-correction, it’s the cash that’s played the major culprit. Although if we get another bubble (or bubbles) then you’ll be able to make the charge against asset inflation again. But my suspicion is that stocks and real estate are in for low returns for quite some time.

[davelj]

[quote=CA renter]

So, there was “no meaningful Bubble Action between 1995 and 1998”? What about the stock/internet bubble?[/quote]

Ok, going back to 1995, the S&P 500 is up 6.8% annualized including dividends (about 2.5%). So, that’s about 4% real return, and 3% real after taxing the dividends. Don’t get me wrong, 3% real after-tax is much better than nothing. But, again, it’s nothing to write home about in absolute or historical terms where the stock market is concerned (and barely worth the risk involved).

[quote=CA renter]
You mention stocks, as if that’s all that the wealthy own. How about bonds, gold, real estate (foreign and domestic — HUGE run-ups in foreign RE this past 10-15 years), foreign currencies, commodities, foreign stocks, etc.? THAT is where much of the wealth belonging to “The Rich” has been going this past 10-15 years. I’m quite sure the return has been a tad over the 1.7% annualized real return you quoted for the stock market.
[/quote]

Commodities aren’t heavily owned by the Rich (or any one particular group, for that matter, except for farmers and commodity producers), although clearly they have some exposure. But, 90% of the wealth is in cash (where there is no real after-tax return – it’s zero by design), stocks (covered that above), bonds (about 1.5% real after-tax return over the last 15 years), and real estate. We covered residential, so that leaves CRE. The fact is that CRE values are up from 1995, but the annual appreciation is quite low after the recent 40%+ decline. So, the return has been from CASH FLOW… which brings me to my larger point: While the primary assets of the Rich have increased fairly modestly in value over the last 15 years in real terms… it’s the CASH FLOW that increased enormously over that time. Whether as an executive getting paid a lot of money, a financial services professional getting paid a lot of money, or a CRE investor getting cashflow from properties… it’s the CASH generation that’s really made the Rich richer over the last 15 years. Again, I’m not saying that assets haven’t played a role, but it’s been modest in the whole scheme of things – the CASH is what’s played the major role. And that cash flow has grown at a rate much greater than that of Joe Sixpack and what has fueled much of the growing inequality.

Now, in 2006 – prior to the stock and property bubbles bursting – your argument would have been much stronger. But post-correction, it’s the cash that’s played the major culprit. Although if we get another bubble (or bubbles) then you’ll be able to make the charge against asset inflation again. But my suspicion is that stocks and real estate are in for low returns for quite some time.

[davelj]

[quote=FormerSanDiegan]

Interesting info on the new units. Do you know of any data on existing units that show any substantial increase in rents (e.g. SDAA) ?[/quote]

I don’t.

[Author]

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