Ask an Economist (Post #1005 and counting)

[Mise]

They're bidding more than the book value of Yahoo's asset. That's not smart. They're bidding based on future expectations of a web search company whose market share is slowly slipping away.

Isn't that the point of takeovers?

Microsoft believe that the combined value of Microsoft and Yahoo would be greater than the sum of its parts, presumably exploiting the obvious synergies between the two companies.

And does Yahoo's book value include intangible assets, such as the value of the Yahoo brand?

 

[JerichoHill]

Are the United States' problems with immigration, health care, and foreign policy an offshoot of its economic woes, or vice versa?

I dont think I can in any way answer that question objectively. The probable answer is that its due to many things.

The US did not have economic woes since...83? (aside from 2 downturns, and the current downturn). In this respect, I do not think you can really ping those problems on "woes"

As to your question Mise, Acquisitions are not always at a greater price than the share is currently traded. I personally view Yahoo as a company on the way down. SO did the market, apparently, till today. Decently strong downward trend.

http://finance.yahoo.com/q/bc?s=YHOO&t=2y

 

[Ramius75]

I cant link to this WSJ article, but one released Jan 8th says:

According to the article, streetTracks Gold Shares ETF (GLD) now holds more gold than the People's Bank of China and the European Central Bank. In fact, there are only seven countries which currently hold more gold than the Gold ETF, and they are the U.S., Germany, France, Italy, Switzerland, Japan and the Netherlands. At the same time, demand from traditional sources has declined. For example, since 2001, worldwide demand for gold to make jewelry has fallen by 13% (so much for the booming new demand from India and China).

So that leads me to believe that its not actual manufacturing demand from India and China, since worldwide demand has fallen

thats actually very interesting. So if the gold were procure not by consumers. then ppl are actually hording gold for the sake of its value and in many way, its again driven by trend and herd mentality ?

 

[The Yankee]

I dont think I can in any way answer that question objectively. The probable answer is that its due to many things.

The US did not have economic woes since...83? (aside from 2 downturns, and the current downturn). In this respect, I do not think you can really ping those problems on "woes"

As to your question Mise, Acquisitions are not always at a greater price than the share is currently traded. I personally view Yahoo as a company on the way down. SO did the market, apparently, till today. Decently strong downward trend.

http://finance.yahoo.com/q/bc?s=YHOO&t=2y

And Microsoft's shares went down a bit, though that isn't important as the 48% increase in Yahoo!'s price...either because somebody believed Microsoft really saw something in the company or they just want to be in on this huge buyout.

 

[Homie]

Over the long run, you're better off in stocks. I can be buying stocks on a discount right now, whereas gold is at a premium. When the economy recovers, gold values will plummet and the stock market will rise. I make more money by being in the market.

I'm sorry if I made myself unclear. I wasn't wondering what the best investment strategy is (that was later in my post), I was wondering (or rather seeking confirmation) that gold (or any other commodity) has intrinsic value and so does not suffer from being devalued like currencies do. To be more precise: Governments artificially increases the money supply which causes the currency to be worth less. This does not happen to commodities. For this reason, I can hold onto gold and its value will not decrease (assuming supply&demand remains the same) whereas a currency will decrease in value. E.g. I buy a gold bar in year 0 for 1$. In 10 years there has been 100% inflation. I can now sell my gold bar and get 2$ and have the same purchasing power as in year 0. But if I just held on to my dollar, I would now have half the purchasing power I did in year 0.
I posed this question because my econ prof said I'd be just as well off stuffing my dollars in my mattress for saving as I would if I bought gold. Surely he must be mistaken, because that makes no sense.

Gold doesn't protect against inflation any more than any other commodity does.

I'm just using gold as an example because it is traditionally used as a store of value, insert whatever good you wish. But do goods suffer inflation? Goods are subject to supply and demand, currencies are subject to inflation.
I know you'll say it is the same thing, currencies are subject to supply and demand too. I know, but there is a difference. If there is an increase in the supply of aluminum, aluminum will be worth less (scarcity), but there is now more actual wealth in the society because there is more aluminum. However, if the money supply increases because government wants to pay for its great endeavors, there isn't more real wealth in society.

I don't understand what your graph is suppose to show, you're comparing gold with gold. If you wanted to show that gold loses its value like currencies do, you'd have to have a graph showing the purchasing power of gold vs the purchasing power of the dollar from year X to year Y, using the CPI or something. I would guess that you'd find that gold has decreased slightly and the dollar has decreased greatly in value. I'm guessing so because more gold is being mined which means greater suppl;, and even though the population is increasing, it is mostly increasing in poor countries, so the demand for the luxury good gold will not increase by as much as the supply. But I could be wrong, we all know there are tons of factors in economics - and we can only make educated guesses.

Not against investing your long-term savings into a market index fund no. Gold, or commodities in general, are a reasonable purchase for someone with a large portfolio who needs to sufficiently diversify and hedge against risk. For the average person, investing in gold doesn't make sense.

Thanks, I probably won't buy gold now. But I guess if you are incredibly risk averse, gold would still be a better option, markets can crumble, governments can even get toppled by some conflict, war or civil war. In which case your stocks and money will be worthless, but your gold won't.

Thanks

 

[Homie]

How so, apart from being shiny, and some limited uses in electronics?

In that it is demanded
Use value and exchange value distinctions doesn't matter, that's obsolete economics.

(Sorry for my rolleyes if you weren't being sarcastic, I got the impression you were.)

 

[JerichoHill]

@@Homie;6443307]
I posed this question because my econ prof said I'd be just as well off stuffing my dollars in my mattress for saving as I would if I bought gold. Surely he must be mistaken, because that makes no sense.
Your economics professor is right. Commodities, including gold an silver, are subject to supply and demand. The value of gold in society has increased 1% on average each year. It typically rises in value in times of crisis, and then drops dramatically in price afterwards. Just look at any chart of inflation adjusted gold prices and you can see it is not a constant.


But do goods suffer inflation? Goods are subject to supply and demand, currencies are subject to inflation.
Goods are subject to price changes due to supply and demand. THey may not keep up with infaltion.


Thanks, I probably won't buy gold now. But I guess if you are incredibly risk averse, gold would still be a better option, markets can crumble, governments can even get toppled by some conflict, war or civil war. In which case your stocks and money will be worthless, but your gold won't.
Gold is a horrible option for the risk averse. It likely will not keep up with inflation. A high-yield savings account is better. If governments are toopled, gold won't be valuable. What could you do with it? Does it cook food? Does it shoot a bullet?

 

[dutchfire]

In that it is demanded
Use value and exchange value distinctions doesn't matter, that's obsolete economics.

(Sorry for my rolleyes if you weren't being sarcastic, I got the impression you were.)

It's valuable because it's demanded, and it's demanded because it's valuable and people think it will stay valuable (and even become more valuable). That sounds like a bubble to me.

 

[Whomp]

I still disagree with you in that gold has little investment value for the average person investing or retirement. I also disagree that the most recent gold price rise is explainable by India and China. Have they really been demanding that much gold? I thought they were driving up the price of oil.

I cant link to this WSJ article, but one released Jan 8th says:

According to the article, streetTracks Gold Shares ETF (GLD) now holds more gold than the People's Bank of China and the European Central Bank. In fact, there are only seven countries which currently hold more gold than the Gold ETF, and they are the U.S., Germany, France, Italy, Switzerland, Japan and the Netherlands. At the same time, demand from traditional sources has declined. For example, since 2001, worldwide demand for gold to make jewelry has fallen by 13% (so much for the booming new demand from India and China).

So that leads me to believe that its not actual manufacturing demand from India and China, since worldwide demand has fallen

I'm not talking about governments holding as a store of value JH. I'm talking about consumption and a tactical allocation today. India by itself consumes 1/3 of world mining production or 1/4 of total worldwide supply. The Chinese invest ~30% of its savings in gold since they have very little opportunity to invest their earnings in companies outside the country (~$500 iirc). It's no wonder why as the Shanghai market is popping at bubble levels.

We haven't even discussed the problem of production or for that matter new production (4-7 years for a new mine) and its huge impact on the environment.

According to the World Gold Council, jewelry already accounts for nearly 70 percent of total demand but the emancipation of women in developing countries is leading to enormous growth in potential markets for gold jewelry.

September and October are key holiday periods in China - the mid-autumn festival -- and India -- the revival of the wedding season -- and precede Christmas purchasing in the OECD countries.

Gold use in jewelry in China jumped 24 percent from a year earlier to 221 metric tons in the first nine months, a GFMS analyst, Veronica Han, said from Beijing on Monday, citing data compiled for the World Gold Council. That compares with 515 tons in India, the biggest consumer, and 165 tons in the United States.

http://www.iht.com/articles/2007/12/04/bloomberg/sxgold.php

The trend in platinum is not much different as the price has increased from $1300/oz to $1750/oz in 6 months ($500/oz. 5 years ago).

 

[Homie]

Your economics professor is right. Commodities, including gold an silver, are subject to supply and demand. The value of gold in society has increased 1% on average each year. It typically rises in value in times of crisis, and then drops dramatically in price afterwards. Just look at any chart of inflation adjusted gold prices and you can see it is not a constant.

But if gold has increased in value over the years and the dollar has decreased in value, how am I better off saving dollars in my mattress, rather than gold?
I can't help but ask, did you read my whole post?

BTW, where might I find these graphs?

 

[Homie]

It's valuable because it's demanded, and it's demanded because it's valuable and people think it will stay valuable (and even become more valuable). That sounds like a bubble to me.

None the less, it is demanded and has value. Furthermore, I doubt it has such limited uses as you suggest. I think the thing is that because it is so expensive it is not being used for many things it might have been great for, instead cheaper metals are used.

 

[Mise]

As to your question Mise, Acquisitions are not always at a greater price than the share is currently traded.

Of course not, but I thought we were talking about the book value of Yahoo's assets, not the company's current market value?

 

[JerichoHill]

@@Whomp
I'm not talking about governments holding as a store of value JH. I'm talking about consumption and a tactical allocation today.
Point Taken. Thanks for the articles

But if gold has increased in value over the years and the dollar has decreased in value, how am I better off saving dollars in my mattress, rather than gold?
I can't help but ask, did you read my whole post?

BTW, where might I find these graphs?

I read everyone's full posts. The dollar has only recently decreased in value. Go back and look at the history of gold prices. What happened to gold after 1979? I'm pretty sure it got clocked. When I speak about gold vs. stocks vs. housing as investments, I look at the long-term historical trends, which I quoted to you in an earlier post. Whomp's in a different place in life (older, wealthier) and is thus in different investment schemes. I hope in a few years to be grappling with the same issues. For you Homie, commodity speculation isn't an ideal investment strategy.

Here's one gold bug plotting the value of gold after accounting for inflation. The small black line is the inflation adjusted price of gold. Not a very good hedge against inflation, right?

If you're interested in investing in commodities, which for new investors with little cash available (recent college grads and such), I do not advise (Its a more optimal strategy to max out your 401k contribution if your employer has a matching contribution...and its tough to save up more beyond that...if you're also saving for a home, a car, etc. etc.) , but if you are, buy a commodities ETF or Index Fund. Don't buy those gold coins on the late night informercials. Just don't.

Deutsche Bank Commodity Index Tracking Fund is the only one available in the US. Oh, and these funds have a minimum investment of 50K or 100K.

None the less, it is demanded and has value. Furthermore, I doubt it has such limited uses as you suggest. I think the thing is that because it is so expensive it is not being used for many things it might have been great for, instead cheaper metals are used.

Actually, we've just found better suited metals I think.

Of course not, but I thought we were talking about the book value of Yahoo's assets, not the company's current market value?

I think Im just confused as to what we're talking about. My take on the Yahoo.Microsoft proposal is that Microsoft has far overbid for Yahoo. Yahoo, imho, seems like AOL a few years ago.

 

[Mise]

I think Im just confused as to what we're talking about. My take on the Yahoo.Microsoft proposal is that Microsoft has far overbid for Yahoo. Yahoo, imho, seems like AOL a few years ago.

We're talking about the bolded statement:

They're bidding more than the book value of Yahoo's asset. That's not smart. They're bidding based on future expectations of a web search company whose market share is slowly slipping away.

But then you said this:

As to your question Mise, Acquisitions are not always at a greater price than the share is currently traded.

which confused me, since you were talking about the book value of Yahoo's assets previously.

 

[JerichoHill]

We're talking about the bolded statement:

But then you said this:

which confused me, since you were talking about the book value of Yahoo's assets previously.

Yeah, I confused myself. My bad.

 

[Whomp]

I think the NY Times article on the YHOO/MSFT deal is classic.

Microsoft is building a spaceship out of spare parts

I'm pretty sure Microsoft has no clue what to do with their cash. The biggest deal no one's talking about is who won the FCC bid for the 700mhz auction? If it's Google don't be surprised if we get open access with an Apple benefit... Apple and Google or Microsoft and Yahoo....you make the call.

 

[innonimatu]

Commodities, including gold an silver, are subject to supply and demand.

So are floating currencies. Ultimately all are backed by people's belief.

 

[JerichoHill]

Inno,

That just proves my point. =)

 

[JerichoHill]

I think the NY Times article on the YHOO/MSFT deal is classic.

Microsoft is building a spaceship out of spare parts

I'm pretty sure Microsoft has no clue what to do with their cash. The biggest deal no one's talking about is who won the FCC bid for the 700mhz auction? If it's Google don't be surprised if we get open access with an Apple benefit... Apple and Google or Microsoft and Yahoo....you make the call.

You know, Im glad you agree with me on this one WHokmpers

 

[C~G]

Surely what should define the level of military spending overkill (or lack thereof) should be the nation in questions budget compared to other countries' military power as opposed to its own economy?

I'm comparing USA to USA. Seems the only relevant comparison. Point being is that its not military spending that is the cause of our budget woes.

Well, so you don't think it's not the cause of your budget woes? Doesn't it play at least a role?

What kind of role do you think military, the industry connected to it and it's budget plays in US if you consider it's insane amount when you don't consider it being a problem?

You probably might catch my drift already but there are not only economical but also interesting political/ideological dimensions to this question and that's why I'm asking.