EC AMC Foolishness Comes At A Dear Cost

Rampant speculation has negative economic and sociological impacts. Maybe of equal importance our chief economic antagonist appears to be taking a different stance by encouraging productive investment at the expense of non-productive ventures.

Noah Smith, blogger and Bloomberg Opinion author, recently wrote Why is China Smashing its Tech Industry. He believes the recent punishment of “tech” companies such as Alibaba, Ant Financial, Tencent, and Didi are not based on the same monopolistic concerns brewing in the United States. Noah thinks there is much more to the story.

Per his article: “And so when China’s leaders look at what kind of technologies they want the country’s engineers and entrepreneurs to be spending their effort on, they probably don’t want them spending that effort on stuff that’s just for fun and convenience. They probably took a look at their consumer internet sector and decided that the link between that sector and geopolitical power had simply become too tenuous to keep throwing capital and high-skilled labor at it. And so, in classic CCP fashion, it was time to smash.”

Noah argues China is promoting productivity growth, not profit growth. If true, China is playing the long game which will benefit their nation. While banning or even punishing ‘internet” companies is much less likely here, we should take notice.

Summary

The Fed does not directly promote AMC, yet its actions create an environment that allows AMC shares to sop up precious capital despite uncompelling valuations. This capital is therefore not available for more productive investments.

It may be fun watching and/or trading zombie companies, but the cost of such entertainment is more costly than most people grasp.

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Comments

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William K. 2 months ago Member's comment

Sorry Folks, I am rather more in favor of "Natural Selection"in business and life. This includes credit at some interest rate so that gambling is not cheap. Just because somebody has an idea does not mean that it is a good idea, Poor ideas fail, and poorly managed good ideas fail also. Nature is brutal and non-forgiving of poor choices.

And the Federal Reserve club has done what they can think of to support that alternative approach of helping their friends on Wall Street, with no regard for the rest of the population.

Dick Kaplan 2 months ago Member's comment

Good read, thanks.