Supply Shocks and Stagflation
Bullbear Buffett Stock Investing Notes
by investbullbear
5d ago
Box: Supply Shocks and Stagflation If a supply shock is sufficiently large or persistent, it not only causes cost‑push inflation, but can noticeably reduce both the current and potential level of output in an economy. In this case, there can be the unusual combination of a period of ‘stagnation’ as output declines at the same time that prices are rising. This combination of stagnant growth – with high or rising unemployment – and high inflation is referred to as stagflation. Stagflation can become entrenched when inflation expectations are not well anchored. The 1970s were a period of st ..read more
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Inflation expectations
Bullbear Buffett Stock Investing Notes
by investbullbear
5d ago
  Inflation expectations Inflation expectations are the beliefs that households and firms have about future price increases. They are important because expectations about future price increases can affect current economic decisions that can influence actual inflation outcomes. For example, if firms expect future inflation to be higher and act on those beliefs, they may raise the prices of their goods and services at a faster rate. Similarly, if workers expect future inflation to be higher, they may demand higher wages to make up for the expected loss of their purchasing power. These behav ..read more
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Cost-push inflation
Bullbear Buffett Stock Investing Notes
by investbullbear
5d ago
Cost-push inflation Cost-push inflation occurs when the total supply of goods and services in the economy which can be produced (aggregate supply) falls. A fall in aggregate supply is often caused by an increase in the cost of production. If aggregate supply falls but aggregate demand remains unchanged, there is upward pressure on prices and inflation – that is, inflation is ‘pushed’ higher. An increase in the price of domestic or imported inputs (such as oil or raw materials) pushes up production costs. As firms are faced with higher costs of producing each unit of output they tend to produc ..read more
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Demand-pull inflation
Bullbear Buffett Stock Investing Notes
by investbullbear
5d ago
  Demand-pull inflation Demand-pull inflation arises when the total demand for goods and services (i.e. ‘aggregate demand’) increases to exceed the supply of goods and services (i.e. ‘aggregate supply’) that can be sustainably produced. The excess demand puts upward pressure on prices across a broad range of goods and services and ultimately leads to an increase in inflation – that is, it ‘pulls’ inflation higher. Aggregate demand might increase because there is an increase in spending by consumers, businesses or government, or an increase in net exports. As a result, demand for goods an ..read more
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Causes of Inflation: demand-pull, cost-push and inflation expectations
Bullbear Buffett Stock Investing Notes
by investbullbear
5d ago
Causes of inflation The main causes of inflation can be grouped into three broad categories: demand-pull, cost-push, and inflation expectations. As their names suggest, ‘demand-pull inflation’ is caused by developments on the demand side of the economy, while ‘cost-push inflation’ is caused by the effect of higher input costs on the supply side of the economy. Inflation can also result from ‘inflation expectations’ – that is, what households and businesses think will happen to prices in the future can influence actual prices in the future. These different causes of inflation are considered b ..read more
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Inflation
Bullbear Buffett Stock Investing Notes
by investbullbear
5d ago
Inflation is an increase in the prices of goods and services.  The most well-known indicator of inflation is the Consumer Price Index (CPI), which measures the percentage change in the price of a basket of goods and services consumed by households (see Explainer: Inflation and its Measurement).  The CPI is the measure of inflation used by the Reserve Bank of Australia in its inflation target, where it aims to keep annual consumer price inflation between 2 and 3 per cent (see Explainer: Australia's Inflation Target).  Other measures of inflation are also analysed, but most measur ..read more
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How depreciation of assets can distort profit figures
Bullbear Buffett Stock Investing Notes
by investbullbear
3w ago
Depreciation is an expense that matches the cost of a fixed asset against the revenues it helps to produce.  The cost of an asset is spread over its useful life.    The most common method of depreciating an asset is known as straight-line depreciation, where an equal amount is charged against revenue over the asset's useful life and is calculated as follows: straight line depreciation = (cost - residual value) / estimated useful life Depreciation is often seen as a proxy for maintenance or stay in business capex.   The problem with depreciation is that the management o ..read more
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Looking for possible investment candidates: Four simple rules when comparing FCFps with EPS
Bullbear Buffett Stock Investing Notes
by investbullbear
3w ago
 Summary Expenses and depreciation reduce profits.  Capex reduces FCF. When expenses are not expensed against revenues but considered as capex, the company will report higher profit.  Also, the depreciation charge reported by the company will be probably too low. In a nutshell: the cash spent should be expensed against revenues and so it should reduce profits.   unless it does, this, the depreciation charge reported by the company is probably too low and profits too high.    Four simple rules when comparing FCFps with EPS when looking for possible investme ..read more
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Quality companies turn most of their profits into free cash flow on a regular basis
Bullbear Buffett Stock Investing Notes
by investbullbear
3w ago
We can use free cash flow as a tool for checking the quality of a company's profits. The stock market has been littered with companies that seemed to be very profitable but turned out to be anything but. Investors can save themselves a lot of heartache and some painful losses by taking a few minutes to study how effectively a company converts profits into free cash flow. One of the simplest and best ways to test the quality of a company's profits and whether you think they are believable or not is to compare a company's underlying or normalised earnings with its free cash flow.    Th ..read more
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Checking the safety of dividend payments
Bullbear Buffett Stock Investing Notes
by investbullbear
3w ago
Dividends are an important part of total returns from owning a share.   Dividends are a cash payment and therefore the company needs to have enough cash flow to make these payments. Compare the FCF with its dividends By comparing the free cash flow with its dividends, you can see whether a company has sufficient cash to pay dividends.   Net cash from operation - CAPEX =  Free Cash Flow You want to see the free cash flow being the bigger number more often than not. When dividend is the larger number compared to the free cash flow, this may occur when a company is putti ..read more
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