"Trills" to offer new investing "thrills"

[Bylo Selhi]

Economists push new debt security

A Canadian business professor and one of the most influential economists in the United States are calling on the federal government to create a new debt security that would give investors a direct stake in Canada's economic growth.

In a report issued by think tank C.D. Howe Institute, York University professor Mark Kamstra and Yale University economist Robert Shiller proposed the introduction of "trills" - so named because the coupon value of each security would be equivalent to one-trillionth of Canada's gross domestic product. With the coupon representing the amount of income each trill would generate annually, income from the security would rise as GDP rises. "Similar to shares issued by corporations paying a fraction of corporate earnings in dividends, the trill would pay a fraction of the 'earnings' of Canada," the authors wrote.

[queerasmoi]

Interesting idea... but I feel GDP is such a misleading number anyway. It goes up with jobless growth, which I feel is not really progress, and it goes up with transactions that do nothing but shift money around to put something useless in a landfill.

[tidal]

Trills anyone?

Economists push new debt security
...calling on the federal government to create a new debt security that would give investors a direct stake in Canada's economic growth.

In a report issued by think tank C.D. Howe Institute, York University professor Mark Kamstra and Yale University economist Robert Shiller proposed the introduction of "trills" - so named because the coupon value of each security would be equivalent to one-trillionth of Canada's gross domestic product. With the coupon representing the amount of income each trill would generate annually, income from the security would rise as GDP rises.
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Mr. Kamstra and Mr. Shiller argued that trills would provide an attractive long-term yield for retail investors and pension funds, and would serve as protection against inflation.
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It also argues that trills would help smooth out budget uncertainties and act as a hedge against shortfalls, because the pace of both trills payouts and tax revenues would rise when the economy grows faster and decrease when economic growth slows.

[parvus]

Tidal, you may recall that I once suggested this (ironically, of course) to be the underlying logic of indexing: returns based more or less directly on GDP growth. Oh well, better that than COLA.

The C.D. Howe paper is here.

[tidal]

Tidal, you may recall that I once suggested this to be the underlying logic of indexing: returns based directly on GDP growth.

I don't recall that, per se, but, yeah, I agree, and it is pretty standard theory. Assuming that corporate profits stay near a constant proportion of domestic GDP, then those profits grow at roughly the rate of GDP. Then you are back to the Gordon model aggregated up to the level of the entire market, and the expected return is the initial dividend + forecasted GDP growth. Unfortunately, in real life, the stock market is generally in a state of net share issuance, so over time not all of the dividend growth accrues to the original shareholders (they get diluted)... classic bernstein. But ignoring that dilution, if you also assume that the dividend payout ratio stays reasonably stable, and the P/Div ratio stays reasonably stable, over long periods of time, this is basically what you expect. And there are no long-term workarounds.

Now, as to the real GDP growth assumptions - No problemo! We are very smart monkeys, and we have got the grow, grow!, grow!! thang all figured out. For example, just look at the kick-ass job we are doing as we expand our dominion across the oceans! A little bit more growth, and who knows what we can accomplish!!! Go, homo sapiens, go! Best fishes, parvus!

[tidal]

Tidal, you may recall that I once suggested this (ironically, of course) to be the underlying logic of indexing: returns based more or less directly on GDP growth.

Ok, I see now the point you were referring to. There, I was suggesting that cap-weighting of indices, which are turn based on the share prices - not dividends, or revenues, or whatever - are still the most efficient. And to say that using prices would achieve a "socialist" outcome for cap-weighting... well, someone might need to use The Google and type in "knowledge problem" and Hayek. That was that point. But on indexing tracking GDP, agree.

Oh, by the way. The amphibian populations are collapsing too. Have a nice weekend.

[Bylo Selhi]

Trills anyone?

Sheesh... I started a separate thread on the subject more than a day ago but almost no one wanted to discuss it

[tidal]

Trills anyone?

Sheesh... I started a separate thread on the subject more than a day ago but almost no one wanted to discuss it

yabbut you didn't mention anything about fish. learn from the master...

[ghariton]

And I get accused of hijacking threads...

Real return is still hanging in at between 1.5% and 1.6%. Nominal yields on regular Canada long bonds are just above 4%. That's consistent with expected inflation of about 2% (assuming a risk premium of about half a per cent for unexpected inflation).

George

[parvus]

Tidal, you may recall that I once suggested this (ironically, of course) to be the underlying logic of indexing: returns based more or less directly on GDP growth.

Ok, I see now the point you were referring to. There, I was suggesting that cap-weighting of indices, which are turn based on the share prices - not dividends, or revenues, or whatever - are still the most efficient. And to say that using prices would achieve a "socialist" outcome for cap-weighting... well, someone might need to use The Google and type in "knowledge problem" and Hayek. That was that point. But on indexing tracking GDP, agree.

Ah yes, the classical problem of the dog that does not bark its value. Market prices are efficient, in the absence of [s]barking dogs[/s] absolute values, and satisfice as objective values (or at least a snapshot of them), by virtue of being the aggregation of billions of [s]individual marginal utilities[/s] effectively random decisions made in constrained time (with a few booms and busts along the way). But are they optimal? Who decides optimal? The wisdom of crowds? The market? Which market? How does one arrive at a price that reflects the absolute value of the environment, for example, taking due notice of replacement or better, ruin costs? Are these properly priced (in the Hayekian sense)? Is it a question of incomplete information, or incomplete markets? More to chew on (but I like off-the-beaten-track discussions), I suppose.

Oh, by the way. The amphibian populations are collapsing too. Have a nice weekend.

You too.