Balzer says he doesn’t want to approach the subject from a political standpoint, but he uses it in conversation with clients to demonstrate how insensitive policymakers have become to potentially inflationary measures going forward. MMT’s potential to trigger rampant inflation is one of the biggest concerns for Sven Balzer, head of investment strategy at Coutts. ‘If past hyperinflationary episodes are any guide, such as Venezuela and Zimbabwe, it’s almost never the case,’ he says. ‘MMT presupposes that once aggressive fiscal policy is in place and growth/inflation has recovered, policymakers can easily avoid the temptation to print money and transition to a more conventional policy framework. However, it advocates a much more aggressive form of Keynesian-style stimulus, focusing more on fiscal rather than monetary measures, he adds. Will Hobbs (pictured), CIO of Barclays Investment Solutions, says MMT is not that far away from mainstream economic theory, as it recognises a trade-off between growth and inflation. However, asset allocators’ views on MMT are similarly sceptical, as they question both its implementation and its side-effects. The idea caught on with left-wing politicians, who put it forward as a solution for expensive healthcare projects or the Green New Deal, which is a major sustainability-focused spending package in the US with an estimated cost of around $16.3 trillion. Mosler proposed that governments with reserve currency, like the US, could raise their debt ceiling without sending the economy into a tailspin.
The debate about the viability of MMT was triggered by US left-wing policy thinkers, who revived an idea developed by American economist Warren Mosler in the 1970s. Jeffrey Gundlach called it ‘complete nonsense’ and Larry Fink referred to it as ‘garbage’ on live TV.įollowing such vigorous attacks by fund industry veterans, including Warren Buffett, it’s hard to resist the temptation to give the theory a second look.
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself.Modern Monetary Theory (MMT) first appear on investment community’s radar in early 2019 and caused quite a stir. Simply Wall St has no position in any stocks mentioned. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. We aim to bring you long-term focused analysis driven by fundamental data. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation.
We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. This article by Simply Wall St is general in nature. Alternatively, email editorial-team (at). Have feedback on this article? Concerned about the content? Get in touch with us directly.
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If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E's below 20x. Having said that, be aware Extreme Networks is showing 1 warning signin our investment analysis, you should know about. It's hard to see the share price falling strongly in the near future under these circumstances. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. We've established that Extreme Networks maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future. With this information, we can see why Extreme Networks is trading at such a high P/E compared to the market. Meanwhile, the rest of the market is forecast to only expand by 8.4%, which is noticeably less attractive. Turning to the outlook, the next year should generate growth of 153% as estimated by the seven analysts watching the company. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Retrospectively, the last year delivered an exceptional 82% gain to the company's bottom line. There's an inherent assumption that a company should far outperform the market for P/E ratios like Extreme Networks' to be considered reasonable. What Are Growth Metrics Telling Us About The High P/E?
Keen to find out how analysts think Extreme Networks' future stacks up against the industry? In that case, our free report is a great place to start.
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