Curated Insights 2018.12.14

The Facebook Fed

I think a good analogy is that Facebook is the Federal Reserve of web publishing. It can turn its dial and blast millions of visitors to numerous publishers, allowing everyone to have more eyeballs to sell to and more rising traffic numbers with which to attract investment. Facebook turning on the traffic fire hose is like loose monetary policy that stimulates the economy for everyone.

Of course, Facebook could tighten policy, pulling traffic (liquidity) and leaving weaker players parched. When the Fed tightens policy, shaky borrowers who depend on ample lending are hit hardest. When Facebook tightens policy, second-tier publishers that totally rely on Facebook are hit hardest.

Digital divide is wider than we think, study says

Over all, Microsoft concluded that 162.8 million people do not use the internet at broadband speeds, while the F.C.C. says broadband is not available to 24.7 million Americans. The discrepancy is particularly stark in rural areas. In Ferry County, for example, Microsoft estimates that only 2 percent of people use broadband service, versus the 100 percent the federal government says have access to the service.

The hardest problem in finance

But here’s the catch, this table assumes you get this rate of return year after year after year. The real world is not so accommodating. The table above shows that you can earn 4% a year for 34 years before running out of money, but let’s look at what happens if a nasty bear market were to arrive as soon as you retire. The chart below shows one way in which an investor can arrive at a 4% CAGR over a 30 year period.

The danger of assuming compound annual growth rates when making long term projections can be seen in the chart below. The black line shows that spending a constant $40k annually, using the returns from the previous chart, an investor would run out of money in the 19th year. Spending 4% and assuming a 2% inflation rate, a more realistic assumption, an investor would run out of money in just 15 years. Side note, if the returns above were to happen in reverse, in other words the bear market comes at the end of the period, an investor with the same spending would be left with $1.3 million.

Leave a Reply