[HN Gopher] Why is the stock market rallying when the economy is...
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Why is the stock market rallying when the economy is so bad?
Author : harambae
Score : 258 points
Date : 2020-05-10 14:57 UTC (8 hours ago)
(HTM) web link (www.wsj.com)
(TXT) w3m dump (www.wsj.com)
| Eliezer wrote:
| I can't see the article because paywall, so out of grim
| curiosity: Do the journalists (at the so-called "Wall Street
| Journal") get through the whole article without mentioning _once_
| that "Stocks react to changed forecasts as events become
| predictable, not to events as they play out the forecast" or
| "Stocks discount the next 20 years of revenues, not revenues this
| year"? Has economic illiteracy progressed that far? Or is there
| yet a tiny redoubt of econoliteracy somewhere in the newspaper?
| jackallis wrote:
| and yet nobody talks about democratization of investing. It is
| now so easy to invest that anybody, without having to think about
| yikes i dont want to spend $10 buying it, can invest in 10
| minutes.
| talkingtab wrote:
| It would make sense if the stock market was a self-organizing
| Ponzi scheme. Let's say I have $10 million in the stock market. I
| know that if I sell as the market is going down, I may well
| encourage other people to sell. The market may plunge and all of
| my stock will be worthless. If I buy at a crucial time - when the
| market has paused in the process of dropping, I may well
| influence the market to go up instead.
|
| The greater my fear of a market panic, the more likely I am to
| try to steer the market - if there is a panic it is game over.
| The more I have invested in the market, the more influence I can
| exert. If I know other players are also pursuing the same
| strategy we can begin to act in unison.
|
| This can also be explained by techno-babble, but if it is true
| that 10% of the population controls 86% of the stock, then anyone
| would be a fool not to play this way.
| neonate wrote:
| https://archive.md/WOit5
| jonathanpeterwu wrote:
| Worth reading all chapters that are in here, but chapter 3 gets
| at the meat of where we're heading. We're at the end of a long
| credit cycle post WWII, dislocation of the dollar from the gold
| standard, to bretton woods, to now QE printing of money being
| loaned to the government by the fed.
|
| Market reflects the cash flow available being printed by the FED
| to keep the markets up.
|
| https://www.principles.com/the-changing-world-order/
| jalopy wrote:
| Don't see a chapter 3?
| peterwoerner wrote:
| Where we are now at the end of chapter 1?
| vertak wrote:
| Thank you for sharing this! I'm always grateful to read some of
| Dalio's thoughts on the future.
| ergocoder wrote:
| I notice that modern companies don't pay dividend anymore.
|
| They optimize for growth and survival, which makes sense.
|
| Google and Apple have so much cash that they wouldn't really need
| to make money for years, and they would still survive.
|
| Paying dividend is kinda okay, at best. Buying back stock is a
| bit better. The best is to just keep th cash.
|
| Don't get me wrong. As a shareholder, I like it. But it's bad for
| the company.
| mrep wrote:
| What? Most companies do return money to shareholders and for
| your 2 examples, Apple returned 81 billion dollars to
| shareholders last year [0] and Google started a 25 billion
| dollar buyback last year [1].
|
| [0]: https://www.barrons.com/articles/apple-stock-buyback-
| dividen...
|
| [1]: https://www.businessinsider.com/google-2q-earnings-beat-
| stoc...
| robodale wrote:
| The (US) stock market collectively "thinks" the economy will pop
| back up relatively soon (Q4-ish, 2020). If that rosy picture in
| the stock market's mind turns out incorrect, then rally go bye
| bye.
| dnprock wrote:
| This article lists 5 reasons:
|
| 1. Bets on a "V-Shaped" Recovery
|
| 2. Market Leaders Keep Rising
|
| 3. Corporate-Earnings Expectations Remain High
|
| 4. Old Habits Die Hard
|
| 5. The Fed's Backing
|
| The market misses an important point: a solution to the
| Coronavirus threat. It could be a drug, a vaccine, tracing
| technology. We don't know. The virus can also go away on its own.
| The market predicts this threat is somehow going away. But I
| can't predict.
| trhway wrote:
| the newly printed $6T need to be absorbed, and the interest rate
| is low, and no new assets is produced, thus stocks and real
| estate.
| [deleted]
| humaniania wrote:
| Maybe something to do with the Federal Reserve buying $2.5
| Trillion in assets over the past 2 months?
| https://fred.stlouisfed.org/series/WALCL
| JoshTriplett wrote:
| The best argument I've seen is that the stock market typically
| prices things in faster than other parts of the economy, so the
| stock market took the hit well _before_ things like unemployment
| indicators did.
|
| Also, some stocks are doing alright, while others are doing
| badly, depending on what sector they're in. Looking at the
| aggregate gives misleading information.
| cs702 wrote:
| What truly boggles my mind is this:
|
| * Personal consumption expenditures constitute 67% to 68% of US
| GDP every year:
| https://apps.bea.gov/iTable/iTable.cfm?reqid=19&step=3&isuri...
|
| * _Business revenues_ are the flip-side of those consumption
| expenditures, because every dollar consumers spend, to a close
| approximation, _is a dollar of revenue for some business_ --
| whether it 's your Aunt Tilly's burger joint, your local movie
| theater, one of the airlines, a downtown hotel, an amusement park
| like Disneyland, a retailer like Neiman Marcus, and yes, Amazon
| and Google too. So, 67% to 68% of US GDP every year, give or
| take, is made up of business revenues from sales to consumers.
|
| * If consumer spending in the US collapses by, say, 30% (a figure
| I've seen in some articles), business revenues from sales to
| consumers in the US necessarily declines by a similar magnitude
| at the same time. If two things are near mirror images of each
| other, and one declines 30%, the other declines by a similar
| magnitude too. For every expense not incurred by consumers,
| there's an equal sale not made by some business.
|
| I don't even know _how to reason_ about the impact of a 30%
| collapse in business revenues across the entire country.
|
| See also: https://news.ycombinator.com/item?id=23116055
| madengr wrote:
| What do they mean by rallying? The S&P is down 10% from the start
| of all this crap. My 401k is down a little more than that.
|
| Sure, it's higher than 1 month ago, but may take 2 years to
| recover.
| fallingfrog wrote:
| This quote from Jeffrey Sachs might offer some context:
|
| "Look, I meet a lot of those people on Wall Street on a regular
| basis right now... I know them. These are the people I have lunch
| with. And I am going to put it very bluntly: I regard the moral
| environment as pathological. [these people] have no
| responsibility to pay taxes; they have no responsibility to their
| clients; they have no responsibility to counter parties in
| transactions. They are tough, greedy, aggressive, and feel
| absolutely out of control in a quite literal sense, and they have
| gamed the system to a remarkable extent. They genuinely believe
| they have a God-given right to take as much money as they
| possibly can in any way that they can get it, legal or otherwise.
|
| If you look at campaign contributions, which I happened to do
| yesterday, the financial markets are the number one campaign
| contributors in the US system right now. We have a corrupt
| politics to the core.. both parties are up to their necks in
| this.
|
| But what it's lead to is this a sense of impunity that is really
| stunning, and you feel it on the individual level right now. And
| it's very, very unhealthy, I have waited four years, five years
| now to see one figure on Wall Street speak in a moral language.
| And I've not seen it once."
| Ididntdothis wrote:
| They also pay big bucks to ex politicians to give speeches and
| some politicians and regulators get big money jobs there after
| leaving office .
| schkkd wrote:
| There's this Wall Street movie made in 1970 (?) about this very
| kind of people.
| fortran77 wrote:
| The stock market is still down from its 2020 high point. So this
| means that the initial drop was an overcorrection according to
| the all knowing "market".
| atlgator wrote:
| Inflation has been hidden since the Obama years of quantitative
| easing due to globalization. You can pump cash into the market
| and, if you keep the cost of consumer goods low by outsourcing to
| 3rd world labor, the CPI doesn't increase. Meanwhile, the cost of
| items that are produced here, e.g. homes and cars, skyrockets.
| Trump has continued the trend of pumping the market and
| accelerated it in the last few months at an alarming rate.
| Problem is, globalization is decreasing as countries isolate. No
| place to hide the inflation. The stock market will continue to
| increase despite the bad news.
| submeta wrote:
| Not many alternatives. Interests almost zero or even negative. -
| How else are we supposed to save for the retirement.
| avvt4avaw wrote:
| The stock market is a leading indicator. Economic data
| (unemployment, manufacturing, GDP etc) are all lagging
| indicators.
|
| The terrible economic data (high unemployment, low growth)
| already showed up in stock market returns in the first three
| weeks of March. What we have seen in April/May represents
| improving expectations for the economy in the future (as in, a
| few months to a few years... in theory the market discounts
| future earnings to infinity, but in practice it is not looking
| ahead more than 3-5 years most of the time, which is why it is so
| volatile).
| the-dude wrote:
| Perhaps in this particular crisis, unemployment may be a
| leading indicator instead of a lagging one.
| nkurz wrote:
| https://archive.is/cmMx5
|
| It's a decent article. Here are their 5 reasons:
|
| 1. Bets on a "V-Shaped" Recovery
|
| 2. Market Leaders Keep Rising
|
| 3. Corporate-Earnings Expectations Remain High
|
| 4. Old Habits Die Hard
|
| 5. The Fed's Backing
|
| Personally, I'm betting we're still headed to a bloodbath, but
| slowly. This quarter's earnings are expected to be terrible, so
| this is already priced in. But the market is expecting a recovery
| soon after society starts opening up again. If (when) this strong
| recovery doesn't happen, the bottom falls out. If the reopening
| is combined with a second wave of epidemic and a renewed
| lockdown, something akin to financial panic ensues.
| ethbro wrote:
| My $0.02, we're going to see bifurcation that the market hasn't
| fully priced in. Not a good time to be in broad ETFs.
|
| Highly likely: Coronavirus is going to be circulating until the
| end of 2021 (based on transmissibility & vaccine timeline).
| We'll have better therapeutics to blunt the symptoms.
|
| But steps required to (intermittently) re-suppress transmission
| (NYC is ~20% exposed? So at minimum 1-2 more spike repeats) are
| going to continue to harm the economy over that period.
|
| There is no version of social distancing or lockdown that
| permits normal brick and mortar economic activity (and
| therefore normal employment levels).
|
| And there is nothing shy of those that dent infection spread
| once it gets going in an urban center.
|
| 50/50: Government stimulus cannot replace normal market demand
| over that period (i.e. "V-shaped recovery").
|
| Firms and industries that can adapt (curbside pickup, work from
| home, pivot to online delivery) and are deemed essential do
| fine by cannibalizing their peers.
|
| Eventually, the demand destruction will hit the markets. You
| can't sell product to people who are unemployed and have no
| disposable income.
|
| Consequently, adaptive companies are going to survive & maybe
| thrive. Everyone else looks pretty economically grim under
| likely scenarios.
| JMTQp8lwXL wrote:
| If the Fed starts buying stocks, much like how the Bank of
| Japan has been doing for doing 7 years, asset prices could
| remain high.
|
| One nearly certain continuation is cheap (low interest) debt.
| Cheap debt allows for further stock repurchases by
| corporations, and the cycle continues.
| war1025 wrote:
| One interesting possibility is that the people most likely to
| get infected (different from most vulnerable if infected) are
| going to get infected this first round.
|
| What that potentially means is that they will act as
| effectively a fire-break for the broader population.
|
| Basically a burning of the highest throughput avenues for
| mass spread.
|
| If true, that would mean we get lots of localized outbreaks,
| but the probability of that spreading back out into an
| uncontrolled pandemic is much lower.
| bavell wrote:
| Very insightful, hadn't considered that!
|
| I'm not sure how effective this 'firebreak' will be in
| practice but it will certainly slow the spread to some
| degree.
| davidw wrote:
| > a second wave of epidemic
|
| Judging by people's behavior, and the politicization of even
| common sense measures like mask wearing in the US, I think this
| is likely. I hope I'm wrong.
| eloff wrote:
| It's not just likely, I worry you won't even get out of the
| first wave. With everyone pulling in literally 50 different
| directions and and no leadership from the top this might just
| bounce between states like the proverbial hot potato.
|
| I feel bad for you guys watching from the north here.
| ethbro wrote:
| Just wait until we get closer to the election. Then it's
| going to get absolutely bonkers.
| davidw wrote:
| I was already worried about what might happen with this
| election, but the pandemic is likely to make things
| worse.
|
| My wife and I have been discussing logistics to get
| somewhere safer in the event of different scenarios, but
| at the end... it's just difficult to predict what might
| happen and where.
| rootusrootus wrote:
| The US has certainly endured worse in the past and came
| through strongly. Neither the coronavirus nor Trump are
| anywhere close to an existential threat for this country.
| nostrademons wrote:
| If the U.S. collapses so does the whole world. Many
| regions in the globe (eg. Israel & the Middle East,
| Eastern Europe, the East Asian archipelago) are stable
| because of the threat of U.S. intervention if a large
| regional power decides they want to dominate the region.
| Take away that threat and you're going to get some very
| quick invasions as local powers seek to take advantage of
| the situation. Plus the U.S. dollar is the global reserve
| currency, so its collapse would send financial shockwaves
| through many developed countries.
|
| Better to build local relationships where you are and
| focus on mutual aid & defense agreements with friendly
| local communities. The threat model here is a breakup of
| the U.S, not an invasion. The threat model to an
| individual is much less if you're in a community where
| the other individuals have your back, than if you're a
| minority or outcast in unfriendly territory.
| anthony_doan wrote:
| I think the second dip is coming (the first being in March).
| With the flu season and covid19 resurgence and the market is
| going to realize those unemployment rate means a lot of
| people aren't going to buy stuff.
| rglover wrote:
| This is the alarm that keeps going off for me from getting
| too optimistic. If it's accurate that 78% of the U.S. was
| _already_ living paycheck to paycheck [1] and many haven 't
| made a dime in two months, it doesn't matter if there's
| pent up demand for things. There's just no money to buy
| them.
|
| [1] https://www.cnbc.com/2019/01/09/shutdown-highlights-
| that-4-i...
| Jommi wrote:
| This often mis-repeated paycheck to paycheck statistic
| needs to die.
|
| Do you even read your sources fully?
|
| > 51 percent of those making less than $50,000 usually or
| always live paycheck to paycheck to make ends meet
|
| This is from the lowest income bracket in the 2017
| survey.
|
| It tells us 0 about how many are in the "usually"
| category.
|
| It tells us 0 on does this account for investments or
| not.
| joyj2nd wrote:
| Well, what else to do with your money?
|
| It is called asset price inflation. Most assets will devalue at
| some point but, in the broader range, won't go to zero.
|
| This is not clear for FIAT money.
| klenwell wrote:
| Thanks for the summary. This is a question that had piqued my
| curiosity after the recent rally. Based on past bubbles, I
| cynically assumed it was mostly delusion ("market can stay
| irrational longer than you can stay solvent").
|
| Paul Krugman provided his own answer a few days ago in this
| Twitter thread a few days ago:
|
| _Two lessons here. First, the Fed saved the world economy from
| total disaster (again). Second, the stock rebound is not a sign
| that everything will soon be OK. It 's not telling us that the
| economy is great, but rather that investment opportunities
| other than stocks are lousy_
|
| https://twitter.com/paulkrugman/status/1256208478282158085
|
| This echoes @magicsmoke's explanation at the top of this thread
| and helped change my mind a bit. Like you, I still expect a
| bloodbath eventually.
|
| Among this article's explanation, #1-3 sound like folly to me.
| And I'm guessing 4 & 5 can only go so far when 1/3 of the
| economy is out of order. It feels like a massive (long and
| slow) hurricane has just made landfall and there's still too
| much rain and wind to see how much damage has actually been
| done yet. But investors seem to want to pretend when the storm
| clears somehow the economy will still be standing there
| unscathed and everyone will be able to just head back to work.
| ramraj07 wrote:
| There's still a real possibility that there might actually be a
| full recovery - what's closing is small businesses, not
| megacorporations. The rich seem to do just fine even now. Even
| if most individual restaurants close, some will open back up,
| and more chains will move back in.
|
| In every scenario I can imagine, one thing seems inevitable -
| most people in this world are going to get poorer and suffer
| more. But I'm not convinced that the economy itself will
| sputter; we might just be ushering in a new economy that's far
| more unequal.
|
| In that case, the stocks might never go down again and people
| who have held off from investing are never gonna get back in.
| zhoujianfu wrote:
| I agree... Covid is actually making the world more
| "efficient", in the sense people are only doing the things
| that really "matter", but the problem is it's a big shake-up
| and there are going to be a lot of losers to go along with
| the winners.
|
| That's why I think we REALLY need to take the opportunity to
| pass a real UBI. So everybody gets to enjoy the efficiency
| gains.
| changchuming wrote:
| Megacaps don't just print money out of thin air. If you have
| a faltering middle class, who's gonna be there to spend
| money? Unless you institute some kind of universal basic
| income, I don't see people's buying power staying the same.
| Remember, 70% of the economy is driven by people buying shit.
| christophilus wrote:
| Sounds like you're in the minority, but I think you're
| right. Mega caps are built on the foundation of a broad
| consumer base that has been eroded faster than at any other
| time in history. Even those who seem insulated will feel
| the effects when their mega cap customers begin cutting
| costs because of their exposure to the consumer markets.
| somebodythere wrote:
| > Unless you institute some kind of universal basic income
|
| More than 100% of pre-crisis income for the service
| industry is being financed through the expanded
| unemployment and small business grant programs.
| jcfrei wrote:
| > More than 100% of pre-crisis income for the service
| industry is being financed through the expanded
| unemployment and small business grant programs.
|
| Do you have any sources for that claim?
| nerdponx wrote:
| Doesn't this depend on the company? Demand for agriculture,
| petroleum, and financial services (among many other things)
| are fairly inelastic. People are going to consume all of
| that stuff regardless of how financially well-off they are.
| KaoruAoiShiho wrote:
| I think we're going to see just how small the mom and pop
| sector of the economy is.
| [deleted]
| toohotatopic wrote:
| Even if there is a second wave, there will be a time after
| Corona eventually. There won't be any new players by then so
| the market shares will almost be unchanged.
|
| Stock prices are discounted future profits for about 15 to 20
| years. Those profits are still there when Corona is over. From
| that perspective, why should share prices fall by more than
| 5-10% for every year that Corona is locking down the economy?
|
| *edit: If anything, the economy will prosper because Corona has
| forced every company into the 21th century by requiring remote
| work and digital workflows.
| xcasperx wrote:
| This is assuming a (or near) 100% efficient market. Which it
| definitely is not.
|
| Analysts use different methods to discount cash flows: https:
| //www.investopedia.com/articles/professionals/072915/d...
|
| Finding R (what to discount by) can be difficult to do: https
| ://www.investopedia.com/articles/investing/021015/advan...
|
| I don't work in IB or PE so take what I put with a grain of
| salt, just what I've learned.
|
| Also, you know markets aren't near efficient when people
| invest in $ZOOM and not $ZM and when Elon tweets $TSLA stock
| is too high.
|
| You can look at daily gainers and losers and watch them over
| the course of the week. They are extremely volatile.
|
| If you're talking about the S&P500 it's a little easier to
| do. A little over 50% of the value of S&P 500 is the top 50
| companies by weight. The top 100 equate to 70% and the top
| 250 equate to 90%.
| grey-area wrote:
| _Stock prices are discounted future profits for about 15 to
| 20 years. Those profits are still there when Corona is over.
| From that perspective, why should share prices fall by more
| than 5-10% for every year that Corona is locking down the
| economy?_
|
| Thats the theory. In practice stock prices wildly oscillate
| around expected value (which is a gradual curve up and to the
| right), with no apparent logic. As shiller points out in
| irrational exuberance, stock markets do not consistently
| reflect expected long term returns.
| koheripbal wrote:
| No one makes the claim that short term price changes are
| rational. They are bets made by humans - very flawed biased
| humans. ... but if you can be more rational than them, then
| you can make a lot of money in the long term.
|
| ... but I find that most people who complain about
| irrational markets lack the conviction to bet against it.
| ericb wrote:
| > why should share prices fall by more than 5-10% for every
| year that Corona is locking down the economy?
|
| Risk adjustment.
|
| 1-Risk of death/bankruptcy for companies.
|
| 2-Risk of reduced consumer spending. This can happen because
| people are in financial shock, or because unemployment stays
| high. Perhaps some of these layoffs aren't "furloughs." Some
| of these businesses won't survive, like many restaurants. My
| expense is your revenue, but I won't spend if I don't feel
| "safe" physically and financially and if I don't have a job,
| well... On top of which, what if some part of society stops
| going out?
|
| 3-Risk of permanently slowed economic activity due to
| coronavirus spread in trading partners.
|
| 4-Risk that the vaccines don't work out and there is no "time
| after corona." Even if this risk is small, it is non-zero,
| and catastrophic.
| joering2 wrote:
| Because someone has to buy products and services? With 40 mil
| unemployment numbers it will be hard to sell stuff when noone
| has power to buy.
|
| Take my mother in law as example. Hard core shopoholic.
| Amazon and QVC packages coming in daily. Hair nails etc done
| weekly at salons. Now for two weeks silence. She lost her job
| and empty bank account hit her like reality check. Shes on
| her way to a friend - they will do each other hair and nails.
| And when I told her it will all go back to normal on January
| 1st, so many people died she tells me "i am not going out
| anyways for very long time"
| nostrademons wrote:
| From that perspective, the stock market should have no
| volatility in share prices whatsoever - it should fairly
| value each company based on their profits over the next 15 to
| 20 years, and since those profits don't change, neither
| should the share price.
|
| Stocks are based on _expectations_ of future profits, i.e.
| psychology. "In the long run, the stock market is a weighing
| machine. In the short run, it's a voting machine."
|
| Few investors' psychology will let them look at a year of bad
| news and still think "Oh, it's going to get better in the
| future." After about 3 months you start doubting yourself and
| wondering if maybe you were wrong in the first place, and
| you've entered a brave new world where people randomly die
| and commerce or long-term plans are impossible. All of the
| economic data - corporate earnings, employment, share prices,
| etc. - will reflect the new normal, so there's no reason
| (other than your memory of what the '10s were like) to
| believe that share prices would always go up.
| shoo wrote:
| > stock market should have no volatility in share prices
| whatsoever - it should fairly value each company based on
| their profits over the next 15 to 20 years
|
| Computing this depends on
| estimating/forecasting/extrapolating/guessing a lot of
| values. E.g. what kind of revenue growth the company will
| have. How the structure of company expenses may change.
| Parameters like a discount rate make a huge difference in
| the estimated value. In many cases the majority of the
| value for a discounted cash flow valuation of a stock comes
| from the tail term where you give up trying to unroll the
| contribution for each year and make a simpler approximation
| of what the company will be doing 20 years+ in the future.
|
| The computed share value has a lot of sensitivity to
| adjusting some of these inputs, and in many cases it is not
| at all obvious what values parameters should be set to.
| nostrademons wrote:
| But that's the point. Parent poster is assuming that the
| future profits of a company won't change over the next
| 15-20 years because of coronavirus. Everyone in this
| subthread is pointing out that that's not a valid
| assumption. We've already seen the discount rate drop to
| zero in the last couple months. Will it stay there? Will
| we get hyperinflation? Will we get deflation as laid-off
| workers lose their spending power? Will the target market
| of many companies end up dead? Will companies go bankrupt
| through lack of cash flow? Are we going to see civil
| unrest or a breakdown of political authority?
|
| Many of these are permanent consequences that will
| absolutely effect earnings 15-20 years in the future. The
| market seems to be pricing in an assumption that this
| will be a blip: we'll reopen, businesses will rehire, and
| 2021 will look much like 2019. I don't believe that's
| likely.
| Jommi wrote:
| I think you're nitpicking on the parent comment
| forgetting to add "estimated" before "future profits."
| Dumblydorr wrote:
| How do you know there will be a time after Corona? In all
| likelihood, it is here to stay like influenza and rhinovirus
| and other respiratory illnesses. The only way we recover the
| economy is by gaining herd immunity such that 25-50k yearly
| die, not 200k. That comes with vaccine and with wide scale
| exposure, which I'd wager is by 2021 summer. But even then,
| old folks will still die by the thousands each year due to
| covid 19.
| notabee wrote:
| At the current death rate, we're on track to reach 200k
| dead by early July. And that's only the deaths that are
| being counted. There is a substantial increase in overall
| mortality beyond the year to year average, beyond the
| confirmed Covid deaths. Considering that this disease is
| causing pulmonary embolisms, strokes, heart attacks, and
| other manifestations of out of control clotting even in
| healthy young people, we may realistically have already hit
| 200k dead in June counting the people who have died
| suddenly at home without being tested.
| steveeq1 wrote:
| There are considerable financial incentives to "fudge the
| numbers" regarding corona. It's to the point where if
| someone has a stroke, and he has corona, it will be
| counted as a "corona death".
| majewsky wrote:
| What kind of incentives are we talking here? Honest
| question; I don't have insight into the medical care
| sector.
| koboll wrote:
| Blood clots are a symptom of coronavirus. I'm not sure
| what else we should expect here.
| mancerayder wrote:
| I've heard that repeatedly, and then even Musk parroted
| that, and it's time to kill that muddying of the waters
| because it confuses people. Here's the thing - you can't
| hide dead bodies, and at some point, somewhere, a death
| is counted. And if someone has a stroke and it's falsely
| a coronadeath, as you put it, there's a stat called
| Excess Deaths that's available for that reason.[1] If
| there's a sudden spike in overall deaths, then it's
| harder to fudge the numbers, as you say. Unless suddenly
| there are more strokes or other dangerous things going on
| such that more people die in ways unrelated to corona.
| The closest argument would be the economic situation is
| killing people, but that's a huge stretch (people don't
| just drop dead because they're out of work).
|
| 1 - https://www.cdc.gov/nchs/nvss/vsrr/covid19/excess_dea
| ths.htm
| sacred_numbers wrote:
| That may be true, but the evidence mostly is pointing in
| the direction of undercounting COVID deaths. In northern
| Italy the official death count was less than half of
| "excess deaths", with the worst-hit areas having the most
| excess deaths. Certainly some of the excess deaths are
| due to people avoiding hospitals, or higher stress
| levels, but a lot are due to COVID deaths at home, or
| undiagnosed COVID deaths. Also, we still don't really
| understand this disease enough to know what effects it
| has on the body. There have been reports of people with
| COVID having strokes at much higher rates than would be
| expected for the same age demographic. It will be hard to
| tell which complications were coincidence and which were
| caused by COVID until later on when we have more data.
| throwaway743 wrote:
| > Also, we still don't really understand this disease
| enough to know what effects it has on the body.
|
| This is especially worrying, now that the US military is
| barring previously hospitalized COVID survivors from
| enlisting and not allowing waivers.
| dragonwriter wrote:
| > This is especially worrying, now that the US military
| is barring previously hospitalized COVID survivors from
| enlisting and not allowing waivers.
|
| That's almost certainly a temporary policy because of the
| lack of information enacted with the expectation that it
| will be evolved based on future information, not
| something that should make the lack of information more
| worrying.
| throwaway743 wrote:
| Let's hope so
| acdha wrote:
| There's a big global uptick in mortality even in
| countries where a national healthcare system lacks that
| financial incentive. Unless you have hard proof that
| there's widespread misreporting it's actively harmful to
| spread conspiracy theories during a pandemic.
|
| https://www.cdc.gov/nchs/nvss/vsrr/covid19/excess_deaths.
| htm
|
| https://www.nytimes.com/interactive/2020/04/21/world/coro
| nav...
| dmode wrote:
| This is the theory that has been peddled quite a bit. But
| doesn't really add up, since you can easily do a year
| over year comparison of death numbers. Unless, you
| suddenly think a significant portion of people are dying
| of heart attack this year
| gvjddbnvdrbv wrote:
| It is highly likely that if someone with corona has a
| stroke it is caused by the corona. Coronavirus causes
| clotting.
| catalogia wrote:
| Even in the unlikely scenario where
| resistance/immunity/vaccines for corona never develop and
| it never goes away, there will come a point where people
| consider the death toll acceptable losses and the lockdowns
| will be lifted. E.g. the current attitude towards car
| accidents and influenza deaths. (And yes, I know corona is
| worse than either. Eventually, should corona truly become
| the 'new normal', that won't matter.)
| o-__-o wrote:
| Worst case 10 years, likely well less than that and
| coronavirus won't matter to humans. You see we have what's
| called an inate and an adaptive immune system. The inate
| immune system catches coronavirus and immediately illicits
| a response, the adaptive immune system catches infections
| that the inate immune knows about. The innate immune system
| dies off after you are 10 or 11 and your adaptive immune
| system catches 90% of foreign invaders over your life.
|
| I'm giving some background because it means kids and
| children today have antibodies created by the innate system
| that fights off novel coronavirus. Which means their
| adaptive system will be able to remember and fight back
| against this virus. This means mutations, specifically this
| means weaker general strains in the future akin to the
| cold/flu.
|
| Let me put it this way.. RSV is a nasty respiratory illness
| but we as a species survive quite well along side it even
| if it happens to kill a few babies and old people every
| year
| koheripbal wrote:
| A vaccine is a near certainty.
| tobltobs wrote:
| why?
| foob4r wrote:
| Over an infinite period of time, sure.
| dasudasu wrote:
| Discounting is also a harsh mistress. If your model expected
| a 10% discount rate but actually achieves -20%, say next
| year, then it would need to produce 51% just to get back to
| baseline on the year after that. Early missed returns do hurt
| disproportionately unless there is an easy way to get back on
| track.
| [deleted]
| new_realist wrote:
| Monetary stimulus almost completely explains the irrationality of
| the equity markets.
| Mikeb85 wrote:
| Current price = future price. Principle of economics and pricing.
| Meaning an asset is priced according to what someone thinks it'll
| be worth in the future. Let's also not forget the massive sell
| off in the markets not too long ago. And as someone else said,
| there's also nowhere else to put money. All these are reasons why
| people would buy into the market right now. Or hey, it also could
| just be a dead cat bounce...
| Dumblydorr wrote:
| How about because big companies are propped up by the government
| and would always get bailed out? The economy is stacked towards
| big players, who have power to lobby and get favorable
| regulations. Therefore, good times or bad, big companies will get
| paid by Uncle Sam or by all of us, or both.
| kazen44 wrote:
| also known as privatize the profits, socialize the losses.
| godelzilla wrote:
| Because the stock market is a pyramid scheme propped up with
| printing money to enforce rampant inequality? Just a guess.
|
| https://www.cnbc.com/2020/03/27/the-feds-balance-sheet-just-...
| QuesnayJr wrote:
| The bulk of the Fed intervention is in the bond market,
| particularly Treasuries. They are also increasing their
| intervention in the exchange rate market. If the Fed was trying
| to pump up the stock market, wouldn't they buy stocks? Instead
| it looks like to me the Fed is essentially financing the US
| government's fiscal stimulus.
| [deleted]
| codexon wrote:
| They are not allowed to buy stocks. By buying bonds they
| force bond holders to get out of them and into stocks.
| kitotik wrote:
| A large portion of the stimulus is going to publicly traded
| companies, so that would have the effect of propping up
| stocks that may otherwise trend towards zero.
| yborg wrote:
| There are more or less no limits on the stimulus money, so
| corporations that have issued debt to buy back shares can
| use it to retire that debt and then issue even more debt in
| the current hyper-low rate environment. It's essentially a
| way for companies to transfer the money into the hands of
| their executive management.
| kitotik wrote:
| I had a very hard time understanding why this setup was
| so widely accepted during the last corporate welfare
| program in 2008/2009 when the amount was in the $500B
| range.
|
| I'm now at a complete loss as to why there isn't more of
| an outcry when it's in the $3T range.
| fallingfrog wrote:
| It's not being widely reported. Saying that all our
| troubles are due to Coronavirus allows for a lot to be
| covered up.
| slv77 wrote:
| The Federal Reserve isn't the only central bank and some
| central banks like the BOJ and Swiss Central Banks are buying
| stocks directly. The Swiss Central Bank is buying US tech
| stocks heavily.
| DesiLurker wrote:
| there is kind of a wink wink nudge nudge understanding that
| we'll (us fed) do it if there is a dire need for it. just
| not yet.
| neilwilson wrote:
| When you remove income by eliminating Treasuries from
| circulation, where do you get your income from?
|
| There is a need for a supply of income - from pensions
| largely. There's less income in circulation, so the price of
| income generating assets go up.
| d_burfoot wrote:
| I work at a big tech company. One of the big realizations we've
| made is that WFH is not killing our productivity - it may
| actually be increasing it. If that is widely true, it has huge
| implications, and points towards an enormous amount of value that
| can be unlocked, by allowing professionals to work wherever they
| want (presumably in lower CoL locales). This article indicates
| that the housing crisis costs the US economy 1.6 trillion a year,
| so we should be able to recoup that immense loss (about 2x the
| military budget) by exploiting remote work tech.
|
| https://www.citylab.com/equity/2015/05/the-urban-housing-cru...
| mslate wrote:
| Congrats on your realization, the world begs to differ.
| tinyhouse wrote:
| I've been thinking about this for a while. It makes sense that
| if people don't need to commute they have more flexibility in
| choosing where to live. On the other hand, there will still be
| richer/safer towns with better schools where most people want
| to live in.
|
| Where I live there's been a booming of new construction for
| office space and very expensive rents. Some small companies I
| know moved to work remotely cause they couldn't afford renting
| an office anymore. It's been puzzling why this is happening
| given the rise of remote work (pre COVID-19). Part of it is
| FANNG companies which all expanded like crazy in recent years,
| including many new multibillion dollar offices.
|
| Interesting you say you work in a big company. I find remote
| work to be more challenging in big companies. Productivity is
| not the issue. The main issue is visibility to other parts of
| the org. Working remotely you don't get to bump into people
| from different teams. There are ways to make it happen remotely
| too, just more challenging when there are so many people.
| mancerayder wrote:
| I don't know. I work in tech and almost everyone I know is
| finding themselves less productive and can't wait to get back
| to the office. Maybe because most of us live in an apartments
| and not magestic houses with woods or lakes behind them, and
| the feeling of being trapped indoors is neither healthy nor
| pushes one to work more effectively.
|
| My PC is in my living room and I'm on it, in the same seat, at
| the same desk, using the same monitor as I use for work, typing
| to you here on a Sunday afternoon. Tomorrow at 8:30 am I will
| be here, too. And I was here for hours reading the news and
| trying to find a couch online.
|
| I can't wait NOT to WFH. I hate it. The option to do so is
| great, though -- maybe one Friday out of every two I will start
| to do it.
| beervirus wrote:
| https://brrr.money/
| ryansmccoy wrote:
| While there are some good explanations already mentioned, the
| bottom line is that stock prices are forward-looking in the sense
| that investors buy and sell stocks not based on what happened
| yesterday or what is happening today, but rather based on their
| expectations for the future (6-12 months ahead).
|
| So, basically, the market is signaling that on a whole (i.e.
| weighted average growth of all the companies in the S&P 500)
| things (i.e. revenue/eps) aren't going to get dramatically worse
| and potentially going to get increasingly better.
| matthewdgreen wrote:
| The stock market is signalling that it believes 6-12 month
| revenue expectations for the S&P 500 today [14.7% official
| unemployment, consumer spending trashed, entire sectors facing
| months of uncertainty] are roughly the same as they were in
| October 2019 [3.6% official unemployment, consumer spending
| rising]. This does not seem a logical conclusion, and so people
| (in this thread) are asking whether the market is functioning
| correctly.
| garrickvanburen wrote:
| the stock market aggregates bets on tomorrow. We want bets that
| tomorrow will be better. Though, I agree it looks more flat
| currently (cautiously optimistic?).
| paulpauper wrote:
| An increasingly large % of the economy is concentrated in a
| handful of highly profitable, efficient tech companies and
| multinationals such as Walmart, Microsoft, Amazon, Google, and
| Facebook. Stimulus $ is pure bottom line growth for these huge
| companies as smaller businesses close. Also, huge growth in
| business to business commerce, bypassing consumer spending
| altogether. Facebook and Google selling ad space to other big
| businesses such as IBM. Microsoft, Nike, or Proctor and Gamble.
| Also, the wealthy are more impervious to economic weakens than
| the lower classes, and consumer spending growth from the top 10%
| is enough to offset loses in the bottom 90%.
| melbourne_mat wrote:
| "consumer spending growth from the top 10% is enough to offset
| loses in the bottom 90%"
|
| Bold prediction - let's check back in a year or two!
| newshorts wrote:
| It's also Apples to oranges.
|
| Consumers in the top 10% don't buy the same kinds of thing
| the bottom 90% do.
| jdkee wrote:
| To OP:
|
| That does not make a compelling argument that the stock market
| rally will continue.
|
| Consumer spending is 70% of the U.S. economy. And we have an
| unemployment rate of over 15% on its way to 20%, the worst in
| 80+ years. We are seeing many areas of consumer spending
| rapidly decline if not stop altogether. Delinquencies in
| mortgages, car loans and credit are expected to skyrocket.
|
| Also, the wealthy have a lower marginal propensity to consume.
| Giving $1200 to a worked making $40,000/year almost guarantees
| every dollar will be recycled into the economy. Give the same
| stimulus to a millionaire and you have savings or asset
| inflation.
| paulpauper wrote:
| perhaps a lower marginal propensity to consume, but bigger
| purchases make up for it. A millionaire remodeling his home
| for example or buying a Tesla.
| encoderer wrote:
| Yes, all this, plus most of those out of work today are doing
| fine because of the stimulus and additional $2400 a month in
| unemployment from the federal govt.
|
| I know family members who are making more at home now than they
| do when they are working.
| schaefer wrote:
| i qualify and filled for unemployment benefits over a month
| ago after a several hundred employee layoff at my company. I
| still have not seen a penny. Many others I've talked to in my
| state are in exactly the same position.
|
| in Nevada, the department of employment has dropped business
| hours to just three days a week. there are no queues when you
| call in. there is no "your call will be served in the order
| this call was relieved". there is only the busy signal. day
| after day - the busy signal.
|
| people's ability to actually work with the employment office
| differs dramatically state by state.
|
| please don't generalize. Platitudes about how the unemployed
| are "doing just fine" aren't universally true. Many of us are
| watching personal savings vanish week by week while with no
| resolution in sight.
| Jommi wrote:
| That shouldn't mean you will never see a penny. AFAIK you
| will be prorated on the payments for sure, but of course if
| it's been over a month seems like there is a bottleneck in
| the governmental process for the benefit. That doesn't
| disprove what the OP was saying.
| throwaway_jobs wrote:
| People don't realize in 2008 on the verge of financial collapse
| the government passed two bailouts totaling $1.8T leading to the
| longest bull market in history.
|
| We have already passed bailouts totaling close to $7T...no matter
| what happens the market will rocket, basically WW3 has been
| priced in so as long as that doesn't happen it's to the moon.
| MattGaiser wrote:
| The USA also had the longest period of economic growth in
| history after 2008.
|
| https://www.cnbc.com/2019/07/02/this-is-now-the-longest-us-e...
| stefan_ wrote:
| Or, you know, stock market growth, like this very title
| alleges. Taking on debt and selling fundamentals just so you
| can issue some stock buybacks.
| Causality1 wrote:
| After five decades of deliberately severing worker compensation
| from worker productivity, the stock market is now just a
| barometer for rich people feelings. When they're feeling good it
| goes up, when they're feeling bad it goes down.
| legobridge wrote:
| I'm new to reading paywalled articles and the HN FAQs said it was
| ok to ask for help in the comments. Can someone please help me
| out? I really want to read this article.
| OatsAndHoney wrote:
| Apple News, it's the cheapest way to get the WSJ, or subscribe
| to WSJ on their website.
| toohotatopic wrote:
| Could it be that it is not so much the stock market rallying but
| the dollar plumbing?
|
| Money will be printed to keep the economy going. If people assume
| that this will devalue the dollar then stocks are a safety heaven
| and demand for them increases which drives up prices whether the
| dollar is falling or not.
| simonh wrote:
| The dollar plumbing relative to what? Not other currencies by
| the looks of it.
| toohotatopic wrote:
| All other countries have the same need for printing money, so
| the value compared to other currencies should remain stable.
| huhnmonster wrote:
| That is obviously true, but that poses another question:
| Since there is no "real" value for the dollar to compare to
| (same for all other currencies), what if all countries had
| printed money at the same rate and around the same
| timeframe? Comparatively, it would look like nothing
| changed, but in my opinion, the market would want to price
| that in as some sort of "inflation" (no idea if this really
| is inflation at that point), since compared to 2019 the
| intrinsic value of companies probably has not changed too
| much.
|
| This is as very wonky explanation and I am aware that it
| likely has several errors along the way, so please tell me
| what I am not considering, I am genuinely interested.
| dharma1 wrote:
| You could compare it to the value of gold over time
| legolas2412 wrote:
| In that case, all currencies will fall in comparison to
| gold. It is happening though, but slowly.
| quickthrower2 wrote:
| Not food, basic shelter, etc.
| dataminer wrote:
| Relative to assets, real estate, stocks, gold etc. Money is
| getting created in enormous quantities very quickly, while
| assets cannot be created so quickly. So all currencies are
| getting devalued relative to assets.
| generalpass wrote:
| Would you consider treasuries an asset? They're creating
| those pretty quickly...
| nikanj wrote:
| The dollar has already plummeted compared to assets. Real
| estate is ridiculously expensive when measured in dollar,
| same for stocks too.
| IAmGraydon wrote:
| Could it be that despite everyone freaking out, the wisdom of the
| crowd (the market) is pretty sure everything is going to be OK?
| It's possible that the market is the only thing acting rational
| right now.
| TheOtherHobbes wrote:
| Markets can stay irrational longer than they can stay solvent.
|
| "The wisdom of the markets" doesn't exactly have an inspiring
| track record.
| mikorym wrote:
| I currently work in finance, and particularly with dividends, and
| my opinion as a casual observer is that a prudent investor looks
| for stability. So, the key is not whether you can find the
| strongest performance, but that you can predict better how things
| are changing.
|
| Two months ago everyone was waiting to see what would happen. Now
| the chips are starting to fall and investors can act accordingly.
| A simple example is that agriculture is now seen as a more stable
| investment where, especially in South Africa, it's actually a
| high risk business. But it is much less risk now in comparison to
| hospitality.
|
| The only other reason I can see for (perhaps premature) quick
| rallying is with today's technology you can move around
| investments much more quickly and hence corrections and
| speculation are all sped up in terms of their time frames.
| lowdose wrote:
| Because the recent economic stimulus didn't trickle down to the
| people that needed it. At least 80% of it ended up in the pockets
| of people that don't live from paycheck to paycheck and a after
| night sleep they decided to buy stocks instead of letting the
| value rot on their lousy bank account.
| mrep wrote:
| Have you read the CARES act? Pretty much all of the freely
| given out money goes out to citizens directly through
| checks/increased unemployment or indirectly by paying for
| payroll. The other handouts are for things like healthcare. The
| rest is mainly in loans that will get payed back.
| MattGaiser wrote:
| 1. The economy is not that bad for many companies in the stock
| market. Why would Proctor and Gamble be that negatively impacted
| during this? It lost 20% of its value though. Same with a stock I
| hold. It was slaughtered for being an airline stock, but it
| mostly does flights to remote communities, which are a
| government-funded necessity so they can eat and have medical
| care. P&G should not have meaningfully fallen and this other
| stock should have lost maybe 20%. It lost 70%. Now it is only
| down 40%. So the market didn't know what to do and overreacted in
| many places. Same with all sorts of natural gas stocks which got
| slaughtered along with oil. Much of the initial drop was
| unjustified.
|
| 2. The stock market will walk away with a larger share of the
| economy than it had before. Vast amounts of shopping moved to
| Amazon and online venues. The large publicly traded restaurants
| will survive or just buy out flailing franchisees at a discount.
| So less pie, but a greater share for public investors.
| drtillberg wrote:
| If insurers or sovereign wealth funds or newly unemployed need
| to raise cash by selling stock then ... naturally stocks like
| P&G should fall with the rest of the market ... because market
| action is determined in all but the long run by buyers and
| sellers, less so the companies that issued the stock originally
| (unless the company is buying or selling)
| stefan_ wrote:
| Uhm, because P&G is a full out consumer business and there is
| now 15% unemployment?
| MattGaiser wrote:
| P&G mostly sells things that are essential, so these are not
| the things typically cut very much even when people are
| living on 60% of their incomes.
|
| P&G did not take a large hit in 2008 either. P&G stock did
| though.
|
| https://www.macrotrends.net/stocks/charts/PG/procter-
| gamble/...
|
| https://www.macrotrends.net/stocks/charts/PG/procter-
| gamble/...
| mathgenius wrote:
| People buy into a rally because they don't want to miss out, they
| expect it to keep on rallying. It's herding behaviour, and leads
| to so-called dead-cat bounces. At least in the short term,
| there's no reason to expect any intelligent price discovery from
| the markets. Come back in six to twelve months and then we will
| see.
| xwdv wrote:
| Because for most companies, the fundamentals after the pandemic
| won't be changed. Great companies are being sold at massive
| discounts, and as the buying escalates shorts are getting
| squeezed out and forced to cover.
|
| Anecdotal, but during the pandemic my portfolio had shed up to
| $60k at its lowest point around March or April, and I didn't sell
| anything, in fact I started accumulating shortly after the
| bottom. Since then, it has not only recovered but it is now
| climbing to all time highs.
| MattGaiser wrote:
| P&G shed 20%. Its fundamentals have not changed at all.
| vnchr wrote:
| Interesting that some people really dislike this answer.
| xwdv wrote:
| The funny thing is, I've been giving stock and investment
| advice on HN for years, and always get downvoted. Yet if you
| had followed my advice, you would have made a ton of money.
|
| Some people cope with their FOMO with denial and downvotes,
| or saying cliche things like "Ya can't beat the market" or
| "The Fed can't keep printing money forever!"
| clomond wrote:
| Because a company's stock price is _in theory_ what the market
| expects is the sum of the total future discounted cash flows that
| unit of "equity" generates. [1]
|
| This means that fundamentally, stocks are forward looking several
| decades and beyond. The economy right now might be bad but if the
| expectation is that there is a slow and long recovery lasting 2
| years, if a company is expected to be operational, profitable and
| growing in year 3-year 10, those profits are built into the share
| price.
|
| [1]
| https://en.m.wikipedia.org/wiki/Valuation_using_discounted_c...
| JMTQp8lwXL wrote:
| Does this also mean that the market fundamentally thought,
| during the Global Financial Crisis, that the sum of the total
| future discounted cash flows permanently fell significantly?
|
| I'd like to see how this concept would explain 2008. If it can,
| it further strengthens the thesis.
| ThrustVectoring wrote:
| "What is the fair market value of a specific company" is only
| _part_ of how stocks as a whole get valued. Roughly speaking,
| investors have a roughly constant fraction of their money
| invested in stocks. As more money enters their pockets - via
| personal earnings, corporate profits, monetary and fiscal
| policy, etc - investors have to figure out where to park it.
|
| What happened in 2008 is that investors suddenly realized
| that a hell of a lot of companies were taking _way_ more risk
| than they thought, and decided to cut their stock allocation
| to avoid those risks.
| kube-system wrote:
| Yes. In fact, 465 US banks had their actual future cash flows
| go to zero and were closed permanently. A great number of
| other companies also never recovered and filed bankruptcy
| and/or were sold off.
| alkibiades wrote:
| yes because if a company goes bankrupt it's future profit
| goes to zero
| clomond wrote:
| I think it's tough to say and tie it in directly. My
| understanding of 2008 is that the over valuations were tied
| in with residential Real Estate and the associated MBS'
| (mortgage backed securities - the owners of the loans).
| Everything else was largely contagion and concern around the
| sanctity of the financial system.
|
| The subsequent crash and economic calamity was focused on
| home owners, and existed within the financial system more
| broadly, not just stocks/equities.
|
| Maybe a better example is the dot-com bubble - many investors
| thinking that "the Internet was going to take over" etc etc
| pets.com. So the thesis at the time was tremendous growth
| rates for questionable business models. Once it was evaluated
| as a "bubble" =~= overvalued =~= these set of companies will
| never make back there money -> a stock price correction
| occurred.
| 6gvONxR4sf7o wrote:
| Partly, that's where the "discounted" part comes in. The
| further out a profit, the less it factors into today's price.
|
| The other part, and this took me forever to realize, is how
| much "expectation" matters, in the sense of information. If
| on Monday, I flip a fair coin to decide whether or not to
| dissolve my business, and then tell you what the coin landed
| on on Wednesday, then the amount you'll pay for a share in my
| company on Tuesday is going to be incredibly different from
| what you'll pay Thursday. Noting for the business changed
| between those days. Only your perception changed, but it's
| insanely important. That's a reason swings can happen so
| near-instantly. The company's finances don't change that
| quickly, but the information available to investors does
| change that quickly (like on an earnings call, or after the
| release of an investigative report).
|
| So in 2008, the near future was weighted heavily and not rosy
| ("intrinsic" values go down), while investors realized they'd
| been wrong about their expectations (market prices go down
| further).
| zanny wrote:
| This implies that Wall Street fully expects a total rapid
| recovery from 20-30% unemployment and near instant
| realization of demand for everything again in short order.
| Including planes, restaurants, vacations, tourism, etc.
|
| I'd love to know what insider info they have passing around
| because I don't see the people losing their homes due to a
| failure to pay rent buying new cars for Christmas.
|
| Its that or capital realizes the working poor are so
| divorced from their economy that they can ignore the
| destitution of the muggles while their fantasy numbers game
| chugs along in perpetuity. Which it probably can. Not like
| anyone owns a pitchfork anymore.
| will4274 wrote:
| There may not be as many new cars for Christmas, but it's
| important to keep in mind that the US economy was doing
| extraordinarily well prior to the pandemic - with
| unemployment at 3.5%, the average person in the labor
| market was employed for more than 50 weeks out of a 52
| week year - in fact, so many people were employed that
| companies were starting to have to raise the amount of
| money they offered to workers, because they couldn't find
| anybody desperate for a job.
|
| Put differently, we shut down ~20% of our economy. We'll
| probably restore most of that - around 15% - retail,
| restaurants, gyms - and our economy was doing so well
| that losing the remaining 5% is a blow we can take - most
| of those will migrate to other industries that were
| hiring (e.g. Amazon). 2021 will look more like 2013 (a
| recovery in progress) than like 2017 (a boom) or 2009 (a
| recession).
| 6gvONxR4sf7o wrote:
| > This implies that Wall Street fully expects a total
| rapid recovery from 20-30% unemployment and near instant
| realization of demand for everything again in short
| order. Including planes, restaurants, vacations, tourism,
| etc.
|
| I don't follow. Could you explain how what I said implies
| that? And what time scale are you referring to when you
| say "rapid" and "near instant?"
| fzeroracer wrote:
| Doesn't this argument mean that the stock market should in
| theory be recession proof? If stocks are looking forward
| several decades, then it should be factoring in the recovery
| from any recession we face.
|
| Which as we've seen during various recessions doesn't seem to
| hold true.
| jbay808 wrote:
| It should also be factoring the expected future recessions
| in, so when one comes along, the stock price should barely
| move!
|
| But I don't think that market participants are nearly good
| enough at prediction for that to happen.
| mrep wrote:
| A company isn't guaranteed to make it out though and if they
| don't, your stock is now worth zero.
| peacefulhat wrote:
| Once investors become truly forward-thinking, snp will hit
| $30 quintillion 8^)
| kube-system wrote:
| No, because traders don't price the market as a whole, they
| price individual stocks.
|
| Some stocks will never recover, and some of that recovery
| will be companies that don't exist yet.
|
| While these things might offset to create a market recovery,
| there's no way to price in the expected cash flow for a
| company that doesn't exist.
| matthewdgreen wrote:
| Traders can certainly spread their bets across many
| companies representing a business sector, and routinely do
| so. This "a few firms might go bankrupt so this explains
| why entire sectors experience massive volatility that isn't
| justified by long-term revenue expectations" claim seems
| like someone trying to rationalize irrational human
| behavior.
| bamboozled wrote:
| Why did it dip in the first place then? Within the first few
| weeks of Covid19 the circuit breakers were dripped many times,
| if the market is so forward looking, what happened then?
| kgwgk wrote:
| The market is only wrong when it goes down, it seems.
| kube-system wrote:
| The market is wrong all the time, that's why it changes.
|
| The general public is much more interested in why their
| 401k disappeared than they are interested in reading
| articles about crazy P/E ratios in bull markets.
| tempestn wrote:
| People thought the virus would hit harder, and so the long-
| term impacts would be worse, than they do now.
| lotsofpulp wrote:
| The demand curves and supply curves are constantly shifting.
| IAmGraydon wrote:
| For a short time, the market envisioned the apocalypse.
| That's what the media was selling, and enough market
| participants bought it to temporarily cause a sell-off. Also,
| consider that a very large percentage of market trading is
| algorithmic. In this sort of situation, they often amplify
| the panic by detecting human panic in the market and
| automatically selling.
| cheez wrote:
| The first sell off was emotional, the rest was forced margin
| selling. It was beautiful.
| kube-system wrote:
| There is a difference between being forward-looking and being
| able to predict the future.
|
| Nobody thought the American economy was going to shut down,
| until it became clear that was going to happen. That was when
| we hit the circuit breakers.
| matthewdgreen wrote:
| Arguably the actual economic outcome has been worse than
| most people would have predicted back during those crazy
| days in March. The US's management of the pandemic has been
| worse than most of us could have predicted. And yet stocks
| are up.
| AmericanChopper wrote:
| > if a company is expected to be operational, profitable and
| growing in year 3-year 10, those profits are built into the
| share price.
|
| Certain buyers may be basing their decisions on expected
| profits in 3-10 years, but this certainly isn't the only reason
| that somebody may choose to buy a stock. Also, in that
| situation they wouldn't be pricing in the profits that they
| expect to be made, they would be pricing in what they think the
| actual probability of that happening is (which would include
| some probability of those expectations not being met). If the
| future earning potential of a company is already fully priced
| in, then you'd have little reason to buy the stock, because it
| wouldn't have any room to increase in value.
| dcftoapv wrote:
| Adding in a little more nuance. Free cash flow to equity is
| discounted at the cost of equity. The cost of equity increases
| as future cash flows become riskier. However, costs of
| financial distress tend not to get baked into valuations unless
| they are obvious because they are not part of the normal
| valuation process.
|
| This is why it might be possible that the stock market would
| not decline as much in 2020 / 2021 as it did in 2008 / 2009.
|
| However, something seems fundamentally wrong with valuations at
| the moment, I cannot put my finger on it, and so I'm overweight
| fixed income until I'm more comfortable that things are going
| to turn around.
| kgwgk wrote:
| Is the ten-year outlook better now than it was one year ago?
| clairity wrote:
| no one who values companies professionally predicts cash flows
| more than ~5 years out, certainly not decades, because
| predictions about economies, governments, societies, and
| institutions are all salient to those future cash flows and
| those predictions become rapidly worthless as you look further
| in the future.
|
| what happens in practice is that you take the cash flows of
| year 5 and you annuitize it into the far future with the
| estimated growth rate, and call it a day.
| wallacoloo wrote:
| > no one who values companies professionally predicts cash
| flows more than ~5 years out
|
| > what happens in practice is that you take the cash flows of
| year 5 and you annuitize it into the far future with the
| estimated growth rate, and call it a day.
|
| How is that not a prediction?
| clairity wrote:
| it's done out of tradition, not prediction.
| polote wrote:
| Whatever the valuation, you will always find one way to value a
| company which match the current valuation ...
| Rickvst wrote:
| The thing is, in the formula, you have to use the rate "r" to
| discount the future profits. If the "r" decreases, the monetary
| value of stocks in the present increase, even though the
| cashflow has not changed. So, even if coronavirus decreases
| short-term profits, the effect it has on the global economy can
| lower interest rates, causing the present value of stocks to
| increase.
| dcolkitt wrote:
| Exactly. Here's a very intuitive way to think about it.
|
| Disney World's revenue has currently fallen by 100% this
| period. How much do you think the fair market value of Disney
| World should decline by? Clearly the answer is much less than
| 100%. Even if Disney World stays closed for two years, it's
| clearly a very valuable asset. As an asset it probably has a 50
| year effective life, so 2 years of closing represents no more
| than a 4% loss in cash flow. Interest rates are essentially
| zero, so Disney World should be no more than 5-6% less valuable
| than it was before the pandemic.
|
| The biggest risk for corporate assets isn't the direct impact
| of the lockdown. It's whether the experience leads to any
| permanent changes in people's behavior. If there's a permanent
| cultural shift where people stop going on vacation or visiting
| crowded amusement parks, then Disney World might be worth
| _much_ less. But this is significantly more speculative than
| estimating the direct impact of the lockdown.
| skybrian wrote:
| I assume you're ignoring the discount rate entirely for
| simplicity? It doesn't seem like money ten years from now
| should be worth the same as money today.
|
| But I guess that implies that interest rates should go up
| eventually.
| jldugger wrote:
| No, I think the OP addresses that obliquely here:
|
| > Interest rates are essentially zero
| vadym909 wrote:
| This makes a lot of sense but then shouldn't this apply to
| stocks like Netflix or Peloton. That once the people get back
| to work and gyms, these companies will struggle to grow as
| fast and in a way face permanent damage till the next
| pandemic?
| mlthoughts2018 wrote:
| No, it doesn't work the same way because investors will
| already take this into account when modeling the future
| cash streams available. They will say, "in year X we
| expected the business to obtain $FOO cash flow due to
| increased usage during a pandemic stay-home order. But this
| anomalous usage doesn't mean the company "lost" any growth
| if it's numbers aren't as strong later, instead we expect
| it to have $BAR cash flow in normal times."
|
| In other words, temporarily gaining more revenue in a way
| that does not jeopardize the regularly predicted revenue in
| other times will not create a "permanent" lack of growth,
| under any reasonable model of discounted net present value.
|
| The only way it could have an effect like that is if it put
| some type of limitation or burden that reduced capacity for
| business later.
|
| For example, consider a toilet paper company instead of
| Netflix. Everyone rushes to buy tons of toilet paper right
| now, which looks like amazing revenue growth, but investors
| will ask if everyone is going to have the same demand
| later. Eventually there will be an issue between the supply
| chain to make that much toilet paper and the stored up
| stockpiles of people who don't need to buy more. Some
| companies could go bust during that event, others might
| have cash reserves or other lines of business, and the
| effect on stock price will be related to these.
| ThrustVectoring wrote:
| >The biggest risk for corporate assets isn't the direct
| impact of the lockdown. It's whether the experience leads to
| any permanent changes in people's behavior.
|
| Note that this is a risk for _specific_ corporate assets, but
| less so for corporate assets _as a whole_. The things people
| are shifting their spending _to_ generate offsetting profits
| in other companies; if we 're buying electronics instead of
| airfare, this is good for electronics manufacturers and
| distributors and bad for airlines. If we own _both_ , then
| this shift matters a lot less.
| magicsmoke wrote:
| > And as has often been the case in recent years, investors find
| themselves faced with few attractive alternatives if they opt out
| of betting on stocks. The problem is so familiar it has its own
| acronym: TINA, or There Is No Alternative to stocks.
|
| Cash: Gets eaten away by inflation. Although the CPI doesn't
| indicate high inflation it only measures consumer goods.
| Inflation is there in the price of investments. If you don't
| invest now, it'll cost you much more in the future to own assets
| with positive rates of return.
|
| Bonds: Near 0% interest rate, practically no better than holding
| cash.
|
| Real Estate: Not nearly as liquid as stocks, but the price of
| real estate is propped up by similar logic.
|
| International Investments: Now this could be interesting if
| capital flight from the US begins occurring. However, every other
| economy is hurting like the US's or has significant problems with
| transparency and whether investors can get their money back out
| again.
|
| Stocks are more than just their market price. They represent
| ownership in a piece of the American economy and its future
| dividends. As of 2016, the richest 10% of America owns 86% of its
| stocks / future economic output. With the economy plunging while
| stock prices remain high, this means the fence between being a
| renter and a owner just got even higher.
| masnao wrote:
| > cash: eaten by inflation.
|
| americans haven't had real inflation since the military backed
| greenback. it will be very interesting to see how much that
| outdated system can hold after being stretched so much by the
| feds (fed and federal govt).
| glofish wrote:
| not true at all. The inflation has been gigantic, when
| expressed in as the price of owning a home or getting
| educated.
|
| the traditional measures of inflation expressed in the price
| of other goods are not capturing the real story. Those good
| are much cheaper today and mask the actual decrease in
| purchasing power.
| christophilus wrote:
| Agreed: home, college, basic surgery... Some of our costs
| are through the roof. Others have been kept low due to
| technology, hyper optimization, or leveraging slave wages
| in a developing country.
| jhallenworld wrote:
| Faith in humanity: buy stocks. No faith in humanity: buy gold.
|
| Large cap stocks are to some degree an international
| investment.
|
| REITs: well they are down, maybe more of an opportunity if only
| because the good stocks are so high.
| xtiansimon wrote:
| > Faith in humanity: buy stocks. No faith in humanity: buy
| gold.
|
| Speaking to a friend who bought stocks recently, they said,
| "I'm bullish on America."
|
| I might say if you are the opposite of bullish, then buy
| gold. And if you have no faith in humanity, buy a survivalist
| bunker.
| cgb223 wrote:
| > And if you have no faith in humanity, buy a survivalist
| bunker.
|
| What's the rent on a bunker these days? If it's cheaper
| than an apartment in SF I might go in on it
| filoleg wrote:
| I bet you can build your own luxury bunker somewhere in
| midwest for way less than a dinky studio condo would cost
| ya in SF. The real issue is the cost of land and zoning
| laws, not the actual entity built on that land (obvious
| exceptions apply, e.g., we are talking about buildings
| that fit a few families tops, obviously not something
| like a highrise with over a hundred of units).
| catalogia wrote:
| Unless you think the bombs are going to fall, you'd be
| better off getting some sort of cabin than a bunker.
| Living underground has a lot of challenges; it's
| expensive to build down there and you'll constantly be
| fighting moisture and mold.
| smileysteve wrote:
| If you're only building a small "bunker", it's not that
| expensive to build down there. Just a backhoe, a few
| hours, 6 sides of concrete and a tin roof.
| jjoonathan wrote:
| I think the threat model is packs of desperate people
| looking to take your stuff, not bombs.
| catalogia wrote:
| Being underground won't help much if your assailants
| decide to smoke you out. To stop that you'd need to shoot
| back or have a _very_ robust and well designed
| fortification, with air filtration and redundant hidden
| vents. If you were committed to fighting back, an above
| ground fortification made out of reinforced concrete
| would be easier /cheaper to construct and would probably
| give you a better view of your surroundings. You'll also
| need several people you trust living there with you, so
| you could keep lookouts stationed around the clock and
| cover for each other.
|
| All in all, it seems like a hopeless scenario. A better
| approach is probably to make friends with your neighbors
| and try not to look like you have anything worth
| stealing.
| jjoonathan wrote:
| > try not to look like you have anything worth stealing
|
| I think you said it all :)
| 7952 wrote:
| The best thing you can do is make friends with your
| neighbors. Surviving disasters is a team activity.
| [deleted]
| kybernetikos wrote:
| If you have no faith in humanity as a whole, make friends
| with the people around you. When things go bad, people help
| each other out, and if you believe in a societal breakdown,
| the people around you are going to be your biggest
| resource, not your greatest threat.
| walshemj wrote:
| I have a REIT (in the UK) Tritax that speclises in big box
| warehouses for amazon and the like - that's going to recover.
| cm2187 wrote:
| At the end of the day, stock prices have to be justified by
| earnings. A massive over valuation isn't sustainable for very
| long.
| refurb wrote:
| Stock prices are forward looking - what do you expect the
| stock to do in the future.
|
| That's how you end up with companies with negative net income
| having valuations in the billions.
| christophilus wrote:
| I wonder. Investing is all about relative yield. If stocks
| return 0.5% and treasuries return -4%, stocks will sustain
| higher ratios than the historical mean.
|
| But I'm putting my money where your mouth is and betting on a
| correction.
| cm2187 wrote:
| True but you are taking say a -30% loss risk for only 0.5%
| expected return. I don't think any risk manager is going to
| be very comfortable with that risk/reward.
| bo1024 wrote:
| Why? A lot of the value of a stock is ability to resell at a
| high price later. If everyone (including U.S. Fed and gov)
| agrees to continue to push prices high for the forseeable
| future, then it seems like prices can lose connection to e.g.
| ownership in a company.
| empath75 wrote:
| That's the definition of a bubble.
| enraged_camel wrote:
| Yeah, it made me laugh that the OP stated it in such a
| matter-of-fact fashion, as if it's normal or good.
| myth_drannon wrote:
| Australian, South Korean and New Zealand's currencies jumped in
| value because they handled the pandemic very well and are now
| very attractive investments.
| gjs278 wrote:
| australian dollars have been shedding value for years
| quag wrote:
| As a counter point, the AUD, KRW, and NZD all buy fewer USD
| today than they did on 2020-01-01.
|
| The three currencies have risen from the big drops on
| 2020-03-18, but are still worth less than earlier in the
| year.
| xuki wrote:
| I think that's because during a crisis people flock to USD
| for safety, now that it seems to be under control, people are
| selling those USD again.
| kelnos wrote:
| Corporate bonds are... interesting... now. I've been looking at
| airline bonds that mature in the next 6 to 18 months. Quite a
| few of them have yields-to-maturity north of 7%. I figure
| airline bonds aren't super risky (at least for the majors in
| the US), since the US gov't will prop them up until the end of
| time. Some of these aren't rated investment-grade anymore, but
| I don't particularly trust the ratings to be all that useful at
| this time.
|
| Airline _stocks_ probably have a bigger upside, but they 're
| quite a bit riskier. Bondholders do get priority in a
| bankruptcy, if it comes to that (though I'd doubt it).
| bobbyi_settv wrote:
| Just because you believe the government won't let the
| airlines go away doesn't ensure that the bonds are safe.
| Sometimes keeping a company in business involves a
| restructuring such that those bonds won't pay out as you're
| expecting.
| cm2187 wrote:
| Like United Airlines.
| quietbritishjim wrote:
| Genuine question: if a company didn't pay out on its bond,
| that's a default; how can it default without going
| bankrupt?
| empath75 wrote:
| Going bankrupt means lenders and shareholders are wiped
| out but the company can be restructured and continue
| operating.
| odiroot wrote:
| > Bonds: Near 0% interest rate, practically no better than
| holding cash.
|
| You can still buy bonds of a bit less-developed nations. E.g.
| "new" EU nations. They usually offer better RoI than Western EU
| bonds.
| nipponese wrote:
| When calculating in risk of default, I think finding a better
| treasury note deal than U.S. TIPS will be hard.
| shostack wrote:
| So what would you say are liquid, relatively low risk
| alternatives to holding cash? Worth diversifying into other
| currencies?
| chrisco255 wrote:
| No, every other currency is going to inflate faster than the
| dollar. Gold is a good hedge, whether physical or ETF or gold
| mining stocks.
| dasudasu wrote:
| I don't think it's unreasonable to not want to be holding cash
| (if one doesn't need it) in the face of so many monetary
| injections. 2008 showed us that all this stimulus money
| eventually ends up in assets, aka trickle-down economics, but
| in reverse.
|
| If have been buying since the lows, you're just front-running
| the FED. The worse is over in that it is now very unlikely that
| the stock market will retest the lows in _nominal_ terms.
| [deleted]
| dataminer wrote:
| What about high yield bonds, are they worse than investing in
| stocks right now?
| kelnos wrote:
| Depends on the issuer. As I mention upthread, I think US
| major airline bonds are probably ok, more or less regardless
| of rating, since the gov't will always bail them out in the
| end. The largest hotel/hospitality chains may befine as well
| (though I haven't looked into their financial situation). But
| businesses will still continue to disappear over the next
| year from this, so I would tread with care.
| vadym909 wrote:
| I'm surprised the average Americans (the 90%) don't get that
| they are providing insurance to the 86% wealth of the top 10%,
| but get almost none of the gains.
| bitcoinmoney wrote:
| Can you send me explain where the figures are coming from?
| chad_strategic wrote:
| Scream this from the rooftops.
| chrispeel wrote:
| > I'm surprised the average Americans (the 90%) don't get
| that they are providing insurance to the 86% wealth of the
| top 10%, but get almost none of the gains.
|
| Are you so sure that they don't get this? I guess that many
| do understand it and either would like a much more
| inequality-reducing tax structure, or envision themselves as
| (somehow!) becoming part of the top 10%.
| Blammar wrote:
| Possibly because they haven't read this book
| (https://en.wikipedia.org/wiki/The_Wealthy_Barber) or
| understood it.
| friendlybus wrote:
| The Richest Man In Babylon is going to apply for the next
| decade, but all the negativity about romantic investments
| is countered by the billions being made in romantic
| investments. It's the wet blanket approach, it only has
| ten percent to consistently soak up in the flood times.
| When you have to make money by creating something, it
| breaks down.
|
| It can't handle Bitcoin, space rockets, jordan peterson,
| self driving cars, hyperloop, neuralink, starlink, ect.
| There's huge and reliable money to be made riding the
| flame. Or rather there was, it's all about to be flooded
| out and those of us who don't like being formless, liquid
| money & stock chasers will have to wait for the next
| desert to appear in fifteen years time.
| zeruch wrote:
| It's more the latter I suspect. The fear that they can't
| become art of the elite if they reform the system currently
| keeping them from being the elite anyway doesn't register
| with a surprisingly large number of folk.
| rvcdbn wrote:
| "39% of Americans will spend a year in the top 5 % of the
| income distribution, 56 % will find themselves in the top
| 10%, and 73% percent will spend a year in the top 20 %."
|
| from https://medium.com/incerto/inequality-and-skin-in-the-
| game-d...:
| refurb wrote:
| Thanks for the link.
|
| These stats just backup what I've always heard - the top
| 10%, 1%, whatever, is not static. Neither is the bottom
| 10%. Many people usually start their careers at the
| bottom (i.e. college student working part time) and then
| eventually make it into the middle class and plenty make
| it further than that. Of course, some never make it out
| of poverty.
| quadrangle wrote:
| I've heard otherwise that this mobility (which nobody
| denies exists) is about the lowest it has ever been and
| growing more static. I'm sure some searches about social
| mobility stats would bring up lots of stuff.
| sidlls wrote:
| What are these numbers actually taken from? I'm betting
| the vast majority of this is counting the sale of a home
| or a one-time windfall (e.g. small inheritance, gambling
| winnings) as income for "a year", but I'm not going to
| buy the book just to see.
| shuckles wrote:
| Russ Roberts has a fairly thorough treatment of
| composition effects impacting income statistics:
| https://medium.com/@russroberts/do-the-rich-capture-all-
| the-...
| vadym909 wrote:
| Ofcourse a small portion will always be ambitious,
| enterprising and expect to join the 10%. But we are all
| convinced (and I assumed this too) that the stock gains are
| good because it helps average Americans increase their
| 401k, but the stock ownership ratio is so skewed to affect
| the majority. If the stock market crashed, it wouldn't
| really afffect most American's net worth which is so
| interesting? I'm sure companies will shut down and there's
| be trickle down job losses but that can happen in stock
| boom times too (like now). A quick Google search showed
| where this number comes from https://www.nytimes.com/2018/0
| 2/08/business/economy/stocks-e...
| JMTQp8lwXL wrote:
| If every American worker started buying $100 worth of stock
| per month, they could start chiseling at that 86% number.
| Not every worker has the financial means to do so, but many
| could if they practiced financial constraint (delaying
| consumption now, in exchange for greater consumption
| later). To the extent it is feasible, it would be wonderful
| to see Americans fight back against wealth inequality by
| buying the ownership. Imagine how much progress towards
| equality could be made. Each household makes a choice with
| how to spend their money.
| birdyrooster wrote:
| Considering many American workers are in debt with high
| interest rate products (sub-prime car loans and credit
| cards), those would first have to pay the interest on
| their debt on top of the capital gains on the $100 when
| they sold it (provided they invest wisely). In other
| words, it makes no sense to invest when the return wont
| consistently match your debt interest payments.
| JMTQp8lwXL wrote:
| Depends on the type of debt, which is individual to the
| consumer. Mortgage, auto, and student loan debt compose
| 88% of consumer debt. [0]
|
| These types of debt typically have low interest rates.
| Market returns for the past decade have exceeded the
| interest rates. Paying the minimums, and investing the
| difference? The consumer would be ahead. 12-15% YoY stock
| returns compound faster than 4% mortgage debt.
|
| [0]: https://www.experian.com/blogs/ask-
| experian/research/consume...
| folkhack wrote:
| > or envision themselves as (somehow!) becoming part of the
| top 10%
|
| I don't disagree with you but want to add some insight to
| this... My entire life I've been told the lie that if I
| "just work harder" I can be rich etc. Most of America
| thinks about themselves in this same way, and it's taken me
| years of traditional employment + risky startup
| opportunities to realize that no, success is not guaranteed
| if you "just work hard"... Honestly you just get nailed
| with the majority of work as an IC who's trying to crank it
| out vs. your peers who are off having "dev beers" at the
| trendy bar down the road.
|
| The peers that I see that are "well off" often had huge
| monetary injections from their parents in either fully-paid
| education, first houses, vehicles, incestuous "investments"
| in their business, etc. Now, those same people that had
| everything handed to them on a silver platter are invested,
| some own rental properties, etc. to the point that they can
| choose not to work for long periods of time to just collect
| dividends/rent. Funny part - they still define themselves
| as people who have pulled themselves up by the bootstraps!
|
| So yea - in the US we have a really unhealthy
| view/mentality around success and ignore the fact that the
| _IT 'S THE EXCEPTION_ for someone to truly "pull themselves
| up by the bootstraps" into any sort of significant wealth.
| Truth is most "rich" people had an incredible amount of
| external financial support and stability to get themselves
| there and maintain it.
|
| Bring the downvotes, because you're darn tootin' I'm bitter
| about all of this.
| 2019-nCoV wrote:
| American institutions should be controlling for this
| inherit classism, instead, the most prestigious continue
| to employ race-based selection criteria.
|
| Middle-class America seems to have a particular disdain
| for the less well off.
|
| This divide is the driving force behind Trump. It's the
| same divide we're seeing play out now over reopening the
| economy. Suburbanites with cushy WFH jobs, chastising the
| poor who have been laid off, as they have the audacity to
| want to put food on the table tonight.
| Consultant32452 wrote:
| How many blue collar millionaires do you know? My two
| anecdotes are one guy who opened a machine shop with his
| dad in their very lower middle class garage and one guy
| who worked his way up to having a few taco bell
| franchises from the bottom rung. If you don't know those
| kinds of millionaires, your perception of the world might
| be tinted by being in a career path that is popular for a
| certain category of children of wealthy families.
| coliveira wrote:
| The issue is not that these cases exist, but that they
| are sold as being the standard, which they're clearly
| not. To became wealthy coming from a poor background
| requires a lot of effort, sense of opportunity, and
| frankly, luck. But all this is sold as something at grasp
| to anyone in this country, which is clearly false.
| Consultant32452 wrote:
| Of course luck plays a role in everything. It's merely
| luck that I've never been run over by a bus, or any
| number of other problems. But can you help me understand
| how a lot of effort and a sense of opportunity is not
| available to the common person?
| 2019-nCoV wrote:
| 42% of children born to parents in the bottom fifth of
| the income distribution ("quintile") remain in the
| bottom, while 39% born to parents in the top fifth remain
| at the top.
| Consultant32452 wrote:
| Okay, more than half of the people at the bottom rise up
| out of it. And less than half of the people at the top
| stay at the top. What are you hoping for? Please be as
| specific as possible.
|
| And what does this have to do with whether a lot of
| effort and a sense of opportunity is available to the
| common person?
| 2019-nCoV wrote:
| Most every other developed nation has greater social
| mobility than the US [1]. Why can't the US reach
| Scandinavian levels of social mobility?
|
| [1]
| https://markets.businessinsider.com/news/stocks/ranked-
| the-s...
| WalterBright wrote:
| Or 58% born in the bottom fifth move up, and 61% born in
| the top fifth fall down.
| thechao wrote:
| The original formulation of the statement of "work hard
| and you'll make it" was created in the context of
| 17th-19th c. Europe, where no matter _how_ hard you
| worked, if you weren't landed gentry, you simply could
| not make it. The idea was that _any_ opportunity existed.
| The universalist position you described is a rosy
| reimagining of a history that never was.
| zapita wrote:
| I think you defined perfectly the defining problem of
| this generation in the US: nepotism. It is the root cause
| of so many structural problems that we see as unrelated.
| In particular the failure of the press to do their job
| and hold the powerful accountable. Not so easy when you
| went to the same school as them; got an internship thanks
| to them; were at a NYC roof party with them last week.
|
| Positions once available to anyone who worked hard, are
| now reserved to the children of the already wealthy. The
| consequences are severe.
| marktangotango wrote:
| Nepotism isn't new! A lot of positions were never open to
| anyone who worked hard!
| WalterBright wrote:
| > nepotism
|
| 85% of American millionaires are self-made.
|
| "The Millionaire Next Door" by Stanley
| WalterBright wrote:
| It's not about working hard, it's about working smart
| (i.e. choosing the right things to work on).
| eanzenberg wrote:
| Nice anecdotes! Here's some more. Everyone I know who's
| "made it", top 10% came from poor or lower-middle class
| beginnings.
|
| Probably more a factor of where you came from, who you
| know, etc.
| folkhack wrote:
| This seems incredibly dismissive of what I was trying to
| say with your whole "nice anecdotes!" bit.
|
| Obviously it's situational.
| kazen44 wrote:
| what seems very weird to me (as a non US citizen), is
| that most working class people in the US seem convinced
| the 'american dream' is synonymous with being a
| millionare/billionare and introducing legalization to
| level the playing field of the latter will hurt their own
| changes at becoming part of the former.
|
| It might also be the reason social democratic/socialistic
| parties never got a foothold in the US post world war 2.
| klipt wrote:
| Home ownership is a core part of the American dream, and
| in pricey places like the Bay Area, you pretty much
| _have_ to be a millionaire to own a house.
|
| Thanks to inflation "millionaire" doesn't mean as much as
| it used to. Billionaires are a completely separate class
| though.
| sokoloff wrote:
| Exactly. Even setting aside the house prices, if you have
| exactly a million dollars in your retirement account, you
| should plan on spending only about $40K-$50K per year
| from that account. That's hardly a luxurious retirement;
| yet "you're a millionaire!"
| Consultant32452 wrote:
| It's also interesting how the scale has slid up so much
| that many people now believe the "American Dream" is to
| become a millionaire/billionaire. When originally it was
| merely the idea that if you do the right thing your
| children will be better off than you were. It wasn't
| until the gold rush in the 1850s that the American Dream,
| for some, became this idea of get rich quick scheming.
|
| I can't speak to everyone, but my parents are children of
| the 50s and their idea of the "American Dream" was the
| nice house in a safe neighborhood in the burbs.
| refurb wrote:
| _is that most working class people in the US seem
| convinced the 'american dream' is synonymous with being a
| millionare/billionare_
|
| That's true, but I have no idea where it came from. "The
| American Dream" was never about becoming a millionaire,
| it was the idea that you could start with nothing and
| have a nice, comfortable middle class existence in the
| US.
| [deleted]
| closeparen wrote:
| >average Americans (the 90%)
|
| In what sense is 90% average?
| wodenokoto wrote:
| You have 100 items, 5 are zero, 5 are 100 and the rest are
| 50. Your average is 50, and 90% of your items are average.
| These are your average items (the 90%)
|
| In this case, though, average is meant in its colloquial
| form of another way of saying "normal".
| sharemywin wrote:
| again it comes down to options. name something that:
|
| 1. the government eats the loses.
|
| 2. liquid
|
| 3. better returns.
| bradleyjg wrote:
| The hypocrisy is astounding. I could understand someone that
| thought no one should be bailed out by the government, but
| the 'only bail out the rich' position is beyond my ability to
| understand.
| jl2718 wrote:
| This is not at all the situation. Reality is the 1% (wealth)
| making the 10% (income) pay for the 90% (both) to support
| their investments with consumption and debt.
| telaelit wrote:
| Trickle down economics doesn't work. If it did then wages
| would have increased in the past 40 years, but they've
| remained stagnant while the rich get richer and cost of
| living skyrockets.
|
| But if you prefer to lick the boots of our plutocratic
| overlords, feel free
| tryptophan wrote:
| But...wages have increased over the past 40 years...and
| at a greater rate than in Europe/Aus/other developed.
| TaylorAlexander wrote:
| Well it seems like "real wages" have not increased in
| decades?
|
| https://www.pewresearch.org/fact-tank/2018/08/07/for-
| most-us...
| lotsofpulp wrote:
| Comparing US wages to countries that have far greater
| social safety nets and healthcare is impossible. And
| volatility of wages and the insecurity of not knowing if
| you will have stable work (and hence healthcare) or not
| is a more important metric, although also impossible to
| measure. But not impossible to feel and see the results
| of.
| Barrin92 wrote:
| real wages for the bottom 80% have not budged much[1],
| and are pretty much non-existent for the bottom 40-60% of
| the distribution.
|
| The US has higher wages but mostly as a function of some
| sort of Baumol's cost disease. Increases in healthcare
| and education spending drive wages but they also drive
| costs. It doesn't really reflect a net gain in standards
| of living as hard stats like life expectancy show. the US
| has a life expectancy comparable to Cuba.
|
| Not to mention that averages obfuscate the huge degree of
| inequality. Life expectancy differences between the
| richest and poorest in the US are larger (almost ~20
| years) than between the American average and Yemen.
|
| [1] https://imgur.com/vsUt8rF
| shuckles wrote:
| Most of these charts ignore non-wage income such as
| employer paid healthcare.
| https://medium.com/@russroberts/do-the-rich-capture-all-
| the-...
| Barrin92 wrote:
| It seems like Russ is trying to make a fundamentally
| different point in that piece than people generally try
| to make.
|
| His main point seems to be that, if you track people over
| the last 30 years, they have made economic progress
| individually. That to me seems extremely obvious though.
| Someone who is 50 or 60 is almost certainly going to be
| in a better financial position than the same person at
| 30, as many people tend to develop more skills or advance
| their career, it would be straight-up crazy if that
| wasn't the case.
|
| However, it does not address the actual issue of the
| poorest as a demographic. What people are saying that if
| the nation as a whole gets richer, you would expect that
| 40 years later the floor has risen as well, not that the
| poor are simply different people.
| refurb wrote:
| Total compensation (wages + benefits) has drastically
| increased over the past few decades, even for the low
| incomes levels.
| shawnz wrote:
| Do you think a typical middle class American would rather
| be living in the world as it was 40 years ago though? Or
| today's world, full of technology and infrastructure that
| was funded by the rich?
| newshorts wrote:
| Id much rather live in a the world 40 years ago.
|
| It was possible for a family of four to survive on a
| single income and own a home...
| celticninja wrote:
| what technology and infrastructure was funded by the
| rich? I think you mean funded by the tax payer, rich and
| poor alike, but the poor pay a higher percentage of
| income in tax.
| shawnz wrote:
| > the poor pay a higher percentage of income in tax
|
| They certainly don't pay a higher absolute dollar value
| of the total taxes received by the government though.
| ForHackernews wrote:
| Is this even a question? 40 years ago housing, healthcare
| and education were vastly more accessible than they are
| today. Middle class jobs paid wages that could produce a
| middle class standard of living. The only thing you'd
| miss out on would be a bunch of hollow digital toys.
|
| Would I trade my iphone to be able to own a house and
| have my children go to college? Of course! Who wouldn't!?
|
| In 1985, in-state tuition and fees at UC Berkeley cost
| $1,296/year[0] (inflation-adjusted that would be $3,052
| in 2020 dollars) Today, it actually costs $14,000/year[1]
| (plus an extra $16k room and board, but let's compare
| apples to apples).
|
| [0] https://www.dailycal.org/2014/12/22/history-uc-
| tuition-since...
|
| [1] https://admission.universityofcalifornia.edu/tuition-
| financi...
| thaumasiotes wrote:
| > The problem is so familiar it has its own acronym: TINA, or
| There Is No Alternative to stocks.
|
| > the price of real estate is propped up by similar logic.
|
| This is where the idea falls apart. They can't both be propped
| up by the fact that there's nothing else around. They're two
| different things.
| namenotrequired wrote:
| "No alternative" means "no better alternative". They can both
| be equally mediocre.
| kazen44 wrote:
| But is that true though? also, isn't "no better
| alternative" in the eye of the beholder?
| lumost wrote:
| How much of the TINA phenomenon could be due to lack of capital
| formation throughout the economy? e.g. if 90% of America is too
| capital poor to form businesses or dream up new economic needs,
| then wouldn't it follow that printing money into existing asset
| classes would simply raise their price with no viable places to
| invest the money?
| jjoonathan wrote:
| Yes. I'm sure plenty of Theranos / WeWork style opportunities
| will emerge to pick up the slack.
|
| It's a fundamental problem of capitalism: the market's notion
| of "value" is weighted by wealth, without growth to stir
| things up wealth concentrates, and those looking to create
| value are increasingly forced to search for marginal "rich
| people problems" rather than tackle obvious "poor people
| problems." You wind up in a paradoxical situation where there
| are lots of obvious problems that could be fixed by obvious
| application of labor (e.g. crumbling infrastructure) yet
| nobody can find a job.
|
| This is why inequality is bad.
|
| Equality is bad because then you can't incentivize people,
| but that point generally gets enough air time already.
|
| To optimize this system, we should identify which extreme is
| currently posing a larger threat and back away from it.
| xondono wrote:
| Exactly, you get rich by doing what the rich want, not what
| most people want, that's why Lamborghini owns Volkswagen!
| Wait..
| jjoonathan wrote:
| Serving the middle class is an excellent strategy
| precisely to the extent that the middle class has money.
|
| Serving the middle class was an excellent strategy
| precisely to the extent that the middle class had money.
|
| Serving the middle class will be an excellent strategy
| precisely to the extent that the middle class will have
| money.
| pineaux wrote:
| You think Volkswagen makes cars for the poor? Show me a
| poor person who can buy a new car and I will show you
| someone who is borrowing.
| [deleted]
| chrisco255 wrote:
| "If you want to dine with the classes, you've got to sell
| to the masses."
| [deleted]
| zanny wrote:
| > To optimize this system, we should identify which extreme
| is currently posing a larger threat and back away from it.
|
| Except to back away from it is to alter a relationship
| where the incumbent ruling class holds all the cards and
| controls all the influence and narrative. Which they don't
| want to do. So they don't, and the government they bought
| and paid for just write them windfall blank checks for
| trillions while the poor threaten governors since they are
| going to lose their homes and are going hungry.
|
| The US had a chance to right the power balance when it was
| at its most equal in the post war boom period. But instead
| America decided times were good enough to let scrutiny
| slide - complacency in plenty and the optimism of the post-
| industrial were powerful drugs. Since then its just felt
| like the late Roman republic in its glutinous downfall. The
| feudal lords will pillage the state until the house
| crumbles from the inside with nothing left holding it
| together while the robber barons run wild and happy in
| their Deus Ex style post-capitalist dystopian
| corptocracies.
| WalterBright wrote:
| Buying stocks has never been more democratic. Anyone with $100
| can buy stocks. No brokerage fees, and fractional shares are
| now common.
|
| We also just passed what in hindsight will likely be seen as a
| historic buying opportunity.
| WalterBright wrote:
| > the richest 10% of America owns 86% of its stocks
|
| I don't buy that, as a much larger percentage of stock
| ownership is pension plans, where ordinary people indirectly
| own stock.
| aeturnum wrote:
| The 86% number was (more or less - the article says 84%)
| supported by the times in 2018. Their analysis includes
| pension plans.
|
| https://www.nytimes.com/2018/02/08/business/economy/stocks-e.
| ..
| WalterBright wrote:
| The article shows 45% of American households have a pension
| plan that's invested in stocks.
| anamexis wrote:
| Right, but:
|
| > A whopping 84 percent of all stocks owned by Americans
| belong to the wealthiest 10 percent of households. And
| that includes everyone's stakes in pension plans,
| 401(k)'s and individual retirement accounts, as well as
| trust funds, mutual funds and college savings programs
| like 529 plans.
| ComputerGuru wrote:
| That's entirely orthogonal though, isn't it?
| WalterBright wrote:
| The point is they are participating in the stock market
| and benefiting from its gains.
| ComputerGuru wrote:
| That's true. I suppose there's not much else they/we
| _can_ do and the 86% represents the status quo even after
| their efforts.
| ahoy wrote:
| You greatly overestimate how many americans have pension
| plans and underestimate how rich the richest americans are
| erik_seaberg wrote:
| It's mostly the latter. Looks like 32% have 401(k) plans
| and 13% have pensions. They may not have a big share of the
| total market cap, but a stock market crash would blow up a
| lot of retirement planning.
| notJim wrote:
| If you want to dig into this more, this paper has a lot of
| tables about wealth holdings (and what forms those holdings
| take) over time and at different strata
| https://www.nber.org/papers/w24085.
|
| Edit: I think this is the relevant table:
| https://i.imgur.com/h8Fo8yx.png. If I'm reading it right,
| this is likely the source of that 84% number. Note the line
| "Stocks, directly indirectly owned", and the note that it
| includes retirement plans. I'm guessing this also includes
| pensions, since that would be a retirement plan. There are
| many interesting tables in this paper, however.
| Hydraulix989 wrote:
| Why are stocks inaccessible to so many Americans? There are
| fractional shares, and you do not have to be an accredited
| investor.
| kitotik wrote:
| Because many Americans can't even pay their current bills or
| save literally a single dollar. So fractional shares are
| irrelevant unless they are free.
| mobilefriendly wrote:
| There's a gap between those folks, though, and the median
| household which earns $63,000 a year but has almost no
| savings or stock holdings. The median household wealth is
| $100,000 and that's almost all housing.
| refurb wrote:
| I know plenty of middle class people who stay away from
| stocks - they don't understand them and view them as very
| risky investments.
|
| They stick with bonds and such.
| tathougies wrote:
| > , and the median household which earns $63,000 a year
| but has almost no savings or stock holdings. The median
| household wealth is $100,000 and that's almost all
| housing.
|
| Given that stock ownership is about 55% of the public,
| the median household likely has at least a few shares.
|
| https://news.gallup.com/poll/266807/percentage-americans-
| own...
| kitotik wrote:
| That includes 401k and IRAs etc. which obviously very few
| living outside of middle class have.
|
| In addition, stock ownership has been on steady decline
| for everyone but the upper middle class.
| elros wrote:
| Well, you can't live inside stock certificates :-)
| kitotik wrote:
| Sorry I'm not sure I understand the point you are making.
|
| Most models have the numbers of Americans living in
| poverty or lower class as above 50% of the US population.
|
| It's unlikely if even what they term "lower-middle class"
| owns real estate.
| SpicyLemonZest wrote:
| Any model describing the median American as "lower class"
| is being unreasonable. Most Americans - not all, but most
| - live a comfortable life.
| kitotik wrote:
| Citation needed. "Comfortable" is obviously subjective,
| but the discussion was around ownership of stocks.
|
| Even these[0] models have it at >=50% and they are at
| least 15 years old, and disparity has only increased
| since then.
|
| [0] https://en.wikipedia.org/wiki/Demographics_of_the_Uni
| ted_Sta...
| karatestomp wrote:
| One annual out-of-pocket max (broken arm, bad fall, car
| wreck, appendicitis, pregnancy) away from having your
| financial plans disrupted for a couple years isn't
| comfortable. One of those plus any one other problem at
| the same time from severe financial distress (maybe lose
| home, maybe bankruptcy) isn't comfortable. No matter how
| many x-boxes you have.
| everybodyknows wrote:
| For small investors, I suggest US Treasury I-bonds: inflation
| protected, liquid after one year.
|
| This of course is, _after_ paying off all high-rate debt, and
| maxing out 401k contributions.
| seanmcdirmid wrote:
| You have to put your 401k contributions somewhere, even if
| it is selecting your plan's auto pilot option.
| kube-system wrote:
| Who said they were inaccessible?
| closeparen wrote:
| Because the priority order is:
|
| a) Consumption spending
|
| b) Real estate
|
| c) Stocks
|
| When middle class people hit diminishing returns on
| electronics and vacations, they upgrade their houses.
| Appetite for remodeled kitchens and bigger, nicer, better-
| located houses is voracious, so relatively few people satisfy
| it and fall through to stocks.
|
| Making sacrifices on housing in favor of your stock portfolio
| is of course possible, but will get you a lot of weird looks
| and pressure from family, particularly if kids are involved.
| refurb wrote:
| This is very true! I know plenty of people who when they
| have extra money, investing or saving is the last things on
| their mind.
| karatestomp wrote:
| The biggest tax advantages for investing go to the rich,
| who can arrange their businesses and finances to max out
| retirement accounts, and very highly paid professional with
| fat 401k matches. No matter how someone with a normal
| salary and a 2% match tries they _cannot_ get anywhere near
| maxing out a 401k, due to how they're structured (over 50%
| of the max can _only_ come from an employer, and the
| employee can't make that up on their own). They benefit the
| already-well-off much more than the middle class or poor.
| So there's discouragement to savings built into our tax law
| (or stronger-than-appropriate encouragement available only
| to the already-doing-quite-well, if you prefer)
| ericd wrote:
| Do people actually get family pressure to remodel their
| kitchen?
| karatestomp wrote:
| My wife's side pressure her (me) to "upgrade" her wedding
| set every few years. WTF. They're terrible with money, of
| course, and constantly make passive-aggressive comments
| about who's spending what. I don't think they even
| realize they're doing it, it's just a really, really
| awful and deeply middle-class-anxiety attitude they're
| stuck in.
| grecy wrote:
| 37% of Americans struggle with hunger [1] and 57% of
| Americans have less than $1000 in savings. [2]
|
| Would you be buying stocks if you didn't have enough to eat?
|
| [1] https://www.feedingamerica.org/hunger-in-america/facts
|
| [2] https://finance.yahoo.com/news/58-americans-
| less-1-000-09000...
|
| EDIT: Apologies, first should be 37 million Americans (NOT
| 37%)
| chockablock wrote:
| Your link [1] says 37 million Americans, which is 11%, not
| 37%. (Still a shocking #!)
| AuryGlenz wrote:
| It probably doesn't apply to those struggling with hunger,
| but just because people don't have savings doesn't mean
| they don't have expendable income. It could just as easily
| mean they prioritized stuff over savings, and I bet that's
| the case for most of them.
| sigstoat wrote:
| https://www.cnbc.com/2019/12/12/americans-spend-
| over-1000-do...
| mlthoughts2018 wrote:
| That's an average per consumer. It's likely skewed way up
| by extreme outliers. Need to see median, 75th percentile,
| 95th percentile to really understand it. The headline
| seems like deliberately misleading journalism.
| jandrewrogers wrote:
| Per the US government, the median American household has
| more than $12,000 per year in cash to burn after all
| ordinary expenses. That is a lot of money for savings
| and/or beer.
| nullc wrote:
| If your net worth is negative servicing your debts has a
| better risk adjusted return than investing in stocks unless
| the interest rates on your debt are extremely low.
| kelnos wrote:
| Yup. If you have a bunch of credit card debt at 20+%,
| and/or are paying off a car in the high-single-digit
| percent range, then you really want to pay that off before
| you consider investments.
|
| If all you have is a sub-5% mortgage (though even that's
| pushing it), or a low-interest student loan, then you
| should put money toward retirement if you can.
|
| On the other hand, ~15 years ago I had a 3.5% student loan,
| and even though rationally I should have carried that debt
| (making regular payments, of course), for peace of mind I
| paid it off as quickly as a could. I think a lot of people
| are in that boat, or worse, having been taught that all
| debt is bad for you.
| awinder wrote:
| Man this site is harsh some times, I think there is a lot of
| depth to this question. It's easy to look at statistics and
| say that it's because of massive wealth imbalances and that
| is 100% an accurate statement. But from experience / polling
| there's also a ton of people who have bad financial hygiene,
| people who could & should be way more invested and aren't. So
| I think there's also very big educational issues at play /
| wealth imbalance glosses over a lot of smaller but still
| important issues.
| [deleted]
| kazen44 wrote:
| Also, what if people don't want to be part of the very
| system which causes wealth inbalance?
|
| or is the stockmarket a "the only way to lose is not to
| play" kind of deal?
| loblollyboy wrote:
| You can do what I did and lose 5% of your net worth on
| wallstreetbets
| awinder wrote:
| The not being a part of a system bit is tricky. One of
| the more exciting emergent trends in finance imo is ESG
| etfs which pick stocks based on good environmental,
| social and corporate governance criteria. So there is
| already this idea that capital should have organization
| patterns for people who value this & I hope that iterates
| in really positive ways.
|
| But yeah I'd trend towards "the only way to lose is not
| to play" side of things. It's really hard to find other
| ways to efficiently save/grow your money, interest rates
| are crushed for saving money outside of the market.
| kazen44 wrote:
| the sad part about "the only way to lose is not to play",
| is that playing in this case further entrenches the very
| system which requires you to effectively play in the
| first place.
|
| There is very little, if even any way to recourse this
| without massive societal change. And getting such change
| in action is even harder.
| bb2018 wrote:
| While a modest fraction of people trade individual stocks, a
| lot of Americans have some type of 401k, pension, or
| retirement account that is tied to the stock market.
|
| This pegs it at 50% of private sector workers and 80% of
| public sector workers.
| https://www.pensionrights.org/publications/statistic/how-
| man...
|
| Additionally, in many cases, couples may just have one person
| with access or contributions to the market - but this still
| leaves them exposed (for good and bad) to the market.
| anthony_doan wrote:
| Pension are 403b which is 401k equivalent just fyi. I'm on
| it current shift toward tbill/bonds.
| 6gvONxR4sf7o wrote:
| Is that 86% figure a portion of the public market, or of the
| entire market?
| bb2018 wrote:
| I agree.
|
| Also, I know it is hip to say that Wall Street is short-
| sighted, but in reality it is one of the the few fields where
| people routinely think decades at a time.
|
| If you run a large pension fund or investment account you were
| already risk-weighted and if the cash isn't needed for 10+
| years you'd much rather own a slice of the world's largest
| companies ten years from now instead of gold or cash under a
| mattress.
| chiefalchemist wrote:
| It's all about risk vs return. Furthermore, in the current
| environment of high adversity, and increased scarcity there
| will eventually be innovations. Some of those will translate
| into products and profits.
| TAForObvReasons wrote:
| The problem is perception. Stocks are increasingly seen as
| a risk-free play, backstopped by a Fed that will take
| drastic action if prices fall.
|
| In that world, why bother innovating? Why bother investing
| in innovation when the risk-free play has a huge positive
| expected return?
| chiefalchemist wrote:
| Because the Fed isn't there all the time. Under normal
| circumstances, you can't just sit there. Aside from
| competition, you won't retain quality employees.
| hannasanarion wrote:
| But they are now, and that's what matters. When prices
| fell the first time, it didn't even take a week before
| the government passed the largest stimulus ever, 80% of
| which went to corporations. Investors know that the
| government will do anything to underwrite their risk.
| dharma1 wrote:
| The mandate of the fed is to have maximum employment and
| price stability. With the impact of social distancing to
| businesses there was no other alternative to protect
| employment rather than fed buying securities so the govt
| has funds for fiscal stimulus to prop up employers that
| might otherwise go bust (and may still).
|
| The stimulus is intended to protect jobs and livelihoods,
| not to react to movements in the stock market (even if
| the current president seems to think so)
| chiefalchemist wrote:
| Nah. That doesn't guarantee a return. It might mitigate
| the downside but there's still risk. No one takes on risk
| to break even.
|
| You invest for a return. Stopping a slide yesterday has
| little to do with getting a return tomorrow.
|
| The future. New products. New ideas. Etc. That's where a
| return comes from. Not the Fed.
| [deleted]
| [deleted]
| JKCalhoun wrote:
| I feel like there is a decade of guillotines in the future
| that they are either not seeing or are looking _way_ past.
|
| But then I've always been cynical about the growing divide
| between the uber-wealthy and the other 99% of this country.
| lotsofpulp wrote:
| Guillotines might have worked well in the past, but with
| modern weapons and technology, you can use a much smaller
| portion of the population to suppress a much larger portion
| of the population.
|
| You can pay 10% of the population well enough that they
| support the top 0.01%, and the top 10% can pay the next 20%
| to 30% well enough or provide a sufficient probability to
| move up (or illusion) that they are incentivized to help
| suppress the remaining 60%.
| DSingularity wrote:
| Oh how splendid.
| sidlls wrote:
| That cuts both ways, so to speak. Drones and even more
| advanced technology can replace guillotines as easily as
| it can be used to have a smaller police force of the kind
| you mention.
|
| I think some people don't quite understand what people
| are capable of when they are truly desperate. Right now,
| in most of the western world, people aren't at that
| point. But when they get there, billionaires' ability to
| hide on islands or yachts or whatever won't stop the
| inevitable. Any violent revolution is going to be very
| bad, even for the very wealthy who think they're
| insulated/protected.
| lotsofpulp wrote:
| Seems very difficult to evade location and transaction
| tracking, both which governments have very easy access
| to, but the rank and file do not.
| coliveira wrote:
| Missiles are similar weapons may be useful against other
| countries (remember Vietnam, however), but they will not
| stop revolts inside the country itself. What would the US
| government do if 80% of the city of New York decided to
| turn against the government? Throw an atomic bomb in the
| city? Their time may be running out.
| ccffpphh wrote:
| What would New York even do? People here don't believe in
| firearms, let alone violence. In reality the city would
| starve within a couple weeks due to siege/blockades if it
| really united and tried to revolt.
| danieltillett wrote:
| This approach works well particularly well if the masses
| are decapitate by identifying anyone with high
| intelligence and "inviting" them into the 10% via
| education.
|
| Angry masses without a leader are not going to do
| anything.
| kulig wrote:
| They will only if they get desperate or frustrated
| enough. Leaders always emerge.
| hnarn wrote:
| Also known as the "Tyranny of the Majority".
|
| https://en.m.wikipedia.org/wiki/Tyranny_of_the_majority
| chrisco255 wrote:
| Uh, you can't just pay massive numbers of the population
| without the wealth creation in the first place. We do not
| have some centralized salary authority that pays people
| based on loyalty to some arbitrary payment distribution
| scheme. This is completely contrived.
| lotsofpulp wrote:
| It doesn't need to be centrally managed, the situation
| can emerge organically just based on how people are
| incentivized. Especially with the impact computers and
| scaling at low marginal costs has and how much more one
| person's labor can be worth compared to another person's
| labor.
| kerkeslager wrote:
| Because the stock market doesn't represent the economy as most
| people experience the economy.
|
| First, a lot of companies don't pay out dividends or buy back
| stock these days, so as time passes, removing their stock price
| from the price at IPO, their stock price becomes based on
| perception--not even perception of the reality of the company's
| value, but perception of the _stock 's_ value, which is
| increasingly just speculation. The stock price might remain tied
| to the performance of the company in broad strokes, but without
| regular dividends, sales, or buybacks to tie the stock back to
| the company, there's nothing to keep it from becoming
| disproportionate with regards to the company's value.[1]
|
| Second, when companies _do_ pay dividends or buy back stock, it
| 's sometimes done by borrowing money. This actually drives down
| the value of the company (since now the company has to pay
| interest on those loans) but drives up the value of the stock--
| the value of the company and the value of the stock are going in
| opposite directions.
|
| Third, with the wealth disparity in the US, even if 90% of people
| pull out of the stock market, it's quite possible for the stock
| market to go up, because the other 10% own >80% of the stock
| market. 90% of Americans can divest completely from the stock
| market, and it could at most lower the stock market by 20%.
|
| This is why stock market metrics are not metrics I care about
| when determining how the economy is doing.
|
| [1] EDIT: What I mean by "broad strokes" and "disproportionate"
| here is: Events occur which change the value of the company and
| the value of the stock, and at least the direction of these price
| with regards to these events is likely to align. In broad
| strokes, because people believe the value of the stock is tied to
| the value of the company, if a "good" event happens, the stock
| price goes up, and if a "bad" event happens, the stock price goes
| down. But it's pure speculation _how_ good or _how_ bad these
| events are. If big bad events are downplayed so they only are
| represented as slight drops in stock price, and small good events
| are marketed well so they are overrepresented as big upticks in
| stock price, then over time this can result in a stock price that
| goes up, when the value of the company is actually going down.
|
| It's actually even more complicated than that.
| crazygringo wrote:
| > _First, a lot of companies don 't pay out dividends or buy
| back stock these days, so as time passes, removing their stock
| price from the price at IPO, their stock price becomes based on
| perception--not even perception of the reality of the company's
| value, but perception of the stock's value, which is
| increasingly just speculation._
|
| This is a common trope to hear, but it's just so fundamentally
| untrue.
|
| At the end of the day, the long-term fundamental value is
| _absolutely_ tied to dividends /buybacks. There is zero
| divorcing from that reality.
|
| Yes, in the _short term_ prices fluctuate above and below that
| level based on supply and demand for shares and other trading
| strategies. But the farther away any trader gets from
| fundamentals -- e.g. buying something they already think is
| overvalued because they think it will continue to climb -- the
| statistically riskier it is and the more likely they 'll _lose_
| money.
|
| So there is a _strong_ force pushing the value of a stock to
| exactly the NPV of its future profits.
|
| Going without regular dividends or buybacks is not just _fine
| and perfectly normal_ for growth stocks, but _expected_ because
| it 's in shareholders' best interests. You don't need dividends
| to be able to judge revenue, costs, and profit. Everybody knows
| that when the companies cease to continue growing and reach a
| "steady state", the dividends/buybacks spout will be turned on.
| Not out of the company's good will, but because shareholders
| will demand it.
| coffeemug wrote:
| _> [...] these days, so as time passes, removing their stock
| price from the price at IPO, their stock price becomes based on
| perception--not even perception of the reality [...]_
|
| John Maynard Keynes developed this idea (that came to be known
| as Keynesian beauty contest[1]) in 1936. This isn't a new
| property of the market, it has always been the case.
|
| _> when companies do pay dividends or buy back stock, it 's
| sometimes done by borrowing money_
|
| It's not clear that this is a problem, given that cash is
| basically free (though they do have to pay back the principal).
| I'd be interested to see what proportion of dividends and
| buybacks comes from borrowed cash. I suppose calculating such a
| thing would be very difficult, but it'd be interesting to see
| _some_ analysis on this.
|
| _> if 90% of people pull out of the stock market, it 's quite
| possible for the stock market to go up_
|
| What if 90% significantly cut consumption? Ultimately the
| companies have to sell their products to _somebody_.
|
| [1] https://en.wikipedia.org/wiki/Keynesian_beauty_contest
| schkkd wrote:
| They have to sell something only if the Fed don't give them
| money (and dilute the share of the lower 90% as a side
| effect).
| PaywallBuster wrote:
| Sounds like an extreme view, many people, even lower income
| still have retirement funds who are being invested somewhere
| and they're not taking money out.
|
| Sure, buybacks were responsible for a big part of stock buying
| activity for awhile. But that has completely stopped now as
| companies prepare for the uncertain future.
|
| Should look into Central Banks activities...
|
| e.g .BOJ is top-10 shareholder in 40% of Japan's listed
| companies
|
| Central Banks everywhere are dumping more and more money in the
| economy. The one from Europe is ready to buy Italy bonds even
| if its moved to Junk bonds.
| Ididntdothis wrote:
| "Because the stock market doesn't represent the economy as most
| people experience the economy."
|
| That's my theory. The top 10% own most of the stock but their
| experience of this crisis is quite different from people who
| already had low wages now losing their jobs. I bet most of the
| people (not all) on this site don't feel the crisis
| economically at all or only with minor pain.
|
| Personally I think we should stop looking at GDP, stock markets
| or housing prices but instead the economy should be optimized
| towards raising things like median wages or purchasing power.
| In the end that's what really counts.
| kazen44 wrote:
| In the end what really counts is the health of members of
| society as a whole.
|
| Providing everyone with basic life necessities would be a
| good start.
| DangitBobby wrote:
| I agree that metrics should be tied to actual individual
| income and not the stock market or GDP. (As an aside, my
| cynical belief is that we've always known those to be poor
| metrics but we use them anyway because they measure what
| people with power actually care about). But keep in mind that
| even median income is not a good indicator of economic
| standing with high cost of living. Whatever it is would
| ideally capture how much spending/saving power is left over
| after essentials (warmth, shelter, food, water, health etc).
| Ididntdothis wrote:
| That's why I mentioned something like purchasing power.
| tayo42 wrote:
| > a lot of companies don't pay out dividends or buy back stock
| these days, so as time passes, removing their stock price from
| the price at IPO, their stock price becomes based on perception
|
| ignorant question, if true, how is this not the worlds biggest
| ponzi scheme? Are we just betting on the possibility of
| dividends in the future? It just seems illogical. The fraction
| of meaningless ownership as a shareholder can't be worth that
| much to most people.
|
| Then to take this to the extreme why do we bother with stocks,
| why don't humans just collectively put money into a a giant pot
| where we can withdraw proportionally at any time. Isn't that
| what we are doing with stocks?
| californical wrote:
| I am right with you, I've never understood what the actual
| purpose to owning shares is other than "their price goes up
| when the company is expected to do well" -- but what do you
| get for that price being higher?
|
| Without dividends the whole idea of stocks makes no sense to
| me.
|
| With dividends, I would think "I'll buy this stock for $100
| with the expectation that I'll get a $10 dividend next year,
| a $12 dividend the year after that, etc etc, and eventually
| make my money back!"
|
| In the case you buy a bunch of stocks and just hold onto
| them, they generate value by the company doing well. I could
| buy shares of a bunch of companies and wait 30 years, and if
| most of those companies are still doing well, I'll have made
| a profit from dividends, and I can then sell those to some
| wide-eyed young person who is hoping the company will
| continue to do well so they can get their payments for the
| next 30+ years. If the company instead does well for 20 years
| and then abruptly goes out of business, I still would've
| gotten lots of payouts from them, but now I can't sell those
| shares to someone who hopes for future payouts anymore.
|
| But if there are no dividends, none of this makes any sense
| -- I'm buying the shares, making no money for the 30 years
| that I sit on them, then selling them to some wide-eyed
| younger person for a higher price who expects to also make no
| money for 30 years, but to be able to sell the shares to some
| new younger person? There's no endgame with a payout here,
| but there is an end where the company goes out of business.
| So what value was the share providing the owner over those 30
| years??
| kgwgk wrote:
| You are not forced to hold onto non-dividend paying stocks,
| you can sell them gradually to create "dividends" for
| yourself. As a first order approximation, buying a $100
| stock that gives you a $5 dividend but stays at $100 is not
| different from buying a stock that doesn't distribute a
| dividend but appreciates 5% every year.
| californical wrote:
| Thanks for the response! I guess my issue is that there's
| no actual value in owning non-dividend shares for any
| amount of time. So I can sell the stock to someone else,
| but what are they paying me for? The opportunity for the
| value to increase more? Why is someone interested in
| paying me more than I paid? I feel like there's never any
| real money that's made back by owning those shares.
| What's the goal?
|
| Removed from the stock market, if I privately invest in a
| company for $1m for 10% of the company, it's because I'm
| hoping that someone else will see that the company has
| value and purchase it, giving me 10% of that future
| purchase price. The company sells a product of some sort,
| and I have a 10% vote in what they do with that money,
| which I'm hoping is to sell to a larger company.
|
| Is the goal the same on all of these non-dividend paying
| companies -- to be bought by a bigger company? Because
| otherwise there's no value in the shares except
| speculation itself, which seems pointless to me
| kgwgk wrote:
| Even non-dividend-distributing companies can give real
| cash to shareholders in exchange for those paper share
| certificates by buying back shares. But it's true that
| for some companies it's quite difficult to justify
| valuations.
| ericb wrote:
| There's a couple points you're missing. Even if there's no
| dividends, as long as the shares represent legal control,
| they can be purchased by other companies or individual to
| gain control of the profits, direction, or assets of the
| company. This gives the shares value independent of
| dividends.
| sireat wrote:
| The problem with this idea is that increasingly company
| founders are opting for dual(or even triple) share
| structures by issuing massive amounts of non-voting stock
| to outsiders.
|
| It is all a game of musical chairs when you buy GOOG(not
| GOOGL), FB (class A) Facebook shares which have 1/10
| voting power of Zucker class B shares.
|
| The list of these abominations goes on and people keep
| buying and trading them. If you are a company founder and
| can get away with this (Zynga had some trouble but still
| got away with it) you'd be selfishly stupid not to do it.
|
| And don't get me started on Chinese stocks where you are
| buying ADR of some entity in Bahamas which has no say at
| all over the Chinese parent.
|
| EDIT: Why is it wrong for a company founder to have full
| voting control? It is wrong when he/she has less than 50%
| ownership that's what's wrong. If you have 20% of the
| company but have the super-voting shares you can decide
| to take the company into a bad direction and the 80% have
| no say.
| ericb wrote:
| I have no disagreement with anything you've said,
| actually. It is kind of an interesting swindle, really.
| cft wrote:
| It is and it will get corrected. The question is how. The CPI
| could inflate to match the asset bubble, or the bubble could
| pop. The first is looking more and more plausible. When
| either happens, it will be ugly, but if the first scenario
| plays out, "cash is trash" as Ray Dalio says.
| loufe wrote:
| >First, a lot of companies don't pay out dividends or buy back
| stock these days
|
| As I understand it, a good chunk of of the reason stock prices
| were originally so high before the crash 2 months ago was that
| stock bybacks were at an all time high (though of course this
| doesn't mean every company is doing them). Part of the reason
| companies are so vulnerable is that a large chunk profits were
| being used to undertake them - not being kept for reinvestment,
| debt repayment, or rainy-day funds.
| esoterica wrote:
| Why bother with a rainy-day fund? If your company has a long-
| term viable business you can borrow money to survive a
| temporary crisis. If your company's business model is
| permanently ruined then you are better off calling it quits
| and shutting the company down than setting your cash reserves
| on fire trying to rescue a dead company.
|
| During a credit crisis a viable business might have trouble
| raising money, but with the Fed indicating that they are
| willing to throw money out of the proverbial helicopters,
| maybe people don't consider that a real concern any more.
| paulpauper wrote:
| It is really not a mystery why the market has done so well and
| will continue to do well. Corporate profits, especially in the
| tech sector, are at near record highs, much higher than during
| the 90s. Companies like Walmart are printing cash, and that
| money goes into buybacks, dividends ,or shareholder equity.
| Either way, shareholders benefit and this is magnified by very
| low inflation, so the real return is even higher than it was
| compared to the 80s and 90s. If huge, multinational companies
| generate 20-30% profits or cash flow, that is $ that will go to
| shareholders one way or another. Great time to be in the stock
| market. Added to positions in April at a discount.
| kgwgk wrote:
| Corporate earnings have been flat for over a year, so they
| don't really explain why the S&P 500 still went up 15% from
| the 2018 highs. And now expectations are down substantially
| and even for 2021 are below 2018 levels.
| paulpauper wrote:
| if a $100 billion dollar company generates $10 billion of
| profit annually, then that is 10% returned to shareholders
| every year even if there is no earnings growth.
| kgwgk wrote:
| Sure, with no earnings growth and no price increase
| shareholders would be richer due to the cash returned via
| dividends.
|
| But that doesn't explain why the price you pay for $X in
| earnings is higher in one case than in the other.
| (Retained earnings could explain a minimal part of the
| increase.)
|
| There is no reason for that $100bn company to be a $110bn
| company next year if it has returned the $10bn it earned
| to shareholders and it's still going to earn $10bn.
| fiachamp wrote:
| I would add another factor lots of people overlook: the trend
| towards index investing. In the past, asset management involved
| actually analyzing the performance of a business, now it's just
| trillions of dollars allocated merely by market cap. Index
| investing makes everyone QEs bitch - the end game for it is
| what we're about to experience.
| cft wrote:
| That's exactly right: index investing is more like a mix of a
| pyramid scheme and central planning. It's decoupled the stock
| market from the underlying economic activity.
| xg15 wrote:
| > _The stock price might remain tied to the performance of the
| company in broad strokes, but without regular dividends, sales,
| or buybacks to tie the stock back to the company, there 's
| nothing to keep it from becoming disproportionate with regards
| to the company's value.[1]_
|
| Total stock market noob here, so apologies if this is a dumb
| question - but I've wondered this for quite some time: There
| seem to be some extremely well-performing stocks (e.g. Apple, I
| believe) that don't pay dividends, don't give you voting rights
| and are not expected to be bought back anytime soon.
|
| How are those stocks connected to the company at all? As an
| owner, what do you _do_ with those stocks, except selling them
| to someone else so he can sell them to someone else in turn?
|
| How do they get their value?
| JMTQp8lwXL wrote:
| Apple one day might start paying dividends. As the company
| matures, and growth slows, returning value to shareholders
| (if no better options exist) is a wise use of capital. Value
| can be returned via dividends, but also through share
| buybacks.
| mrep wrote:
| Apple returned 81 billion dollars to shareholders last
| year: "During its latest fiscal year that ended in
| September, Apple bought back $67 billion in stock and paid
| out $14 billion in dividends" [0].
|
| [0]: https://www.barrons.com/articles/apple-stock-buyback-
| dividen...
| eruci wrote:
| Little else to do while sitting at home with some spare cash
| other than gambling at the stock market.
| xienze wrote:
| Rallying is a relative term. It's been going sideways around 24K
| (Dow) for weeks.
|
| But the answer is: where else are you going to put your money?
| icedchai wrote:
| Look at the Nasdaq. It's come back much faster than the Dow.
| MattGaiser wrote:
| Companies on the NASDAQ like Amazon are doing tremendously
| well.
| CalRobert wrote:
| Where else you gonna put your money? Bonds? Cash? Land? Foreign
| funds? Nothing looks great. Maybe invest in silly tech companies?
| Who knows, maybe one of them is the next Google!
|
| As for how things are bad for the regular joe or jane while
| stocks go up; companies could literally enslave a good chunk of
| the population and still be profitable, meriting a high stock
| price - moreso, even. There's prior art here. High stock prices
| can be an indication that companies are just really good at
| extracting the wealth produced by labour.
| Gibbon1 wrote:
| > High stock prices can be an indication that companies are
| just really good at extracting the wealth produced by labour.
|
| Western companies have become adept getting handouts from
| governments and central banks. Chinese companies extract value
| from labor.
| cft wrote:
| This is the inflation that everyone is afraid of. Since the money
| has been mostly injected from the top of the society, it has been
| confined to the asset bubble. If this money filters through to
| the bottom or there's significant injection directly to the
| bottom (SBA payment protection, $1200 direct assistance, basic
| income, etc) then we will see consumer inflation as well
| jhallenworld wrote:
| There is much bigger risk of deflation during a depression. Do
| you really think there will be wage inflation when there is 20%
| unemployment?
| formercoder wrote:
| Exactly this is why I don't understand the folks who think
| inflation is a purely monetary phenomenon. With demand shocks
| like this how can we not have deflation?
| MattGaiser wrote:
| They are people who have never bothered to look at an
| inflation table. They are content to blindly repeat that
| one economics textbook they read.
| grandridge wrote:
| Inflation comes from over reaction of trying to
| fight/prevent deflation
| changchuming wrote:
| Wall Street and main street are two different markets. OP
| specifically said we'll see consumer price inflation only
| if money trickles down to consumers, which is evidently not
| the case. Asset prices has gone to the moon however since
| 2008.
| FlyMoreRockets wrote:
| Too many people competing for too few jobs should keep wages
| down.
| lazylizard wrote:
| The direct injection to the bottom doesn't even cover what
| income they've lost since 3 months ago..why would there be
| inflation?
| wbl wrote:
| Quantity times velocity equals GDP times price level. Velocity
| just went way down.
| cft wrote:
| This is the right start. But it's not a closed system:
| there's an import/export balance.
| MattGaiser wrote:
| We are still waiting for the surge of inflation you inflation
| hawks complained about in 2008 when this was all last done...
|
| https://www.usinflationcalculator.com/inflation/current-infl...
| AbrahamParangi wrote:
| Inflation was seen in asset prices. We're seeing it again in
| asset prices right now.
| DesiLurker wrote:
| wasn't that injection more like a loan that was paid back?
| IIRC we actually made a tiny profit on it. but this time they
| are just given it away or some terms that amount to it. so
| eventually there is a bigger chance of it. but then BOJ has
| been purchasing stocks for what a decade now and japan still
| does not has that level of inflation.
| changchuming wrote:
| He did specifically say asset bubble. And look at how much
| the stock market has grown since 2008. It has outpaced CPI by
| a huge margin.
| mrep wrote:
| Annualized S&P 500 Return with Dividends Reinvested from
| april 2008 to april 2020 are 8.285% [0] which is entirely
| in line with historical returns [1]. How is that an asset
| bubble?
|
| [0]: https://dqydj.com/sp-500-return-calculator/
|
| [1]:
| https://en.wikipedia.org/wiki/S%26P_500_Index#Performance
| mancerayder wrote:
| There was an asset bubble in property, and you can argue
| that there still is (there is in my city). However, wages
| aren't going up, as someone else below pointed out.
| Inflation to some degree is a race between income and
| spending power, right? If incomes stay stagnant but house
| prices double in cost, that's downward pressure on that
| asset.
|
| The stock market is a different beast. Is it accurate to
| call it inflation if the asset inflation is "going there"?
|
| Both health care costs and education costs - both mentioned
| as evidence of inflation someplace and two more places
| where excess inflation to be "going there" - have been
| making headlines before this crisis, and I bet they'll
| become even more prominent after the crisis ends. There
| will be downward pressure on prices politically on those
| two things, is my prediction.
| codexon wrote:
| All the inflation went into healthcare, education, housing,
| stock market, all things conveniently not measured or heavily
| weighted by the PCE.
| hop wrote:
| It's rallying because there are a lot of undervalued stocks.
| There have been really good deals the past 2 months. And stocks
| are a great inflation hedge.
| fsflover wrote:
| See also:
|
| https://news.ycombinator.com/item?id=23116055
|
| Ask HN: What the heck is going on with the stock market?
| rsp1984 wrote:
| What is most mind-boggling about this recent rally is that
| basically all the major indices are back to where they were Q2/Q3
| of 2019. The Nasdaq is even back to January 2020 levels.
|
| Therefore, the market apparently believes that the environment
| for stocks today - COVID raging, approaching 20% unemployment,
| mass bankruptcies, etc - but also central banks creating
| trillions of USD - is overall as good as it was towards the end
| of 2019.
|
| Since it is clear that even with the central banks' support
| economic recovery to late-2019 levels is going to take while, the
| conclusion can only be that the market anticipates most of the
| central bank's new money to drive up asset prices again instead
| of driving the real economy. Sad times.
| TheBlight wrote:
| The unemployment numbers are deceptive. >80% are furloughed and
| would have their jobs back as soon as lockdowns end and
| business picks back up.
| TheOtherHobbes wrote:
| They're partially deceptive at best. The economy wasn't
| exactly flying even before the virus. Consumer debt (nearly
| $14tn - around 2/3 of GDP) was stifling consumer demand.
| Corporate debt was around $10tn - half of GDP.
|
| When there's a major shock a lot of that debt will be written
| off, either be negotiation or by bankruptcy. So unless the
| Fed plans on making good on all of those debts there's going
| to be a big smoking hole where those obligations used to be,
| with corresponding losses to creditors.
|
| The Fed has no interest in Main St, and is perfectly happy to
| hand out free money to Wall St to keep the party going. But
| if the economy isn't operating normally, that money is going
| to turn into worthless paper because it can't be spent on the
| usual things the 1% spend money on.
|
| When that happens you get real inflation, because the face
| value of money becomes disconnected from real spending power.
|
| Even if everyone went back to work tomorrow, people will keep
| getting ill and dying and business won't be back to normal
| for at least six months - possibly twelve. If workers don't
| get generous government hand-outs to keep demand ticking over
| in the real economy, there are going to be mass bankruptcies,
| and the debt collapse cycle will have started.
| netsharc wrote:
| But realistically business won't bounce back this year, will
| it. Big parties in packed bars? Even without any governmental
| restrictions, I think a lot of people will avoid these
| things; because they don't want to get sick. This will also
| affect e.g. numbers of Uber rides, as well as how much
| beer/food the bars/restaurants buy. Businesses connected to
| foreign markets will also be affected by lockdowns there;
| airbnb will still be in a world of pain, as well as travel-
| related businesses.
| cosmojg wrote:
| "The stock market is not the economy, and the economy is not the
| stock market." [1]
|
| The stock market looks to the future while common economic
| indicators like GDP and unemployment rates look to the recent
| past.
|
| [1] https://youtube.com/watch?v=0ECqDaPjjV0
| LatteLazy wrote:
| Why do people write article with false premises just to make
| readers click and state opinions and argue? Oh yeah, it's click
| bait bullshit.
| aazaa wrote:
| > Measures by the Fed and U.S. government have underpinned the
| recent rally across markets. The Fed made it clear it was willing
| to step in to buoy the economy. Why bet against the market when
| the central bank is willing to do that?
|
| The Fed has gone far further than just this. The Fed is going to
| buy as many assets as it takes. Treasuries. Corporate bonds. Junk
| bonds. Munis. It'll buy the assets directly. It'll buy them
| through ETFs. The Fed will buy so much with its infinite balance
| sheet that you're going to get tired of getting rich by front-
| running the Fed.
|
| The Fed is in the fight of its life. The enemy is dollar
| strength. Have a look at what the dollar was doing during the
| depths of the recent crash. It was going much higher.
|
| Here's an investment hypothesis. It could be wrong, but for now,
| it explains some things.
|
| Should the dollar start climbing above 100 on the DXY index[1],
| watch for: falling stock markets; falling bond markets; falling
| commodities and gold markets; falling bitcoin; failing
| businesses; bank distress. At the same time, watch for the Fed to
| announce new asset purchase acronyms.
|
| The dollar is the world's currency and the Fed is the world's
| banker. There's a lot of dollar-denominated debt offshore. When
| the dollar strengthens, those loans get more expensive to
| service. To raise cash, foreign holders of stocks and bonds start
| selling.[2]
|
| The US stock markets have become strongly coupled to the US
| dollar and simultaneously a predictor of Fed action. Dollar goes
| up, stocks go down, Fed starts buying assets. Dollar goes down,
| stocks go up, Fed steps back.
|
| The thing to watch for in the coming months is some kind of
| dilemma. For example, watch for Fed purchases to lead to a
| _stronger_ dollar. At that point, the Fed will need to decide
| which master to serve.
|
| [1] https://www.tradingview.com/symbols/TVC-DXY/
|
| [2] https://www.lynalden.com/global-dollar-short-squeeze/
| shostack wrote:
| Another factor to consider...there are other nations that are
| actively working to undermine the strength of the dollar as the
| global reserve currency. If they can sufficiently erode trust
| in the US financial machine, much bigger problems arise.
| lokl wrote:
| Several comments here about alternatives to stock, the poor
| returns of bonds, and cash being eaten by inflation. If you've
| been thinking about this and are a U.S. investor, read about I
| Bonds. Or, if you aren't worried about inflation and are
| investing for 20+ years from now, don't forget about EE Bonds.
| seibelj wrote:
| IBonds are linked to the government-approved CPI and the basket
| no longer represents "true" inflation which, in my opinion,
| should include the increasing cost of housing, education,
| medical insurance, etc. rather than cheap stuff outsourced to
| foreign countries to manufacture.
| fallingfrog wrote:
| The fed can step in and bail out Wall Street by printing money
| only so many times. Eventually by papering over the small
| disasters, they make the eventual collapse of the whole system a
| certainty.
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