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A properly functioning stock market is predicting the next ~15 years of companies' profits by weighing the prior ~15 years of companies' profits combined with t
by mikekij 7y ago
A properly functioning stock market is predicting the next ~15 years of companies' profits by weighing the prior ~15 years of companies' profits combined with their current growth. Even a 12 month period of $0 profits should decrease the NPV of a firm's future earnings by 10%, not 50%.
As scary as the next 12 months appear to be, we will eventually return to a new normal, just as we did in 2010, 2004, 1990, etc.
- drchickensalad 7y agoWhy 15 years?
- mikekij 7y agoAt a 10% discount rate, years 16 on don't weigh heavily into the calculation.
- brianwawok 7y agoAnd how could anyone predict a company 15 years out? We have a real hard time with 1 year out.
- mikekij 7y agoAgreed. But you make a forecast in which you calculate an "expected outcome".
- brianwawok 7y agoA forecast that has nothing to do with reality is garbage.
- ntsplnkv2 7y agoIs the stock market actually properly functioning?
- SpicyLemonZest 7y agoIt's always hard to say for sure, but there's no particular reason to expect it wouldn't be right now.
- deleted 7y ago[deleted]
- refurb 7y agoThis is my take as well. Yes, seeing a 30% drop in GDP this quarter is huge. Just like the 5 million or so who applied for UI. However, the expectation is in a few months, restrictions will loosen and the recovery will begin. So yes, the stock index should drop, but not by 33%. That was an overreaction. So now the market is going up, but it will still be down 10-20% until people get back to work.
- quxpar 7y ago*16.6 million, not 5 million. And that's only people who got through.
- state_less 7y agoBusinesses are planning to survive and open back up in a few months. They’ll hire back employees at that time, though probably not as fast as they dropped them. I’m expecting something that looks more like a Nike swoosh than a V.
- abnercoimbre 7y agoRight. Recent news say ~6.6 million, but that was new cases filed for last week. Around 1 in 10 Americans are jobless, and nearly 1 in 3 renters in the U.S. failed to pay April rent at the beginning of the month.
- mikekij 7y agoI'm not sure why I'm getting down-voted here. Is it because of an inaccuracy in my comment? Or frustration with the market?
- mhuffman 7y ago> A properly functioning stock market This is not a properly functioning stock market. People are reacting to massive money injection by the government and the government picking upcoming winners and losers. > by weighing the prior ~15 years of companies' profits Are they also adding in the fact that 80% of the last 15 years has been due to life-support QE? > Even a 12 month period of $0 profits should decrease the NPV of a firm's future earnings by 10%, not 50% ... maybe a 12 month period of $0 NET profits, but what about 12 months of $0 total revenue? For many, many companies that is not a 10% drop in NPV, but bankruptcy. I agree we will return to a new normal, but what does that look like? Do we just go back to permanent QE like before where the debt market is artificially inflated forever? Or is this bad enough that the government gets to be part of larger corporate decisions now? There is no model where the next 12 to 24 months looks "bright" for almost any company, so the fact that the stock market is mooning is not rational right now. Trying to justify it as "properly functioning" seems very, very far off base to me.