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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,

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 6y ago
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 6y ago
  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.
  - chiefalchemist 6y ago
    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 6y ago
      [deleted]
  - dharma1 6y ago
    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 6y ago
      Agreed. The entire exercise has been about mitigating chaos. A freefalling stock market _and_ overwhelmed hospitals would cascade badly. Any lives saved was a byproduct. For better or worse, agreed or not, the US' gov diverted - for now? - an implosion. The Fed can't eliminate risk. It also can't guarantee future returns.
  - eanzenberg 6y ago
    False, most of the stimulus went to 1) direct payments to the bottom 90% and 2) small businesses with less than 50 employees.
    - Supermancho 6y ago
      That was a later program. You're misunderstanding because he used the word "stimulus". There were multiple rounds. The first, was a huge corporate giveaway.
      - mrep 6y ago
        The first one was .4% the size of the cares act and it was for healthcare, not corporate giveaways: More than $3 billion for "research and development of vaccines, as well as therapeutics and diagnostics" $2.2 billion "in public health funding to aid in prevention, preparedness and response efforts — including $950 million to support state and local agencies" Almost $1 billion for "medical supplies, health-care preparedness, Community Health Centers and medical surge capacity" $1.25 billion to fight COVID-19 internationally. source: https://en.wikipedia.org/wiki/Coronavirus_Preparedness_and_Response_Supplemental_Appropriations_Act,_2020 https://en.wikipedia.org/wiki/Coronavirus_Preparedness_and_R...
        Supermancho 6y ago
        You are correct. The original commenter was incorrect in the assertion of the order of the bills "passing" - "it didn't even take a week before the government passed the largest stimulus ever". I'm referencing the CARE Act. https://en.wikipedia.org/wiki/Coronavirus_Aid,_Relief,_and_Economic_Security_Act https://en.wikipedia.org/wiki/Coronavirus_Aid,_Relief,_and_E... Granted the one you reference was passed prior, the CARE Act was introduced first. The CARE Act was never in danger of being dropped, as the market was counting on it (it is filled with pork).
    - sabujp 6y ago
      https://www.federalreserve.gov/newsevents/pressreleases/monetary20200323b.htm https://www.federalreserve.gov/newsevents/pressreleases/mone... , the fed is buying junk corporate bonds
  - malandrew 6y ago
    > Investors know that the government will do anything to underwrite their risk. The FED only steps in for once in a lifetime risks that impacts the market broadly. Any risk specific to individual firms, which is all the risk between these broad market events.
    - Supermancho 6y ago
      > The FED only steps in for once in a lifetime risks that impacts the market broadly. Those risks overlap. It's not effectively once-in-a-lifetime, as of the last century.
    - tsimionescu 6y ago
      These once-in-a-lifetime risks have been happening about every 10 years lately. It's also important to remember that there are sectors of the economy receiving huge subsidies. One of the most striking is banking, which derives a good proportion of its value from the federal government guarantees on deposits[0]. [0]http://www.adriendavernas.com/papers/valuationofbanks.pdf http://www.adriendavernas.com/papers/valuationofbanks.pdf
deleted 6y ago
[deleted]
eanzenberg 6y ago
Wall st is extremely cutthroat, in that if you stagnate 1 quarter kiss your market cap goodbye. Loom at the R&D budgets to judge if public companies are still innovating.

chiefalchemist 6y ago

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 6y ago
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.
- chiefalchemist 6y ago
  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 6y ago
    [deleted]
- dharma1 6y ago
  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 6y ago
    Agreed. The entire exercise has been about mitigating chaos. A freefalling stock market _and_ overwhelmed hospitals would cascade badly. Any lives saved was a byproduct. For better or worse, agreed or not, the US' gov diverted - for now? - an implosion. The Fed can't eliminate risk. It also can't guarantee future returns.
- eanzenberg 6y ago
  False, most of the stimulus went to 1) direct payments to the bottom 90% and 2) small businesses with less than 50 employees.
  - Supermancho 6y ago
    That was a later program. You're misunderstanding because he used the word "stimulus". There were multiple rounds. The first, was a huge corporate giveaway.
    - mrep 6y ago
      The first one was .4% the size of the cares act and it was for healthcare, not corporate giveaways: More than $3 billion for "research and development of vaccines, as well as therapeutics and diagnostics" $2.2 billion "in public health funding to aid in prevention, preparedness and response efforts — including $950 million to support state and local agencies" Almost $1 billion for "medical supplies, health-care preparedness, Community Health Centers and medical surge capacity" $1.25 billion to fight COVID-19 internationally. source: https://en.wikipedia.org/wiki/Coronavirus_Preparedness_and_Response_Supplemental_Appropriations_Act,_2020 https://en.wikipedia.org/wiki/Coronavirus_Preparedness_and_R...
      - Supermancho 6y ago
        You are correct. The original commenter was incorrect in the assertion of the order of the bills "passing" - "it didn't even take a week before the government passed the largest stimulus ever". I'm referencing the CARE Act. https://en.wikipedia.org/wiki/Coronavirus_Aid,_Relief,_and_Economic_Security_Act https://en.wikipedia.org/wiki/Coronavirus_Aid,_Relief,_and_E... Granted the one you reference was passed prior, the CARE Act was introduced first. The CARE Act was never in danger of being dropped, as the market was counting on it (it is filled with pork).
  - sabujp 6y ago
    https://www.federalreserve.gov/newsevents/pressreleases/monetary20200323b.htm https://www.federalreserve.gov/newsevents/pressreleases/mone... , the fed is buying junk corporate bonds
- malandrew 6y ago
  > Investors know that the government will do anything to underwrite their risk. The FED only steps in for once in a lifetime risks that impacts the market broadly. Any risk specific to individual firms, which is all the risk between these broad market events.
  - Supermancho 6y ago
    > The FED only steps in for once in a lifetime risks that impacts the market broadly. Those risks overlap. It's not effectively once-in-a-lifetime, as of the last century.
  - tsimionescu 6y ago
    These once-in-a-lifetime risks have been happening about every 10 years lately. It's also important to remember that there are sectors of the economy receiving huge subsidies. One of the most striking is banking, which derives a good proportion of its value from the federal government guarantees on deposits[0]. [0]http://www.adriendavernas.com/papers/valuationofbanks.pdf http://www.adriendavernas.com/papers/valuationofbanks.pdf

deleted 6y ago

[deleted]

eanzenberg 6y ago

Wall st is extremely cutthroat, in that if you stagnate 1 quarter kiss your market cap goodbye. Loom at the R&D budgets to judge if public companies are still innovating.