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Have the record number of investors in the stock market lost their minds?
- FartyMcFarter 6y agoIf the stock market is wrong, what will force it to correct? Does it take a lot of companies going bankrupt? Is it enough for lots of companies to report big revenue drops? Or is that priced in the minds of most investors?
- roenxi 6y agoIt takes more people selling shares (or being forced to sell shares) than there are buyers. Maybe I have some shares I bought for $10; the price dropped and now I can only sell them for $8. There is a solar farm off to one side selling bonds at some unreasonably high yield. I could be stubborn and hold the shares until the price comes back - but that would lose me money in the big picture. Instead I sell for whatever I can get and put the money where it will be generating a good return. If a bunch of people behave like that, sellers quickly overwhelm buyers (potential buyers are flocking to the new opportunity too) and the price corrects to something reasonably fair.
- ak39 6y agoFor every stock sold there’s always a corresponding buyer at the market price.
- ThePhysicist 6y agoYou might want to look into order books to get a better understanding of the price determination mechanism of stocks/assets: https://en.m.wikipedia.org/wiki/Order_book_(trading) https://en.m.wikipedia.org/wiki/Order_book_(trading)
- ak39 6y agoThanks for your link. I read it. But does it explain/re-affirm that prices go down when there are more people selling than there are people buying?
- ThePhysicist 6y agoTypically there are different types of orders as well: https://en.m.wikipedia.org/wiki/Order_(exchange) https://en.m.wikipedia.org/wiki/Order_(exchange) For assets with high liquidity there will always be buyers and sellers, depending on how many are on either side and what their price limits are (if they set any) transactions will occur at different prices. Depending on the order size the price can vary even within a single order (if you need multiple buyers or sellers with different limits to fill it). The market price is just an indication of the current equilibrium price at which there is the most liquidity for an asset. If there are more people that want to sell than people that want to buy at a given price the sellers will have to reduce their ask price to close orders, that drags the market price down. The same dynamic moves the price up when there are more buyers than sellers.
- csomar 6y agoThere are exactly as many buys/sells. You can't have more "Sellers". The price can move down, however, without much trading. For stocks with low trading/high volatility it might make sense to give the mid order book price rather than last trade.
- rileymat2 6y agoSure you can have more sellers than buyers at a price, you can’t have more transactions, but limit orders can expire or be partially filled.
- ak39 6y agoImagine a closed off room of 100 traders. There are three sets of people here: a group of pairs doing a transaction, a group of pairs negotiating a strike price, no deals yet, and a final group "sitting on their hands". Only the executed trades are ordered in descending timestamps. The one at the top is the market price. It's the only reliable indicator of what actually got sold and bought. So, in this room, the price of each transaction, from any negotiations, is a consequence of the conviction of each party in the negotiations and eventually the trade. This includes how optimistic or pessimistic they feel about the value of the stock, how aggressive each one's stance about the predicted future price of the stock, how much greed or fear exists in the minds of the traders etc. This is what moves the price. Prices can move just as rapidly (be more volatile) with a few traders and many sitting on their hands as can be the case that prices hardly move with the entire 100 people transacting. Conclusion: what moves prices up or down are opposing beliefs with differing levels of conviction in the minds of the traders.
- roenxi 6y agoI can't tell if you are saying that in support or opposition, but yes - the imbalance in buyers and sellers is what causes the price to move until everything matches again.
- ak39 6y agoI am saying that in opposition. Sellers do not overwhelm buyers _when_ the price goes down, or vice-versa. There is no "overwhelming" of one group over the other. Nor do prices go down _because_ of an independent phenomenon other than buying and selling. The price is judged on the _value_ sellers and buyers ascribe to the stock at a given time. If they match, a transaction takes place. In the end there are always exactly equal buyers as there are sellers.
- angel_j 6y agoUnless they are selling to themselves through a triangle of ETFs
- TheOtherHobbes 6y agoOr a trip switch has killed trading in an asset - or perhaps the entire market. Buyers and sellers only match under normal trading conditions. Good luck expecting your stop loss orders to mean anything when there's a mass panic.
- Wh1zz 6y agoIf more people are interested to sell than to buy, that will create downward pressure on the price - even if in the end for every individual trade there is both a buyer and a seller, that is a sort of "overwhelming", if you think of the buyer as a (name, bid) pair.
- mewpmewp2 6y agoWhat is meant here is that if we have a closed room with 100 people. If there are 60 investors who want to sell stocks and 40 who want to buy always equally as much for simplification purposes and the price is $50, the price will keep moving down until there's 50 investors who want to sell and 50 investors who want to buy. 40 trades will happen on $50 price, but then there is 20 sellers still left who want to sell at this price. Since there are no buyers, price will go lower and slowly some sellers don't want to sell lower than $50, so there might be 15 sellers left at $45 and 5 buyers, they will do the trade and then there will be 10 sellers left. let's at $40 there will be 5 who decided it's good to buy now and this is where the fair price will have landed, at $40.
- deleted 6y ago[deleted]
- lend000 6y agoPerhaps the tax preference should be shifted from capital gains to dividends.
- tonyedgecombe 6y agoDividends should really be taxed as normal income, then you can abandon corporation tax which seems option for multi-nationals.
- votepaunchy 6y agoPerhaps we should eliminate dividends and shift to buybacks and fractional shares. Then stockholders could choose when to cash out but would reinvest by default.
- mindslight 6y agoPerhaps W2 employees should get unlimited IRA contributions and no age requirements for distributions.
- lordnacho 6y ago> If the stock market is wrong, what will force it to correct? How about not "correcting" the corrections in the first place? Let the market actually be a market, don't inject huge amounts of money into it? Not to be confused with helping out ordinary people who need money for spending.
- FartyMcFarter 6y agoBy correct I meant to go to the "correct" value. The premise was that the stock market is overvalued (is this premise true? I don't know).
- TheOtherHobbes 6y agoActually the premise is "the market is overvalued and therefore there will be a significant correction." Technically the current value is the correct value. The question isn't whether this value is "wrong" - it isn't, by definition - but whether or not Mr Market is delusional and prices will crash at some point in the near/mid future. Explicitly, the distinction is between investors who are looking at fundamentals, and investors who are looking at market momentum and trying to factor in their guesses about politics and Fed policy. If you consider fundamentals, P/E is up to insane levels in a barely functioning economy. If you consider politics - optimism may be justified. Possibly. But if it is - what does that say about the value stock markets are supposed to provide?
- dunkelheit 6y agoGreat question! I know of the standard simplistic answer, but still curious about how it works in detail. In theory a share represents your claim on the future profits of the firm and grants you some control over its decisions. So when the prospects of the firm look bleaker, more shareholders will sell, pushing the price down until there is a consensus that the current price fairly represents the value of a share. What bothers me is that most traders don't care about control or profits - they just want the number to go up (or down). How does the price get grounded in reality in this case? The answer is presumably: in trades between speculators and those who do care about profits and control. But where is the guarantee that those trades happen? What if speculators mostly trade among themselves?
- rossdavidh 6y agoPerhaps one might think most companies are either: 1) fundamentally sound, in which case buy on the dip, or 2) going to get bought out by a stronger company, in which case buy in before the sale There might be a few companies that fall into neither group, being so fundamentally unsound that they will simply be shuttered with no sale, but that would surely be a small percentage of the stock market.
- deleted 6y ago[deleted]
- dr_dshiv 6y agoIf you think of stocks as a form of currency, given that the dollar and euro are being so heavily inflated, perhaps it makes sense to stay in the markets than convert to cash at a definite loss?
- JumpCrisscross 6y ago> perhaps it makes sense to stay in the markets than convert to cash at a definite loss? Equities are less exposed to low to moderate inflation than assets with fixed pay-outs. No need to model stocks as currency.
- dr_dshiv 6y agoWhy? Or source?
- JumpCrisscross 6y ago> Why? Long story short, corporate earnings can absorb small and moderate inflation shocks. That lets dividends, and enterprise exit values, respond to low inflation.
- aaron695 6y agoIt's like the author doesn't know you can bet on the stock market falling. They certainly don't explain what people are actually betting on. It makes total sense to bet now. The incumbants are fish out of water. Their algorithms isn't built for this. Does it make more sense to compete in a normal decade long stable market against billion dollar companies? That's stupid.
- GrumpyNl 6y agoSo it has become a casino, people are not investing, people are betting.
- JumpCrisscross 6y ago> people are not investing, people are betting These are two different ways of expressing the same thing. (Gambling versus investing, on the other hand, are different. But a “bet” can be utilitarian, i.e. not entered into for fun.)
- david-gpu 6y agoA casino bet has negative expected returns, while a long position in the stock market has positive expected returns.
- lolc 6y agoYou're saying that amateurs have an easier time adjusting to changes in stock markets than professionals. Even suggesting that people should trade short. Now why should a professional argue against that? Amateur volume is good for business.
- aaron695 6y agoMost amateurs are investing basically at random, so there is nothing to adjust. The article is talking volume not so much me. You can't sit at home and watch tv and invest without some volume. Basically they wanted a /r/WallStreetBets angle but didn't want to say the word which confused the article.
- deleted 6y ago[deleted]
- jarym 6y agoOne thing I appreciate these days is the stock market can be disconnected from the realities of the economy and can remain that way for an indefinite period of time. The best way I’ve found to trade is to listen to what the market is telling you. Take positions with discipline. Scale out when you have profits. Wait for next sign of direction. It is as easy as that while at the same time very challenging.
- Traster 6y agoIt's comments like these that make me think we're in a bubble. People who confidently talk about investing in the stock market but are actually talking absolute nonsense. 'Take positions with discipline'? 'Listen to what the market is telling you'. 'Wait for next sign of direction'. 'It is as easy as that while at the same time very challenging.' None of what you said means anything. You may as well be saying "Listen to what the roulette wheel is telling you".
- jarym 6y agoSeriously? Take a daily chart, plot a 10d moving average and tell me you can’t make money.
- RivieraKid 6y agoFor people who think stocks are overpriced: what would be an appropriate price and how did you come up with that number? I haven't seen an answer to this yet from the "stock market is irrational" crowd. I think in 99% of cases it's just a feeling - that the decline should have been bigger given how bad the economic impact seem.
- nicbou 6y agoA stock is worth whatever people will pay for it. However it's fair to point out that the price does not match the underlying asset or its future growth.
- amiga_500 6y agoGovernments are directly buying ETFs https://alhambrapartners.com/2020/03/11/what-happens-when-central-banks-buy-stocks-etfs-well-we-already-know/ https://alhambrapartners.com/2020/03/11/what-happens-when-ce...
- christophilus 6y agoYou can estimate the earnings yield you get on a business based on its price. So, if you have a lemonade stand that earns $100 per year, and you buy it for $100, that’s a great price. You’ll make your money back in a year. After that it’s profit, baby! If you pay $100000, it’ll take 1000 years to earn back your original investment in nominal terms. But it still might be an OK investment, if you are very certain that you can double earnings every year for long enough. That’s basically how you evaluate what to pay for a company. When you buy stocks, you buy fractional ownership in a company. Edit: many think the market is overvalued, because it’s currently at historically high price relative to the estimated earnings potential. This, while risk of insolvency for many companies is much higher.
- ruminasean 6y agoI was under the impression that the vast majority of investing was automated, algorithm-based, no?
- nabla9 6y agoNo. You are thinking trading, not investing.
- ruminasean 6y agoGotcha. Thanks.
- Traster 6y agoThe total executed volume in the market are dominated by automated trading systems, capturing small differences in relative value between correlated products. They don't determine prices because they're not actually putting anything into the market in net, they have their capital and they're just redistributing it back and forth between a handful of different products capturing small amounts of edge from the real investors.
- marvin 6y agoWhat's the average P/E ratio these days? 20-ish? That implies a direct return of 5% (what's the English word for this?), assuming no future growth or reduction in earnings. That's a low risk premium if you measure it against historical interest rates, but it doesn't seem completely unreasonable when interest rates are expected to be ~0% for the forseeable future, and the inflationary pressure on the dollar could be on the order of 40%. It's certainly very high in historical terms, but you can't consider the history in isolation.
- bradleyjg 6y agoWhich earnings are you calculating P/E ratios from? Q1 2020 doesn’t seem like a great metric given how different Q2 has been so far.
- dforrestwilson 6y agohttps://www.multpl.com/s-p-500-pe-ratio https://www.multpl.com/s-p-500-pe-ratio Average, but to believe it you have to assume the E doesn’t change meaningfully over the next couple of months.
- nycdatasci 6y agoJust to provide some data to back up your point: Forward earnings yield (from analyst forecasts & company guidance) for the S&P 500 is 4.84% vs 0.67% for 10 yr treasuries. This document looks at the historical trend from a variety of perspectives: https://www.yardeni.com/pub/valuationfed.pdf https://www.yardeni.com/pub/valuationfed.pdf Current valuations are roughly in line with post-2008 history, but looking at a longer history suggests that they’re actually undervalued relative to other assets.
- deleted 6y ago[deleted]
- alexpetralia 6y agoThe word you're looking for is "earnings yield."
- 6y ago
- bradleyjg 6y agoInvestors are betting that while the US government will continue to shrug off higher and higher unemployment numbers, any significant move downwards in the stock market will spur immediate action from both the administrative and legislative parts of the Federal government. This is not a bad bet at all. The dominant ideology in Washington seems to be laissez faire when big businesses are doing well and bailouts when they aren’t. It must be nice to play with a stacked deck like that.
- bo1024 6y agoThe Big Short - "It's possible that we are in a completely fraudulent system."
- bradleyjg 6y agoI could live with the libertarian ideal of “regulation” via consequences imposed by market forces and I could live with the New Left ideal of regulation via, well, regulation. But no consequences and no regulations is insane. Our entire economy is like a mining company that steadily mines a gold seam, paying out healthy dividends and executive bonuses all the while and then as soon as the seam is mined out declares bankruptcy leaving toxic waste cleanup and employee pensions for the government to take care of. We don’t just allow ourselves to be exploited by sociopaths, we actively seek it out.
- nabla9 6y agoStocks prices react to supply and demand and there is genuinely more demand than ever before relative to supply (no, it's not all just Fed's doing as somebody in the comment section always wants to say). Population is aging and retirement savings is all time high. Global pension assets were 44.1 trillion worldwide at the end of 2018. Large part of that sums stays in stock and goes to stocks, no matter what. Say, you are risk averse investor who has 15-20 year investment time horizon. What you should do? Will bonds yield better returns? I don't think so. You should keep doing what you do. Dollar-cost averaging reduces the volatility over long term. If you have some balanced strategy like 60/40 stocks/bonds then rebalance like before.
- TomGullen 6y agoDCA assumes you have a lump sum to invest right? If you did have a lump sum, dropping it in one go vs DCA has the same expected value (or perhaps all in one go has higher EV due to reduced transaction costs). I would also of thought volatility over 15-20 year term when choosing between DCA or lump investment is largely irrelevant and not worth hedging against.
- nabla9 6y ago> I would of thought volatility over 15-20 year term when choosing between DCA or lump investment is largely irrelevant. You can see the effect for the total return of your investment even in 15-20 years. Try for example SP500TR for 20-year period and slide the starting point over dot-com-bubble. 20 year ROI(TR) alternates from >300% to 180% and back to >300% within 3-4 years.
- fsckboy 6y ago> dropping it in one go vs DCA has a higher expected value. If you expect positive returns, the sooner all your money is earning the better.
- AznHisoka 6y agoIf you analyze specific sectors or stocks, it really isn’t as irrational as it seems. Hotel, airline and restaurant stocks are more than 50% down YTD while tech/saas stocks are flat to positive. That said, there are some stocks that seem mispriced like Chipotle, which is still up YTD. And investors probably are too optimistic about some tech companies since the recession will surely impact enterprise spending. But it’s not as irrational as you may think once you look at the individual companies doing good and bad now.
- WrtCdEvrydy 6y ago> that seem mispriced like Chipotle, which is still up YTD Chipotle has bought some good will in the past and probably is making decent cash on deliveries.
- monkeydust 6y agoAre there any indicies that track companies that are positioned to capitalise on the current new norm? (ecomm, distribution, gaming, streaming...)
- zby 6y agoIt is all relative - stocks prices are in dollars, if USD goes down - then it is rational to buy stocks with it even if the business perspectives are not perfect. In other words there is so much USD being printed that high inflation seems probably (this time - the same thing was said in 2008 - but this time the printing is even bigger). Look at gold prices: https://goldprice.org/gold-price-chart.html https://goldprice.org/gold-price-chart.html. Also there is some non negligible danger of USD losing its reserve currency status: https://www.linkedin.com/pulse/chapter-1-big-picture-tiny-nutshell-ray-dalio/ https://www.linkedin.com/pulse/chapter-1-big-picture-tiny-nu... , https://www.linkedin.com/pulse/money-credit-debt-ray-dalio/ https://www.linkedin.com/pulse/money-credit-debt-ray-dalio/ , https://www.linkedin.com/pulse/changing-value-money-ray-dalio/ https://www.linkedin.com/pulse/changing-value-money-ray-dali... Update: I think I need to add that I have no economic education - I wrote this after reading recent Ray Dalio posts to see what others think about it.
- deleted 6y ago[deleted]
- IkmoIkmo 6y agoWould be cool if someone built a simple S&P500 or All-world stock index, expressed in gold instead of USD, or expressed in a weighted basket of all currency index. This may give a better representation of the stock market value, corrected for some of the inflationary effects of quantitative easing. Anyone ever seen such indices?
- nycdatasci 6y agohttps://www.macrotrends.net/1437/sp500-to-gold-ratio-chart https://www.macrotrends.net/1437/sp500-to-gold-ratio-chart
- strawhatguy 6y agoNeat chart. So it’s been decreasing but still above 1. Maybe that means there’s room for the sp500 to go down more (or gold up)?
- AdrianB1 6y agoNothing changed recently, the situation is bad in some sense since people started treating stocks like toys and not as pieces of companies. Investing used to be building companies and shares were the ways to raise the required capital, now people play with it and more money are extracted from playing with the stock than the actual output of the company the stocks are speculated.
- chii 6y agopeople can gamble if they want to. But the borrowed funds used to do this is probably not as productive as investing in capital infrastructure.
- jl2718 6y agoThey are toys. You pay money and get nothing in return. Let’s say AMZN shuts down. What do common equity holders get? What if they never shut down? Then what do the common equity holders get?
- AdrianB1 6y agoYou get a part of that company and dividends. If you have enough shares, you have influence, control or even ownership of the company. That is the primary purpose of shares.
- snowwrestler 6y agoI don’t need the money I’m investing today for at least 10 years, maybe 20. I’m betting that the U.S. economy will not stay depressed for 10-20 years, which seems like a pretty good bet. I did not invest heavily during the 2008 financial crisis, and looking back, I have regrets about that. I invested more aggressively this time around on the downturn. And my younger siblings and colleagues all seem to be taking the same long-term approach. They all read /r/personalfinance and some are trying to “FIRE”—again, on a 10-20 year plan. The article seems to take an implied short-term view by talking about how the recovery might or might not be V-shaped. Honestly that seems like the crazy approach. I don’t know anyone, personally, who is investing today with hopes of pulling that money back out in a few months. That is what a symmetrical “V” would be at this time. Obviously that is not going to happen.
- LatteLazy 6y agoThat’s exactly how I felt reading the article. Their worse case historic scenario is 3 years? Not many people should be investing with a shorter timeline than that anyway!?
- hyperpallium 6y agoThe market overreacts to bad news. So Buffett bought American Express during a scandal, which (he checked) didn't actually affect their business. For the USA, business is affected, the question is if it's long term: Will closed businesses reopen? Will unemployed find work? Will the US lose its centrality to China? But however bad it is, the market overreacts.
- hyperpallium 6y agoBTW I achieved "Financial Independence, Retire Early", but didn't like it - though it was tremendous fun getting there, by creating value that I and others valued - being a good, contributing member of society felt good. (And the motivation of FIRE helped.) Plus, you don't really retire, your job is now investing. If you really love that particular job (like Buffett does), then this works out well. But if your innate talents and interests lie elsewhere, you'd be happier doing that... and the need for money can help motivate you, during those times you don't feel like it. It doesn't seem like extra motivation should be important, but is was for me personally. Maybe I'm lacking somehow, as I note that many independently wealthy people do keep working without that motivation. e.g. YC itself. (Though pg now does seem to have really retired, or maybe is a fulltime career parent - there is no more important job!) Thoughts on motivation?
- glofish 6y agoIt is the wisdom of the crowds. People do know that the group think and hysteria are all made up. For all the scare mongering sheltering at home the facts are that the disease is not radically dangerous. Note the hysteria and the fake outrage when pointing out that an 80 year old' "premature" death is not nearly as sad, impactful or tragic as that of 30 year old'. Modern society keep its citizens in check by promising them that they are all "equal" and that they will do "everything" possible for everyone. The outrage is to salvage that facade, that illusion.
- microtherion 6y agoI'm reminded of the anecdote / legend that Joseph Kennedy (or JP Morgan) decided to sell his stock portfolio as the market crash of 1929 approached, because he started getting stock tips from a shoeshine boy. https://seekingalpha.com/article/2788885-how-old-was-that-shoeshine-boy-again https://seekingalpha.com/article/2788885-how-old-was-that-sh...
- loblollyboy 6y agoIs there some kind of requirement that this gets posted below every article about the stock market?
- WrtCdEvrydy 6y agoIt's funny that I learned this right as bitcoin approached $17,000... and was treated to sitting in a bathroom taking a poop while one of the low level managers came in on the phone telling his wife he was buying $50,000 worth of Bitcoin that day.
- williesleg 6y agoIf it's on the New Yorker it must be true! They're so unbiased and insightful! Of course they're capitalists too, so there's that.
- dznodes 6y agoHave the financial markets become decoupled from the real economy? Like a parasite consuming its host, now they just wait to be bailed out to bankroll stock buyback schemes...
- noelsusman 6y agoThe market is still down 13-14% in 3 months. Besides, where else are you supposed to put your money? I don't have much confidence in predicting where the market will be next week or next month, but I have a lot more confidence in stocks over the next 10-20 years than any other place I can store my money, so I'm gonna keep buying stocks.
- maliker 6y agoSome of the classic recession indicators (Sahm, Chauvet) are just starting to peak [1]. Both have led multi-year declines in stock prices. Is this time different from last time and the time before that? [1] https://fred.stlouisfed.org/graph/?g=qYNJ https://fred.stlouisfed.org/graph/?g=qYNJ
- bigdict 6y agoMy amateur guess is the stock prices are being adjusted for the implied inflation due to trillions being pumped into the economy. The stocks are not worth more inherently, you just need more (depreciating) dollar units to describe the price.
- buboard 6y agoFor me it is either US stocks, gold, or bitcoin , or USD / EUR. Central banks have made it clear they plan to destroy your wealth. Bitcoin is still frowned upon, gold is out of reach, so what's left? Sure, US stocks is a pyramid, but Euro stocks have been and keep performing very bad. Only china could surprise the world , but they are not going to open up their economy anytime within the next 2 years.
- bitcurious 6y agoOne thing that I don’t see addressed in these posts, but I think makes a huge difference, is that the stock price reflects global demand for ROI. It’s entirely possible for stock values to go up while SP500 expected profitability goes down if the expected profitability of other markets goes down even more, shifting money out of Europe/HK/Japan into the USA. Aka you don’t have to outrun the bear just the other guys.
- hn_throwaway_99 6y agoAnd it's important to note that one of the "other guys" is plain cash. Interest rates are near 0, in many places they are negative, so I think it's a fair bet to think "In 10 years it will make more sense to own a sizable investment in the productive capacity of the US, vs dollars which the fed has been printing like crazy."
- MiroF 6y agoValue of cash is determined by inflation, not by interest rates. Since the fed prints money to hit inflation targets, this reasoning doesn't really make sense.
- hn_throwaway_99 6y agoMost people are putting that cash somewhere, aka a bank, so interest rates absolutely determine the expected rate of return on that cash.
- MiroF 6y agoYes, but focusing on the interest rates is reasoning from a price change. Interest rates are going down due to central bank action to combat deflationary pressure, so you can’t just look at interest rates in a vacuum and say that the rate of return is going down. Otherwise why has the value of the dollar increased since early March? Also, you realize that when the fed “sets rates” it’s not literally the rate of interest in your bank account, right?
- 6y ago
- aazaa 6y ago> “The consensus seems to be, ‘Don’t worry, the Fed has your back,’ ” Druckenmiller said in his presentation. “There’s one problem with that: our analysis says it’s not true.” No, investors haven't lost their minds. They are betting that the Fed will backstop the stock markets by any means necessary. Try this though experiment. Which US companies will not be allowed to fail under any circumstances? You might be surprised to find companies far outside of the banking and national defense industries on this list. Given the chain reaction that often takes place in debt defaults, you might be surprised to find almost every large US company on the list. That's what the Fed needs to "backstop." The scale is beyond any balance sheet expansion currently being discussed. Of course, this isn't capitalism, either, but that seems to bother fewer people than it should given their rabid espousal of anti-socialist doctrine. Whatever you calculate the current US national debt to be needs to factor in the market value of those companies that can not fail under any circumstances. Most tallies don't. Now, try to use any traditional metric of value (P/E ratio, dividend yield) or risk to buy some stocks. You'll quickly throw in the towel and remember that ultimately the Fed has your back. Right?
- bob1029 6y agoI think the problem a lot of people have when looking at the stock market is they assume everything is modeled against current time. The price of any asset in the market is best viewed as a predictive time portal into the sum of all potential future value that can be generated by that asset. So, when you see TSLA at $800, that does NOT mean that investors, the market, et. al. are perceiving Tesla as worth that much today or even this decade. The market is continually modeling and adjusting how much that asset could be worth in 5+ years considering everything everyone knows at current time. It is easy to fall into the trap of believing that the market is operating in first-order terms. Obviously, stocks react immediately to bad or good news on a quarterly or better basis, and this can send hilariously-conflicting signals regarding the longer-term modeling that is implicit with every asset price. This is where day-traders and other near-term speculators always get stuck. They make a few observations and then believe they have identified a regime in which the stock market does indeed operate in first-order terms. And then out of nowhere, their assets are wiped to zero or worse because of some sell-side risk model that was just run at Goldman Sachs indicating that no one wants electric cars in 2025. Obviously, this example is totally bullshit, but it's conceptually how you get burned when you play the short game.
- GoMonad 6y ago"The reason the stock market is hard to predict is because it is a prediction." https://futureoflife.org/2017/07/31/podcast-art-predicting-anthony-aguirre-andrew-critch/ https://futureoflife.org/2017/07/31/podcast-art-predicting-a...
- LudwigNagasena 6y agoThe worth today and net present value of worth tomorrow are the exact same thing. So I am not quite sure what you mean by "when you see TSLA at $800, that does NOT mean that investors, the market, et. al. are perceiving Tesla as worth that much today or even this decade".
- MiroF 6y ago> I think the problem a lot of people have when looking at the stock market is they assume everything is modeled against current time. Absolutely, and quite a few people making this error on this thread.
- dmingod666 6y agoIf the FED pumps so much money in the market, at what point do they start getting such significant stakes in the companies that they get board seats? Does it not become a roundabout 'socialism' if the state owns huge stakes in publicly listed companies? I'd dump all stock right now if I was holding, thank the tax payer and buy bullion.. don't know why people would still remain invested in a market that will obviously crash..
- mrep 6y agoThe FED is mainly buying U.S. Treasury securities and Mortgage-backed securities [0]. They just started buying bonds this week but haven't bought very much and they haven't bought any equities. [0]: https://www.federalreserve.gov/releases/h41/current/h41.htm https://www.federalreserve.gov/releases/h41/current/h41.htm
- api 6y agoThey are betting on soaking up QE money. That's it.
- sub7 6y agoThe stock market in nominal terms means very little when the currency has been grossly inflated. Purchasing power is what's important.
- fasteddie31003 6y agoI'm going to hell for this but could a virus that removes people past the retirement age be actually beneficial to an economy? I can think of a few mechanisms: 1. Reduced draw from social security and pensions. 2. Less long term medical costs. 3. Increases housing supply. I am not advocating for removing old people from the economy. I am just thinking of some economic consequences of this terrible pandemic.
- xiphias2 6y agoThis may be true for the flu, but the coronavirus has much more potential to overload the hospital system, and as it would kill an order of magnitude more people, the economy has to be stopped to save them.
- brutusborn 6y agoI can't be sure, but I imagine this would be offset by the productive segment of the older population who die from the virus. Older workers are valuable because often they have the widest experience and are best able to train others.
- fasteddie31003 6y agoI said retired people. Meaning, they don't work anymore.
- Gibbon1 6y ago> they don't work anymore. I see you haven't met my dad.
- brutusborn 6y agoAh, I misread it. Interesting concept but the point is sort of moot since a virus can't specifically target people who dont work. Sure, a virus can be more likely to be fatal in older people, but there are still a lot of older people who work, and enough unproductive young people that i still think it would be a net negative.
- 6y ago
- ZhuanXia 6y agoA few years before I started working, I read Average is Over. Made a good case that labor power's decline would ramp up ever further. People like to poo-poo AI, but I have been following AI since the dark times before 2012. Winograd schemas, style transfer, GTP-2, image recognition - it is hard for people now to understand how impossible these tasks seemed at the time. The rate of progress is insane and it is foolish to bet against it. Perhaps we are approaching a time where capital can be converted directly into labor in a way that scales. If this is the case the market is ridiculously undervalued, almost comically so. I have maintained high savings rates and acquired capital ever since I read that book, regardless of valuations. I consider my portfolio insurance against this scenario.
- kgin 6y agoYou put into words the vague thesis I've been operating under. Robots aren't going to take everyone's jobs tomorrow, but we've entered a period where growth comes ever decreasingly from labor and ever increasingly from technology. The shutdown already spotlights the fact that the true economic value of non-essential business and workers is primarily as consumers.
- oxymoran 6y agoThe stock market is nothing more than a casino of supply and demand. It is not rational and is based on nothing more than greed and fear. It has absolutely nothing to do with the “economy”.
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- ajmurmann 6y agoI think the underlying question is "what is the alternative?". Twice a month everyone in the US from the middle class up, has to invest a fairly substantial chunk of money. With the FIRE movement this is only growing. Where but in the stock market should that money go? We've created this firehose that will continue to pump money into the market regardless of what the economy is doing. If you take the perspective of an individual, long-term investor, this isn't even irrational. What else are you supposed to do with the money? Keep it in cash? You also don't want to start playing the market timing game. So the firehose keeps on hosing. I do wonder and am concerned what the endgame is. Is this all gonna crumble like a Ponzi scheme? Is it just gonna smooth off as more investors start retiring and pulling money out? Maybe at that point this will all just turn into a fairly indirect redistribution from working, young people to current retirees, as we see in some national pension systems? One thing is for sure, the stock market reflecting on people's near- to mid-term outlook of the economy is likely over.
- wegs 6y agoI'm keeping my money there since it's backed by the US economy. Yes, the value of the economy is lower than 6 months ago, and while likely be lower in a year. What else should it be backed with? Dollars are subject to (hyper)inflation. Real estate is nice, but I need more liquidity. Seems like owning a chunk of the economy is where the action is.
- eli_gottlieb 6y ago>I think the underlying question is "what is the alternative?". Twice a month everyone in the US from the middle class up, has to invest a fairly substantial chunk of money. With the FIRE movement this is only growing. Where but in the stock market should that money go? At a certain point, we should just admit that we're taking money from the middle class and using it to play-act private investment while actually socializing investment. We should then go the full distance and actually socialize most of the economy, so that twice a month people are compensated not with abstract, speculative 401(k) prospectuses, but with an equal vote and a dividend in their own workplace. https://www.jacobinmag.com/2017/08/sweden-social-democracy-meidner-plan-capital https://www.jacobinmag.com/2017/08/sweden-social-democracy-m... https://journals.sagepub.com/doi/full/10.1177/0896920513485317 https://journals.sagepub.com/doi/full/10.1177/08969205134853...
- chuckus 6y agoI found this particular post from a hedge fund owner quite insightful why the the stock market is unlikely to crash spectacularly if things keep going the way they go with the Fed bank-rolling https://medium.com/@dan_60967/devils-advocate-the-bull-case-338718cf177c https://medium.com/@dan_60967/devils-advocate-the-bull-case-.... The ones stating the market is going to crash are also the ones that are either shorting or have closed out their positions, and waiting to swoop in to profit.
- _bxg1 6y agoIf not stocks, then what? I wonder if there's some other investment vehicle that's become more appealing than it was before in this shifting landscape. Obviously not real-estate. Is hoarding cash really the advice for now?
- tomc1985 6y ago"If you invest five thousand dollars in Apple or Tesla, the five or ten dollars you saved in fees won’t have much effect on the ultimate outcome." The author is way out of touch if he thinks this. Many of my friends playing around in the stock market have a portfolio of less than $1000. When I started learning it my portfolio wasn't much bigger. At that level, if you trade even semi-actively, you get eaten alive by fees
- graeme 6y agoThe number of people here convinced there is no alternative to stocks and that they are a good bet makes me wonder whether we’re at a temporary peak. After the previous bottom sUch threads here, on reddit and on the financial times were convinced markets had nowhere to go but down and couldn’t possibly go up.
- narrator 6y agoAnything that doesn't fit into a keynesian model is called "animal spirits". Wouldn't it be great if we could keep newtonian physics and call all that radioactivity stuff "quantum spirits"?
- CyanLite2 6y agoThe article makes great points. Alot of commenters here all make great points. However, what part of "The U.S. has pumped $20 trillion dollars" do people not understand? There is a massive amount of stimulus and the Federal Reserve has also said it'll do more if necessary.
- rubyskills 6y agoI think one should look at the velocity of money very closely right now to get a good sense of where the general market will be headed in the next couple of years. As the velocity slows down, economic activity overall will slow and no amount of government stimulus is going to help. https://fred.stlouisfed.org/series/M1V https://fred.stlouisfed.org/series/M1V
- NicoJuicy 6y agoAll these predictions and no one mentions the serious tax cuts by the government that was the cause of the pre-corona rally. Markets need to go way down before things normalize ( eg. Tax cuts won't hold I think) We are now back at the level before tax-cuts, which is nuts considering people are not spending currently.
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- starpilot 6y agoNear the bottom of the market in March, HN said to wait. N% of past crashes went lower than this. It's like catching a falling knife. It will get worse. I bought any way. I'm up 24%. The average annual increase for the S&P 500 is 6%. Now HN is saying it's crazy to buy. I see stores reopening. Local stores in Seattle, but also chains. Apple is planning to reopen its US stores soon. Grocery store shelves are full. NYC is opening its beaches for Memorial Day. Yet again, "it will get worse." I see the market going sideways. I think I'm going to hold on.
- afpx 6y ago"The market" has become a tool for politics, so we can assume politicians will never let the market die. They will just keep dumping money into it. And, investors know that Republicans, Democrats, everyone will sacrifice everything to save "market growth". Seems like a rational, safe bet.
- kgin 6y agoIt's sentiment like this that keep stocks from becoming too overpriced. The market at work!
- random32840 6y agoIf you think the stock market is overvalued, buy. If you don't, sell. Money talks, articles in the New Yorker don't.
- dehrmann 6y agoIn other news, https://variety.com/2020/digital/news/conde-nast-layoffs-100-employees-coronavirus-1234605421/ https://variety.com/2020/digital/news/conde-nast-layoffs-100... (Condé Nast publishes the New Yorker)
- random32840 6y agoHeh
- wmnwmn 6y agoRecord number of investors means dumb money, just like 2000. If you don't know who the greater fool is...it's you
- okareaman 6y agoThe market timing strategy rationale for investing now is that the world economy and the U.S. economy will resume growing. "I don't need the money for 20 years. Surely by then we will have grown our way out of this." What if that is not true, despite being true for the last 100 years? Western populations are ageing. Populations are shrinking in some countries, like Russia. The real costs of fossil fuel and resource extraction are starting to hit hard. Environmental devastation may unleash more viruses. I'm not predicting, I'm just saying continued growth may not resume or even be desirable.
- trfhuhg 6y agoFrom my armchair, the market situation looks very simple. When the economy hits the ceiling, people at the top create a crisis, collect the remaining value and let the newly poor labor work hard to earn a better life and create value for the owners. Then the cycle repeats. It's somewhat similar to how the combustion engine works. The stock market is growing because the owners want to start the new growth cycle. They think that's enough value have been collected, they have no intent to destroy the engine, and want to start the new cycle. They achieve it by letting Fed print trillions and buy the stocks. This dilutes the share of everybody not invested in the stocks, but it works for the US because dollar is the internatiinal common stock and the US has the right to issue new shares. Whoever complains gets a friendly visit by aircraft carriers and experiences sudden difficulties in participating in the international economy. It's possible that the owners have messed up this time, as they are often just lazy greedy types, and the engine will stall, but in that situation it won't matter whether you hold dollars or sp500.
- rladd 6y agoThe Fed isn’t actually buying any stocks. And neither are companies diluting anybody to sell anything to the Fed. What the Fed is buying is bonds. Which are non-dilutive. I understand the sentiment, but let’s try to get the facts right
- kragen 6y agoI think a lot of people commenting here are taking a surprisingly narrowminded approach to predicting possible consequences. It's like their spectrum of conceivable outcomes runs from Great Depression to Baby Boom. But many worse things have happened in human history than the Great Depression, and this could well be one of them. I wrote up a more detailed argument at https://gitlab.com/kragen/derctuo/-/blob/master/pandemic-collapse.md https://gitlab.com/kragen/derctuo/-/blob/master/pandemic-col....