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The stock market and economy have parted ways
- 3327 6y agoMore like YOLO, lets go market orders only boys DKNG rocket ship get on board.
- bachmeier 6y agoI have no way to read the article, but I will nonetheless comment on the headline. You can't sensibly talk about the economy and the stock market at a time like this without also talking about current and expected future policy.
- dmtroyer 6y agoadd a dot after washingtonpost.com https://www.washingtonpost.com./opinions/the-stock-market-and-economy-have-parted-ways-its-a-fomo-market-now/2020/07/12/c14246d8-c2bf-11ea-b4f6-cb39cd8940fb_story.html https://www.washingtonpost.com./opinions/the-stock-market-an...
- harambae 6y agohow does that trick work?
- shawnz 6y agoRelated, "The Stock Market vs The Economy" by Ben Felix: https://www.youtube.com/watch?v=0ECqDaPjjV0 https://www.youtube.com/watch?v=0ECqDaPjjV0
- cs702 6y agoThe page is archived at http://archive.is/uDZCq http://archive.is/uDZCq
- ideals 6y agoThe amount of friends I have that are out of work and posting screenshots of robinhood on ig and snap right now is wild. This feels like crypto 2017 all over again. I suppose the difference is there is a real market under it all and retail traders aren't entirely driving this, but they're the ones left holding the bag when the curtain drops.
- Loughla 6y agoThat's where the FOMO comes in. I, and many, many of my friends, missed out on Bitcoin in college. Many of my friends are posting the same things you state on their social media, and are making it clear they won't be left behind this time. Not sure what all that means, but it's fascinating.
- 3pt14159 6y agoIt means a massive crash is coming. Money printer go brrr is funny, but it's not capable of propping up the entire market forever. There's a flight to safety that happens when countries really start printing.
- lumost 6y agoIf a money printer channels money directly into assets than its entirely feasible that the money printer can drive the asset to an arbitrary valuation e.g. asset hyperinflation. Great for making the economy appear solvent, terrible for everything else.
- 3pt14159 6y agoIf this were true, Zimbabwe would have a lucrative stockmarket. It's not true though. A high enough inflation rate damages investor confidence and makes business operations more complex. I means constantly needing to minimize cash on hand in the local currency, or having to price contracts in inflation adjusted dollars increasing risk and mental overhead of doing business. At extremis, it means many market participants refusing to do business in the currency at all. Large economies like Germany have gone to the printers before and it doesn't end well.
- isabelc 6y agoThe stock market is a popularity contest. A simple mention on the news of a stock can create a buying or selling frenzy over it, and this has been the case for a long time.
- harryh 6y agoIn the short run, yes. But in the long run it's a weighing machine.
- greenshackle2 6y agoKeynes wrote about it in 1936: https://en.wikipedia.org/wiki/Keynesian_beauty_contest https://en.wikipedia.org/wiki/Keynesian_beauty_contest
- empath75 6y agoyeah, look at the idiocy over wayfair -- down 5% on the open over a literally insane conspiracy theory.
- snarf21 6y agoThe have parted ways because the Fed is buying lots more than just treasuries. There is so much money desperate for returns because interest rates are so low. That is why we have such inflated equities right now. It is a mental game: if people don't know the economy is awful, maybe they won't change their behavior and maybe it will actually get better before they realize it.
- beamatronic 6y agoIn other words, fake it till you make it
- treis 6y agoThe Fed buying bonds isn't pushing Tesla to the 14th largest market cap. It's currently trading $200 per share higher than any analyst recommendation that the WSJ or Yahoo has. Not to mention Hertz, a bankrupt company, has a market cap of 200 million. Something very unusual is going on.
- thisisnico 6y agoThey made it easy for the uneducated investor to invest in companies that see the spotlight on the news. You can invest in minutes and for free now, right from your phone. These people don't do any research on the company. They see news stories on the company all the time, and news stories that the stock went up XX% So when you have people casually buying stocks I feel like they get inflated past the point that makes any sense, and thus become incredibly overvalued. Seasoned investors would see this and stay far, far away from these businesses.
- abvdasker 6y agoIs there recent data on how much investment originates from retail investors? Are there really enough retail investors on Robinhood and elsewhere to push valuations up this high?
- thisisnico 6y ago
- FreeHugs 6y agoHistorically, the PE for the entire U.S. stock market is about 15. But today’s market PE of roughly 23 is about 50 percent higher than the historic average Every time I see statements about the PE of the market, I wonder which PE they mean? The price of the companies divided by their past revenue? If so, which past? Last month, last quarter, last year? The price of the company divided by future revenue? Then future revenue guessed by whom and for which time frame?
- ryansmccoy 6y agoIt's a little complicated because all these metrics are like trying to compare apples, oranges, and bananas. So, it depends, and it's not necessarily the best metric to gauge the valuation of the markets. It's price divided by earnings. For price, I believe it's the sum of the market capitalization of all the companies in the S&P 500. If you divide by shares outstanding for all the companies, then you get price of the S&P 500 (price). For earnings, is the sum of all the companies earnings (Net Income) in the S&P 500. If you divide earnings by shares outstanding, then you get earnings per share (earnings).
- rnai 6y agoNormally this is 12 month trailing PE. "The PE ratio of the S&P 500 divides the index (current market price) by the reported earnings of the trailing twelve months." So it's current total market value (add the market cap of all 500 companies in the index), And divide by the total past 12 months earnings of the same 500 companies. If that doesn't answer your question, please let me know.
- ISL 6y agoIn this context, one can probably use either trailing or forward PE. Companies do make forward earnings projections. Neither one is likely to bring P/E even close to 15.
- sgerenser 6y agoThis site lists PE based on trailing 12 months earnings as 27.75: https://www.multpl.com/s-p-500-pe-ratio https://www.multpl.com/s-p-500-pe-ratio So PE of 23 is probably based on projected "forward earnings" which isn't really that useful. The most common time period for both is 12 months and the projections are usually coming from a combination of guidance from each company and analysts at banks and investment companies. Obviously there's a large margin of error in these estimates.
- SpicyLemonZest 6y ago"FOMO" makes an entirely natural market process sound problematic. If an investor is confident that the economy will fully recover in 2022, they should be willing to buy stock at a very slight discount from fully recovered today, even if current economic conditions aren't great. That's not a psychological trap, just an efficient market.
- danhak 6y agoA very slight discount? As of writing, the Nasdaq is at all time high and the S&P only 5% below. All this with depression-level unemployment.
- SpicyLemonZest 6y agoAgain, this just seems like a confused perspective. Market indices measure the expected future performance of large companies, not current unemployment rates.
- danhak 6y agoIn a consumer-driven economy, current unemployment rates are inextricably linked to the expected future performance of large companies.
- jjcon 6y agoUnfortunately the people that are unemployed because of all this aren’t (in general) that important to the economy. This will only further push class disparity.
- jjoonathan 6y agoSomething can be both rational and problematic.
- SpicyLemonZest 6y agoCertainly, but I'd argue the problem is entirely with people's expectations. Stock market indexes were never an appropriate tool to measure current economic health. If we want a numeric tool to measure what things are like right now, we have to build one, because yelling at the S&P 500 to whip it into shape won't work.
- atemerev 6y agoI have two explanations: one optimistic and one pessimistic. The optimistic is that the Fed is prepared to unleash the runaway inflation (you can keep the stock market records if you want... it’s just the dollars that will buy much less) — and the markets are currently busy of pricing it in. That’s fine... more or less. The pessimistic scenario is that the current administration is determined to keep the stock market alive and kicking at all costs, whatever means necessary, until this November — and then it wouldn’t matter this much anymore. They think they have the resources for buyouts before November... however, the UK and Japanese governments somewhat famously failed to uphold the market in very similar scenarios, which ultimately led to decades of stagnation. I wonder what it will be this time.
- UncleOxidant 6y ago> The pessimistic scenario is that the current administration is determined to keep the stock market alive and kicking at all costs, whatever means necessary, until this November This is a given. Look at the push for schools to open in the fall. They're even talking about tax credits for attending sporting events and for traveling and staying in hotels. All kinds of craziness in the midst of a pandemic.
- currymj 6y agoconcretely, how much does the sentiment of retail investors actually matter to prices -- in general for the whole market, and for specific stocks that dumb retail investors get excited about (Tesla, Hertz, or whatever)? I have no idea what the answer to this question is or even how to formulate it in a clear, answerable way. But it seems very important! It seems that stock prices move, newspapers publish a narrative to explain it, but in many cases there is no way to tell whether the narrative is correct or not. Right now there is a narrative about Robinhood and other no-fee brokers, but is it true?
- benmanns 6y agoI don't know how useful these are, but I found 428k+ Robinhood users hold some position in TSLA: https://robintrack.net/symbol/TSLA https://robintrack.net/symbol/TSLA 50%+ is held by institutions: https://www.nasdaq.com/market-activity/stocks/tsla/institutional-holdings https://www.nasdaq.com/market-activity/stocks/tsla/instituti...
- gas9S9zw3P9c 6y agoYou're asking a great question. I used to work as a professional trader and the answer is that probably nobody really knows. Like you said, any explanation you hear about prices moving is just a narrative fallacy. People love hearing simple explanations to complex questions like "why did X price move" when in reality there is no such thing. The stock market is an incredibly complex interconnected system, with so many types of participants and algorithms optimizing for different outcomes over different time horizons. Retail flow can certainly influence the market, but in my experience the influence is more indirect than direct, as algorithms may jump onto the retail order flow signals to profit from it, which may then create positive feedback loops. But who knows, the fact is that a lot of volume is being bought, and that's all you can conclude. I'd go as far as saying that anyone who tries to connect the stock market with economic events doesn't understand a thing about trading. They're just not connected, except in a few special instruments. They're only connected in so far that people believe they are connected and invest based on that, just like Bitcoin is only worth what people believe it to be worth.
- hitpointdrew 6y ago> “I’m not sure what will trigger a sustained sell-off in stocks, but surging [virus] infections and another round of more business closures will be difficult for investors to ignore much longer.” An alternative place to put investments will trigger it. When your options are savings accounts paying 0.25% interest, and treasury notes paying nothing, and CD's being garbage, what are your alternatives for investing? If interest rates were 5%+ on savings/CDS's/Treasury notes then you would see a bunch of money move from stocks to these other safer more stable investments. But the safety/stability doesn't mean shit if the return is near 0.
- JumpCrisscross 6y agoGiven the retail drive of this rally, bills coming due could have a similar effect.
- throwaway_USD 6y agoThis is the most sane thing anyone can say. At some point there is going to be a critical mass of people not paying their mortgage, not paying rent, not paying loans, not paying credit cards...and simply no money and unemployment. I think this week we will begin to see some acknowledgement of the realities because July 15 is the new tax return date, and I think there will be millions and millions of American's who just say F it, I am not filing/paying taxes. Then again it also wouldn't surprise me if 10s of millions end up homeless before the end of the year while politicians keep parading around unemployment numbers and the stock market record highs, while these people get swept under the rug and never actually acknowledged.
- toomuchtodo 6y ago$600 federal unemployment top up ends July 31st. PPP and other paycheck guarantee program layoff moratoriums end at the end of September. I expect carnage in October. United Airlines has already stated they are targeting ~36k job cuts in October when they're permitted to [1] [2], I presume other airlines and businesses will follow. [1] https://www.usatoday.com/story/travel/airline-news/2020/07/08/united-airlines-layoff-up-36-000-employees-october-coronavorus-fallout/5396857002/ https://www.usatoday.com/story/travel/airline-news/2020/07/0... [2] https://www.flightglobal.com/strategy/layoffs-expected-when-pay-support-ends-for-us-carriers/138946.article https://www.flightglobal.com/strategy/layoffs-expected-when-...
- DeonPenny 6y agoTheres literally no where to put you money now. The stock market would be down if you could put money in any government bonds that you thought would immediately start increasing spending or any stock or bond market that would do any better. Emerging markets are shaky with China destroying HK and corona running through cities everywhere in the world. If you could even remotely tell me a safer place to get returns then I concede the point but I doubt you could
- empath75 6y agoIf people start expecting negative returns from the market, 0% returns from govt bonds sound pretty good.
- pjc50 6y agoSwitzerland are now at -0.75% and still getting investors.
- UncleOxidant 6y agoAs was commonly heard in '08: The time has come to worry about return of investment more than return on investment.
- dbancajas 6y agocan you explain the difference?
- deleted 6y ago[deleted]
- FlyMoreRockets 6y ago> Theres literally no where to put you money now. Philanthropy always has room.
- tanzbaer 6y agoTry living off philanthropy in your old age.
- justin66 6y agoRobert Shiller's piece, which is linked to in the article, is worth reading: https://www.project-syndicate.org/commentary/understanding-us-pandemic-stock-market-by-robert-j-shiller-2020-07 https://www.project-syndicate.org/commentary/understanding-u...
- _Understated_ 6y agoCommence with the downvotes if you want but PLEASE stop linking to sites with a paywall: Some of us can't see the article!
- throwanem 6y agoUse archive.today, or wait for the link to it that someone will invariably post very soon after the article is posted on HN.
- vit05 6y agoIn addition to everything he mentioned, there is still the possibility that immunity, acquired after infection, is only for a short period. Nothing makes sense. Everyone was already waiting for some kind of correction before Covid. And now, in addition to the covid, we have conflict tensions, unemployment and lack of income on a global scale. Stock market became a casino. https://www.theguardian.com/world/2020/jul/12/immunity-to-covid-19-could-be-lost-in-months-uk-study-suggests https://www.theguardian.com/world/2020/jul/12/immunity-to-co...
- nsnick 6y agoIf immunity acquired after infection is only for a short period, immunity acquired after a vaccine will also only be for a short period.
- FlyMoreRockets 6y agoVery likely, yes. However, it is much less debilitating to get a shot every three months.
- woeirua 6y agoIt's unlikely that would be sustainable for long for various reasons. You're talking about needing literally tens of BILLIONS of shots a year for the forseeable future? If immunity is not long lasting, then the only path out is global eradication. We have done it before with smallpox.
- sroussey 6y agoDon’t need it forever
- evan_ 6y agoI don't see us getting to the levels of vaccinations that would be necessary for eradication. A quarter of the people in the US think the whole thing is a ploy to implant everyone with microchips and nothing will ever convince them otherwise. Maybe some of those people will change their minds when they get it but I wouldn't count on enough to matter. We're all going to be sick and dying for decades.
- michaelangerman 6y agoFor people like me who had no clue that FOMO = Fear of Missing Out
- monadic2 6y agoCynically, perhaps this is a sign of confidence that the US will continue to prioritize its economy over everything.
- deleted 6y ago[deleted]
- ianai 6y agoMy profs said it was whenever that last, most staunch hold out joins the market that the end of irrationality is near. Granted, that assumes exogenous demand is not ballooning the market. So I don’t know how or when this ends. What would trigger the fed to stop pouring liquid oxygen into the fire? A vaccine? A general election? Edit-I also don’t think we’ve seen the full ramifications of the newly, long term unemployed begin to hit. Much of the current numbers assume people who were layed off for the shutdown are all coming back and paying their mortgages and other bills. Presumably there’s possibly a 3 month lag time due to earnings reports.
- quickthrowman 6y agoFor the last week or so I’ve been buying ATM QQQ call spreads and rolling them up and out as they become ITM. I’m up 100% in one week, this is silly.
- umvi 6y agoMind expanding the acronyms and explaining what exactly you've done? I'm still an investing novice.
- xondono 6y agoNot OP, but anyway these are the terms you want to search: - ATM: At The Money - ITM: In The Money - QQQ: Invesco QQQ Trust
- tryptophan 6y agoHe is doing leveraged bets that the QQQ stock fund will go up a certain amount. When it goes up to that certain amount, he makes another bet it will go up again.
- marketgod 6y agoAt the same time he is using a call spread so the upside is limited to the difference between the contract he bought and sold. Also at the same time, losses are limited. Suppose $TWTR is $49 a share, you buy a call for $50 and sell a call for $60. Suppose the $50 call is $3 that means you paid $3. Then you sell the $60 for suppose $1. So now you are out $2. That's your max loss. Now tomorrow $TWTR goes to $35. Everything expires and you lose $2. Suppose it goes to $300. Then your profits are ($60-50)-$2=$8 Profits Suppose it went to $55. Suppose this is after expiry, then your contract is worth $5 but you paid $3 so you made $2 profit, but you also sold 1 contract, so now you have $3 profits. So in essence, the spread limits your upside, further limits your downside while you are bullish.
- RobertoG 6y agoWhat I would like to know is who the market is. I mean, I'm pretty sure that my investments don't decide if the market goes down or up and, I doubt very much the traditional narrative that the market movements are the result of the aggregate decisions of a lot of people like me. I would not be surprised if one hundred (random number) people were the one that decide what the market does. The controllers of the investment banks and the big funds are the real players, I suppose. So, if that theory is right, and we want to know why the market is doing what is doing, we should look to those people. I don't know, maybe even ask them directly what are they thinking.
- apta 6y agoInterest is one of the main reasons the economic and financial system is in ruins. It is an exploitative, parasitic practice and we've known that for thousands of years. But some people only care about their pockets.
- dang 6y agoYou broke the site guidelines by starting and then perpetuating this flamewar. Please read https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html and stick to the rules when posting here. Note this one: "Eschew flamebait. Don't introduce flamewar topics unless you have something genuinely new to say. Avoid unrelated controversies and generic tangents." We detached this subthread from https://news.ycombinator.com/item?id=23821546 https://news.ycombinator.com/item?id=23821546.
- yonaguska 6y agoLet me know when you figure out a better way to put a price on the risk of loaning money. As evil as you may think interest rates are- without a price on the risk of loaning money- access to loans dry up and only the already wealthy will have access to capital.
- apta 6y agoLoaning money should not be done to make money, it's parasitic. It should purely be a charitable contribution without expecting a return. If the loanee decides, out of his or her own goodness to return more money than they took, then that's up to them. Now the obvious and direct effect of this is that people will generally not loan their money. This is a good thing. The follow up is that they will invest their money in hopefully legitimate and moral ways.
- namdnay 6y agoBut here we’re talking about equity (stocks), not bonds (loans). So the interest isn’t coming from loaning, it’s coming from investing.
- MattGaiser 6y agoOr the markets are just assuming the Florida strategy is the one that wins out. Let people die and carry on.
- thedudeabides5 6y agoThis is the part of the cycle where all the printed money goes into financial assets (rather than poor people's hands) and we inflate our asset bubble as a way to feel bad about the fact the real economy is a shit show.
- adaisadais 6y agoI spoke to my financial advisor a month ago and he told me he was not worried of a major and sustained drop as FED and Congressional intervention had helped curtail that before it spiraled out of hand. But I cannot help but see current market prices and see current for lease and boarded up building. I wonder if he was correct. I wonder if the advice he has given me is wrong? I believe we are about 9months away from the greatest financial disaster of our times. We should be and should have looked at COVID-19 as a war and not as a pandemic and we as a nation should have encouraged others to do the same (as they have). We should have legally declared war on the virus, shut down the economy for three months, passed a massive stimulus, and gone back to business when the “war” was over. Unfortunately we have weak politicians at every level and extremely divisive leadership at the top. The good news is that we are just as informed and can find truth like never before. The hard part is that the truth is hard to find especially when we have something as large as the stock market lie to us on a day to day basis.
- vladimirralev 6y agoThat's amazing. Shortly after the Powell interview, in a speech a wall street insider insisted the whole reason for 60 minutes interview is so that financial advisors can have a leg to stand on in case they get sued for buying stocks into a severe recession with earnings dropping. They just needed the CYA.
- vmception 6y agoThe advice your financial advisor gave you is no more insightful than the stuff you read in editorials and website forums. Financial advisors exist for the people that are predisposed to appealing to authority, and also have no time for that trade. They are nowhere near as specialized as like an oncologist who you would still want a second opinion from. Most programmers have the cognitive abilities to pass a financial advisor's licensing exam with one week of preparation. Just for perspective.
- anonu 6y agoAdvisors are about behavioral control. The last thing you want to do is have your advisor trading up a storm in your portfolio. They are not incentivized to trade because they have to justify it. You're not incentivized to have them trade because passive management beats out active almost all the time.
- JoshTko 6y agoOne theory is that many small business owners are using their PPP loan money to invest in the market. This is local restaurants with millions of dollars in the bank that can't really invest in their own business due to slow business. If they are fearful of going out of business then taking a shot in the stock market doesn't seem all that risky.
- smallgovt 6y agoInteresting theory. Is there a way to quantify how evenly investing, say $200B, across the S&P would affect the index's price?
- JoshTko 6y agoIt wouldn't be evenly distributed. It would disproportionately be invested in well know consumer brand as these would be novice investors.
- Apocryphon 6y agoSo they pay it back into the economy, because quarantine restrictions prevent them from producing their own economic activity. Now that's stimulus.
- victor106 6y agoPPP loans have go be used for employee retention. https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program#section-header-5 https://www.sba.gov/funding-programs/loans/coronavirus-relie... "Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease."
- drewnick 6y agoA combination of FOMO and the never-ending flow of passive money into the market, which is 45%+ [1] and probably growing. Passive investors do not analyze their investments, they blindly buy market indices like the S&P 500. With all of the stimulus into the economy, that flow of passive investment money is probably not too impaired, yet. 1. https://www.cnbc.com/2019/03/19/passive-investing-now-controls-nearly-half-the-us-stock-market.html https://www.cnbc.com/2019/03/19/passive-investing-now-contro...
- nabla9 6y ago"stock market" has not parted from the economy. SP500 Equal Weigh Index is -11.64% YTD, -6.02% for 1 year. It's only the top 20-50 companies that are doing fine.
- stateofnounion 6y agoThe phrase "the stock market" appears 7 times in this article, but is never discussed let alone defined. It doesn't make sense to analyse "the market" as a monolith--not that there was much of that in the article anyhow. Yes, there are winners, which has led to a net-postive macro trend but there are losers which have crashed as well. The interesting question is what causes some companies to generate revenues while others fail.
- zby 6y agoMy theory is that this is a kind of latent inflation - it is still visible only in the financial assets sector - but eventually it will show up in consumer products too.
- DarthGhandi 6y agoIt's moral hazard in a nutshell, the backstop provided to the markets is so large that the risk/reward is completely out of whack. When the fed is buying junk bonds the signal to investors is loud and clear. You'd be foolish not to participate until reserve banks start signaling otherwise.
- boring_twenties 6y agoHow to tell the market is not at a top: the Washington Post is calling a market top. When a major publication like this starts _promoting_ retail stock buying, that's when it's time to head for the lifeboats.
- vmception 6y agoyeah, well 2.5 trillion dollars tossed out to Americans will give you a lot of speculation and A LOT of fireworks. economists didn't predict the fireworks, but turns out we are a simple people.
- marvin 6y agoThere is nothing strange about the current valuations of the stock markets. Yields of just about every fixed-income security not exposed to stock-like risk is zero. Global stock market indexes are at a P/E of ~20 - that means a yield/direct return on equity of 5%. This doesn't seem so unreasonable when there are no returns to be found anywhere else. The global economy is still making money, just not hand over fist. Assuming no further catastrophe and no permanent reduction in earnings, the stock market is still a good investment when looking at the returns you get from profitable companies every single day. The risk premium is very low, yes. Rising returns in other places and an increase in the risk premium would cause a permanent loss when investing at these level, yes. But you're getting a 5% return if you invest today, albeit exposed to a risk of this number falling. And what is the alternative? Let's say the P/E was at the historical average of 15. That's a yield of 6.5%. That seems unreasonably high to me when other investments yield zero, so of course market prices are going to be bid up until it falls to a more reasonable level. We should be happy that the global yield is still as high as 5%. Either there will be a correction or a crash in the future, and things will return to normal, or this is just another indicator of a late post-industrial world where capital is very cheap. The third alternative is a global war and destruction of life and wealth on an absolutely tragic scale. That would put us back in known territory real fast. I can easily imagine today's children hitting their twenties and complaining that the millennials pulled up the ladder, there is now nowhere to park their hard-earned money to make an investment income.
- devalgo 6y ago>complaining that the millennials pulled up the ladder The millennials that currently invest a pittance compared to Boomers or even Gen-Xers?
- btbuildem 6y agoI imagine that behind the scenes they're doing everything and anything to keep things in the green until the day after the US elections..
- talkingtab 6y agoOriginal thinking and therefore probably wrong, but perhaps interesting: A more precise explanation than FOMO is that the stock market is simply a form of poker. In poker, the cards themselves have zero value, they are simply a tool used to determine a winner. While stocks may have some intrinsic value, it is commonly acknowledged that their value as assets is substantially lower than their stock market price. Moreover companies continue to buy their own stocks further reducing the value of stocks as assets. Unlike the card game of poker, in stock market poker the players share the pot. This simple fact explains why there is a relentless pressure to increase the size of the pot. In 2017 the richest 10% of Americans owned 84% of stocks. These are the major poker players. They have the resources to absorb major losses and then simply bid up the next hand. Any small players (yes that means you and me) can easily lose their shirt in a down turn as we do not have reserve assets or other means (hedge funds) and are not able to participate in the next hand. Many investment funds, pension funds and others fraudulently present stocks as assets and participation in the stock market as "investment". It is the equivalent of asking that people invest in poker game by representing that the cards themselves have value. If participants in pension funds and retirement plans begin to recognize this fraud this may cause the stock market to collapse. However even this is unlikely. Poker games don't collapse, people just stop playing. Just a thought.
- wesleyy 6y ago> While stocks may have some intrinsic value, it is commonly acknowledged that their value as assets is substantially lower than their stock market price. Moreover companies continue to buy their own stocks further reducing the value of stocks as assets. This is not really relevant. Companies have larger market caps than their intrinsic assets because people trade on discounted cash flow. > Any small players (yes that means you and me) can easily lose their shirt in a down turn as we do not have reserve assets or other means (hedge funds) and are not able to participate in the next hand. 1. There's no mechanism that forces you to "call" a bet in investing. It's not winner takes all. 2. Why can't you allocate your bond/equity split such that you do have reserve assets?
- sershe 6y agoConspiracy theory time! I don't really believe either of these with any non-trivial degree of probability, but I figure at worst I'd get downvoted, and maybe I'd get some insightful takes. There was an opinion expressed after '08 that the crisis was used by "elites" to conveniently get rid of (as in fire, mostly) a bunch of people that were, to them, superfluous. Like, that was long overdue and there was a good excuse to fire and not rehire a lot of people, decimating small towns, etc. So, here comes COVID. Seems like a convenient excuse to get rid of the pesky "main street" businesses. Hence, the corner store is going out of business, but people still need stuff. Yes, the pie might get smaller, but more importantly it gets redistributed much more towards Amazons and Walmarts of the world (don't get me wrong, personally I am fine with Amazon and don't care about corner stores). Amazons and Walmarts are the ones being traded as stocks. Hence, stocks go up!
- awillen 6y agoMy issue with this (and largely with the arguments that the market is up because money is cycling into bigger businesses) is that the collapse of small businesses is going to create substantial economic pain that's going to really hurt the large businesses - maybe not in the very long run, but certainly in the medium term. People are going to lose jobs, only some of which will be replaced by big companies (since they're inherently better at scaling people's work as well as automating jobs), so we're going to be stuck with a bunch of unemployment. Unemployment and the economic uncertainty that comes with it will cause a substantial drop in consumer discretionary spending, which I believe makes up like 70% of spending in the economy. If you're Amazon, maybe that's fine because to your point, if the pie shrinks significantly but their share of it goes up enormously, they may still benefit even in the short term. But what about Apple, which is hitting new highs? People need to buy stuff, and since Amazon has everything, even if the type of stuff they're buying changes, they'll still go there. But they can (and I suspect very much will) put off buying new high end luxury devices like iPhones/iPads/Macs. Similarly, businesses that would be buying those devices will probably lengthen their upgrade cycles as well. Same story with Facebook - stock is doing great, but small businesses represent a significant portion of their income. Plus a huge amount of the advertising is for consumer discretionary stuff, and it's a very easy kind of advertising to dial back quickly when marketing dollars go down.
- acd 6y agoCentral banks keep printing money forever. Now we are at the point where the real economy and stocks have diverged. Of course central authorities cannot always just buy all bad debt. There is somehow a distortion of risk. Ie buyers of financial papers are not exposed to their risk fully if central banks buy “bad debt”. This financial printing of limitless debt is putting many at debt. I am worried if there is no caps in debt printing and freedom. You are not free if you are forever a life time in debt. Somehow I feel there is a symbiosis between politicians winning elections on promises which central banks deliver by creating through new debt. I am trying to say that we are at global warming and constantly creating more stuff is requiring more energy and we are already using too much of that. Thus the economy and the environment are diverging. We probably cannot maintain status quo for too long. Something better more sustainable will come after that. Zero interest rates are not causing inflation through salaries increasing they flow to more automation and robotics. Automation lower cost of production and are thus deflational.
- neonate 6y agohttps://archive.is/uDZCq https://archive.is/uDZCq
- anonu 6y agoMarket in January == market today World in January != World today But that's an overly simplistic view of the world. There have been winners and losers, namely tech in the winning camp and retail in the losing camp. Our world is forever changed and the innovations and ideas that come about in the coming years to deal with this change will mostly come from tech and will be fascinating to watch
- twblalock 6y agoAt least we can dispense with the idea that the stock market is driven by short-term thinking. Prices are high because investors expect things to be better in the future, even though things are bad right now. Maybe the investors are wrong, but at least they are thinking about the long term, or at least the intermediate term.
- deelowe 6y agoI think prices are high b/c retail investors are being taken for a ride and have no other recourse. A ton of cash has been injected into the system. People are rightly concerned about inflation. What do they do? Bonds aren't a good investment. Real estate will be affected by unemployment, so that's not an option. No one gives a crap about gold any more. Plus retirement funds carry insane penalties. It's not like pulling that stuff out is an easy decision.
- taurath 6y agoOne thing - real estate going down while inflation rises gives you a pretty clear hedge. If real estate goes down a lot faster than inflation rises, its best to hold cash. If inflation rises a lot faster than real estate goes down, its a lot better to buy real estate.
- jb775 6y agoI think the simple explanation here is money parked in millennial 401k accounts. If a millennial gets laid off, they collect unemployment.....none I know would dare mess with their 401k. Kind of crazy it's socially acceptable for the finance world to slice & dice & profit off the life savings of an entire generation while transferring any risk taken back to taxpayers.
- subsubzero 6y agoThere are some very strange happenings goings on with a small number of stocks. AMZN, TSLA, AAPL and a few others have seen stratospheric gains in the past few months with especially Tesla with no clear reason why. Not trying to knock tesla but there is something that I have never seen happening and given store closures, spiking covid cases and virus antibodies that seem to last months and in some cases weeks these are all very gloomy predictors. The typical explanations seem to be as follows(ordered them in my opinion has the highest probability of reality and weight): #1 Interest rates are as low as they have been in an extremely long time, people/institutions want higher returns so they are putting money into vehicles with higher returns(stocks). #2 Given the Govt./Treasury has been printing money like crazy dealing with the pandemic, money in cash is not great, stocks offer better returns. #3 Given sports are mostly shut down(primarily in the US) sports betters are putting money into stocks instead and betting there so to speak. #4 People are using their stimulus checks extra unemployment money to invest in stocks. All of these don't seem to jibe, and alot of these stocks seem similar to what as known as a 'melt-up' which precedes a meltdown, see 2000's tech and 2008 financial crisis. I hope that is not the case but Tesla jumping 10-14% a day doesn't seem healthy for the stock and the stock market in general and something very strange is going on.
- malandrew 6y ago> especially Tesla with no clear reason why It's called a short squeeze.
- 0x8BADF00D 6y agoVIX needs to hit 40+ before that happens.
- missedthecue 6y agoSqueezes last 1 maybe 2 days. Not 4 months
- malandrew 6y agoI'm only talking about maybe the last week of trading at most.
- grandinj 6y agoMy theory is that there is too much money seeking to be invested, because too much of current society revolves around time-shifting money (which is essentially what investing does).
- oh_sigh 6y agoAnyone with a theory about the current markets: Put your prediction here for what you think will be the state of the market or specific stocks/indices as of, say, Aug 13 2020(Q3 earnings reports will be generally issued by then).
- ur-whale 6y agohttp://archive.is/uDZCq http://archive.is/uDZCq
- vorpalhex 6y agoI'm a bit surprised nobody has called out the obvious. The market did correct for these fears and in doing so, dramatically overcorrected. Initial estimates were quite worse than the current situation, and unemployment is terrible - but has been recovering at a rate significantly greater than anyone expected. That doesn't mean we won't see declines or corrections in the near market, as it's possible the market is too optimistic now - but short of a crystal ball, nobody can actually predict that.
- doh 6y agoHere is what I believe it's the cause. 1) More than a half of assets are now passive [0] 2) People with some money are bored at home and with no sports, they moved their betting to stocks [1] 3) Most trading is now hugely amplified by HFT [2] [0] https://qz.com/1623418/index-funds-now-account-for-half-the-us-stock-market/ https://qz.com/1623418/index-funds-now-account-for-half-the-... [1] https://www.bloomberg.com/news/articles/2020-02-26/reddit-s-profane-greedy-traders-are-shaking-up-the-stock-market https://www.bloomberg.com/news/articles/2020-02-26/reddit-s-... [2] https://www.bundesbank.de/en/tasks/topics/high-frequency-trading-can-amplify-financial-market-volatility-667194 https://www.bundesbank.de/en/tasks/topics/high-frequency-tra...
- joshfraser 6y agoThe stock market isn't up, it's just being measured in devalued dollars.
- yalogin 6y agoI feel like we have taken a turn for the worse in terms of income inequality in the US. The differences between the poor and the rest has been greatly exaggerated by the virus and there is a chasm now. The lower rung of the economy has no bearing on the stock market as that section doesn't contribute to it. Sectors like tech are entirely created by middle/above middle class individuals for those that are wealthier than them. The stock market is doing well because it has realized this fully. Some sectors like Airlines, retail etc are not doing well because they depend on the lower rung of the economy. I am not sure how this will change.
- watertom 6y agoPlease, the stock market has been disconnected from the economy for decades. It's all a big scam. I worked for a an extremely large financial institution, and I worked directly for a Chief Investment Officer.
- GorsyGentle 6y agoThe title on this should be prefixed as '[OPINION]'