4 ms·

Meanwhile the S&P 500 is 5% away from an ATH record. Unemployed people = gambling with stocks + FOMO?

llamataboot 6y ago
I would guess that most unemployed people don't have money in individual stocks in the market. In fact, 85% of all stock is owned by the richest 10% of Americans. While it is true that a slim majority of Americans have some stock, the vast majority of that is in retirement plans, not brokerage accounts.
- kiplkipl 6y ago
  I've heard the following theory: Most trading volume is algorithmic, so it only takes a small number of real humans doing unusual trading activity for markets to move. I've phrased it like this because I don't have expertise.
  - option 6y ago
    “ only takes a small number of real humans doing unusual trading activity for markets to move” - WHAT? Link? Proof? Obviously false unless “small number of people”=folks like Buffet
    - derivagral 6y ago
      I think the concept is similar to how BTC (and other crypto) have major price fluctuations that get reported and acted on via liquidity from a vanishingly small proportion of the actual total BTC. There's reasons, differences, nuance, etc, but I think that's where the thought starts. If most capital is in rarely-traded funds (I think 90-95% are passive?) then by definition those last 10%-5% active investors are going to set the market, at least in the general day to day.
  - SpicyLemonZest 6y ago
    The theory's going around, but it doesn't ultimately make much sense. Algorithmic trading is still set up and managed by humans on a day-to-day basis, so it can't by itself explain persistent market highs.
    - R0b0t1 6y ago
      If people defer to the algorithm instead of sanity checking it the explanation works, but you're relying on some willful ignorance on part of the traders. Or perhaps massive disconnect from reality.
bongobongo 6y ago
The stock market is completely detached from the “labor market”
TheAdamAndChe 6y ago
No. The government is injecting tons of cash into the market. This props prices up and causes inflation, or at very least avoids deflation.
- option 6y ago
  this. The cash is basically on fire now with all the money printing. Thus inflated asset prices
  - charwalker 6y ago
    It's not what is reflected in data though, just hype.
- raziel2701 6y ago
  The economic data (https://fred.stlouisfed.org/series/CPILFESL#0 https://fred.stlouisfed.org/series/CPILFESL#0 ) is showing deflation. The quantitative easing has so far been deflationary. The Fed can lower interest rates, but it cannot make people spend. People are unemployed and scared, they are not borrowing money, and it shows in the lending data as well (https://www.federalreserve.gov/releases/h8/current/default.htm https://www.federalreserve.gov/releases/h8/current/default.h...) where we can see falling numbers in consumer loans and credit cards. I think people have rushed into stocks because they think that that's the safe haven for their money against inflation as they think the Fed is "printing money" and causing inflation, but the data is showing deflation. If deflation continues, bonds would be the safer place to be.
  - landryraccoon 6y ago
    I am speaking anecdotally here but.. Deflation? I can’t think of a single product that has gone down in price and numerous things are more expensive. In particular, virtually every single food item at the grocery store is more expensive than it was in March. Am I the only one who has experienced this? It seems like basic staples (milk, eggs, flour) are substantially more expensive than a few months ago.
dimitrios1 6y ago
My hunch is the people losing their jobs weren't the ones likely to be participating in the stock market in the first place.
dannyw 6y ago
That is what 4-6 trillion of money creation by the Fed will do, yes.
- 34679 6y ago
  Everyone seems to think the stock market going up is always an indicator of an increase in value of those stocks. But there are at least two reasons the price of an asset can increase. One is the asset gains value. The other is the currency loses value. I don't see how anyone can look at the US economy right now, outside of the stock market, and come to the conclusion that more value is being created or profit being made. The unemployment numbers alone tell us there's less being produced, less work being accomplished.
  - charwalker 6y ago
    Another factor is most western nation bonds as well as corporate bonds are running close to 0% return. As long as competition for investment is sitting at about 0%, including private equity investments in companies that could fail in the next year due to recession, supply chain issues, or tariff wars, where else are people putting money? Most employed Americans are still paying into retirement and mostly dumping cash into index funds on the bet that in 20-40 years the market will be up. Private investors and hedge funds are watching the Fed buy up trillions in bad bets, might as well make more bets with a feeling of lower risk. Even Hertz is gaming the system at a time when it's still very uncertain how the US will cope with the pandemic long term. However, we are seeing a drop in inflation not quite to deflation but down like 3/4 from above 2% to .65% for recent months: https://inflationdata.com/Inflation/Inflation_Rate/CurrentInflation.asp?reloaded=true https://inflationdata.com/Inflation/Inflation_Rate/CurrentIn... This my be due to oil price drops in the past quarter with prices going negative at one point. But generally speaking we are not seeing excess inflation, quite the opposite. I think we are going to see a massive drop off in Q3, especially based on recent weak Q2 earnings reports and likelihood of the US not coping well at all.
    - dannyw 6y ago
      Consumer price inflation is not the same thing as asset price inflation. They're in two different worlds. Asset price inflation rarely transfers to consumer price inflation, because when you have $100M you are probably putting that into assets (e.g. luxury house) and not buying 1 billion macbooks.

I would guess that most unemployed people don't have money in individual stocks in the market. In fact, 85% of all stock is owned by the richest 10% of Americans. While it is true that a slim majority of Americans have some stock, the vast majority of that is in retirement plans, not brokerage accounts.

kiplkipl 6y ago
I've heard the following theory: Most trading volume is algorithmic, so it only takes a small number of real humans doing unusual trading activity for markets to move. I've phrased it like this because I don't have expertise.
- option 6y ago
  “ only takes a small number of real humans doing unusual trading activity for markets to move” - WHAT? Link? Proof? Obviously false unless “small number of people”=folks like Buffet
  - derivagral 6y ago
    I think the concept is similar to how BTC (and other crypto) have major price fluctuations that get reported and acted on via liquidity from a vanishingly small proportion of the actual total BTC. There's reasons, differences, nuance, etc, but I think that's where the thought starts. If most capital is in rarely-traded funds (I think 90-95% are passive?) then by definition those last 10%-5% active investors are going to set the market, at least in the general day to day.
- SpicyLemonZest 6y ago
  The theory's going around, but it doesn't ultimately make much sense. Algorithmic trading is still set up and managed by humans on a day-to-day basis, so it can't by itself explain persistent market highs.
  - R0b0t1 6y ago
    If people defer to the algorithm instead of sanity checking it the explanation works, but you're relying on some willful ignorance on part of the traders. Or perhaps massive disconnect from reality.

bongobongo 6y ago

The stock market is completely detached from the “labor market”

TheAdamAndChe 6y ago

No. The government is injecting tons of cash into the market. This props prices up and causes inflation, or at very least avoids deflation.

option 6y ago
this. The cash is basically on fire now with all the money printing. Thus inflated asset prices
- charwalker 6y ago
  It's not what is reflected in data though, just hype.
raziel2701 6y ago
The economic data (https://fred.stlouisfed.org/series/CPILFESL#0 https://fred.stlouisfed.org/series/CPILFESL#0 ) is showing deflation. The quantitative easing has so far been deflationary. The Fed can lower interest rates, but it cannot make people spend. People are unemployed and scared, they are not borrowing money, and it shows in the lending data as well (https://www.federalreserve.gov/releases/h8/current/default.htm https://www.federalreserve.gov/releases/h8/current/default.h...) where we can see falling numbers in consumer loans and credit cards. I think people have rushed into stocks because they think that that's the safe haven for their money against inflation as they think the Fed is "printing money" and causing inflation, but the data is showing deflation. If deflation continues, bonds would be the safer place to be.
- landryraccoon 6y ago
  I am speaking anecdotally here but.. Deflation? I can’t think of a single product that has gone down in price and numerous things are more expensive. In particular, virtually every single food item at the grocery store is more expensive than it was in March. Am I the only one who has experienced this? It seems like basic staples (milk, eggs, flour) are substantially more expensive than a few months ago.

dimitrios1 6y ago

My hunch is the people losing their jobs weren't the ones likely to be participating in the stock market in the first place.

dannyw 6y ago

That is what 4-6 trillion of money creation by the Fed will do, yes.

34679 6y ago
Everyone seems to think the stock market going up is always an indicator of an increase in value of those stocks. But there are at least two reasons the price of an asset can increase. One is the asset gains value. The other is the currency loses value. I don't see how anyone can look at the US economy right now, outside of the stock market, and come to the conclusion that more value is being created or profit being made. The unemployment numbers alone tell us there's less being produced, less work being accomplished.
- charwalker 6y ago
  Another factor is most western nation bonds as well as corporate bonds are running close to 0% return. As long as competition for investment is sitting at about 0%, including private equity investments in companies that could fail in the next year due to recession, supply chain issues, or tariff wars, where else are people putting money? Most employed Americans are still paying into retirement and mostly dumping cash into index funds on the bet that in 20-40 years the market will be up. Private investors and hedge funds are watching the Fed buy up trillions in bad bets, might as well make more bets with a feeling of lower risk. Even Hertz is gaming the system at a time when it's still very uncertain how the US will cope with the pandemic long term. However, we are seeing a drop in inflation not quite to deflation but down like 3/4 from above 2% to .65% for recent months: https://inflationdata.com/Inflation/Inflation_Rate/CurrentInflation.asp?reloaded=true https://inflationdata.com/Inflation/Inflation_Rate/CurrentIn... This my be due to oil price drops in the past quarter with prices going negative at one point. But generally speaking we are not seeing excess inflation, quite the opposite. I think we are going to see a massive drop off in Q3, especially based on recent weak Q2 earnings reports and likelihood of the US not coping well at all.
  - dannyw 6y ago
    Consumer price inflation is not the same thing as asset price inflation. They're in two different worlds. Asset price inflation rarely transfers to consumer price inflation, because when you have $100M you are probably putting that into assets (e.g. luxury house) and not buying 1 billion macbooks.