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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 o

by 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.

by 34679 6y ago

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.