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How can Wall Street be so healthy when Main Street isn’t?

42 points by woldemariam 6y ago

belval 6y ago
Personal take: A subset of "Main Street" is unhealthy not the entire country. Most things are not closed anymore and the stock market is propped up by tech stocks that saw little slow down due to COVID. It's weird situation because I'd be willing to bet that the people who own stocks are simply not the one that have been laid off.
- wccrawford 6y ago
  And if all businesses are hit by hard economic times, should all stocks go down? Wouldn't that mean that people are selling stocks and not buying other stocks? I don't think modern investors just don't-buy-stocks unless they need the money for something else. They invest in something. And if everything is doing poorly, that means the market doesn't change.
  - JamesSwift 6y ago
    They either keep the money as cash, so that they can buy stocks when the market gets even lower, or they buy alternatives like gold.
  - ry_co 6y ago
    I wouldn't assume everything is doing poorly. There are big winners and big losers in this economy, and the S&P 500 happens to be constituted primarily of the winners. Almost anything digital right now is gold. There's also the fact that many companies that are doing well right now are keeping quiet about it. I know from personal experience at the company I work for (fintech midsized startup) that executives are very careful not to be openly positive about benefiting from the pandemic. Publicly admitting that you profitted by a global pandemic and an economic recession is in poor taste, and companies are rightly tentative about doing so. From my work I've seen anything adtech related explode. Publishers or aggregators whose primary revenue stream is online advertising income are growing at incredible rates. Assuming that everyone is hurting because physical businesses are hurting is a huge mistake. Additionally, as many analysts have been saying, the pandemics primary effect so far has been to accelerate existing trends, not create new ones. We're seeing a fast-foward in economic transition. Companies that were well positioned before the pandemic for the economy of the future (automation, digital) are doing swimmingly.
throwaway_USD 6y ago
Easy Congress put on bandannas and robbed the tax payers of about $18,000 each. Congress then turned around and gave taxpayers $1,200 each, of their own money, that total amount can be doubled that to account for the temporary unemployment benefits increase. The rest of the taxpayer money went to the FED so they will guarantee the prices of shit stock...the market can't lower because as many rich CEOs and investors cash out their shit stock the FED is there to buy at these artificial prices. Its not healthy obviously, its just another in a long line of scams on taxpayers who paid for the golden parachutes and will be left holding the bag. There is about $4.2T the FED has to buy stock at artificial prices so it will be sometime before this bubble pops.
- ed25519FUUU 6y ago
  And state and city governments went ahead and took 80% of their covid money to pay themselves or their sinking pensions, etc. > As part of the Coronavirus Aid, Relief and Economic Security Act signed in March, Sacramento County received $181 million to fund necessary programs or expenses tied to the COVID-19 pandemic ... Of the nearly $148 million that the county has already spent in the last few months, more than $104 million went toward paying for salaries and benefits 1. https://www.sacbee.com/news/local/article244813632.html https://www.sacbee.com/news/local/article244813632.html
  - jshaqaw 6y ago
    You mean to pay for teachers, first responders, etc...? Yes it takes humans to provide services.
    - giantg2 6y ago
      Yep, most expensive part of local budgets by far.
    - ed25519FUUU 6y ago
      Weird, how did they pay these people without emergency covid funding??
CalRobert 6y ago
Where else are you gonna put your money? Stable governments are paying ~0 or negative interest. I'm actually asking, right now I'm just paying off debt but would be curious what people think. If I didn't have the debt I'd probably buy equities (index fund, etc.) like everoyne else.
- giantg2 6y ago
  Commodities could be another option. I think gold and silver aren't great choices right now, but maybe platinum is. Along this same line, real estate has real value to it.
  - ghaff 6y ago
    I'd be very nervous about real estate right now. It requires a lot of speculation about long-time remote work and how cities are going to come out of this. That said, it's something I'd keep my eye on. I agree gold has had a good run up but the adviser on my managed account just sold the gold position. You can certainly have (and probably should have) some amount in bonds, etc. but the returns will indeed be pretty low. Unless you're super-pessimistic to the point where you just want to put everything under your mattress, it's hard not to have at least a fairly significant share in equities.
    - giantg2 6y ago
      Maybe I don't know what I'm talking about. It seems the real estate market is really hot right now in the NJ/MD/E. PA regions.
      - ghaff 6y ago
        It is with people moving out of cities. But a hot market is exactly when you probably don't want to invest, especially when there's at least some possibility that a couple years from now, the exodus from cities will be seen as a panic overreaction. As for real estate in cities, property prices mostly don't yet reflect people moving out and a likely commercial real estate collapse. The other question is whether, to the degree prices in cities come down, people who have been pining to live in some city will still want to do this with so many businesses permanently gone and city services in shambles.
draw_down 6y ago
So many ways to approach that question. One might be, look at the shape of a graph of S&P 500 over the last 4 decades or so, vs the shape of wages adjusted for inflation. At this point, assuming one can tell you much about the other requires justification.
deleted 6y ago
[deleted]
DebtDeflation 6y ago
Federal Reserve balance sheet: https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren... The simplified version is that when the Fed wants to inject money/liquidity it buys assets (exchanging new "money" for the asset) in the open market. These operations are done within the financial system. The idea is that banks next loan the money to non-financial businesses which in turn stimulates economic activity. But that last part isn't happening, the injected liquidity is remaining within the financial system where it is being used to bid up the prices of existing financial assets rather than being used to create new ones.
coldcode 6y ago
Fed invents money. It has to go somewhere. It goes into stocks. Someday it stops and so do stocks. Your grandchildren eventually pay it off somehow.
ryansmccoy 6y ago
Basically, you can think of the stock market (price) driven by two components: 1) an aggregate of all company profits in the stock market and 2) the cost of borrowing capital (discount rate). 1) Corporate Profits - From what I recall, corporate profits have been flat to down over recent quarters. 2) Discount Rate - The cost of borrowing capital has been falling as governments make access to capital easier for businesses. This has a huge effect on the valuation of the stock market compared to the impact of the profits. This is why the stock market continues to go up. The issue is that if you were to make access to capital harder, thus increasing the discount rate, companies in theory wouldn't be able to borrow as much, and therefore grow as much. Thus, the market would in theory go down, probably alot.
treis 6y ago
It's really not that complicated. Wall Street doesn't (generally) own businesses on Main Street. Main Street is skewed towards locally owned boutiques, cafes, shops, restaurants and so on. Those are getting killed but it doesn't matter to the S&P 500 because they're not listed there. To some extent it is good for the S&P 500 as the money shifts from those locally owned businesses to the mega corps in the S&P 500. We've gone from ~4% unemployment to 10-15%. Which sounds bad. But if you flip it around, we've gone from 96% employment to 85-90%. The vast majority of people are still employed and the economy is mostly still humming along.
- big_youth 6y ago
  >We've gone from ~4% unemployment to 10-15%. Which sounds bad. But if you flip it around, we've gone from 96% employment to 85-90%. The vast majority of people are still employed and the economy is mostly still humming along. This is not how it works. The US measures unemployment using levels, the 10-15% are U-3, which only counts people without jobs who are in the labor force. To remain in the labor force, they must have looked for a job in the last four weeks. The U-6, or real unemployment rate, includes the underemployed, the marginally attached, and discouraged workers and is at 25%. There are plenty of deeper explanations online but basically politicians love to talk about U-3 but the true unemployment is U-6.
  - Miner49er 6y ago
    U-6 was 16.5% in July - it's improving. It was 6.8% pre-COVID, so it's not really any worse off then U-3. It's still about a 10% jump in both.
- anemoiac 6y ago
  "Employment" is actually below 62%, if we look at the percentage of the working age population that is employed. [1] 1. https://www.bls.gov/charts/employment-situation/civilian-labor-force-participation-rate.htm https://www.bls.gov/charts/employment-situation/civilian-lab...
chubasco 6y ago
Because the rules around running a business in the COVID-19 environment have been set such that large companies can afford to comply with them but small business can’t without losing money. So all their employees, and eventually the business owners themselves, bear the brunt of that.
flerchin 6y ago
Money printer goes brrrrr.
evancox100 6y ago
Just from a very theoretical level, low interest rates means the net present value (NPV) of companies, ie their stock prices, are weighted more heavily to future earnings and not just this year's earnings. So if the market is pricing in some return to normalcy, even if it's a year or two out, you wouldn't expect to see much of a hit. Assuming companies can get from here to there without going bankrupt, something the government has been very explicit about helping with by providing cheap/free funds. Edit: Plus there's FAAMG driving the S&P500 up, who for obvious reasons are doing very well right now.
- tfehring 6y ago
  This is true but incomplete. The S&P500 is basically at the same level as mid-February, and even if expected earnings for, say, mid-2021 forward are the same as they were in February, the missing earnings between February 2020 and mid-2021 should be reflected in prices. What's missing is that a decrease in interest rates also directly results in an increase in the NPV of future distributed earnings. That increase seems to have offset the decrease in the expected nominal (undiscounted) value of earnings. But this also makes for lower expected returns in the future: In principle, if interest rates and expected earnings stay the same, the unwinding of that discounting is what drives equity returns.
hashtagmarkup 6y ago
Inflation
robjan 6y ago
"Main Street is the now, Wall Street is the future" is the main point. Yes, things are bad now but it's not permanent.
recursivedoubts 6y ago
By holding interest rates so low, the Fed has created a double-bind: despite the systemic risks (which are very high) people who have investable cash have two options: the stock market or paying down debt. The stock market is being "invested" in not because it is a good investment at this point (it isn't) but because there is no where else to go. If interest rates ever revert to anything normal, it will get crushed. In the meantime this means that large, multinational companies are flush and are able to destroy smaller, more local competition. This trend is aided by the lockdowns, as well as the fact that large companies have access to the extremely low interest rates, but smaller players do not. You will continue to pay usurious rates on credit cards and most small business loans, while Global Corp. can issue corporate debt as very low rates. Paying down debt is the opposite of what the Fed wants: in our system debt is the true money supply, so when debt is extinguished the money supply contracts. You can see this clearly in 2008: https://fred.stlouisfed.org/series/TCMDO https://fred.stlouisfed.org/series/TCMDO Steve Keen outlines our best hope, a modern debt jubilee, here: http://www.profstevekeen.com/modern-debt-jubilee/ http://www.profstevekeen.com/modern-debt-jubilee/
- akeck 6y ago
  It seems like some of the COVID relief in the US provided a view into the "Modern Debt Jubilee". Apparently, many people used the infusion of cash to pay down short term debt.
- kpmcc 6y ago
  This is one of the only times I’ve seen someone mention a debt jubilee and lay out the case seriously. Happy to see it!
- treis 6y ago
  >Steve Keen outlines our best hope, a modern debt jubilee, here: >http://www.profstevekeen.com/modern-debt-jubilee/ http://www.profstevekeen.com/modern-debt-jubilee/ This doesn't really make sense. If you force me to pay down debt and I want cash then I'm just going to take out more debt. Low interest rates or high debt aren't really the fundamental problem. The problem is a concentration of cash/wealth. Adam Neumann is a billionaire because he convinced some morons in Japan to give his company 10s of billions of Saudi money. But an average Joe would be laughed out of a bank if they asked for 10s of thousands to start a business. If we are worried about a deflationary spiral the solution is simple. Give everyone money.
danesparza 6y ago
From the New York Times this morning, about the irrational stock market: "As irrational as it might seem, here’s the way investors rationalize the bullish stock market to themselves (we’ll only find out whether they are right or wrong in the future): 1. The stock market is forward-looking: Investors are betting on what the world and the economy look like in 12 to 18 months from now, not what they look like today, tomorrow or this fall. 2. The big get bigger: Much of the stock market’s success has been the result of a run-up in value for a few big technology companies — including Apple, Amazon and Microsoft — that make up a large share of the index. And retailers like Walmart and Home Depot are growing in part because small businesses have closed, allowing the bigger companies to take even more market share. 3. Betting on a vaccine: Given the daily headlines about the potential for a vaccine, investors want to be invested in the market when the news comes that there is a genuine vaccine, on the assumption that it will send stocks even higher. 4. The only game in town: With the Federal Reserve planning to print money for the foreseeable future, investors don’t want to be in cash or bonds, which are steadily losing value. So where else can they put their money? The stock market has become a default. 5. Help from Washington: As dysfunctional as Congress has proved to be, investors are betting that Republicans and Democrats will find a way to keep plying the economy with stimulus. (Anecdotal stories suggest some Americans have even taken their $600 unemployment checks and invested them in the stock market.) Of course, all of these rationalizations don’t take into account the possibility of a terrible second or third coronavirus wave, a delay in the discovery of a vaccine, a constitutional crisis come the election in November, runaway inflation, the prospect of higher taxes to pay for the stimulus, a more significant trade war with China, or the dozens of other risks that seem to be bubbling just below — and in some cases on — the surface. In the meantime, happy trading!" * #4 I hadn’t thought of, and is a VERY troubling sign I think. Cash is devaluing because of inflation. Bonds are devaluing because of a loss of hope of future repayment (they are debt instruments).
- ghaff 6y ago
  #4 seems like somewhat of an overstatement. It's true that you probably can't really keep money out of the stock market if you have appreciable money to invest. But that doesn't mean you can't reasonably hedge your bets at least somewhat. You won't get the full upside if the market continues to do well but you do have some downside protection that has at least a small return.
williesleg 6y ago
Because everyone is investing except you.
jshaqaw 6y ago
The bull case is that by mid-1Q we have a vaccine and the crisis is over. Government fiscal and monetary keeps the economy on life support until that happens. If you value a business bottom up and you think 2021/2022 sort of revert back to 2019 then by now in 2020 you are basing your valuations on those numbers and decreasing the equity value where necessary for businesses that took on debt to get through 2020. The Fed has said it will keep rates low for longer and overshoot 2% which is an average target not a ceiling. If your money has to go somewhere (and it does) then fixed income duration at paltry yields looks like a bad bet if we get a tick up in inflation. In an inflationary environment stocks aren't great but they will preserve purchasing power better than bonds. Sure you can play with commodities and bitcoins but are you as say a middle-aged saver with a family going to put your entire liquid net worth into gold bullion and bitcoin (of course this being Hacker News I expect a good number of "of course" responses!) For my two cents I was embarrassingly late the the bull party and couldn't believe the rally back so fast. There will of course be a jobs recovery from the lows as the virus threat ebbs but I suspect a decent number of the jobs lost are structural and employment won't quickly rebound to sub 5%. Gun to my head I'd say high single digit unemployment could linger a while which is pretty painful. If the Federal government remains deadlocked then state and municipal austerity will multiply the economic pain.
- the-dude 6y ago
  AIDS never got a vaccine, SARS and MERS neither.
  - GhostVII 6y ago
    There are several COVID vaccines in stage 3 trials, I think it is safe to say that we will have a vaccine being rolled out by mid 2021 at the very latest.
    - 0xffff2 6y ago
      Are you an immunologist? I'm not, but it's my layman's understanding that most candidates are likely to make it to stage 3, and that most will fail in stage 3. As far as I can tell, the number of candidates in stage 3 trials is not a strong indicator of the likelihood of a successful vaccine being developed.
blaser-waffle 6y ago
TINA -- There Is No Alternative [to Wall Street] Plus economies of scale on top of COVID killing mom & pop shops means that only large scale players can survive as Main Street offerings, e.g. the Starbucks on every block, or large chain eateries.
zacherates 6y ago
1. Stock markets are forward looking. Prices reflect expectations about the company going far into the future, not just right now. So yeah, this year and next year are going to be bad, but we expect that five years from now things will be back to normal or better and prices reflect that. 2. Companies in the S&P 500 (which is what people often mean when they talk about Wall Street/the market/etc) are by definition are big and have easy access to the capital markets. Consequently, they are the best positioned to whether the storm and seize the opportunities as they come. When things start recovering companies with money/easy access to the bond market are going to be the ones who can open new locations and capitalize on pent up demand. 3. There are a bunch of big companies that have actually done well for the last six months. The obvious ones are companies like Amazon, Netflix and Zoom, but for instance Target and Walmart have benefited from being allowed to stay open because they sell essentials while also selling everything else so they were often the only option other than Amazon. 4. When people talk about the S&P 500 recovering unbelievably fast, they often mean vs. the lows in March. Those lows were not reflective of the reality of what was happening (definitionally: nobody knew the reality of what was happening, lack of testing, etc.), but there was some concern that the actual apocalypse might have occurred... and everyday as merely bad news poured in that actually restored confidence because the news was not apocalyptic. So, the prices rose. 5. There really are a bunch of bored people buying stocks on their phone because they can't bet on sports anymore [1]. It's not clear how big an effect this is, but there really does seem to be extra retail demand for stocks. [1] https://www.bloomberg.com/news/audio/2020-07-09/inside-the-mind-of-a-young-retail-day-trader-podcast https://www.bloomberg.com/news/audio/2020-07-09/inside-the-m...
AngrySkillzz 6y ago
The price of productive assets goes up as interest rates fall, this is a simple NPV calculation. Interest rates are low, and have been low in the developed world for a while. The reason for this has nothing to do with central bank conspiracy theories. The neutral rate of interest is determined by productivity growth, profitability of available investments, and how much capital there is that can be invested in them. The best a central bank can do is 1. be good at detecting where this equilibrium is and reacting to it, and 2. move interest rates at the margins to smooth out the business cycle. Think of it this way. If, in the aggregate, an average business would make a real return of 3% per year, then an interest rate above 3% would discourage all but the best business ideas from being pursued. Likewise a lower rate would encourage investment in worse ideas with lower profit margins. This is one way to think about the "neutral rate of interest." It is determined by exogenous facts about the real economy. Now, we have fewer "profitable ideas" (and lower productivity growth correspondingly), and significantly more savings due to greying populations (people who are older/will live longer require more savings) and cultural tendencies (e.g. higher savings rates in China, Germany). So the neutral rate falls, and the result of that the price of capital goods rises. Central banks' hands are effectively forced by this situation. If policy maintained an artificially high interest rate when the neutral rate is lower, economic contraction would ensue disadvantaging all parties.
watertom 6y ago
Remember the stock market has always been a game, it's never mirrored reality. I'd say that the institutions that own the majority of stocks, colluded and just decided to sit tight.

42 points by woldemariam 6y ago

Personal take: A subset of "Main Street" is unhealthy not the entire country. Most things are not closed anymore and the stock market is propped up by tech stocks that saw little slow down due to COVID. It's weird situation because I'd be willing to bet that the people who own stocks are simply not the one that have been laid off.

wccrawford 6y ago
And if all businesses are hit by hard economic times, should all stocks go down? Wouldn't that mean that people are selling stocks and not buying other stocks? I don't think modern investors just don't-buy-stocks unless they need the money for something else. They invest in something. And if everything is doing poorly, that means the market doesn't change.
- JamesSwift 6y ago
  They either keep the money as cash, so that they can buy stocks when the market gets even lower, or they buy alternatives like gold.
- ry_co 6y ago
  I wouldn't assume everything is doing poorly. There are big winners and big losers in this economy, and the S&P 500 happens to be constituted primarily of the winners. Almost anything digital right now is gold. There's also the fact that many companies that are doing well right now are keeping quiet about it. I know from personal experience at the company I work for (fintech midsized startup) that executives are very careful not to be openly positive about benefiting from the pandemic. Publicly admitting that you profitted by a global pandemic and an economic recession is in poor taste, and companies are rightly tentative about doing so. From my work I've seen anything adtech related explode. Publishers or aggregators whose primary revenue stream is online advertising income are growing at incredible rates. Assuming that everyone is hurting because physical businesses are hurting is a huge mistake. Additionally, as many analysts have been saying, the pandemics primary effect so far has been to accelerate existing trends, not create new ones. We're seeing a fast-foward in economic transition. Companies that were well positioned before the pandemic for the economy of the future (automation, digital) are doing swimmingly.

throwaway_USD 6y ago

Easy Congress put on bandannas and robbed the tax payers of about $18,000 each. Congress then turned around and gave taxpayers $1,200 each, of their own money, that total amount can be doubled that to account for the temporary unemployment benefits increase. The rest of the taxpayer money went to the FED so they will guarantee the prices of shit stock...the market can't lower because as many rich CEOs and investors cash out their shit stock the FED is there to buy at these artificial prices. Its not healthy obviously, its just another in a long line of scams on taxpayers who paid for the golden parachutes and will be left holding the bag. There is about $4.2T the FED has to buy stock at artificial prices so it will be sometime before this bubble pops.

ed25519FUUU 6y ago
And state and city governments went ahead and took 80% of their covid money to pay themselves or their sinking pensions, etc. > As part of the Coronavirus Aid, Relief and Economic Security Act signed in March, Sacramento County received $181 million to fund necessary programs or expenses tied to the COVID-19 pandemic ... Of the nearly $148 million that the county has already spent in the last few months, more than $104 million went toward paying for salaries and benefits 1. https://www.sacbee.com/news/local/article244813632.html https://www.sacbee.com/news/local/article244813632.html
- jshaqaw 6y ago
  You mean to pay for teachers, first responders, etc...? Yes it takes humans to provide services.
  - giantg2 6y ago
    Yep, most expensive part of local budgets by far.
  - ed25519FUUU 6y ago
    Weird, how did they pay these people without emergency covid funding??

CalRobert 6y ago

Where else are you gonna put your money? Stable governments are paying ~0 or negative interest. I'm actually asking, right now I'm just paying off debt but would be curious what people think. If I didn't have the debt I'd probably buy equities (index fund, etc.) like everoyne else.

giantg2 6y ago
Commodities could be another option. I think gold and silver aren't great choices right now, but maybe platinum is. Along this same line, real estate has real value to it.
- ghaff 6y ago
  I'd be very nervous about real estate right now. It requires a lot of speculation about long-time remote work and how cities are going to come out of this. That said, it's something I'd keep my eye on. I agree gold has had a good run up but the adviser on my managed account just sold the gold position. You can certainly have (and probably should have) some amount in bonds, etc. but the returns will indeed be pretty low. Unless you're super-pessimistic to the point where you just want to put everything under your mattress, it's hard not to have at least a fairly significant share in equities.
  - giantg2 6y ago
    Maybe I don't know what I'm talking about. It seems the real estate market is really hot right now in the NJ/MD/E. PA regions.
    - ghaff 6y ago
      It is with people moving out of cities. But a hot market is exactly when you probably don't want to invest, especially when there's at least some possibility that a couple years from now, the exodus from cities will be seen as a panic overreaction. As for real estate in cities, property prices mostly don't yet reflect people moving out and a likely commercial real estate collapse. The other question is whether, to the degree prices in cities come down, people who have been pining to live in some city will still want to do this with so many businesses permanently gone and city services in shambles.

draw_down 6y ago

So many ways to approach that question. One might be, look at the shape of a graph of S&P 500 over the last 4 decades or so, vs the shape of wages adjusted for inflation. At this point, assuming one can tell you much about the other requires justification.

deleted 6y ago

[deleted]

DebtDeflation 6y ago

Federal Reserve balance sheet: https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren... The simplified version is that when the Fed wants to inject money/liquidity it buys assets (exchanging new "money" for the asset) in the open market. These operations are done within the financial system. The idea is that banks next loan the money to non-financial businesses which in turn stimulates economic activity. But that last part isn't happening, the injected liquidity is remaining within the financial system where it is being used to bid up the prices of existing financial assets rather than being used to create new ones.

coldcode 6y ago

Fed invents money. It has to go somewhere. It goes into stocks. Someday it stops and so do stocks. Your grandchildren eventually pay it off somehow.

ryansmccoy 6y ago

Basically, you can think of the stock market (price) driven by two components: 1) an aggregate of all company profits in the stock market and 2) the cost of borrowing capital (discount rate). 1) Corporate Profits - From what I recall, corporate profits have been flat to down over recent quarters. 2) Discount Rate - The cost of borrowing capital has been falling as governments make access to capital easier for businesses. This has a huge effect on the valuation of the stock market compared to the impact of the profits. This is why the stock market continues to go up. The issue is that if you were to make access to capital harder, thus increasing the discount rate, companies in theory wouldn't be able to borrow as much, and therefore grow as much. Thus, the market would in theory go down, probably alot.

treis 6y ago

It's really not that complicated. Wall Street doesn't (generally) own businesses on Main Street. Main Street is skewed towards locally owned boutiques, cafes, shops, restaurants and so on. Those are getting killed but it doesn't matter to the S&P 500 because they're not listed there. To some extent it is good for the S&P 500 as the money shifts from those locally owned businesses to the mega corps in the S&P 500. We've gone from ~4% unemployment to 10-15%. Which sounds bad. But if you flip it around, we've gone from 96% employment to 85-90%. The vast majority of people are still employed and the economy is mostly still humming along.

big_youth 6y ago
>We've gone from ~4% unemployment to 10-15%. Which sounds bad. But if you flip it around, we've gone from 96% employment to 85-90%. The vast majority of people are still employed and the economy is mostly still humming along. This is not how it works. The US measures unemployment using levels, the 10-15% are U-3, which only counts people without jobs who are in the labor force. To remain in the labor force, they must have looked for a job in the last four weeks. The U-6, or real unemployment rate, includes the underemployed, the marginally attached, and discouraged workers and is at 25%. There are plenty of deeper explanations online but basically politicians love to talk about U-3 but the true unemployment is U-6.
- Miner49er 6y ago
  U-6 was 16.5% in July - it's improving. It was 6.8% pre-COVID, so it's not really any worse off then U-3. It's still about a 10% jump in both.
anemoiac 6y ago
"Employment" is actually below 62%, if we look at the percentage of the working age population that is employed. [1] 1. https://www.bls.gov/charts/employment-situation/civilian-labor-force-participation-rate.htm https://www.bls.gov/charts/employment-situation/civilian-lab...

chubasco 6y ago

Because the rules around running a business in the COVID-19 environment have been set such that large companies can afford to comply with them but small business can’t without losing money. So all their employees, and eventually the business owners themselves, bear the brunt of that.

flerchin 6y ago

Money printer goes brrrrr.

evancox100 6y ago

Just from a very theoretical level, low interest rates means the net present value (NPV) of companies, ie their stock prices, are weighted more heavily to future earnings and not just this year's earnings. So if the market is pricing in some return to normalcy, even if it's a year or two out, you wouldn't expect to see much of a hit. Assuming companies can get from here to there without going bankrupt, something the government has been very explicit about helping with by providing cheap/free funds. Edit: Plus there's FAAMG driving the S&P500 up, who for obvious reasons are doing very well right now.

tfehring 6y ago
This is true but incomplete. The S&P500 is basically at the same level as mid-February, and even if expected earnings for, say, mid-2021 forward are the same as they were in February, the missing earnings between February 2020 and mid-2021 should be reflected in prices. What's missing is that a decrease in interest rates also directly results in an increase in the NPV of future distributed earnings. That increase seems to have offset the decrease in the expected nominal (undiscounted) value of earnings. But this also makes for lower expected returns in the future: In principle, if interest rates and expected earnings stay the same, the unwinding of that discounting is what drives equity returns.

hashtagmarkup 6y ago

Inflation

robjan 6y ago

"Main Street is the now, Wall Street is the future" is the main point. Yes, things are bad now but it's not permanent.

recursivedoubts 6y ago

By holding interest rates so low, the Fed has created a double-bind: despite the systemic risks (which are very high) people who have investable cash have two options: the stock market or paying down debt. The stock market is being "invested" in not because it is a good investment at this point (it isn't) but because there is no where else to go. If interest rates ever revert to anything normal, it will get crushed. In the meantime this means that large, multinational companies are flush and are able to destroy smaller, more local competition. This trend is aided by the lockdowns, as well as the fact that large companies have access to the extremely low interest rates, but smaller players do not. You will continue to pay usurious rates on credit cards and most small business loans, while Global Corp. can issue corporate debt as very low rates. Paying down debt is the opposite of what the Fed wants: in our system debt is the true money supply, so when debt is extinguished the money supply contracts. You can see this clearly in 2008: https://fred.stlouisfed.org/series/TCMDO https://fred.stlouisfed.org/series/TCMDO Steve Keen outlines our best hope, a modern debt jubilee, here: http://www.profstevekeen.com/modern-debt-jubilee/ http://www.profstevekeen.com/modern-debt-jubilee/

akeck 6y ago
It seems like some of the COVID relief in the US provided a view into the "Modern Debt Jubilee". Apparently, many people used the infusion of cash to pay down short term debt.
kpmcc 6y ago
This is one of the only times I’ve seen someone mention a debt jubilee and lay out the case seriously. Happy to see it!
treis 6y ago
>Steve Keen outlines our best hope, a modern debt jubilee, here: >http://www.profstevekeen.com/modern-debt-jubilee/ http://www.profstevekeen.com/modern-debt-jubilee/ This doesn't really make sense. If you force me to pay down debt and I want cash then I'm just going to take out more debt. Low interest rates or high debt aren't really the fundamental problem. The problem is a concentration of cash/wealth. Adam Neumann is a billionaire because he convinced some morons in Japan to give his company 10s of billions of Saudi money. But an average Joe would be laughed out of a bank if they asked for 10s of thousands to start a business. If we are worried about a deflationary spiral the solution is simple. Give everyone money.

danesparza 6y ago

From the New York Times this morning, about the irrational stock market: "As irrational as it might seem, here’s the way investors rationalize the bullish stock market to themselves (we’ll only find out whether they are right or wrong in the future): 1. The stock market is forward-looking: Investors are betting on what the world and the economy look like in 12 to 18 months from now, not what they look like today, tomorrow or this fall. 2. The big get bigger: Much of the stock market’s success has been the result of a run-up in value for a few big technology companies — including Apple, Amazon and Microsoft — that make up a large share of the index. And retailers like Walmart and Home Depot are growing in part because small businesses have closed, allowing the bigger companies to take even more market share. 3. Betting on a vaccine: Given the daily headlines about the potential for a vaccine, investors want to be invested in the market when the news comes that there is a genuine vaccine, on the assumption that it will send stocks even higher. 4. The only game in town: With the Federal Reserve planning to print money for the foreseeable future, investors don’t want to be in cash or bonds, which are steadily losing value. So where else can they put their money? The stock market has become a default. 5. Help from Washington: As dysfunctional as Congress has proved to be, investors are betting that Republicans and Democrats will find a way to keep plying the economy with stimulus. (Anecdotal stories suggest some Americans have even taken their $600 unemployment checks and invested them in the stock market.) Of course, all of these rationalizations don’t take into account the possibility of a terrible second or third coronavirus wave, a delay in the discovery of a vaccine, a constitutional crisis come the election in November, runaway inflation, the prospect of higher taxes to pay for the stimulus, a more significant trade war with China, or the dozens of other risks that seem to be bubbling just below — and in some cases on — the surface. In the meantime, happy trading!" * #4 I hadn’t thought of, and is a VERY troubling sign I think. Cash is devaluing because of inflation. Bonds are devaluing because of a loss of hope of future repayment (they are debt instruments).

ghaff 6y ago
#4 seems like somewhat of an overstatement. It's true that you probably can't really keep money out of the stock market if you have appreciable money to invest. But that doesn't mean you can't reasonably hedge your bets at least somewhat. You won't get the full upside if the market continues to do well but you do have some downside protection that has at least a small return.

williesleg 6y ago

Because everyone is investing except you.

jshaqaw 6y ago

The bull case is that by mid-1Q we have a vaccine and the crisis is over. Government fiscal and monetary keeps the economy on life support until that happens. If you value a business bottom up and you think 2021/2022 sort of revert back to 2019 then by now in 2020 you are basing your valuations on those numbers and decreasing the equity value where necessary for businesses that took on debt to get through 2020. The Fed has said it will keep rates low for longer and overshoot 2% which is an average target not a ceiling. If your money has to go somewhere (and it does) then fixed income duration at paltry yields looks like a bad bet if we get a tick up in inflation. In an inflationary environment stocks aren't great but they will preserve purchasing power better than bonds. Sure you can play with commodities and bitcoins but are you as say a middle-aged saver with a family going to put your entire liquid net worth into gold bullion and bitcoin (of course this being Hacker News I expect a good number of "of course" responses!) For my two cents I was embarrassingly late the the bull party and couldn't believe the rally back so fast. There will of course be a jobs recovery from the lows as the virus threat ebbs but I suspect a decent number of the jobs lost are structural and employment won't quickly rebound to sub 5%. Gun to my head I'd say high single digit unemployment could linger a while which is pretty painful. If the Federal government remains deadlocked then state and municipal austerity will multiply the economic pain.

the-dude 6y ago
AIDS never got a vaccine, SARS and MERS neither.
- GhostVII 6y ago
  There are several COVID vaccines in stage 3 trials, I think it is safe to say that we will have a vaccine being rolled out by mid 2021 at the very latest.
  - 0xffff2 6y ago
    Are you an immunologist? I'm not, but it's my layman's understanding that most candidates are likely to make it to stage 3, and that most will fail in stage 3. As far as I can tell, the number of candidates in stage 3 trials is not a strong indicator of the likelihood of a successful vaccine being developed.

blaser-waffle 6y ago

TINA -- There Is No Alternative [to Wall Street] Plus economies of scale on top of COVID killing mom & pop shops means that only large scale players can survive as Main Street offerings, e.g. the Starbucks on every block, or large chain eateries.

zacherates 6y ago

1. Stock markets are forward looking. Prices reflect expectations about the company going far into the future, not just right now. So yeah, this year and next year are going to be bad, but we expect that five years from now things will be back to normal or better and prices reflect that. 2. Companies in the S&P 500 (which is what people often mean when they talk about Wall Street/the market/etc) are by definition are big and have easy access to the capital markets. Consequently, they are the best positioned to whether the storm and seize the opportunities as they come. When things start recovering companies with money/easy access to the bond market are going to be the ones who can open new locations and capitalize on pent up demand. 3. There are a bunch of big companies that have actually done well for the last six months. The obvious ones are companies like Amazon, Netflix and Zoom, but for instance Target and Walmart have benefited from being allowed to stay open because they sell essentials while also selling everything else so they were often the only option other than Amazon. 4. When people talk about the S&P 500 recovering unbelievably fast, they often mean vs. the lows in March. Those lows were not reflective of the reality of what was happening (definitionally: nobody knew the reality of what was happening, lack of testing, etc.), but there was some concern that the actual apocalypse might have occurred... and everyday as merely bad news poured in that actually restored confidence because the news was not apocalyptic. So, the prices rose. 5. There really are a bunch of bored people buying stocks on their phone because they can't bet on sports anymore [1]. It's not clear how big an effect this is, but there really does seem to be extra retail demand for stocks. [1] https://www.bloomberg.com/news/audio/2020-07-09/inside-the-mind-of-a-young-retail-day-trader-podcast https://www.bloomberg.com/news/audio/2020-07-09/inside-the-m...

AngrySkillzz 6y ago

The price of productive assets goes up as interest rates fall, this is a simple NPV calculation. Interest rates are low, and have been low in the developed world for a while. The reason for this has nothing to do with central bank conspiracy theories. The neutral rate of interest is determined by productivity growth, profitability of available investments, and how much capital there is that can be invested in them. The best a central bank can do is 1. be good at detecting where this equilibrium is and reacting to it, and 2. move interest rates at the margins to smooth out the business cycle. Think of it this way. If, in the aggregate, an average business would make a real return of 3% per year, then an interest rate above 3% would discourage all but the best business ideas from being pursued. Likewise a lower rate would encourage investment in worse ideas with lower profit margins. This is one way to think about the "neutral rate of interest." It is determined by exogenous facts about the real economy. Now, we have fewer "profitable ideas" (and lower productivity growth correspondingly), and significantly more savings due to greying populations (people who are older/will live longer require more savings) and cultural tendencies (e.g. higher savings rates in China, Germany). So the neutral rate falls, and the result of that the price of capital goods rises. Central banks' hands are effectively forced by this situation. If policy maintained an artificially high interest rate when the neutral rate is lower, economic contraction would ensue disadvantaging all parties.

watertom 6y ago

Remember the stock market has always been a game, it's never mirrored reality. I'd say that the institutions that own the majority of stocks, colluded and just decided to sit tight.