3 ms·

none of them? stocks have never been more detached from the underlying economy than now - i mean look at the total market cap of US stocks to GDP - it’s someth

by tempsy 6y ago

none of them? stocks have never been more detached from the underlying economy than now - i mean look at the total market cap of US stocks to GDP - it’s something like 170%

throw0101a 6y ago
> stocks have never been more detached from the underlying economy than now Economic indicators (CPI, GDP, unemployment) are backwards looking, while stocks are generally forward looking. The S&P 500 peaked around mid-February and then started tanking. Meanwhile, in early March: > On March 2, New York City Mayor Bill de Blasio tweeted that people should ignore the virus and "go on with your lives + get out on the town despite coronavirus."[73][74] At a news conference on March 3, New York City Commissioner of Health Oxiris Barbot said "we are encouraging New Yorkers to go about their everyday lives."[75] * https://en.wikipedia.org/wiki/COVID-19_pandemic_in_New_York_(state)#March https://en.wikipedia.org/wiki/COVID-19_pandemic_in_New_York_... Cuomo then declared a state of emergency on March 7—at least two weeks after stocks started 'acting'. The stock market (as 'an entity') dislikes unexpected news: as new information ripples out, the Efficient Market Hypothesis purports that will effect prices. So if a company says a quarter or two will be good, and it turns out bad, their stock price will effected by that new information. But if everyone already knows that things will be bad, when the bad news is announced there won't be much of a reaction. You can have bad news as long it's expected: the pandemic was unexpected and so everyone had to re-organize their strategies. That was February to March. Now that the pandemic is more of a know quantity, and its effects of society are more well-known, people can focus on how companies will deal with it: it's generally bad for cruise lines and airlines (stocks down), it's generally good for companies that help with work/shelter-in-place stuff like Zoom/telcomm and cloud (stocks up). What was April onwards. Yes, the economy does suck. But stocks are about forward looking expectations, not about the now or past.
- tempsy 6y ago
  i don’t think you can look at Tesla surpassing Walmart in market cap today and rationalize it as normal forward looking behavior when there’s been zero news over the last 10 days outside of a stock split, which in theory should have zero impact on the market cap my point is we aren’t living in a world where a stock is simply the present value of future cash flows and no one should rationalize the market as such
  - throw0101a 6y ago
    It's going up because it has gone up. See the momentum investing factor: * https://www.investopedia.com/terms/m/momentum.asp https://www.investopedia.com/terms/m/momentum.asp Also, it has just recently become eligible to become part of the S&P 500 (through some perhaps 'amusing' accounting), so a bunch of folks may be front running it's possible actual inclusion: * https://www.thebeartrapsreport.com/blog/2020/07/19/gaming-the-sp-500-inclusion-process/ https://www.thebeartrapsreport.com/blog/2020/07/19/gaming-th... Though long-term stock holders may not actually want inclusion: * https://www.nber.org/papers/w27593 https://www.nber.org/papers/w27593
    - tempsy 6y ago
      that has nothing to do with forward expectations, which is my point.
      - throw0101a 6y ago
        It has gone up for the last little while, so the expectation is that it will continue to go up. From the article I linked: > When applied, an investor can buy or sell based on the strength of the trends in an asset's price. If a trader wants to use a momentum-based strategy, he takes a long position in a stock or asset that has been trending up. If the stock is trending down, he takes a short position. Instead of the traditional philosophy of trading—buy low, sell high—momentum investing seeks to sell low and buy lower, or buy high and sell higher. Instead of identifying the continuation or reversal pattern, momentum investors focus on the trend created by the most recent price break. Momentum is a recognized factor in investment returns in peer-reviewed research: * https://en.wikipedia.org/wiki/Factor_investing https://en.wikipedia.org/wiki/Factor_investing
      - idoh 6y ago
        If that's what you believe then you can always put your money where your mouth is and go short on Tesla.
        tempsy 6y ago
leetcrew 6y ago
> stocks have never been more detached from the underlying economy than now maybe so. > i mean look at the total market cap of US stocks to GDP - it’s something like 170% but doesn't this make sense? I would expect the total market cap of public companies to be worth more than a single year's productivity.
- tempsy 6y ago
  its a relative measure - meaning it’s never been higher than it is now specifically it’s the ratio of the wilshire 5000 over GDP
  - perl4ever 6y ago
    I don't understand how you can draw any conclusion from the ratio. Not all of GDP comes from the public companies in the wilshire 5000. If we pretend it did, wouldn't 170% be a P/E ratio "in disguise"? In which case 1.7 is very, very low as P/Es go. It seems to me that 170% is clearly not evidence of the stock market being overvalued, while not being clear evidence it is undervalued either. If you disagree, what tells you the appropriate number? It seems like not knowing the portion of the economy outside the stock market, and whether it has gotten bigger or smaller, rules out knowing what the ratio means. Another thing I just thought of is that public companies draw on the global economy, but the "D" in GDP is domestic. And yet another thing I thought of is, what about the Net Domestic Product? TIL there is such a thing, although it isn't tremendously smaller than GDP. It appears substituting it would bring the ratio closer to 200% or 2:1.
    - jmalicki 6y ago
      GDP is much more like revenue than earnings... but 1.7x price/sales ratio is still on the low end.
zamfi 6y ago
> stocks have never been more detached from the underlying economy than now - i mean look at the total market cap of US stocks to GDP - it’s something like 170% I haven't done the research, but: how much have the underlying dynamics changed, though? Has concentration increased the percentage of GDP that goes through public companies? In other words, if 20 years ago, 25% of GDP flowed through US public companies, and now it's 35%, you'd expect the ratio of public companies' capitalizations to GDP to increase a lot. I'm not saying this is good or bad, but it wouldn't be "detached from the underlying economy", it'd be a direct reflection of it.

by tempsy 6y ago

none of them? stocks have never been more detached from the underlying economy than now - i mean look at the total market cap of US stocks to GDP - it’s something like 170%

throw0101a 6y ago

> stocks have never been more detached from the underlying economy than now Economic indicators (CPI, GDP, unemployment) are backwards looking, while stocks are generally forward looking. The S&P 500 peaked around mid-February and then started tanking. Meanwhile, in early March: > On March 2, New York City Mayor Bill de Blasio tweeted that people should ignore the virus and "go on with your lives + get out on the town despite coronavirus."[73][74] At a news conference on March 3, New York City Commissioner of Health Oxiris Barbot said "we are encouraging New Yorkers to go about their everyday lives."[75] * https://en.wikipedia.org/wiki/COVID-19_pandemic_in_New_York_(state)#March https://en.wikipedia.org/wiki/COVID-19_pandemic_in_New_York_... Cuomo then declared a state of emergency on March 7—at least two weeks after stocks started 'acting'. The stock market (as 'an entity') dislikes unexpected news: as new information ripples out, the Efficient Market Hypothesis purports that will effect prices. So if a company says a quarter or two will be good, and it turns out bad, their stock price will effected by that new information. But if everyone already knows that things will be bad, when the bad news is announced there won't be much of a reaction. You can have bad news as long it's expected: the pandemic was unexpected and so everyone had to re-organize their strategies. That was February to March. Now that the pandemic is more of a know quantity, and its effects of society are more well-known, people can focus on how companies will deal with it: it's generally bad for cruise lines and airlines (stocks down), it's generally good for companies that help with work/shelter-in-place stuff like Zoom/telcomm and cloud (stocks up). What was April onwards. Yes, the economy does suck. But stocks are about forward looking expectations, not about the now or past.

tempsy 6y ago
i don’t think you can look at Tesla surpassing Walmart in market cap today and rationalize it as normal forward looking behavior when there’s been zero news over the last 10 days outside of a stock split, which in theory should have zero impact on the market cap my point is we aren’t living in a world where a stock is simply the present value of future cash flows and no one should rationalize the market as such
- throw0101a 6y ago
  It's going up because it has gone up. See the momentum investing factor: * https://www.investopedia.com/terms/m/momentum.asp https://www.investopedia.com/terms/m/momentum.asp Also, it has just recently become eligible to become part of the S&P 500 (through some perhaps 'amusing' accounting), so a bunch of folks may be front running it's possible actual inclusion: * https://www.thebeartrapsreport.com/blog/2020/07/19/gaming-the-sp-500-inclusion-process/ https://www.thebeartrapsreport.com/blog/2020/07/19/gaming-th... Though long-term stock holders may not actually want inclusion: * https://www.nber.org/papers/w27593 https://www.nber.org/papers/w27593
  - tempsy 6y ago
    that has nothing to do with forward expectations, which is my point.
    - throw0101a 6y ago
      It has gone up for the last little while, so the expectation is that it will continue to go up. From the article I linked: > When applied, an investor can buy or sell based on the strength of the trends in an asset's price. If a trader wants to use a momentum-based strategy, he takes a long position in a stock or asset that has been trending up. If the stock is trending down, he takes a short position. Instead of the traditional philosophy of trading—buy low, sell high—momentum investing seeks to sell low and buy lower, or buy high and sell higher. Instead of identifying the continuation or reversal pattern, momentum investors focus on the trend created by the most recent price break. Momentum is a recognized factor in investment returns in peer-reviewed research: * https://en.wikipedia.org/wiki/Factor_investing https://en.wikipedia.org/wiki/Factor_investing
    - idoh 6y ago
      If that's what you believe then you can always put your money where your mouth is and go short on Tesla.
      - tempsy 6y ago

leetcrew 6y ago

> stocks have never been more detached from the underlying economy than now maybe so. > i mean look at the total market cap of US stocks to GDP - it’s something like 170% but doesn't this make sense? I would expect the total market cap of public companies to be worth more than a single year's productivity.

tempsy 6y ago
its a relative measure - meaning it’s never been higher than it is now specifically it’s the ratio of the wilshire 5000 over GDP
- perl4ever 6y ago
  I don't understand how you can draw any conclusion from the ratio. Not all of GDP comes from the public companies in the wilshire 5000. If we pretend it did, wouldn't 170% be a P/E ratio "in disguise"? In which case 1.7 is very, very low as P/Es go. It seems to me that 170% is clearly not evidence of the stock market being overvalued, while not being clear evidence it is undervalued either. If you disagree, what tells you the appropriate number? It seems like not knowing the portion of the economy outside the stock market, and whether it has gotten bigger or smaller, rules out knowing what the ratio means. Another thing I just thought of is that public companies draw on the global economy, but the "D" in GDP is domestic. And yet another thing I thought of is, what about the Net Domestic Product? TIL there is such a thing, although it isn't tremendously smaller than GDP. It appears substituting it would bring the ratio closer to 200% or 2:1.
  - jmalicki 6y ago
    GDP is much more like revenue than earnings... but 1.7x price/sales ratio is still on the low end.

zamfi 6y ago

> stocks have never been more detached from the underlying economy than now - i mean look at the total market cap of US stocks to GDP - it’s something like 170% I haven't done the research, but: how much have the underlying dynamics changed, though? Has concentration increased the percentage of GDP that goes through public companies? In other words, if 20 years ago, 25% of GDP flowed through US public companies, and now it's 35%, you'd expect the ratio of public companies' capitalizations to GDP to increase a lot. I'm not saying this is good or bad, but it wouldn't be "detached from the underlying economy", it'd be a direct reflection of it.