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> “Market rules are not written in stone,” said Robert Colby of Robert W. Colby Asset Management, which has $20 million in assets under management. “Sometimes t

by smabie 6y ago

> “Market rules are not written in stone,” said Robert Colby of Robert W. Colby Asset Management, which has $20 million in assets under management. “Sometimes there’s just no logic to market behavior.” No logic?? The fed has been spending like its no tomorrow and rates are effectively at zero. Investors have correctly realized there's a large backstop to how much the market can fall. If we see another crash, I wouldn't even be surprised if the Fed starts buying stock. Until the pandemic has passed, rates will stay at zero and the fed will keep buying back bonds. This might increase real inflation (I kind of doubt it, inflation seems to stay low no matter what the Fed does), but it definitely has/will lead to asset inflation. Even so, I think investors are still worried about short-term crashes that could easily evaporate 10-20% of the recent gains. This is why everyone has been piling into tech stocks, as they represent a "safe" sector in which the downside risk is limited by strong revenue and a great strategic position during the pandemic.

lilbaine 6y ago
Good argument and well stated! Also inflation hasn’t kicked in since real wages are also stagnant compared to their real values (not nominal values) since probably the early 1990’s. I have been waiting for commodity inflation since 2011 and this period has been more deflationary from my observations. Take the price of oil as an example. Since 2008 to now. The prices of gold and platinum have been relatively low until the pandemic. Also look at prices of wheat and other commodities. They deflated in 2007-2014 and struggled to pick up. Commodity pricing is also affected by varying political, social and technological environments. And from my own personal observance of the economy we are in a more biflationary period. This would be evident by the stagnant pricing of oil and the high prices of certain real estate, property and stocks. This is also evident with the knocking off of Exxon from the Dow Jones stock exchange.
acwan93 6y ago
Isn’t the reason why inflation hasn’t increased despite the Fed’s spending due to the low Velocity of M2 Money? The Fed’s data indicates that since the 2008 recession, the exchange of money from one party to another has decreased, only to tank in 2020 [1]. Despite the money supply being increased like no tomorrow, if it’s not getting spent and is just sitting in savings accounts the economy wouldn’t get stimulated. This would imply current wage stagnation and the cost of goods not increasing aside from real estate and college tuition. I would think that maybe the S&P 500 has probably also turned into a savings account for some since the ROÍ on any other investment is lousy. [1]: https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V
- thatfrenchguy 6y ago
  It’s also pretty obvious when you walk and drive around the United States that there hasn’t been any sort of substantial investment over the past 10-20 years in infrastructure, housing and manufacturing. A lot of the assets being expensive in the US is expensive because TINA.
  - seibelj 6y ago
    An alternative explanation is the US doesn’t invest in shiny new objects if the rusty old one still functions. There are many bullet trains in Spain and ghost cities in China that look nice and make great conversation, but are not actually economically viable.
    - magicsmoke 6y ago
      Economic viability is a function of cost today and profit tomorrow. Cost today depends on how much practice you had yesterday. It could be that projects in Europe and China are economically viable because the cost of civil engineering is lower than in the US since their engineers get plenty of practice and there's enough ongoing projects to justify capital investments in steel, cement, and equipment production that keep per unit costs of building materials low.
    - hakfoo 6y ago
      To me, bullet trains and ghost cities are speculation in the most traditional sense. "If we build a 350kph train from Los Angeles to Phoenix, people will ride it" or "If we build 30,000 slapdash condos in a modern-day Brasilia, people will want to live there" is not really that much different from "If build an app for people to sub-lease their spare kitchen cupboard space to strangers, they'll watch advertisements to gain access." The nice thing is that tangible-world speculation has a lower downside potential, because you're actually building something that has real-world utility to anchor its value. The ghost city might have to mark down their apartments until they finally find a selling price, but it's probably not going to be zero. The bullet train can fit into a larger economic development scheme, or worst case be cut up for scrap steel. In the process, you probably created a nice long cycle of blue-collar jobs, and worst case, you exit by selling out at 25 cents on the dollar. When they turn out the lights at a random "tech startup" for the last time, you've distilled a few million investor dollars into a few unloved snippets of code released to the dark corridors of Github, a handful of obsolete MacBooks, and ugly trade-show gift items. There's nothing left to flog to get your money back because there was nothing there of real-world value in the first place. I feel like this could be a welcoming alternative for some more cautious money-- risk-tolerant but not completely gambling. You know you're not going to get a "call up AWS and order more severs" growth moment, but you're not going to completely lose your shirt, and if it's done with competent people, the process is slow and relatively surprise-free.

by smabie 6y ago

lilbaine 6y ago

Good argument and well stated! Also inflation hasn’t kicked in since real wages are also stagnant compared to their real values (not nominal values) since probably the early 1990’s. I have been waiting for commodity inflation since 2011 and this period has been more deflationary from my observations. Take the price of oil as an example. Since 2008 to now. The prices of gold and platinum have been relatively low until the pandemic. Also look at prices of wheat and other commodities. They deflated in 2007-2014 and struggled to pick up. Commodity pricing is also affected by varying political, social and technological environments. And from my own personal observance of the economy we are in a more biflationary period. This would be evident by the stagnant pricing of oil and the high prices of certain real estate, property and stocks. This is also evident with the knocking off of Exxon from the Dow Jones stock exchange.

acwan93 6y ago

Isn’t the reason why inflation hasn’t increased despite the Fed’s spending due to the low Velocity of M2 Money? The Fed’s data indicates that since the 2008 recession, the exchange of money from one party to another has decreased, only to tank in 2020 [1]. Despite the money supply being increased like no tomorrow, if it’s not getting spent and is just sitting in savings accounts the economy wouldn’t get stimulated. This would imply current wage stagnation and the cost of goods not increasing aside from real estate and college tuition. I would think that maybe the S&P 500 has probably also turned into a savings account for some since the ROÍ on any other investment is lousy. [1]: https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V

thatfrenchguy 6y ago
It’s also pretty obvious when you walk and drive around the United States that there hasn’t been any sort of substantial investment over the past 10-20 years in infrastructure, housing and manufacturing. A lot of the assets being expensive in the US is expensive because TINA.
- seibelj 6y ago
  An alternative explanation is the US doesn’t invest in shiny new objects if the rusty old one still functions. There are many bullet trains in Spain and ghost cities in China that look nice and make great conversation, but are not actually economically viable.
  - magicsmoke 6y ago
    Economic viability is a function of cost today and profit tomorrow. Cost today depends on how much practice you had yesterday. It could be that projects in Europe and China are economically viable because the cost of civil engineering is lower than in the US since their engineers get plenty of practice and there's enough ongoing projects to justify capital investments in steel, cement, and equipment production that keep per unit costs of building materials low.
  - hakfoo 6y ago
    To me, bullet trains and ghost cities are speculation in the most traditional sense. "If we build a 350kph train from Los Angeles to Phoenix, people will ride it" or "If we build 30,000 slapdash condos in a modern-day Brasilia, people will want to live there" is not really that much different from "If build an app for people to sub-lease their spare kitchen cupboard space to strangers, they'll watch advertisements to gain access." The nice thing is that tangible-world speculation has a lower downside potential, because you're actually building something that has real-world utility to anchor its value. The ghost city might have to mark down their apartments until they finally find a selling price, but it's probably not going to be zero. The bullet train can fit into a larger economic development scheme, or worst case be cut up for scrap steel. In the process, you probably created a nice long cycle of blue-collar jobs, and worst case, you exit by selling out at 25 cents on the dollar. When they turn out the lights at a random "tech startup" for the last time, you've distilled a few million investor dollars into a few unloved snippets of code released to the dark corridors of Github, a handful of obsolete MacBooks, and ugly trade-show gift items. There's nothing left to flog to get your money back because there was nothing there of real-world value in the first place. I feel like this could be a welcoming alternative for some more cautious money-- risk-tolerant but not completely gambling. You know you're not going to get a "call up AWS and order more severs" growth moment, but you're not going to completely lose your shirt, and if it's done with competent people, the process is slow and relatively surprise-free.