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With interest rates near 0%, equities are one of the few places you can expect to earn a reasonable yield on capital. The Fed has made it clear they don't plan

With interest rates near 0%, equities are one of the few places you can expect to earn a reasonable yield on capital. The Fed has made it clear they don't plan to raise rates in the foreseeable future, so don't count on the demand for stocks to go away anytime soon. If you're curious about how retail confidence is holding up, here's a dashboard I'm building to track discussion on the notorious WallStreetBets subreddit: https://www.quiverquant.com/wallstreetbets/ https://www.quiverquant.com/wallstreetbets/

deleted 6y ago
[deleted]
divbzero 6y ago
Yes, and in addition to near-zero rates for the foreseeable future, the Fed has also shown a willingness to engage in QE and other unconventional forms of monetary stimulus. This is a key driver of the continued climb in equity and real estate assets that seems to defy economic reality.
- bsder 6y ago
  > This is a key driver of the continued climb of equity and real estate assets that seems to defy economic reality. The real estate crash hasn't rippled ... yet. Lots of younger people have moved home. High cost-of-living rental areas are going to lose those renters permanently. Once those younger people swallow their pride and move home ... there really isn't anything pulling them back. Commercial real estate is like Wile E. Coyote running in mid-air trying not to look down. The commercial real estate has lots of empty spaces with no real prospect of refilling them ... yet they're placing those on the books by tacking them onto the end of the financing at the same level as they were when they were rented. That works great ... until the cash flow can't support anything at which point it all collapses together. Of course, this is all going to hang together like the traders before 2008: "They're is a crash coming. If I'm right, it's almost impossible for me to diversify enough to survive because the trashing is going to be so thorough. If I'm wrong, I look like an idiot and lose money. So, I'll close my eyes and toe the company line and see if I can cash out before the devastation."
  - SpicyLemonZest 6y ago
    I think "lots" is pretty load-bearing here. How many younger people, precisely, have moved back home? If half of them have, I agree that's a big paradigm shift; if 5% have, I'm not sure that adds up to something very far outside normal variability.
    - bsagdiyev 6y ago
      I would say a significant amount, I don’t have the article link on hand but U-Haul prices out of California are 10 - 40x the price the opposite direction. I was hit by this since we had planned to move out of state prior to what is going on (roughly a year ago) and needed to price it out. We’re still moving, just getting the trailer instead of the full truck and I’ll haul the stuff while my girlfriend and son fly out instead.
    - wtracy 6y ago
      Over half. 52%, actually. https://www.pewresearch.org/fact-tank/2020/09/04/a-majority-of-young-adults-in-the-u-s-live-with-their-parents-for-the-first-time-since-the-great-depression/ https://www.pewresearch.org/fact-tank/2020/09/04/a-majority-...
      - MiroF 6y ago
        That does not say that over half have moved back home since Covid. Read critically.
      - SpicyLemonZest 6y ago
        The relevant variable here isn't the headline 52%, but the fraction of young people who lived independently but have recently stopped, which is (52 - 47) / (100 - 47) = 9.4%. That's a big number, but I don't know that it's big enough to be the death of many cities - it seems plausible that those 9.4% could move back out over the next few years for the same reasons they moved out in the first place. (And remember that young people living independently are only a part of a city's population.) Of course, it's likely that this impact isn't going to be uniform, so that doesn't mean individual neighborhoods (or even individual cities) have no cause for concern.
grey-area 6y ago
The second crash this year has already started, perhaps triggered by the realisation that tech stocks are not as insulated from the global recession as previously hoped. Central banks are out of ammunition and have been reduced to buying corporate debt indiscriminately and promising ZIRP forever, having less and less impact on markets. FANGMAN has lost $1.4tn in mkt cap since beginning of Sep w/#Apple quietly down 22.6% from highs, #Netflix down 18.3%, #Nvidia 17.2%, #Facebook 17.1%, #Amazon down 16.8%, #Google 15.9%, #Microsoft down 14%. https://twitter.com/Schuldensuehner/status/1307205871907336193 https://twitter.com/Schuldensuehner/status/13072058719073361... Things are highly volatile right now. Frothy stocks like Tesla are moving 20% in a day both ways, which is neither normal nor desirable, CAPE at 1929 levels, 5 largest companies (all tech) were > 20% of S&P, IPOs reaching 140x earnings on first day (snowflake), fraud like We Work and Nikola constantly coming to light, companies like Softbank (of We infamy) making huge speculative bets on options. All the signs are here for a remarkable speculative bubble in tech stocks. All this in the face of the sharpest recession on record, with worse unemployment than the great recession of the 1930s. I'm not convinced US equities will continue to provide the remarkable returns seen this year (with no basis in the real economy). Tech companies like Amazon need other tech companies to spend on AWS and consumers to buy, companies like FB/Google need other companies to spend on ads, companies like Apple/Netflix need consumers with disposable income. Everything is connected.
- bob33212 6y ago
  The thing that the Bitcoin people got right is that the dollar is worth less than most people realize. The government can erase much of the debt by printing money. Owning cash is a bad idea. Sure the P/E of Tesla looks like a bubble. But what alternative is there to do with cash right now?
  - sudosysgen 6y ago
    Foreign currency (preferably physical, especially if things such as RMB) or gold.
    - mxschumacher 6y ago
imtringued 6y ago
>With interest rates near 0%, equities are one of the few places you can expect to earn a reasonable yield on capital. No, not in a world with COVID. Equities should be going down, not up.
- QuesnayJr 6y ago
  The price for equities is driven by supply and demand, like all other prices. Does COVID make you want to save more, or less? If it's more, given that bonds have extremely low returns, why not stocks? Especially if you think that there will be a sharp rebound next quarter. I mean, I think the stock are overvalued, but it's not hard to see how we ended up here. I thought about rebalancing out of stocks to avoid a drop, but I'm stymied by the question: rebalance to what?
  - xnx 6y ago
    Rebalancing to cash would seem to make sense if you expected a crash. I gather that this doesn't happen because no one wants to pay a money manager to not invest their money.
    - KozmoNau7 6y ago
      I foresee rebalancing to cash in October, see how the election turns out and shakes things up, then take a critical look at reinvesting in 2021.
      - jiofih 6y ago
        AKA timing the market. Good luck.
        tanatocenose 6y ago
        Difficult but the way every great trader makes their fortune.
      - christocracy 6y ago

deleted 6y ago

[deleted]

divbzero 6y ago

Yes, and in addition to near-zero rates for the foreseeable future, the Fed has also shown a willingness to engage in QE and other unconventional forms of monetary stimulus. This is a key driver of the continued climb in equity and real estate assets that seems to defy economic reality.

bsder 6y ago
> This is a key driver of the continued climb of equity and real estate assets that seems to defy economic reality. The real estate crash hasn't rippled ... yet. Lots of younger people have moved home. High cost-of-living rental areas are going to lose those renters permanently. Once those younger people swallow their pride and move home ... there really isn't anything pulling them back. Commercial real estate is like Wile E. Coyote running in mid-air trying not to look down. The commercial real estate has lots of empty spaces with no real prospect of refilling them ... yet they're placing those on the books by tacking them onto the end of the financing at the same level as they were when they were rented. That works great ... until the cash flow can't support anything at which point it all collapses together. Of course, this is all going to hang together like the traders before 2008: "They're is a crash coming. If I'm right, it's almost impossible for me to diversify enough to survive because the trashing is going to be so thorough. If I'm wrong, I look like an idiot and lose money. So, I'll close my eyes and toe the company line and see if I can cash out before the devastation."
- SpicyLemonZest 6y ago
  I think "lots" is pretty load-bearing here. How many younger people, precisely, have moved back home? If half of them have, I agree that's a big paradigm shift; if 5% have, I'm not sure that adds up to something very far outside normal variability.
  - bsagdiyev 6y ago
    I would say a significant amount, I don’t have the article link on hand but U-Haul prices out of California are 10 - 40x the price the opposite direction. I was hit by this since we had planned to move out of state prior to what is going on (roughly a year ago) and needed to price it out. We’re still moving, just getting the trailer instead of the full truck and I’ll haul the stuff while my girlfriend and son fly out instead.
  - wtracy 6y ago
    Over half. 52%, actually. https://www.pewresearch.org/fact-tank/2020/09/04/a-majority-of-young-adults-in-the-u-s-live-with-their-parents-for-the-first-time-since-the-great-depression/ https://www.pewresearch.org/fact-tank/2020/09/04/a-majority-...
    - MiroF 6y ago
      That does not say that over half have moved back home since Covid. Read critically.
    - SpicyLemonZest 6y ago
      The relevant variable here isn't the headline 52%, but the fraction of young people who lived independently but have recently stopped, which is (52 - 47) / (100 - 47) = 9.4%. That's a big number, but I don't know that it's big enough to be the death of many cities - it seems plausible that those 9.4% could move back out over the next few years for the same reasons they moved out in the first place. (And remember that young people living independently are only a part of a city's population.) Of course, it's likely that this impact isn't going to be uniform, so that doesn't mean individual neighborhoods (or even individual cities) have no cause for concern.

grey-area 6y ago

The second crash this year has already started, perhaps triggered by the realisation that tech stocks are not as insulated from the global recession as previously hoped. Central banks are out of ammunition and have been reduced to buying corporate debt indiscriminately and promising ZIRP forever, having less and less impact on markets. FANGMAN has lost $1.4tn in mkt cap since beginning of Sep w/#Apple quietly down 22.6% from highs, #Netflix down 18.3%, #Nvidia 17.2%, #Facebook 17.1%, #Amazon down 16.8%, #Google 15.9%, #Microsoft down 14%. https://twitter.com/Schuldensuehner/status/1307205871907336193 https://twitter.com/Schuldensuehner/status/13072058719073361... Things are highly volatile right now. Frothy stocks like Tesla are moving 20% in a day both ways, which is neither normal nor desirable, CAPE at 1929 levels, 5 largest companies (all tech) were > 20% of S&P, IPOs reaching 140x earnings on first day (snowflake), fraud like We Work and Nikola constantly coming to light, companies like Softbank (of We infamy) making huge speculative bets on options. All the signs are here for a remarkable speculative bubble in tech stocks. All this in the face of the sharpest recession on record, with worse unemployment than the great recession of the 1930s. I'm not convinced US equities will continue to provide the remarkable returns seen this year (with no basis in the real economy). Tech companies like Amazon need other tech companies to spend on AWS and consumers to buy, companies like FB/Google need other companies to spend on ads, companies like Apple/Netflix need consumers with disposable income. Everything is connected.

bob33212 6y ago
The thing that the Bitcoin people got right is that the dollar is worth less than most people realize. The government can erase much of the debt by printing money. Owning cash is a bad idea. Sure the P/E of Tesla looks like a bubble. But what alternative is there to do with cash right now?
- sudosysgen 6y ago
  Foreign currency (preferably physical, especially if things such as RMB) or gold.
  - mxschumacher 6y ago

imtringued 6y ago

>With interest rates near 0%, equities are one of the few places you can expect to earn a reasonable yield on capital. No, not in a world with COVID. Equities should be going down, not up.

QuesnayJr 6y ago
The price for equities is driven by supply and demand, like all other prices. Does COVID make you want to save more, or less? If it's more, given that bonds have extremely low returns, why not stocks? Especially if you think that there will be a sharp rebound next quarter. I mean, I think the stock are overvalued, but it's not hard to see how we ended up here. I thought about rebalancing out of stocks to avoid a drop, but I'm stymied by the question: rebalance to what?
- xnx 6y ago
  Rebalancing to cash would seem to make sense if you expected a crash. I gather that this doesn't happen because no one wants to pay a money manager to not invest their money.
  - KozmoNau7 6y ago
    I foresee rebalancing to cash in October, see how the election turns out and shakes things up, then take a critical look at reinvesting in 2021.
    - jiofih 6y ago
      AKA timing the market. Good luck.
      - tanatocenose 6y ago
        Difficult but the way every great trader makes their fortune.
    - christocracy 6y ago