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The stock market is an odd duck. What to make of it now? There's both colors of swans at work in terms of the plague, excessive money printing, per Peter Turc

The stock market is an odd duck. What to make of it now? There's both colors of swans at work in terms of the plague, excessive money printing, per Peter Turchin (cliodynamics) a peaking cycle in civic unrest, a potential loss of reserve currency status, big changes in tech that still haven't been digested, low cost of transactions. Lotsa opportunities for froth. I'm still uncomfortable with it as a store of value. Not many people even owned stocks in the past, which makes historical comparisons a little problematic. It took things like the government heavily encouraging parking money there (401k, IRA, tax law changes, corporate tax law) and greater ease of transaction to put us where we are. You could argue that the entire market is a mania. edit: Just to indulge my logorrhea for a minute, I wonder to what extent we are seeing an organic change in stock markets, a form of evolution really, that takes advantage of human nature. In the last 40 years or so, it was bound to gather up all the accoutrements of video poker. Marketing and blinkenlights, random payoffs, a house percentage getting scraped off, the fiction of player skill. The payoff is greater than 100% due to it riding the back of GDP growth (and the growth of large companies at the expense of the small) but the science of the casino is built deeply in the human psyche. The stock market has to act the way it does simply to remain attractive to all the primates.

lotsofpulp 5y ago
> You could argue that the entire market is a mania. Objectively, the big publicly listed companies are growing and have stellar financials. I can think of no better place for someone to invest, other than maybe diversifying into real estate with high demand, if they already have a significant amount invested in public equity markets. Public equity market prices are also backed by the federal government, at least on a 5+ year (maybe even 3+ year) timeframe per events over the last few decades.
- kingsuper20 5y ago
  It's worth considering that what you are buying is a dividend stream and/or the possibility of a company being bought, which simply gives you more stock. When you essentially lend money to GOOGL or AMZN, what are you actually getting back besides a story? Don't get me wrong, in the timespan of an individual's life it may well make sense to heavily buy into this system. I'm just making the point that it's current form is rather new and appears loosely connected to the real world and is subject to change. To me, the current stock market seems like a fiat currency without the threat of physical force. Maybe the temptation will be to increasingly merge government with large companies in order to keep the plates spinning.
  - JohnPrine 5y ago
    Just because a company isn't distributing dividends doesn't mean you're only buying a story. AMZN still has lots of room to grow. If I'm an investor in AMZN I would much rather them reinvest profits into a data center that will produce even more future profits than distribute the money to me. Once these growth companies top out in terms of their market share they'll pivot to distributing dividends, same as large established companies like Coca Cola
    - ahi 5y ago
      CocaCola currently has a P/E of 32
      - robjan 5y ago
        You own the stock in perpetuity, not just for a year. As long as you don't expect the company to go bust any time soon that's not a bad PE ratio.
        ISL 5y ago
        As recently as 2011, KO had a P/E of 9. https://www.macrotrends.net/stocks/charts/KO/cocacola/pe-ratio https://www.macrotrends.net/stocks/charts/KO/cocacola/pe-rat... There are two ways that a P/E can return to a quasi-normal value. Either the price can go down or the earnings can increase. The mean and median values, since 1880, are about 15. "This time, it's different" https://www.multpl.com/s-p-500-pe-ratio https://www.multpl.com/s-p-500-pe-ratio
        nostrademons 5y ago
        So if earnings increase 3x the P/E goes back down to ~10. KO has excellent margins - last time I looked they were around 60%. That means prices * sales only has to increase by 5x to bump earnings up 3x. Food prices have been inflating at 10-15% recently; 15% inflation over 11 years will get you there, and that doesn't include any growth in sales at all. These aren't unreasonable assumptions, given the macro environment: another 1970s inflationary episode would do it. (Indeed, Warren Buffett made a lot of his money investing in Coca-Cola and See's Candies during the 1970s.)
- PragmaticPulp 5y ago
  I think a lot of newcomers to stock investing in the past year have been given the wrong ideas about the stock market. When all of the headlines are about GameStop and Nokia and AMC and some kid who made it lost a lot of money on RobinHood, the stock market can feel like a place for gambling. Now that cryptocurrency prices are listed right next to stock prices, many people don’t even understand that stocks are ownership shares in real businesses instead of just another ticker symbol to gamble on. Several times a week there are conversations on HN where commenters can’t understand how crypto currencies are different than stocks or how stocks are any different than gambling or why stocks can have any value without paying dividends. I suspect many of those newcomers will be shaken out of the market during the next protracted drawdown. It’s unfortunate, because they stand to lose a lot over the course of a lifetime of investing.
  - Red_Leaves_Flyy 5y ago
    > the next protracted drawdown We should have seen this drawdown last year.
    - thoughtstheseus 5y ago
      The longer the bubble builds the bigger the bust. We’ve chosen growth over stability, fundamentals, and robustness. Once the U.S. struggles to stimulate its economy through deficit spending it’ll hit a wall. It’ll be fine for people but there will be a massive dislocation in the economy.
      - Red_Leaves_Flyy 5y ago
        I understand this. I'd much rather deal with the bad decisions of yesterday today than tomorrow. I guess for people that won't be alive in twenty years this is immaterial..
        willcipriano 5y ago
        Check out the ages of elected officials, most are in the "won't be alive in twenty years" camp so the lack of foresight is unsurprising.
- highfrequency 5y ago
  There’s a big difference between saying that a company is growing and has stellar financials, and saying that it is a great stock to invest in. Surely the current price is relevant. Everyone can agree that Amazon is worth A Lot Of Money. The question is: is it worth $2T? or $3T? or $1T?
  - deleted 5y ago
    [deleted]
- tarsinge 5y ago
  But what are you investing in? The probability to sell (dump) <something> to someone in the future for a better price? > Objectively, the big publicly listed companies are growing and have stellar financials. If you don't invest for dividends then it doesn't give intrinsic value to the stock you own, it's just a proxy to the odds of your bet to dump it for a profit in the future.
nend 5y ago
>You could argue that the entire market is a mania. You could also argue that the entire market is simply a reflection of society and humanity in general. As an American, I don't really see the market we've built as any more maniacal than the society we've built. They seem to go hand in hand to me. What defines how logical/maniacal our society is if not our social institutions?
- kingsuper20 5y ago
  At the very least it reflects the movement in the US economy from manufacturing to financial services (FIRE) to surveillance-based advertising. Perhaps the thing to do is to cut to the chase and declare leaves as money (h/t to Douglas Adams).
duxup 5y ago
I remember the banking crisis and the money printing after that, it was absolutely assumed inflation would follow, how much was debatable, but there wasn't much debate about the impending inflation. Didn't happen... for <insert reasons that are now thought to be obvious but nobody knew before hand>. Who knows what to make of the rules these days.
- RobertoG 5y ago
  >"Didn't happen... for <insert reasons that are now thought to be obvious but nobody knew before hand>." That's not exactly true, MMT was right about that beforehand, this is from 2009: "There are also those that claim that quantitative easing will expose the economy to uncontrollable inflation. This is just harking back to the old and flawed Monetarist doctrine based on the so-called Quantity Theory of Money. " From: http://bilbo.economicoutlook.net/blog/?p=661 http://bilbo.economicoutlook.net/blog/?p=661
  - duxup 5y ago
    I feel like saying it won't be 'uncontrollable' isn't the same as calling that there won't be inflation and getting the reason right.
    - RobertoG 5y ago
      I think you feel that way because you can't appreciate the argument from only a small quote. They get it right. The reason QE was (is) not inflationary is because that money it's not being spent in the economy, it's only adding bank reserves. Bank reserves make the interest rate go lower, but, it will not go lower than zero, after that you can create all the reserves you want. Lower interest rates make credit more cheaper, but cheaper credit doesn't influence the economy if nobody is borrowing. Also, bank lending is not constrained by reserves. Lowering the interest rate will make borrowing more attractive for borrowers, but that doesn't make easier for banks to lend, because they are not constrained by reserves. They are constrained by the number of borrowers to whom makes business sense to lend. So, the quantity theory of money is wrong and the fractional reserves model is a fallacy. That should be obvious by now. The Modern Monetary Theory guys were saying that, way before 2008.
weeboid 5y ago
The store of value is the infrastructure, edifices, and monuments of intellectual capital. Geez man, how much more parroting can you do? Would your comment history reveal talk of “NFTs wtf amirite!!!”
paulpauper 5y ago
Recurring ,reliable revenues especially in large cap tech and payment processing (such as Visa, PayPal, MasterCard) is the main driver of the stock market and is why the market has done so well even though the economy feels weak otherwise and there is unrest. If companies can keep generating profit margins of 10-30%/a year, that is $ that must go to shareholders in the form of buybacks, dividends, or share price appreciation. This is what a lot of people get wrong about the stock market. Big companies, in tech, especial, are more profitable and dominant than ever. Never before have such companies generated so much cash.
tarsinge 5y ago
This is my sentiment too. People seems to give the market far more importance than what it is in reality: an exchange for second-hand stocks, with money just circling that can never touch the company and the economy. And they also forget that if they don't invest for dividends they are just betting that they'll be able to dump the bag for a higher price in the future.
- gnopgnip 5y ago
  Owning a stock is more than just dividends. You own part of the company, if it is liquidated you are paid based on the assets of the company.
  - tarsinge 5y ago
    My point is that market participants seems to not care about what a stock intrinsically is when they choose one to buy (like also voting and governance), they just care about the price of that stock.
jayd16 5y ago
The market can be pretty irrational but the 401k system means it can't fail. That system ensures it'll always have new dumb money poured into it. We'll bail it out one way or another because the middle class is tied to it. What an odd system, indeed.
- tootahe45 5y ago
  Just be glad the US has a relatively strong saving scheme like the 401k, without it everybody puts their money into real-estate. It has been happening in my country and has been going on for decades, causing house costs vs income to be way out of whack compared to US.

lotsofpulp 5y ago

> You could argue that the entire market is a mania. Objectively, the big publicly listed companies are growing and have stellar financials. I can think of no better place for someone to invest, other than maybe diversifying into real estate with high demand, if they already have a significant amount invested in public equity markets. Public equity market prices are also backed by the federal government, at least on a 5+ year (maybe even 3+ year) timeframe per events over the last few decades.

kingsuper20 5y ago
It's worth considering that what you are buying is a dividend stream and/or the possibility of a company being bought, which simply gives you more stock. When you essentially lend money to GOOGL or AMZN, what are you actually getting back besides a story? Don't get me wrong, in the timespan of an individual's life it may well make sense to heavily buy into this system. I'm just making the point that it's current form is rather new and appears loosely connected to the real world and is subject to change. To me, the current stock market seems like a fiat currency without the threat of physical force. Maybe the temptation will be to increasingly merge government with large companies in order to keep the plates spinning.
- JohnPrine 5y ago
  Just because a company isn't distributing dividends doesn't mean you're only buying a story. AMZN still has lots of room to grow. If I'm an investor in AMZN I would much rather them reinvest profits into a data center that will produce even more future profits than distribute the money to me. Once these growth companies top out in terms of their market share they'll pivot to distributing dividends, same as large established companies like Coca Cola
  - ahi 5y ago
    CocaCola currently has a P/E of 32
    - robjan 5y ago
      You own the stock in perpetuity, not just for a year. As long as you don't expect the company to go bust any time soon that's not a bad PE ratio.
      - ISL 5y ago
        As recently as 2011, KO had a P/E of 9. https://www.macrotrends.net/stocks/charts/KO/cocacola/pe-ratio https://www.macrotrends.net/stocks/charts/KO/cocacola/pe-rat... There are two ways that a P/E can return to a quasi-normal value. Either the price can go down or the earnings can increase. The mean and median values, since 1880, are about 15. "This time, it's different" https://www.multpl.com/s-p-500-pe-ratio https://www.multpl.com/s-p-500-pe-ratio
        nostrademons 5y ago
        So if earnings increase 3x the P/E goes back down to ~10. KO has excellent margins - last time I looked they were around 60%. That means prices * sales only has to increase by 5x to bump earnings up 3x. Food prices have been inflating at 10-15% recently; 15% inflation over 11 years will get you there, and that doesn't include any growth in sales at all. These aren't unreasonable assumptions, given the macro environment: another 1970s inflationary episode would do it. (Indeed, Warren Buffett made a lot of his money investing in Coca-Cola and See's Candies during the 1970s.)
PragmaticPulp 5y ago
I think a lot of newcomers to stock investing in the past year have been given the wrong ideas about the stock market. When all of the headlines are about GameStop and Nokia and AMC and some kid who made it lost a lot of money on RobinHood, the stock market can feel like a place for gambling. Now that cryptocurrency prices are listed right next to stock prices, many people don’t even understand that stocks are ownership shares in real businesses instead of just another ticker symbol to gamble on. Several times a week there are conversations on HN where commenters can’t understand how crypto currencies are different than stocks or how stocks are any different than gambling or why stocks can have any value without paying dividends. I suspect many of those newcomers will be shaken out of the market during the next protracted drawdown. It’s unfortunate, because they stand to lose a lot over the course of a lifetime of investing.
- Red_Leaves_Flyy 5y ago
  > the next protracted drawdown We should have seen this drawdown last year.
  - thoughtstheseus 5y ago
    The longer the bubble builds the bigger the bust. We’ve chosen growth over stability, fundamentals, and robustness. Once the U.S. struggles to stimulate its economy through deficit spending it’ll hit a wall. It’ll be fine for people but there will be a massive dislocation in the economy.
    - Red_Leaves_Flyy 5y ago
      I understand this. I'd much rather deal with the bad decisions of yesterday today than tomorrow. I guess for people that won't be alive in twenty years this is immaterial..
      - willcipriano 5y ago
        Check out the ages of elected officials, most are in the "won't be alive in twenty years" camp so the lack of foresight is unsurprising.
highfrequency 5y ago
There’s a big difference between saying that a company is growing and has stellar financials, and saying that it is a great stock to invest in. Surely the current price is relevant. Everyone can agree that Amazon is worth A Lot Of Money. The question is: is it worth $2T? or $3T? or $1T?
- deleted 5y ago
  [deleted]
tarsinge 5y ago
But what are you investing in? The probability to sell (dump) <something> to someone in the future for a better price? > Objectively, the big publicly listed companies are growing and have stellar financials. If you don't invest for dividends then it doesn't give intrinsic value to the stock you own, it's just a proxy to the odds of your bet to dump it for a profit in the future.

nend 5y ago

>You could argue that the entire market is a mania. You could also argue that the entire market is simply a reflection of society and humanity in general. As an American, I don't really see the market we've built as any more maniacal than the society we've built. They seem to go hand in hand to me. What defines how logical/maniacal our society is if not our social institutions?

kingsuper20 5y ago
At the very least it reflects the movement in the US economy from manufacturing to financial services (FIRE) to surveillance-based advertising. Perhaps the thing to do is to cut to the chase and declare leaves as money (h/t to Douglas Adams).

duxup 5y ago

I remember the banking crisis and the money printing after that, it was absolutely assumed inflation would follow, how much was debatable, but there wasn't much debate about the impending inflation. Didn't happen... for <insert reasons that are now thought to be obvious but nobody knew before hand>. Who knows what to make of the rules these days.

RobertoG 5y ago
>"Didn't happen... for <insert reasons that are now thought to be obvious but nobody knew before hand>." That's not exactly true, MMT was right about that beforehand, this is from 2009: "There are also those that claim that quantitative easing will expose the economy to uncontrollable inflation. This is just harking back to the old and flawed Monetarist doctrine based on the so-called Quantity Theory of Money. " From: http://bilbo.economicoutlook.net/blog/?p=661 http://bilbo.economicoutlook.net/blog/?p=661
- duxup 5y ago
  I feel like saying it won't be 'uncontrollable' isn't the same as calling that there won't be inflation and getting the reason right.
  - RobertoG 5y ago
    I think you feel that way because you can't appreciate the argument from only a small quote. They get it right. The reason QE was (is) not inflationary is because that money it's not being spent in the economy, it's only adding bank reserves. Bank reserves make the interest rate go lower, but, it will not go lower than zero, after that you can create all the reserves you want. Lower interest rates make credit more cheaper, but cheaper credit doesn't influence the economy if nobody is borrowing. Also, bank lending is not constrained by reserves. Lowering the interest rate will make borrowing more attractive for borrowers, but that doesn't make easier for banks to lend, because they are not constrained by reserves. They are constrained by the number of borrowers to whom makes business sense to lend. So, the quantity theory of money is wrong and the fractional reserves model is a fallacy. That should be obvious by now. The Modern Monetary Theory guys were saying that, way before 2008.

weeboid 5y ago

The store of value is the infrastructure, edifices, and monuments of intellectual capital. Geez man, how much more parroting can you do? Would your comment history reveal talk of “NFTs wtf amirite!!!”

paulpauper 5y ago

Recurring ,reliable revenues especially in large cap tech and payment processing (such as Visa, PayPal, MasterCard) is the main driver of the stock market and is why the market has done so well even though the economy feels weak otherwise and there is unrest. If companies can keep generating profit margins of 10-30%/a year, that is $ that must go to shareholders in the form of buybacks, dividends, or share price appreciation. This is what a lot of people get wrong about the stock market. Big companies, in tech, especial, are more profitable and dominant than ever. Never before have such companies generated so much cash.

tarsinge 5y ago

This is my sentiment too. People seems to give the market far more importance than what it is in reality: an exchange for second-hand stocks, with money just circling that can never touch the company and the economy. And they also forget that if they don't invest for dividends they are just betting that they'll be able to dump the bag for a higher price in the future.

gnopgnip 5y ago
Owning a stock is more than just dividends. You own part of the company, if it is liquidated you are paid based on the assets of the company.
- tarsinge 5y ago
  My point is that market participants seems to not care about what a stock intrinsically is when they choose one to buy (like also voting and governance), they just care about the price of that stock.

jayd16 5y ago

The market can be pretty irrational but the 401k system means it can't fail. That system ensures it'll always have new dumb money poured into it. We'll bail it out one way or another because the middle class is tied to it. What an odd system, indeed.

tootahe45 5y ago
Just be glad the US has a relatively strong saving scheme like the 401k, without it everybody puts their money into real-estate. It has been happening in my country and has been going on for decades, causing house costs vs income to be way out of whack compared to US.