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> Investors have poured almost $900 billion into equity exchange-traded and long-only funds in 2021 -- exceeding the combined total from the past 19 years -- ac

• deleted 5y ago
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• PragmaticPulp 5y ago
  > No discussion in the article about where this money came from. My guess is that it came from the direct covid payments and extended unemployment which amounted to ~$1.4 trillion. Interest rates are so low that money that would normally go into bonds and money market funds was diverted into the stock market. Unemployment benefits did not prop the stock market up. People have to be unemployed to receive those benefits and the benefits are (excluding some periods of fuzzy COVID unemployment policy) less than normal wages, so unemployed people were suddenly receiving an influx of extra cash.
  • bko 5y ago
    > Unemployment benefits did not prop the stock market up. People have to be unemployed to receive those benefits and the benefits are (excluding some periods of fuzzy COVID unemployment policy) less than normal wages, so unemployed people were suddenly receiving an influx of extra cash. That's not necessarily true. A study found that 68% of unemployment workers who can receive benefits got payments greater than their lost earnings. The median replacement rate was 134% so the median unemployed person getting benefits got a 34% raise. >> As a result, though, many people may now be eligible for substantially more money while unemployed than they made while they were working. A new analysis by Peter Ganong, Pascal Noel and Joseph Vavra, economists at the University of Chicago,1 uses government data from 2019 to estimate that 68 percent of unemployed workers who can receive benefits are eligible for payments that are greater than their lost earnings. They also found that the estimated median replacement rate — the share of a worker’s original weekly salary that is being replaced by unemployment benefits — is 134 percent, or more than one-third above their original wage. A substantial minority of those workers, particularly in low-wage professions like food service and janitorial work, may end up receiving more than 150 percent of their previous weekly salary.2 [0] https://fivethirtyeight.com/features/many-americans-are-getting-more-money-from-unemployment-than-they-were-from-their-jobs/ https://fivethirtyeight.com/features/many-americans-are-gett...
    • unpolloloco 5y ago
      The policy that enabled people to get raises through unemployment is long gone at this point though and has been for a while.
    • 015a 5y ago
      Also, this is just personal observation, but literally everyone I know who was receiving those unemployment payments was also doing work on the side, like Instacart delivery. One of them used to work in a hospital, but she quit during the pandemic because (1) hospitals were dangerous obviously, and (2) according to her, this unemployment + some under the table set-your-own-hours sidegig she was doing paid significantly better.
• rsj_hn 5y ago
  > No discussion in the article about where this money came from. The reason why there is no discussion of it is that it's a category error. Money is not used up when spent, but is immediately available to the seller who can use it again as he becomes the buyer of something else. Money is a stock. Statements about the increasing sales of ETFs are statements about flows. All of those could have "come from" a single dollar. And still the dollar would remain, standing proud, undefeated, not-used-up, and waiting to be spent on something else in yet another flow. But wait, there's more. When the government "gives money" via covid payments, that, too, is a flow. The government merely sells a bond for cash to the bond markets, and then sends a check to a household, who deposit the cash in a bank, and the bank uses that cash to buy a bond from the bond markets, thus returning the cash to the same money markets from which the government borrowed it. All of the 6 Trillion dollars in deficit spending could, in theory, require only a small amount of cash to support, because again the dollar is a stock and the deficit spending is a flow. So the point of all of this is to understand that money markets can be used to generate trillions in ETF flows, or to support trillions of deficit spending, with no problem at all. Thus you should never ask where money to make an investment comes from, because it always comes from the money markets. Instead, you should ask "are these assets fairly valued"? As long as the answer is "yes", then there will be money to buy them, completely independent of how much cash there is in the economy. Never believe anyone who says "there isn't enough money" to fund some investment. That's always cope for "I can't convince the capital markets that this investment will earn a good return". And by the same token, never believe anyone who says "the government is injecting money into the economy in order to fund more investments", because it's impossible for the government to increase or decrease the amount of money held by the non-financial sector - at least the way our financial markets are currently structured. All the government can do is deficit spend and adjust interest rates. Money is neither an enabler nor a constraint on any investment decision, but lowering interest rates could turn previously unprofitable investments into profitable ones, which means they will be funded once the capital markets are convinced of their profitability, and this is true whether or not any stimulus spending is provided by the government. /rant
  • stubish 5y ago
    And a dollar put into an ETF means the ETF spent a dollar on other equities. ie. A switch from direct holding to ETFs.