25 ms·

The Pandemic Boom Goes Bust

98 points by mxschumacher 5y ago

bluedays 5y ago
I think it’s naive to say that a couple stimulus checks and some unemployment is responsible for high consumer spending.
- mxschumacher 5y ago
  >>> a couple stimulus checks You might want to take at the numbers involved (this is just the US, other countries also had huge packages): https://en.wikipedia.org/wiki/American_Rescue_Plan_Act_of_2021 https://en.wikipedia.org/wiki/American_Rescue_Plan_Act_of_20... https://en.wikipedia.org/wiki/CARES_Act https://en.wikipedia.org/wiki/CARES_Act
  - zeckalpha 5y ago
    About 10k per person?
    - TedDoesntTalk 5y ago
      Don’t forget the two rounds of PPP grants to businesses. They were called loans but they are grants because they do not need to be repaid in most cases.
- mdm12 5y ago
  Not only that, but people were stuck in their houses all day. It's not surprising at all that people ordered tons of crap on Amazon or decided their house needed some renovation/appliances/etc.
  - throw0101a 5y ago
    > It's not surprising at all that people ordered tons of crap on Amazon or decided their house needed some renovation/appliances/etc. As any graph comparing CPI-Goods versus CPI-Services will show: * https://ritholtz.com/2021/11/structural-or-transitory/ https://ritholtz.com/2021/11/structural-or-transitory/ Further, Goods YoY inflation has been flat/negative since 2013, so most supply chains probably weren't really being stressed much (and maybe even atrophying slowly) when the sudden surge in demand hit.
    - mitjam 5y ago
      I think there are quite a few structural changes that might keep inflation alive for longer: climate change and political measures to mitigate them result eg in higher energy and housing costs, globalization seem to have peaked, second round effects like wage increases already appear. Inflation may well got kick started last year.
- drexlspivey 5y ago
  I think it's naive to say that 6 TRILLION dollars of stimulus and a sharp rise in inflation that followed it is unrelated
  - geofft 5y ago
    But most of that stimulus didn't end up in the hands of consumers. People weren't purchasing Pelotons with $600 stimulus checks. The sort of person who has nothing better to spend an extra $600 on than a Peloton is the sort of person who wasn't eligible for the stimulus in the first place. (I do fully agree that stay-at-home orders motivated some purchases, though - but again, the sort of people who could actually stay at home and take meetings from their home office instead of driving around town delivering Pelotons were the sort of people who already had the cash to spare for these things, anyway.) That stimulus ended up in the hands of business owners, which effectively caused a partition: because business owners, as a group, had more money, they could all raise prices and afford it. But the working class, as a group, did not have noticeably more money. In other words, there was a sharp rise in inflation - for the owning class. The effect was the same as if there were two neighboring countries, and one experiences inflation. That country's cost of living goes up, but so do their wages and the valuations of the things they own. So they're fine, and effectively they can buy things from the second country for even cheaper in terms of purchasing power. But people in the other country find it harder to afford to buy things from the first country. They're the ones most hurt by inflation.
    - simonh 5y ago
      Your example only works if both countries use the same currency. If they don't the country suffering inflation will have a devalued currency, so their buying power relative to the other country will have collapsed.
    - throw-7462637 5y ago
      > People weren't purchasing Pelotons with $600 stimulus checks. Anecdotally, they totally were. In my immediate friends group, families that were eligible for stimulus (making around $120K/yr) spent it on luxury items including photo cameras and as a downpayment for new cars. I don't know anyone who bought a peloton but extrapolating what I saw in my circle, it's totally believable.
- callmeal 5y ago
  >I think it’s naive to say that a couple stimulus checks and some unemployment is responsible for high consumer spending. It is naive - because people go off the outrage posts and ignore reality. Stimulus checks were disbursed between March 2020 and March 2021 - it's been almost a year since the last stimulus and people are still harping on it.
stanrivers 5y ago
We've been here before... printing of significant amounts of money to solve big problems can work well to get through the problem, but the after effects can be painful. >>[1]People in Paris were getting rich — and they were getting rich fast. In fact, it was so hard to describe how rich everyone was becoming that a new word was needed and the term “millionaire” was coined in 1719. >>[1]The people of France could thank a Scotsman with a penchant for gambling, the printing of new paper money, and all the vast riches that surely would be found in the New World for their sudden wealth >>[1]Realizing that the paper money was only going to continue being a problem, over a few months France again allowed transactions to be conducted in metal currency. Further, it limited the uses for paper money to buying government debt issuances, in this way, taking on debt from its citizens in order to prevent the financial system from collapsing completely. Through these actions, by the end of 1720, Law’s original money-printing bank shut its doors, with the Mississippi Company dwindling towards the same by the end of 1721. Or fun stuff like the tulip mania, when supply and a little bit of euphoria made things silly: >>[2]The Dutch Tulip Bulb Market Bubble was one of the most famous asset bubbles and crashes of all time. At the height of the bubble, tulips sold for approximately 10,000 guilders, equal to the value of a mansion on the Amsterdam Grand Canal. >>[2]Additionally, because of the timing in tulip cultivation, there was always a few years of lag between demand pressures and supply. Under normal conditions, this wasn't an issue since future consumption was contracted for a year or more in advance. Because the 1630's rise in prices occurred so rapidly and after bulbs were already planted for the year, growers would not have had an opportunity to increase production in response to price. [1] https://newsletter.butwhatfor.com/p/john-law-and-the-mississippi-bubble https://newsletter.butwhatfor.com/p/john-law-and-the-mississ... [2] https://www.investopedia.com/terms/d/dutch_tulip_bulb_market_bubble.asp https://www.investopedia.com/terms/d/dutch_tulip_bulb_market...
- bondarchuk 5y ago
  The first-hand account of Law's scheme in Saint-Simon's memoirs is highly recommended (if you like that sort of thing).
thrown_22 5y ago
I am as far from an inflation hawk as you can get. I basically think that any government can both print money and avoid inflation bar external shocks with a modicum of common sense, e.g. don't pay people not working to piss off the French and Belgians: https://www.theholocaustexplained.org/the-nazi-rise-to-power/the-weimar-republic/invasion-of-the-ruhr/ https://www.theholocaustexplained.org/the-nazi-rise-to-power... Yet we did just that. People not working being paid for existing at a time when the real economy went into cardiac arrest by every measure of actual productivity. Instead of giving people money to chase goods stuck in ports the government should have spent that money on building up infrastructure and have people out doors away from covid. Were I a betting man I'd say that the reason for doing this was to discredit left leaning economic policy for another 40 years, like happened after the stagflation of the 70s.
- throw0101a 5y ago
  > Instead of giving people money to chase goods stuck in ports the government should have spent that money on building up infrastructure and have people out doors away from covid. This statement makes no sense: even (most? all?) construction was shut down during (pre-vaccine) 2020 for periods of time to reduce the spread of COVID. At least it was where I was. Further, the people staying at home were often in the service sector: retail, restaurants, etc. Even when the restrictions were lifted a bit, you can't simply take random people who were doing one job and throw them onto a construction site and expect them to be useful (never mind productive/efficient). The number of companies and people available at any given time to do this is at any particular instant of time is finite, and most were probably on a contract. Certainly over time people can shift careers, but that is not instantaneous change. Depending on the "infrastructure" you want to do/build, you need lead time to actually design what you want to build, do surveys, get permits, and order materials. And because of global supply chain issues, a lot of materials were in short supply: lumber being the most publicized, but shipping pallets were an issue as well (there was a good Odd Lots podcast episode on them), as were the obscure things such as truss plates. Maintaining infrastructure is a great idea, but you don't "just" do it. Outside of 'simply' tarmac repaving the surface of a road, most everything else takes a few months of planning.
rob_c 5y ago
Another welcome sign of the slow grind back to normality that will be 2022 :) Just wish I could just go into my time machine for 2025 onwards
altdataseller 5y ago
Apple just had a very good earnings report a couple days ago, and showed iPhone demand hasn’t slowed down at all.
- mupuff1234 5y ago
  The fed is still pumping in money till march, we'll probably have to wait till the earnings of Q2/Q3 to see if there's a slow down.
  - altdataseller 5y ago
    What are you talking about? Stimulus checks have stopped.
    - mupuff1234 5y ago
      That's only one of the way the economy is being stimulated. https://www.businessinsider.com/personal-finance/fed-tapering https://www.businessinsider.com/personal-finance/fed-taperin...
picodguyo 5y ago
This started out interesting but strayed into rant territory pretty quickly. "Tesla will be reporting earnings just as this article goes to publication today. But in my view, any “fundamental” news coming from Tesla’s earnings is rather meaningless. Why? Because we’re talking about a company completely divorced from any semblance of fundamental value." Author: complains that investors are ignoring fundamentals Also Author: ignores fundamentals
- TedDoesntTalk 5y ago
  I did not read him complaining that investors are ignoring fundamentals. Surprise? Yes. Complaints? No.
boboche 5y ago
Stopped reading at “tesla is a car company”. When I read that, it shows how little research has been done and not trusting anything else. Hate and downvote all you want, anyone who did basic research on the company, IP, and execution knows how bad that narrative will age. Its not about loving or hating Elon, its simple business. While the P/E compression during a recession is completely normal, and yes, Tesla is overvalued looking stricly at P/E, they will survive a recession blow much better than a lot of companies because of their cash balance, margings, and operationnal excellence. Drops are expected and serious investors will see this as a unique buying opportunity. It could go down 90% for all I care, I would buy more shares. If you are in the market for day trading, get out for a while because at times like this you will mostly get burned unless you really know what you are doing. If you are in the long run, did your research, you shouldn’t sweat at reading all this doomsday material vs. any stocks you own. its as bad as bulls saying tesla will reach 5000 by the end of the year.
- phkahler 5y ago
  Remember in P/E the E is earnings, not revenue. Their P/E is probably astronomical. The only thing that suggests P/E isn't an accurate indicator for them is massive growth. Nobody can really say what E will be when the growth slows or stops. Nor do we know when it will.
  - boboche 5y ago
    Exactly, wall street is following guidance or lower while they are striving to exceed that by a lot, and are succeeding extremely well so far, but being realistic and doing your own research vs. trusting online “sources” for confirmation biases was my point. Wow lots of passion you should see the points going up and down on this one ;).
  - bryanlarsen 5y ago
    The P/E for the latest quarter is about 100. At that valuation, growth only has to keep up for a year or two to hit a reasonable P/E. If you think growth will continue for longer, the stock is cheap.
- 5y ago
pjc50 5y ago
This is missing a very important graph, unemployment. Here's an example: https://www.bbc.co.uk/news/business-52938993 https://www.bbc.co.uk/news/business-52938993 And its not-quite-mirror, labor force participation: https://www.bls.gov/charts/employment-situation/civilian-labor-force-participation-rate.htm https://www.bls.gov/charts/employment-situation/civilian-lab... The purpose of stimulus was to prevent those from looking even worse and causing more permanent damage to the economy. In that regard it's been a huge success; somewhere above, Keynes is smiling. In exchange for that we've got only 5%ish inflation, driven partly by a newly-tight labour market in which people can actually negotiate incomes upward, and partly by a big spike in natural gas prices? I would absolutely take it. (Roughly the same pattern is seen in the UK, and most of Europe; I'm not sure how well it applies to emerging economies) There are two standard remedies for inflation: monetary tightening (raise interest rates) and fiscal tightening (raise taxes). Both of those operate on inflation by pushing unemployment back up and reducing the amount of money chasing goods. Both are eminently feasible if action is needed against inflation.
- giantg2 5y ago
  And unloading treasury held securities.
- yarky 5y ago
  > to prevent those from looking even worse and causing more permanent damage to the economy. What makes you think that temporary measures will avoid a permanent impact on the economy ? These measures only delayed the impact.
  - eru 5y ago
    Keeping people out of unemployment is good. Longer spells of unemployment make skills 'rust'.
- lvl100 5y ago
  I agree they had to spend the money to prevent a depression. I don’t think anyone is here contesting the amount of money unleashed. However, I am really disappointed with where that money went. It went into “non-productive” assets and activities.
gniv 5y ago
The author makes a few good points, but I'm not convinced by the overall thesis, which seems to be supported by a few anecdotes (meme stocks) and speculation. Notably, he went all out with Apple and he was wrong. Apple both reported great sales and guided well for the future.
pyrrhotech 5y ago
Highly insightful. The pandemic stimulus isn't the only cause though, more like the icing on the cake. The experimental QE and ZIRP policies probably won't be looked at too kindly 50 years from now when economists are still trying to understand and prevent another "Everything Bubble" from ever forming again. The next 10-15 years for investors are likely to be much more challenging than the last. How do you navigate such a climate with extreme overvaluation in all asset classes? That's why I'm building sophisticated algotrading models at https://grizzlybulls.com https://grizzlybulls.com to help determine when to hedge and produce positive absolute returns regardless of market environment.
lvl100 5y ago
In the past few weeks, Nasdaq top 100 lost something like $4T in value which is more than what we lost back in 2020. That’s a lot of money. And also consider the money lost in crypto. People are going to be more prudent with their spend and money.
streamofdigits 5y ago
> Mr. Market extrapolated a one-time demand surge into the indefinite future Mr. Market is apparently a total idiot and can't distinguish infinity from unity. Somehow all these Zero Hedge wanabee's would be more credible if they could predict some event, on the basis of their favorite cumulated "idiocy" metric. Expressed in observable outcomes, that would come to pass within a defined period. Its called falsifiability [0]. Otherwise its a lot of hyperventilation, angst and/or hidden political agendas [0] https://en.wikipedia.org/wiki/Falsifiability https://en.wikipedia.org/wiki/Falsifiability
MichaelMoser123 5y ago
Interesting, everyone is seeing different reasons here. The link doesn't mention it, now the guardian says, that it's the looming danger of war in Europe: "“Dealers are worried about the prospect of a war in eastern Europe, as the human and economic cost would be huge. Some central European economies, like Germany, are heavily dependent on energy from Russia, and should a war break out, it’s a possibility those energy supply lines would be cut, which would cripple economic output in the EU,” David Madden, a market analyst at Equiti Capital, told Reuters." https://www.theguardian.com/business/2022/jan/24/us-stock-markets-close-nasdaq-dow-jones https://www.theguardian.com/business/2022/jan/24/us-stock-ma... It seems as if it is hard to trust any one source, when it comes to macroeconomics; i mean there are a lot of biases, and everyone seems to be looking for confirmation of his own world view.
- ziml77 5y ago
  Everyone has their own reasons because people are trying to simplify things down to just a couple of variables. The problem is that there are many variables all tied to each other in complex ways which just can't be simplified that much. You can't just look at one action, no matter how large, and claim that it was bad because of a problem it caused. The relations between all the variables means that a different action or inaction may have ended in the same problem coming about via an alternate path of cause and effect.
dataminer 5y ago
There is a lot of talk about inflation. But isn’t inflation most of the time a temporary phenomenon, because productivity and innovation catches up. When there is inflation its the perfect time for people and businesses to pivot to disruptive technologies and products. For example, in late 2000s oil went up as high as $150 per barrel, gas was super expensive. People started talking about electric cars and renewable energy, companies like Tesla took advantage of that. Also fracking started coming online after that period and oil became relatively cheaper over a long period.
IshKebab 5y ago
Maybe. But it could equally just go up again next month. Nobody can predict the future of the stock market reliably.
fortran77 5y ago
> At some point, voters will start asking: what’s the point of all this stimulus, if it only ends up making us poorer? Well, not all of us. Just people who work for a living and pay significant taxes, and people who were responsible and saved. There may be enough votes in people who aren't in those categories to elect another tax-and-spender.
hcayless 5y ago
Serious question: I keep seeing opinions about the inflation and supply chain problems being purely the result of the stimulus, and they feel, well, ideological. To what extent is this simply the effect of the pandemic? In my own family, we’ve spent way less on travel and more on things over the last couple of years. Put another way, isn’t this the product of a combination of factors and not just because of the stimulus? I’m not convinced supporting people out of work through no fault of their own is a bad idea.
throwaway4good 5y ago
I think it is wrong to generalize from Peleton to Tesla to Apple. These are not at all driven by the same thing. Plus the latest Apple earnings have already proven the author wrong.
kwertyoowiyop 5y ago
Hopefully none of his readers immediately went out and shorted Apple stock!
register 5y ago
I guess the question for many is: is a stock market crash coming? And in this case what is the best defensive strategy?
mgh2 5y ago
You can't generalize speculation or growth stocks with value stocks. Cut out meme stocks or recently IPO companies, for they skew the data for an overall economy analysis. On Apple, if you compare a 1 month (from new year's heights) market correction with major direct or indirect competitors (quick sampling) before their earnings: Microsoft, AMD, NVidia, Amazon, Netflix showed 15-30% decline, while Apple was only -10%, S&P500 -9%. This downturn was mainly based on [unfounded] fear sentiment outlook (bear/short speculation by media): supply chain disruptions, fed hikes, Ukraine war. More on this below. After earnings, Apple was ~+10pts or -5%, while S&P -7.5% on 1 month avg. Because Apple is diversified (and successful) in so many present (and future) industries, you can prob. treat it as a better indicator/peg for the US economy - if you don't want to be involved with "blood money" stocks inside popular ETFs (Meta, J&J, etc.) No wonder Buffett holds Apple as a majority stake in his portfolio (~49%). If you want to see how unfounded the fears above are and how those newly printed dollars will eventually flow into the system/economy (and not just "disappear"), take a look at these sources: [1a] P/E ratio: 1st peak caused on 2007 caused by 1st iPhone announcement and later decrease caused by mortgage crises or earnings increase? https://www.macrotrends.net/stocks/charts/AAPL/apple/pe-ratio https://www.macrotrends.net/stocks/charts/AAPL/apple/pe-rati... [1b] The fed printed money for the 2008 crisis and lowered int. rates to nearly zero (though less scale), 2nd P/E peak now (dejavu?). Notice the marked crisis periods. https://fred.stlouisfed.org/series/M2 https://fred.stlouisfed.org/series/M2 [2a] Interest hikes: Fed plans 3-4 till 2023, but will not top 2% (media estimates). Gov likely not rise it too much like the 1980s, since we are still recovering from the pandemic. See the 2016-2020 hike? This could have been affected by Trump's corporate tax reform, but the stock market went on a parabolic rise since then https://tradingeconomics.com/united-states/interest-rate https://tradingeconomics.com/united-states/interest-rate [2b] Historical effect on hikes https://www.forbes.com/sites/kristinmckenna/2022/01/24/how-do-stocks-perform-when-interest-rates-rise/?sh=73411fee6928 https://www.forbes.com/sites/kristinmckenna/2022/01/24/how-d... [3] Historical effect on wars https://www.investopedia.com/solving-the-war-puzzle-4780889 https://www.investopedia.com/solving-the-war-puzzle-4780889 Fearmongering has been used in the last crisis to sell gold, this time is crypto. PS: This was just a quick analysis, would love to hear from experts.
- mgh2 5y ago
  * Laissez-Faire analysis update: 1. Include Google and Tesla as current and future competitors 2. Disney and Google as "blood money" inside Etfs (advertising, sports betting, crypto [Tesla]) https://news.ycombinator.com/item?id=30148364 https://news.ycombinator.com/item?id=30148364 3. 2018 dip (repeat): https://www.cnbc.com/2021/12/08/why-this-month-echoes-december-2018-when-stocks-plummeted.html#:~:text=The%20S%26P%20500%20in%20December,the%20worst%20December%20since%201931 https://www.cnbc.com/2021/12/08/why-this-month-echoes-decemb....
michaelrhansen 5y ago
Peloton and Docusign are two drastically different companies, on very different trajectories. Before the pandemic, the busiest mall in my town had a Peloton pop up store that was a ghost town EVERY time I walked by it (I couldn’t even count the amount of times I went by it). This narrative about “pandemic stocks” just feels like lazy regurgitation without looking in depth. PS Tesla did fine with earnings.

98 points by mxschumacher 5y ago

I think it’s naive to say that a couple stimulus checks and some unemployment is responsible for high consumer spending.

mxschumacher 5y ago
>>> a couple stimulus checks You might want to take at the numbers involved (this is just the US, other countries also had huge packages): https://en.wikipedia.org/wiki/American_Rescue_Plan_Act_of_2021 https://en.wikipedia.org/wiki/American_Rescue_Plan_Act_of_20... https://en.wikipedia.org/wiki/CARES_Act https://en.wikipedia.org/wiki/CARES_Act
- zeckalpha 5y ago
  About 10k per person?
  - TedDoesntTalk 5y ago
    Don’t forget the two rounds of PPP grants to businesses. They were called loans but they are grants because they do not need to be repaid in most cases.
mdm12 5y ago
Not only that, but people were stuck in their houses all day. It's not surprising at all that people ordered tons of crap on Amazon or decided their house needed some renovation/appliances/etc.
- throw0101a 5y ago
  > It's not surprising at all that people ordered tons of crap on Amazon or decided their house needed some renovation/appliances/etc. As any graph comparing CPI-Goods versus CPI-Services will show: * https://ritholtz.com/2021/11/structural-or-transitory/ https://ritholtz.com/2021/11/structural-or-transitory/ Further, Goods YoY inflation has been flat/negative since 2013, so most supply chains probably weren't really being stressed much (and maybe even atrophying slowly) when the sudden surge in demand hit.
  - mitjam 5y ago
    I think there are quite a few structural changes that might keep inflation alive for longer: climate change and political measures to mitigate them result eg in higher energy and housing costs, globalization seem to have peaked, second round effects like wage increases already appear. Inflation may well got kick started last year.
drexlspivey 5y ago
I think it's naive to say that 6 TRILLION dollars of stimulus and a sharp rise in inflation that followed it is unrelated
- geofft 5y ago
  But most of that stimulus didn't end up in the hands of consumers. People weren't purchasing Pelotons with $600 stimulus checks. The sort of person who has nothing better to spend an extra $600 on than a Peloton is the sort of person who wasn't eligible for the stimulus in the first place. (I do fully agree that stay-at-home orders motivated some purchases, though - but again, the sort of people who could actually stay at home and take meetings from their home office instead of driving around town delivering Pelotons were the sort of people who already had the cash to spare for these things, anyway.) That stimulus ended up in the hands of business owners, which effectively caused a partition: because business owners, as a group, had more money, they could all raise prices and afford it. But the working class, as a group, did not have noticeably more money. In other words, there was a sharp rise in inflation - for the owning class. The effect was the same as if there were two neighboring countries, and one experiences inflation. That country's cost of living goes up, but so do their wages and the valuations of the things they own. So they're fine, and effectively they can buy things from the second country for even cheaper in terms of purchasing power. But people in the other country find it harder to afford to buy things from the first country. They're the ones most hurt by inflation.
  - simonh 5y ago
    Your example only works if both countries use the same currency. If they don't the country suffering inflation will have a devalued currency, so their buying power relative to the other country will have collapsed.
  - throw-7462637 5y ago
    > People weren't purchasing Pelotons with $600 stimulus checks. Anecdotally, they totally were. In my immediate friends group, families that were eligible for stimulus (making around $120K/yr) spent it on luxury items including photo cameras and as a downpayment for new cars. I don't know anyone who bought a peloton but extrapolating what I saw in my circle, it's totally believable.
callmeal 5y ago
>I think it’s naive to say that a couple stimulus checks and some unemployment is responsible for high consumer spending. It is naive - because people go off the outrage posts and ignore reality. Stimulus checks were disbursed between March 2020 and March 2021 - it's been almost a year since the last stimulus and people are still harping on it.

stanrivers 5y ago

We've been here before... printing of significant amounts of money to solve big problems can work well to get through the problem, but the after effects can be painful. >>[1]People in Paris were getting rich — and they were getting rich fast. In fact, it was so hard to describe how rich everyone was becoming that a new word was needed and the term “millionaire” was coined in 1719. >>[1]The people of France could thank a Scotsman with a penchant for gambling, the printing of new paper money, and all the vast riches that surely would be found in the New World for their sudden wealth >>[1]Realizing that the paper money was only going to continue being a problem, over a few months France again allowed transactions to be conducted in metal currency. Further, it limited the uses for paper money to buying government debt issuances, in this way, taking on debt from its citizens in order to prevent the financial system from collapsing completely. Through these actions, by the end of 1720, Law’s original money-printing bank shut its doors, with the Mississippi Company dwindling towards the same by the end of 1721. Or fun stuff like the tulip mania, when supply and a little bit of euphoria made things silly: >>[2]The Dutch Tulip Bulb Market Bubble was one of the most famous asset bubbles and crashes of all time. At the height of the bubble, tulips sold for approximately 10,000 guilders, equal to the value of a mansion on the Amsterdam Grand Canal. >>[2]Additionally, because of the timing in tulip cultivation, there was always a few years of lag between demand pressures and supply. Under normal conditions, this wasn't an issue since future consumption was contracted for a year or more in advance. Because the 1630's rise in prices occurred so rapidly and after bulbs were already planted for the year, growers would not have had an opportunity to increase production in response to price. [1] https://newsletter.butwhatfor.com/p/john-law-and-the-mississippi-bubble https://newsletter.butwhatfor.com/p/john-law-and-the-mississ... [2] https://www.investopedia.com/terms/d/dutch_tulip_bulb_market_bubble.asp https://www.investopedia.com/terms/d/dutch_tulip_bulb_market...

bondarchuk 5y ago
The first-hand account of Law's scheme in Saint-Simon's memoirs is highly recommended (if you like that sort of thing).

thrown_22 5y ago

I am as far from an inflation hawk as you can get. I basically think that any government can both print money and avoid inflation bar external shocks with a modicum of common sense, e.g. don't pay people not working to piss off the French and Belgians: https://www.theholocaustexplained.org/the-nazi-rise-to-power/the-weimar-republic/invasion-of-the-ruhr/ https://www.theholocaustexplained.org/the-nazi-rise-to-power... Yet we did just that. People not working being paid for existing at a time when the real economy went into cardiac arrest by every measure of actual productivity. Instead of giving people money to chase goods stuck in ports the government should have spent that money on building up infrastructure and have people out doors away from covid. Were I a betting man I'd say that the reason for doing this was to discredit left leaning economic policy for another 40 years, like happened after the stagflation of the 70s.

throw0101a 5y ago
> Instead of giving people money to chase goods stuck in ports the government should have spent that money on building up infrastructure and have people out doors away from covid. This statement makes no sense: even (most? all?) construction was shut down during (pre-vaccine) 2020 for periods of time to reduce the spread of COVID. At least it was where I was. Further, the people staying at home were often in the service sector: retail, restaurants, etc. Even when the restrictions were lifted a bit, you can't simply take random people who were doing one job and throw them onto a construction site and expect them to be useful (never mind productive/efficient). The number of companies and people available at any given time to do this is at any particular instant of time is finite, and most were probably on a contract. Certainly over time people can shift careers, but that is not instantaneous change. Depending on the "infrastructure" you want to do/build, you need lead time to actually design what you want to build, do surveys, get permits, and order materials. And because of global supply chain issues, a lot of materials were in short supply: lumber being the most publicized, but shipping pallets were an issue as well (there was a good Odd Lots podcast episode on them), as were the obscure things such as truss plates. Maintaining infrastructure is a great idea, but you don't "just" do it. Outside of 'simply' tarmac repaving the surface of a road, most everything else takes a few months of planning.

rob_c 5y ago

Another welcome sign of the slow grind back to normality that will be 2022 :) Just wish I could just go into my time machine for 2025 onwards

altdataseller 5y ago

Apple just had a very good earnings report a couple days ago, and showed iPhone demand hasn’t slowed down at all.

mupuff1234 5y ago
The fed is still pumping in money till march, we'll probably have to wait till the earnings of Q2/Q3 to see if there's a slow down.
- altdataseller 5y ago
  What are you talking about? Stimulus checks have stopped.
  - mupuff1234 5y ago
    That's only one of the way the economy is being stimulated. https://www.businessinsider.com/personal-finance/fed-tapering https://www.businessinsider.com/personal-finance/fed-taperin...

picodguyo 5y ago

This started out interesting but strayed into rant territory pretty quickly. "Tesla will be reporting earnings just as this article goes to publication today. But in my view, any “fundamental” news coming from Tesla’s earnings is rather meaningless. Why? Because we’re talking about a company completely divorced from any semblance of fundamental value." Author: complains that investors are ignoring fundamentals Also Author: ignores fundamentals

TedDoesntTalk 5y ago
I did not read him complaining that investors are ignoring fundamentals. Surprise? Yes. Complaints? No.

boboche 5y ago

Stopped reading at “tesla is a car company”. When I read that, it shows how little research has been done and not trusting anything else. Hate and downvote all you want, anyone who did basic research on the company, IP, and execution knows how bad that narrative will age. Its not about loving or hating Elon, its simple business. While the P/E compression during a recession is completely normal, and yes, Tesla is overvalued looking stricly at P/E, they will survive a recession blow much better than a lot of companies because of their cash balance, margings, and operationnal excellence. Drops are expected and serious investors will see this as a unique buying opportunity. It could go down 90% for all I care, I would buy more shares. If you are in the market for day trading, get out for a while because at times like this you will mostly get burned unless you really know what you are doing. If you are in the long run, did your research, you shouldn’t sweat at reading all this doomsday material vs. any stocks you own. its as bad as bulls saying tesla will reach 5000 by the end of the year.

phkahler 5y ago
Remember in P/E the E is earnings, not revenue. Their P/E is probably astronomical. The only thing that suggests P/E isn't an accurate indicator for them is massive growth. Nobody can really say what E will be when the growth slows or stops. Nor do we know when it will.
- boboche 5y ago
  Exactly, wall street is following guidance or lower while they are striving to exceed that by a lot, and are succeeding extremely well so far, but being realistic and doing your own research vs. trusting online “sources” for confirmation biases was my point. Wow lots of passion you should see the points going up and down on this one ;).
- bryanlarsen 5y ago
  The P/E for the latest quarter is about 100. At that valuation, growth only has to keep up for a year or two to hit a reasonable P/E. If you think growth will continue for longer, the stock is cheap.
5y ago

pjc50 5y ago

This is missing a very important graph, unemployment. Here's an example: https://www.bbc.co.uk/news/business-52938993 https://www.bbc.co.uk/news/business-52938993 And its not-quite-mirror, labor force participation: https://www.bls.gov/charts/employment-situation/civilian-labor-force-participation-rate.htm https://www.bls.gov/charts/employment-situation/civilian-lab... The purpose of stimulus was to prevent those from looking even worse and causing more permanent damage to the economy. In that regard it's been a huge success; somewhere above, Keynes is smiling. In exchange for that we've got only 5%ish inflation, driven partly by a newly-tight labour market in which people can actually negotiate incomes upward, and partly by a big spike in natural gas prices? I would absolutely take it. (Roughly the same pattern is seen in the UK, and most of Europe; I'm not sure how well it applies to emerging economies) There are two standard remedies for inflation: monetary tightening (raise interest rates) and fiscal tightening (raise taxes). Both of those operate on inflation by pushing unemployment back up and reducing the amount of money chasing goods. Both are eminently feasible if action is needed against inflation.

giantg2 5y ago
And unloading treasury held securities.
yarky 5y ago
> to prevent those from looking even worse and causing more permanent damage to the economy. What makes you think that temporary measures will avoid a permanent impact on the economy ? These measures only delayed the impact.
- eru 5y ago
  Keeping people out of unemployment is good. Longer spells of unemployment make skills 'rust'.
lvl100 5y ago
I agree they had to spend the money to prevent a depression. I don’t think anyone is here contesting the amount of money unleashed. However, I am really disappointed with where that money went. It went into “non-productive” assets and activities.

gniv 5y ago

The author makes a few good points, but I'm not convinced by the overall thesis, which seems to be supported by a few anecdotes (meme stocks) and speculation. Notably, he went all out with Apple and he was wrong. Apple both reported great sales and guided well for the future.

pyrrhotech 5y ago

Highly insightful. The pandemic stimulus isn't the only cause though, more like the icing on the cake. The experimental QE and ZIRP policies probably won't be looked at too kindly 50 years from now when economists are still trying to understand and prevent another "Everything Bubble" from ever forming again. The next 10-15 years for investors are likely to be much more challenging than the last. How do you navigate such a climate with extreme overvaluation in all asset classes? That's why I'm building sophisticated algotrading models at https://grizzlybulls.com https://grizzlybulls.com to help determine when to hedge and produce positive absolute returns regardless of market environment.

lvl100 5y ago

In the past few weeks, Nasdaq top 100 lost something like $4T in value which is more than what we lost back in 2020. That’s a lot of money. And also consider the money lost in crypto. People are going to be more prudent with their spend and money.

streamofdigits 5y ago

> Mr. Market extrapolated a one-time demand surge into the indefinite future Mr. Market is apparently a total idiot and can't distinguish infinity from unity. Somehow all these Zero Hedge wanabee's would be more credible if they could predict some event, on the basis of their favorite cumulated "idiocy" metric. Expressed in observable outcomes, that would come to pass within a defined period. Its called falsifiability [0]. Otherwise its a lot of hyperventilation, angst and/or hidden political agendas [0] https://en.wikipedia.org/wiki/Falsifiability https://en.wikipedia.org/wiki/Falsifiability

MichaelMoser123 5y ago

Interesting, everyone is seeing different reasons here. The link doesn't mention it, now the guardian says, that it's the looming danger of war in Europe: "“Dealers are worried about the prospect of a war in eastern Europe, as the human and economic cost would be huge. Some central European economies, like Germany, are heavily dependent on energy from Russia, and should a war break out, it’s a possibility those energy supply lines would be cut, which would cripple economic output in the EU,” David Madden, a market analyst at Equiti Capital, told Reuters." https://www.theguardian.com/business/2022/jan/24/us-stock-markets-close-nasdaq-dow-jones https://www.theguardian.com/business/2022/jan/24/us-stock-ma... It seems as if it is hard to trust any one source, when it comes to macroeconomics; i mean there are a lot of biases, and everyone seems to be looking for confirmation of his own world view.

ziml77 5y ago
Everyone has their own reasons because people are trying to simplify things down to just a couple of variables. The problem is that there are many variables all tied to each other in complex ways which just can't be simplified that much. You can't just look at one action, no matter how large, and claim that it was bad because of a problem it caused. The relations between all the variables means that a different action or inaction may have ended in the same problem coming about via an alternate path of cause and effect.

dataminer 5y ago

There is a lot of talk about inflation. But isn’t inflation most of the time a temporary phenomenon, because productivity and innovation catches up. When there is inflation its the perfect time for people and businesses to pivot to disruptive technologies and products. For example, in late 2000s oil went up as high as $150 per barrel, gas was super expensive. People started talking about electric cars and renewable energy, companies like Tesla took advantage of that. Also fracking started coming online after that period and oil became relatively cheaper over a long period.

IshKebab 5y ago

Maybe. But it could equally just go up again next month. Nobody can predict the future of the stock market reliably.

fortran77 5y ago

> At some point, voters will start asking: what’s the point of all this stimulus, if it only ends up making us poorer? Well, not all of us. Just people who work for a living and pay significant taxes, and people who were responsible and saved. There may be enough votes in people who aren't in those categories to elect another tax-and-spender.

hcayless 5y ago

Serious question: I keep seeing opinions about the inflation and supply chain problems being purely the result of the stimulus, and they feel, well, ideological. To what extent is this simply the effect of the pandemic? In my own family, we’ve spent way less on travel and more on things over the last couple of years. Put another way, isn’t this the product of a combination of factors and not just because of the stimulus? I’m not convinced supporting people out of work through no fault of their own is a bad idea.

throwaway4good 5y ago

I think it is wrong to generalize from Peleton to Tesla to Apple. These are not at all driven by the same thing. Plus the latest Apple earnings have already proven the author wrong.

kwertyoowiyop 5y ago

Hopefully none of his readers immediately went out and shorted Apple stock!

I guess the question for many is: is a stock market crash coming? And in this case what is the best defensive strategy?

mgh2 5y ago

You can't generalize speculation or growth stocks with value stocks. Cut out meme stocks or recently IPO companies, for they skew the data for an overall economy analysis. On Apple, if you compare a 1 month (from new year's heights) market correction with major direct or indirect competitors (quick sampling) before their earnings: Microsoft, AMD, NVidia, Amazon, Netflix showed 15-30% decline, while Apple was only -10%, S&P500 -9%. This downturn was mainly based on [unfounded] fear sentiment outlook (bear/short speculation by media): supply chain disruptions, fed hikes, Ukraine war. More on this below. After earnings, Apple was ~+10pts or -5%, while S&P -7.5% on 1 month avg. Because Apple is diversified (and successful) in so many present (and future) industries, you can prob. treat it as a better indicator/peg for the US economy - if you don't want to be involved with "blood money" stocks inside popular ETFs (Meta, J&J, etc.) No wonder Buffett holds Apple as a majority stake in his portfolio (~49%). If you want to see how unfounded the fears above are and how those newly printed dollars will eventually flow into the system/economy (and not just "disappear"), take a look at these sources: [1a] P/E ratio: 1st peak caused on 2007 caused by 1st iPhone announcement and later decrease caused by mortgage crises or earnings increase? https://www.macrotrends.net/stocks/charts/AAPL/apple/pe-ratio https://www.macrotrends.net/stocks/charts/AAPL/apple/pe-rati... [1b] The fed printed money for the 2008 crisis and lowered int. rates to nearly zero (though less scale), 2nd P/E peak now (dejavu?). Notice the marked crisis periods. https://fred.stlouisfed.org/series/M2 https://fred.stlouisfed.org/series/M2 [2a] Interest hikes: Fed plans 3-4 till 2023, but will not top 2% (media estimates). Gov likely not rise it too much like the 1980s, since we are still recovering from the pandemic. See the 2016-2020 hike? This could have been affected by Trump's corporate tax reform, but the stock market went on a parabolic rise since then https://tradingeconomics.com/united-states/interest-rate https://tradingeconomics.com/united-states/interest-rate [2b] Historical effect on hikes https://www.forbes.com/sites/kristinmckenna/2022/01/24/how-do-stocks-perform-when-interest-rates-rise/?sh=73411fee6928 https://www.forbes.com/sites/kristinmckenna/2022/01/24/how-d... [3] Historical effect on wars https://www.investopedia.com/solving-the-war-puzzle-4780889 https://www.investopedia.com/solving-the-war-puzzle-4780889 Fearmongering has been used in the last crisis to sell gold, this time is crypto. PS: This was just a quick analysis, would love to hear from experts.

mgh2 5y ago
* Laissez-Faire analysis update: 1. Include Google and Tesla as current and future competitors 2. Disney and Google as "blood money" inside Etfs (advertising, sports betting, crypto [Tesla]) https://news.ycombinator.com/item?id=30148364 https://news.ycombinator.com/item?id=30148364 3. 2018 dip (repeat): https://www.cnbc.com/2021/12/08/why-this-month-echoes-december-2018-when-stocks-plummeted.html#:~:text=The%20S%26P%20500%20in%20December,the%20worst%20December%20since%201931 https://www.cnbc.com/2021/12/08/why-this-month-echoes-decemb....

michaelrhansen 5y ago

Peloton and Docusign are two drastically different companies, on very different trajectories. Before the pandemic, the busiest mall in my town had a Peloton pop up store that was a ghost town EVERY time I walked by it (I couldn’t even count the amount of times I went by it). This narrative about “pandemic stocks” just feels like lazy regurgitation without looking in depth. PS Tesla did fine with earnings.