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It's surreal watching all the analysts stumble around trying to explain market behavior with half-baked explanations. One says it's tariffs, another says it's

It's surreal watching all the analysts stumble around trying to explain market behavior with half-baked explanations. One says it's tariffs, another says it's "uncertainty", a third worries about "recession", others say "inflation" or "stagflation". But none of them show logically or quantitatively how tariffs or "uncertainty" or vague, unsubstantiated worries about recession reduce the present value of future cash flows. Meanwhile, the new regime's playbook is clear for all to see: Deep cuts of 50% of more to government employment, selective default on government obligations, convert formerly independent institutions to ideological organs, devaluation of the dollar, and picking winners and losers based on ideology and diktat instead of merit and market forces. If this is the playbook, who would want to own a broad basket of US equities instead of the politically favored names? Why can't analysts connect the dots?

Swizec 2y ago
> reduce the present value of future cash flows > Deep cuts of 50% of more to government employment, selective default on government obligations, convert formerly independent institutions to ideological organs, devaluation of the dollar, and picking winners and losers based on ideology and diktat All of these reduce the present value of future cash flows by reducing said future cash flows. Like a sibling poster said: If the government stops spending, the US economy is screwed. The US is a lot less "free market" than most realize. Much of the economy is propped up by various subsidies at the raw inputs level. Also when you choose winners and losers by diktat, this inadvertendly reduces the present value of future cashflows for any company that doesn't get picked.
WorkerBee28474 2y ago
> none of them show [how uncertainty etc.] reduce the present value of future cash flows. They don't reduce the value of future cash flows, but they reduce the certainly of future cash flows that are discounted to present value. Additionally it's widely demonstrated that people will accept lower returns for lower risk/volatility. That's why T-bill have the lowest return, then bonds, then equities.
abirch 2y ago
The present value of future cashflows is vague at best. The market was overpriced and is correcting now. Look at the Shiller PE.
ac29 2y ago
> selective default on government obligations Which obligations has the government defaulted on?

Swizec 2y ago

> reduce the present value of future cash flows > Deep cuts of 50% of more to government employment, selective default on government obligations, convert formerly independent institutions to ideological organs, devaluation of the dollar, and picking winners and losers based on ideology and diktat All of these reduce the present value of future cash flows by reducing said future cash flows. Like a sibling poster said: If the government stops spending, the US economy is screwed. The US is a lot less "free market" than most realize. Much of the economy is propped up by various subsidies at the raw inputs level. Also when you choose winners and losers by diktat, this inadvertendly reduces the present value of future cashflows for any company that doesn't get picked.

WorkerBee28474 2y ago

> none of them show [how uncertainty etc.] reduce the present value of future cash flows. They don't reduce the value of future cash flows, but they reduce the certainly of future cash flows that are discounted to present value. Additionally it's widely demonstrated that people will accept lower returns for lower risk/volatility. That's why T-bill have the lowest return, then bonds, then equities.

abirch 2y ago

The present value of future cashflows is vague at best. The market was overpriced and is correcting now. Look at the Shiller PE.

ac29 2y ago

> selective default on government obligations Which obligations has the government defaulted on?