Investors are betting that powerful interventions from Washington will protect the long-term profitability of major companies.
Which means that the market is 100% detached from the overall economy, economic outlooks, and company earnings.. again.
Allowing companies (even ones that are large and considered important like airlines) to "fail" just means that they'd have to go through bankruptcy proceedings and that the owners would lose some money - it doesn't mean that their operations will shutter, or that the planes will suddenly disappear, or that everyone in those companies will suddenly be out of work.
There are many examples of how this works - a recent one being PG&E in California, who filed for bankruptcy last year. Our electricity is still running and the linemen are still working.
If the the whole market looked like this in the next year, people's 401k accounts would probably be demolished.
How many people do you know that truly had their lives ruined by the 2008 crash? Allowing the markets to find a bottom and recover creates opportunities for social mobility.
The people who don't want asset prices to drop are rich people. They are the ones who own the assets.
Perhaps they should just be allowed to fail, but it's far from risk-free, especially when we're diving into a deep Depression the likes of which none of us have ever seen.
Some of the costs that you describe, like folks being less willing to invest in and work on things that have proven themselves to be unprofitable, may actually be benefits.
Also, beneficiaries of bankruptcies are the same billionaires and hedge funds being bailed out now. Distressed private equity funds will be salivating over all the fire sales.
Tells me their profit margins and market powers are holding the market back greatly.
Isn't returning value to the shareholders the entire point of selling stock to investors in the first place?
Dividends are also saying "we have this amount of money on hand or cash flow, and no better use for it, so here you go"
I don't see the difference. Stock buyback looks to me like dividends without the tax - imagine a dividend reinvestment plan without the middle step and the tax bill.
For example, maybe Boeing has a design for a brand new plane that can carry 1000 people and go Mach 3. But it might take them 10 years to develop such technology.
The market would punish them severely for pursuing such a thing, so it makes more sense to buy back stock, otherwise they might get sued out of existence by their shareholders.
The market no longer values long term bets unless you are very special (Apple, Google, somehow Tesla). All those companies have mastered marketing their long term bets.
I think it’s highly problematic. It stifles pure research from the companies that have the most capital and talent to do it.
100% feels a little hyperbolus, but, in general, hasn't that always been true--hence the common phrase "The stock market is not the economy." The stock market only partially reflects on the economy.
https://www.marketplace.org/2019/09/30/the-stock-market-is-n...
Why not retain or increase investments in stocks, and thereby propping stock prices up, especially if it's a long-term investment?
Also even at the end of the current quarantine period, companies are not going to pop out and be ready to go just as they were before. The economic landscape will look like after a hurricane has hit, companies that have laid off people are not going to be in a hurry to rehire them in my opinion. Companies are in general unlikely to rehire previously reduced folks (and reduced folks are likewise unlikely to want to return to previous employers), and are instead going to look for new candidates. What we typically see after recessions is massive movements of people between the sectors. The recovery will be a long hard slog. I'd love to share your optimism, but I think the hurricane analogy is apt, even after the sun starts to shine we'll be living in the aftermath of unprecedented economic destruction.
Airplanes I'll grant you - I can definitely see a world where flights swing closer to a luxury good like they were decades ago.
The Spanish flu killed like ?? tens of millions, also in a year or two.
There was a more protracted pandemic that killed a million around 1910-1920, but it wasn't a flu.
Yes, people will want to eat out. But it will be fewer than a few months ago because a) layoffs, b) less disposable income, c) the fear of less/no income soon, d) the fear/risk of getting sick, and other reasons I can't guess.
Whether that is -10%, -50% or -95% has yet to be seen and near impossible to predict usefully right now.
Which is another way of saying it's rigged.
- If you go to the casino with your own money, rational people will gamble what they can afford to lose.
- If you go to the casino but are told that whatever you lose, someone else will cover your losses, how much will a rational person gamble?