And the stock market is unfazed. So now you know where most of that money (trillions of relief for Covid) trickled to. The financial markets. We basically printed money to assuage the fear and anxiety of the speculators to whom the world is beholden
I have a lot of my personal wealth (which is not a substantial number compared to a lot of investors) tied up in two areas. One of those is the stock market (the other is real estate). Most of that is tied to index funds because the returns are good. 401K's and retirement accounts is basically where it is. I would imagine many of those who have any savings in the US are in the same place.
So, a few things. First, as a small time investor that has a good chunk of my future tied up in the US stock market, I certainly would not say that the stock market has been unfazed over the last few months. It has been quite up and down. I am glad it stabilized a bit so that this report didn't tank it.
Second, I am glad that the Fed did something to assuage the fears of the market. Remember my future, and many millions of other peoples futures, are tied up in that market.
Finally, let's stop making this out as if there are a few good ole boys sitting in a back room moving the market around while they drink scotch and smoke cigars and that they suddenly get nervous and start ruining everything. The finance market has some really brilliant people working in it and trying very hard to make money. What is the negative there? I think of it as a symbiotic relationship.
So, if you disagree with the market and how we are all beholden to speculators, what exactly do you suggest we do?
Also, the governments themselves are so deeply invested in rising asset prices that their budgets will blow up due to not having money for their defined benefit pension promises.
Unfortunately, statistics such as how many children get nutritional food or the number of hours parents get to spend with their children or how many families get to eat dinner together aren't optimized for.
Universities rely on the market for their endowments ($500 billionish). When the market goes down, tuition goes up.
~60 million Americans have a 401K worth about $6 trillion. Many of those people are approaching retirement or have already retired.
> The fact that it’s going up helps only a minority of the people.
You may not be directly helped, but you will definitely feel the pain (eventually) when it goes down.
Inflating assets by printing dollars greatly hurts the lower socioeconomic classes by devaluing the only thing they have which is dollars.
A pessimistic view of the economy would say it is horrible because we now have a 14.7% unemployment rate and this is a record. An optimistic view is in an unprecedented time we have a 85.3% employment rate.
So, what is an economic reality?
One thing I do agree on, the market needs to stay up so as to secure the future of many.
Employment and GDP contracting at historic rates. A pandemic that is not close to being over.
> One thing I do agree on, the market needs to stay up so as to secure the future of many.
So, this is a new thing in the world. It used to be that markets were thought of as a fair playing field* on which price discovery and capital allocation happens. Sometimes markets would go down - a lot - and that was okay. For most people, the market and the economy are separate. The market could crash - as it did in Oct 1987 - without that spilling over too much into the economy at large. Certainly when the market skyrockets the wealth of households below p90 are not dramatically affected.
So now, what are markets? Not a fair playing field for price discovery and capital allocation, but something else. And if they're something else, how should we view the long-term prospects for markets to really do anything meaningful at all? Are they just going to keep going up forever, entirely divorced from the performance of the businesses that comprise them? Seems like we're steaming for the icebergs if that is the way forward.
* = yes, I know they were never truly fair.
I think you've made my point, this is a short term reality, and a pessimistic one. We don't have a model for the long term economic reality of this situation. We only have speculation and guessing. So we have a short term economic reality but nothing more.
To say that the US stock market hasn't historically effected the economy at large seems to forget the Great Depression. I believe it is taken as economic fact that the Great Depression started with the crash of the stock market in 1929. There was quite a bit of speculation and the market went up and down all over the place, but finally settled with a huge amount of unemployment and a massive reduction in GDP. We have put into place numerous measures to make sure that doesn't happen again, and we are using them, effectively.
Also, I disagree that the markets are entirely divorced from the performance of the businesses that comprise them. Most people don't look at the entire market. We look at indexes. Look at the DJIA. With the exception of Nike, Disney, and Boeing, which of the 30 companies in the index are hit hard by this pandemic? If anything, which of those companies are increasing substantially before of the pandemic? They aren't steaming towards an iceberg. They a solid, recession resistant conglomerates that have substantial production power.
There was a good analogy I read some days ago by someone on HN:
> Equity markets are not supposed to be so timid that they hide behind the skirts of grandma and cling to grandpa's legs. The picture is more like they're holding a gun to your grandparents' heads.
So basically protecting your life savings is now entirely correlated with speculators winning big. This wouldn't be a problem if we'd all be winning and the pie was large enough for everyone but it definitely is not and it's going in the wrong direction.
The money from the Fed needs to go to the people who will spend it. THAT is what an economy is - when people spend money to get goods and services. Now we have the infrastructure to do this. We need to give every taxpayer a Fed account. When the Fed wants to move the economy (and I mean the REAL economy, the place where people spend the hours of their lives) they need to get the money to the people who will spend it - the consumers. So they could make a monthly stipend to your Fed account. This Fed coin would have a 'half-life' encouraging you to use it before you lose it. Once spent, the actual amount is fixed.
At the very least, we need to get a better handle on our 'gross financial product' as a separate and distinct measure from our gross domestic product. When I read that our GDP increased but we have more unemployment than ever, I think there is some financial trickery going on.
Furthermore, stocks who missed Q1 earnings and provided or retracted guidance had their stocks increase the next trading day. So, to say the stock market jump today was a result of 14.7% unemployment rate vs the expected 16% is an unfounded assertion. Could it be that it's because US-China tensions have allegedly eased? Could it be that oil jumped 4.5% today and is likely to have given investors faith that demand for oil is increasing? Or could it be a bunch of other things at once? I don't think it's fair to distill the stock market to just one outcome anymore. There's too much going on at once.