Why is the stock market rallying when the economy is so bad? | Hacker News Reader

Why is the stock market rallying when the economy is so bad?

wsj.com

513 pointsharambae864 comments

Open articleView on HN

https://archive.is/cmMx5

It's a decent article. Here are their 5 reasons:

1. Bets on a “V-Shaped” Recovery

2. Market Leaders Keep Rising

3. Corporate-Earnings Expectations Remain High

4. Old Habits Die Hard

5. The Fed’s Backing

Personally, I'm betting we're still headed to a bloodbath, but slowly. This quarter's earnings are expected to be terrible, so this is already priced in. But the market is expecting a recovery soon after society starts opening up again. If (when) this strong recovery doesn't happen, the bottom falls out. If the reopening is combined with a second wave of epidemic and a renewed lockdown, something akin to financial panic ensues.

Even if there is a second wave, there will be a time after Corona eventually. There won't be any new players by then so the market shares will almost be unchanged.

Stock prices are discounted future profits for about 15 to 20 years. Those profits are still there when Corona is over. From that perspective, why should share prices fall by more than 5-10% for every year that Corona is locking down the economy?

*edit: If anything, the economy will prosper because Corona has forced every company into the 21th century by requiring remote work and digital workflows.

> why should share prices fall by more than 5-10% for every year that Corona is locking down the economy?

Risk adjustment.

1-Risk of death/bankruptcy for companies.

2-Risk of reduced consumer spending. This can happen because people are in financial shock, or because unemployment stays high. Perhaps some of these layoffs aren't "furloughs." Some of these businesses won't survive, like many restaurants. My expense is your revenue, but I won't spend if I don't feel "safe" physically and financially and if I don't have a job, well... On top of which, what if some part of society stops going out?

3-Risk of permanently slowed economic activity due to coronavirus spread in trading partners.

4-Risk that the vaccines don't work out and there is no "time after corona." Even if this risk is small, it is non-zero, and catastrophic.

Because someone has to buy products and services? With 40 mil unemployment numbers it will be hard to sell stuff when noone has power to buy.

Take my mother in law as example. Hard core shopoholic. Amazon and QVC packages coming in daily. Hair nails etc done weekly at salons. Now for two weeks silence. She lost her job and empty bank account hit her like reality check. Shes on her way to a friend - they will do each other hair and nails. And when I told her it will all go back to normal on January 1st, so many people died she tells me “i am not going out anyways for very long time”

How do you know there will be a time after Corona? In all likelihood, it is here to stay like influenza and rhinovirus and other respiratory illnesses. The only way we recover the economy is by gaining herd immunity such that 25-50k yearly die, not 200k. That comes with vaccine and with wide scale exposure, which I'd wager is by 2021 summer. But even then, old folks will still die by the thousands each year due to covid 19.

At the current death rate, we're on track to reach 200k dead by early July. And that's only the deaths that are being counted. There is a substantial increase in overall mortality beyond the year to year average, beyond the confirmed Covid deaths. Considering that this disease is causing pulmonary embolisms, strokes, heart attacks, and other manifestations of out of control clotting even in healthy young people, we may realistically have already hit 200k dead in June counting the people who have died suddenly at home without being tested.

Worst case 10 years, likely well less than that and coronavirus won’t matter to humans. You see we have what’s called an inate and an adaptive immune system. The inate immune system catches coronavirus and immediately illicits a response, the adaptive immune system catches infections that the inate immune knows about. The innate immune system dies off after you are 10 or 11 and your adaptive immune system catches 90% of foreign invaders over your life.

I’m giving some background because it means kids and children today have antibodies created by the innate system that fights off novel coronavirus. Which means their adaptive system will be able to remember and fight back against this virus. This means mutations, specifically this means weaker general strains in the future akin to the cold/flu.

Let me put it this way.. RSV is a nasty respiratory illness but we as a species survive quite well along side it even if it happens to kill a few babies and old people every year

Your descriptions of the human immune system and of viral evolution are both wildly inaccurate. I don’t intend to be snarky, but nearly every sentence is factually incorrect.

Even in the unlikely scenario where resistance/immunity/vaccines for corona never develop and it never goes away, there will come a point where people consider the death toll acceptable losses and the lockdowns will be lifted. E.g. the current attitude towards car accidents and influenza deaths. (And yes, I know corona is worse than either. Eventually, should corona truly become the 'new normal', that won't matter.)

A vaccine is a near certainty.

why?

Over an infinite period of time, sure.

It's helpful to use Spanish Flu as a proxy. It was almost completely overlooked by historians, mostly due to it coming on the heels of WWI, but look at what 1921 and beyond looked like. Back to normal. That's with the same social distancing and mask-wearing measures we see today. But no vaccine.

What's clear is society now seems to be willing to let COVID run its course (and kill discriminately) as long as we keep below hospital capacity. If we allow that to happen, then we'll reach herd immunity, regardless of vaccine availability, within a couple of years.

Let's just hope it doesn't mutate.

If you would like to keep an eye on mutations, some of them are tracked here [1]

[1] - https://nextstrain.org/ncov/global

From that perspective, the stock market should have no volatility in share prices whatsoever - it should fairly value each company based on their profits over the next 15 to 20 years, and since those profits don't change, neither should the share price.

Stocks are based on expectations of future profits, i.e. psychology. "In the long run, the stock market is a weighing machine. In the short run, it's a voting machine."

Few investors' psychology will let them look at a year of bad news and still think "Oh, it's going to get better in the future." After about 3 months you start doubting yourself and wondering if maybe you were wrong in the first place, and you've entered a brave new world where people randomly die and commerce or long-term plans are impossible. All of the economic data - corporate earnings, employment, share prices, etc. - will reflect the new normal, so there's no reason (other than your memory of what the '10s were like) to believe that share prices would always go up.

> stock market should have no volatility in share prices whatsoever - it should fairly value each company based on their profits over the next 15 to 20 years

Computing this depends on estimating/forecasting/extrapolating/guessing a lot of values. E.g. what kind of revenue growth the company will have. How the structure of company expenses may change. Parameters like a discount rate make a huge difference in the estimated value. In many cases the majority of the value for a discounted cash flow valuation of a stock comes from the tail term where you give up trying to unroll the contribution for each year and make a simpler approximation of what the company will be doing 20 years+ in the future.

The computed share value has a lot of sensitivity to adjusting some of these inputs, and in many cases it is not at all obvious what values parameters should be set to.

But that's the point. Parent poster is assuming that the future profits of a company won't change over the next 15-20 years because of coronavirus. Everyone in this subthread is pointing out that that's not a valid assumption. We've already seen the discount rate drop to zero in the last couple months. Will it stay there? Will we get hyperinflation? Will we get deflation as laid-off workers lose their spending power? Will the target market of many companies end up dead? Will companies go bankrupt through lack of cash flow? Are we going to see civil unrest or a breakdown of political authority?

Many of these are permanent consequences that will absolutely effect earnings 15-20 years in the future. The market seems to be pricing in an assumption that this will be a blip: we'll reopen, businesses will rehire, and 2021 will look much like 2019. I don't believe that's likely.

I think you're nitpicking on the parent comment forgetting to add "estimated" before "future profits."

Thats the theory. In practice stock prices wildly oscillate around expected value (which is a gradual curve up and to the right), with no apparent logic. As shiller points out in irrational exuberance, stock markets do not consistently reflect expected long term returns.

No one makes the claim that short term price changes are rational. They are bets made by humans - very flawed biased humans. ... but if you can be more rational than them, then you can make a lot of money in the long term.

... but I find that most people who complain about irrational markets lack the conviction to bet against it.

Discounting is also a harsh mistress. If your model expected a 10% discount rate but actually achieves -20%, say next year, then it would need to produce 51% just to get back to baseline on the year after that. Early missed returns do hurt disproportionately unless there is an easy way to get back on track.

This is assuming a (or near) 100% efficient market. Which it definitely is not.

Analysts use different methods to discount cash flows: https://www.investopedia.com/articles/professionals/072915/d...

Finding R (what to discount by) can be difficult to do: https://www.investopedia.com/articles/investing/021015/advan...

I don't work in IB or PE so take what I put with a grain of salt, just what I've learned.

Also, you know markets aren't near efficient when people invest in $ZOOM and not $ZM and when Elon tweets $TSLA stock is too high.

You can look at daily gainers and losers and watch them over the course of the week. They are extremely volatile.

If you're talking about the S&P500 it's a little easier to do. A little over 50% of the value of S&P 500 is the top 50 companies by weight. The top 100 equate to 70% and the top 250 equate to 90%.

There's a pretty good technical illustration of how the discount rate impacts stock prices here [0].

This does provide one plausible answer to the headline question from TFA: Corporations' expected future profits are lower than they were pre-COVID, but the valuation discount rate is lower because the expected future return for assets in general is lower, so the present value of corporations' expected future profits is the same-ish as it was pre-COVID.

[0] https://johnhcochrane.blogspot.com/2018/02/stock-gyrations.h...

> a second wave of epidemic

Judging by people's behavior, and the politicization of even common sense measures like mask wearing in the US, I think this is likely. I hope I'm wrong.

It's not just likely, I worry you won't even get out of the first wave. With everyone pulling in literally 50 different directions and and no leadership from the top this might just bounce between states like the proverbial hot potato.

I feel bad for you guys watching from the north here.

Just wait until we get closer to the election. Then it's going to get absolutely bonkers.

I was already worried about what might happen with this election, but the pandemic is likely to make things worse.

My wife and I have been discussing logistics to get somewhere safer in the event of different scenarios, but at the end... it's just difficult to predict what might happen and where.

If the U.S. collapses so does the whole world. Many regions in the globe (eg. Israel & the Middle East, Eastern Europe, the East Asian archipelago) are stable because of the threat of U.S. intervention if a large regional power decides they want to dominate the region. Take away that threat and you're going to get some very quick invasions as local powers seek to take advantage of the situation. Plus the U.S. dollar is the global reserve currency, so its collapse would send financial shockwaves through many developed countries.

Better to build local relationships where you are and focus on mutual aid & defense agreements with friendly local communities. The threat model here is a breakup of the U.S, not an invasion. The threat model to an individual is much less if you're in a community where the other individuals have your back, than if you're a minority or outcast in unfriendly territory.

There are just too many "unknown unknowns" for me to really do a good job of contemplating any of it. We might end up like Venezuela, Hungary or Russia, with some of the trappings of a democracy, but not the real thing. If he loses the election and there is violence, who knows how that goes, how much of it there is, and where...

Feels weird to write all this. I'm not much one for "wild" sounding theories, but all this feels like it's coming to a head, and things may change a lot.

I'd recommend reading US political history. Specifically in the 1850 - 1920 period.

The amount of batshit antics that passed for democracy gives a healthy perspective on current events.

The Union endures.

The US has certainly endured worse in the past and came through strongly. Neither the coronavirus nor Trump are anywhere close to an existential threat for this country.

You're probably correct, but past perfomance is no guarantee of future resuls, and, more importantly, while the country may have 'come through' events like the civil war, the death toll was ghastly. All things considered, being anywhere near its path was a really bad idea.

If you're Canadian and you think you have this beat, you're wrong.

https://www.endcoronavirus.org/countries

This is a naive way to interpret the situation -- it doesn't even account for testing rate or death rate.

What's naive is to complacently and condescendingly assume that Canada is handling this any better. It doesn't look that way from my province.

There was no condescending.

I'm out west where we got luckier and maybe also managed it better. But Canada had the advantage of strong leadership at this time and only ten provinces that are mostly on the same page.

I think the second dip is coming (the first being in March). With the flu season and covid19 resurgence and the market is going to realize those unemployment rate means a lot of people aren't going to buy stuff.

This is the alarm that keeps going off for me from getting too optimistic. If it's accurate that 78% of the U.S. was already living paycheck to paycheck [1] and many haven't made a dime in two months, it doesn't matter if there's pent up demand for things. There's just no money to buy them.

[1] https://www.cnbc.com/2019/01/09/shutdown-highlights-that-4-i...

This often mis-repeated paycheck to paycheck statistic needs to die.

Do you even read your sources fully?

> 51 percent of those making less than $50,000 usually or always live paycheck to paycheck to make ends meet

This is from the lowest income bracket in the 2017 survey.

It tells us 0 about how many are in the "usually" category.

It tells us 0 on does this account for investments or not.

What's the alternative statistic?

Well, what else to do with your money?

It is called asset price inflation. Most assets will devalue at some point but, in the broader range, won't go to zero.

This is not clear for FIAT money.

There's still a real possibility that there might actually be a full recovery - what's closing is small businesses, not megacorporations. The rich seem to do just fine even now. Even if most individual restaurants close, some will open back up, and more chains will move back in.

In every scenario I can imagine, one thing seems inevitable - most people in this world are going to get poorer and suffer more. But I'm not convinced that the economy itself will sputter; we might just be ushering in a new economy that's far more unequal.

In that case, the stocks might never go down again and people who have held off from investing are never gonna get back in.

Megacaps don't just print money out of thin air. If you have a faltering middle class, who's gonna be there to spend money? Unless you institute some kind of universal basic income, I don't see people's buying power staying the same. Remember, 70% of the economy is driven by people buying shit.

I think we're going to see just how small the mom and pop sector of the economy is.

There was a survey that went out that said 80% of small businesses can't afford more than 3 months under the current economic climate. If that's true, does that mean we will see all small business evaporate before the end of 2020?

> Unless you institute some kind of universal basic income

More than 100% of pre-crisis income for the service industry is being financed through the expanded unemployment and small business grant programs.

> More than 100% of pre-crisis income for the service industry is being financed through the expanded unemployment and small business grant programs.

Do you have any sources for that claim?

Sounds like you’re in the minority, but I think you’re right. Mega caps are built on the foundation of a broad consumer base that has been eroded faster than at any other time in history. Even those who seem insulated will feel the effects when their mega cap customers begin cutting costs because of their exposure to the consumer markets.

Doesn't this depend on the company? Demand for agriculture, petroleum, and financial services (among many other things) are fairly inelastic. People are going to consume all of that stuff regardless of how financially well-off they are.

Demand for agriculture is inelastic, but I don't think the same of petroleum or financial services.

Without travel, demand for petroleum has dropped significantly, to the point it was below 0 for a short time.

Financial services can come to a screeching halt as well if people stop buying on credit or taking loans out on housing and cars. Maybe I'm being short-sighted in only considering the consumer aspect here.

What's the last 30%?

My guess is government and corporate spending.

GDP = Consumption + Investment + Government spending + Net exports [0]

The investment component is dependent on companies' expectations about consumption (or other companies' investment, or government spending) in the future, and obviously the net export component depends on consumption in other countries. So in that sense the ~70% [1] due to direct consumption understates the true importance of consumer spending to GDP.

[0] https://en.wikipedia.org/wiki/Gross_domestic_product#Compone...

[1] https://fred.stlouisfed.org/series/DPCERE1Q156NBEA

UBI doesn't produce goods, though. You still need companies (open and) employing people to make the goods that people buy. Both need to be present.

UBI doesn't stop people working. It just stops them starving if they don't/can't work. It allows them to re-skill without risking ending up on the street. It provides a safe path out of poverty traps.

People will always get bored and people will always want nicer things, so they'll always eventually be motivated to go and get work to improve their lot. UBI won't change that. In fact, it will facilitate it.

UBI doesn’t do that. Unless tied to something like land-value tax, UBI just raises rent cost. Of course it doesn’t happen immediately, but within a year or so UBI will be consumed by rent cost.

Shouldn't the free market take care of that? Rental costs in a given area are driven by supply of, and demand for, rental housing in the area.

Housing is generally supply blocked due to zoning/regulation/bureaucracy/etc. It's a severely dysfunctional market in most areas.

That's exactly why tax cuts to the rich don't make any sense to me. Give tax cuts to the middle and lower classes, they're the ones who go out and actually buy shit, which drives everything else, really.

They make perfect sense if your goal is to enrich the wealthy in the short term.

The rich people create the value so they deserve whatever they want.

I agree... Covid is actually making the world more “efficient”, in the sense people are only doing the things that really “matter”, but the problem is it’s a big shake-up and there are going to be a lot of losers to go along with the winners.

That’s why I think we REALLY need to take the opportunity to pass a real UBI. So everybody gets to enjoy the efficiency gains.

I agree with this take the most. Everyone with a decent amount of cash or a job that lets them work remote is a-ok right now. In fact, they're doing great: picking up all kinds of assets for cheap right now, stock, cars, land, you name it. People who have lost their jobs are selling all that, since they need the money. Notice who is losing and gaining value in this situation.

$megacorps arent dying, they're thriving. The economies of scale they have built are doing great right now, since all the smaller players are essentially stopped, and people still need their stuff.

I honestly believe that every recession, the economy gets a little more inequal.

The rich always do well. I am surprised we put up with billionaires and rich Senators saying we need to go back to work when they could easily pay us to stay home for a few months. Essential workers could operate on shifts to reduce transmission rates of the virus.

My $0.02, we're going to see bifurcation that the market hasn't fully priced in. Not a good time to be in broad ETFs.

Highly likely: Coronavirus is going to be circulating until the end of 2021 (based on transmissibility & vaccine timeline). We'll have better therapeutics to blunt the symptoms.

But steps required to (intermittently) re-suppress transmission (NYC is ~20% exposed? So at minimum 1-2 more spike repeats) are going to continue to harm the economy over that period.

There is no version of social distancing or lockdown that permits normal brick and mortar economic activity (and therefore normal employment levels).

And there is nothing shy of those that dent infection spread once it gets going in an urban center.

50/50: Government stimulus cannot replace normal market demand over that period (i.e. "V-shaped recovery").

Firms and industries that can adapt (curbside pickup, work from home, pivot to online delivery) and are deemed essential do fine by cannibalizing their peers.

Eventually, the demand destruction will hit the markets. You can't sell product to people who are unemployed and have no disposable income.

Consequently, adaptive companies are going to survive & maybe thrive. Everyone else looks pretty economically grim under likely scenarios.

One interesting possibility is that the people most likely to get infected (different from most vulnerable if infected) are going to get infected this first round.

What that potentially means is that they will act as effectively a fire-break for the broader population.

Basically a burning of the highest throughput avenues for mass spread.

If true, that would mean we get lots of localized outbreaks, but the probability of that spreading back out into an uncontrolled pandemic is much lower.

Very insightful, hadn't considered that!

I'm not sure how effective this 'firebreak' will be in practice but it will certainly slow the spread to some degree.

There are recent research papers supporting that theory, and lowering the threshold for herd immunity much lower to 30-40%

If that is the case then places like NYC are probably pretty close.

Any links?

https://arxiv.org/abs/2005.03085 - The disease-induced herd immunity level for Covid-19 is substantially lower than the classical herd immunity level

https://www.medrxiv.org/content/10.1101/2020.04.27.20081893v... - Individual variation in susceptibility or exposure to SARS-CoV-2 lowers the herd immunity threshold

This effect will be amplified if the initial vaccinations are given (as they should be) to the potential superspreaders, like healthcare workers and essential manual laborers.

If the Fed starts buying stocks, much like how the Bank of Japan has been doing for doing 7 years, asset prices could remain high.

One nearly certain continuation is cheap (low interest) debt. Cheap debt allows for further stock repurchases by corporations, and the cycle continues.

Can you define what this bifurcation in ETFs look like? I can’t grasp how this situation will crumble the ETF market- aren’t ETFs in theory safer than stocks?

Happy to be corrected, but I believe it would be more accurate to say that ETFs are less volatile than stocks.

They accomplish this by bundling together like stocks, such that each's individual volatility balances out others.

This essentially allows you to buy "oil stocks" or "retail stocks" or "all large-cap US companies."

However, what goes into those buckets are any companies that meet the criteria. Hence why ETF fees are lower than actively managed mutual funds.

The downside is that you own all the companies in that bucket. If half of those companies can coronavirus-adapt and the other half cannot, is that the bucket you want to be holding?

No. I want to hold the "will survive in the future" bucket. Can you sell me that ETF?

Great comment. Coming out of this will take until vaccine (1-2 years) unless this turns out to be less severe than we think and people will just ignore it.

Recovery will be highly company specific and overall reduced consumer spending will hurt even those companies who can operate under social distancing.

>no version of social distancing or lockdown that permits normal brick and mortar economic activity

I happen to agree, which is why I struggle to explain the last few week's stock price gains for companies that can hardly adapt e.g. DRI, SIX. Sit-down restaurants and theme parks.

Thanks for the summary. This is a question that had piqued my curiosity. Based on past bubbles, I cynically assumed it was mostly delusion ("market can stay irrational longer than you can stay solvent").

Paul Krugman provided his own answer a few days ago in a Twitter thread:

Two lessons here. First, the Fed saved the world economy from total disaster (again). Second, the stock rebound is not a sign that everything will soon be OK. It's not telling us that the economy is great, but rather that investment opportunities other than stocks are lousy.

https://twitter.com/paulkrugman/status/1256208478282158085

This echoes @magicsmoke's explanation at the top of this thread and helped change my mind a bit. Like you, I still expect a bloodbath eventually.

Among this article's explanation, #1-3 sound like folly to me. And I'm guessing 4 & 5 can only go so far when 1/3 of the economy is out of order. It feels like a massive (long and slow) hurricane has just made landfall and there's still too much rain and wind to see how much damage has actually been done yet. But investors seem to want to pretend when the storm clears, the economy will somehow still be standing there unscathed and everyone will be able to just head back to work.

Yep, this rally seems like an extended Bull Trap. Surprised slow bleed hasn't started yet. Falling knives may likely happen on vaccine bad news and subsequent waves with further bleed outs.

An increasingly large % of the economy is concentrated in a handful of highly profitable, efficient tech companies and multinationals such as Walmart, Microsoft, Amazon, Google, and Facebook. Stimulus $ is pure bottom line growth for these huge companies as smaller businesses close. Also, huge growth in business to business commerce, bypassing consumer spending altogether. Facebook and Google selling ad space to other big businesses such as IBM. Microsoft, Nike, or Proctor and Gamble. Also, the wealthy are more impervious to economic weakens than the lower classes, and consumer spending growth from the top 10% is enough to offset loses in the bottom 90%.

Yes, all this, plus most of those out of work today are doing fine because of the stimulus and additional $2400 a month in unemployment from the federal govt.

I know family members who are making more at home now than they do when they are working.

i qualify and filled for unemployment benefits over a month ago after a several hundred employee layoff at my company. I still have not seen a penny. Many others I've talked to in my state are in exactly the same position.

in Nevada, the department of employment has dropped business hours to just three days a week. there are no queues when you call in. there is no "your call will be served in the order this call was relieved". there is only the busy signal. day after day - the busy signal.

people's ability to actually work with the employment office differs dramatically state by state.

please don't generalize. Platitudes about how the unemployed are "doing just fine" aren't universally true. Many of us are watching personal savings vanish week by week while with no resolution in sight.

That shouldn't mean you will never see a penny. AFAIK you will be prorated on the payments for sure, but of course if it's been over a month seems like there is a bottleneck in the governmental process for the benefit. That doesn't disprove what the OP was saying.

Prorated isn’t the correct term here. It’s retroactively paid.

And that assertion is false. The $600 per week is only until July 31.

I thought that ran out in July or somewhere around then? I can’t imagine most service sector jobs will be back for at least a year

"consumer spending growth from the top 10% is enough to offset loses in the bottom 90%"

Bold prediction - let's check back in a year or two!

It’s also Apples to oranges.

Consumers in the top 10% don’t buy the same kinds of thing the bottom 90% do.

Consumers in the top 10% don't buy nearly as many things, at least not enough to float large multinationals. If there are big multinationals that could, it's likely that their customers can't!

To OP:

That does not make a compelling argument that the stock market rally will continue.

Consumer spending is 70% of the U.S. economy. And we have an unemployment rate of over 15% on its way to 20%, the worst in 80+ years. We are seeing many areas of consumer spending rapidly decline if not stop altogether. Delinquencies in mortgages, car loans and credit are expected to skyrocket.

Also, the wealthy have a lower marginal propensity to consume. Giving $1200 to a worked making $40,000/year almost guarantees every dollar will be recycled into the economy. Give the same stimulus to a millionaire and you have savings or asset inflation.

perhaps a lower marginal propensity to consume, but bigger purchases make up for it. A millionaire remodeling his home for example or buying a Tesla.

They obviously don’t or there wouldn’t be any billionaires. An American family earning 40k is guaranteed to spend it all on food, shelter, healthcare and a few other consumer goods. An American billionaire by definition is not using their billions to consume or they wouldn’t have billions in their portfolio anymore. Jeff Bezos might buy a Tesla but he’s not buying a million Teslas

Because the stock market doesn't represent the economy as most people experience the economy.

First, a lot of companies don't pay out dividends or buy back stock these days, so as time passes, removing their stock price from the price at IPO, their stock price becomes based on perception--not even perception of the reality of the company's value, but perception of the stock's value, which is increasingly just speculation. The stock price might remain tied to the performance of the company in broad strokes, but without regular dividends, sales, or buybacks to tie the stock back to the company, there's nothing to keep it from becoming disproportionate with regards to the company's value.[1]

Second, when companies do pay dividends or buy back stock, it's sometimes done by borrowing money. This actually drives down the value of the company (since now the company has to pay interest on those loans) but drives up the value of the stock--the value of the company and the value of the stock are going in opposite directions.

Third, with the wealth disparity in the US, even if 90% of people pull out of the stock market, it's quite possible for the stock market to go up, because the other 10% own >80% of the stock market. 90% of Americans can divest completely from the stock market, and it could at most lower the stock market by 20%.

This is why stock market metrics are not metrics I care about when determining how the economy is doing.

[1] EDIT: What I mean by "broad strokes" and "disproportionate" here is: Events occur which change the value of the company and the value of the stock, and at least the direction of these price with regards to these events is likely to align. In broad strokes, because people believe the value of the stock is tied to the value of the company, if a "good" event happens, the stock price goes up, and if a "bad" event happens, the stock price goes down. But it's pure speculation how good or how bad these events are. If big bad events are downplayed so they only are represented as slight drops in stock price, and small good events are marketed well so they are overrepresented as big upticks in stock price, then over time this can result in a stock price that goes up, when the value of the company is actually going down.

It's actually even more complicated than that.

> [...] these days, so as time passes, removing their stock price from the price at IPO, their stock price becomes based on perception--not even perception of the reality [...]

John Maynard Keynes developed this idea (that came to be known as Keynesian beauty contest[1]) in 1936. This isn't a new property of the market, it has always been the case.

> when companies do pay dividends or buy back stock, it's sometimes done by borrowing money

It's not clear that this is a problem, given that cash is basically free (though they do have to pay back the principal). I'd be interested to see what proportion of dividends and buybacks comes from borrowed cash. I suppose calculating such a thing would be very difficult, but it'd be interesting to see some analysis on this.

> if 90% of people pull out of the stock market, it's quite possible for the stock market to go up

What if 90% significantly cut consumption? Ultimately the companies have to sell their products to somebody.

[1] https://en.wikipedia.org/wiki/Keynesian_beauty_contest

They have to sell something only if the Fed don't give them money (and dilute the share of the lower 90% as a side effect).

> What if 90% significantly cut consumption? Ultimately the companies have to sell their products to somebody.

Well, that's almost the interesting question.

A certain percentage of what the 90% consume, they can't stop consuming. You have to eat. You have to wear clothes. You have to live somewhere. You have to go to the doctor. So there's a whole big chunk that the 90% really can't stop consuming.

And if you want to be in the upper parts of that 90%, you need a computer, a car, a cell phone, college... So there's a bunch more of that where the 90% could stop consuming, but it would be a pretty significant sacrifice.

And for the remainder, there's an entire marketing industry manipulating us to make sure we don't stop consuming. Even as someone who actively tries be aware of marketing and remove marketing from my life I catch myself sometimes falling for it, and buying things I don't want or need. And I'm sure there are times it happens when I don't notice it. A significant part of Hacker News thinks advertisers are just out to help us find products we need!

The proles will never revolt, Winston.

The interesting question isn't really whether people will voluntarily cut consumption. It's more, "What will happen if the bottom 90% loses the income necessary to consume?"

Cynically, I think that won't happen, and the top 10% will just make enough concessions to keep the 90% alive and not revolting. We already see that in things like Amazon's $15 minimum wage: it's not a meaningful wage when Bezos is making $9 million/hour, but they can always make arguments like, "We're paying more than our competitors" and "We're preventing homelessness".

And that's not necessarily a bad thing: I want to see change, but I'd rather see it happen slowly through education and care than quickly with blood running in the streets.

Sounds like an extreme view, many people, even lower income still have retirement funds who are being invested somewhere and they're not taking money out.

Sure, buybacks were responsible for a big part of stock buying activity for awhile. But that has completely stopped now as companies prepare for the uncertain future.

Should look into Central Banks activities...

e.g .BOJ is top-10 shareholder in 40% of Japan's listed companies

Central Banks everywhere are dumping more and more money in the economy. The one from Europe is ready to buy Italy bonds even if its moved to Junk bonds.

“Because the stock market doesn't represent the economy as most people experience the economy.“

That’s my theory. The top 10% own most of the stock but their experience of this crisis is quite different from people who already had low wages now losing their jobs. I bet most of the people (not all) on this site don’t feel the crisis economically at all or only with minor pain.

Personally I think we should stop looking at GDP, stock markets or housing prices but instead the economy should be optimized towards raising things like median wages or purchasing power. In the end that’s what really counts.

In the end what really counts is the health of members of society as a whole.

Providing everyone with basic life necessities would be a good start.

I agree that metrics should be tied to actual individual income and not the stock market or GDP. (As an aside, my cynical belief is that we've always known those to be poor metrics but we use them anyway because they measure what people with power actually care about). But keep in mind that even median income is not a good indicator of economic standing with high cost of living. Whatever it is would ideally capture how much spending/saving power is left over after essentials (warmth, shelter, food, water, health etc).

That’s why I mentioned something like purchasing power.

> a lot of companies don't pay out dividends or buy back stock these days, so as time passes, removing their stock price from the price at IPO, their stock price becomes based on perception

ignorant question, if true, how is this not the worlds biggest ponzi scheme? Are we just betting on the possibility of dividends in the future? It just seems illogical. The fraction of meaningless ownership as a shareholder can't be worth that much to most people.

Then to take this to the extreme why do we bother with stocks, why don't humans just collectively put money into a a giant pot where we can withdraw proportionally at any time. Isn't that what we are doing with stocks?

It is and it will get corrected. The question is how. The CPI could inflate to match the asset bubble, or the bubble could pop. The first is looking more and more plausible. When either happens, it will be ugly, but if the first scenario plays out, "cash is trash" as Ray Dalio says.

I am right with you, I've never understood what the actual purpose to owning shares is other than "their price goes up when the company is expected to do well" -- but what do you get for that price being higher?

Without dividends the whole idea of stocks makes no sense to me.

With dividends, I would think "I'll buy this stock for $100 with the expectation that I'll get a $10 dividend next year, a $12 dividend the year after that, etc etc, and eventually make my money back!"

In the case you buy a bunch of stocks and just hold onto them, they generate value by the company doing well. I could buy shares of a bunch of companies and wait 30 years, and if most of those companies are still doing well, I'll have made a profit from dividends, and I can then sell those to some wide-eyed young person who is hoping the company will continue to do well so they can get their payments for the next 30+ years. If the company instead does well for 20 years and then abruptly goes out of business, I still would've gotten lots of payouts from them, but now I can't sell those shares to someone who hopes for future payouts anymore.

But if there are no dividends, none of this makes any sense -- I'm buying the shares, making no money for the 30 years that I sit on them, then selling them to some wide-eyed younger person for a higher price who expects to also make no money for 30 years, but to be able to sell the shares to some new younger person? There's no endgame with a payout here, but there is an end where the company goes out of business. So what value was the share providing the owner over those 30 years??

You are not forced to hold onto non-dividend paying stocks, you can sell them gradually to create "dividends" for yourself. As a first order approximation, buying a $100 stock that gives you a $5 dividend but stays at $100 is not different from buying a stock that doesn't distribute a dividend but appreciates 5% every year.

Thanks for the response! I guess my issue is that there's no actual value in owning non-dividend shares for any amount of time. So I can sell the stock to someone else, but what are they paying me for? The opportunity for the value to increase more? Why is someone interested in paying me more than I paid? I feel like there's never any real money that's made back by owning those shares. What's the goal?

Removed from the stock market, if I privately invest in a company for $1m for 10% of the company, it's because I'm hoping that someone else will see that the company has value and purchase it, giving me 10% of that future purchase price. The company sells a product of some sort, and I have a 10% vote in what they do with that money, which I'm hoping is to sell to a larger company.

Is the goal the same on all of these non-dividend paying companies -- to be bought by a bigger company? Because otherwise there's no value in the shares except speculation itself, which seems pointless to me

Even non-dividend-distributing companies can give real cash to shareholders in exchange for those paper share certificates by buying back shares. But it's true that for some companies it's quite difficult to justify valuations.

Stock gives you a legal claim to a portion of the assets of a company, which as you point out, manifests itself quite clearly during a liquidation event like a dividend payment or an acquisition by some other entity. But tt shouldn't bother you that plans for such a liquidation event might not be clear when you buy the stock. What matters to you (and future investors that might buy your shares from you) is that if such an event happens, you have to be compensated as a result. That's why your shares retain value.

To take a more specific example, Google has ~$100B of cash on hand, and it does not pay any dividends. Let's just assume that Google is nothing more than a box containing $100B, and you own a portion of that box amounting to $1000. Even though you can't reach your hand in and take out that $1000, it's yours. In the event it gets released from the box, you're the only one that can get at it because of your ownership. And because everyone else realizes that, there's a pretty clear value to that ownership that they would rationally pay you for.

Of course, Google is much more than just a box of money, it is a box of many things, some very intangible (but still valuable). This extra value makes it worth far more than $100B. But it's still a box, and if the value gets released from the box, you're the one who gets it. So who wouldn't pay (at the correct price) for that?

This was a really helpful explanation, thank you! I have really minimal experience in finance and economics (other than keeping savings and blindly dumping money into index funds). I really appreciate you for taking the time to respond!

So really when you get down do it, you're paying for the prospect that the company will eventually be able to do something that will return money/value to you, but you don't know what. And so when you're buying shares, you're analyzing the risk between them going broke, and the value that they could potentially pay out someday. Same as private equity, but with a less clear path to actually extracting value from the company.

Then if the company was really screwed up, the shareholders could technically vote on a way to turn the company's assets into cash, which they would get a portion of. Or do anything else with, since the shareholders get to vote on the outcomes of those things.

There's a couple points you're missing. Even if there's no dividends, as long as the shares represent legal control, they can be purchased by other companies or individual to gain control of the profits, direction, or assets of the company. This gives the shares value independent of dividends.

The problem with this idea is that increasingly company founders are opting for dual(or even triple) share structures by issuing massive amounts of non-voting stock to outsiders.

It is all a game of musical chairs when you buy GOOG(not GOOGL), FB (class A) Facebook shares which have 1/10 voting power of Zucker class B shares.

The list of these abominations goes on and people keep buying and trading them. If you are a company founder and can get away with this (Zynga had some trouble but still got away with it) you'd be selfishly stupid not to do it.

And don't get me started on Chinese stocks where you are buying ADR of some entity in Bahamas which has no say at all over the Chinese parent.

EDIT: Why is it wrong for a company founder to have full voting control? It is wrong when he/she has less than 50% ownership that's what's wrong. If you have 20% of the company but have the super-voting shares you can decide to take the company into a bad direction and the 80% have no say.

I have no disagreement with anything you've said, actually. It is kind of an interesting swindle, really.

>First, a lot of companies don't pay out dividends or buy back stock these days

As I understand it, a good chunk of of the reason stock prices were originally so high before the crash 2 months ago was that stock bybacks were at an all time high (though of course this doesn't mean every company is doing them). Part of the reason companies are so vulnerable is that a large chunk profits were being used to undertake them - not being kept for reinvestment, debt repayment, or rainy-day funds.

Why bother with a rainy-day fund? If your company has a long-term viable business you can borrow money to survive a temporary crisis. If your company's business model is permanently ruined then you are better off calling it quits and shutting the company down than setting your cash reserves on fire trying to rescue a dead company.

During a credit crisis a viable business might have trouble raising money, but with the Fed indicating that they are willing to throw money out of the proverbial helicopters, maybe people don't consider that a real concern any more.

That's a fair point. In theory, or at least in my imagination of running a large business, I still think there is value in keeping a rainy-day fund - but you're certainly right that it doesn't seem like any large companies, aside from those flush with cash like Apple, practice

I would add another factor lots of people overlook: the trend towards index investing. In the past, asset management involved actually analyzing the performance of a business, now it’s just trillions of dollars allocated merely by market cap. Index investing makes everyone QEs bitch - the end game for it is what we’re about to experience.

That's exactly right: index investing is more like a mix of a pyramid scheme and central planning. It's decoupled the stock market from the underlying economic activity.

How do you thinking the individual underlying shares of an equity index fund are valued? The performance of a company is analyzed, and market participants buy or sell shares and derivatives based on their analysis. You can make the argument that an over-reliance on indexing leads to less price discovery, but I don’t buy it.

The people shrieking the loudest about passive indexing are active fund managers.

Managed versus index is to me, open source versus closed source.

With managed funds, you have lots of participants out there eyeing the value of businesses. Everybody can make a buck by taking a peek.

With Index funds, we all have to trust that S&P is doing the right thing.

> With Index funds, we all have to trust that S&P is doing the right thing.

No, you don’t. Here is the document that outlines how the S&P 500 is calculated: https://us.spindices.com/documents/methodologies/methodology...

> Managed versus index is to me, open source versus closed source.

This is also backwards, indices are transparent and open while managed funds are not.

> The stock price might remain tied to the performance of the company in broad strokes, but without regular dividends, sales, or buybacks to tie the stock back to the company, there's nothing to keep it from becoming disproportionate with regards to the company's value.[1]

Total stock market noob here, so apologies if this is a dumb question - but I've wondered this for quite some time: There seem to be some extremely well-performing stocks (e.g. Apple, I believe) that don't pay dividends, don't give you voting rights and are not expected to be bought back anytime soon.

How are those stocks connected to the company at all? As an owner, what do you do with those stocks, except selling them to someone else so he can sell them to someone else in turn?

How do they get their value?

Apple one day might start paying dividends. As the company matures, and growth slows, returning value to shareholders (if no better options exist) is a wise use of capital. Value can be returned via dividends, but also through share buybacks.

Apple returned 81 billion dollars to shareholders last year: "During its latest fiscal year that ended in September, Apple bought back $67 billion in stock and paid out $14 billion in dividends" [0].

[0]: https://www.barrons.com/articles/apple-stock-buyback-dividen...

It is really not a mystery why the market has done so well and will continue to do well. Corporate profits, especially in the tech sector, are at near record highs, much higher than during the 90s. Companies like Walmart are printing cash, and that money goes into buybacks, dividends ,or shareholder equity. Either way, shareholders benefit and this is magnified by very low inflation, so the real return is even higher than it was compared to the 80s and 90s. If huge, multinational companies generate 20-30% profits or cash flow, that is $ that will go to shareholders one way or another. Great time to be in the stock market. Added to positions in April at a discount.

Corporate earnings have been flat for over a year, so they don't really explain why the S&P 500 still went up 15% from the 2018 highs. And now expectations are down substantially and even for 2021 are below 2018 levels.

if a $100 billion dollar company generates $10 billion of profit annually, then that is 10% returned to shareholders every year even if there is no earnings growth.

Sure, with no earnings growth and no price increase shareholders would be richer due to the cash returned via dividends.

But that doesn't explain why the price you pay for $X in earnings is higher in one case than in the other. (Retained earnings could explain a minimal part of the increase.)

There is no reason for that $100bn company to be a $110bn company next year if it has returned the $10bn it earned to shareholders and it's still going to earn $10bn.

A reason could be that the yields on other forms of investment are going down. If buyers are willing to accept a 1% yield because they cannot easily get it anywhere else then the share price can go to $1 trillion, or even further if yield is expected to go up over time.

> First, a lot of companies don't pay out dividends or buy back stock these days, so as time passes, removing their stock price from the price at IPO, their stock price becomes based on perception--not even perception of the reality of the company's value, but perception of the stock's value, which is increasingly just speculation.

This is a common trope to hear, but it's just so fundamentally untrue.

At the end of the day, the long-term fundamental value is absolutely tied to dividends/buybacks. There is zero divorcing from that reality.

Yes, in the short term prices fluctuate above and below that level based on supply and demand for shares and other trading strategies. But the farther away any trader gets from fundamentals -- e.g. buying something they already think is overvalued because they think it will continue to climb -- the statistically riskier it is and the more likely they'll lose money.

So there is a strong force pushing the value of a stock to exactly the NPV of its future profits.

Going without regular dividends or buybacks is not just fine and perfectly normal for growth stocks, but expected because it's in shareholders' best interests. You don't need dividends to be able to judge revenue, costs, and profit. Everybody knows that when the companies cease to continue growing and reach a "steady state", the dividends/buybacks spout will be turned on. Not out of the company's good will, but because shareholders will demand it.

> But the farther away any trader gets from fundamentals -- e.g. buying something they already think is overvalued because they think it will continue to climb -- the statistically riskier it is and the more likely they'll lose money.

How? By what mechanism?

The fact is, as long as shares of the company don't actually get removed from the market entirely, the price of the shares is what people are willing to pay for them.

> Measures by the Fed and U.S. government have underpinned the recent rally across markets. The Fed made it clear it was willing to step in to buoy the economy. Why bet against the market when the central bank is willing to do that?

The Fed has gone far further than just this. The Fed is going to buy as many assets as it takes. Treasuries. Corporate bonds. Junk bonds. Munis. It'll buy the assets directly. It'll buy them through ETFs. The Fed will buy so much with its infinite balance sheet that you're going to get tired of getting rich by front-running the Fed.

The Fed is in the fight of its life. The enemy is dollar strength. Have a look at what the dollar was doing during the depths of the recent crash. It was going much higher.

Here's an investment hypothesis. It could be wrong, but for now, it explains some things.

Should the dollar start climbing above 100 on the DXY index[1], watch for: falling stock markets; falling bond markets; falling commodities and gold markets; falling bitcoin; failing businesses; bank distress. At the same time, watch for the Fed to announce new asset purchase acronyms.

The dollar is the world's currency and the Fed is the world's banker. There's a lot of dollar-denominated debt offshore. When the dollar strengthens, those loans get more expensive to service. To raise cash, foreign holders of stocks and bonds start selling.[2]

The US stock markets have become strongly coupled to the US dollar and simultaneously a predictor of Fed action. Dollar goes up, stocks go down, Fed starts buying assets. Dollar goes down, stocks go up, Fed steps back.

The thing to watch for in the coming months is some kind of dilemma. For example, watch for Fed purchases to lead to a stronger dollar. At that point, the Fed will need to decide which master to serve.

[1] https://www.tradingview.com/symbols/TVC-DXY/

[2] https://www.lynalden.com/global-dollar-short-squeeze/

Another factor to consider...there are other nations that are actively working to undermine the strength of the dollar as the global reserve currency. If they can sufficiently erode trust in the US financial machine, much bigger problems arise.

This is a really thought provoking comment for me. Especially your last point.

Could you go in a little bit further about what you think would cause fed balance sheet size to reverse its correlation with negative dollar strength? Is it its stabilizing effect on our markets increases demand for dollar denominated assets or for dollars directly as a hedge? Something else?

> For example, watch for Fed purchases to lead to a stronger dollar.

Trivial to offset by giving free money to people. The problem is the Fed can't get most of it back. While assets in their balance sheet will hold some value.

Of course, once you start giving free money you destroy societal incentives and get a much bigger problem. Productive people switching to "cabin in the woods" mode.

Because a company’s stock price is in theory what the market expects is the sum of the total future discounted cash flows that unit of “equity” generates. [1]

This means that fundamentally, stocks are forward looking several decades and beyond. The economy right now might be bad but if the expectation is that there is a slow and long recovery lasting 2 years, if a company is expected to be operational, profitable and growing in year 3-year 10, those profits are built into the share price.

[1] https://en.m.wikipedia.org/wiki/Valuation_using_discounted_c...

Exactly. Here's a very intuitive way to think about it.

Disney World's revenue has currently fallen by 100% this period. How much do you think the fair market value of Disney World should decline by? Clearly the answer is much less than 100%. Even if Disney World stays closed for two years, it's clearly a very valuable asset. As an asset it probably has a 50 year effective life, so 2 years of closing represents no more than a 4% loss in cash flow. Interest rates are essentially zero, so Disney World should be no more than 5-6% less valuable than it was before the pandemic.

The biggest risk for corporate assets isn't the direct impact of the lockdown. It's whether the experience leads to any permanent changes in people's behavior. If there's a permanent cultural shift where people stop going on vacation or visiting crowded amusement parks, then Disney World might be worth much less. But this is significantly more speculative than estimating the direct impact of the lockdown.

I assume you're ignoring the discount rate entirely for simplicity? It doesn't seem like money ten years from now should be worth the same as money today.

But I guess that implies that interest rates should go up eventually.

No, I think the OP addresses that obliquely here:

> Interest rates are essentially zero

Interest Rates for very secure debt is essentially zero, but future corporate profit expectations are uncertain, so there would be some non-zero risk premium applied in the rate used for determining their present value.

This makes a lot of sense but then shouldn't this apply to stocks like Netflix or Peloton. That once the people get back to work and gyms, these companies will struggle to grow as fast and in a way face permanent damage till the next pandemic?

No, it doesn’t work the same way because investors will already take this into account when modeling the future cash streams available. They will say, “in year X we expected the business to obtain $FOO cash flow due to increased usage during a pandemic stay-home order. But this anomalous usage doesn’t mean the company “lost” any growth if it’s numbers aren’t as strong later, instead we expect it to have $BAR cash flow in normal times.”

In other words, temporarily gaining more revenue in a way that does not jeopardize the regularly predicted revenue in other times will not create a “permanent” lack of growth, under any reasonable model of discounted net present value.

The only way it could have an effect like that is if it put some type of limitation or burden that reduced capacity for business later.

For example, consider a toilet paper company instead of Netflix. Everyone rushes to buy tons of toilet paper right now, which looks like amazing revenue growth, but investors will ask if everyone is going to have the same demand later. Eventually there will be an issue between the supply chain to make that much toilet paper and the stored up stockpiles of people who don’t need to buy more. Some companies could go bust during that event, others might have cash reserves or other lines of business, and the effect on stock price will be related to these.

>The biggest risk for corporate assets isn't the direct impact of the lockdown. It's whether the experience leads to any permanent changes in people's behavior.

Note that this is a risk for specific corporate assets, but less so for corporate assets as a whole. The things people are shifting their spending to generate offsetting profits in other companies; if we're buying electronics instead of airfare, this is good for electronics manufacturers and distributors and bad for airlines. If we own both, then this shift matters a lot less.

Does this also mean that the market fundamentally thought, during the Global Financial Crisis, that the sum of the total future discounted cash flows permanently fell significantly?

I'd like to see how this concept would explain 2008. If it can, it further strengthens the thesis.

Yes. In fact, 465 US banks had their actual future cash flows go to zero and were closed permanently. A great number of other companies also never recovered and filed bankruptcy and/or were sold off.

yes because if a company goes bankrupt it’s future profit goes to zero

I think it’s tough to say and tie it in directly. My understanding of 2008 is that the over valuations were tied in with residential Real Estate and the associated MBS’ (mortgage backed securities - the owners of the loans). Everything else was largely contagion and concern around the sanctity of the financial system.

The subsequent crash and economic calamity was focused on home owners, and existed within the financial system more broadly, not just stocks/equities.

Maybe a better example is the dot-com bubble - many investors thinking that “the Internet was going to take over” etc etc pets.com. So the thesis at the time was tremendous growth rates for questionable business models. Once it was evaluated as a “bubble” =~= overvalued =~= these set of companies will never make back there money -> a stock price correction occurred.

Partly, that's where the "discounted" part comes in. The further out a profit, the less it factors into today's price.

The other part, and this took me forever to realize, is how much "expectation" matters, in the sense of information. If on Monday, I flip a fair coin to decide whether or not to dissolve my business, and then tell you what the coin landed on on Wednesday, then the amount you'll pay for a share in my company on Tuesday is going to be incredibly different from what you'll pay Thursday. Noting for the business changed between those days. Only your perception changed, but it's insanely important. That's a reason swings can happen so near-instantly. The company's finances don't change that quickly, but the information available to investors does change that quickly (like on an earnings call, or after the release of an investigative report).

So in 2008, the near future was weighted heavily and not rosy ("intrinsic" values go down), while investors realized they'd been wrong about their expectations (market prices go down further).

This implies that Wall Street fully expects a total rapid recovery from 20-30% unemployment and near instant realization of demand for everything again in short order. Including planes, restaurants, vacations, tourism, etc.

I'd love to know what insider info they have passing around because I don't see the people losing their homes due to a failure to pay rent buying new cars for Christmas.

Its that or capital realizes the working poor are so divorced from their economy that they can ignore the destitution of the muggles while their fantasy numbers game chugs along in perpetuity. Which it probably can. Not like anyone owns a pitchfork anymore.

There may not be as many new cars for Christmas, but it's important to keep in mind that the US economy was doing extraordinarily well prior to the pandemic - with unemployment at 3.5%, the average person in the labor market was employed for more than 50 weeks out of a 52 week year - in fact, so many people were employed that companies were starting to have to raise the amount of money they offered to workers, because they couldn't find anybody desperate for a job.

Put differently, we shut down ~20% of our economy. We'll probably restore most of that - around 15% - retail, restaurants, gyms - and our economy was doing so well that losing the remaining 5% is a blow we can take - most of those will migrate to other industries that were hiring (e.g. Amazon). 2021 will look more like 2013 (a recovery in progress) than like 2017 (a boom) or 2009 (a recession).

> This implies that Wall Street fully expects a total rapid recovery from 20-30% unemployment and near instant realization of demand for everything again in short order. Including planes, restaurants, vacations, tourism, etc.

I don't follow. Could you explain how what I said implies that? And what time scale are you referring to when you say "rapid" and "near instant?"

"What is the fair market value of a specific company" is only part of how stocks as a whole get valued. Roughly speaking, investors have a roughly constant fraction of their money invested in stocks. As more money enters their pockets - via personal earnings, corporate profits, monetary and fiscal policy, etc - investors have to figure out where to park it.

What happened in 2008 is that investors suddenly realized that a hell of a lot of companies were taking way more risk than they thought, and decided to cut their stock allocation to avoid those risks.

Doesn't this argument mean that the stock market should in theory be recession proof? If stocks are looking forward several decades, then it should be factoring in the recovery from any recession we face.

Which as we've seen during various recessions doesn't seem to hold true.

Once investors become truly forward-thinking, snp will hit $30 quintillion 8^)

No, because traders don’t price the market as a whole, they price individual stocks.

Some stocks will never recover, and some of that recovery will be companies that don’t exist yet.

While these things might offset to create a market recovery, there’s no way to price in the expected cash flow for a company that doesn’t exist.

Traders can certainly spread their bets across many companies representing a business sector, and routinely do so. This "a few firms might go bankrupt so this explains why entire sectors experience massive volatility that isn't justified by long-term revenue expectations" claim seems like someone trying to rationalize irrational human behavior.

Ok, but take the airline sector for example. Maybe one or more of the airlines will go bankrupt. Maybe they all somehow survive.

The price of Delta, United, American etc. gets discounted because the risk of each individual stock being bankrupted is high. But they don’t go to 0, because there’s also a chance each of the airlines might somehow survive to next year and go back to profitability.

If all the airlines go bankrupt, someone will step in and create new companies in the sector by buying up the bankrupt companies’ physical assets, but the existing shareholders will lose everything despite the sector itself being viable in the long term.

It’s much more likely that the other incumbent airline businesses just soak up that business, or the loss of competition sees price hikes across the board. Airlines are hard to spin up.

TL;DR if the sector as a whole is healthy, and you’re willing to balance an investment portfolio across the whole sector, then your exposure to future revenues should be fairly healthy even if one company goes bankrupt. But you’re absolutely right that prices don’t behave as though this is the case.

A company isn't guaranteed to make it out though and if they don't, your stock is now worth zero.

It should also be factoring the expected future recessions in, so when one comes along, the stock price should barely move!

But I don't think that market participants are nearly good enough at prediction for that to happen.

Why did it dip in the first place then? Within the first few weeks of Covid19 the circuit breakers were dripped many times, if the market is so forward looking, what happened then?

People thought the virus would hit harder, and so the long-term impacts would be worse, than they do now.

The demand curves and supply curves are constantly shifting.

For a short time, the market envisioned the apocalypse. That’s what the media was selling, and enough market participants bought it to temporarily cause a sell-off. Also, consider that a very large percentage of market trading is algorithmic. In this sort of situation, they often amplify the panic by detecting human panic in the market and automatically selling.

I don’t get this argument though, I have shares and I don’t think the apocalypse would make me sell them, what good is all of that cash ?

The only people who should worry would be those who have all their savings in their share market, and I doubt the majority of share holders have all their money invested.

Not sure this checks out. I’d sell because I’d hope to buy once we rescued the bottom though.

The first sell off was emotional, the rest was forced margin selling. It was beautiful.

There is a difference between being forward-looking and being able to predict the future.

Nobody thought the American economy was going to shut down, until it became clear that was going to happen. That was when we hit the circuit breakers.

Arguably the actual economic outcome has been worse than most people would have predicted back during those crazy days in March. The US's management of the pandemic has been worse than most of us could have predicted. And yet stocks are up.

That could be. Although I'd argue the opinions of "most people" are not always relevant to market moves, because most people are not controlling most of the money.

Regardless, the factors you mention are only two of the many factors that affects the value of stocks. The reason that causes a crash isn't necessarily the inverse of the reason it may go back up.

Poor management of the pandemic isn't necessarily a reason for stocks to drop, either. The market doesn't care about public health any more than it affects profits.

If we assume that the market is rationally pricing future revenues (and I don’t personally assume that at all right now) then you have to look at early March as a prediction that things were about to get extremely terrible in a hurry. As a macroeconomic prediction, that seems like it’s actually a pretty good prediction —- based on where things are in the real economy. But the stock market has since decided that the actual outlook is about the same now as it was in October 2019 on the tail of a record expansion with 3.6% unemployment. That doesn’t seem so reasonable anymore.

The market is only wrong when it goes down, it seems.

The market is wrong all the time, that’s why it changes.

The general public is much more interested in why their 401k disappeared than they are interested in reading articles about crazy P/E ratios in bull markets.

Adding in a little more nuance. Free cash flow to equity is discounted at the cost of equity. The cost of equity increases as future cash flows become riskier. However, costs of financial distress tend not to get baked into valuations unless they are obvious because they are not part of the normal valuation process.

This is why it might be possible that the stock market would not decline as much in 2020 / 2021 as it did in 2008 / 2009.

However, something seems fundamentally wrong with valuations at the moment, I cannot put my finger on it, and so I'm overweight fixed income until I'm more comfortable that things are going to turn around.

Is the ten-year outlook better now than it was one year ago?

The thing is, in the formula, you have to use the rate "r" to discount the future profits. If the "r" decreases, the monetary value of stocks in the present increase, even though the cashflow has not changed. So, even if coronavirus decreases short-term profits, the effect it has on the global economy can lower interest rates, causing the present value of stocks to increase.

> if a company is expected to be operational, profitable and growing in year 3-year 10, those profits are built into the share price.

Certain buyers may be basing their decisions on expected profits in 3-10 years, but this certainly isn’t the only reason that somebody may choose to buy a stock. Also, in that situation they wouldn’t be pricing in the profits that they expect to be made, they would be pricing in what they think the actual probability of that happening is (which would include some probability of those expectations not being met). If the future earning potential of a company is already fully priced in, then you’d have little reason to buy the stock, because it wouldn’t have any room to increase in value.

no one who values companies professionally predicts cash flows more than ~5 years out, certainly not decades, because predictions about economies, governments, societies, and institutions are all salient to those future cash flows and those predictions become rapidly worthless as you look further in the future.

what happens in practice is that you take the cash flows of year 5 and you annuitize it into the far future with the estimated growth rate, and call it a day.

> no one who values companies professionally predicts cash flows more than ~5 years out

> what happens in practice is that you take the cash flows of year 5 and you annuitize it into the far future with the estimated growth rate, and call it a day.

How is that not a prediction?

it's done out of tradition, not prediction.

Whatever the valuation, you will always find one way to value a company which match the current valuation ...

The explanation is very simple. The pandemic is not nearly as bad as people thought it would be in March.

Models were predicting hundreds of thousands of deaths in the USA over the next few months, with lockdown. Many people were predicting hospitals would be widely overrun in New York City, parts of California, etc (again, with lockdown). These models and predictions, of course, were wrong.

Printing money and stimulus should have been expected (given the government's response in 2008) and therefore priced in, at least in theory. If we actually had massive numbers of bodies piling up outside hospitals in all major US cities, no amount of money printing would have propped up the markets.

We are going to cross that 100k death toll by June, and there will be an acceleration in 2-4 weeks as we see the effects of reopening efforts on transmission rates. [1]

Brooklyn funeral homes have trailers full of bodies waiting for burial. Just because it’s not happening where you can see it doesn’t mean it’s not happening. [2]

1. https://projects.fivethirtyeight.com/covid-forecasts/?ex_cid...

2. https://www.google.com/amp/s/www.nytimes.com/2020/04/29/nyre...

Some models were predicting multiple hundreds of thousands of deaths, with lockdown. The Imperial College model was predicting 1 million deaths, with lockdown. I completely agree cases will rise as places begin reopening. But whatever the outcome it will be with reopening - still better than what the market expected in March.

Yes, NYC was the only place in America where the system was close to overrun and some hospitals actually were overrun, I'm not disputing that.

> And as has often been the case in recent years, investors find themselves faced with few attractive alternatives if they opt out of betting on stocks. The problem is so familiar it has its own acronym: TINA, or There Is No Alternative to stocks.

Cash: Gets eaten away by inflation. Although the CPI doesn't indicate high inflation it only measures consumer goods. Inflation is there in the price of investments. If you don't invest now, it'll cost you much more in the future to own assets with positive rates of return.

Bonds: Near 0% interest rate, practically no better than holding cash.

Real Estate: Not nearly as liquid as stocks, but the price of real estate is propped up by similar logic.

International Investments: Now this could be interesting if capital flight from the US begins occurring. However, every other economy is hurting like the US's or has significant problems with transparency and whether investors can get their money back out again.

Stocks are more than just their market price. They represent ownership in a piece of the American economy and its future dividends. As of 2016, the richest 10% of America owns 86% of its stocks / future economic output. With the economy plunging while stock prices remain high, this means the fence between being a renter and a owner just got even higher.

I agree.

Also, I know it is hip to say that Wall Street is short-sighted, but in reality it is one of the the few fields where people routinely think decades at a time.

If you run a large pension fund or investment account you were already risk-weighted and if the cash isn't needed for 10+ years you'd much rather own a slice of the world's largest companies ten years from now instead of gold or cash under a mattress.

It's all about risk vs return. Furthermore, in the current environment of high adversity, and increased scarcity there will eventually be innovations. Some of those will translate into products and profits.

The problem is perception. Stocks are increasingly seen as a risk-free play, backstopped by a Fed that will take drastic action if prices fall.

In that world, why bother innovating? Why bother investing in innovation when the risk-free play has a huge positive expected return?

Because the Fed isn't there all the time. Under normal circumstances, you can't just sit there. Aside from competition, you won't retain quality employees.

But they are now, and that's what matters. When prices fell the first time, it didn't even take a week before the government passed the largest stimulus ever, 80% of which went to corporations. Investors know that the government will do anything to underwrite their risk.

Nah. That doesn't guarantee a return. It might mitigate the downside but there's still risk. No one takes on risk to break even.

You invest for a return. Stopping a slide yesterday has little to do with getting a return tomorrow.

The future. New products. New ideas. Etc. That's where a return comes from. Not the Fed.

The mandate of the fed is to have maximum employment and price stability. With the impact of social distancing to businesses there was no other alternative to protect employment rather than fed buying securities so the govt has funds for fiscal stimulus to prop up employers that might otherwise go bust (and may still).

The stimulus is intended to protect jobs and livelihoods, not to react to movements in the stock market (even if the current president seems to think so)

Agreed. The entire exercise has been about mitigating chaos. A freefalling stock market _and_ overwhelmed hospitals would cascade badly. Any lives saved was a byproduct.

For better or worse, agreed or not, the US' gov diverted - for now? - an implosion. The Fed can't eliminate risk. It also can't guarantee future returns.

False, most of the stimulus went to 1) direct payments to the bottom 90% and 2) small businesses with less than 50 employees.

That was a later program. You're misunderstanding because he used the word "stimulus". There were multiple rounds. The first, was a huge corporate giveaway.

The first one was .4% the size of the cares act and it was for healthcare, not corporate giveaways:

More than $3 billion for "research and development of vaccines, as well as therapeutics and diagnostics"

$2.2 billion "in public health funding to aid in prevention, preparedness and response efforts — including $950 million to support state and local agencies"

Almost $1 billion for "medical supplies, health-care preparedness, Community Health Centers and medical surge capacity"

$1.25 billion to fight COVID-19 internationally.

source: https://en.wikipedia.org/wiki/Coronavirus_Preparedness_and_R...

You are correct. The original commenter was incorrect in the assertion of the order of the bills "passing" - "it didn't even take a week before the government passed the largest stimulus ever".

I'm referencing the CARE Act.

https://en.wikipedia.org/wiki/Coronavirus_Aid,_Relief,_and_E...

Granted the one you reference was passed prior, the CARE Act was introduced first. The CARE Act was never in danger of being dropped, as the market was counting on it (it is filled with pork).

https://www.federalreserve.gov/newsevents/pressreleases/mone... , the fed is buying junk corporate bonds

They announced their intention but I don't believe they have actually bought any yet [0, 1]. Also, their balance sheet shows they are buying predominately U.S. Treasury securities and Mortgage-backed securities [2].

[0]: https://www.cnn.com/2020/05/04/investing/fed-junk-bonds-etfs...

[1]: https://twitter.com/TruthGundlach/status/1256352949787176960

[2]: https://www.federalreserve.gov/releases/h41/current/

> Investors know that the government will do anything to underwrite their risk.

The FED only steps in for once in a lifetime risks that impacts the market broadly. Any risk specific to individual firms, which is all the risk between these broad market events.

> The FED only steps in for once in a lifetime risks that impacts the market broadly.

Those risks overlap. It's not effectively once-in-a-lifetime, as of the last century.

These once-in-a-lifetime risks have been happening about every 10 years lately. It's also important to remember that there are sectors of the economy receiving huge subsidies. One of the most striking is banking, which derives a good proportion of its value from the federal government guarantees on deposits[0].

[0]http://www.adriendavernas.com/papers/valuationofbanks.pdf

Wall st is extremely cutthroat, in that if you stagnate 1 quarter kiss your market cap goodbye. Loom at the R&D budgets to judge if public companies are still innovating.

I feel like there is a decade of guillotines in the future that they are either not seeing or are looking way past.

But then I've always been cynical about the growing divide between the uber-wealthy and the other 99% of this country.

Guillotines might have worked well in the past, but with modern weapons and technology, you can use a much smaller portion of the population to suppress a much larger portion of the population.

You can pay 10% of the population well enough that they support the top 0.01%, and the top 10% can pay the next 20% to 30% well enough or provide a sufficient probability to move up (or illusion) that they are incentivized to help suppress the remaining 60%.

Also known as the "Tyranny of the Majority".

https://en.m.wikipedia.org/wiki/Tyranny_of_the_majority

Uh, you can't just pay massive numbers of the population without the wealth creation in the first place. We do not have some centralized salary authority that pays people based on loyalty to some arbitrary payment distribution scheme. This is completely contrived.

It doesn't need to be centrally managed, the situation can emerge organically just based on how people are incentivized. Especially with the impact computers and scaling at low marginal costs has and how much more one person's labor can be worth compared to another person's labor.

Oh how splendid.

That cuts both ways, so to speak. Drones and even more advanced technology can replace guillotines as easily as it can be used to have a smaller police force of the kind you mention.

I think some people don't quite understand what people are capable of when they are truly desperate. Right now, in most of the western world, people aren't at that point. But when they get there, billionaires' ability to hide on islands or yachts or whatever won't stop the inevitable. Any violent revolution is going to be very bad, even for the very wealthy who think they're insulated/protected.

Seems very difficult to evade location and transaction tracking, both which governments have very easy access to, but the rank and file do not.

That’s assuming a French Revolution style uprising, which is probably unrealistic. What is very realistic, however, is an increase in “lone wolf” terrorist attacks targeted at rich and/or powerful people. You don’t need a thousand people rolling a guillotine down the street when one person with an off-the-shelf drone could inflict just as much damage. Sure the police would find them quick, but one thing the American military is really bad at is fighting an enemy that doesn’t dress in military gear and shoot back with military weapons in military formation.

We’ve seen it recently, where a single man shut down CNN and I think some other news stations just mailing poorly-made bombs to the media and politicians. We’ve seen it decades ago with Oklahoma City.

Could a Western population stand up against their government in a real fight? No. Could they inflect the same amount of damage without actually having to stand and fight? We’ve seen it before.

Nobody ever won a war of occupation without local support. I have no doubt the US population could stand up to it's government but with the current levels of polarization I don't think that's a realistic scenario.

Individual assassinations don't change the system. How many rich people do you think have to be assassinated for the economic system that allows accumulated wealth inequality of this scale to change? Would killing Bill Gates or Warren Buffet somehow magically reconfigure how American society works? It's much harder to kill a system than it is to kill individual people. Like you hinted at, the American military has had a grand old time trying to kill off radical islam.

How many rich people need to be assassinated to change the balance? Looks like it's about 3: https://www.usatoday.com/story/money/2017/11/08/billionaires...

In any case, assassination is probably not the most effective means of wealth redistribution.

Just reverting the tax cuts for the wealthy would already do a lot of good. I also think a steep inheritance tax for inheritances over a certain amount (1 million? 10 million?, 100 million?) to preventing these concentrations of wealth from creating a new aristocracy.

But 3 billionaires owning more than the bottom half of the country doesn't have to mean if the bottom half owns nothing:

>> "Their $264.1 billion in holdings outstrips the combined net worth of an estimated 160 million people"

Simply redistributing that would mean that everybody in the bottom half gets $1600. That's not going to fix poverty. It only underscores just how little that bottom half really has.

The problem with high inheritance tax is that it only hurts the rich when it catches them off guard. In otherwise free economy there are so many legal ways to circumvent inheritance tax for the lowest rate tax that is available.

That's true. My point is just that inheriting massive fortunes is a problem because it keeps wealth concentrated across generations. But there are so many loopholes around inheritance that it's not trivial to address this.

Hypothetically, if assassinating Gates, Buffett, and Bezos were a viable method of wealth redistribution, I don't think the idea would be to give everyone $1600. It would probably be more like "we're going to look at the median and top everybody up to that level."

I'm just looking at what the bottom half of the population gets. There's on average $1600 per person available. And that's apparently also what the average person in the bottom half already has, since together they apparently own as much as these three billionaires.

So that means if you completely equalize the wealth of the bottom 50% of the population after redistributing the wealth of these billionaires, the average person in that bottom half will still only have $3200.

So maybe they can get their car fixed, but they still can't send their kids to college.

First, the military did eventually do quite well vs. isis, once proper resources were directed.

Second, look at history to tell you what will happen if the rich get disappeared. This happened in many communist nations. Doctors, lawyers, professors, bankers, wealthy landowners were mostly murdered and their wealth stolen from them. Did it work well for those nations? Are they thriving today?

France did quite well after killing the aristocracy. Most 'communist' nations on the other hand did a lot more than kill the rich and take their wealth. Compared to the vast economic, social and political changes that happened in Soviet Russia or China etc., it seems that the part about what happened to the rich is unlikely to be very consequential in its impact.

Huh? How can you just write off the unrealized potential like this?

> Individual assassinations don't change the system.

Franz Ferdinand’s assassination changed a whole lot of systems.

It was the spark that ignited the fire, but the kindling was already there. It probably still would have happened without his assassination, though possible a few years later.

There's also plenty of kindling in the world today. Plenty of current top players and upcoming top players butting heads(China and Turkey being the most news worthy to Americans), plenty of players that are sour about past/present conditions (Britain with Brexit, Germany/France over their influence in the EU), and players that are seeking allies to become an upcoming top player (India being the easiest to point out).

Plenty of friction indeed, but the big difference is that (almost) nobody wants to go to war. Just before WW1, everybody was itching for another war. China definitely does not want war with the US; they want to expand economically. Nobody in the EU wants war over anything. The US has always been the most eager to go to war, but even they seem to have learned that wars are expensive and have little benefit. Russia wants to control (pieces of) their neighbours, but again without an actual war the EU or NATO. Turkey is primarily interested in crushing anything that might start to look like a Kurdish state, but also doesn't want a war with a big player.

Wars today are mostly cold or proxy, and rarely direct.

WW1 was going to happen anyway, it was just the first good excuse.

> We’ve seen it recently, where a single man shut down CNN and I think some other news stations just mailing poorly-made bombs to the media and politicians.

That case always struck me as really odd. That guy was under surveillance the whole time and was caught in a sting operation. I think they even helped him build the devices. For what reason did they actually let him mail them? Surely, given that they were in on the entire plot, they could have simply arrested him before the devices were actually mailed.

He only has to take some material step forward in terms of the plot to get arrested for conspiracy as far as the law goes. Letting those reach the mailbox seems like a major failure on their part.

They were rewarded with promotions, published news items celebrating the arrest and increased budgets.

Don't forget this is also the country where multiple right-wing militias came out of the woodworks and engaged in a standoff against rangers for multiple days over a herd of fucking cattle. And then proceeded to do the whole thing over again in a month long siege over some cabin in a national park.

My point being in any destabiliztion event these groups are certainly going to be active, and being that they also have the exact opposite political ethos to the average gulliotine advocate, I'm willing to bet any uprising is not going to be so simple.

Think less French Revolution, and more Autodefensas Unidas de Colombia

History repeats itself: https://en.wikipedia.org/wiki/Wall_Street_bombing

System controls internet, phone network, electricity, food and oil delivery.

IF you want to stop a revolution in 21st century just shutdown everything and blockade roads. How long till people start dying? A week?

What are the rebels gonna do? Assauls tanks and machine guns? Or starve/freeze/cook to death without electricity/oil/food?

The American delusion of aremd citizens defending constitution is just that - a delusion. In real life army mops the floor with small minority of suicidal rebels, and the rest begrudgingly return to their usual jobs because it's much better than starving and fearing for life every day.

Army would at least make things so that us isn’t a laughing joke to the world unlike what the current administration is doing

On the other hand, you have seen the mighty US army not being able to suppress a few guys wearing flip flops in Middle East. So, if things get real nasty you won't have people "begrudgingly returning to their jobs". If that thing is possible to happen, there would BE no revolution in the first place, as the conditions would be not harsh enough.

This "delusion" is also mostly a straw man in my opinion. Most people who talk seriously about armed rebellion in connection with the second amendment are not talking about attempting a coup, marching on the capital, engaging the military.

They're talking about holing up in scattered rural dwellings and ignoring the law, with maybe the occasional terror attack mixed in. The Taliban has made a decent go of such a strategy so I don't it's an altogether risible position as you're implying.

The Taliban live in a failed state with barely any civilization for decades already. What's to lose?

I highly doubt average American will be OK with that.

This approach works well particularly well if the masses are decapitate by identifying anyone with high intelligence and “inviting” them into the 10% via education.

Angry masses without a leader are not going to do anything.

I think you're overestimating the value of high intelligence. I don't believe we have any accurate means of identifying potent leaders, not even a 10% slice they might belong to.

Strip the wealthy if their wealth and most will probably become wealthy again. If you don’t call it intelligence what would you call it.

> most will probably become wealthy again.

Source?

This sounds like something that a study of Chinese upper-class and their 1949 pre-revolution family history could shed some very interesting results on.

There's a book that attempts to look at this called, "The Son Also Rises."

It tracks wealth by surnames and argues that the ability to gain (or regain) wealth is inheritable. This thesis is in contradiction to some of the ways I've experienced the world, but it is a source supporting the parent's claim. For my own political inclinations I'd be happy to hear many others that support the opposite claim.

I've only dug into the briefly, so forgive me if I'm missing something obvious, but it looks like his research was mostly just tracking surnames? How would you differentiate between family lines that actually lose and regain wealth over generations, and those that happen to maintain it over that span?

Like say the Smith family was traditionally privileged and wealthy, but my great-great-grandfather lost his fortune. Am I actually any more likely to rise in fortune than the Jones' family next door that have been generationally poor for hundreds of years? Or does it only seem like that because I have many distant cousin's whose families maintained their advantages?

It tracks rare surnames, so there aren’t many distant cousins to skew the results. The point of focusing on rare surnames is so that you can be more certain that people carrying them today are actually direct descendants of people in the old records.

Second thing is that the fortune is typically not tracked here, because it’s really hard to get any historical data about fortune of any individuals, much less those not so famous. What Clark et al do is track status, and average out: for example, you can look at the people who graduated Oxford hundreds of years ago. As it turns out, their descendants today are overrepresented among UK’s doctors and lawyers. On the other hand, people carrying common job-related last names, like Smith or Taylor, are underrepresented as lawyers and doctors. In fact, in today’s UK, people carrying last names of Norman conquerors are still overrepresented among high status occupations in UK, although not by much, given a millennium of a regression towards the mean.

I recommend reading the book, it’s great.

Maybe I was unclear because I picked a generically common surname for my example, but I was also assuming both people were descended from a common successful ancestor.

The core of Clark’s argument is that the advantage is not due to accumulated fortune, but rather is genetic in nature.

http://faculty.econ.ucdavis.edu/faculty/gclark/the_Son_Also_...

https://press.princeton.edu/books/hardcover/9780691162546/th...

https://archive.org/details/CSPAN2_20151004_190000_Book_Disc...

https://www.worldcat.org/title/son-also-rises-surnames-and-t...

http://gen.lib.rus.ec/book/index.php?md5=76BC054612F39ED6CBD...

https://en.wikipedia.org/wiki/The_Son_Also_Rises_(book)

Did they look at societies where last names are passed on matrilineally but social status/family continuity isn't? You would get the same results if the ability to gain wealth were truly a matter of genetics, but not if it were simply a matter of environmental benefits conferred from wealth.

Being born in the right family is absolutely a major predictor of success. The wealth opens up opportunities, but even without it, the guidance and example of family members helps a lot. The name recognition may too.

Brand recognition

I think that's likely untrue if you include connections, training, and education in your definition of wealth.

American wealth is closely tied to how wealthy a given persons parents were [0]. Given this, I’m skeptical that the wealthy would become wealthy again.

The counterpoint is the richest Southern families quickly recovered their positions in the years after the Civil War [1]... but that relied heavily on racist policies, and of course these families still owned capital like land.

0: http://www.pewtrusts.org/~/media/assets/2015/07/fsm-irs-repo...

1: https://www.nber.org/papers/w25700?utm_campaign=ntwh&utm_med...

But intelligence is directly connected to it, too. And I'm not even speaking about generic aspect: it's the cultural thing of how important education is perceived to be. In Russia, two generations after the revolution you could still guess where did the family originally come from originally by this cultural divide alone.

Wealth is (obviously) corralated with many properties that make it easier to gain wealth. To look at the effect of parents' wealth (and solely that) on children, you need to look into lottery winners or Bitcoin/APPL holders.

There is no significant relationship between any measurable attribute of someone and their wealth, except for the wealth of their parents. So no.

There are a few relationships between IQ and conscientiousness and wealth, but they break down towards the extremes are not strong enough in magnitude to account for even single-quartile mobility.

It doesn't have to be intelligence but really dissent in general. Check out the Hundred Flowers Campaign where Mao and the Chinese Communist Party encouraged debate and general criticism of the regime.. and then a few months later, rounded up all the dissenters and disappeared them into labor camps.

Ref: https://en.wikipedia.org/wiki/Hundred_Flowers_Campaign

Missiles are similar weapons may be useful against other countries (remember Vietnam, however), but they will not stop revolts inside the country itself. What would the US government do if 80% of the city of New York decided to turn against the government? Throw an atomic bomb in the city? Their time may be running out.

What would New York even do? People here don't believe in firearms, let alone violence. In reality the city would starve within a couple weeks due to siege/blockades if it really united and tried to revolt.

Kropotkin's Bread Book is about exactly that! He claims any revolution will be as successful as its ability to feed everyone, and tries to outline a path to it.

To name it, "The Conquest of Bread". Very good read, kept me from snoozing off in my CS classes :p

> People here don't believe in firearms,

I don't know what that means. Guns are highly correlated with leathality and people believe in them completely. Generally, a population may not want to have possession of guns. That quickly changes for a large percentage in survival mode. Effectively, many criminals are perpetually in survival mode.

It’s not like police haven’t resorted to bombing its own citizens before.

https://www.vox.com/the-highlight/2019/8/8/20747198/philadel...

The entire Civil Rights movement is littered with examples of a police state and civilian mobs shooting, lynching, using dogs, water hoses, etc against its own citizens. It doesn’t take much to rile people up against “them” and get people to look the other way or even participate.

This is almost a kind of income equalizing. The top fraction of a % will pay a bit more to the people they are bribing not to kill them and so forth. The smart thing is the people at the top pay it all, so they control it.

There is a much simpler alternative. The general strike.

Market could still go up. The Fed just has to agree to print money until the strike ends.

Which will be very useful when the utility workers of the stock exchange strike and the lights turn off.

Not when half the country is living paycheck to paycheck.

Mutual-aid networks could be set up to subsist strikers

Yeah, people always say "Why should I pay more in taxes? It's not fair, they should be flat and the same for everybody!" and I'm always like "Do you have just as much to lose in a French Revolution scenario? You should be happy to pay more if it leads to more social stability."

The top 1% pay something like half our taxes. What share do you think is fairer?

How about equally to their share of national income?

It should be in proportion to how many % of the wealth they own. So more like 90%

The 1% earn 36% of the income[1] as of 2016, and pay 37% of the taxes[2]. Everyone happy now?

[1] https://www.cbpp.org/research/poverty-and-inequality/a-guide...

[2] https://taxfoundation.org/summary-latest-federal-income-tax-...

Income != wealth

Indeed, many billionaire and multimillionaire CEOs famously take a salary of $1. Bezos takes a salary of around $80k, IIRC. And, I'm not even sure if Bill Gates is taking a salary at all these days.

Income is taxed.

But the top 1% own much more than 37% of the wealth (and accordingly receive much more than 37% of the financial benefits of government spending) while only paying 37% of the taxes (which fund that government spending).

> and accordingly receive much more than 37% of the financial benefits of government spending

what?

They wouldn't have all that wealth if it wasn't for infrastructure, an educated population, a stable political situation, continual bailouts, and the world's largest war machine.

e.g. aircraft carriers

The wealthy produce more income via capital gains, which are taxed at lower rates. They also have greater access to tax deferred and tax free options. A married couple of high earners with a good retirement plan at work can put nearly 150,000 annually in accounts that grow tax free.

They will simply leave, or destroy the system.

How do you imagine this would work? Would no one in America found companies anymore? Would the government sit by and allow the to leave? How would companies like health insurance leave?

Imagining that the richest can hold a country like the US hostage is preposterous.

No, they would try to make a bunch of shell corps and have only 1% in each corp. Distributing the wealth (to other entities that they control less directly). It would essentially just destroy brand recognition for large companies.

They're welcome to leave. Society doesn't need rich people.

Destroying the system would do more damage, but so far it's been their system that enables their accumulation of wealth. There are a lot of poor people who want to destroy that system.

Like Sanders says, when half a million people are homeless, our healthcare system is a joke, and our infrastructure is unmaintained, we have a LOT of work to do. And a lot of spending.

There is a far-left opinion that there should be no such thing as a billionaire, that a single human's marginal tax rate should hit 100% at some point. I wouldn't say "never" to the idea at this point.

> our infrastructure is unmaintained

Bernie supporters are generally the least likely to get their hands dirty and do the kind of work necessary to build and maintain infrastructure. Pretty much everyone I meet that does that kind of work is Republican. Not saying this is a universal truth, but it's a somewhat accurate generalization.

Source for party affiliation by a sampling of occupations:

http://verdantlabs.com/politics_of_professions/

I don't respect your assertion. Not a lot of work to do when it's unfunded.

Also looking through your other comments, you seem to question peoples' sources on things without providing any for your own.

For posterity, the link was added after I commented and he probably downvoted me.

This is of course the big issue with infrastructure. The problem isn't the people doing the work, the problem is that they need to get paid for doing the work. Funding infrastructure is a political decision.

Responding to "our infrastructure is unmaintained" with "Bernie supporters won't be in the jobs actually doing the building because I found this cool infographic showing that bartenders lean Democratic and beer wholesalers lean Republican" is beyond mere non-sequitur into genuine weirdness.

It's not like our infrastructure problems are new, or weren't remarked on before 2016. They've been building for decades. They were there in the Obama administration, and the Bush administration, and the Clinton administration, and the other Bush administration, and the Reagan administration. Do you think the problem through all those years was our critical shortage of leftist construction workers?

Neither bartender nor beer distributor are building infrastructure.

That list actually does a good job comparing related professions. For example, while home builders lean Republican, architects lean Democrat. Plumbers Republican, carpenters Democrat. I don't see this support your assertion at all. Road workers or bridge builders are not listed at all.

> Road workers or bridge builders are not listed at all.

If you scroll past the 1:1 comparisons and hit expand all, there's a much bigger list of occupations, many of which would fall under the "people building infrastructure" umbrella.

Looking at those jobs it seems like it leans a bit right, but overall is fairly balanced.

It's certainly an interesting list to browse through. Some make sense, some are surprising, some don't make sense at all.

You'd expect most jobs to be roughly 50/50 divided between Republican and Democrat. (Actually, I'd expect a big chunk Independent. What happened to those?) Some lean so strongly to one side that it makes me wonder what's going on there.

Environmentalist strongly Dem and oil worker strongly Rep makes sense. I suppose high-paying jobs with authority like pilot leaning more Rep whereas service-oriented jobs like flight attendant leaning more Dem is also understandable.

But farmers lean Rep, but once they retire they lean Dem. Why? I'm a bit surprised to see stay-at-home moms as well as most religious professions lean strongly Dem. I mean, to me it makes sense that religious people lean left, but it often sounds like many Americans feel exactly the opposite about that. I guess I'm glad to see these stats make more sense than the news.

But in skilled trades, I absolutely don't understand the reason for the large differences. Why would a locksmith or machinist lean to strongly Rep, while sheet metal workers and cartographers lean so strongly Dem? I can't think of any good reason for that difference.

I see a lot of inspectors and rafety/regulation related professions lean somewhat Dem, but safety director leans very strongly Rep.

And what's the difference between a landscape contractor and a gardener? Or a landscaper and a garden designer? Could it be that some people choose to identify by a particular professional label based on their political leaning, rather than the other way around?

And how representative are the various groups? If you asked only 4 horticulturists, it's easy to get 3/4 of them leaning one way or the other. How many book publishers did they ask that all of them are Democrats? Surely there are also Republican book publishers?

They can only do so because of the bottom 80% from which they extract their profit.

Apparently they own more than half the wealth, so fairer would mean they need to pay more.

How is that any different from the proposition offered by your local Mafia muscle?

Thanks Bob. Very helpful comment. If people live a fulfilling life and are taking care by the state when they hit a bad time or go through health problems, they are less likely to want to overthrow the state. This social net requires taxes. It’s a social net, not a racket.

All governments are Mafias to some extent. That's what it means to have police. The difference is that we expect the government to leverage its Mafia-like power in a manner that best suits its citizens.

That seems like an unfair comparison. The govt has courts that can overturn it. Before trump we didn't have the whim on the executive.

It may make you feel good to blame the current guy but we've had the whim of the Executive since the beginning. The only things that has changed are a) the willingness to use it and b) the sheer number of places it can be used.

Obama ordered drone strikes on Americans. Reagan ran Iran-Contra. Kennedy tried to invade Cuba. FDR tried to grow the Supreme Court to 13.

A better approach would be for the federal government as a whole - yes, all three branches - to reign in their power so that there's less power to abuse. The odds of that are zero.

Constitution is built with the understanding that those odds are zero, and that gridlock is the natural tendency.

You only have to look at the behavior of prosecuting attorneys who are free to downgrade criminal charges as they see fit with predictable biases as a result.

A big difference is that governments should be accountable to the people. Not all are, in which case they are indeed pretty much like a legitimised mafia.

It's the democratic basis that gives a government its legitimacy.

I mean some really wealthy people seem to want to replace the government with autocratic royalist fiefdoms so I guess you may have a point in their eyes.

Social chaos, perhaps. But the 1% aren't much at risk, because they have enough resources and can isolate themselves well enough. It's the upper middle class that may get seriously injured.

Not disagreeing. But the proximal reason for this is political. Inequality is not intrinsic to capital markets. Capital markets are merely not a solution for inequality, and require some modicum of intelligent regulation to function properly.

Instead the Us is rife with regulatory capture, unenforced antitrust laws, etc.

If the democracy were representative, and the public informed, things would be better.

At least in the US, today's poor have smart phones, air conditioning, refrigerators, and better health than any other time in history. Comfort-wise, things are at historic 'best' levels.

Why would anyone in their right mind give up their life for a revolution under these conditions?

Presumably that would be after they lose all that because they can't pay for it anymore.

Then again, judging by the downvote happy people here, there may not be enough braincells left for a successful revolution.

Today in the US the working poor have cheap entertainment and no money to take vacations, no way of paying for even a 400USD unexpected payment, often rely on the state to eat (food stamps),and can't afford any Healthcare. There may be reasons some of you will want a revolution.

I don't see how they would help. There's a common refrain among Reddit socialists and whatnot about the rich sitting on some mythical "pile of resources" that needs to be redistributed, but even if you suppose that we guillotine the rich I don't think the poor can eat stock certificates.

What are they going to do if they dismantle, say, Wal-Mart? Now all the people who worked there have no jobs and the people who shopped there have one less source of goods. Sure, we might be fine without it due to the alternatives, but once you go down that road, you find out that you've ripped up a complex system of logistics that moved goods to places that people wanted them and that you don't have any sort of replacement planned.

But that's usually what happens in these revolutions, they rip everything apart and then try to replace it with something better and fail. But next time will always be better, right?

How about ripping Wal-Mart apart and replacing it with what existed before - many different shops, each owned by a local person, and many different logsitics networks, each also owned by someone in the area?

People on the right often claim to be for the free market and for small, decentralized government, but then turn around and love big, centrally planned conglomerates,just as long as they are owned by share-holders and are ruled with an authoritarian hand.

each small store will have little bargaining power when it comes to their suppliers. therefore, each little store will end up paying "market price".

Eventually, the small stores join up together to bargain for a wholesale price lower than market price to their suppliers, and thus earn a higher margin.

ala, what you see at walmart today.

What you see with Walmart is singular entity, owned by an obscenely rich family, who can strong-arm any supplier into accepting their terms.

They have the massive capital to build a megamart anywhere they want, and have it run at a loss for however long it takes to drive everyone out of business. This absolutely kills local businesses and funnels money out of the area, leaving only the low wages paid to the local Walmart staff. And because it's Walmart job or no job, people have no bargaining power.

When small businesses form cooperatives for collective bargaining, they keep ownership local, they keep jobs local, and they keep the stores in the city centres running, which is better for pedestrian and public transit access, not to mention cafe life and local bars/eateries. Compare this to a megamart outside the city where you have no choice but to drive there. You get everything there and have no real reason to go into the city. As a consequence, city life dies out.

Coops and associations work with the local shop owners and communities, whereas megacorps trample and replace them with cookie cutter faceless megamarts.

Efficiency always drives out competition. There's still room for small merchants for anyone who doesn't mind paying the premium to shop there. But not many people are willing (or able) to pay that much extra to be greeted by a familiar local face.

And no, I don't think the supply chains are actually more robust for local stores. I've had better luck at the local Wal-Mart than at other stores for TP and other hard-to-get items. If anything, early on, some people weren't checking the smaller stores, but after they got wiped out, they've yet to recover and yet Wal-Mart has.

There are still supply chain issues, don't get me wrong, but mostly they're upstream a bit from the customers. Think of things like meat packing plants having trouble finding any way to operate safely or having a lot of production that had to shift from commercial packaging to retail packaging and distribution.

The problem is that this efficiency comes from being a huge corporation with a tight hold on the market. Not an outright monopoly, but with the ability to bleed money in some areas to outcompete smaller stores and the ability to negotiate big contracts by virtue of sheer clout in the market.

Walmart is so big that it utterly dominates the market, to the detriment of everyone else. But because they're able to sell everything at the lowest price, people go there. It's impossible to compete with Walmart.

It's a clear example of why the invisible hand of the free market is a dangerous myth.

How is Wal-Mart a monopoly? I can't name any single good there which can't be gotten elsewhere and they have plenty of competitors for any given product line. There are dozens of other places I can get clothes, groceries, sporting goods, tools, etc. You say it's impossible, but does Target no longer exist? They directly compete with pretty much everything Wal-Mart does and many other businesses compete with them on specific product lines.

Economy of scale is not at all the same as monopoly power and conflating the two only makes your point more confused.

Finally, the "invisible hand" is really just a survival of the fittest type effect. It's every bit as random and imperfect as that is in nature, but the effects are no less real, or we'd all be peasants living at 1800s level standards instead of typing to each other on a globe-spanning computer network.

If anything, I'd say that Socialism is the dangerous myth. Always promising utopia, as if you can create a utopia with unconstrained mass murder from a Socialist revolution. If we were the right kind of people to live in that utopia, we'd be sharing our stuff willingly right now, not seeing talk of guillotines and forcibly taking stuff, as can be observed in this very story. The proper way to get closer to that would be to encourage people to share and be generous.

As the song says, first it was a tragedy, now it's a farce: https://www.youtube.com/watch?v=QwqnRYPcrl0

Walmart has a history of building stores in areas where local stores already exist, letting them bleed money while they outcompete everyone with their lower prices, dominating the local area and driving other stores out of business.

They can afford to this due to their enormous size and domination of their suppliers, which means they can sell their wares at lower prices than anyone else. They can afford to bleed money for as long as they have to, in order to win in an area.

That is almost the textbook definition of a local monopoly, facilitated by sheer size and entrenched market position on a larger scale. They are so large that they can have everything in all of their stores, they don't have to worry too much about certain items not being profitable in certain areas, because they're big enough to carry everything everywhere, unlike smaller local stores, who cannot afford the space nor the losses.

Walmart banks hard on the convenience of everything being available in the same store, which is something they can only do because of their sheer clout and economies of scale that only work for really big powerful companies.

The end effect is that Walmat (and other similarly huge chains) drive smaller businesses out of the market, because a free market always rewards those who dominate others, and rewards domination by affording even better tools and methods for dominating competitors. It's a surefire way to make sure the market is owned and run by just a small handful of very large and powerful entities.

A truly free market is one that is sensibly regulated, in order to foster competition and prevent monopolies from taking over, according to Adam Smith, not one that is completely unregulated, as many free market proponents seem to argue for.

> Walmart has a history of building stores in areas where local stores already exist, letting them bleed money while they outcompete everyone with their lower prices, dominating the local area and driving other stores out of business.

So it's not a monopoly at all, they just offer things at cheaper prices and drive more expensive businesses out of business, while many reasonably efficient competitors still exist.

Walmart leverages their dominance over the supply chain and their position as a huge chain with locations all over the country, to outcompete local competitors who do not have the same benefits to draw upon.

As a consequence of this, local businesses die, jobs are lost and people either have to move away or accept Walmart jobs with well-documented bad pay and bad working conditions.

All of this is a deliberate business strategy by Walmart, because the US political climate and "business-friendly" ideology from both major parties prioritizes giant corporations with enormous lobbying power, over small business owners.

As a further local effect, business life is driven from the city centers to outside the cities, causing fewer people from the suburbs to go into the city centers, leading to urban neglect and decay.

That's competition. Monopoly is when you don't have real competitors. And yet somehow they compete vs. Amazon, Target and a thousand other stores.

They don't have control over the supply of any particular good, it's not like an ISP where they have covenants with local governments that limit competition, they're not Standard Oil. They're not even at the level of Microsoft, because there's not much they can do to exclude competition.

But I guess some people have tried this tact, before. Here's an article which discusses many of the points you've made and explains why they don't make sense:

https://truthonthemarket.com/2006/07/10/the-unconvincing-ant...

Walmart quickly becomes a local monopoly, because they dominate over the local competitors who cannot leverage the same economies of scale to lower distributor prices nor afford to bleed money in one area in order to take over the local market.

Honestly it seems you either refuse to read what I wrote, or you are invested in a free market ideology. The link you posted is nothing more than a hard-libertarian free market fanatic opinion blog, heavy on snark and lacking in value.

Read about the damage Walmart does to communities and why even their mere presence in the market completely distorts it:

https://money.com/walmart-stores-closing-small-towns/

https://www.citylab.com/life/2012/09/radiating-death-how-wal...

https://m.dailykos.com/stories/2013/03/28/1197622/-The-Walma...

This goes for all megamart chains, Amazon and the like, but Walmart is among the very worst.

> How about ripping Wal-Mart apart and replacing it with what existed before - many different shops, each owned by a local person, and many different logsitics networks, each also owned by someone in the area?

You underestimate, vastly, just what they've done to their supply chain, distribution network and logistics to make it that efficient and therefore cheap for their customers. It's part of the reason people switched from buying from local shops and went to them instead.

I chose them as an example because business people know a lot about what they did and the general public doesn't have a clue. I don't even like Wal-Mart, but I'm also aware of some of the reasons they're so successful. They're literally studied by people who study supply chain management because of what they did, e.g. -

https://www.skubana.com/walmart-leading-way/

I used them because it's fashionable to hate them, but anyone who knew what they had actually built that's not visible to the public would know that it's not something that you can just replace that easily. So that lets me separate the replies according to how informed they are.

Finally, your attempt to connect large companies to "central planning" is at odds with the fact that one works and the other does not. Central planning doesn't work because different people have different needs and no single plan can accommodate so many unique individuals. I don't think you will find many businesses that aren't planned, but they're not managing so many unique needs, either. And in those times when they really do end up in a situation like that, they end up being spun off as separate companies for that very reason.

Those supply chains may be efficient and cheaper, but due to their massive cnetralisation and optimisation, they're also more vulnerable. Just yesterday there was a discussion here on food supply chains and how small-scale local supply chains were more robust in the face of the current crisis.

It's not about dismantling walmart. At least from the 'socialist' point of view, its redistributing capital that is just sitting idle. For example, take away the majority of zucks and bezos stock, and just give it away evenly to the people. That's not dismantling the company, its just a redistribution of wealth that has been earned off the backs of middle class.

The middle class signed up for the trades offered by zuck/bezos. Why are they owed?

I don't really agree with it, I'm just trying to explain the viewpoint.

They're not owed in a fully capitalist system, but I can see some merit for the idea that inequality has gotten so bad that there needs to be external intervention to fix that, and redistribute the wealth that is currently concentrated in the top 1%. Giving normal people that money would be a good thing for the economy, and I can see some benefit to it.

Now of course in practice it wouldn't be legal and getting that money from them would be near impossible, but its interesting in theory.

If you give them money, they'll spend it at Amazon and bezos will get it back. What's the point?

The rich are the first to encourage a witch-hunt against the rich. It drives up business.

I don't see how you can you say too many people "signed up" for the system we have. 99% are simply born into it with little to no understanding or bargaining power whatsoever.

To the extent that consumers do have a choice, that is somewhat true, but the examples of Facebook and Amazon are as much incredible luck of being in the right place and the right time, exponential explosion of brand new modes of communication and commerce, and all kinds of unintended consequences. Again, to say the middle class "signed up" for this is hardly the case.

At the very least there are issues of power and information imbalances. Take the example of someone comparing the price of something at Amazon and the same thing at a local bookstore and deciding that it's worth the $0.50 savings to go with Amazon. It is easy -- and incorrect -- to say, "well, they signed up for the massive corporate supply chain consolidation and the dissolution of many local economies' autonomy that transactions like this will precipitate when performed at a large scale."

The average consumer simply doesn't have the access to data that corporate boards and politicians do, nor do they have the historical and statistical training to make an educated analysis of their implications.

Finally, even though there are people and organizations who urge alternative consumer patterns, the reach and the volume of their message pales in comparison to the marketing, PR and advertising armies employed by large corporations and their political allies.

You assign too much reasoned behaviour to 'luck'. Its impossible to discuss reason if you hide it behind luck.

The average consumer doesnt need to be given a bachelor's degree in economics to make a choice on making a company bigger or smaller with their purchase. I know people who support smaller business and it is independent of education.

Amazons offer to the end consumer, is not a hard sell. Theres no drug dealing physical addiction, nobody wakes up with a horses head in their bed and no guns held to people's head. The offer is buy an item that costs money. That's it.

People sign up. They want 0.50c cheaper with overnight delivery. The people see the benefit and convience of internet shopping and choose it. Small businesses failing to keep up and relying on thinking of the population as dumb and unlucky to force redistribution of wealth are not helping their own case.

Many small businesses have succeeded massively off the same medium amazon is using, the internet and it's not 'luck'.

But their capital isn't idle. For the most part it consists of ownership via the stock market in large conglomerates that employ huge numbers of people and provide goods and services to significant portions of the planet.

That's why I don't see what good "dismantling" them does. Say someone offs Google tomorrow. The website dies and we're left with a bunch of people who have no job and some servers and buildings and whatnot that are less useful to anyone than when you started.

I want to know why this "guillotine" thing has become so big recently? It has largely been Bernie/DSA people. I find it a bit disturbing. I've seen even very innocent things like simply being a landlord as "guillotine" worthy on social media. This is pre-COVID. While most landlords are actually middle class people trying to make a side income. I don't think people actually know what they are asking for, they want revenge on a perceived (false) notion, not reform to make it better; it's a very dangerous path.

I would bet if the far right were making this type of threat, it wouldn't be brushed under the rug.

It seems popular among certain sociopolitical groups to see other people getting nice things and feel entitled to getting those same nice things yourself, without regard for any effort expended or risks taken by the first group. It's pure "you have, I see, I want, I should be able to take".

I honestly believe your thinking here is one of the biggest misunderstandings of our time. Is it really so hard for you to believe that the majority of constituents in these groups want equality rather than them being envious of others' wealth?

I suggest you try a little harder to understand things before you comment on them lest you be mistaken for a fool

I've always assumed it's meant firmly tongue-in-cheek, but it's very morbid humour. But it's also a reminder of how powerless people in the past still managed to take action to rectify injustices, even if it happened in an overly brutal manner. In free, democratic societies, people should have more power to create the change society needs, but it doesn't seem to be working.

But it's also a reminder that if the powerful people in society offer too much resistance to the change the people need, at some point the only way to get that change is by extreme overreaction.

Personally I'd rather see the revolution happening by the soap box or the ballot box rather than the ammo box, but when media and voting systems get gamed and corrupted while people's rights and needs keep getting trampled upon, at some point a more violent solution may become unavoidable. But that's going to be very hard to steer and have many harmful side effects.

I loathe the guillotine rhetoric - did they all sleep through the rest of history class and that it ends with massacres of innocent people not even tenuously connected and getting a fucking emperor? Really it is an all too common attitude - they don't want to fix anything or even think; they just want to feel good about hurting people.

The Anciene Regime ceased to exist and that was a good thing. Many revolutions require violence but that doesn't mean they're never worth it. Nobody could have predicted Napoleon but he was still much better than the monarchy.

Australian, South Korean and New Zealand's currencies jumped in value because they handled the pandemic very well and are now very attractive investments.

As a counter point, the AUD, KRW, and NZD all buy fewer USD today than they did on 2020-01-01.

The three currencies have risen from the big drops on 2020-03-18, but are still worth less than earlier in the year.

The currencies have little to do with the wellness of how the gov't handled the crisis. It has more to do with demand, and theres' just a lot of demand for USD, simply because it is considered a reserve currency, and a lot of people would rather hold it than their own native country's currency.

I think that's because during a crisis people flock to USD for safety, now that it seems to be under control, people are selling those USD again.

What about high yield bonds, are they worse than investing in stocks right now?

Depends on the issuer. As I mention upthread, I think US major airline bonds are probably ok, more or less regardless of rating, since the gov't will always bail them out in the end. The largest hotel/hospitality chains may befine as well (though I haven't looked into their financial situation). But businesses will still continue to disappear over the next year from this, so I would tread with care.

> I think US major airline bonds are probably ok, more or less regardless of rating, since the gov't will always bail them out in the end

tbh, i think the US gov't really shouldn't be doing bailouts. Equity and bonds _should_ come with appropriate risks, and these risks should be discovered (via pricing of the interest rate for bonds, and for the expected risk-premium in equity).

The distortions happening right now is that the Feds backstopping bankruptcies is causing money to be lent out much more freely than it would've been. This means more worth businesses do not get their chance.

It's like the analogy of bushfires. Big firestorms will clean out the undergrowth, kill the weaker trees, and let the new seedlings grow afterwards. The pain is short term.

If the gov't wants to ease the pain, they need to make unemployment benefits greater, rather than bailout existing businesses. I say this, even tho i own shares, because to not do so means to entrench the moral hazard of socializing losses and privatizing gains.

I'm surprised the average Americans (the 90%) don't get that they are providing insurance to the 86% wealth of the top 10%, but get almost none of the gains.

again it comes down to options. name something that:

1. the government eats the loses.

2. liquid

3. better returns.

> I'm surprised the average Americans (the 90%) don't get that they are providing insurance to the 86% wealth of the top 10%, but get almost none of the gains.

Are you so sure that they don't get this? I guess that many do understand it and either would like a much more inequality-reducing tax structure, or envision themselves as (somehow!) becoming part of the top 10%.

Ofcourse a small portion will always be ambitious, enterprising and expect to join the 10%. But we are all convinced (and I assumed this too) that the stock gains are good because it helps average Americans increase their 401k, but the stock ownership ratio is so skewed to affect the majority. If the stock market crashed, it wouldn't really afffect most American's net worth which is so interesting? I'm sure companies will shut down and there's be trickle down job losses but that can happen in stock boom times too (like now). A quick Google search showed where this number comes from https://www.nytimes.com/2018/02/08/business/economy/stocks-e...

> or envision themselves as (somehow!) becoming part of the top 10%

I don't disagree with you but want to add some insight to this... My entire life I've been told the lie that if I "just work harder" I can be rich etc. Most of America thinks about themselves in this same way, and it's taken me years of traditional employment + risky startup opportunities to realize that no, success is not guaranteed if you "just work hard"... Honestly you just get nailed with the majority of work as an IC who's trying to crank it out vs. your peers who are off having "dev beers" at the trendy bar down the road.

The peers that I see that are "well off" often had huge monetary injections from their parents in either fully-paid education, first houses, vehicles, incestuous "investments" in their business, etc. Now, those same people that had everything handed to them on a silver platter are invested, some own rental properties, etc. to the point that they can choose not to work for long periods of time to just collect dividends/rent. Funny part - they still define themselves as people who have pulled themselves up by the bootstraps!

So yea - in the US we have a really unhealthy view/mentality around success and ignore the fact that the IT'S THE EXCEPTION for someone to truly "pull themselves up by the bootstraps" into any sort of significant wealth. Truth is most "rich" people had an incredible amount of external financial support and stability to get themselves there and maintain it.

Bring the downvotes, because you're darn tootin' I'm bitter about all of this.

The original formulation of the statement of “work hard and you’ll make it” was created in the context of 17th-19th c. Europe, where no matter how hard you worked, if you weren’t landed gentry, you simply could not make it. The idea was that any opportunity existed. The universalist position you described is a rosy reimagining of a history that never was.

This is super interesting to me and I would actually love to learn the origins of this... do you have any resources you may be able link? Books, articles etc.

Precisely, My ancestors left Denmark and Sweden. Hundreds of thousands left doing the later period of the 19th century. Mainly because how the land was distributed and taxed in such a way that you could never get ahead.

Nice anecdotes! Here’s some more. Everyone I know who’s “made it”, top 10% came from poor or lower-middle class beginnings.

Probably more a factor of where you came from, who you know, etc.

This seems incredibly dismissive of what I was trying to say with your whole "nice anecdotes!" bit.

Obviously it's situational.

what seems very weird to me (as a non US citizen), is that most working class people in the US seem convinced the 'american dream' is synonymous with being a millionare/billionare and introducing legalization to level the playing field of the latter will hurt their own changes at becoming part of the former.

It might also be the reason social democratic/socialistic parties never got a foothold in the US post world war 2.

Home ownership is a core part of the American dream, and in pricey places like the Bay Area, you pretty much have to be a millionaire to own a house.

Thanks to inflation "millionaire" doesn't mean as much as it used to. Billionaires are a completely separate class though.

Exactly. Even setting aside the house prices, if you have exactly a million dollars in your retirement account, you should plan on spending only about $40K-$50K per year from that account. That's hardly a luxurious retirement; yet "you're a millionaire!"

It's also interesting how the scale has slid up so much that many people now believe the "American Dream" is to become a millionaire/billionaire. When originally it was merely the idea that if you do the right thing your children will be better off than you were. It wasn't until the gold rush in the 1850s that the American Dream, for some, became this idea of get rich quick scheming.

I can't speak to everyone, but my parents are children of the 50s and their idea of the "American Dream" was the nice house in a safe neighborhood in the burbs.

Thankfully pretty much everybody still has the ability to buy into a safe neighborhood with a good school district in the Bay Area.

is that most working class people in the US seem convinced the 'american dream' is synonymous with being a millionare/billionare

That's true, but I have no idea where it came from. "The American Dream" was never about becoming a millionaire, it was the idea that you could start with nothing and have a nice, comfortable middle class existence in the US.

How many blue collar millionaires do you know? My two anecdotes are one guy who opened a machine shop with his dad in their very lower middle class garage and one guy who worked his way up to having a few taco bell franchises from the bottom rung. If you don't know those kinds of millionaires, your perception of the world might be tinted by being in a career path that is popular for a certain category of children of wealthy families.

The issue is not that these cases exist, but that they are sold as being the standard, which they're clearly not. To became wealthy coming from a poor background requires a lot of effort, sense of opportunity, and frankly, luck. But all this is sold as something at grasp to anyone in this country, which is clearly false.

Of course luck plays a role in everything. It's merely luck that I've never been run over by a bus, or any number of other problems. But can you help me understand how a lot of effort and a sense of opportunity is not available to the common person?

42% of children born to parents in the bottom fifth of the income distribution ("quintile") remain in the bottom, while 39% born to parents in the top fifth remain at the top.

Okay, more than half of the people at the bottom rise up out of it. And less than half of the people at the top stay at the top. What are you hoping for? Please be as specific as possible.

And what does this have to do with whether a lot of effort and a sense of opportunity is available to the common person?

Most every other developed nation has greater social mobility than the US [1]. Why can't the US reach Scandinavian levels of social mobility?

[1] https://markets.businessinsider.com/news/stocks/ranked-the-s...

A full explanation is too complicated for a single post. But here's two good starters.

https://wtfhappenedin1971.com/

https://www.ineteconomics.org/perspectives/blog/how-why-gove...

Now that we've addressed your off topic question. Could you please try to explain how hard work and a sense of opportunity is not available to the common person?

Advocates of big government love these metrics that have been put through the academic ringer, so-as to spit out whatever tortured output is expected. Why look at this kind of esoteric figure at all? Why not look at, you know, real numbers?

Spending as percentage of GDP: Denmark - 52% of GDP Norway - 55% of GDP Finland - 53% of GDP Sweden - 50% of GDP Iceland - 42% of GDP

Average - 50.5%

USA - 22% of GDP

What does all that extra spending get them?

Poverty rates: [0] Denmark - 13% Norway - Not reported Finland - Not reported Sweden - 15% Iceland - Not reported USA - 15%

Unemployment rates (2017): [0] Denmark - 5.7 Norway - 4.2 Finland - 8.5 Sweden - 6.7 Iceland - 2.8 USA - 4.4

Household Incomein US dollars (2018) [3] Denmark - $34,712 Norway - $39,555 Finland - $34,497 Sweden - $34,301 Iceland - Not reported USA - $50,292

Household Debt as % of disposable income (2015-2018): [1] Denmark - 281% Norway - 239% Finland - 145% Sweden - 189% Iceland - Not reported USA - 105%

Household Net worth as % of net income (2014): [2] Denmark - 553% Norway - 318% Finland - 359% Sweden - 526% Iceland - Not reported USA - 601%

[0]https://www.cia.gov/library/publications/the-world-factbook [1]https://data.oecd.org/hha/household-debt.htm [2]https://data.oecd.org/hha/household-net-worth.htm#indicator-... [3]https://data.oecd.org/hha/household-disposable-income.htm#in...

Interesting numbers. Where are the spending per GDP from? IMF numbers in Wikipedia put US spending at 35%.

Also should comparing the spending numbers take into account that healthcare, schools and universities are paid by government spending in the Nordics and not from household income?

Honest questions, I'm really interested in these differences between systems.

Ah, I forgot to add the citation on that line. The spending numbers come from the CIA World Factbook site, [0] above.

Your number likely includes State, Regional, and Local spending (which was presumably excluded for all nations in my numbers).

Even with the 33% figure, for the US to make up the ~15% difference would require ~3 Trillion in annual spending.

The existence of Social Healthcare programs in those countries is a huge chunk of the difference, I'm sure.

Okay, but are they worse off because they can't afford as much stuff? They don't seem to be in more poverty, they're healthier, more fit and highly educated.

I can spend an extra 20k as well or poorly as I like.

That 'extra 20K' of income is easy to sneeze at for the affluent, but it means that Americans have ~40% more disposable income. That's huge.

> They don't seem to be in more poverty

They're clearly not 'more in poverty'. The point is that they spend (the US equivalent) of Trillions of dollars per year for comparable outcomes.

>They're healthier, more fit and highly educated.

This is a matter of culture, not economics. The US already spends more per pupil than all of the 'top 5' nations, with worse outcomes. [0]

[0]https://data.oecd.org/eduresource/education-spending.htm

Suppose that higher incomes are also a matter of culture.

The US poverty rate is very misleading. It’s not the percent of people in poverty. It’s the percentage of people below a level of income at which not being impoverished is impossible.

Yeah, my impression is that the US has far more real poverty than Scandinavia, so I really wonder what the basis for these numbers is.

What data have led you to that understanding?

Being unable to afford food and a place to live, yet being well above the poverty line.

This link provides more detailed information: https://www.irp.wisc.edu/resources/how-is-poverty-measured/

“ The Census Bureau determines poverty status by using an official poverty measure (OPM) that compares pre-tax cash income against a threshold that is set at three times the cost of a minimum food diet in 1963 and adjusted for family size.”

Regarding my definition in the previous comment, I’m unable to find my original source. Sorry.

Or 58% born in the bottom fifth move up, and 61% born in the top fifth fall down.

It's the classic Trump small loan of a million dollars scenario. Sure not many are as lucky as Trump was. But even t hese examples of blue collar success have a bunch of luck in them.

Not everyone can start a machine shop with their dad, or own or even operate a taco restaurant. You need to be at the right place, the right moment, have the right amount of money and or the right equipment, interests and skills. And only then your sense of opportunity and effort will take you places.

For the common person it's a lottery just to be allowed to play the game.

For the common person it's a lottery just to be allowed to work at Taco Bell and do what the Taco Bell handbook tells you? And then, once you become a manager to save your pennies until you have a down payment on your own store?

Gimme a break man.

How many people do you think working the counter FT at Taco Smell can save enough money to afford their own franchise location?

> The cost of opening a new Taco Bell restaurant is between $1.2 million and $2.6 million. Taco Bell also charges a $45,000 franchise fee, an ongoing royalty fee equal to 5.5% of gross sales, and a marketing fee equal to 4.25% of gross sales.

https://www.businessinsider.com/what-it-costs-to-open-a-taco...

Give ME a break man. LOL.

I expect about 0% of people to go from the bottom level position at Taco Bell directly to owning one. But I'm sure you're smart enough to have known that. So why did you feel it would be useful to frame the scenario in such a disingenuous way?

I am 100% dialing it back in good-faith to explain why I just framed it as you put it.

1. I read tinco's comment to state (paraphrasing): "it is difficult to start a business, and for the common person it is a game of chance." Which, I absolutely agree with when I measure it against my life experiences/knowledge.

2. You replied with two questions, also paraphrasing: "It's a lottery to work at Taco Bell?", and, "And assuming you do work at Taco Bell, that you would become a manager who could save up to own their own store?"

---

Given that scope of the conversation, I assumed you were positing that someone could seriously start working at a Taco Bell, start saving their money, and then some day afford their own franchise location.

The first question of 2 is an absolute possibility, ie: it is not a lottery to work at Taco Bell and it would be silly to assume otherwise. That may have confused me leading into the second question, asked rhetorically, as something that you deemed possible. This is to say, "A person could absolutely work at Taco Bell, and they could also save to own their own some day."

The "Gimme a break man" in reply to someone saying something that I deem 100% rational (#1) with two rhetorical questions that seem to paint the situations that they posit as rational possibilities confuses the crap out of me.

Simply put: You submitted two arguments, seemingly painted as possible realities, in an adversarial way to something I saw as a rational and relevant statement. I fired back thinking you thought that was possible because there's not much context to figure otherwise.

If I confused your comment I apologize.

Quick Edit: When I posted this reply I saw another person, harimau777, answering similar to myself with another credible source (also with a much higher caliber quality of language - I'm goof sometimes). What I'm trying to say is I'm not the only one who took your statements this way.

I told the story of one person I knew who started working at Taco Bell in high school and then worked his way up to eventually owning a few of them.

The response to that was, "Well, just a lottery winner" with no argument whatsoever. How can you have taken that seriously?

I'm out man. I feel like this is getting super adversarial and into the fray for HN. Sincerely - sorry if I offended.

This was just the result of a quick Google search so perhaps the numbers aren't accurate, but this website suggests that you need a net worth of 1.5 million to open a Taco Bell franchise.

https://www.lendingtree.com/business/small/how-to-finance-a-...

I think that would be out of reach for many if not most Taco Bell managers. Presumably it would be even harder in parts of the United States with higher costs of living.

Well that's at least impressive. Was it a good investment for him to have spent his saved pennies on a Taco Bell franchise? If it hadn't worked out, could he do it again on another restaurant? I still feel he was lucky to have been able to save so much, you'd need to save like $400 every month for like 10 years, on a small salary. But you're right there was likely a very large amount of self determination at play.

> You need to be at the right place, the right moment, have the right amount of money and or the right equipment, interests and skills. And only then your sense of opportunity and effort will take you places.

If you flip that around, you get "Anyone, anywhere, any time, with any amount of money and any (or no) equipment, interests or skills should be able to be start and own a successful business." Does that really sound like a reasonable expectation?

The amount of opportunity available to a given person can vary greatly. For example, one person could have college paid for by parents, another could work to pay for college, and another could not have the opportunity to work to pay for college (e.g. perhaps they are taking care of younger siblings or sick family members).

Available effort could likewise vary. For example, someone with a disability might have much less effort available or their effort may be significantly less efficient. Someone who has to expend a great deal of effort on other matters (e.g. providing for basic needs, self protection, caring for others, etc.) may have less effort to expend towards things like career advancement or education.

The argument as I see it is that a person expending a roughly average amount of effort should be able to achieve a reasonable quality of life with the luck and opportunities that are available to them. (There will of course always be some variance in the effort required and the outcome received, but that's fine as long as it stays within a reasonable distance of this goal.)

The increasing anger over inequality seems to me to be because people are being asked to give above average effort (e.g. working multiple or demeaning jobs) in exchange for a low quality of life (e.g. difficulty affording healthcare, housing, retirement, raising a family, etc.).

I know a lot of Indian-Americans and Ukrainian-Americans for whom this is the norm.

Step one: arrive in the United States as a child.

Step two: a childhood of grinding poverty.

Step three: make tons of money in STEM.

It happens with extreme regularity. It is the rule, not the exception.

Ok - maybe I’m exaggerating a bit. I’m sure some of them don’t “make it.” Someone is staffing those food vans.

But it’s not unusual either.

I think you defined perfectly the defining problem of this generation in the US: nepotism. It is the root cause of so many structural problems that we see as unrelated. In particular the failure of the press to do their job and hold the powerful accountable. Not so easy when you went to the same school as them; got an internship thanks to them; were at a NYC roof party with them last week.

Positions once available to anyone who worked hard, are now reserved to the children of the already wealthy. The consequences are severe.

> nepotism

85% of American millionaires are self-made.

"The Millionaire Next Door" by Stanley

Is there any data on where wealth increase has come from for those people?

e.g. started own business, vs savings + stock market, vs investing in real estate.

I recommend getting the book, it's cheap and a good read. It also lays out a path for those that want to accumulate wealth themselves.

Yea - I'll second that even though you don't think I've read it.

"The Millionaire Next Door" was published in 1996 when the economy was booming, the dot-com bubble had yet to burst, and the employment market meant anyone slightly skilled could get a FT+benefits career.

In the 24 years since that book's publishing I absolutely argue that ladder has become more difficult to climb. But hey - what do I know? I'm just a lazy millennial who's now living through his second major recession, with the first one landing directly on when I was entering the work world FT. Thank goodness for my tech career because let. me. tell. you... my peers were struggling. Especially the ones who persisted in Cedar Rapids (blue collar Iowa town).

But sure - 85% of American millionaires are "self-made", whatever the heck that means. I don't doubt that's how they feel about themselves and self report!!!

The market has done even better in the last 10 years than in the 90's.

Besides, I heard the same lament in the 70s, 80s, 90's, 00's, and 10's.

> I don't doubt that's how they feel about themselves and self report!!!

Always better to guess than pick up the book and read it!

The market has done great since 2008! Wonderful time to have already had a lot of money on hand to invest, for sure. And man, I tell you, all of the houses I bought have gone way up in value, even faster than earnings! What do people even have to complain about?

If you had a regular plan where you invest every year, and don't sell, you would have ridden out the 2008 fiasco just fine.

Yes! But if you were still in school in 2008 and putting your money into food and paying off student loans, the market performance isn't necessarily the thing that impacts your future wealth.

The 2008 recession didn't last that long.

But paying off student loans probably did.

My point is that "the market did great" means investors did great; doesn't mean that everyone did great.

This thread is about investing.

This thread relates to investing, but more specifically it is debating whether or not the following fact

> The market has done even better in the last 10 years than in the 90's

is an adequate response to address the GGGGGP's claim that

> that ladder has become more difficult to climb. But hey - what do I know? I'm just a lazy millennial who's now living through his second major recession, with the first one landing directly on when I was entering the work world FT.

Nobody here is denying your claim about the market performance.

What does self made mean to you?

I read that book when I was in my early 20's. I followed all of its advice, which basically comes down to "live below your means, save, and invest." The truth is I was already following it anyway. My parents lived below their means, and my dad taught me about investing when I was a teenager.

Every generation has recessions to deal with. By the time I was in my mid 30's, I was, indeed, the millionaire next door, though just barely. This was despite the dot-com crash and the great recession...

"Self made" is an over-simplification of a complicated process... one which you impressively admit you've achieved. Which, 100% - that is amazing, and you should be proud of your accomplishments.

My definition of "self made" is not important, my point is that everyone's definition is going to be different.

Here's the thing - I have no idea who you are, what your history is, and I can't make a single comment on the validity of how you got from point A to point B... that is outside of the above compliment really.

What I will tell you is that my anecdotal experience is that no one is out there admitting, "OH YEAH, my parents totally dropped $120k on my education, bought all of my cars, paid my rent, and gave me a free-reign credit card into my 30's." and ironically... I've ran into a TON of those people who self-identify as "self made" which is why I don't take the term seriously and see it as 100% subjective.

TLDR: "self made" is subjective as all heck. I can't comment on your life man - I have no idea who you are. I stand by my original comment that things are getting more difficult in regards to building wealth from nothing. I got snarky against a comment that seemed to just posit a book from the 90's as the entire content of a reply as if that's valid to any conversation.

Thank you... but I never said if I thought I was actually self made!

What if I tell you that my parents did pay for my education? And they gave me a car when I was 16? Or they were fortunate enough to be able buy a computer when I was in elementary school, which definitely contributed to my interests today, many decades later? Am I still self made? Or did that give me too much of a "head start" so I'm not? Was it so long ago now that it doesn't matter?

TLDR: I agree, it's all subjective...

Ha - I mean... self made or not that's freakin' amazing. I envy that stability and hope to be there myself some day =)

I'd personally say, me too in so many ways... I had my struggles with an early death in the immediate family but it did provide the money to support me into my early start!

Here's the thing - struggle or not I absolutely have been around poverty and have actually done a bit in advocacy in the area. I don't say this for a gold star - just to qualify what I'm about to say.

Being poor is hard. Like really hard. It's expensive in sooo many ways and I freakin' wish more of us had empathy for those people that are struggling in that situation. I see WAY too many folks on HN that are comfortable in highly-paid positions like myself that don't acknowledge these things and even sound angry in regards to how people are "suppose to be"... lemme tell ya... as someone with struggles - man sometimes it's really really hard. Even with some of the insane privileges that I've been afforded.

All-in-all ... I wish more people admitted "man I had a lot of help" regardless if it's a computer in elementary school, or investments in education, etc. I know this has a negative "SJW" spin to it these days, but man... I have been privileged. holy crap I've been privileged. Doesn't diminish my accomplishments, but we need to come to terms that as a society everyone should have as equal of a playing field as possible..!

> My parents lived below their means, and my dad taught me about investing when I was a teenager.

I'm surprised nobody's come along yet to tell you that you're not self-made because you had parents and they taught you about investing.

Of all things, nepotism seems like an odd thing to single out. Do you have any numbers for this claim? It would be useful to hear e.g. what percentage of people secure positions through referrals/family members.

I suspect you'll get a different answer if you weigh by numbers.

But when you weigh by total wealth the Walton and Mars families skew the data in favor of nepotism. It also depends on your opinion of source of personal wealth of Ms Bezos or Ms Jobs (and anyone in similar position) - nepotism or self-made?

Why do you find it odd?

Many people make the claim that the fundamental problem of the US is wealth inequality, or no social safety net, or disdain for the poor. I believe these claims are much more common (and in my opinion could be considered more fundamental) than the claim that nepotism is the fundamental problem.

Well, symptoms of problems tend to be more evident than their root cause, so commonality of claims is not a particularly good reason to rule out nepotism being a problem.

Evidence would be nice to have though.

As for me, I've had enough anecdotes to think it's plausible. Just recently we hired a new CTO at my company, and he got the job simply because he was friends with our CEO and he needed a job. Turns out he's completely incompetent...

It's not about working hard, it's about working smart (i.e. choosing the right things to work on).

Also, part of working smart is owning meaningful equity in a business likely to generate meaningful returns. Startups are high risk, high reward, and if the GP doesn't care for how their luck has played out at startups, there are many other lower-risk opportunities to build equity: writing books, teaching, consulting, a bootstrapped SAAS app... and plenty more outside of the software engineering landscape.

> books

Most books don't pan out and if I don't turn myself into a marketing personality good luck. I say this as someone who's marketed books professionally as a web product across all major publishing platforms. I'm a nobody and prefer to focus on my engineering.

> teaching

Sure - because there's tons of money in teaching? Uhhh...?

> consulting

I've made a killing here and am likely going into my next 1099 tomorrow so yea. No arguments here. It DOES take a solid network though to do consulting so if you're not sociable you're likely screwed in this arena. I have two sales people who are my guardian angels hawking my services for top-dollar so I'm incredibly blessed in this department.

> bootstrapped SAAS app

Currently working out licensing with two corps on one of these myself as well. Finding the foot in the door for industry, then collecting user data on problems to solve, then pushing through solving them, and then gambling on the problem you solved is INCREDIBLY risky.

Plus - if you're the startup engineer things fall near-100% on your shoulders unless you're willing to play the outsourcing game. Which I have and my god that's a FT job itself even for the most menial of applications.

---

All-in-all I am actually the guy who pulled myself up by the bootstraps to probably 10x what my parents made in small town Iowa. So yea. But all of my original comment absolutely stands. It was hell on earth and I worked my entire 20's away hustling my BUTT off to get out of the trailer park and out to California.

I still absolutely posit that my story of "just pull yourself up by the bootstraps" is the exception and shouldn't be sold as "anyone can do this if they work hard enough!!!" Most people can't.

Your list makes it seem like those things are easy - and as someone who has experience in them (minus teaching)... it absolutely isn't. Those are all serious endeavors that take time, commitment, failure, getting back on the horse, and ultimately years of pursuit/work.

> owning meaningful equity in a business likely to generate meaningful returns

That's exactly what the stock market provides an opportunity to do.

American institutions should be controlling for this inherit classism, instead, the most prestigious continue to employ race-based selection criteria.

Middle-class America seems to have a particular disdain for the less well off.

This divide is the driving force behind Trump. It's the same divide we're seeing play out now over reopening the economy. Suburbanites with cushy WFH jobs, chastising the poor who have been laid off, as they have the audacity to want to put food on the table tonight.

> Middle-class America seems to have a particular disdain for the less well off.

Hell as someone who's struggled early-on... Poor America seems to have a particular disdain for the less well off too. I feel like I'm constantly surrounded by entitlement regardless of the person - and I'm no better as I am constantly trying to quash my own crap attitude with this... We were brought up this way across the board, to the point that I'm convinced childish entitlement is in our DNA as a country.

It's just a whole bunch of finger pointing while ignoring the elephant in the room... but hey people seem to get off on the hate so the folks in charge keep us divided and subdued to their interests.

Not disagreeing - just my own take being exposed to many diverse backgrounds rich/poor, rural/metro, etc etc. Everyone wants to point a finger because it's MUCH easier than acknowledging difficult societal problems/self-reflection.

> incestuous "investments" in their business.

This is open to anyone, but of course it's not guaranteed. You have to put yourself in a place where you're more likely to encounter these folks, and demonstrate value.

I think it is a pretty widely shared consensus in economics that "the American Dream" was the truest in the beginning of the 20th century, when European regimes were aristocracies and peasants were regularly starving to death. That was why waves of immigrants arrived from Europe to the US.

After WWII the situation basically got reversed: Europe experienced such a shock and disruption to the existing social order/redistribution of wealth etc., that it went really left-wing/"social democratic". In the meantime, the US saw a greater and greater concentration of wealth and the division between the rich and the poor got increasingly stark, and social mobility is much worse than that in, say, Northern Europe. The American Dream as people knew it is pretty much dead. This is also one huge reason behind the polarization in politics that we see nowadays.

Unfortunately, a lot of narratives in the US don't seem to realize/willingly ignore this situation and still seem to talk about the old idea of "bootstrapping" and American exceptionalism in this regard, which is really kinda one century out of date already.

"39% of Americans will spend a year in the top 5 % of the income distribution, 56 % will find themselves in the top 10%, and 73% percent will spend a year in the top 20 %."

from https://medium.com/incerto/inequality-and-skin-in-the-game-d...:

What are these numbers actually taken from? I'm betting the vast majority of this is counting the sale of a home or a one-time windfall (e.g. small inheritance, gambling winnings) as income for "a year", but I'm not going to buy the book just to see.

Russ Roberts has a fairly thorough treatment of composition effects impacting income statistics: https://medium.com/@russroberts/do-the-rich-capture-all-the-...

Thanks for the link.

These stats just backup what I've always heard - the top 10%, 1%, whatever, is not static. Neither is the bottom 10%. Many people usually start their careers at the bottom (i.e. college student working part time) and then eventually make it into the middle class and plenty make it further than that. Of course, some never make it out of poverty.

I've heard otherwise that this mobility (which nobody denies exists) is about the lowest it has ever been and growing more static. I'm sure some searches about social mobility stats would bring up lots of stuff.

If you do a google search on mobility, you'll find papers that say a whole lot of different things - some that say it's gotten worse, some that say it's gotten better.

The biggest problem is data. It's not that great.

If every American worker started buying $100 worth of stock per month, they could start chiseling at that 86% number. Not every worker has the financial means to do so, but many could if they practiced financial constraint (delaying consumption now, in exchange for greater consumption later). To the extent it is feasible, it would be wonderful to see Americans fight back against wealth inequality by buying the ownership. Imagine how much progress towards equality could be made. Each household makes a choice with how to spend their money.

Considering many American workers are in debt with high interest rate products (sub-prime car loans and credit cards), those would first have to pay the interest on their debt on top of the capital gains on the $100 when they sold it (provided they invest wisely). In other words, it makes no sense to invest when the return wont consistently match your debt interest payments.

Depends on the type of debt, which is individual to the consumer. Mortgage, auto, and student loan debt compose 88% of consumer debt. [0]

These types of debt typically have low interest rates. Market returns for the past decade have exceeded the interest rates. Paying the minimums, and investing the difference? The consumer would be ahead. 12-15% YoY stock returns compound faster than 4% mortgage debt.

[0]: https://www.experian.com/blogs/ask-experian/research/consume...

I don't think it's wise to project guaranteed 13-15% stock market returns, or suggest it's better than paying off debt. It may have been the case last few years of the cycle, but may well not be the case for the next 5 years.

You're arguing for taking out loans to invest in the stock market, which sounds irresponsible to me.

Actually, corporations do do things like borrow to pay dividends or buy back stock... because they get to deduct debt from their taxes. Individuals can take advantage of this with mortgages: your mortgage interest is deductible. [1]

Not all debt is equivalent: credit card debt and payday loans are examples of pretty punitive debt that really should be avoided. The return on investment from paying off debt is roughly equivalent from the interest on your debt; if it's lower than you can get by investing elsewhere, then it may make sense to invest elsewhere, especially when you factor in second-order effects like tax laws.

[1] For the record, I think the tax-advantaged nature of debt is absolutely inane and should be removed. But that is unlikely to be politically feasible.

Are you saying every person who buys a home with a mortgage, while still throwing 5% of salary in their 401(k) is irresponsible? Many, many people do this.

If you think you can count on YOY 12-15% returns on the stock market, you should be buying 10% OTM LEAPs instead of shares. You'll be the world's first trillionaire in a decade or so

You don't need a 12-15% stock market return for your investment returns to beat the growth of your interest debt. For most mortgages, it's a fixed rate. About 4%, some well-qualified borrowers have in low-to-mid 3%, for mortgages originated in the last 12-24 months. Long-term, will an index fund stock market investment exceed 3% returns? Historically speaking, it's a likely outcome.

Even if they all did that, they still end up buying after all the really wealthy get in, whether it's investment bankers, venture capital, hedge funds, or whatever else, normal income people just end up buying from the 1% and 0.1% who got in privileged and early. Add on top of all that, think about all the investments with minimums that are thousands of dollars and it's obvious that regular money will always be behind even if its investing maximally because less money always has fewer opportunities.

No, this is just atrociously wrong. It pains me to see because the post you're responding to about getting everyone to chip in a small amount to investments every month is one of my pet goals that I've helped many friends with.

Everything you've said is wrong. I don't know what you mean by "getting in after all the really wealthy get in"... VCs, IPOs? That's not even close to necessary. Investing in simple index fund ETFs is fine. And "all the investments with minimums in the thousands"? Well... don't buy those! Again, buy simple index fund ETFs. Most brokerages don't even charge a commission on that, so you can easily add small amounts each month.

People just don't seem to know that investing in the stock market is easily done, and so extremely worthwhile. Income inequality being what it is, the wealthy will probably own more of the stock market for a long time (or always), but that 84% could easily come way down if people just knew what to do!

But I feel like your comment is counter-productive fear mongering that will turn off people on the margin, thinking everything is stacked against them, the "good" investment opportunities aren't available, and so they just shouldn't even try.

>> less money always has fewer opportunities.

That's a fact of the US system.

> I don't know what you mean by "getting in after all the really wealthy get in"... VCs, IPOs? That's not even close to necessary.

That's a strawman. What's necessary, isn't the subject.

> And "all the investments with minimums in the thousands"? Well... don't buy those!

The wealthy have more opportunity, got it. Pointing to some other instrument, saying "it's also good" is not a correction.

> Everything you've said is wrong.

If you find yourself saying this, you're probably about to say something stupid. It's trite nonsense.

I'm not saying it's necessary, I'm just saying the previous poster can't seriously expect that the 84% (86%?) number will decrease much from everyone investing if that percentage's owners are able to always outperform - even if the top 10% (or even 1%) only have a 2% advantage because of better or earlier access it's just going to compound non-linearly compared to everyone else's returns over time. And it being non-linear means for that 80-something% number to go down the $100/month folks have to continually increase in population at a rate greater than the difference between their rate of return and the rate of return of the top 10% or top 1%.

That is zero sum thinking and misses the point entirely. You don't decide based upon more or less than others but the best option for you. Judging by percentages is like saying "Why jog or walk if you will never be a supermodel?" Invest because it is an end in itself.

The reason VCs and hedge funds get in early is because they can afford to fail a lot and have their successes outweigh their failures. It isn't because of some caste gatekeeping to monopolize the wealth while twirling their moustaches but because without that level of capital it is a very good way to lose your life savings. First rule in investing is never risk what you can't afford to lose.

It's not zero sum thinking. Clearly investing is likely better than not investing.

My point wasn't that people shouldn't invest, it's that previous poster suggested everyone investing would "chisel away" at the "86% number," and my general presumption is that so long as the return on wealth is nonlinear to the quantity of wealth, as enabled by the ability to access more expensive/specialized/higher-return investments, it's a lost cause as a simple comparison of function order and rate.

If those who are already richer are likely to have a higher rate of return from greater levels of access or unique opportunities and that rate of return compounds non-linearly, no matter how many regular people invest it's still basically comparing functions with nonlinear differences in rate of increase.

It's more the latter I suspect. The fear that they can't become art of the elite if they reform the system currently keeping them from being the elite anyway doesn't register with a surprisingly large number of folk.

Possibly because they haven't read this book (https://en.wikipedia.org/wiki/The_Wealthy_Barber) or understood it.

The Richest Man In Babylon is going to apply for the next decade, but all the negativity about romantic investments is countered by the billions being made in romantic investments. It's the wet blanket approach, it only has ten percent to consistently soak up in the flood times. When you have to make money by creating something, it breaks down.

It can't handle Bitcoin, space rockets, jordan peterson, self driving cars, hyperloop, neuralink, starlink, ect. There's huge and reliable money to be made riding the flame. Or rather there was, it's all about to be flooded out and those of us who don't like being formless, liquid money & stock chasers will have to wait for the next desert to appear in fifteen years time.

Can you send me explain where the figures are coming from?

Scream this from the rooftops.

https://www.amazon.com/Creature-Jekyll-Island-Federal-Reserv...

To all the economists that like to pontificate on the market structure / monetary policy and what not on this site, feel free to read a book about the history of the federal reserve. It also covers the theory of money thru out the ages.

No mater what side you are on this will provide a detailed history of Congress, Federal Reserve, politics and the politics of monetary policy.

"Knowing is half the battle" G.I. Joe

The other half of the battle is lasers (25% blue lasers, 25% red lasers)

Nice!

This is not at all the situation. Reality is the 1% (wealth) making the 10% (income) pay for the 90% (both) to support their investments with consumption and debt.

>average Americans (the 90%)

In what sense is 90% average?

You have 100 items, 5 are zero, 5 are 100 and the rest are 50. Your average is 50, and 90% of your items are average. These are your average items (the 90%)

In this case, though, average is meant in its colloquial form of another way of saying "normal".

For 2017, the average household income was $89k, which corresponds to 65th percentile [0].

There are many "us vs. them" thresholds to choose from; curious what was special about this one.

[0] https://dqydj.com/2018-average-median-top-household-income-p...

The hypocrisy is astounding. I could understand someone that thought no one should be bailed out by the government, but the ‘only bail out the rich’ position is beyond my ability to understand.

Where are you pulling 90% from?

The top 50% pay 97% of taxes. That means 97% of the insurance is being paid by 50%. The top 10% paid 70% of taxes.

Why are stocks inaccessible to so many Americans? There are fractional shares, and you do not have to be an accredited investor.

While a modest fraction of people trade individual stocks, a lot of Americans have some type of 401k, pension, or retirement account that is tied to the stock market.

This pegs it at 50% of private sector workers and 80% of public sector workers. https://www.pensionrights.org/publications/statistic/how-man...

Additionally, in many cases, couples may just have one person with access or contributions to the market - but this still leaves them exposed (for good and bad) to the market.

Pension are 403b which is 401k equivalent just fyi. I'm on it current shift toward tbill/bonds.

Because many Americans can’t even pay their current bills or save literally a single dollar. So fractional shares are irrelevant unless they are free.

There's a gap between those folks, though, and the median household which earns $63,000 a year but has almost no savings or stock holdings. The median household wealth is $100,000 and that's almost all housing.

Well, you can't live inside stock certificates :-)

Sorry I’m not sure I understand the point you are making.

Most models have the numbers of Americans living in poverty or lower class as above 50% of the US population.

It’s unlikely if even what they term “lower-middle class” owns real estate.

Any model describing the median American as “lower class” is being unreasonable. Most Americans - not all, but most - live a comfortable life.

Citation needed. “Comfortable” is obviously subjective, but the discussion was around ownership of stocks.

Even these[0] models have it at >=50% and they are at least 15 years old, and disparity has only increased since then.

[0] https://en.wikipedia.org/wiki/Demographics_of_the_United_Sta...

One annual out-of-pocket max (broken arm, bad fall, car wreck, appendicitis, pregnancy) away from having your financial plans disrupted for a couple years isn’t comfortable. One of those plus any one other problem at the same time from severe financial distress (maybe lose home, maybe bankruptcy) isn’t comfortable. No matter how many x-boxes you have.

> , and the median household which earns $63,000 a year but has almost no savings or stock holdings. The median household wealth is $100,000 and that's almost all housing.

Given that stock ownership is about 55% of the public, the median household likely has at least a few shares.

https://news.gallup.com/poll/266807/percentage-americans-own...

That includes 401k and IRAs etc. which obviously very few living outside of middle class have.

In addition, stock ownership has been on steady decline for everyone but the upper middle class.

Well you're not wrong on the overall trend over the past twenty years, but over the past four or five, the rate has been trending upward. Most of the downward movement was during the recession, for which it's not obvious that the reason ownership went down is not mainly panic selling (i.e., individual choice and risk tolerance) instead of anything systemic.

I know plenty of middle class people who stay away from stocks - they don't understand them and view them as very risky investments.

They stick with bonds and such.

The sad truth is many folks are afraid of investing. Much of the financial services industry is built off this. How many financial advisor offices do you see around? Instead of educating themselves, they'd rather pay a "professional" who often does no better than they'd do themselves if they just stuck to simple index funds.

> they don't understand them and view them as very risky investments.

which is a shame. Stocks (or owning businesses in general) is the real way to get out of the rat race.

I wish that financial education is part of the standard school curriculum. Financial education such as what stocks are, what bonds are, and how do you "save" money and budget, and what it means to invest and what risks "mean" etc

Most people are scared of stocks because they think it's "risky" - they'll lose all their money if the company bankrupts.

While that's true, the other factors not considered is inflation risk (of bonds or, of bank savings account). The risk of not investing for the long term is just as bad.

Man this site is harsh some times, I think there is a lot of depth to this question. It’s easy to look at statistics and say that it’s because of massive wealth imbalances and that is 100% an accurate statement. But from experience / polling there’s also a ton of people who have bad financial hygiene, people who could & should be way more invested and aren’t. So I think there’s also very big educational issues at play / wealth imbalance glosses over a lot of smaller but still important issues.

Also, what if people don't want to be part of the very system which causes wealth inbalance?

or is the stockmarket a "the only way to lose is not to play" kind of deal?

The not being a part of a system bit is tricky. One of the more exciting emergent trends in finance imo is ESG etfs which pick stocks based on good environmental, social and corporate governance criteria. So there is already this idea that capital should have organization patterns for people who value this & I hope that iterates in really positive ways.

But yeah I’d trend towards “the only way to lose is not to play” side of things. It’s really hard to find other ways to efficiently save/grow your money, interest rates are crushed for saving money outside of the market.

the sad part about "the only way to lose is not to play", is that playing in this case further entrenches the very system which requires you to effectively play in the first place.

There is very little, if even any way to recourse this without massive societal change. And getting such change in action is even harder.

> There is very little, if even any way to recourse this without massive societal change. And getting such change in action is even harder.

getting water to flow up hill is massively hard. And in the foreseeable future, not possible. Until the day humanity discovers unlimited energy and move into a post scarcity society.

So play the game as much and as well as you can, and build up wealth for your family and future family. That's the only move left, unless you want to sacrifice yourself and your family's financial well-being for a cause that you nor your children will benefit from.

I'm a lot more cynical about the trend. ESG funds serve the sell-side's desire to charge higher expense ratios and the buy-side's desire to feel clean and ethical. It's much less clear that they have had any positive impact on corporations' behavior (or even stock prices).

The "G" is also there mostly because it's the only thing that can be quantified across every company. For that reason it dominates the sampling, even though most values-driven investors care much more about the E and S.

You can do what I did and lose 5% of your net worth on wallstreetbets

37% of Americans struggle with hunger [1] and 57% of Americans have less than $1000 in savings. [2]

Would you be buying stocks if you didn't have enough to eat?

[1] https://www.feedingamerica.org/hunger-in-america/facts

[2] https://finance.yahoo.com/news/58-americans-less-1-000-09000...

EDIT: Apologies, first should be 37 million Americans (NOT 37%)

It probably doesn’t apply to those struggling with hunger, but just because people don’t have savings doesn’t mean they don’t have expendable income. It could just as easily mean they prioritized stuff over savings, and I bet that’s the case for most of them.

https://www.cnbc.com/2019/12/12/americans-spend-over-1000-do...

That’s an average per consumer. It’s likely skewed way up by extreme outliers. Need to see median, 75th percentile, 95th percentile to really understand it. The headline seems like deliberately misleading journalism.

Per the US government, the median American household has more than $12,000 per year in cash to burn after all ordinary expenses. That is a lot of money for savings and/or beer.

Your link [1] says 37 million Americans, which is 11%, not 37%. (Still a shocking #!)

The second is a pretty bad survey. I have a relatively sizable net worth but $0 in a savings account. That's because savings accounts have shit yields.

If your net worth is negative servicing your debts has a better risk adjusted return than investing in stocks unless the interest rates on your debt are extremely low.

Yup. If you have a bunch of credit card debt at 20+%, and/or are paying off a car in the high-single-digit percent range, then you really want to pay that off before you consider investments.

If all you have is a sub-5% mortgage (though even that's pushing it), or a low-interest student loan, then you should put money toward retirement if you can.

On the other hand, ~15 years ago I had a 3.5% student loan, and even though rationally I should have carried that debt (making regular payments, of course), for peace of mind I paid it off as quickly as a could. I think a lot of people are in that boat, or worse, having been taught that all debt is bad for you.

>On the other hand, ~15 years ago I had a 3.5% student loan, and even though rationally I should have carried that debt (

Right, but near or sub inflation rate student loans are mostly a non-existent thing anymore. They're much more likely to be at 8% and because of their special treatment in bankruptcy they're usually better to pay down than other loans at similar rates.

As a child I learned how to compute compound interest then shortly after saw a TV advertisement for some kind of predatory loan (not sure if there were payday loan places in the late 80s/1990, but something like that), did the math and for a long time thought all loans were essentially scams (not realizing that the interest rates of payday loans weren't representative). ... it turned out to serve me well: there are worse financial mishaps you could make than avoiding reasonable debt. :)

For small investors, I suggest US Treasury I-bonds: inflation protected, liquid after one year.

This of course is, after paying off all high-rate debt, and maxing out 401k contributions.

You have to put your 401k contributions somewhere, even if it is selecting your plan’s auto pilot option.

For anyone looking, the term is "Real Return Bonds". And if you are in Canada watch out, there are not as many of them and the average maturity is quite high so you can expect some wild swings (e.g. XRB ETF).

Yeah check the rates on I-bonds right now, they went down 1% this month. It's not even worth it anymore. I was earning 2.55% APY now it's barely 1.5%. You can get the same return in an AMEX savings account.

Who said they were inaccessible?

Because the priority order is:

a) Consumption spending

b) Real estate

c) Stocks

When middle class people hit diminishing returns on electronics and vacations, they upgrade their houses. Appetite for remodeled kitchens and bigger, nicer, better-located houses is voracious, so relatively few people satisfy it and fall through to stocks.

Making sacrifices on housing in favor of your stock portfolio is of course possible, but will get you a lot of weird looks and pressure from family, particularly if kids are involved.

Do people actually get family pressure to remodel their kitchen?

My wife’s side pressure her (me) to “upgrade” her wedding set every few years. WTF. They’re terrible with money, of course, and constantly make passive-aggressive comments about who’s spending what. I don’t think they even realize they’re doing it, it’s just a really, really awful and deeply middle-class-anxiety attitude they’re stuck in.

LOL me too. They know I have rental properties but are always bitching about my small house and why I am not doing this or that. They don't know that my real estate portfolio is worth upwards of $5 million and when the mortgages start to be paid down, will eventually be generating $20,000 a month in rent. Look forward to telling them to get fucked when they come looking for some of that money.

Heh I had to look up what a wedding set was. Upgrade... wedding rings? Isn’t a big part of the symbolism the permanence factor of the rings? The symbolism of upgrading the ring seems a bit unfortunate...

Anyway, sorry to hear, that probably gets really old.

The stone itself is supposed to be permanent; the band and the setting (receptacle for the stone) are less weird to change.

Interesting, that seems a bit diamond-industry-marketing-driven, I thought a band was the symbol, and that the stone was a more recent invention. Especially since the wedding band is what you get when you actually get married. Many people in my family only wear the wedding bands and leave the engagement rings off.

But these are largely just assumptions on my part.

The biggest tax advantages for investing go to the rich, who can arrange their businesses and finances to max out retirement accounts, and very highly paid professional with fat 401k matches. No matter how someone with a normal salary and a 2% match tries they cannot get anywhere near maxing out a 401k, due to how they’re structured (over 50% of the max can only come from an employer, and the employee can’t make that up on their own). They benefit the already-well-off much more than the middle class or poor. So there’s discouragement to savings built into our tax law (or stronger-than-appropriate encouragement available only to the already-doing-quite-well, if you prefer)

"Rich" typically do not care about their retirement accounts and do not have an employer. They typically benefit from owning a business, having a stream of passive investments and compounding growth. But this may depend on your definition of rich.

It’s my understanding that one can arrange for oneself (and family members) to be employed by one’s businesses such that 401ks are maxed out. This can amount to a huge de jure employment benefit but a de facto slow-motion tax-advantaged inheritance over, say, 20 or 30 years. Just live off trust assets and the rest of your wages (or whatever) until you can draw on retirement.

Though yes it’s probably too small-potatoes for the rich rich to bother with. Mere tens-of-millions business owners are more the audience for that maneuver. Like everything else it seems one is likely to be smacked down for attempting to use it while not-rich (need enough legitimate business activity to make the wages to relatives plausible)

> So there’s discouragement to savings built into our tax law (or stronger-than-appropriate encouragement available only to the already-doing-quite-well, if you prefer)

Only the latter "version" of this is possibly true. Nothing you said shows a discouragement to savings. At best you showed that the wealthier are more encouraged to save.

This is very true! I know plenty of people who when they have extra money, investing or saving is the last things on their mind.

Housing is arguably an investment, or at least the people doing it think it is.

That’s true. I know people who say stocks are too risky, but real estate works for them.

Having stocks is definitely better now than when I was younger.

Fun story: I was interested in investing as a kid, family member opened an account for me as a minor, with enough money to pick one investment to buy and hold. It had a bad month, account went below some threshold minimum balance I didn't know about (I'm sure it said somewhere, I didn't get to choose who the account was through), and suddenly account provider started liquidating shares every month for an account fee because of a balance below some amount, and we ended up having to close the account at a loss to avoid fees eventually wiping it out.

Obviously a lot of lessons packed in there, but at the time it seemed obvious that the whole system was designed to prevent regular folks who couldn't just start with many $k accounts from buying and holding.

Now there are tons of low cost options for things like robo-investors, ETFs and index funds, monthly low value investing, etc. It's a whole different world, which on one hand is nice, but on the other leaves me with the feeling that "regular" investments are some kind of loss-leader or tool to enable some other means of profiting the big players.

In addition to everything else said in this thread -- all good stuff -- it's worth noting that there's often an upfront expense that's hard to overcome in order to invest in the stock market in any sort of meaningful way. For example, some of the stocks recommended by the likes of Mr Money Mustache require a $3,000 minimum first-time investment. That's a big hurdle for some, myself included. I'm in music and media, not tech, and while my income is pretty solid, my overhead is absurdly high relative to it. Putting aside $3k on top of doing the financially responsible things like maintaining rainy day funds, saving for retirement, etc, is just tough.

MMM is definitely recommending Vanguard mutual funds, either VFIAX (US 500 biggest) or VTSMX (total US market). But the ETF's are equivalent and can be purchased fractionally literally $1 at a time. I.e: Open robinhood brokerage, purchase $1 of VTI (ETF equivalent of VTSMX)

Faith in humanity: buy stocks. No faith in humanity: buy gold.

Large cap stocks are to some degree an international investment.

REITs: well they are down, maybe more of an opportunity if only because the good stocks are so high.

> Faith in humanity: buy stocks. No faith in humanity: buy gold.

Speaking to a friend who bought stocks recently, they said, "I'm bullish on America."

I might say if you are the opposite of bullish, then buy gold. And if you have no faith in humanity, buy a survivalist bunker.

> And if you have no faith in humanity, buy a survivalist bunker.

What’s the rent on a bunker these days? If it’s cheaper than an apartment in SF I might go in on it

I bet you can build your own luxury bunker somewhere in midwest for way less than a dinky studio condo would cost ya in SF. The real issue is the cost of land and zoning laws, not the actual entity built on that land (obvious exceptions apply, e.g., we are talking about buildings that fit a few families tops, obviously not something like a highrise with over a hundred of units).

Unless you think the bombs are going to fall, you'd be better off getting some sort of cabin than a bunker. Living underground has a lot of challenges; it's expensive to build down there and you'll constantly be fighting moisture and mold.

I think the threat model is packs of desperate people looking to take your stuff, not bombs.

Being underground won't help much if your assailants decide to smoke you out. To stop that you'd need to shoot back or have a very robust and well designed fortification, with air filtration and redundant hidden vents. If you were committed to fighting back, an above ground fortification made out of reinforced concrete would be easier/cheaper to construct and would probably give you a better view of your surroundings. You'll also need several people you trust living there with you, so you could keep lookouts stationed around the clock and cover for each other.

All in all, it seems like a hopeless scenario. A better approach is probably to make friends with your neighbors and try not to look like you have anything worth stealing.

> try not to look like you have anything worth stealing

I think you said it all :)

Invest in bunker REITs in Eastern Poland![1] Either way bunkers tend to be blown up by one side or another...

[1] - https://en.wikipedia.org/wiki/Wolf%27s_Lair

> If you were committed to fighting back, an above ground fortification made out of reinforced concrete would be easier/cheaper to construct and would probably give you a better view of your surroundings. You'll also need several people you trust living there with you, so you could keep lookouts stationed around the clock and cover for each other.

A castle. You're describing a castle. :)

If you're only building a small "bunker", it's not that expensive to build down there. Just a backhoe, a few hours, 6 sides of concrete and a tin roof.

The best thing you can do is make friends with your neighbors. Surviving disasters is a team activity.

If you have no faith in humanity as a whole, make friends with the people around you. When things go bad, people help each other out, and if you believe in a societal breakdown, the people around you are going to be your biggest resource, not your greatest threat.

society will not break down if your neighbours are going to remain your friends.

The breakdown happen precisely because you can no longer trust even your neighbours. You got the cause and effect backwards.

Societal breakdown is what happens when you can't trust institutions. When that happens, your neighbours are the ones you help and that help you. https://www.theguardian.com/world/2011/jan/30/egyptians-make...

As far as I can tell, the extreme versions that turn into warlordism occur mainly in response to outside threat.

The survivalist bunker idea is so stupid for the kind of people I see investing in them. These are Silicon Valley guys with $10+m in the bank but have never even been in a fistfight. If the shit truly hits the fan they are going to be very quickly relieved of their nice bunkers by a few Bud Light drinking boys 2 years removed from their Army deployment.

That's why the bunkers are in the mountains of New Zealand with some serious physical security. Your Bud Light boys are going to be duking it out with the rest of the riffraff in the suburbs while the bunker owners are going to be on a private jet.

The stock market is not the economy, don’t make a false dilemma on being bullish on America or not. You can totally be bullish on America and imagine a reset of the prices on the secondary market.

I have a REIT (in the UK) Tritax that speclises in big box warehouses for amazon and the like - that's going to recover.

> Faith in humanity: buy stocks. No faith in humanity: buy gold.

Nothing like a good oversimplified false dilemma for a complex economic situation. Don’t give the secondary stock market a greater purpose than what it is.

How much of the TINA phenomenon could be due to lack of capital formation throughout the economy? e.g. if 90% of America is too capital poor to form businesses or dream up new economic needs, then wouldn't it follow that printing money into existing asset classes would simply raise their price with no viable places to invest the money?

Yes. I'm sure plenty of Theranos / WeWork style opportunities will emerge to pick up the slack.

It's a fundamental problem of capitalism: the market's notion of "value" is weighted by wealth, without growth to stir things up wealth concentrates, and those looking to create value are increasingly forced to search for marginal "rich people problems" rather than tackle obvious "poor people problems." You wind up in a paradoxical situation where there are lots of obvious problems that could be fixed by obvious application of labor (e.g. crumbling infrastructure) yet nobody can find a job.

This is why inequality is bad.

Equality is bad because then you can't incentivize people, but that point generally gets enough air time already.

To optimize this system, we should identify which extreme is currently posing a larger threat and back away from it.

Exactly, you get rich by doing what the rich want, not what most people want, that’s why Lamborghini owns Volkswagen! Wait..

Serving the middle class is an excellent strategy precisely to the extent that the middle class has money.

Serving the middle class was an excellent strategy precisely to the extent that the middle class had money.

Serving the middle class will be an excellent strategy precisely to the extent that the middle class will have money.

You think Volkswagen makes cars for the poor? Show me a poor person who can buy a new car and I will show you someone who is borrowing.

"Cars for the rich" is not their MO.

Their MO used to be "The People's Car".

The People do not buy new cars without massive credit anymore, and in general do not buy new cars at all.

“They do not buy new cars” is a great way for car manufacturers to lobby for more benefits.

Looking at sales numbers, “they don’t sell as much as they used to” is waaaay more accurate.

I didn’t imply that they made cars for poor people, I implied they don’t make cars for rich people.

There’s a lot of people that are neither poor nor rich, that people keep thinking in those terms baffles me.

"If you want to dine with the classes, you've got to sell to the masses."

> To optimize this system, we should identify which extreme is currently posing a larger threat and back away from it.

Except to back away from it is to alter a relationship where the incumbent ruling class holds all the cards and controls all the influence and narrative. Which they don't want to do. So they don't, and the government they bought and paid for just write them windfall blank checks for trillions while the poor threaten governors since they are going to lose their homes and are going hungry.

The US had a chance to right the power balance when it was at its most equal in the post war boom period. But instead America decided times were good enough to let scrutiny slide - complacency in plenty and the optimism of the post-industrial were powerful drugs. Since then its just felt like the late Roman republic in its glutinous downfall. The feudal lords will pillage the state until the house crumbles from the inside with nothing left holding it together while the robber barons run wild and happy in their Deus Ex style post-capitalist dystopian corptocracies.

Neither Theranos nor WeWork were trying to solve rich people problems.

arguably, they solved a problem of where to stick money to try and get a greater than x% return. To do so both companies took on insane levels of risk by trying to solve impossible business/science problems on the basis that they could maybe just spend enough money and fake it till they made it. In WeWork's case some rational investors may have thought that they'd end up with a monopoly on B-tier office space as a failure mode.

Right, the fact that the market is chasing such high risk investments when there's lots of obvious low-risk work that needs to be done means that the low-risk work has gotten "frozen out" of the economy. Poor people problems aren't problems, as far as the economy is concerned.

Still, WeWork and Theranos are only examples of the "bubble" side of the effect, not so much the "freezing out" side, and they don't really illustrate the contrast between unworthy, overfunded endeavors and worthy, underfunded endeavors. I originally had a more visceral, abstract example that did a much better job, but it was attracting so many drive-by downvotes that I decided to retire it while I searched for better wording/examples. Here is the original:

Economists invite you to ignore this effect by conflating "value" (the economic notion, which is weighted by wealth) with value (the philosophical notion, which isn't, at least not to the same degree). For example, consider the prospect of feeding starving African children. This action has 0 "value" -- the market will not pay you to do this because the kids have no money with which to pay you -- even though the prospect has loads of value in the philosophical sense. Now consider the prospect of merging up the banks so that they can charge higher fees and offload risk to the federal government. This action has loads of "value" -- it gives investors a return, at scale, and investors have lots of money, so their opinion counts heavily -- even though this prospect has zero or negative value in the philosophical sense. Because it is weighted according to wealth, the economic notion of value diverges from the philosophical notion of value in proportion to inequality, and with exploding inequality, that's a big problem.

> they solved a problem of where to stick money to try and get a greater than x% return

That is literally any company, be they large or startup, that is trying to attract investment. These were both "disruptive" types that had the backing of a few notable investors and interested parties, and looked juicy to those who could stomach the risk.

Theranos was trying to solve blood testing problems, to make them quick, cheap, and to disrupt the handful of companies that dominate the medical testing field. The whole idea was that poor folks could get a cheap, reliable blood test at Rite-Aid.

WeWork was an REIT designed to resell coworking space to low-to-mid scale clients; rich people and big companies aren't getting coworking space, they're just getting their own private offices.

I don't think it's unreasonable to not want to be holding cash (if one doesn't need it) in the face of so many monetary injections. 2008 showed us that all this stimulus money eventually ends up in assets, aka trickle-down economics, but in reverse.

If have been buying since the lows, you're just front-running the FED. The worse is over in that it is now very unlikely that the stock market will retest the lows in nominal terms.

> The problem is so familiar it has its own acronym: TINA, or There Is No Alternative to stocks.

> the price of real estate is propped up by similar logic.

This is where the idea falls apart. They can't both be propped up by the fact that there's nothing else around. They're two different things.

"No alternative" means "no better alternative". They can both be equally mediocre.

But is that true though? also, isn't "no better alternative" in the eye of the beholder?

Is that 86% figure a portion of the public market, or of the entire market?

So what would you say are liquid, relatively low risk alternatives to holding cash? Worth diversifying into other currencies?

No, every other currency is going to inflate faster than the dollar. Gold is a good hedge, whether physical or ETF or gold mining stocks.

Corporate bonds are... interesting... now. I've been looking at airline bonds that mature in the next 6 to 18 months. Quite a few of them have yields-to-maturity north of 7%. I figure airline bonds aren't super risky (at least for the majors in the US), since the US gov't will prop them up until the end of time. Some of these aren't rated investment-grade anymore, but I don't particularly trust the ratings to be all that useful at this time.

Airline stocks probably have a bigger upside, but they're quite a bit riskier. Bondholders do get priority in a bankruptcy, if it comes to that (though I'd doubt it).

Just because you believe the government won't let the airlines go away doesn't ensure that the bonds are safe. Sometimes keeping a company in business involves a restructuring such that those bonds won't pay out as you're expecting.

Like United Airlines.

Genuine question: if a company didn't pay out on its bond, that's a default; how can it default without going bankrupt?

Going bankrupt means lenders and shareholders are wiped out but the company can be restructured and continue operating.

I believe what you’re missing here is a “Chapter 11 Bankruptcy”, as opposed to a “Chapter 7 Bankruptcy”.

Chapter 11 means the business keeps running, but the owners lose their money, Chapter 7 is what most of the world considers to be a bankruptcy / going bust / liquidation. Uncle Sam probably doesn’t care if Delta does a Chapter 11, as long as the planes keep flying.

I guarantee that Uncle Sam doesn't care if Delta files chapter 11.

https://money.cnn.com/2005/09/14/news/fortune500/delta/

holy shit. And there was a guy here who bought delta bonds, saying he would make an easy 7% by the end of the year.

sometimes bond holders are given the option to convert the debt into equity (at probably pennies to the dollar, which is a steep discount and therefore, a good deal) - that's what restructuring means.

I suspect many airlines will go bust before this is done. Not all of them. A few are going to come back strong. You could diversify, buy JETS (airline ETF.)

> many airlines will go bust before this is done

My bet is there will be a large number of hard hit industries (e.g. airlines, cruise lines, hotels, car rental companies) which will see widespread ch 11 and bankruptcies. Makes sense if then they can reemerge after eliminating a good chunk of debt and also roll back labour agreements. Likely a bunch of consolidation/merges on their way as a result too.

Should see the ball start rolling after the mid-year results come out early July.

> cash: eaten by inflation.

americans haven't had real inflation since the military backed greenback. it will be very interesting to see how much that outdated system can hold after being stretched so much by the feds (fed and federal govt).

not true at all. The inflation has been gigantic, when expressed in as the price of owning a home or getting educated.

the traditional measures of inflation expressed in the price of other goods are not capturing the real story. Those good are much cheaper today and mask the actual decrease in purchasing power.

Agreed: home, college, basic surgery... Some of our costs are through the roof. Others have been kept low due to technology, hyper optimization, or leveraging slave wages in a developing country.

Indeed. Pegging inflation to the cost of labour-intensive goods is a thinly veiled lie.

I can't find it at the moment, but I remember a graph that showed the price of goods over a period of something like 30 years. Things like clothes, food, gadgets, cars, etc., we're shown to have decreased in price. Things we actually need like education, medical care, and housing had risen astronomically. So even if the dollar itself doesn't inflate much, it still can have significantly less buying power, as you say. What's worse is the cheapness and ubiquity of gadgets serves to mask the problem by making everyone think they have more wealth than they really do.

even if you account the unofficial inflation, name one single country that had similar (or even close) to the US ratio of printed money to total economy, since the the 1970s. after 2008 was just the cherry on top.

> Bonds: Near 0% interest rate, practically no better than holding cash.

You can still buy bonds of a bit less-developed nations. E.g. "new" EU nations. They usually offer better RoI than Western EU bonds.

When calculating in risk of default, I think finding a better treasury note deal than U.S. TIPS will be hard.

That introduces the risk of currency exchange, unless you find bonds that are hedged to your local currency.

The risk premium is always quite fair with bonds imho.

These less developed nations will have a higher default risk. Buying them can make the bond act more like equity than bonds!

At the end of the day, stock prices have to be justified by earnings. A massive over valuation isn’t sustainable for very long.

I wonder. Investing is all about relative yield. If stocks return 0.5% and treasuries return -4%, stocks will sustain higher ratios than the historical mean.

But I’m putting my money where your mouth is and betting on a correction.

True but you are taking say a -30% loss risk for only 0.5% expected return. I don’t think any risk manager is going to be very comfortable with that risk/reward.

Cash might have a similar risk (inflation).

Just use dynamic hedging, risks will be smaller.

> -30% loss risk for only 0.5% expected return.

vs the alternative - a guaranteed loss of 4%?

And the expectation of only 0.5% return is only going to be short term. Long term recovery is a good bet imho.

Why? A lot of the value of a stock is ability to resell at a high price later. If everyone (including U.S. Fed and gov) agrees to continue to push prices high for the forseeable future, then it seems like prices can lose connection to e.g. ownership in a company.

That’s the definition of a bubble.

Yeah, it made me laugh that the OP stated it in such a matter-of-fact fashion, as if it’s normal or good.

If you're talking about me, I don't think it's normal or good! But I do think it's a matter of fact.

I agree, or pretty close. But it's not axiomatic that bubbles always pop (at least on the time span one expects).

> But it's not axiomatic that bubbles always pop

You can only call it a bubble once it pops. So therefore, it is axiomatic. This stock "bubble" might not pop, and hence, it might not be a bubble.

Your definition of bubble and the one I was replying to are fundamentally incompatible - I don’t really care which term one uses though

Stock prices are forward looking - what do you expect the stock to do in the future.

That's how you end up with companies with negative net income having valuations in the billions.

> the richest 10% of America owns 86% of its stocks

I don't buy that, as a much larger percentage of stock ownership is pension plans, where ordinary people indirectly own stock.

The 86% number was (more or less - the article says 84%) supported by the times in 2018. Their analysis includes pension plans.

https://www.nytimes.com/2018/02/08/business/economy/stocks-e...

The article shows 45% of American households have a pension plan that's invested in stocks.

Right, but:

> A whopping 84 percent of all stocks owned by Americans belong to the wealthiest 10 percent of households. And that includes everyone’s stakes in pension plans, 401(k)’s and individual retirement accounts, as well as trust funds, mutual funds and college savings programs like 529 plans.

That’s entirely orthogonal though, isn’t it?

The point is they are participating in the stock market and benefiting from its gains.

That’s true. I suppose there’s not much else they/we can do and the 86% represents the status quo even after their efforts.

I mean, if 0.1% of your savings is in the market, you're "participating" in some sense, but not with any real impact. My sense is that, for the great majority of people in the United States, the stock market's value doubling would mean little for their financial health. Having a retirement fund that goes from $10,000 to $20,000 (or even $100,000 to $200,000) has a relatively small impact on the prospect of retiring [1].

[1] Depends on circumstance, but people are generally supposed to have at least $1,000,000 in savings by 67. https://www.nerdwallet.com/investing/retirement-calculator

> if 0.1% of your savings is in the market

That means you chose not to participate in the market, not that you were prevented. In which case I can't accept grousing about not getting the gains from investing in the market.

> retirement-calculator

Use it. It'll show how much you need to invest monthly to retire a millionaire. Your money will do a lot better than double.

>That means you _chose_ not to participate in the market

You can’t invest money you don’t have.

May I suggest examining "if 0.1% of your savings is in the market" again? Like what happened with the other 99.9% of your savings?

Without sperging out about the specific percentage: a situation where people have a tiny amount saved for retirement, and almost all their net worth in a house and car, is actually quite common.

Spending on a car is not an investment. It's no joke that a new car loses 30% of its value when you drive it off the lot. Essentially all cars lose value constantly, and that's not even counting the finance costs.

I couldn't agree more. Just trying to explain the situation of someone's pension accounting for such a small portion of their net worth. It's sadly common.

Asking about the other 99.9% is a good point! Mostly I was pointing out how meaningless the idea of "participating" is for evaluating the material impact of the market on an individuals' financial wellbeing.

We can go back and forth about how theoretical people could invest theoretical savings, but unless you have another source, it seems like the reality we live in is one where 90% of the country share 16% of the stock market. Whether that 90% have low savings (all of which are in the market) or better savings (little of which is in the market) - either way their financial health doesn't seem very tied to the market.

The people who do invest in the market are providing the money that drives jobs and economic growth.

You can't separate the two.

Why can't you?

The vast majority of businesses are privately held[1]. Those businesses hire most of the people and buy most of the goods. Even for companies that are listed on the markets, the majority of their financial assets come from doing business.

It's true that companies raise money on the public markets to expand and thus hire more people, but the idea that most economic activity happens there is false.

[1] https://www.forbes.com/sites/sageworks/2012/10/01/private-co...

Big business doesn't work without a stock market, and big business is the engine that drives an economy.

Small businesses are the future big businesses.

Both are needed for an efficient, productive economy.

Various times countries have tried to prevent big business from operating, and always gave it up after a while.

> you're "participating" in some sense, but not with any real impact

just like voting has no real "impact" right?

Participating has an impact. The impact may not be as big as you'd want, but it's there. and it's better than not participating.

I agree that participating is always better than not, but I think you're making an inappropriate comparison. The question I was trying to talk about is the connection of the market to the wealth of most americans. I'm saying that it's fully possible for everyone to "participate" in the market without significantly benefiting from it (though, as you say, it's better than nothing). If the market were to double in value, mostly wealthy people would get wealthier and, I think, few middle and working class people would have their lives changed significantly.

The reason I don't think the voting metaphor holds up is that everyone who's elected does so by "getting" the most votes. Obviously there are forces at work here (turnout, voter suppression, get out the vote efforts, etc), but there's no official alternative way to be elected. The voting comparison would make sense if the stock market was the only possible way to gain money - in which case I would agree! But it's not. There are lots of other ways we can ensure people gain wealth.

No. It is comparing different things. The percentage of Americans who own stocks is different that the percentage of stocks owned by americans. Say 90% of americans "own some stock" but they are dirt poor. Their share of the total stocks available could well be 1%. The rich 10% then own 99% of the market AND 90% of the population own some stock. One fact does not negate the other.

Remember that the median income in the US is about 30k. If you have any sort of actual pension plan, there is a good chance you are in the top 10% in terms of net worth.

I think you've just supported the claim that the two facts are entirely orthogonal.

You greatly overestimate how many americans have pension plans and underestimate how rich the richest americans are

It's mostly the latter. Looks like 32% have 401(k) plans and 13% have pensions. They may not have a big share of the total market cap, but a stock market crash would blow up a lot of retirement planning.

>> a stock market crash would blow up a lot of retirement planning

The low interest rates we've experienced over the last decade, which have only gotten lower as of late, have actually blown up retirement plans.

Used to be, $500,000 saved at 8% meant you could retire off the $40k interest + social security. It also meant that growing a savings account into $500,000 was not out of reach, even on a modest income. This was the plan many people in the 60's, 70's, 80's worked towards.

Now, getting to $500k in savings is much more difficult as compound interest is so much lower. And if you happened to get there, you'd earn a whopping $5000, maybe less, in interest per year.

Wow, never considered how a stagnating economy will hurt retirement. This was eye opening in terms of numbers

Which is a good thing to me. I’d rather people “work” to earn rather than easily collecting rent through interest. Work in quotes since applying capital in risky investments is work compared to stashing money in an interest bearing account.

Also shows why having everybody "earn" a living off interest & investment income isn't feasible - if everybody's doing that, nobody's doing the work that generates the cash to pay the interest in the first place.

The best you could hope for is a younger generation of increasingly productive new workers being able to spin off enough profits to provide a return on the capital that generated that productivity. But the demographic time-bomb of relatively few Homelanders supporting relatively many Baby Boomers is going to upend that, and the stagnating productivity of the last couple decades isn't going to help.

Just as much rent is getting collected, but it's going straight to the top rather than into retirement plans.

What? Putting money in an index fund, or buying Apple stock, or a 401k, is "work"? Companies don't even get the money from secondary stock purchases, so the invested money is doing absolutely nothing.

Banks use deposits to create loans whose funds go directly to the companies receiving those loans. Banks which interview the loan applicants, review financials, ask for references, and which themselves tend to be pillars of the community (before the proliferation of national banks) and have a vested interest in helping it to thrive.

So, no, your premise is 180 degrees wrong. Savers were once paid high interest rates precisely because their dollars were necessary to directly fund risky investments like a new business or expansion. The bank's function was to determine high vs low risk and allocate depositors' money efficiently. Meanwhile, buying an index fund or Amazon stock and having a few irrelevant proxy votes on decisions already made, is the definition of "stashing" it away with zero utility.

> Companies don't even get the money from secondary stock purchases, so the invested money is doing absolutely nothing.

There would be no IPO market without a secondary market. Almost nobody is interested in buying a stock at IPO and holding it forever without being able to sell it.

> Companies don't even get the money from secondary stock purchases, so the invested money is doing absolutely nothing.

But they can issue new stock at the inflated values to fund expansion, which itself allows the company to grow profits and potentially grow future dividends. E.g. Tesla stock price quadrupled over the last year and then Tesla issued $2 billion worth of new shares in February.

Putting capital in risky investments is “work”. Expecting a 7% guarantee return on capital is rent-seeking. There is a difference.

> buying an index fund or Amazon stock and having a few irrelevant proxy votes on decisions already made, is the definition of "stashing" it away with zero utility.

that's absolutely not true.

The buying stocks (or indirectly via index funds) must mean somebody else is selling.

The person who sold the stocks will put the money obtained from the sale to use somewhere else. It moves capital just like any other economic transaction.

It may be that the seller will "just" buy another stock - and it looks like nothing's changed. But eventually a seller down the chain is either going to invest in something other than stocks (e.g., a bond), buy new IPO stocks, or to consume the money (e.g., retiree selling stocks to fund their living cost).

The problem with banks doing loaning is that they have to be conservative. They cannot loan out money that might not return - since they must return their depositor's money.

Investors, on the other hand, do not have this conservatism (for the right price). That's why stocks exist, and that's why bonds exist (for those willing to risk less than stocks).

Yes, obviously, stock markets are essential and efficient capital allocators, in aggregate. Perhaps I shouldn't have simplified. But a single retiree's $500k purchase of some megacorp's stock will have effectively zero impact, like a drop in the ocean. As you say, it's up to someone "eventually down the chain" to actually deploy the capital. Investing in an index fund adds even more layers. In contrast, a community bank deposit will get multiplied and quickly deployed directly to local businesses or homeowners.

The point being, `eanzenberg`'s idea that money in a savings account just sits there idly doing nothing, is false.

i would argue that money invested in stock market has an even higher investment velocity than a bank deposit.

after all, a bank cannot invest in risky assets. "eventually down the chain [of stock investments]" is very fast in terms of timing, and i guarantee you it is faster than a bank's loan process for small businesses.

I think you would benefit from a course in how capital markets work.

If you want to dig into this more, this paper has a lot of tables about wealth holdings (and what forms those holdings take) over time and at different strata https://www.nber.org/papers/w24085.

Edit: I think this is the relevant table: https://i.imgur.com/h8Fo8yx.png. If I'm reading it right, this is likely the source of that 84% number. Note the line "Stocks, directly indirectly owned", and the note that it includes retirement plans. I'm guessing this also includes pensions, since that would be a retirement plan. There are many interesting tables in this paper, however.

>pension plans,

is that still thing for the average american?

45% of households have a pension plan.

22% of workers, 13% of private sector workers, and falling.

I probably should have specific average american worker. Retirees aren't important in this context.

I would bet that the majority of Americans do not even have 401k plans or pension plans, and those that do have very little money allocated in them.

> I would bet that the majority of Americans

No need to guess. Google is just a quick click away!

That's my point -- this is something that doesn't even have to be Googled!

I'd be careful about that. A lot of popular internet economic theories get holed below the waterline with simple google searches.

Hehe, of course you're right! To be a responsible internet user...

Buying stocks has never been more democratic. Anyone with $100 can buy stocks. No brokerage fees, and fractional shares are now common.

We also just passed what in hindsight will likely be seen as a historic buying opportunity.

Inequality is huge, just because you can buy 0.0000001% of IBM doesn't make that fair/democratic.

If you buy stocks, you'll have the same proportionate gains/losses as everyone else who buys the same stocks.

Sounds fair to me.

No, because workers are underpaid to get stocks to rise. Capitalists get to have their cake and eat it.

So, become a Capitalist. You can start with $100

I'm pretty sure the top executives and management don't pay 30% dividend tax, if they pay any at all.

If they receive dividends, they pay income tax on it.

Note that poor people pay 0% income taxes on capital gains and dividends.

> We also just passed what in hindsight will likely be seen as a historic buying opportunity.

Almost as likely to be a historic selling opportunity. The 35%-ish bottom isn't close to the bottom of the really huge recessions (and every non-stock-price signal is saying "really huge recession"). And the volatility we just saw resembles the movements from early 2008 to summer 2008.

Of course, the market can stay up in defiance of any bad news for years at a time, too, if the participants want. We won't have the hindsight until we have the hindsight.

Historically, the optimistic people do better in the market than the doomsayers.

Besides, it doesn't make much sense to claim that it's unfair people are making money in the market, while saying it's too risky to invest in it.

$100 in stocks is a meaningless "investment"

e.g. https://www.cnbc.com/2018/01/18/few-americans-have-enough-sa...

> Only 39% of Americans have enough savings to cover a $1,000 emergency

So you're part of the 61% of americans with less than $1k on hand, but you put it into the stock market, congrats! At the end of the year you have $999 + 6% roi = $1059. Best case scenario you're looking at less than $10k for retirement after 30 years of this.

A career spans 45 years. $1000 at 6% ROI compounded annually yields $13,747. Now consider adding $1000 to that each year.

If you only have $1000 in the bank, it’s not because you can save $1000 / year - it’s because that’s all you can save.

And I used 30 years because 61% of americans aren’t 20 years old right now.

And this is still the scenario where you don’t have a >$1000 emergency any time during that 45 years.

My point is not that investing doesn’t work, my point is that most people don’t have enough capital to be a part of that system.

> If you only have $1000 in the bank, it’s not because you can save $1000 / year - it’s because that’s all you can save.

But at least we all have our big screen TV's and iPhones, right?

Massive eye roll. Yes let's blame the poor for their bad purchasing decisions, instead of idk not getting paid enough?

Like, ok... an entry-level iPhone ($20/month) and a big screen tv ($500, lasts ten years)

That's $50/year + $240/year, call it $300 a year to get an iphone and a big screen tv. Amazing. Are you really here trying to tell me that $300/year is going to make the difference between crushing poverty and a healthy life and retirement?

Now compare that with a $2/hour raise, which amounts to somewhere north of $300/month extra. $3600/year. Yeah, THAT is getting a lot closer to the difference between crushing poverty and a reasonable retirement.

Yes, I see that eye roll. This is a stereotype that comes up regularly specifically because it is such a prolific problem.

I guarantee that a single iPhone purchase and a single big screen TV purchase are not the only poor purchasing decisions being made here.

Yes, lets consider a $2/hour raise. That gets wiped out with a daily trip to take-out instead of regular meals at home, or even by a 750/mo car payment.

Compare it to burning calories. It's much easier to not eat that 500 calorie hamburger than it is to run 5 miles.

Our society should be giving our kids financial literacy instead of bombarding them with advertisements.

"The best minds of my generation are thinking about how to make people click ads. That sucks." - Jeff Hammerbacher.

> most people don’t have enough capital to be a part of that system.

Most people are not in the bottom quintile of income.

Where are you getting bottom quintile? If you don't have $1000 for an emergency, it doesn't matter what quintile you're in you're still not going to be maximizing the profitability of your excess capital using the stock market

> $100 in stocks is a meaningless "investment"

Actually, buying $100 in stocks on a regular basis is the foundation for good investing.

But why buying stocks of companies that will be bankrupt in the coming months?

If you allow me to complement your breakdown:

- bonds: Definitely not 0% interest rate, definitely better than cash. You can expect around 1.5% in the US for IG bonds. This is all relative to the default risk of course, the stronger your central bank, the less risky are the bonds, the less interests you earn.

- Real estate: you don't have to own it directly. This exposes yourself to a huge idiosyncratic risk. You can easily get real estate exposure while maintaining diversification and liquidity through REITs, which are trendy since at least 10 years.

There's a whole lot of other investments if you dare to look into it. You can play with currencies (FX, IRS) if you have macroeconomic views. You can play with debts (CLO, CDS) if you have views on the corporate debt market, etc.

Most bonds in the EU are below 0% interest rate.

Hu... No. Only short term notes are negative.

> You can expect around 1.5% in the US for IG bonds.

Sure, but the fed's target inflation rate is around 2%. That means you're in fact losing 0.5% of your purchasing power per annum. That's just losing money slower.

There is in fact, no alternative.

Also the interest will be taxed.

Not sure how taxes work in the US exactly. Here in Hong Kong we have withholding tax but no capital gain tax, so you can effectively buy zero coupon 3 month govy notes tax free.

Depends on the bonds. Bonds issued by the government (local/municipal/etc.) are often not taxed as an incentive to get you to lend money to the government.

Isn't currency (and many others) more of a zero sum bet -- useful for hedging if you are a business with expenditures in one currency and income in another.

But if you're looking to invest cash on hand, and looking for a long-term upside. I'm not sure currency is good idea.

No, it's not "zero sum bet". There are real market fundamentals which you can take advantage of.

Definitely not a 0 sum game. You can perfectly have real strategies and earn money just betting on currencies, either intra curve (buy/sell different maturities on the same currency) or cross curve (one currency versus an other one). Theres actually quite a lot of hedge funds doing that. You will most likely want to start with a "carry" trade: buying a cheap currency by selling your $USD, and enjoy the higher interests on that currency.

High interest savings accounts are still beating bonds.

High interest saving accounts are bonds. There is no magical returns for no additional risk.

What truly boggles my mind is this:

* Personal consumption expenditures constitute 67% to 68% of US GDP every year: https://apps.bea.gov/iTable/iTable.cfm?reqid=19&step=3&isuri...

* Business revenues are the flip-side of those consumption expenditures, because every dollar consumers spend, to a close approximation, is a dollar of revenue for some business -- whether it's your Aunt Tilly's burger joint, your local movie theater, one of the airlines, a downtown hotel, an amusement park like Disneyland, a retailer like Neiman Marcus, and yes, Amazon and Google too. So, 67% to 68% of US GDP every year, give or take, is made up of business revenues from sales to consumers.

* If consumer spending in the US collapses by, say, 30% (a figure I've seen in some articles), business revenues from sales to consumers in the US necessarily declines by a similar magnitude at the same time. If two things are near mirror images of each other, and one declines 30%, the other declines by a similar magnitude too. For every expense not incurred by consumers, there's an equal sale not made by some business.

I don't even know how to reason about the impact of a 30% collapse in business revenues across the entire country.

It's not cleanly divisible across companies. Some will get hit very hard while others will be nearly effected, similar to unemployment right now. Some people are untouched and others are hit hard.

Yes, of course, but think beyond the immediate consequences.

If that -30% collapse in consumer spending affects mostly, say, half of all businesses, that half will see its consumer revenues collapse by around twice as much, or -60%. Most of those businesses will fail and most of their employees will be out of a job, contributing to a greater collapse in consumer spending.

The economy seems to me unlikely to be able to "repurpose all those human atoms" quickly enough, as many people are and will be understandably afraid of returning to work before there's a treatment or vaccine.

Previously when we have large problems like this, companies are not allowed to loan out so much debt it would bankrupt many non-startups. If it's different this time, it's because companies are allowed to loan at far more than they should be able to. The last time companies (and people) were allowed to loan out so much it caused major problems was 1929.

The Spanish Flu crashed the stock market pretty badly with a quick recovery in the 1910s similar to today, but loaning was not crazy then so it didn't hurt the economy in the long term.

This quote from Jeffrey Sachs might offer some context:

“Look, I meet a lot of those people on Wall Street on a regular basis right now... I know them. These are the people I have lunch with. And I am going to put it very bluntly: I regard the moral environment as pathological. [these people] have no responsibility to pay taxes; they have no responsibility to their clients; they have no responsibility to counter parties in transactions. They are tough, greedy, aggressive, and feel absolutely out of control in a quite literal sense, and they have gamed the system to a remarkable extent. They genuinely believe they have a God-given right to take as much money as they possibly can in any way that they can get it, legal or otherwise.

If you look at campaign contributions, which I happened to do yesterday, the financial markets are the number one campaign contributors in the US system right now. We have a corrupt politics to the core.. both parties are up to their necks in this.

But what it’s lead to is this a sense of impunity that is really stunning, and you feel it on the individual level right now. And it’s very, very unhealthy, I have waited four years, five years now to see one figure on Wall Street speak in a moral language. And I’ve not seen it once.”

They also pay big bucks to ex politicians to give speeches and some politicians and regulators get big money jobs there after leaving office .

There's this Wall Street movie made in 1970 (?) about this very kind of people.

Worth reading all chapters that are in here, but chapter 3 gets at the meat of where we're heading. We're at the end of a long credit cycle post WWII, dislocation of the dollar from the gold standard, to bretton woods, to now QE printing of money being loaned to the government by the fed.

Market reflects the cash flow available being printed by the FED to keep the markets up.

https://www.principles.com/the-changing-world-order/

Don't see a chapter 3?

Where we are now at the end of chapter 1?

Thank you for sharing this! I’m always grateful to read some of Dalio’s thoughts on the future.

I work at a big tech company. One of the big realizations we've made is that WFH is not killing our productivity - it may actually be increasing it. If that is widely true, it has huge implications, and points towards an enormous amount of value that can be unlocked, by allowing professionals to work wherever they want (presumably in lower CoL locales). This article indicates that the housing crisis costs the US economy 1.6 trillion a year, so we should be able to recoup that immense loss (about 2x the military budget) by exploiting remote work tech.

https://www.citylab.com/equity/2015/05/the-urban-housing-cru...

I don't know. I work in tech and almost everyone I know is finding themselves less productive and can't wait to get back to the office. Maybe because most of us live in an apartments and not magestic houses with woods or lakes behind them, and the feeling of being trapped indoors is neither healthy nor pushes one to work more effectively.

My PC is in my living room and I'm on it, in the same seat, at the same desk, using the same monitor as I use for work, typing to you here on a Sunday afternoon. Tomorrow at 8:30 am I will be here, too. And I was here for hours reading the news and trying to find a couch online.

I can't wait NOT to WFH. I hate it. The option to do so is great, though -- maybe one Friday out of every two I will start to do it.

Indeed, the home office space is important If you had a permanent work from home option, you might rent an apartment with some office space, and renting a 2 bedroom somewhere that is not SF is probably still cheaper than a studio in the city.

That’s where the lower COL comes in. If your Silicon Valley paycheck gets spent in Midwest American living, you’d be able to afford an office to keep your work life separate.

Then move somewhere that has a proper home office. You can live anywhere now.

Congrats on your realization, the world begs to differ.

I've been thinking about this for a while. It makes sense that if people don't need to commute they have more flexibility in choosing where to live. On the other hand, there will still be richer/safer towns with better schools where most people want to live in.

Where I live there's been a booming of new construction for office space and very expensive rents. Some small companies I know moved to work remotely cause they couldn't afford renting an office anymore. It's been puzzling why this is happening given the rise of remote work (pre COVID-19). Part of it is FANNG companies which all expanded like crazy in recent years, including many new multibillion dollar offices.

Interesting you say you work in a big company. I find remote work to be more challenging in big companies. Productivity is not the issue. The main issue is visibility to other parts of the org. Working remotely you don't get to bump into people from different teams. There are ways to make it happen remotely too, just more challenging when there are so many people.

Maybe something to do with the Federal Reserve buying $2.5 Trillion in assets over the past 2 months? https://fred.stlouisfed.org/series/WALCL

For the first time ever the Fed started buying ETFs. So yah..

What is most mind-boggling about this recent rally is that basically all the major indices are back to where they were Q2/Q3 of 2019. The Nasdaq is even back to January 2020 levels.

Therefore, the market apparently believes that the environment for stocks today - COVID raging, approaching 20% unemployment, mass bankruptcies, etc - but also central banks creating trillions of USD - is overall as good as it was towards the end of 2019.

Since it is clear that even with the central banks' support economic recovery to late-2019 levels is going to take while, the conclusion can only be that the market anticipates most of the central bank's new money to drive up asset prices again instead of driving the real economy. Sad times.

The unemployment numbers are deceptive. >80% are furloughed and would have their jobs back as soon as lockdowns end and business picks back up.

But realistically business won't bounce back this year, will it. Big parties in packed bars? Even without any governmental restrictions, I think a lot of people will avoid these things; because they don't want to get sick. This will also affect e.g. numbers of Uber rides, as well as how much beer/food the bars/restaurants buy. Businesses connected to foreign markets will also be affected by lockdowns there; airbnb will still be in a world of pain, as well as travel-related businesses.

Anecdotal evidence suggests maybe people are ready to get back to normal sooner than many might suspect? e.g. https://twitter.com/nick__puckett/status/1259541624389955584

They're partially deceptive at best. The economy wasn't exactly flying even before the virus. Consumer debt (nearly $14tn - around 2/3 of GDP) was stifling consumer demand. Corporate debt was around $10tn - half of GDP.

When there's a major shock a lot of that debt will be written off, either be negotiation or by bankruptcy. So unless the Fed plans on making good on all of those debts there's going to be a big smoking hole where those obligations used to be, with corresponding losses to creditors.

The Fed has no interest in Main St, and is perfectly happy to hand out free money to Wall St to keep the party going. But if the economy isn't operating normally, that money is going to turn into worthless paper because it can't be spent on the usual things the 1% spend money on.

When that happens you get real inflation, because the face value of money becomes disconnected from real spending power.

Even if everyone went back to work tomorrow, people will keep getting ill and dying and business won't be back to normal for at least six months - possibly twelve. If workers don't get generous government hand-outs to keep demand ticking over in the real economy, there are going to be mass bankruptcies, and the debt collapse cycle will have started.

People don’t realize in 2008 on the verge of financial collapse the government passed two bailouts totaling $1.8T leading to the longest bull market in history.

We have already passed bailouts totaling close to $7T...no matter what happens the market will rocket, basically WW3 has been priced in so as long as that doesn’t happen it’s to the moon.

The USA also had the longest period of economic growth in history after 2008.

https://www.cnbc.com/2019/07/02/this-is-now-the-longest-us-e...

Or, you know, stock market growth, like this very title alleges. Taking on debt and selling fundamentals just so you can issue some stock buybacks.

How about because big companies are propped up by the government and would always get bailed out? The economy is stacked towards big players, who have power to lobby and get favorable regulations. Therefore, good times or bad, big companies will get paid by Uncle Sam or by all of us, or both.

also known as privatize the profits, socialize the losses.

This is the inflation that everyone is afraid of. Since the money has been mostly injected from the top of the society, it has been confined to the asset bubble. If this money filters through to the bottom or there's significant injection directly to the bottom (SBA payment protection, $1200 direct assistance, basic income, etc) then we will see consumer inflation as well

There is much bigger risk of deflation during a depression. Do you really think there will be wage inflation when there is 20% unemployment?

Exactly this is why I don’t understand the folks who think inflation is a purely monetary phenomenon. With demand shocks like this how can we not have deflation?

They are people who have never bothered to look at an inflation table. They are content to blindly repeat that one economics textbook they read.

Wall Street and main street are two different markets. OP specifically said we'll see consumer price inflation only if money trickles down to consumers, which is evidently not the case. Asset prices has gone to the moon however since 2008.

Too many people competing for too few jobs should keep wages down.

The direct injection to the bottom doesn't even cover what income they've lost since 3 months ago..why would there be inflation?

Quantity times velocity equals GDP times price level. Velocity just went way down.

This is the right start. But it's not a closed system: there's an import/export balance.

We are still waiting for the surge of inflation you inflation hawks complained about in 2008 when this was all last done...

https://www.usinflationcalculator.com/inflation/current-infl...

wasn't that injection more like a loan that was paid back? IIRC we actually made a tiny profit on it. but this time they are just given it away or some terms that amount to it. so eventually there is a bigger chance of it. but then BOJ has been purchasing stocks for what a decade now and japan still does not has that level of inflation.

Between 2/3rds and 3/4ths were paid off. The current administration has been quite lax about paying off debt, instead pumping money into the market like jet fuel in 2018 and 2019.

I'm not worried about inflation. Most people do not understand how it works yet assume they understand it. Inflation is a complex subject.

He did specifically say asset bubble. And look at how much the stock market has grown since 2008. It has outpaced CPI by a huge margin.

Annualized S&P 500 Return with Dividends Reinvested from april 2008 to april 2020 are 8.285% [0] which is entirely in line with historical returns [1]. How is that an asset bubble?

[0]: https://dqydj.com/sp-500-return-calculator/

[1]: https://en.wikipedia.org/wiki/S%26P_500_Index#Performance

There was an asset bubble in property, and you can argue that there still is (there is in my city). However, wages aren't going up, as someone else below pointed out. Inflation to some degree is a race between income and spending power, right? If incomes stay stagnant but house prices double in cost, that's downward pressure on that asset.

The stock market is a different beast. Is it accurate to call it inflation if the asset inflation is "going there"?

Both health care costs and education costs - both mentioned as evidence of inflation someplace and two more places where excess inflation to be "going there" - have been making headlines before this crisis, and I bet they'll become even more prominent after the crisis ends. There will be downward pressure on prices politically on those two things, is my prediction.

Inflation was seen in asset prices. We're seeing it again in asset prices right now.

All the inflation went into healthcare, education, housing, stock market, all things conveniently not measured or heavily weighted by the PCE.

1. The economy is not that bad for many companies in the stock market. Why would Proctor and Gamble be that negatively impacted during this? It lost 20% of its value though. Same with a stock I hold. It was slaughtered for being an airline stock, but it mostly does flights to remote communities, which are a government-funded necessity so they can eat and have medical care. P&G should not have meaningfully fallen and this other stock should have lost maybe 20%. It lost 70%. Now it is only down 40%. So the market didn't know what to do and overreacted in many places. Same with all sorts of natural gas stocks which got slaughtered along with oil. Much of the initial drop was unjustified.

2. The stock market will walk away with a larger share of the economy than it had before. Vast amounts of shopping moved to Amazon and online venues. The large publicly traded restaurants will survive or just buy out flailing franchisees at a discount. So less pie, but a greater share for public investors.

If insurers or sovereign wealth funds or newly unemployed need to raise cash by selling stock then ... naturally stocks like P&G should fall with the rest of the market ... because market action is determined in all but the long run by buyers and sellers, less so the companies that issued the stock originally (unless the company is buying or selling)

Uhm, because P&G is a full out consumer business and there is now 15% unemployment?

P&G mostly sells things that are essential, so these are not the things typically cut very much even when people are living on 60% of their incomes.

P&G did not take a large hit in 2008 either. P&G stock did though.

https://www.macrotrends.net/stocks/charts/PG/procter-gamble/...

The stock market is a leading indicator. Economic data (unemployment, manufacturing, GDP etc) are all lagging indicators.

The terrible economic data (high unemployment, low growth) already showed up in stock market returns in the first three weeks of March. What we have seen in April/May represents improving expectations for the economy in the future (as in, a few months to a few years... in theory the market discounts future earnings to infinity, but in practice it is not looking ahead more than 3-5 years most of the time, which is why it is so volatile).

Perhaps in this particular crisis, unemployment may be a leading indicator instead of a lagging one.

People buy into a rally because they don't want to miss out, they expect it to keep on rallying. It's herding behaviour, and leads to so-called dead-cat bounces. At least in the short term, there's no reason to expect any intelligent price discovery from the markets. Come back in six to twelve months and then we will see.

Could it be that it is not so much the stock market rallying but the dollar plumbing?

Money will be printed to keep the economy going. If people assume that this will devalue the dollar then stocks are a safety heaven and demand for them increases which drives up prices whether the dollar is falling or not.

The dollar plumbing relative to what? Not other currencies by the looks of it.

All other countries have the same need for printing money, so the value compared to other currencies should remain stable.

That is obviously true, but that poses another question: Since there is no "real" value for the dollar to compare to (same for all other currencies), what if all countries had printed money at the same rate and around the same timeframe? Comparatively, it would look like nothing changed, but in my opinion, the market would want to price that in as some sort of "inflation" (no idea if this really is inflation at that point), since compared to 2019 the intrinsic value of companies probably has not changed too much.

This is as very wonky explanation and I am aware that it likely has several errors along the way, so please tell me what I am not considering, I am genuinely interested.

You could compare it to the value of gold over time

In that case, all currencies will fall in comparison to gold. It is happening though, but slowly.

Relative to assets, real estate, stocks, gold etc. Money is getting created in enormous quantities very quickly, while assets cannot be created so quickly. So all currencies are getting devalued relative to assets.

Would you consider treasuries an asset? They're creating those pretty quickly...

The dollar has already plummeted compared to assets. Real estate is ridiculously expensive when measured in dollar, same for stocks too.

Not food, basic shelter, etc.

Where else you gonna put your money? Bonds? Cash? Land? Foreign funds? Nothing looks great. Maybe invest in silly tech companies? Who knows, maybe one of them is the next Google!

As for how things are bad for the regular joe or jane while stocks go up; companies could literally enslave a good chunk of the population and still be profitable, meriting a high stock price - moreso, even. There's prior art here. High stock prices can be an indication that companies are just really good at extracting the wealth produced by labour.

> High stock prices can be an indication that companies are just really good at extracting the wealth produced by labour.

Western companies have become adept getting handouts from governments and central banks. Chinese companies extract value from labor.

Because for most companies, the fundamentals after the pandemic won’t be changed. Great companies are being sold at massive discounts, and as the buying escalates shorts are getting squeezed out and forced to cover.

Anecdotal, but during the pandemic my portfolio had shed up to $60k at its lowest point around March or April, and I didn’t sell anything, in fact I started accumulating shortly after the bottom. Since then, it has not only recovered but it is now climbing to all time highs.

Interesting that some people really dislike this answer.

The funny thing is, I’ve been giving stock and investment advice on HN for years, and always get downvoted. Yet if you had followed my advice, you would have made a ton of money.

Some people cope with their FOMO with denial and downvotes, or saying cliche things like “Ya can’t beat the market” or “The Fed can’t keep printing money forever!”

P&G shed 20%. Its fundamentals have not changed at all.

Because the stock market is a pyramid scheme propped up with printing money to enforce rampant inequality? Just a guess.

https://www.cnbc.com/2020/03/27/the-feds-balance-sheet-just-...

The bulk of the Fed intervention is in the bond market, particularly Treasuries. They are also increasing their intervention in the exchange rate market. If the Fed was trying to pump up the stock market, wouldn't they buy stocks? Instead it looks like to me the Fed is essentially financing the US government's fiscal stimulus.

A large portion of the stimulus is going to publicly traded companies, so that would have the effect of propping up stocks that may otherwise trend towards zero.

There are more or less no limits on the stimulus money, so corporations that have issued debt to buy back shares can use it to retire that debt and then issue even more debt in the current hyper-low rate environment. It's essentially a way for companies to transfer the money into the hands of their executive management.

I had a very hard time understanding why this setup was so widely accepted during the last corporate welfare program in 2008/2009 when the amount was in the $500B range.

I’m now at a complete loss as to why there isn’t more of an outcry when it’s in the $3T range.

It’s not being widely reported. Saying that all our troubles are due to Coronavirus allows for a lot to be covered up.

Because most people don’t really understand it, or think it’s too complicated to understand

The Federal Reserve isn’t the only central bank and some central banks like the BOJ and Swiss Central Banks are buying stocks directly. The Swiss Central Bank is buying US tech stocks heavily.

there is kind of a wink wink nudge nudge understanding that we'll (us fed) do it if there is a dire need for it. just not yet.

When you remove income by eliminating Treasuries from circulation, where do you get your income from?

There is a need for a supply of income - from pensions largely. There’s less income in circulation, so the price of income generating assets go up.

They are not allowed to buy stocks. By buying bonds they force bond holders to get out of them and into stocks.

The best argument I've seen is that the stock market typically prices things in faster than other parts of the economy, so the stock market took the hit well before things like unemployment indicators did.

Also, some stocks are doing alright, while others are doing badly, depending on what sector they're in. Looking at the aggregate gives misleading information.

Why is that hard to understand?

What else should i suddenly do with my money if i invested it in the stock market?

I mean srsly getting it out now to do nothing with it means losing money. If i invest long termish, even if corona hits hard, after it hit, live continues and the economy will recover.

We lost 2 years of stock market growth anyway. Thats a shit tone of money.

As bad as it sounds, the worst two things from corona are: people dying and business not conducted. People dying also means reduced cost for the economy due to less old people (more working people ratio) and less sick peole/health insurance costs after. The other thing might mean that we clear out unhealthy businesses. But who pays the bill? People who had money before probably. All others hit the base line of social security.

Lets see how it plays out. To be honest, i don't have a better idea and as i don't need to get it out now, i will keep it where it is.

And rallying it is because live goes on.

You are thinking like a small individual investor.

Many larger players are highly leveraged. They don't always have the option to ride the lows.

These players have wildly more influence over market prices than mom and pop investors who can ride crashes.

I thought it was the other way round. Mom and pop pull money out because they need to use it when the economy turns bad, big players can ride the wave because their everyday lives really aren't affected.

It can go both ways but institutional traders have access to huge leverage and can also handle large write downs. They take margin calls that are enormous by mom and pop standards all the time.

Is that then good for me that i can wait it out?

And what is with all those pension fonts etc.?

Because the economy isn’t “bad” like in previous recessions. Generally lots of people are unemployed because of government mandates not to work, not because businesses are experiencing lack of demand. When the shelter orders are lifted, much of the unemployed will be able to resume work. People will be going to the mall, travel, out to eat, etc.

Now it’s not going to perfect - some businesses may find demand doesn’t immediately pick back up (or at all), and then real lay offs happen.

IMHO this is why we find the stock market near previous highs but not quite there.

While there are some good explanations already mentioned, the bottom line is that stock prices are forward-looking in the sense that investors buy and sell stocks not based on what happened yesterday or what is happening today, but rather based on their expectations for the future (6-12 months ahead).

So, basically, the market is signaling that on a whole (i.e. weighted average growth of all the companies in the S&P 500) things (i.e. revenue/eps) aren't going to get dramatically worse and potentially going to get increasingly better.

The stock market is signalling that it believes 6-12 month revenue expectations for the S&P 500 today [14.7% official unemployment, consumer spending trashed, entire sectors facing months of uncertainty] are roughly the same as they were in October 2019 [3.6% official unemployment, consumer spending rising]. This does not seem a logical conclusion, and so people (in this thread) are asking whether the market is functioning correctly.

Where are you getting the "6-12 month" number for how the revenue expectation ties to stock price?

My comment was just a response to the theory in the parent comment.

Current price = future price. Principle of economics and pricing. Meaning an asset is priced according to what someone thinks it'll be worth in the future. Let's also not forget the massive sell off in the markets not too long ago. And as someone else said, there's also nowhere else to put money. All these are reasons why people would buy into the market right now. Or hey, it also could just be a dead cat bounce...

Stock market reflects hope of future, not present.

Jim Crammer also talks how Stock market is built from big companies like Walmart, Amazon etc which don't get negatively impacted by COVID (they do even better). It's the small businesses (which aren't public on stock market) which are suffering:

https://www.youtube.com/watch?v=9G5I6oikAYA

Then why do prices swing wildly on earnings days?

This is not an invalid statement but its a very incomplete understanding of markets.

I notice that modern companies don't pay dividend anymore.

They optimize for growth and survival, which makes sense.

Google and Apple have so much cash that they wouldn't really need to make money for years, and they would still survive.

Paying dividend is kinda okay, at best. Buying back stock is a bit better. The best is to just keep th cash.

Don't get me wrong. As a shareholder, I like it. But it's bad for the company.

What? Most companies do return money to shareholders and for your 2 examples, Apple returned 81 billion dollars to shareholders last year [0] and Google started a 25 billion dollar buyback last year [1].

[0]: https://www.barrons.com/articles/apple-stock-buyback-dividen...

[1]: https://www.businessinsider.com/google-2q-earnings-beat-stoc...

Buying back is still better than dividends. Because you get stocks back.

The point is companies now save a lot of money for growth and survival.

Rallying is a relative term. It’s been going sideways around 24K (Dow) for weeks.

But the answer is: where else are you going to put your money?

Look at the Nasdaq. It's come back much faster than the Dow.

Companies on the NASDAQ like Amazon are doing tremendously well.

Not many alternatives. Interests almost zero or even negative. - How else are we supposed to save for the retirement.

I currently work in finance, and particularly with dividends, and my opinion as a casual observer is that a prudent investor looks for stability. So, the key is not whether you can find the strongest performance, but that you can predict better how things are changing.

Two months ago everyone was waiting to see what would happen. Now the chips are starting to fall and investors can act accordingly. A simple example is that agriculture is now seen as a more stable investment where, especially in South Africa, it's actually a high risk business. But it is much less risk now in comparison to hospitality.

The only other reason I can see for (perhaps premature) quick rallying is with today's technology you can move around investments much more quickly and hence corrections and speculation are all sped up in terms of their time frames.

I think for the most part, it's this idea that things will go back to normal soon. And there wasn't anything structurally wrong with the economy like it was in 2008. Right now, the hardest hit people are mainly people with zero stocks (bartenders rarely have a decent portfolios).

The Fed has made bonds and savings almost worthless with all the money being pumped into the economy, so why not try to get in on this opportunity?

I think this all fools gold. We are going to hit 20% unemployment and earnings are going to take a massive hit. The stock market might not tank, but it also could break even.

At the point that people think the stock market isn't worth the risk, that's when you will get another big sell off.

In a weird way, both shorting stocks and going long stocks are both very risky positions right now.

The market is pricing in the Fed buying equities if it gets too bad. The market consensus is that there could be 30% unemployment but ATH prices in the S&P 500 because of the Fed buying. If the Fed refuses to do this, then reality will set in for the market.

"Goldman Sachs Group Inc. analysts have been tracking varied measures such as gas demand, Starbucks mobile application downloads and traffic in restaurants as measured on the reservation website OpenTable for signs of a recovery."

OpenTable data

https://docs.google.com/spreadsheets/d/e/2PACX-1vRbPuAyJy74U...

A lot of this also seems to be insider knowledge. It is said that QE is the greatest wealth transfer tool on the earth. I truly believe that.

If you look at who the stimulus is meant to support, it isn't the mom/pop shops (which incidentally is good for the stock market as the companies get bigger).

I tried to capture this unusual insider activity here: https://twitter.com/unusual_whales

If you look at the companies that are "growing" or have calls, it is always those supported by the government. Take note!

The (US) stock market collectively "thinks" the economy will pop back up relatively soon (Q4-ish, 2020). If that rosy picture in the stock market's mind turns out incorrect, then rally go bye bye.

Could it be that despite everyone freaking out, the wisdom of the crowd (the market) is pretty sure everything is going to be OK? It's possible that the market is the only thing acting rational right now.

Markets can stay irrational longer than they can stay solvent.

"The wisdom of the markets" doesn't exactly have an inspiring track record.

The fed can step in and bail out Wall Street by printing money only so many times. Eventually by papering over the small disasters, they make the eventual collapse of the whole system a certainty.

If the fed backs the market up to the point of total civilization collapse then makes sense to keep backing the market since if it gets to the point market fails money will lose its value anyway??

My uninformed guess is that the unemployment is a contributing factor. Consider the act of huge workforce reductions just before a shareholder earnings call. The math shows huge revenue (built with the workforce you had until recently), offset by greatly reduced salary costs. The recent enormous layoffs, possibly has such a "heating with the wall paneling" effect. If so, it's a sort of dead-cat-bounce, given that it's hugely unsustainable - you'll soon be out of wall paneling.