The stock market and economy have parted ways
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An alternative place to put investments will trigger it. When your options are savings accounts paying 0.25% interest, and treasury notes paying nothing, and CD's being garbage, what are your alternatives for investing? If interest rates were 5%+ on savings/CDS's/Treasury notes then you would see a bunch of money move from stocks to these other safer more stable investments. But the safety/stability doesn't mean shit if the return is near 0.
At some point there is going to be a critical mass of people not paying their mortgage, not paying rent, not paying loans, not paying credit cards...and simply no money and unemployment.
I think this week we will begin to see some acknowledgement of the realities because July 15 is the new tax return date, and I think there will be millions and millions of American's who just say F it, I am not filing/paying taxes.
Then again it also wouldn't surprise me if 10s of millions end up homeless before the end of the year while politicians keep parading around unemployment numbers and the stock market record highs, while these people get swept under the rug and never actually acknowledged.
[1] https://www.usatoday.com/story/travel/airline-news/2020/07/0...
[2] https://www.flightglobal.com/strategy/layoffs-expected-when-...
About 20% of renters and homeowners in the USA are worried about evictions/foreclosures in the next 6 months[1] and that number only goes down if the economy makes massive improvements or if Congress stops playing brinksmanship.
[1] https://www.apartmentlist.com/research/july-housing-payments
What I think is far more interesting is what happens internally: the US is a powder keg of economic and racial inequality and our leaders are either throwing lit matches at it or gently disapproving of those doing the throwing. If COVID cases and deaths keep increasing I can't see how we continue without structural changes.
Hyperinflation is one way to throw more fuel on the dire that is American society right now. And Trump said the quiet part out loud during his campaign[1] that we don't have to repay the whole debt (normally something that the most powerful people in a country don't say in public).
Neither of these ideas works in practice without significant tradeoffs. The US dollar only keeps its value because people around the world have faith it is worth something. A spike in inflation or a debt default would have investors scramble to move their assets elsewhere.
[1] https://www.npr.org/2016/05/09/477350889/donald-trumps-messy...
https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
The only reason store-brand sliced white bread isn't $10 right now is that money only went to investors and businesses.
What do you mean 'start'?
The homeless camp right next to the new Apple spaceship just got a bathroom installed:
https://www.mercurynews.com/2020/06/03/after-months-of-compl...
This stuff has been going on for a few years now.
I'm not downplaying the seriousness of what's happening, as the economic impact will be catastrophic. But physically evicting large percentages of a population with no sudden increase in demand for those properties, seems like an unlikely outcome.
Homeowners will probably find a way to catch up before losing their rear but renters could trivially find themselves in very quick perfunctory hearings where they are quickly told to put up or get out. Many with relatives with a spare couch or even a spare floor to sleep on might see the writing on the wall and get out before they are humiliated by being put out. If most evictions are carried out without a trial or hearing of any variety simply with a note on the door the courts will be able to keep up with the few that contest.
At least on the west coast, in each major city, we have thousands of people living in tents, if not tens of thousands. Seattle has over 10k now officially (and speaking with food bank workers 20 years ago, they said it was that number then, when times were less shit). Los Angeles per their recent count has over 40k.
https://www.lahsa.org/news?article=726-2020-greater-los-ange...
But that type of mental exercise does not work well for many people. Especially imagining a system where our fiat currency is effectively useless.
There's also 1/10 ounce coins and other things.
Not really accurate, you can get rounds down to 1/10 oz which are worth ~$200. In any case the USD value of a gold coin in a collapse situation is obviously irrelevant. If fiat really does collapse barter is obviously going to be the default way to trade goods and gold could easily be used as it was in the past.
I think partial collapse is more likely scenario (of the two).
If you’re buying gold for the end of the world you’d be better off buying cigarettes and tiny bottles of booze.
Gold does have intrinsic value. It's used for electronics plating and for jewelry. Other precious metals can augment gold as commodities, each having different intrinsic values. An example of a metal which might have no intrinsic value in a post-apocalyptic world is platinum or palladium, which are primarily used as catalysts for emissions equipment on cars (no refined petrol => no driving => no need for platinum/palladium).
I think the statement about cigarettes and booze is correct (as well as toilet paper and ammo), except they have different lifespans and durabilities. Also, consumables will get more rare as time goes on (like dollar bills that erode, tear, burn, or are lost), whereas precious metals may keep in-tact.
But the idea that gold doesn't have some sort of special status is strange to me. People don't talk about doorknobs or topaz when they diversify from financial products (stocks, bonds, cash, etc). Cryptocurrency fails to be useful if there is no reliable electrical grid or network. Gold has for long recent history (until about WW1) backed almost all currencies, so it has significant precedence.
And jewelry is useless to me, but most people carry some form of jewelry and some cultures even store lots of gold in jewelry in case they need to run/escape. It's not useless to have a store of value shaped to fit your body.
https://www.apmex.com/product/201564/2020-1-gram-gold-maple-...
I mean, how can you verify if a ring or necklace is actual gold, but not be able to verify a coin?
I guess using the age-old method of density perhaps? do you know what did process to exchange jewelry looked like?
The lesson I took is that a pure gold economy depends upon a level of infrastructure that just isn't present in economic collapse conditions. At best you're holding something that will retain value after things become normal again.
I guess this is one of those things that sound good 'on paper' , but after deeper analysis it's not so straight forward.
Like others said, it's probably easier to trade toilet paper, cans of food or cigarettes than ounces of gold.
I don’t have a sense for how bad things need to get before making your own rings becomes a viable hedge, but I don’t think the US is quite there yet.
There's a significant resale overhead to gold. Who's to say it's not tungsten somewhere in the middle? Are you going to microprobe the whole thing in the post-apocalyptic hellscape?
Paper gold is a bet no different than a stock; it is a bet that the system and your counterparty will both be solvent when you need them.
a) It's a store of wealth. I don't expect to be able to go buy groceries with it, however I do expect to be able to cash it in for fiat post-depression if I need to.
b) I can move it abroad easily enough if I need to. I have immediate access to it.
c) It's cool.
It has also doubled in value since I bought it.
I am old enough to remeber the chaos in the silver market a few years ago, where it went to $50 per ounce and then crashed in two or three days. I'm not one of those morons.
What this means is that, at moment in time, if the music stopped, someone would be left without gold - though with the distributed nature of everything, it’s hard to say who.
Fake bars are routinely discovered in storage, collateral, etc, see e.g. https://www.nasdaq.com/articles/chinas-kingold-shares-tank-o... for the most recent high profile (but by no means unique) example.
It's fairly trivial to get lots of gold just above spot price. https://www.apmex.com/product/75/10-oz-gold-bar-brand-name
>And if you succeed, try selling it into the system again, without losing 30%.
In the scenario where the markets are collapsing and you need to sell gold for cash it's possible or even likely that it could be worth more than what you bought it for and even if not the discount rate you accept for selling it back may be worth it either way. If the market dropped 50-80% and you are only taking a 30% loss on gold that's clearly worth taking.
For equities heavy strategies, there is even an acronym to describe this: TINA ("There Is No Alternative") [2]
[1] https://www.visualcapitalist.com/700-year-decline-of-interes...
[2] https://www.investopedia.com/terms/t/tina-there-no-alternati... ("On the other hand, if bonds offer low yields. and illiquid assets such as private equity or real estate are also unattractive, investors may hold stocks despite their concerns rather than revert to cash. If enough participants are of the same mind, the market can experience a "Tina Effect," rising gradually despite an apparent lack of drivers since there are no other options for capital increase.")
The PBGC was created because this isn't the case. The issues with Social Security are another example of how pay as you go isn't completely sustainable.
And what issues with social security do you mean? The program has taken in more than it's paid out since '83.
Also, social security has required many changes that decrease benefits over the years to remain solvent, such as increasing the expected retirement age.
This also explains wacky basketcase unicorns like WeWork, perpetually unprofitable companies raising round after round, the continued existence of the cryptocurrency world in spite of it being like 90%+ scams, real estate going up in cities where >25% of people are behind on their mortgages, etc. There's no "alpha" anywhere. Money is chasing its tail.
All this QE is just going to give us is more asset bubbles. The financial economy is completely detaching from the real economy and becoming a pure fantasy LARP for the rich and of course governments.
People act like the big short guys were geniuses to see this trend come out of nowhere. I was a teenager asking questions like "How can housing prices rise nationally at a multiple of wage increases for any sustained period of time?" and was short down by the "smart money" on forums not unlike this one.
It's seductive to type out the word "simply" to describe a proposed solution but that doesn't mean it's simple in reality. (My previous comment about supposedly "simple" fixes: https://news.ycombinator.com/item?id=16698821)
E.g. The employer (the state government) that pays into pension funds for teachers won't simply pay more. The taxpayers aren't sympathetic to raising taxes on themselves to pay for fully funded pensions (even if the pension is underfunded) when they perceive the teachers already getting better benefits than they do. A lot of citizen taxpayers who are not teachers also suffer from underfunded pensions themselves!
But sure, I agree that there are other ways to handle the situation if the fund doesn't achieve its assumed rate of return. There are other options than increasing employer contributions.
You're being uncharitable in reading gp's (erentz) word "required". No, there isn't a statute or law that says the pension fund must get 8% returns or the pension administrators go to jail. Nobody is saying that.
Here's how to interpret the word "required" in a more reasonable manner...
Using Illinois Teachers Pension as an example: the pension fund manages ~$50 billion but they still have a ~$70 billion shortfall.[1] The CIO (Chief Investment Officer) is currently Stan Rupnik. His salary is ~$400k per year and he's responsible for investing the pension fund in a way that balances max returns with safety. If he just sits back and folds his arms in a defiant manner exclaiming, "hey, the pension fund is not _required_ to achieve a given rate of return so I'm just going to invest all $50 billion in T-Bills which returns a negligible 0.19% yada yada yada" ... he's not going to keep his job.
That's what a meaningful interpretation of "required" is for the context of this discussion.
[1] https://www.chicagobusiness.com/finance-banking/teachers-pen...
I don't think it has anything to do with the fact that there's an assumed long-term 8% return. Fund managers in situations where no such assumed returns exist make the same bad decisions all the time too.
Because interest rates will never go back up, or if they do, they will be counterbalanced by inflation. This is the view of Ray Dalio at Bridgewater and (presumably) many other very smart people. I'm not that smart, but I agree.
Thus, cash and cash obligations are no longer stores of wealth. Equities are, unfortunately. High volatility is just the price you pay. Equity prices are honestly not that high if this scenario plays out.
[1] https://scholar.princeton.edu/sites/default/files/ernestliu/...
[2] https://research.stlouisfed.org/publications/economic-synops...
[3] https://web.archive.org/web/20200629061702/https://larrysumm...
In other words, we have to actually look at the evidence.
https://www.linkedin.com/pulse/big-cycles-over-last-500-year...
Understate inflation so real rates are negative, then your savings either dwindle or you give in to the pressure to take more risk.
The America of the past 100 years has been quite exceptional. Using its history to predict the future is not a good idea, IMO.
Im sure the result would be much better then.
The problem (or uncertainty) is that both the US and Germany left the gold-backed systems during those years and the exchange rate between our currencies changed quite a bit during the 1914-1924 period (which is probably why your parent chose that year).
If you notice your image's description, it is denominated in 3 different currencies, depending on the years you are looking at.
https://www.bloomberg.com/news/articles/2020-04-08/taleb-adv...
I've worked in both a hedge fund and in tech, and I found the former to be less evil and pretentious. People in finance think and say "I want to make a ton of money" while people in tech say "I want to save the world" while thinking "I want to make a ton of money" - resulting in misaligned incentives and imposter syndrome everywhere.
A part of it might be stereotypes and depictions in pop-culture. The drama Billions shows hedge funds getting their consistent edge from insider info. Not sure how true that is but for people outside the industry that doesn't come off as a good look.
Citation needed. The number of people in "tech" who say that is remarkably low -- in my experience in Silicon Valley: zero.
Far more often, I hear employees who are driven by "the mission" of the company/product. I work on a newer generation cybersecurity product because the ones that exist in the space have terrible usability and probably aren't very accurate/comprehensive/ergonomic. I'm not "saving the world", but I am making marginal improvements in a high impact space.
Personally I haven't the foggiest idea of what a Hedge Fund actually is. I've seen The Big Short, Margin Call, Barbarians at the Gate and I don't find myself sympathetic with any of those characters (except the Ben Rickert[1] in The Big Short, but only because he saw how terrible the industry was and got out years before the story takes place).
[1] https://www.bustle.com/articles/128208-what-does-the-real-be...
Take for example the creation of a market to manipulate the price of commodities most notably wheat.
https://foreignpolicy.com/2011/04/27/how-goldman-sachs-creat...
Sachs is most likely mostly responsible for millions perhaps hundreds of millions of people going hungry and yet a response to outlawing this kind of manipulation provokes this response.
>I asked a handful of wheat brokers what would happen if the U.S. government simply outlawed long–only trading in food commodities for investment banks. Their reaction: laughter. One phone call to a bona-fide hedger like Cargill or Archer Daniels Midland and one secret swap of assets, and a bank’s stake in the futures market is indistinguishable from that of an international wheat buyer. What if the government outlawed all long-only derivative products, I asked? Once again, laughter. Problem solved with another phone call, this time to a trading office in London or Hong Kong; the new food derivative markets have reached supranational proportions, beyond the reach of sovereign law.
This is Bond villain proportions of villainy. We could of course continue in the same vein touching on Banks laundering money for cartels, the housing market collapse, and on and on and on.
--Charles Prince, Citigroup CEO, 2007
parking isn't safe. Parking is guaranteed to lose 20-30% because of the newly printed money and the resulting asset prices rise across the board. Yes, some assets may experience the swings during that money tsunami, yet on average across the board the assets would still rise 20-30% - ie. the amount of the newly printed money.
Economy and market didn't part ways. The stock market is just like speedometer that got "upgraded" from mph to kmh - the number is higher while the car and the speed are still the same.
It is entirely possible the first infection was a false positive.
>Ditchek said he encountered a second reinfected patient on Wednesday from the same family. This patient had accumulated so many antibodies from his previous COVID-19 infection that he was able to donate plasma to other coronavirus patients two times.
"He'd been negative for seven weeks and sure enough was re-exposed," Ditchek said, and diagnosed positive for COVID-19 this week.
https://dailyvoice.com/new-jersey/monmouth/news/central-jers...
On This Week in Virology recently, they said that it would be invaluable to sequence the virus the first time around and the second time around (in patients who recrudesce) to see whether the two infections were caused by the same virus (in genetic terms), or from a new infection by a genetically different virus.
Either way, it's bad if immunity only lasts a few months, for obvious reasons.
Confidence in this area was restored when the Federal Reserve started doing what are called "stress tests" under the Dodd-Frank Act, where large financial institutions have to prove that even if things turn bad they won't collapse.
The solution for individuals: cash, gold, options, etc, aren't viable solutions for institutional investors.
Imagine that you're in charge of a $1 billion fund, what are you going to do? You can't put that into gold, cash or treasury notes. But all sectors are affected by this so you can't simply rebalance your portfolio. You can't go out and buy an obscene amount of call options because those would still way too risky at the institutional level.
For me this is why the stock market right now is deeply troubling. Not because "the elite's are out of touch", I know quite a few people in finance, people managing these billion dollar portfolios and they also have no clue what's going on. None of these people are delusional about what's going on, they just don't know what to do.
What's troubling is that this detachment from reality seems to be based on the fact that the entire financial system is effected and there's no way for it to react in a sane way anymore.
I don't claim to have any clue as to how this will play out, but when this reality bubble bursts it's going to be a very extreme event.
The markets are a wobbling shitpile of unpayable debt just waiting to collapse. That was already true before Covid, but Covid has nailed the coffin shut while the corpse is still alive.
I wouldn't be surprised if the Fed is knowingly goosing the twitching body because the alternative is one of the biggest financial explosions in history. More free speculation vouchers at least buy a little time before the music stops, the bomb goes off, and we all run out of metaphors.
This block votes and they vote often and if their little pennies are threatened, they will vote people out.
Edit: If you think these market rises are anything other than a way for the rich to rinse their money before the market bombs, I have a bridge to sell you, it's very pretty.
While not great for online discussion, I can understand where the sentiment comes (the evidence is clear older generations strip mined the country economically [and continue to do so], pulled the ladder up behind them, and then are shocked when younger citizens are resentful).
Even if they do something like barter free housing for live-in care instead of selling, you expect a big effect on the rental market and a corresponding effect on the value of investment properties.
Boomers are between 56 and 74, a lot of them already have either liquidated real estate holdings by downsizing even if not explicitly for care, or passed it on, whether inter vivos or by inheritance (because quite a lot of them have died, and you can't take it with you.)
Boomers by definition are going to be in their late 70's at the absolute youngest.
You're talking about their children, who have comparatively little (and is coincidentally why a lot of people hate the Boomer generation).
Apparently date math is hard. You're 100% right.
I think there's a lot of people who don't remember or realize this. And it bothers me that having conversations now takes so much effort to address that particular part of the context: "they were having econ troubles before covid was on the radar"
Debt is also not necessarily the time-bomb that everyone thinks it is. Debt is tied closely to the overall money supply, and world productivity has been increasing as has population. World debt is about 69 trillion with a population of 7.8 billion. That's under $9k USD per person.
Individuals presented with this crisis could realise the problem, the disastrous future it implies, and turn to philanthropy. Institutions largely can't, and foreign oligarchs won't.
The government has been printing money for a long time, to stimulate the economy, provide spending money, etc. Due to 80/20 rule, rich get richer effects, etc, a large portion of money the government prints ends up in the hands of a relatively small group who doesn't spend it but rather tries to invest it to get more money. Government prints money again trying to stimulate the economy and again most of it ends up in a few hands. At some point don't you have what we have today? A 1% that owns lots of wealth and doesn't know where to put it while the majority of the economy is still relatively broke? How does it play out? Do the 1% just buy all the assets at some point?
I am not trying to make a statement about inequality but rather curious about the result of printing money for 70 years and having that money end up with relatively few parties each round. Perhaps someone with more knowledge can speak to this.
How retirement works on paper: you save the money by buying the market and get 20% more when you retire in 40 years. How retirement works in reality: younger people work to supply the old with food and medical care. The real transfer is happening now, while the financial transfer is happening over decades. I don't think this creates a healthy, sustainable dynamic.
Where did this number come from? At 4% compounding over 40 years, you will have at least 130% again over what you put in.
But yes, it would be more than 20%, though a lot less than 130%.
The shift in risk should be accompanied by changes to the portfolio mix, of course.
Sure, if you have sufficient income to be able to save up enough for retirement just as soon as you get a job, that works. But that's not the reality for the average person. Most people don't get a high-paying job straight out of school.
All of these other issues you raise have nothing to do with the financial illiteracy leading to the idea that you save for retirement just to get an incremental return rather than a multiple (or two, really, depending on timing) of what you put in. Perhaps if this were more well known, people would invest more at age 22.
tl;dr we’re talking about “on paper” here, investment works as advertised (In fact, much much better than the original poster believes it advertised). All of the things you bring up here are about scenarios that aren’t “on paper” any more.
This came at high costs: once a large enough part of the population buys houses at inflated prices with the expectation of their price further increasing, the government needs to protect them from housing crashes and depreciation to inflate the bubble further and further.
Now that pretty much everyone has their money invested in the stock market, I see the same thing happening in the US. The Fed needs to keep the interest rate artificially low and guarantee policies to keep the stock market up so that people don't lose money, but also making sociery overall worse.
People focus too much on stocks. The real question is about the real economy, about price stability and unemployment. Especially in case of the Fed ( https://www.chicagofed.org/research/dual-mandate/dual-mandat... , but of course other central banks are also tracking labor markets too, even if de jure it's not their target - https://ideas.repec.org/p/fip/fedbsp/70.html ).
And we can say whatever we like about how the rich get richer, our current economic system do responds to what central banks do. Cheap money (an oversupply of low and even lower interest rate debt) helps persuade people to buy/invest/order things. It helps finance stimulus bills, and so on.
The savings are "just" an indicator. Sure, when the savings crash, the economy crashes too, but the causality is backwards. If/when the economy crashes (when industries stop, when people stop buying, when businesses let people go) savings will also become "worthless", because after all they represent future income, and if the economy tanks its productivity (income) tanks too.
That's why to some degree I think asset-hoarding (S&P, real estate, cashflow-positive businesses etc.) is a good idea and actually my preferred plan, because I fundamentally don't trust the governments (they're all delusional with their long-term plans re: pension obligations, education, family planning & birth rates, immigration, ...), but at the same time I'm aware of the fact that while this strategy works individually (i.e. if I own more property, I'm better off than the next retiree), it doesn't quite work for the whole society. Pension as a social transfer really is the only way to go.
The recent $5 trillion injection from the Fed (buying bad debt/assets) and Treasury (stimulus/PPP) may simply show that we could afford universal healthcare and a bunch of other programs that cost $$$. Now is the time to spend that money and, at least it appears, avoid some long term costs. I'd argue the benefits of things like expanding education, investing in mental and physical health, and doing more to support our youth will have a much greater return than potential long term inflation or other issues from the $5 trillion.
I commented more on this last week here: https://news.ycombinator.com/item?id=23778819
Yes, this means wealthy people will get the same checks as the poor -- but that is a feature, not a bug. Sorry for the soapbox.
The classic economical laws are not broken, they are still in full effect and we see their effect in the inflated share prices.
[0]: https://www.federalreserve.gov/releases/h41/current/h41.htm
So who is buying equity (so stocks)? And one argument is, that "retail investors" are driving this. (So end users, the folks on the WallStreetBets subreddit, and whoever uses RobinHood, or anyone that puts money into a passive index fund: https://www.reddit.com/r/econmonitor/comments/hnohi6/us_equi... )
Also savings increased a lot, since people were not spending (they were staying at home), so where to put the money? They put it into index funds.
This is a dangerous trend. The rich (who tend to own those assets) get richer and and the poor (who rent/live paycheck to paycheck) get more and more desperate. If we don't find a way to reduce the inequality, this is going to mean serious trouble down the line.
Mainly just the west coast and that's because their cities are built in valleys with a fixed amount of land, restrictive zoning on said land causing a fixed amount of housing and thus the bidding up housing prices.
For the rest of the country, inflation adjusted price per square foot hasn't really changed [0].
> the stock market has been on an epic bull run. It's obvious that the inflation is in the asset prices.
Inflation adjusted Annualized S&P 500 Returns with Dividends Reinvested for the past 15 years are 6.738% versus 7.690% for the 15 years before that [1]. Albeit, if you just started in 2009, it has been quite epic considering it was the longest bull run in US history.
[0]: https://www.supermoney.com/inflation-adjusted-home-prices/
Numbers rising don’t equal values rising, the definition of inflation. It benefits borrowers as well.
So similarly there is probably some sense in trying to counteract low-interest-rate inflated asset bubbles via some kind of tax or other financial structure. (A progressive capital gains tax might help, but that might just make markets less efficient by introducing a chilling effect on the high end.)
In the end this is a purely political question, because obviously the problem is not that it's unfair that some very "desirable" assets price inflates, but that the majority of the population did not have the means to buy into it before the inflation happened to reap the capital gains.
There's already serious trouble due to inequality. (The recent protests about police brutality follow a long series of other symptoms that highlight how socioeconomic inequality manifests and persists on an ethnic level.)
The thing that makes a green piece of cloth valuable is the powerful government and the massive reserve bank behind it. If a dollar bill starts to look like an IOU from an entity that has no capacity to pay, it will be valued as such.
It's better to do QE than "wait out" a recession, or wait for Congress. (Plus QE keeps the national debt service costs down too.)
The asset bubbles are not the real signs of inequality. After all, if every US citizen would have some savings and some of that in passive index funds, no one would complain about this. The problem is that people have no money, no disposable income, no savings, no job security, etc.
But still, QE might be here to stay. It's hard to stay, I know very-very little about these things. (Even compared to - let's say - healthcare costs [see https://randomcriticalanalysis.com/ ].)
I was under the impression the last 40 years of US deficit spending has been mostly financed by selling US bonds to China, Japan, etc., while counting on growth and inflation to take the edge off when they come due. And selling more bonds instead of defaulting, so the debt just keeps growing. Printing money causes inflation but not deficits or lingering debt.
I don't know though, I'm not an expert. I would appreciate any corrections or clarifications from anyone.
https://www.khanacademy.org/economics-finance-domain/ap-macr...
"The Fed can indeed create money "out of thin air." To be more precise, it does so with keystrokes on a computer. This was illustrated with its QE program, also known as open market operations. That's when the Fed buys an asset from a financial institution and pays for it with money it simply creates."
they provide price stability (by keeping the money supply corresponding to the demand) and they try to maximize employment (by helping the economy through providing liquidity, every central bank is the "lender of last resort" but that's for emergencies, usually they operate simply by providing forward guidance and conducting open market operations to keep the interbank interest rate close to the target rate).
don't think of them like just a bank, it's more like the Mint, combined with an expert panel that tries to smooth out the fluctuations of the economy ( https://en.wikipedia.org/wiki/Real_business-cycle_theory )
Also, as long as they don't try to get clever - like the Bank of Japan did with strategic loans ("window guidance" back in the 80s).
Printing money to keep up with economic growth is also an important function of central banks.
Deficit spending is ultimately simply financed by paying off the debt in the future via taxes. (And the growing economy and the stable but low inflation helps with this.)
TINA
And who knows what will happen to that market once stimulus checks run out and lots of jobless people start getting evicted.
And then you need to worry about taxes, maintenance, and, if you want to be a landlord, all of those rule & regs.
Or you just drop it in QQQ and try not to think about it too much.
The implications of this seem mostly sociological to me. Is that a good state of affairs for the world? Could we use those people more productively?
The implications are not about the current stock market.
Amazon and Microsoft are pretty damn likely to keep growing in value for 10+ more years regardless of any coronavirus situation. That’s an amazing / dumbfounding situation. But it still would imply a rational longterm investors sees those stocks as being attractively priced right now.
Using what metric?
I can tell you that if you shut down 1/3 of the machine, you will see a 1/3 drop GDP.
If you're right about that we're into revolution territory. If COVID reveals that we've built an economy that not only doesn't care, but doesn't even register the existence of 1/3 of the population, the body politic may have had a poison dose.
Hmmm.... One of the things you mentioned though could drop in an instant.
A return of negative is worse than 0.
I suspect many are sitting on cash, waiting for the other shoe to drop (or, you know, the market).
Well, MOST people can't afford an unexpected $500 bill, so most people aren't sitting on cash. Nevertheless, I don't agree that most of the people who can afford an unexpected $500 bill are sitting on large cash sum either either. Personally I have 2/3 in the market, and 1/3 cash (for liquid assets, I also have equity in my home but I am not counting that).
I'm not average for an American (consumer or investor), but people like me exist.
The market is acting rationally. You have no choice but to go all in on the market or inflation protected assets or risk loosing everything to inflation in the coming decade.
https://coronavirus.jhu.edu/testing/international-comparison
Hospitalizations are still extremely problematic because there is permanent health harm. There is also a massive cost to being in the hospital for an American. COVID hospitalizations seem to take between 1-3+ weeks, which costs more than the net worth of the average American.
Also, the economic impact is severe and has yet to fully show itself. Lots of employees are still "employed" but indefinitely furloughed. They will show up as unemployed when their company finally falls into bankruptcy or takes decisive headcount steps. In September, the PPP strings for employment expire and there will be an employment rate cliff unless Congress acts. 20% of Americans are behind on their rent/mortgage and are worried about an eviction/foreclosure in the next 6 months. This is both bad for the obvious reason and because a consumer-driven economy shrinks quickly when consumers are more judicious about spending.
We still don't understand why deaths per case are dropping yet. Until we know the variables (perhaps the weakest already died off, perhaps the colder weather amplified the worst symptoms, etc) I don't think it's safe to assume the death rate will be monotonically decreasing.
My bet is we see deaths and disabilities skyrocket through the end of the year.
That'd be a pretty bad bet as far as bets go. Look at the trends that are _not_ affected by increased testing.
If you are right and that’s what Wall Streets is looking up to, they are in for the big surprise in the next two weeks.
* US TIPS are up about 7.5% YTD
* Aggregate bond funds (BND, SCHZ, etc.) are up 6-7%
* Intermediate-term bond funds (IEF, etc.) up > 11%
Meanwhile, the S&P 500 is at 6% YTD.
Bonds are sensitive to interest rates, but it seems nobody is expecting those to change this year.
Surely large investment funds aren't entirely in on US stocks alone and are diversified. So isn't one option to just move some money elsewhere? i.e out of the US market - to a place(s) deemed more stable or with better upside.
#1 Interest rates are as low as they have been in an extremely long time, people/institutions want higher returns so they are putting money into vehicles with higher returns(stocks).
#2 Given the Govt./Treasury has been printing money like crazy dealing with the pandemic, money in cash is not great, stocks offer better returns.
#3 Given sports are mostly shut down(primarily in the US) sports betters are putting money into stocks instead and betting there so to speak.
#4 People are using their stimulus checks extra unemployment money to invest in stocks.
All of these don't seem to jibe, and alot of these stocks seem similar to what as known as a 'melt-up' which precedes a meltdown, see 2000's tech and 2008 financial crisis. I hope that is not the case but Tesla jumping 10-14% a day doesn't seem healthy for the stock and the stock market in general and something very strange is going on.
It's called a short squeeze.
Really? I'd normally guess that people with high incomes are most likely to invest, and to qualify for a stimulus check you couldn't have a really high income, right? And if you're receiving unemployment, people at the higher end of the income range will be receiving less because of benefit caps and won't have "excess" income, right?
I've heard claims in the past that a large share of stock is held by the wealthiest minority (like the top 10% owning > 80% of stock or something, the top 1% owning ~50% etc). Can the people investing their stimulus or unemployment benefits really change prices that much?
source - https://www.cnbc.com/2020/05/21/many-americans-used-part-of-...
1. People are worried about their stock investments losing value due to the Covid economy.
2. Some people can't imagine putting their money in anything but stocks.
3. Ergo, there's a lot of demand for stocks that are familiar to casual investors and feel relatively safer from the effects of Covid.
* AMZN: huge swaths of new and existing are customers moving their shopping online. They stand to profit from this in the short and medium term at least, and I would wager that the change in shopping habits would result in a noticeable number of long term changes sticking.
* TSLA: a lot to unwind here, but it's a combination of their recent delivery numbers and large amounts of retail investor speculation. While I believe the stock was undervalued before, quarterly delivery numbers wouldn't fully explain such large jumps.
* AAPL: I'm at a loss on this one, but I also don't know a lot about it. With many folks not able to spend their discretionary income on bars/restaurants/travel/etc. I can see more of this money being channeled to iPhones.
And maybe games and other online content, juicing Apple's "services" revenue?
Don't forget about AWS. With a lot of people being stuck inside due to covid lockdowns, people watch more Netflix and use more online services in general. With AWS powering a gigantic chunk of the modern web, it is no surprise that they are doing so well right now.
(It was probably a mistake to come out with the Model 3, a sedan, before the Model Y, a crossover).
Maybe. But it seems Tesla has realized very significant production efficiencies on the Model Y contra the Model 3, and given the expected larger volume on the former, it's a big advantage that these design lessons were learned on a model that will carry less of their income.
Changing tooling and production processes for a product that already exists is a very painful strategic gambit. Remember that Tesla's pipeline is bigger than their current offerings; that kind of distraction wouldn't be healthy for their long-term growth.
Greater cash flow from Model Y due to design/manufacturing efficiencies might be a critical strategic advantage.
> #4 People are using their stimulus checks extra unemployment money to invest in stocks.
Retail investors aren't going to drive prices that much.
Just a few weeks ago we looked at oil futures going negative here on HN, and there were thousands of retail investors getting into that -- and the prices didn't budge.
#1 Interest rates are as low as they have been in an extremely long time, people/institutions want higher returns so they are putting money into vehicles with higher returns(stocks).
(I'm aware there are other premia I'm not including, but, simplistically)
Tesla are doing OK now, (kind of) breaking even, and making a decent number of cars. I think most would agree they're more solid now than ever before, and it seems like they're probably here to stay. But much more importantly we have to look at what they could be doing in 5-10 or 20 years.
Often people say Tesla isn't anything near the behemoth that is Toyota (true), and their stock shouldn't be higher than Toyota's. Toyota now make just under 9 million cars per year worldwide [1], exactly the same as they made in 2007.
In 2007 their share price was ~$75USD and now it's roughly similar. While they make a ton of cars and are profitable, they're not growing or really doing anything drastically different to almost 15 years ago. It's very likely in 10 or 15 more years they'll still be trundling along, doing the same things, making a similar number of cars. That's solid and good, and their stock price reflects that.
Tesla, on the other hand, are going all out for expansion. With the new factory going up in Germany, and one about to be announced in the USA for Cybertruck, it seems like they have no intention of slowing down, and plan to continue to grow extremely rapidly. In 10 years they may be making as many cars as Toyota is now. In 20 years they might be twice the size of Toyota (in terms of units produced).
Whether you believe they can pull that off or not is a matter of speculation that isn't worth getting into. That "guess the future" is exactly what we're seeing in the stock price. Toyota's stock price is not skyrocking because they're not doing anything radical, and aren't growing exponentially. On the other hand Tesla's stock price is skyrocketing, which we can read to mean a huge number of investors think they can pull off massive growth.
Of course time will tell, and in the mean time we can all gamble on what we think will happen.
(Note - I haven't even touched on Tesla's plans for self-driving, their "revolutionary" new battery chemistry, home storage, large scale storage or whatever else they're (maybe) cooking up. Also important is the inevitable extinction of the internal combustion engine. Those are heated topics of disagreement, but again, the fact the stoke price is climbing so fast shows people think Tesla have a very bright future)
[1] https://www.statista.com/statistics/267272/worldwide-vehicle...
Or what just park 20% of your portfolio in airlines and wait. Telsa is up 200% for no reason at all since crash. AAPL is up 27% YTD, because shutting down most of the planet somehow led to 27% growth.
Or we can look at it another way, since US printed ~25% of annual GDP in 'free money' and USD remains the primary method of exchange, we are all trading in dollars that are worth 25% less, so nothing has changed but a buffer to pad numbers on balance sheets until the wheels start turning. Something that was done too late in 2008.
And to disillusion people, its not that hard to pick stocks, and no the people at funds dont tend to be any better than you at their jobs. The industry is ran on finding and exploiting market inefficiencies, insider information, and hype. Watch MSNBC for a day and start guessing the days when DJI dips based on Covid coverage the day before.
Of course it is hard to value anything right now because coming up with a discount rate is fraught and you have government manipulation of the asset market as well.
I don't know if there are waaaay smarter and informed people than me that know something about TSLA's long-term growth prospects or it is just bing meme-ed into orbit.
Very strange times!
As an example, image that you shorted bitcoin half-way up its rise ... you would be broke! Possibly less than broke! On the other hand, you would have eventually been right, just the timing on a bubble stock (or possible meme stock, in this case) can make that sort of thing dangerous.
A short bet means unlimited downside, and if you arrive at 1/5 of the current market cap, there seems like a significant risk the market has seen something you haven't. Tesla was at $200 one year ago.
Guaranteed to be an irrational bubble?
Yes! This is maybe the most likely outcome!
However, to date I have not heard a good reason why Tesla should be valued higher the the other leading car companies combined. There is no moat for them. Anything they are doing, all of the other car companies can easily retool to do ... they don't because not everyone wants an electric car.
Established automakers are structurally incapable of competing, due to innovator's dilemma. BEVs will eventually get cheaper than fossil vehicles due to decreasing drivetrain cost (li-ion battery++), but this tech will not be a commodity for at least a decade after this point - requires billions of R&D. Means established automakers are under an existential threat they aren't facing. Their best shot at competing BEV models with inferior price/performance make this abundantly clear.
Production capacity of enough & the right batteries & motors requires both capital investment and R&D that won't materialize out of thin air just due to demand; existing manufacturers won't be able to source these at competitive price and performance. Development must be in-house at scale. Takes years, no one else is trying. Tens of billions investment. Capital is dirt cheap, so established industry's coffers does not protect them. Tesla now has 15 years lead on another startup trying the same.
Superior battery tech at such scale also has unquenchable demand from solar energy industry. As long as no one can compete on price & performance, margins are huge. Will eventually be a commodity, but that's two decades away. Might also be network effects at play here.
Must also consider fully-loaded cost of established industry -- meaning enterprise values that consider their debts & pension obligations, not just market cap.
Autonomous driving is an industry-defining strategic advantage. Autonomous driving means Uber is obsolete. It's like landing used rockets on a barge. Established industry won't be able to just lease this capability for less than their entire profit margin. Harder than making cars. Waymo approach makes centimeter-level manually curated maps of their entire area of operation; not scalable & not compatible with inclement weather. Computer vision necessary. No one but Tesla has a real-world fleet gathering data at scale any time soon. Might be a strategically critical advantage. But even if multiple autonomous approaches succeed at the same time, established automakers are over a barrel here.
Software is eating the world, established automakers don't have the culture for it. UX & software integration increasingly important both for a good driving experience & economics of maintaining a vehicle fleet. Recently saw VW slide bragging about how many lines of code they're making. It shows. Structurally incapable of competing there.
Coronavirus pandemic accelerates Tesla's advantage, as the entire established industry gets its profit margins crushed far into unprofitable territory.
Lots of misc. points: Dealer network doesn't like EVs due to lower maintenance costs, so established automakers have a sales problem there.
Charging network availability for long trips is an obvious UX problem that no one else is handling at scale. It's hard when you don't have batteries to even out load spikes; competitors without cheap multi-kWh batteries in their charging stations will get screwed by energy distributors and be prohibitively expensive. This is also abundantly clear from existing industry dynamics.
Etc.
But yes: Autopilot/autonomous driving, data collection & curating for this, OS controlling all actuators & sensors in the cars, car UX, OTA updates of this, management of fleet sensor data for health monitoring/preventive maintenance of common problems, custom software controlling manufacturing hardware and supply chain, charging station software (local & fleet level), software management of stationary battery systems, battery packs in cars, motors +++.
Doesn't compare to hooking up tenants to a desk space.
Genuinely interested.
With Tesla's massive monopoly on driver data (likely a prerequisite for level 5 automation) and head start in driverless tech overal there is absolutely a chance that TSLA puts all the aforementioned companies out of business.
I don't know how likely that is, but it's a hell of a lottery ticket regardless.
Found this: https://docs.google.com/spreadsheets/u/1/d/1HflVng6sYIb6Gs4p...
Not sure how accurate it is, but the rest of the industry is only worth 773 billion combined. Which means if you invest now at a market cap of 277b, you can only 3x your money on that lottery ticket.
Also, it's would pretty naive to think that governments would allow a single company to have such sort of monopoly like you describe.
The idea is that gathering this data may be a prerequisite to resolving the bajillions fringe-cases that are currently in the way of level 4 autonomy.
With all Toyota's data, you will have to buy a brand new car to get whatever improvements your data contributed to the system.
With Tesla, you get those improvements while you're asleep and maybe your car drives a bit better. For a tech-centric space where people are used to software improving overtime, Tesla will have an edge.
If amount of data collected and OTA are Tesla's big edge then there's even less chance they will dominate the market and put all their competitors out of business, because those advantages are going to go away over the next couple of years.
Tesla is--and has been for a while now--the largest market cap company that is not included in the S&P 500. To be considered for inclusion in the S&P, companies must show at least 4 consecutive quarters of profitability.
Tesla's next earnings release (which is in roughly two weeks) has the possibility of being that fourth consecutive quarter. S&P isn't then required to include them, but it seems likely they would. Once they did so, index funds and ETFs that benchmark to the S&P (which is the biggest single benchmark of such funds, by a lot) would then be forced to buy the stock (at whatever price it traded at the time) in proportion to its ranking in the index. At one point today, Tesla was top-10.
Clearly this is a bit of a conspiracy theory, but this type of behavior (bidding up shares in front of index inclusion) isn't that unusual. What is unusual is that Tesla has gotten so large prior to inclusion: stocks normally join in the 500s - 300s or so, and grow from there.
Does 500 - 300 represent the share price? If so, do most companies issue a similar number of shares before getting included in the S&P?
In most cases a company lifecycle is like, we launched a company, it's private for a few years, then it goes public. Either shortly before going public, but maybe a few years after, it becomes profitable. It then grows and grows etc, and joins the S&P by virtue of its size getting larger than the 500th-ranked firm already in the S&P ("size" here is market cap).
Tesla is different, because Tesla went public and was unprofitable, then got ~big and was still unprofitable, and now for (largely unknown) reasons would be, if it were included, the 10th largest company in the S&P, but is still unprofitable. They may cross that threshold later this month, but this process--joining the S&P at rank 10--is highly unusual.
Investors have only realized the credibility of the über Tesla bulls in the last year or so, taking the stock from 5 years of stagnation into a valuation that assigns a significant probability of this happening.
It could certainly run ahead of the ideal probability-weighted likelihood of success for a bit. Also, with the likely S&P500 inclusion triggering a float contraction due to $25 billion of index funds forcibly buying at any cost, a latent buying pressure from $20 billions of short interest and a ~$50 billion actively managed S&P-benchmarked active funds that might buy, a lot can happen in the next few months. The discount rate for "Tesla has a significant probability of being in the position of Apple in 10 years" is not obvious.
This is not some random bubble obviously fueled by braindead retail investors.
I suppose the difference is there is a real market under it all and retail traders aren't entirely driving this, but they're the ones left holding the bag when the curtain drops.
Many of my friends are posting the same things you state on their social media, and are making it clear they won't be left behind this time.
Not sure what all that means, but it's fascinating.
Money printer go brrr is funny, but it's not capable of propping up the entire market forever. There's a flight to safety that happens when countries really start printing.
Great for making the economy appear solvent, terrible for everything else.
Historically no one has been able to inflate assets, without inflating the real economy. If the Fed's QE approach is having this effect then even as a dollar spender you would want to hold assets above all else.
From a pure economics standpoint it's feasible to have a society where only some people can afford an asset, and everyone else pays a comparatively small fee to rent the asset roughly equivalent to their entire disposable income. This is a pretty terrible system overall where assets are allocated to those with money and ROI is bounded by the amount that can be. extracted from a servitude class.
The point of this example is that we should not constrain our economic concerns to simple hyper-inflation, as that can mislead us into thinking that as long as we aren't observing consumer price inflation we can print money indefinitely.
Nathan Tankus goes over this one facet quite well [1] which is that essentially landlords are going to burn themselves down trying to extract rent from tenants that will fundamentally be unable to pay due to the coronavirus. Once those people are forced out of their homes then we'll see the crisis hit full speed.
[1] https://nathantankus.substack.com/p/suspending-evictions-is-...
This is normally great for the dollar. Where else are you going to go? Switzerland has had a "negative rates, please go away" policy for a while now.
That is my argument: The stock market is going to tank and these meme stonks only go up are going to look chilling in retrospect.
For me, the real value in Bitcoin wasn't the small-dollars money I made in trading it for lunch money, but rather the exposure to the psychology of day-trading in a volatile market.
Unless your friends are playing the game with leverage, a short-term speculative play will only yield spectacular financial success if the government decides to print a spectacular amount of money.
If you can impart one idea to friends buying into this, or any, market, it might be this: "Don't play for more than you can afford to lose."
The problem is that these people are just gambling. Do you really think they have some insight into the market that thousands of Quants and Traders on Wall St. don't have? Go to Vegas, you will see plenty of people flashing cash around when they win on the Roulette table or hit a streak in Blackjack. Are these guys genius players or are they the inevitably of table odds?
With regular stocks, sure they might well be in a bubble but if you knowingly invest money in a bubble, you have to time the pop. If you bought bitcoin at $14k you made almost 50% in a few days but if you didn’t sell then, you’d have been underwater for years
If you sold on sentiment here you would always be selling, or just not buying.
Who do you want to be like? Choose wisely my friend but you’ll find that few people with publicly voiced opinions remain in the middle.
If you have a source that you think is a reliable source, please let me know!!!
My haircut guy went from renting to "owning" 2 homes.
Those were amazing times.
The Big Short scene: https://youtu.be/H-XINT-hL5I?t=60
Maybe if you want to bet on the interest getting negative and staying there forever, but then you're back at the same assumptions as if you invest in the stock market.
Tether would account for 7.8% of all Bitcoin.
Not sure if that would count as being propped up. It's significant but not entirely propped up, there is a ton of real money in there too.
If the tiny chunk goes, it all goes tumbling down?
stay far away from bitcoin.
If I create 100 billion FakeCoins and sell one to my grandmother for $10, suddenly FakeCoin has a 1 trillion dollar market cap. It doesn’t mean there’s anywhere near that much money actually in the market to support that valuation.
There is zero money "in there" market cap for a non-backed currency is meaningless value. No amount of bitcoin buying will ever put money "into" anything. The money goes to whoever sells its just a trade.
The us is still the world's reserve currency. If the us keeps circling the drain economically and financially and especially politically, we have so much power and raw capability to come back. The big problem is covid-19, where the world can leave us behind as we slowly kill ourselves off. Hmm, I'm almost convincing myself that even us $ could eventually not last. So, I'll just take one of those job offers on hacker news that says we'll get you a visa to come to Amsterdam?
You realize that the world economy is inexorably linked to the US right? If there was such a devastating crash what makes you think the Eurozone would be stable? The UK left the EU and France nearly did, a massive wave of unrest could easily break the union up and the euro would be worse off than the dollar.
Not sure this says what you think. Simple GDP growth math has India and China passing the US in a few decades so that's not even controversial. If you are suggesting some major calamity/collapse in the US that somehow doesn't impact the rest of the world, I would find that highly unlikely.
But I cannot help but see current market prices and see current for lease and boarded up building. I wonder if he was correct. I wonder if the advice he has given me is wrong?
I believe we are about 9months away from the greatest financial disaster of our times. We should be and should have looked at COVID-19 as a war and not as a pandemic and we as a nation should have encouraged others to do the same (as they have). We should have legally declared war on the virus, shut down the economy for three months, passed a massive stimulus, and gone back to business when the “war” was over.
Unfortunately we have weak politicians at every level and extremely divisive leadership at the top. The good news is that we are just as informed and can find truth like never before. The hard part is that the truth is hard to find especially when we have something as large as the stock market lie to us on a day to day basis.
Financial advisors exist for the people that are predisposed to appealing to authority, and also have no time for that trade.
They are nowhere near as specialized as like an oncologist who you would still want a second opinion from. Most programmers have the cognitive abilities to pass a financial advisor's licensing exam with one week of preparation.
Just for perspective.
If Covid-19 goes away overnight, I don't see the economy recovering and I think the Fed's actions have been catastrophic for the US dollar. They're literally hitching the country's solvency to the market to save it. Maybe it will work, sure, but were a bit in uncharted territory so I don't see where the confidence is coming from. And by doing this they have to be right; they're making it their hill to die on. If they're wrong, America will become a very different place.
Why 9 months? What would precipitate that?
Further, credit is tightening, so that, say, companies that have been using credit to stay alive (zombie companies) won't be able to anymore. Up until around 2003, zombie companies were no more than 2 or 3% of total companies, as you would expect. This grew to 5-6% in the 2008 crisis. But that crisis wasn't allowed to resolve naturally, so it's been continuing to grow, and now it's almost at 20% -- of all companies.* https://www.axios.com/zombie-companies-us-e2c8be18-6786-484e...
The economic contraction that we're just starting is going to set off a wave of defaults, and those defaults will beget more defaults.
But you're not alone thinking this. I'm deeply concerned at how many people think that the Fed can just "manage" this. I feel like I'm watching generational wealth falter and the spoiled children are reacting to the news with, "My dad will just put it on his card."
relatedly, i once applied as a network admin at Ed Jones. They didn't have their shit together when i showed up for the interview, and gave me the questions for the financial advisor interview instead. it was an automatic process, about 100 questions that were some variant of "how good or bad do you feel about asking your friends to buy financial products you don't understand well, and will you also please ask them to recommend you to their friends?"
i didn't get the job. and i fired the advisor.
Series 7, series 63, cfp, cfa, etc. when you get a job at fidelity you literally just go to class and study 8 hours a day for a few months.
Also you were asked sales rep questions, not actual advisor questions.
It's like how there are people at HR Block who will do your tax returns, and know a lot about the process -- but they're not a CPA, which has a formal requirement.
Similar to paramedics vs. doctors/surgeons, etc.
Global stock market indexes are at a P/E of ~20 - that means a yield/direct return on equity of 5%. This doesn't seem so unreasonable when there are no returns to be found anywhere else. The global economy is still making money, just not hand over fist. Assuming no further catastrophe and no permanent reduction in earnings, the stock market is still a good investment when looking at the returns you get from profitable companies every single day.
The risk premium is very low, yes. Rising returns in other places and an increase in the risk premium would cause a permanent loss when investing at these level, yes.
But you're getting a 5% return if you invest today, albeit exposed to a risk of this number falling. And what is the alternative? Let's say the P/E was at the historical average of 15. That's a yield of 6.5%. That seems unreasonably high to me when other investments yield zero, so of course market prices are going to be bid up until it falls to a more reasonable level. We should be happy that the global yield is still as high as 5%.
Either there will be a correction or a crash in the future, and things will return to normal, or this is just another indicator of a late post-industrial world where capital is very cheap. The third alternative is a global war and destruction of life and wealth on an absolutely tragic scale. That would put us back in known territory real fast.
I can easily imagine today's children hitting their twenties and complaining that the millennials pulled up the ladder, there is now nowhere to park their hard-earned money to make an investment income.
The millennials that currently invest a pittance compared to Boomers or even Gen-Xers?
Stock market became a casino.
https://www.theguardian.com/world/2020/jul/12/immunity-to-co...
If immunity is not long lasting, then the only path out is global eradication. We have done it before with smallpox.
Something very unusual is going on.
https://finance.yahoo.com/quote/TSLA/key-statistics?p=TSLA
Compare Tesla at 57.93% to Ford at 55.06%
https://www.ft.com/__origami/service/image/v2/images/raw/htt...
--- Rudyard Kipling, "The Gods Of The Copybook Headings"
The stock market would be down if you could put money in any government bonds that you thought would immediately start increasing spending or any stock or bond market that would do any better. Emerging markets are shaky with China destroying HK and corona running through cities everywhere in the world.
If you could even remotely tell me a safer place to get returns then I concede the point but I doubt you could
Philanthropy always has room.
I have no idea what the answer to this question is or even how to formulate it in a clear, answerable way. But it seems very important!
It seems that stock prices move, newspapers publish a narrative to explain it, but in many cases there is no way to tell whether the narrative is correct or not. Right now there is a narrative about Robinhood and other no-fee brokers, but is it true?
428k+ Robinhood users hold some position in TSLA: https://robintrack.net/symbol/TSLA
50%+ is held by institutions: https://www.nasdaq.com/market-activity/stocks/tsla/instituti...
People love hearing simple explanations to complex questions like "why did X price move" when in reality there is no such thing. The stock market is an incredibly complex interconnected system, with so many types of participants and algorithms optimizing for different outcomes over different time horizons.
Retail flow can certainly influence the market, but in my experience the influence is more indirect than direct, as algorithms may jump onto the retail order flow signals to profit from it, which may then create positive feedback loops. But who knows, the fact is that a lot of volume is being bought, and that's all you can conclude.
I'd go as far as saying that anyone who tries to connect the stock market with economic events doesn't understand a thing about trading. They're just not connected, except in a few special instruments. They're only connected in so far that people believe they are connected and invest based on that, just like Bitcoin is only worth what people believe it to be worth.
but I agree it does seem sort of unanswerable in general. very odd, then, to see people making these public assertions with total confidence.
I am curious: based on your experience, do you think that, in principle, an omniscient observer of all transactions on stock exchanges and who made them could answer questions like this in many cases? If so, what concrete things would they hypothetically want to look at to figure it out?
Not necessarily, because the order flow they see goes through brokers, is anonymized, and order execution is optimized algorithmically as to not reveal any patterns. You can't easily tell what is retail flow and what isn't, however you want to define that. What you would need is not just to exchange data, but also the internal user data from companies like robinhood, and an understanding of how exactly algorithms from hedge funds and HFT firms behave. In theory this would be possible if you had complete access to and a full understanding of all of this. In practice it's impossible.
https://www.project-syndicate.org/commentary/understanding-u...
Historically, the PE for the entire
U.S. stock market is about 15. But
today’s market PE of roughly 23 is
about 50 percent higher than the
historic average
The price of the companies divided by their past revenue? If so, which past? Last month, last quarter, last year?
The price of the company divided by future revenue? Then future revenue guessed by whom and for which time frame?
It's price divided by earnings.
For price, I believe it's the sum of the market capitalization of all the companies in the S&P 500. If you divide by shares outstanding for all the companies, then you get price of the S&P 500 (price).
For earnings, is the sum of all the companies earnings (Net Income) in the S&P 500. If you divide earnings by shares outstanding, then you get earnings per share (earnings).
"The PE ratio of the S&P 500 divides the index (current market price) by the reported earnings of the trailing twelve months."
So it's current total market value (add the market cap of all 500 companies in the index),
And divide by the total past 12 months earnings of the same 500 companies.
If that doesn't answer your question, please let me know.
So PE of 23 is probably based on projected "forward earnings" which isn't really that useful. The most common time period for both is 12 months and the projections are usually coming from a combination of guidance from each company and analysts at banks and investment companies. Obviously there's a large margin of error in these estimates.
If there is a "new normal" for the PE, the hard part is figuring out what it is. What is the new acceptable level? I have no idea.
With all of the stimulus into the economy, that flow of passive investment money is probably not too impaired, yet.
1. https://www.cnbc.com/2019/03/19/passive-investing-now-contro...
The optimistic is that the Fed is prepared to unleash the runaway inflation (you can keep the stock market records if you want... it’s just the dollars that will buy much less) — and the markets are currently busy of pricing it in. That’s fine... more or less.
The pessimistic scenario is that the current administration is determined to keep the stock market alive and kicking at all costs, whatever means necessary, until this November — and then it wouldn’t matter this much anymore. They think they have the resources for buyouts before November... however, the UK and Japanese governments somewhat famously failed to uphold the market in very similar scenarios, which ultimately led to decades of stagnation.
I wonder what it will be this time.
This is a given. Look at the push for schools to open in the fall. They're even talking about tax credits for attending sporting events and for traveling and staying in hotels. All kinds of craziness in the midst of a pandemic.
The market did correct for these fears and in doing so, dramatically overcorrected. Initial estimates were quite worse than the current situation, and unemployment is terrible - but has been recovering at a rate significantly greater than anyone expected.
That doesn't mean we won't see declines or corrections in the near market, as it's possible the market is too optimistic now - but short of a crystal ball, nobody can actually predict that.
when does "short term" become "long term"?
https://www.sba.gov/funding-programs/loans/coronavirus-relie...
"Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease."
Prices are high because investors expect things to be better in the future, even though things are bad right now. Maybe the investors are wrong, but at least they are thinking about the long term, or at least the intermediate term.
A more precise explanation than FOMO is that the stock market is simply a form of poker.
In poker, the cards themselves have zero value, they are simply a tool used to determine a winner.
While stocks may have some intrinsic value, it is commonly acknowledged that their value as assets is substantially lower than their stock market price. Moreover companies continue to buy their own stocks further reducing the value of stocks as assets.
Unlike the card game of poker, in stock market poker the players share the pot. This simple fact explains why there is a relentless pressure to increase the size of the pot.
In 2017 the richest 10% of Americans owned 84% of stocks. These are the major poker players. They have the resources to absorb major losses and then simply bid up the next hand.
Any small players (yes that means you and me) can easily lose their shirt in a down turn as we do not have reserve assets or other means (hedge funds) and are not able to participate in the next hand.
Many investment funds, pension funds and others fraudulently present stocks as assets and participation in the stock market as "investment".
It is the equivalent of asking that people invest in poker game by representing that the cards themselves have value. If participants in pension funds and retirement plans begin to recognize this fraud this may cause the stock market to collapse. However even this is unlikely. Poker games don't collapse, people just stop playing.
Just a thought.
This is not really relevant. Companies have larger market caps than their intrinsic assets because people trade on discounted cash flow.
> Any small players (yes that means you and me) can easily lose their shirt in a down turn as we do not have reserve assets or other means (hedge funds) and are not able to participate in the next hand.
1. There's no mechanism that forces you to "call" a bet in investing. It's not winner takes all. 2. Why can't you allocate your bond/equity split such that you do have reserve assets?
FOMO = Fear of Missing Out
There was an opinion expressed after '08 that the crisis was used by "elites" to conveniently get rid of (as in fire, mostly) a bunch of people that were, to them, superfluous. Like, that was long overdue and there was a good excuse to fire and not rehire a lot of people, decimating small towns, etc.
So, here comes COVID. Seems like a convenient excuse to get rid of the pesky "main street" businesses. Hence, the corner store is going out of business, but people still need stuff. Yes, the pie might get smaller, but more importantly it gets redistributed much more towards Amazons and Walmarts of the world (don't get me wrong, personally I am fine with Amazon and don't care about corner stores). Amazons and Walmarts are the ones being traded as stocks. Hence, stocks go up!
People are going to lose jobs, only some of which will be replaced by big companies (since they're inherently better at scaling people's work as well as automating jobs), so we're going to be stuck with a bunch of unemployment. Unemployment and the economic uncertainty that comes with it will cause a substantial drop in consumer discretionary spending, which I believe makes up like 70% of spending in the economy.
If you're Amazon, maybe that's fine because to your point, if the pie shrinks significantly but their share of it goes up enormously, they may still benefit even in the short term. But what about Apple, which is hitting new highs? People need to buy stuff, and since Amazon has everything, even if the type of stuff they're buying changes, they'll still go there. But they can (and I suspect very much will) put off buying new high end luxury devices like iPhones/iPads/Macs. Similarly, businesses that would be buying those devices will probably lengthen their upgrade cycles as well.
Same story with Facebook - stock is doing great, but small businesses represent a significant portion of their income. Plus a huge amount of the advertising is for consumer discretionary stuff, and it's a very easy kind of advertising to dial back quickly when marketing dollars go down.
The real tell will be 10/1/2020 an on-wards. That's when a lot of the governmental layoff-freezes disappear. We'll get a real sense of what industries have been seriously propped up.
Individual businesses are full of inefficiencies that are easy to tolerate when times are good. In many cases, it's often a net waste of time to plug most of them, you usually have higher ROI activities to attend to.
But when a crisis hits and the economy slows down, the equation has changed, many higher ROI activities (eg. marketing or sales activities) are no longer higher ROI, and plugging your many inefficiencies remains one of the few lucrative activities you can choose from. So the organization focuses inwards and starts looking for cost inefficiencies.
Put another way, you wouldn't tell someone who just lost their job that they're just using their loss of income as a convenient excuse to cancel their Hulu subscription that they rarely use.
You'd be foolish not to participate until reserve banks start signaling otherwise.
I would not be surprised if one hundred (random number) people were the one that decide what the market does. The controllers of the investment banks and the big funds are the real players, I suppose.
So, if that theory is right, and we want to know why the market is doing what is doing, we should look to those people. I don't know, maybe even ask them directly what are they thinking.
Edit-I also don’t think we’ve seen the full ramifications of the newly, long term unemployed begin to hit. Much of the current numbers assume people who were layed off for the shutdown are all coming back and paying their mortgages and other bills. Presumably there’s possibly a 3 month lag time due to earnings reports.
It doesn't make sense to analyse "the market" as a monolith--not that there was much of that in the article anyhow. Yes, there are winners, which has led to a net-postive macro trend but there are losers which have crashed as well.
The interesting question is what causes some companies to generate revenues while others fail.
I am worried if there is no caps in debt printing and freedom. You are not free if you are forever a life time in debt.
Somehow I feel there is a symbiosis between politicians winning elections on promises which central banks deliver by creating through new debt.
I am trying to say that we are at global warming and constantly creating more stuff is requiring more energy and we are already using too much of that.
Thus the economy and the environment are diverging. We probably cannot maintain status quo for too long.
Something better more sustainable will come after that.
Zero interest rates are not causing inflation through salaries increasing they flow to more automation and robotics. Automation lower cost of production and are thus deflational.
SP500 Equal Weigh Index is -11.64% YTD, -6.02% for 1 year.
It's only the top 20-50 companies that are doing fine.
1) More than a half of assets are now passive [0] 2) People with some money are bored at home and with no sports, they moved their betting to stocks [1] 3) Most trading is now hugely amplified by HFT [2]
[0] https://qz.com/1623418/index-funds-now-account-for-half-the-... [1] https://www.bloomberg.com/news/articles/2020-02-26/reddit-s-... [2] https://www.bundesbank.de/en/tasks/topics/high-frequency-tra...
I’m up 100% in one week, this is silly.
- ATM: At The Money
- ITM: In The Money
- QQQ: Invesco QQQ Trust
Suppose $TWTR is $49 a share, you buy a call for $50 and sell a call for $60. Suppose the $50 call is $3 that means you paid $3. Then you sell the $60 for suppose $1. So now you are out $2. That's your max loss.
Now tomorrow $TWTR goes to $35. Everything expires and you lose $2. Suppose it goes to $300. Then your profits are ($60-50)-$2=$8 Profits Suppose it went to $55. Suppose this is after expiry, then your contract is worth $5 but you paid $3 so you made $2 profit, but you also sold 1 contract, so now you have $3 profits.
So in essence, the spread limits your upside, further limits your downside while you are bullish.
The lower rung of the economy has no bearing on the stock market as that section doesn't contribute to it. Sectors like tech are entirely created by middle/above middle class individuals for those that are wealthier than them. The stock market is doing well because it has realized this fully. Some sectors like Airlines, retail etc are not doing well because they depend on the lower rung of the economy. I am not sure how this will change.
https://www.washingtonpost.com./opinions/the-stock-market-an...
When a major publication like this starts _promoting_ retail stock buying, that's when it's time to head for the lifeboats.
It's all a big scam. I worked for a an extremely large financial institution, and I worked directly for a Chief Investment Officer.
Kind of crazy it's socially acceptable for the finance world to slice & dice & profit off the life savings of an entire generation while transferring any risk taken back to taxpayers.
World in January != World today
But that's an overly simplistic view of the world. There have been winners and losers, namely tech in the winning camp and retail in the losing camp.
Our world is forever changed and the innovations and ideas that come about in the coming years to deal with this change will mostly come from tech and will be fascinating to watch
As evil as you may think interest rates are- without a price on the risk of loaning money- access to loans dry up and only the already wealthy will have access to capital.
Now the obvious and direct effect of this is that people will generally not loan their money. This is a good thing. The follow up is that they will invest their money in hopefully legitimate and moral ways.
Why would one be exploitative and the other not?
That's crazy though. There are plenty of reasons that a company might prefer to issue debt instead of selling more equity.
By issuing debt, especially when not in dire need, the borrower is enabling others to engage in said parasitic practices.
Hopefully it made people think about the current corrupt system we live in. They put band aids on the problems they have, without addressing the actual underlying causes, which means that things won't get solved.
And if the loan shark weren’t there providing his service, his clients would be strictly worse off. He’s not forcing them to borrow money—he’s offering, and they’re free to say no.
What kind of investor are you referring to that doesn't expect returns? Even "social impact" investors expect returns in reputation, or in buttressing the foundation on which their primary profit driven business is built.
Fixing them ahead of time is an attempt to quantify risk. It doesn't eliminate risk - loan defaults happen. The riskier a loan, the higher the interest rate. As long as the lendee has the option of refinancing with another institution (i.e. there is a competitive market for loans), usury shouldn't be an issue. Usury is an issue when the lendee has no other resort due to being persona-non-grata in the credit system (i.e. people whose only option is payday loans)
Without loans, there would be no way for people without extraordinary amounts of capital to purchase such basic items of modern life as a home or a car. What other mechanism do you suggest for those? Also, a lot of businesses are not public investment like technology firms, i.e. a neighborhood deli. If they have multiple investors, they are just partnerships, often with the partners in the same family. Loans are how such businesses find "investors".
I'd like a world where housing (in the right place), transportation, and costs of small enterprise startup were cheap and good enough for everyone to pursue without loans, but we aren't in that world yet. Maybe some technology advancement (modular homes, self driving buses, 3d printers) will help to reduce the cost of these things such that people won't need to make such large purchases, but that's still to be seen.
> What other mechanism do you suggest for those?
Pay in installments with 0% interest, for a reasonable period of time, not like we see today that even for auto loans they're giving them out to people who can't afford them over insane periods of time. This is a symptom of a corrupt underlying cause.
The hyper capitalistic economy today is built on consumerism. Pushing people to buy things they don't need. Once we eliminate easy debt, consumerism will go down, prices will stabilize, and producers will be forced to give out 0% interest loans if they want to sell (or people can buy in cash).
For small businesses, they can get investors to pitch in money in exchange for ownership of a specific percentage of the business. This way, the risk is carried by all parties, and both parties expect to either gain or lose, unlike with usurious loans.
You keep stating this, but you have not proven it.
Collateral.
"Eschew flamebait. Don't introduce flamewar topics unless you have something genuinely new to say. Avoid unrelated controversies and generic tangents."
We detached this subthread from https://news.ycombinator.com/item?id=23821546.