U.S. Economy Shrinks at 4.8% Pace, Signaling Start of Recession • Hacker News Board

Re: U.S. Economy Shrinks at 4.8% Pace, Signaling Start of Recession

#241

Post by usaar333 » Wed, Apr 29, 2020, 3:09 PM UTC

ISL wrote: post #27

iambateman wrote: post #4

I understand that the economy and the market are different but I'm so confused. The S&P is up ~12% this month, despite massive unemployment, a shrinking economy, and serious long-term questions about the outlook. Is most of the 12% just market speculation that the virus issue will pass without a long-term earnings hit?

It is a bet on the continued support of the market by the Fed. If you're interested in preserving purchasing power 15 years from now, would you rather hold dollars or things today? As a value investor, all of my theses were blown out of the water by the unprecedented Fed intervention. It is an environment in which the fundamentals are uncertain. I'm standing pat and waiting for things to make sense before moving agai…

> The trailing (!) S&P P/E is greater than 20 right now. The Fed is supporting prices above their historical mean/median of 15. It makes zero sense, from a financial standpoint, unless the market is pricing in substantial inflation.

No, it's just pricing in low returns across all asset classes (to simplify, low interest rates) - assets are priced by excess returns not absolute.

There's nothing unreasonable about a P/E over historical norms if you think interest rates will continue to stay well below historical norms.

Re: U.S. Economy Shrinks at 4.8% Pace, Signaling Start of Recession

#242

Post by bhupy » Wed, Apr 29, 2020, 3:09 PM UTC

cm2187 wrote: post #164

hn_throwaway_99 wrote: post #17

Earlier quoted context omitted.

3 things: 1. People keep saying about the market being up recently, but skip the part about it still being down about 10% since the start of the year. 2. S&P is heavily weighted towards the strongest companies. Amazon, Apple, Facebook, Microsoft and Google account for 20% of S&P market cap. Most of those companies have been helped by the pandemic, or at least not hurt nearly as bad as smaller companies. 3. The market…

The S&P is where it was in October last year, there, it just erased the massive gain in Q1 this year. No serious recession is priced in really. And the only thing that can explain where the stocks are now is that the Fed has pushed 2 trillions of liquidity into the market in matter of weeks, which is just unprecendented (the previous QE were much more gradual) and that lifted all asset classes. But at one point stock…

> No serious recession is priced in really.

That's not entirely true, the composition of the S&P500 has pretty dramatically changed in the last few months[1].

If you look at the linked chart most sectors are down — energy is -50%, consumer discretionary is -27%, financials are -22%. However, a few sectors are up — healthcare is +5%, consumer staples +6.5%, information technology is +8.5%.

So with shelter-in-place and quarantine, it makes sense that the world's demand for oil and travel is at all time lows, and the stock prices reflect this. Instead, the demand is now almost entirely online, on the internet. Nearly every IT sector company is surging.

Even real-estate is down, as expected (fewer moves happening, less commercial leasing), but it appears to have a high variance[2]. Why is that? There are actually a few real estate companies on the S&P that are doing really well: $SBAC (operates wireless infrastructure), $EQIX (specializes in datacenters), $AMT (wireless and broadcast communications infrastructure), and $CCI (shared communications infrastructure).

So, many sectors of the economy are down, as are most companies. The current pandemic has pushed more capital to businesses which operate online. So the reason why the market cap of the S&P500 hasn't changed dramatically is because the distribution of the money underlying it has. The S&P500 is a capitalization-weighted index.

> But at one point stock prices will need to get back in line with earnings. I don't really hear anyone talking about v-shaped recovery anymore.

This week a lot of tech companies are reporting their earnings. Alphabet announced a 13% increase in revenue. If other tech, communication infrastructure, consumer staples, and personal health companies report similar earnings, then this whole thesis will be validated: the S&P500's current market value can largely be attributed to a flight-to-quality, where the "quality" is pandemic-proof stocks.

[1] https://imgur.com/a/6ZOCbBI

[2] https://imgur.com/a/JF3u463

Re: U.S. Economy Shrinks at 4.8% Pace, Signaling Start of Recession

#243

Post by bamboozled » Wed, Apr 29, 2020, 3:10 PM UTC

lmilcin wrote: post #34

Nah, it signals exactly nothing. If there was no Coronavirus, then maybe. With Coronavirus it is just as likely that the economy is going to rebound once the worst of the virus passes. People stopped buying stuff but rest assured, they will make up for it when they finally can.

When and how does the Coronavirus end ? There is almost zero true end insight ?

Re: U.S. Economy Shrinks at 4.8% Pace, Signaling Start of Recession

#244

Post by usaar333 » Wed, Apr 29, 2020, 3:10 PM UTC

nutjob2 wrote: post #65

iambateman wrote: post #4

I understand that the economy and the market are different but I'm so confused. The S&P is up ~12% this month, despite massive unemployment, a shrinking economy, and serious long-term questions about the outlook. Is most of the 12% just market speculation that the virus issue will pass without a long-term earnings hit?

It's a bear rally. This is the most optimistic market participants (bulls) buying at low prices and creating momentum that others follow. Waiting for them at higher prices are the pessimists (bears) ready to sell into the rally. Since there really hasn't been a capitulation, where everyone who would ever sell actually sold, it's likely the bears are still in control. I think some people are mistaking the extreme vola…

> It's a bear rally.

People were saying that when the market jumped back above 2250. It's improbable we'll get that low again.

Re: U.S. Economy Shrinks at 4.8% Pace, Signaling Start of Recession

#245

Post by 93po » Wed, Apr 29, 2020, 3:10 PM UTC

buboard wrote: post #204

nimbius wrote: post #98

This is anecdotal and it might come across as bitter and tonedeaf as someone who is not in a STEM job and cant see the bigger picture very well. Im a diesel engine tech who repairs those big trucks carrying food and shit tickets to grocery stores. the fact that ANY market is completely detached from whats actually happening to Americans is frustrating. My job just cut benefits and hours but we're "essential." Remembe…

So, how is it that people employed in essential businesses have not become rich in this pandemic? After all they are in high, crucial demand and could/should command better wages than programmers at this time. Sure, some of those raises would increase the price of goods, but that would be offset by hefty UBI checks to everyone. How is it that people who endanger their lives working in supermarkets don't get raises, b…

Because they can be easily replaced by the 26 million newly unemployed and have no union.

Re: U.S. Economy Shrinks at 4.8% Pace, Signaling Start of Recession

#246

Post by klmadfejno » Wed, Apr 29, 2020, 3:11 PM UTC

lbeltrame wrote: post #219

klmadfejno wrote: post #181

Earlier quoted context omitted.

> If everyone goes back to normal too early, this all just starts over, and folks are forced to be inside even longer, there's just no way around it. This whole thing just starts over if we EVER go back to normal unless a vaccine is invented. Herd immunity is impossible to achieve during an effective lockdown. It's not like we're any closer to being able to safely resume activities than one month ago. A highly infect…

> This whole thing just starts over if we EVER go back to normal unless a vaccine is invented. We can get to normal faster if effective pharmacological treatments come out from the ongoing trials. If we can treat it, or at least prevent it from being severe, it is not a problem of public health anymore.

Technically true, just as hopeless for any practical time scale. The economic problems of being on lockdown will compound over time. We cannot wait until we have treatments or a vaccine.

Re: U.S. Economy Shrinks at 4.8% Pace, Signaling Start of Recession

#247

Post by mrb » Wed, Apr 29, 2020, 3:11 PM UTC

klmadfejno wrote: post #169

Filligree wrote: post #149

Earlier quoted context omitted.

80-90% of people who catch this disease would survive without treatment. If America won't support people who might die of starvation when stuck at home, then the individually smartest response becomes to take their chance with the virus. I don't need to explain what a 10-20% death rate would do to society, however.

> I don't need to explain what a 10-20% death rate would do to society, however. Not much if 80% of them are very old and sick.

If 20% die but 8 out of 10 are very old and sick, then globally 4% die who are healthy or not very old.

4% of an (healthy not very old) population dying still means overall the economy would contract by 4% (because product/service demand is down 4%), which would still be the greatest recession in the last 8 decades.

Your comment ("not much") is thus completely false.

Re: U.S. Economy Shrinks at 4.8% Pace, Signaling Start of Recession

#248

Post by OldHand2018 » Wed, Apr 29, 2020, 3:11 PM UTC

nimbius wrote: post #98

This is anecdotal and it might come across as bitter and tonedeaf as someone who is not in a STEM job and cant see the bigger picture very well. Im a diesel engine tech who repairs those big trucks carrying food and shit tickets to grocery stores. the fact that ANY market is completely detached from whats actually happening to Americans is frustrating. My job just cut benefits and hours but we're "essential." Remembe…

> Lenders and banks were supposed to start going easy on loans but ive had two emails and a phone call about the loan for my Silverado this month and wouldnt you know, the caller was excited to mention my stimulus check.

Don't settle for this. My niece had her car repossessed 3 weeks ago. They said for $18k cash she could have it. We told them to pound sand. She's borrowing cars and getting rides, but next week she'll have a decent car, and I'm going to record a lien on it with the county so nobody can take it if things get worse and she has to declare bankruptcy.

Make them an offer: for $1000 cash, you'll park it in the driveway, unlocked, with the keys in the visor on any day they want to schedule. You're going to buy it back at the auction for 1/3 of what you owe. Or they can work with you, politely. If they take your car, they're just as screwed as you - possibly more so. The used car market is a bloodbath and they all know it's going to be far, far worse in 6 months.

The rich get richer because they know how to take advantage of situations like this. As a diesel tech, you almost certainly have the knowledge to nurse an old beater along and take advantage of your lenders weakness. Please do it.

Re: U.S. Economy Shrinks at 4.8% Pace, Signaling Start of Recession

#249

Post by matthewdgreen » Wed, Apr 29, 2020, 3:12 PM UTC

GhostVII wrote: post #15

iambateman wrote: post #4

I understand that the economy and the market are different but I'm so confused. The S&P is up ~12% this month, despite massive unemployment, a shrinking economy, and serious long-term questions about the outlook. Is most of the 12% just market speculation that the virus issue will pass without a long-term earnings hit?

The S&P crashed 35% before going up again, and is still significantly lower than it's high a few months ago. So I think it is more that the virus is not as bad as we thought a month ago (which seems to be true - projections in the US and Canada have gotten significantly better over the last month). The market does not go up or down when we get bad or good news, it goes up or down when we get news that is better or wo…

The virus's effect on the US economy is significantly worse than it was estimated to be a month ago. Back then the thought was that we'd be fully operational in a few weeks. Now there's increasing evidence that we may be economically degraded for months or years.

Re: U.S. Economy Shrinks at 4.8% Pace, Signaling Start of Recession

#250

Post by notfromhere » Wed, Apr 29, 2020, 3:12 PM UTC

School-Cotton wrote: post #160

res0nat0r wrote: post #120

Earlier quoted context omitted.

I understand their thinking because not working is causing a massive amount of collateral damage, but the virus doesn't care about any of that. If everyone goes back to normal too early, this all just starts over, and folks are forced to be inside even longer, there's just no way around it.

This is wrong. We are not forced to be inside because of the virus. It would have been totally possible to have this pandemic going on with zero lockdowns, which would have probably led to worse health effects, and less-bad economic effects. It's a pet peeve of mine when people claim that we must lock down or that the virus is forcing us to do this or that, as opposed to it being a political choice based on tradeoffs…

It’s a false choice between the economy and people’s lives. The problem is that while labor economy was shut down, the financial system was not, so that rents and debts had to flow out of people that could not generate income, and the government has been ignoring the issue with nominal support.

Not freezing debts/rents across the entire economy is how this whole thing spins into a depression