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

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

#101

Post by DesiLurker »

MattGaiser wrote: post #56
cft wrote: post #12

This is the inflation that everyone is afraid of. Since the money has been mostly injected from the top of the society, it has been confined to the asset bubble. If this money filters through to the bottom or there's significant injection directly to the bottom (SBA payment protection, $1200 direct assistance, basic income, etc) then we will see consumer inflation as well

We are still waiting for the surge of inflation you inflation hawks complained about in 2008 when this was all last done... https://www.usinflationcalculator.com/inflation/current-infl...

wasn't that injection more like a loan that was paid back? IIRC we actually made a tiny profit on it. but this time they are just given it away or some terms that amount to it. so eventually there is a bigger chance of it. but then BOJ has been purchasing stocks for what a decade now and japan still does not has that level of inflation.

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

#102

Post by war1025 »

ethbro wrote: post #60
nkurz wrote: post #2

https://archive.is/cmMx5 It's a decent article. Here are their 5 reasons: 1. Bets on a “V-Shaped” Recovery 2. Market Leaders Keep Rising 3. Corporate-Earnings Expectations Remain High 4. Old Habits Die Hard 5. The Fed’s Backing Personally, I'm betting we're still headed to a bloodbath, but slowly. This quarter's earnings are expected to be terrible, so this is already priced in. But the market is expecting a recovery…

My $0.02, we're going to see bifurcation that the market hasn't fully priced in. Not a good time to be in broad ETFs. Highly likely: Coronavirus is going to be circulating until the end of 2021 (based on transmissibility & vaccine timeline). We'll have better therapeutics to blunt the symptoms. But steps required to (intermittently) re-suppress transmission (NYC is ~20% exposed? So at minimum 1-2 more spike repeats)…

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

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

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

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

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

#103

Post by changchuming »

MattGaiser wrote: post #56
cft wrote: post #12

This is the inflation that everyone is afraid of. Since the money has been mostly injected from the top of the society, it has been confined to the asset bubble. If this money filters through to the bottom or there's significant injection directly to the bottom (SBA payment protection, $1200 direct assistance, basic income, etc) then we will see consumer inflation as well

We are still waiting for the surge of inflation you inflation hawks complained about in 2008 when this was all last done... https://www.usinflationcalculator.com/inflation/current-infl...

He did specifically say asset bubble. And look at how much the stock market has grown since 2008. It has outpaced CPI by a huge margin.

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

#104

Post by 7952 »

cgb223 wrote: post #85
xtiansimon wrote: post #69

Earlier quoted context omitted.

> Faith in humanity: buy stocks. No faith in humanity: buy gold. Speaking to a friend who bought stocks recently, they said, "I'm bullish on America." I might say if you are the opposite of bullish, then buy gold. And if you have no faith in humanity, buy a survivalist bunker.

> And if you have no faith in humanity, buy a survivalist bunker. What’s the rent on a bunker these days? If it’s cheaper than an apartment in SF I might go in on it

The best thing you can do is make friends with your neighbors. Surviving disasters is a team activity.

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

#105

Post by changchuming »

formercoder wrote: post #24
jhallenworld wrote: post #20

Earlier quoted context omitted.

There is much bigger risk of deflation during a depression. Do you really think there will be wage inflation when there is 20% unemployment?

Exactly this is why I don’t understand the folks who think inflation is a purely monetary phenomenon. With demand shocks like this how can we not have deflation?

Wall Street and main street are two different markets. OP specifically said we'll see consumer price inflation only if money trickles down to consumers, which is evidently not the case. Asset prices has gone to the moon however since 2008.

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

#106

Post by drtillberg »

MattGaiser wrote: post #52

1. The economy is not that bad for many companies in the stock market. Why would Proctor and Gamble be that negatively impacted during this? It lost 20% of its value though. Same with a stock I hold. It was slaughtered for being an airline stock, but it mostly does flights to remote communities, which are a government-funded necessity so they can eat and have medical care. P&G should not have meaningfully fallen and…

If insurers or sovereign wealth funds or newly unemployed need to raise cash by selling stock then ... naturally stocks like P&G should fall with the rest of the market ... because market action is determined in all but the long run by buyers and sellers, less so the companies that issued the stock originally (unless the company is buying or selling)

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

#107

Post by chiefalchemist »

TAForObvReasons wrote: post #36
chiefalchemist wrote: post #30

Earlier quoted context omitted.

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

The problem is perception. Stocks are increasingly seen as a risk-free play, backstopped by a Fed that will take drastic action if prices fall. In that world, why bother innovating? Why bother investing in innovation when the risk-free play has a huge positive expected return?

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

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

#108

Post by steveeq1 »

notabee wrote: post #79
Dumblydorr wrote: post #44

Earlier quoted context omitted.

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

At the current death rate, we're on track to reach 200k dead by early July. And that's only the deaths that are being counted. There is a substantial increase in overall mortality beyond the year to year average, beyond the confirmed Covid deaths. Considering that this disease is causing pulmonary embolisms, strokes, heart attacks, and other manifestations of out of control clotting even in healthy young people, we m…

There are considerable financial incentives to "fudge the numbers" regarding corona. It's to the point where if someone has a stroke, and he has corona, it will be counted as a "corona death".

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

#109

Post by Ididntdothis »

fallingfrog wrote: post #78

This quote from Jeffrey Sachs might offer some context: “Look, I meet a lot of those people on Wall Street on a regular basis right now... I know them. These are the people I have lunch with. And I am going to put it very bluntly: I regard the moral environment as pathological. [these people] have no responsibility to pay taxes; they have no responsibility to their clients; they have no responsibility to counter part…

They also pay big bucks to ex politicians to give speeches and some politicians and regulators get big money jobs there after leaving office .

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

#110

Post by grey-area »

toohotatopic wrote: post #14
nkurz wrote: post #2

https://archive.is/cmMx5 It's a decent article. Here are their 5 reasons: 1. Bets on a “V-Shaped” Recovery 2. Market Leaders Keep Rising 3. Corporate-Earnings Expectations Remain High 4. Old Habits Die Hard 5. The Fed’s Backing Personally, I'm betting we're still headed to a bloodbath, but slowly. This quarter's earnings are expected to be terrible, so this is already priced in. But the market is expecting a recovery…

Even if there is a second wave, there will be a time after Corona eventually. There won't be any new players by then so the market shares will almost be unchanged. Stock prices are discounted future profits for about 15 to 20 years. Those profits are still there when Corona is over. From that perspective, why should share prices fall by more than 5-10% for every year that Corona is locking down the economy? *edit: If…

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

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

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