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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?

#121

Post by mrep »

changchuming wrote: post #103
MattGaiser wrote: post #56

Earlier quoted context omitted.

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.

Annualized S&P 500 Return with Dividends Reinvested from april 2008 to april 2020 are 8.285% [0] which is entirely in line with historical returns [1]. How is that an asset bubble?

[0]: https://dqydj.com/sp-500-return-calculator/

[1]: https://en.wikipedia.org/wiki/S%26P_500_Index#Performance

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

#122

Post by tayo42 »

kerkeslager wrote: post #99

Because the stock market doesn't represent the economy as most people experience the economy. First, a lot of companies don't pay out dividends or buy back stock these days, so as time passes, removing their stock price from the price at IPO, their stock price becomes based on perception--not even perception of the reality of the company's value, but perception of the stock's value, which is increasingly just specula…

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

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

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

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

#123

Post by loufe »

kerkeslager wrote: post #99

Because the stock market doesn't represent the economy as most people experience the economy. First, a lot of companies don't pay out dividends or buy back stock these days, so as time passes, removing their stock price from the price at IPO, their stock price becomes based on perception--not even perception of the reality of the company's value, but perception of the stock's value, which is increasingly just specula…

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

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

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

#124

Post by thaumasiotes »

magicsmoke wrote: post #9

> And as has often been the case in recent years, investors find themselves faced with few attractive alternatives if they opt out of betting on stocks. The problem is so familiar it has its own acronym: TINA, or There Is No Alternative to stocks. Cash: Gets eaten away by inflation. Although the CPI doesn't indicate high inflation it only measures consumer goods. Inflation is there in the price of investments. If you…

> The problem is so familiar it has its own acronym: TINA, or There Is No Alternative to stocks.

> the price of real estate is propped up by similar logic.

This is where the idea falls apart. They can't both be propped up by the fact that there's nothing else around. They're two different things.

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

#125

Post by chrispeel »

vadym909 wrote: post #31
magicsmoke wrote: post #9

> And as has often been the case in recent years, investors find themselves faced with few attractive alternatives if they opt out of betting on stocks. The problem is so familiar it has its own acronym: TINA, or There Is No Alternative to stocks. Cash: Gets eaten away by inflation. Although the CPI doesn't indicate high inflation it only measures consumer goods. Inflation is there in the price of investments. If you…

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

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

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

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

#126

Post by cft »

tayo42 wrote: post #122
kerkeslager wrote: post #99

Because the stock market doesn't represent the economy as most people experience the economy. First, a lot of companies don't pay out dividends or buy back stock these days, so as time passes, removing their stock price from the price at IPO, their stock price becomes based on perception--not even perception of the reality of the company's value, but perception of the stock's value, which is increasingly just specula…

> a lot of companies don't pay out dividends or buy back stock these days, so as time passes, removing their stock price from the price at IPO, their stock price becomes based on perception ignorant question, if true, how is this not the worlds biggest ponzi scheme? Are we just betting on the possibility of dividends in the future? It just seems illogical. The fraction of meaningless ownership as a shareholder can't…

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

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

#127

Post by fiachamp »

kerkeslager wrote: post #99

Because the stock market doesn't represent the economy as most people experience the economy. First, a lot of companies don't pay out dividends or buy back stock these days, so as time passes, removing their stock price from the price at IPO, their stock price becomes based on perception--not even perception of the reality of the company's value, but perception of the stock's value, which is increasingly just specula…

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

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

#128

Post by JKCalhoun »

bb2018 wrote: post #13
magicsmoke wrote: post #9

> And as has often been the case in recent years, investors find themselves faced with few attractive alternatives if they opt out of betting on stocks. The problem is so familiar it has its own acronym: TINA, or There Is No Alternative to stocks. Cash: Gets eaten away by inflation. Although the CPI doesn't indicate high inflation it only measures consumer goods. Inflation is there in the price of investments. If you…

I agree. Also, I know it is hip to say that Wall Street is short-sighted, but in reality it is one of the the few fields where people routinely think decades at a time. If you run a large pension fund or investment account you were already risk-weighted and if the cash isn't needed for 10+ years you'd much rather own a slice of the world's largest companies ten years from now instead of gold or cash under a mattress.

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

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

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

#129

Post by dasudasu »

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…

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

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

#130

Post by bavell »

war1025 wrote: post #102
ethbro wrote: post #60

Earlier quoted context omitted.

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 probabilit…

Very insightful, hadn't considered that!

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

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