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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?

#201

Post by smileysteve »

catalogia wrote: post #98
cgb223 wrote: post #85

Earlier quoted context omitted.

> 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

Unless you think the bombs are going to fall, you'd be better off getting some sort of cabin than a bunker. Living underground has a lot of challenges; it's expensive to build down there and you'll constantly be fighting moisture and mold.

If you're only building a small "bunker", it's not that expensive to build down there. Just a backhoe, a few hours, 6 sides of concrete and a tin roof.

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

#202

Post by kazen44 »

Dumblydorr wrote: post #38

How about because big companies are propped up by the government and would always get bailed out? The economy is stacked towards big players, who have power to lobby and get favorable regulations. Therefore, good times or bad, big companies will get paid by Uncle Sam or by all of us, or both.

also known as privatize the profits, socialize the losses.

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

#203

Post by kube-system »

fzeroracer wrote: post #150
clomond wrote: post #132

Because a company’s stock price is in theory what the market expects is the sum of the total future discounted cash flows that unit of “equity” generates. [1] This means that fundamentally, stocks are forward looking several decades and beyond. The economy right now might be bad but if the expectation is that there is a slow and long recovery lasting 2 years, if a company is expected to be operational, profitable and…

Doesn't this argument mean that the stock market should in theory be recession proof? If stocks are looking forward several decades, then it should be factoring in the recovery from any recession we face. Which as we've seen during various recessions doesn't seem to hold true.

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

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

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

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

#204

Post by kitotik »

mobilefriendly wrote: post #91
kitotik wrote: post #62

Earlier quoted context omitted.

Because many Americans can’t even pay their current bills or save literally a single dollar. So fractional shares are irrelevant unless they are free.

There's a gap between those folks, though, and the median household which earns $63,000 a year but has almost no savings or stock holdings. The median household wealth is $100,000 and that's almost all housing.

Sorry I’m not sure I understand the point you are making.

Most models have the numbers of Americans living in poverty or lower class as above 50% of the US population.

It’s unlikely if even what they term “lower-middle class” owns real estate.

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

#205

Post by lotsofpulp »

JKCalhoun wrote: post #128
bb2018 wrote: post #13

Earlier quoted context omitted.

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.

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

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

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

#206

Post by melbourne_mat »

paulpauper wrote: post #183

An increasingly large % of the economy is concentrated in a handful of highly profitable, efficient tech companies and multinationals such as Walmart, Microsoft, Amazon, Google, and Facebook. Stimulus $ is pure bottom line growth for these huge companies as smaller businesses close. Also, huge growth in business to business commerce, bypassing consumer spending altogether. Facebook and Google selling ad space to othe…

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

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

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

#207

Post by jdkee »

paulpauper wrote: post #183

An increasingly large % of the economy is concentrated in a handful of highly profitable, efficient tech companies and multinationals such as Walmart, Microsoft, Amazon, Google, and Facebook. Stimulus $ is pure bottom line growth for these huge companies as smaller businesses close. Also, huge growth in business to business commerce, bypassing consumer spending altogether. Facebook and Google selling ad space to othe…

To OP:

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

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

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

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

#208

Post by chockablock »

grecy wrote: post #94
Hydraulix989 wrote: post #50

Earlier quoted context omitted.

Why are stocks inaccessible to so many Americans? There are fractional shares, and you do not have to be an accredited investor.

37% of Americans struggle with hunger [1] and 57% of Americans have less than $1000 in savings. [2] Would you be buying stocks if you didn't have enough to eat? [1] https://www.feedingamerica.org/hunger-in-america/facts [2] https://finance.yahoo.com/news/58-americans-less-1-000-09000... EDIT: Apologies, first should be 37 million Americans (NOT 37%)

Your link [1] says 37 million Americans, which is 11%, not 37%. (Still a shocking #!)

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

#209

Post by jjoonathan »

xondono wrote: post #153
jjoonathan wrote: post #117

Earlier quoted context omitted.

Yes. I'm sure plenty of Theranos / WeWork style opportunities will emerge to pick up the slack. It's a fundamental problem of capitalism: the market's notion of "value" is weighted by wealth, without growth to stir things up wealth concentrates, and those looking to create value are increasingly forced to search for marginal "rich people problems" rather than tackle obvious "poor people problems." You wind up in a pa…

Exactly, you get rich by doing what the rich want, not what most people want, that’s why Lamborghini owns Volkswagen! Wait..

Serving the middle class is an excellent strategy precisely to the extent that the middle class has money.

Serving the middle class was an excellent strategy precisely to the extent that the middle class had money.

Serving the middle class will be an excellent strategy precisely to the extent that the middle class will have money.

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

#210

Post by crazygringo »

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, so as time passes, removing their stock price from the price at IPO, their stock price becomes based on perception--not even perception of the reality of the company's value, but perception of the stock's value, which is increasingly just speculation.

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

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

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

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

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

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