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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?

#251

Post by kelnos »

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…

Corporate bonds are... interesting... now. I've been looking at airline bonds that mature in the next 6 to 18 months. Quite a few of them have yields-to-maturity north of 7%. I figure airline bonds aren't super risky (at least for the majors in the US), since the US gov't will prop them up until the end of time. Some of these aren't rated investment-grade anymore, but I don't particularly trust the ratings to be all that useful at this time.

Airline stocks probably have a bigger upside, but they're quite a bit riskier. Bondholders do get priority in a bankruptcy, if it comes to that (though I'd doubt it).

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

#252

Post by ergocoder »

I notice that modern companies don't pay dividend anymore.

They optimize for growth and survival, which makes sense.

Google and Apple have so much cash that they wouldn't really need to make money for years, and they would still survive.

Paying dividend is kinda okay, at best. Buying back stock is a bit better. The best is to just keep th cash.

Don't get me wrong. As a shareholder, I like it. But it's bad for the company.

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

#253

Post by DSingularity »

lotsofpulp wrote: post #205
JKCalhoun wrote: post #128

Earlier quoted context omitted.

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…

Oh how splendid.

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

#254

Post by hannasanarion »

chiefalchemist wrote: post #107
TAForObvReasons wrote: post #36

Earlier quoted context omitted.

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.

But they are now, and that's what matters. When prices fell the first time, it didn't even take a week before the government passed the largest stimulus ever, 80% of which went to corporations. Investors know that the government will do anything to underwrite their risk.

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

#255

Post by rglover »

anthony_doan wrote: post #73
davidw wrote: post #19

Earlier quoted context omitted.

> a second wave of epidemic Judging by people's behavior, and the politicization of even common sense measures like mask wearing in the US, I think this is likely. I hope I'm wrong.

I think the second dip is coming (the first being in March). With the flu season and covid19 resurgence and the market is going to realize those unemployment rate means a lot of people aren't going to buy stuff.

This is the alarm that keeps going off for me from getting too optimistic. If it's accurate that 78% of the U.S. was already living paycheck to paycheck [1] and many haven't made a dime in two months, it doesn't matter if there's pent up demand for things. There's just no money to buy them.

[1] https://www.cnbc.com/2019/01/09/shutdown-highlights-that-4-i...

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

#256

Post by lotsofpulp »

chrisco255 wrote: post #241
lotsofpulp wrote: post #205

Earlier quoted context omitted.

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…

Uh, you can't just pay massive numbers of the population without the wealth creation in the first place. We do not have some centralized salary authority that pays people based on loyalty to some arbitrary payment distribution scheme. This is completely contrived.

It doesn't need to be centrally managed, the situation can emerge organically just based on how people are incentivized. Especially with the impact computers and scaling at low marginal costs has and how much more one person's labor can be worth compared to another person's labor.

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

#257

Post by nostrademons »

shoo wrote: post #243
nostrademons wrote: post #70

Earlier quoted context omitted.

From that perspective, the stock market should have no volatility in share prices whatsoever - it should fairly value each company based on their profits over the next 15 to 20 years, and since those profits don't change, neither should the share price. Stocks are based on expectations of future profits, i.e. psychology. "In the long run, the stock market is a weighing machine. In the short run, it's a voting machine…

> stock market should have no volatility in share prices whatsoever - it should fairly value each company based on their profits over the next 15 to 20 years Computing this depends on estimating/forecasting/extrapolating/guessing a lot of values. E.g. what kind of revenue growth the company will have. How the structure of company expenses may change. Parameters like a discount rate make a huge difference in the estim…

But that's the point. Parent poster is assuming that the future profits of a company won't change over the next 15-20 years because of coronavirus. Everyone in this subthread is pointing out that that's not a valid assumption. We've already seen the discount rate drop to zero in the last couple months. Will it stay there? Will we get hyperinflation? Will we get deflation as laid-off workers lose their spending power? Will the target market of many companies end up dead? Will companies go bankrupt through lack of cash flow? Are we going to see civil unrest or a breakdown of political authority?

Many of these are permanent consequences that will absolutely effect earnings 15-20 years in the future. The market seems to be pricing in an assumption that this will be a blip: we'll reopen, businesses will rehire, and 2021 will look much like 2019. I don't believe that's likely.

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

#258

Post by TaylorAlexander »

tryptophan wrote: post #249
telaelit wrote: post #239

Earlier quoted context omitted.

Trickle down economics doesn’t work. If it did then wages would have increased in the past 40 years, but they’ve remained stagnant while the rich get richer and cost of living skyrockets. But if you prefer to lick the boots of our plutocratic overlords, feel free

But...wages have increased over the past 40 years...and at a greater rate than in Europe/Aus/other developed.

Well it seems like “real wages” have not increased in decades?

https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...

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

#260

Post by lotsofpulp »

tryptophan wrote: post #249
telaelit wrote: post #239

Earlier quoted context omitted.

Trickle down economics doesn’t work. If it did then wages would have increased in the past 40 years, but they’ve remained stagnant while the rich get richer and cost of living skyrockets. But if you prefer to lick the boots of our plutocratic overlords, feel free

But...wages have increased over the past 40 years...and at a greater rate than in Europe/Aus/other developed.

Comparing US wages to countries that have far greater social safety nets and healthcare is impossible. And volatility of wages and the insecurity of not knowing if you will have stable work (and hence healthcare) or not is a more important metric, although also impossible to measure. But not impossible to feel and see the results of.
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