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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?

#681

Post by arcticbull »

Galanwe wrote: post #665
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…

If you allow me to complement your breakdown: - bonds: Definitely not 0% interest rate, definitely better than cash. You can expect around 1.5% in the US for IG bonds. This is all relative to the default risk of course, the stronger your central bank, the less risky are the bonds, the less interests you earn. - Real estate: you don't have to own it directly. This exposes yourself to a huge idiosyncratic risk. You can…

> You can expect around 1.5% in the US for IG bonds.

Sure, but the fed's target inflation rate is around 2%. That means you're in fact losing 0.5% of your purchasing power per annum. That's just losing money slower.

There is in fact, no alternative.

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

#682

Post by chii »

bo1024 wrote: post #544
empath75 wrote: post #364

Earlier quoted context omitted.

That’s the definition of a bubble.

I agree, or pretty close. But it's not axiomatic that bubbles always pop (at least on the time span one expects).

> But it's not axiomatic that bubbles always pop

You can only call it a bubble once it pops. So therefore, it is axiomatic. This stock "bubble" might not pop, and hence, it might not be a bubble.

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

#683

Post by chii »

quag wrote: post #47
myth_drannon wrote: post #21

Earlier quoted context omitted.

Australian, South Korean and New Zealand's currencies jumped in value because they handled the pandemic very well and are now very attractive investments.

As a counter point, the AUD, KRW, and NZD all buy fewer USD today than they did on 2020-01-01. The three currencies have risen from the big drops on 2020-03-18, but are still worth less than earlier in the year.

The currencies have little to do with the wellness of how the gov't handled the crisis. It has more to do with demand, and theres' just a lot of demand for USD, simply because it is considered a reserve currency, and a lot of people would rather hold it than their own native country's currency.

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

#684

Post by arcticbull »

peterangular wrote: post #238
chrispeel wrote: post #125

Earlier quoted context omitted.

> 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%.

> or envision themselves as (somehow!) becoming part of the top 10% I don't disagree with you but want to add some insight to this... My entire life I've been told the lie that if I "just work harder" I can be rich etc. Most of America thinks about themselves in this same way, and it's taken me years of traditional employment + risky startup opportunities to realize that no, success is not guaranteed if you "just wor…

> incestuous "investments" in their business.

This is open to anyone, but of course it's not guaranteed. You have to put yourself in a place where you're more likely to encounter these folks, and demonstrate value.

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

#685

Post by Nasrudith »

Glyptodon wrote: post #435
JMTQp8lwXL wrote: post #273

Earlier quoted context omitted.

If every American worker started buying $100 worth of stock per month, they could start chiseling at that 86% number. Not every worker has the financial means to do so, but many could if they practiced financial constraint (delaying consumption now, in exchange for greater consumption later). To the extent it is feasible, it would be wonderful to see Americans fight back against wealth inequality by buying the owners…

Even if they all did that, they still end up buying after all the really wealthy get in, whether it's investment bankers, venture capital, hedge funds, or whatever else, normal income people just end up buying from the 1% and 0.1% who got in privileged and early. Add on top of all that, think about all the investments with minimums that are thousands of dollars and it's obvious that regular money will always be behin…

That is zero sum thinking and misses the point entirely. You don't decide based upon more or less than others but the best option for you. Judging by percentages is like saying "Why jog or walk if you will never be a supermodel?" Invest because it is an end in itself.

The reason VCs and hedge funds get in early is because they can afford to fail a lot and have their successes outweigh their failures. It isn't because of some caste gatekeeping to monopolize the wealth while twirling their moustaches but because without that level of capital it is a very good way to lose your life savings. First rule in investing is never risk what you can't afford to lose.

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

#686

Post by jopsen »

Galanwe wrote: post #665
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…

If you allow me to complement your breakdown: - bonds: Definitely not 0% interest rate, definitely better than cash. You can expect around 1.5% in the US for IG bonds. This is all relative to the default risk of course, the stronger your central bank, the less risky are the bonds, the less interests you earn. - Real estate: you don't have to own it directly. This exposes yourself to a huge idiosyncratic risk. You can…

Isn't currency (and many others) more of a zero sum bet -- useful for hedging if you are a business with expenditures in one currency and income in another.

But if you're looking to invest cash on hand, and looking for a long-term upside. I'm not sure currency is good idea.

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

#687

Post by thatcat »

glennvtx wrote: post #550
kalleboo wrote: post #465

Earlier quoted context omitted.

It should be in proportion to how many % of the wealth they own. So more like 90%

They will simply leave, or destroy the system.

No, they would try to make a bunch of shell corps and have only 1% in each corp. Distributing the wealth (to other entities that they control less directly). It would essentially just destroy brand recognition for large companies.

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

#688

Post by chii »

odiroot wrote: post #293
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…

> Bonds: Near 0% interest rate, practically no better than holding cash. You can still buy bonds of a bit less-developed nations. E.g. "new" EU nations. They usually offer better RoI than Western EU bonds.

The risk premium is always quite fair with bonds imho.

These less developed nations will have a higher default risk. Buying them can make the bond act more like equity than bonds!

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

#689

Post by bluehex »

sandworm101 wrote: post #444
ComputerGuru wrote: post #400

Earlier quoted context omitted.

That’s entirely orthogonal though, isn’t it?

No. It is comparing different things. The percentage of Americans who own stocks is different that the percentage of stocks owned by americans. Say 90% of americans "own some stock" but they are dirt poor. Their share of the total stocks available could well be 1%. The rich 10% then own 99% of the market AND 90% of the population own some stock. One fact does not negate the other. Remember that the median income in t…

I think you've just supported the claim that the two facts are entirely orthogonal.

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

#690

Post by chii »

kelnos wrote: post #262
dataminer wrote: post #26

Earlier quoted context omitted.

What about high yield bonds, are they worse than investing in stocks right now?

Depends on the issuer. As I mention upthread, I think US major airline bonds are probably ok, more or less regardless of rating, since the gov't will always bail them out in the end. The largest hotel/hospitality chains may befine as well (though I haven't looked into their financial situation). But businesses will still continue to disappear over the next year from this, so I would tread with care.

> I think US major airline bonds are probably ok, more or less regardless of rating, since the gov't will always bail them out in the end

tbh, i think the US gov't really shouldn't be doing bailouts. Equity and bonds _should_ come with appropriate risks, and these risks should be discovered (via pricing of the interest rate for bonds, and for the expected risk-premium in equity).

The distortions happening right now is that the Feds backstopping bankruptcies is causing money to be lent out much more freely than it would've been. This means more worth businesses do not get their chance.

It's like the analogy of bushfires. Big firestorms will clean out the undergrowth, kill the weaker trees, and let the new seedlings grow afterwards. The pain is short term.

If the gov't wants to ease the pain, they need to make unemployment benefits greater, rather than bailout existing businesses. I say this, even tho i own shares, because to not do so means to entrench the moral hazard of socializing losses and privatizing gains.

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