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The stock market and economy have parted ways

washingtonpost.com

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Re: The stock market and economy have parted ways

#61

Post by ianai »

My profs said it was whenever that last, most staunch hold out joins the market that the end of irrationality is near. Granted, that assumes exogenous demand is not ballooning the market. So I don’t know how or when this ends. What would trigger the fed to stop pouring liquid oxygen into the fire? A vaccine? A general election?

Edit-I also don’t think we’ve seen the full ramifications of the newly, long term unemployed begin to hit. Much of the current numbers assume people who were layed off for the shutdown are all coming back and paying their mortgages and other bills. Presumably there’s possibly a 3 month lag time due to earnings reports.

Re: The stock market and economy have parted ways

#63

Post by whatshisface »

ed25519FUUU wrote: post #50
secondcoming wrote: post #25

Earlier quoted context omitted.

I'm no gold bug, but turn some of your cash into gold.

I go back and forth on gold a lot. I keep a very small amount of my money in gold, but I’m literally thinking “if things really get down to it, I can trade this for food” But that type of mental exercise does not work well for many people. Especially imagining a system where our fiat currency is effectively useless.

Expecting that you'll be able to trade gold for food is assuming that the state after the collapse will fall into a very narrow band of "collapsed enough that the financial system is gone" and "not so collapsed that the food supply is gone." You might even call it... the Goldilocks zone. ;)

Re: The stock market and economy have parted ways

#64

Post by ttul »

FooBarWidget wrote: post #42
hitpointdrew wrote: post #20

> “I’m not sure what will trigger a sustained sell-off in stocks, but surging [virus] infections and another round of more business closures will be difficult for investors to ignore much longer.” An alternative place to put investments will trigger it. When your options are savings accounts paying 0.25% interest, and treasury notes paying nothing, and CD's being garbage, what are your alternatives for investing? If…

But then why did the stock market perform so badly for so long during 2008?

My guess: the economic problem had an uncertain path to resolution. A pandemic is different. We are waiting for a vaccine; once that is available, it’s game on. I’m not saying this is the truth; however, it is a plausible way to think that investors are viewing the future.

Re: The stock market and economy have parted ways

#65

Post by erentz »

danhak wrote: post #38
hitpointdrew wrote: post #20

> “I’m not sure what will trigger a sustained sell-off in stocks, but surging [virus] infections and another round of more business closures will be difficult for investors to ignore much longer.” An alternative place to put investments will trigger it. When your options are savings accounts paying 0.25% interest, and treasury notes paying nothing, and CD's being garbage, what are your alternatives for investing? If…

This trope gets repeated over and over but it just makes no sense. Volatility is risk. What rational investor says "interest rates are too low, I MUST deploy my capital into a market that is seeing wild 30% gyrations from month to month instead of parking it safely while this global crisis plays out."

A very large percentage of the market is required to achieve a certain return. Think insurance companies. Giant pension plans. Etc. They have all been forced further and further out the risk curve over the past decade due to low interest rates.

Re: The stock market and economy have parted ways

#66

Post by thisisnico »

treis wrote: post #53
snarf21 wrote: post #8

The have parted ways because the Fed is buying lots more than just treasuries. There is so much money desperate for returns because interest rates are so low. That is why we have such inflated equities right now. It is a mental game: if people don't know the economy is awful, maybe they won't change their behavior and maybe it will actually get better before they realize it.

The Fed buying bonds isn't pushing Tesla to the 14th largest market cap. It's currently trading $200 per share higher than any analyst recommendation that the WSJ or Yahoo has. Not to mention Hertz, a bankrupt company, has a market cap of 200 million. Something very unusual is going on.

They made it easy for the uneducated investor to invest in companies that see the spotlight on the news. You can invest in minutes and for free now, right from your phone. These people don't do any research on the company. They see news stories on the company all the time, and news stories that the stock went up XX% So when you have people casually buying stocks I feel like they get inflated past the point that makes any sense, and thus become incredibly overvalued. Seasoned investors would see this and stay far, far away from these businesses.

Re: The stock market and economy have parted ways

#67

Post by gas9S9zw3P9c »

currymj wrote: post #18

concretely, how much does the sentiment of retail investors actually matter to prices -- in general for the whole market, and for specific stocks that dumb retail investors get excited about (Tesla, Hertz, or whatever)? I have no idea what the answer to this question is or even how to formulate it in a clear, answerable way. But it seems very important! It seems that stock prices move, newspapers publish a narrative…

You're asking a great question. I used to work as a professional trader and the answer is that probably nobody really knows. Like you said, any explanation you hear about prices moving is just a narrative fallacy.

People love hearing simple explanations to complex questions like "why did X price move" when in reality there is no such thing. The stock market is an incredibly complex interconnected system, with so many types of participants and algorithms optimizing for different outcomes over different time horizons.

Retail flow can certainly influence the market, but in my experience the influence is more indirect than direct, as algorithms may jump onto the retail order flow signals to profit from it, which may then create positive feedback loops. But who knows, the fact is that a lot of volume is being bought, and that's all you can conclude.

I'd go as far as saying that anyone who tries to connect the stock market with economic events doesn't understand a thing about trading. They're just not connected, except in a few special instruments. They're only connected in so far that people believe they are connected and invest based on that, just like Bitcoin is only worth what people believe it to be worth.

Re: The stock market and economy have parted ways

#68

Post by javert »

danhak wrote: post #38
hitpointdrew wrote: post #20

> “I’m not sure what will trigger a sustained sell-off in stocks, but surging [virus] infections and another round of more business closures will be difficult for investors to ignore much longer.” An alternative place to put investments will trigger it. When your options are savings accounts paying 0.25% interest, and treasury notes paying nothing, and CD's being garbage, what are your alternatives for investing? If…

This trope gets repeated over and over but it just makes no sense. Volatility is risk. What rational investor says "interest rates are too low, I MUST deploy my capital into a market that is seeing wild 30% gyrations from month to month instead of parking it safely while this global crisis plays out."

> instead of parking it safely while this global crisis plays out

Because interest rates will never go back up, or if they do, they will be counterbalanced by inflation. This is the view of Ray Dalio at Bridgewater and (presumably) many other very smart people. I'm not that smart, but I agree.

Thus, cash and cash obligations are no longer stores of wealth. Equities are, unfortunately. High volatility is just the price you pay. Equity prices are honestly not that high if this scenario plays out.

Re: The stock market and economy have parted ways

#69

Post by RobertoG »

What I would like to know is who the market is. I mean, I'm pretty sure that my investments don't decide if the market goes down or up and, I doubt very much the traditional narrative that the market movements are the result of the aggregate decisions of a lot of people like me.

I would not be surprised if one hundred (random number) people were the one that decide what the market does. The controllers of the investment banks and the big funds are the real players, I suppose.

So, if that theory is right, and we want to know why the market is doing what is doing, we should look to those people. I don't know, maybe even ask them directly what are they thinking.

Re: The stock market and economy have parted ways

#70

Post by UncleOxidant »

atemerev wrote: post #14

I have two explanations: one optimistic and one pessimistic. The optimistic is that the Fed is prepared to unleash the runaway inflation (you can keep the stock market records if you want... it’s just the dollars that will buy much less) — and the markets are currently busy of pricing it in. That’s fine... more or less. The pessimistic scenario is that the current administration is determined to keep the stock market…

> The pessimistic scenario is that the current administration is determined to keep the stock market alive and kicking at all costs, whatever means necessary, until this November

This is a given. Look at the push for schools to open in the fall. They're even talking about tax credits for attending sporting events and for traveling and staying in hotels. All kinds of craziness in the midst of a pandemic.

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