"stock market" has not parted from the economy.
SP500 Equal Weigh Index is -11.64% YTD, -6.02% for 1 year.
It's only the top 20-50 companies that are doing fine.
The stock market and economy have parted ways
111–120 of 542 posts
Re: The stock market and economy have parted ways
#112Earlier quoted context omitted.
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."
If the expected NPV of the riskier investment is much larger than the non-risky one, a "rational investor" would of course take it. That's literally what the words mean.
In a high volatility market, the NPV might range from -10% to +20%.
Re: The stock market and economy have parted ways
#113Earlier quoted context omitted.
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. ;)
I guess total collapse is something I don’t particularly worry about, since I won’t be here to worry. I think partial collapse is more likely scenario (of the two).
I would assume a Venezuela-like collapse would be what you're thinking? Would gold help much in that case? (Honestly don't know, probably depends if the person you're trying to trade the gold to believes it will be easy for them to trade the gold to someone else when the time comes)
Re: The stock market and economy have parted ways
#114> “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."
Month over month volatility is a poor reason to put money there. Long term average growth is a good reason. Over the 10-20 year periods in the last century, what widely available asset classes perform better?
Re: The stock market and economy have parted ways
#115> “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."
You're thinking about your personal investments, not someone managing a large investment firm or hedge fund. This simple fixes for your personal investments would be seen as absolutely insane in the professional investment world. You can't just tell your clients "oh I put $100 Billion into some nearly 0% interest investments because I think the market is crazy", especially if the DJIA is having record months. Even the people managing your 401k are expected have a steady read of return and react slowly and calmly.
Re: The stock market and economy have parted ways
#116Earlier quoted context omitted.
Forgive me if I say this sounds awfully like the "new paradigm" / "this time it's different!" phase of a bubble.
But it is different this time. Productivity growth is slowing [1], people are aging rapidly (in the US, baby boomers are retiring at a pace of 10,000 people per day, 5,000 of them die per day) [2], and secular stagnation is taking hold in most first world countries [3]. Sort of strange to expect today or the next 50 years to look like the last 50 years. [1] https://scholar.princeton.edu/sites/default/files/ernestliu/…
Yeesh, sounds like Japan in the 90's!
Re: The stock market and economy have parted ways
#117In addition to everything he mentioned, there is still the possibility that immunity, acquired after infection, is only for a short period. Nothing makes sense. Everyone was already waiting for some kind of correction before Covid. And now, in addition to the covid, we have conflict tensions, unemployment and lack of income on a global scale. Stock market became a casino. https://www.theguardian.com/world/2020/jul/12…
If immunity acquired after infection is only for a short period, immunity acquired after a vaccine will also only be for a short period.
Re: The stock market and economy have parted ways
#118The phrase "the stock market" appears 7 times in this article, but is never discussed let alone defined.
It doesn't make sense to analyse "the market" as a monolith--not that there was much of that in the article anyhow. Yes, there are winners, which has led to a net-postive macro trend but there are losers which have crashed as well.
The interesting question is what causes some companies to generate revenues while others fail.
Re: The stock market and economy have parted ways
#119My theory is that this is a kind of latent inflation - it is still visible only in the financial assets sector - but eventually it will show up in consumer products too.
Re: The stock market and economy have parted ways
#120It's moral hazard in a nutshell, the backstop provided to the markets is so large that the risk/reward is completely out of whack. When the fed is buying junk bonds the signal to investors is loud and clear.
You'd be foolish not to participate until reserve banks start signaling otherwise.