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The stock market and economy have parted ways

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Re: The stock market and economy have parted ways

#271

Post by bob33212 »

Quinner wrote: post #246
charwalker wrote: post #205

Earlier quoted context omitted.

Printing money has recently shown to have little impact on inflation. This is likely due in part to lack of consumer spending (can't inflate prices if nobody is buying it anyway) as well as spreading the USD across billions of people in dozens of interconnected economies that base off the dollar. The recent $5 trillion injection from the Fed (buying bad debt/assets) and Treasury (stimulus/PPP) may simply show that we…

Printing money has not had much impact on consumer prices. But it seems very plausible that it is causing inflation of asset prices, including equities, and that that is a distortion of the market that could have negative long-run repercussions.

People are chasing gains. TSLA has at a chance of succeeding at either autonomy or cheap energy storage. If that plays out it could be a 500B company in 8 years. Why not get in now with a hope of a 6% annual return?

Re: The stock market and economy have parted ways

#272

Post by jasode »

cool_dude85 wrote: post #142
jasode wrote: post #128

Earlier quoted context omitted.

>If returns over a long period are below the assumed rate, then the employer simply needs to increase contributions. It's seductive to type out the word "simply" to describe a proposed solution but that doesn't mean it's simple in reality. (My previous comment about supposedly "simple" fixes: https://news.ycombinator.com/item?id=16698821 ) E.g. The employer (the state government) that pays into pension funds for teac…

This doesn't at all address the core point I'm making: that pension funds are not required to achieve a given rate of return in any meaningful sense. But sure, I agree that there are other ways to handle the situation if the fund doesn't achieve its assumed rate of return. There are other options than increasing employer contributions.

>This doesn't at all address the core point I'm making: that pension funds are not required to achieve a given rate of return in any meaningful sense.

You're being uncharitable in reading gp's (erentz) word "required". No, there isn't a statute or law that says the pension fund must get 8% returns or the pension administrators go to jail. Nobody is saying that.

Here's how to interpret the word "required" in a more reasonable manner...

Using Illinois Teachers Pension as an example: the pension fund manages ~$50 billion but they still have a ~$70 billion shortfall.[1] The CIO (Chief Investment Officer) is currently Stan Rupnik. His salary is ~$400k per year and he's responsible for investing the pension fund in a way that balances max returns with safety. If he just sits back and folds his arms in a defiant manner exclaiming, "hey, the pension fund is not _required_ to achieve a given rate of return so I'm just going to invest all $50 billion in T-Bills which returns a negligible 0.19% yada yada yada" ... he's not going to keep his job.

That's what a meaningful interpretation of "required" is for the context of this discussion.

[1] https://www.chicagobusiness.com/finance-banking/teachers-pen...

Re: The stock market and economy have parted ways

#273

Post by m0zg »

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…

Wall Street is looking where everyone should - at the deaths. And deaths have been going down since mid-April. It's just that recently (about a month ago) we've massively ramped up testing throughput. We're on track to become the most tested large country in the world in a few weeks. And the "lagging deaths" have so far failed to materialize.

Re: The stock market and economy have parted ways

#274

Post by owenmarshall »

mD5pPxMcS6fVWKE wrote: post #196
throwaway_USD wrote: post #41

Earlier quoted context omitted.

This is the most sane thing anyone can say. At some point there is going to be a critical mass of people not paying their mortgage, not paying rent, not paying loans, not paying credit cards...and simply no money and unemployment. I think this week we will begin to see some acknowledgement of the realities because July 15 is the new tax return date, and I think there will be millions and millions of American's who ju…

What prevents government from paying their bills, rent and loans forever? Warren Buffett said that US gov can never go bankrupt because it owns the printing press.

The USD is the reserve currency of the world. The US maintains this status quo through a combination of soft and hard power: stir the pot a little and ambassadors tut-tut. Stir a bit more and your politicians have their US bank accounts frozen. Stir too hard and the USS Gerald R. Ford sails up off your coast and asks you to reconsider democracy. I'd be surprised if this status quo is challenged by another country for years.

What I think is far more interesting is what happens internally: the US is a powder keg of economic and racial inequality and our leaders are either throwing lit matches at it or gently disapproving of those doing the throwing. If COVID cases and deaths keep increasing I can't see how we continue without structural changes.

Re: The stock market and economy have parted ways

#275

Post by deelowe »

twblalock wrote: post #251

At least we can dispense with the idea that the stock market is driven by short-term thinking. Prices are high because investors expect things to be better in the future, even though things are bad right now. Maybe the investors are wrong, but at least they are thinking about the long term, or at least the intermediate term.

I think prices are high b/c retail investors are being taken for a ride and have no other recourse. A ton of cash has been injected into the system. People are rightly concerned about inflation. What do they do? Bonds aren't a good investment. Real estate will be affected by unemployment, so that's not an option. No one gives a crap about gold any more. Plus retirement funds carry insane penalties. It's not like pulling that stuff out is an easy decision.

Re: The stock market and economy have parted ways

#276

Post by mwfunk »

cephaslr wrote: post #146
baron_harkonnen wrote: post #109

Earlier quoted context omitted.

I think you are absolutely correct and the reason that the stock market is being so weird is quite simply "what else are we doing to do with that money?" The solution for individuals: cash, gold, options, etc, aren't viable solutions for institutional investors. Imagine that you're in charge of a $1 billion fund, what are you going to do? You can't put that into gold, cash or treasury notes. But all sectors are affec…

Is part of the issue that there is just too much money has been printed and hoarded and its creating some weird effects? The government has been printing money for a long time, to stimulate the economy, provide spending money, etc. Due to 80/20 rule, rich get richer effects, etc, a large portion of money the government prints ends up in the hands of a relatively small group who doesn't spend it but rather tries to in…

Have they been printing money? Has more USD been created, physically or virtually? This is something I don't understand, I'm hoping someone here can explain it.

I was under the impression the last 40 years of US deficit spending has been mostly financed by selling US bonds to China, Japan, etc., while counting on growth and inflation to take the edge off when they come due. And selling more bonds instead of defaulting, so the debt just keeps growing. Printing money causes inflation but not deficits or lingering debt.

I don't know though, I'm not an expert. I would appreciate any corrections or clarifications from anyone.

Re: The stock market and economy have parted ways

#278

Post by subsubzero »

There are some very strange happenings goings on with a small number of stocks. AMZN, TSLA, AAPL and a few others have seen stratospheric gains in the past few months with especially Tesla with no clear reason why. Not trying to knock tesla but there is something that I have never seen happening and given store closures, spiking covid cases and virus antibodies that seem to last months and in some cases weeks these are all very gloomy predictors. The typical explanations seem to be as follows(ordered them in my opinion has the highest probability of reality and weight):

#1 Interest rates are as low as they have been in an extremely long time, people/institutions want higher returns so they are putting money into vehicles with higher returns(stocks).

#2 Given the Govt./Treasury has been printing money like crazy dealing with the pandemic, money in cash is not great, stocks offer better returns.

#3 Given sports are mostly shut down(primarily in the US) sports betters are putting money into stocks instead and betting there so to speak.

#4 People are using their stimulus checks extra unemployment money to invest in stocks.

All of these don't seem to jibe, and alot of these stocks seem similar to what as known as a 'melt-up' which precedes a meltdown, see 2000's tech and 2008 financial crisis. I hope that is not the case but Tesla jumping 10-14% a day doesn't seem healthy for the stock and the stock market in general and something very strange is going on.

Re: The stock market and economy have parted ways

#279

Post by objektif »

pjc50 wrote: post #141
willcipriano wrote: post #123

Earlier quoted context omitted.

My guess is when the financial economy goes bust and those dollars start chasing real economy assets all the inflation we were assured wouldn't happen due to all the money printing will happen all at once. People act like the big short guys were geniuses to see this trend come out of nowhere. I was a teenager asking questions like "How can housing prices rise nationally at a multiple of wage increases for any sustain…

Once you allow for the fall in interest rates over the past decades, the house price rise looks less surprising. However, there's a weird corollary: what happens when rates go negative?

US will not allow interest rates to go negative.

Re: The stock market and economy have parted ways

#280

Post by TuringNYC »

FreeHugs wrote: post #11

Historically, the PE for the entire U.S. stock market is about 15. But today’s market PE of roughly 23 is about 50 percent higher than the historic average Every time I see statements about the PE of the market, I wonder which PE they mean? The price of the companies divided by their past revenue? If so, which past? Last month, last quarter, last year? The price of the company divided by future revenue? Then future r…

Historically, interest rates were not this low, so naturally PE ratios would inflate now given cheap money. Also, historically, the Fed didn't print money to purchase ETFs and distort/inflate the market.

If there is a "new normal" for the PE, the hard part is figuring out what it is. What is the new acceptable level? I have no idea.

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