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Ask HN: Why is the stock market up 30%+ from pre-Covid levels?

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Re: Ask HN: Why is the stock market up 30%+ from pre-Covid levels?

#21

Post by sevilo »

muzani wrote: post #20
sevilo wrote: post #19

Earlier quoted context omitted.

that is not true in the event of war or major political movements

This is my reasoning - there's political instability at the moment, and I'd like the option to change countries as necessary. Stable countries like the US have violent riots, less stable ones are facing coups and spiraling debt.

that is my guess too. It certainly feels like "there is no good place to keep money". There is so much instability around the world at the moment, it feels even the traditionally more stable ones like real estate and gold are at jeopardy. People are fusing money into anywhere that's seemingly more safe than cash just to make the most out of it in the event that any major political shift happens.

Re: Ask HN: Why is the stock market up 30%+ from pre-Covid levels?

#22

Post by anm89 »

dTal wrote: post #12
bko wrote: post #2

The strange thing is its across the board. Stocks, all sectors, commodities, bitcoin, home prices, obviously treasuries. There's nowhere to put your money that's safe. Even if you pull out completely, if we have inflation and a subsequent market crash, this will eat away your capital. Taking your chips off the table isn't an option. Gold isn't really behaving normally as a large chunk of it is controlled by central b…

>There's nowhere to put your money that's safe. Sure there is; physical assets. Doesn't matter what happens to the market, people still need (for example) houses.

Housing prices are based on huge demand due to 2% mortgages. They could easily take a big hit.

Re: Ask HN: Why is the stock market up 30%+ from pre-Covid levels?

#23

Post by anm89 »

vimy wrote: post #10

It’s (the start of hyper)inflation, plain and simple. Almost a fifth of all circulating dollars were created in 2020. And they keep printing money.. The dollar lost a lot of value and we see it first in asset prices, soon the real economy will follow. So don’t see it as stocks rising 30 % but the dollar losing 30 % of its value.

The US is not at risk of hyperinflation due to structural reasons related to international trade. I listen to hours os economics podcasts a week from brilliant people with viewpoints across the political spectrum , many of whom love nothing more than to trash Fed actions and US economic policy and I have never once heard any of these let's say 50+ speakers say they feel hyper inflation is a risk. It really isn't on the table.

I would be more worried about a solvency crisis or sector specific inflation, or broader changes in the global role of the dollar.

Re: Ask HN: Why is the stock market up 30%+ from pre-Covid levels?

#24

Post by [deleted] »

anm89 wrote: post #23
vimy wrote: post #10

It’s (the start of hyper)inflation, plain and simple. Almost a fifth of all circulating dollars were created in 2020. And they keep printing money.. The dollar lost a lot of value and we see it first in asset prices, soon the real economy will follow. So don’t see it as stocks rising 30 % but the dollar losing 30 % of its value.

The US is not at risk of hyperinflation due to structural reasons related to international trade. I listen to hours os economics podcasts a week from brilliant people with viewpoints across the political spectrum , many of whom love nothing more than to trash Fed actions and US economic policy and I have never once heard any of these let's say 50+ speakers say they feel hyper inflation is a risk. It really isn't on t…

[deleted]

Re: Ask HN: Why is the stock market up 30%+ from pre-Covid levels?

#25

Post by raydalio0705 »

anm89 wrote: post #23
vimy wrote: post #10

It’s (the start of hyper)inflation, plain and simple. Almost a fifth of all circulating dollars were created in 2020. And they keep printing money.. The dollar lost a lot of value and we see it first in asset prices, soon the real economy will follow. So don’t see it as stocks rising 30 % but the dollar losing 30 % of its value.

The US is not at risk of hyperinflation due to structural reasons related to international trade. I listen to hours os economics podcasts a week from brilliant people with viewpoints across the political spectrum , many of whom love nothing more than to trash Fed actions and US economic policy and I have never once heard any of these let's say 50+ speakers say they feel hyper inflation is a risk. It really isn't on t…

What is your take on the Ray Dalio view? The way I understand it: 1. Lending to the US government (buying treasuries) at low interest rates is not profitable, as you will be paid back in devalued currency. As is, real rates are negative.

2. Investors demand higher interest rates to make it worth their while.

3. US government has to roll over its debt or borrow more, but has to do it at higher interest rates that it cannot afford (what rate would that be?). Fed comes to the rescue by buying treasuries with new money, creating more demand and driving interest rates down.

4. That makes points 1 and 2 even more valid, so fewer 'real' investors turn up to buy treasuries, and those that hold treasuries try to sell them (you don't want to be getting fixed returns in currency that is losing value). That increases supply of treasuries even more.

5. Recognizing this dynamic, people rush to 'cash in' their dollars - buy anything tangible they can. US stocks sell off relative to 'hard' assets, as companies reporting in dollars are not be able to operate effectively.

6. This results in hyperinflation. The above unfolds relatively quickly with no advance warning (you don't want to alert others as you are trying to offload your dollars), turning low inflation into hyperinflation.

Re: Ask HN: Why is the stock market up 30%+ from pre-Covid levels?

#26

Post by tonyedgecombe »

ancymon wrote: post #16

A lot of people had started investing because they don't know what to do with the money. When you stop spending money on restaurants or vacation or other stuff which is no longer available, you end up surplus. So why not invest it in the stock market?

Which might imply a reversal when we all get back to normal next year.

Re: Ask HN: Why is the stock market up 30%+ from pre-Covid levels?

#27

Post by aynyc »

tonyedgecombe wrote: post #26
ancymon wrote: post #16

A lot of people had started investing because they don't know what to do with the money. When you stop spending money on restaurants or vacation or other stuff which is no longer available, you end up surplus. So why not invest it in the stock market?

Which might imply a reversal when we all get back to normal next year.

If the shutdown was 3 months, I would agree. I think this is the first time in recent history that way of life was completely changed in such short notice and for such a long time. I think some of the behaviors will be staying with us.

Re: Ask HN: Why is the stock market up 30%+ from pre-Covid levels?

#28

Post by anm89 »

raydalio0705 wrote: post #25
anm89 wrote: post #23

Earlier quoted context omitted.

The US is not at risk of hyperinflation due to structural reasons related to international trade. I listen to hours os economics podcasts a week from brilliant people with viewpoints across the political spectrum , many of whom love nothing more than to trash Fed actions and US economic policy and I have never once heard any of these let's say 50+ speakers say they feel hyper inflation is a risk. It really isn't on t…

What is your take on the Ray Dalio view? The way I understand it: 1. Lending to the US government (buying treasuries) at low interest rates is not profitable, as you will be paid back in devalued currency. As is, real rates are negative. 2. Investors demand higher interest rates to make it worth their while. 3. US government has to roll over its debt or borrow more, but has to do it at higher interest rates that it c…

So i would say you are qualitatively correct but not quantitatively correct regarding what Dalio believes regarding inflation.

I think Dalio would go as far as saying "Cash is trash" but not as far as saying "the dollar will hyperinflate". He believes strong inflation is coming but that is very different than hyperinflation.

Hyper inflation would generally be defined as a quarter of 50% per month inflation. That means the dollar would have to lose 3/4 or more of it's value over a quarter to be said to have hyperinflated. Supply factors have to totally outstrip demand factors where there is essentially no bid to reach this kind of growth. But 90% of the world has debt denominated in dollars that creates a constant bid for dollars. This simply cannot unwind overnight without ending in a major global solvency event and if that happens every currency on the planet is going to be revalued instantaneously anyway.

Anyway that's a lot of words to say, I dont think Ray Dalio believes hyperinflation is coming. I think he thinks inflation is coming, maybe even a lot of it.

A second unrelated point is that every historical instance of hyperinflation I'm aware of involved a sovereign owing debts in some other sovereigns currency. No one has ever hyperinlfated when their debts were denominated in their own currency. This also is a situation which does not apply to the US.

Re: Ask HN: Why is the stock market up 30%+ from pre-Covid levels?

#29

Post by jiscariot »

raydalio0705 wrote: post #25
anm89 wrote: post #23

Earlier quoted context omitted.

The US is not at risk of hyperinflation due to structural reasons related to international trade. I listen to hours os economics podcasts a week from brilliant people with viewpoints across the political spectrum , many of whom love nothing more than to trash Fed actions and US economic policy and I have never once heard any of these let's say 50+ speakers say they feel hyper inflation is a risk. It really isn't on t…

What is your take on the Ray Dalio view? The way I understand it: 1. Lending to the US government (buying treasuries) at low interest rates is not profitable, as you will be paid back in devalued currency. As is, real rates are negative. 2. Investors demand higher interest rates to make it worth their while. 3. US government has to roll over its debt or borrow more, but has to do it at higher interest rates that it c…

How do you think a foreign country X focused, US-denominated, ETF would perform during something like this, if the target country had a stable balance sheet? I've thought this would be a decent hedge (though difficult now that everything is global/intertwined), but love to hear the downside risk.
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