Why is the stock market rallying when the economy is so bad? • Hacker News Board

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

#111

Post by coffeemug » Sun, May 10, 2020, 7:18 PM UTC

kerkeslager wrote: post #99

Because the stock market doesn't represent the economy as most people experience the economy. First, a lot of companies don't pay out dividends or buy back stock these days, so as time passes, removing their stock price from the price at IPO, their stock price becomes based on perception--not even perception of the reality of the company's value, but perception of the stock's value, which is increasingly just specula…

> [...] these days, so as time passes, removing their stock price from the price at IPO, their stock price becomes based on perception--not even perception of the reality [...]

John Maynard Keynes developed this idea (that came to be known as Keynesian beauty contest[1]) in 1936. This isn't a new property of the market, it has always been the case.

> when companies do pay dividends or buy back stock, it's sometimes done by borrowing money

It's not clear that this is a problem, given that cash is basically free (though they do have to pay back the principal). I'd be interested to see what proportion of dividends and buybacks comes from borrowed cash. I suppose calculating such a thing would be very difficult, but it'd be interesting to see some analysis on this.

> if 90% of people pull out of the stock market, it's quite possible for the stock market to go up

What if 90% significantly cut consumption? Ultimately the companies have to sell their products to somebody.

[1] https://en.wikipedia.org/wiki/Keynesian_beauty_contest

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

#112

Post by AbrahamParangi » Sun, May 10, 2020, 7:18 PM UTC

MattGaiser wrote: post #56

cft wrote: post #12

This is the inflation that everyone is afraid of. Since the money has been mostly injected from the top of the society, it has been confined to the asset bubble. If this money filters through to the bottom or there's significant injection directly to the bottom (SBA payment protection, $1200 direct assistance, basic income, etc) then we will see consumer inflation as well

We are still waiting for the surge of inflation you inflation hawks complained about in 2008 when this was all last done... https://www.usinflationcalculator.com/inflation/current-infl...

Inflation was seen in asset prices. We're seeing it again in asset prices right now.

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

#113

Post by stefan_ » Sun, May 10, 2020, 7:19 PM UTC

MattGaiser wrote: post #52

1. The economy is not that bad for many companies in the stock market. Why would Proctor and Gamble be that negatively impacted during this? It lost 20% of its value though. Same with a stock I hold. It was slaughtered for being an airline stock, but it mostly does flights to remote communities, which are a government-funded necessity so they can eat and have medical care. P&G should not have meaningfully fallen and…

Uhm, because P&G is a full out consumer business and there is now 15% unemployment?

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

#114

Post by quickthrower2 » Sun, May 10, 2020, 7:19 PM UTC

simonh wrote: post #16

toohotatopic wrote: post #5

Could it be that it is not so much the stock market rallying but the dollar plumbing? Money will be printed to keep the economy going. If people assume that this will devalue the dollar then stocks are a safety heaven and demand for them increases which drives up prices whether the dollar is falling or not.

The dollar plumbing relative to what? Not other currencies by the looks of it.

Not food, basic shelter, etc.

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

#115

Post by Auracle » Sun, May 10, 2020, 7:19 PM UTC

grecy wrote: post #94

Hydraulix989 wrote: post #50

Earlier quoted context omitted.

Why are stocks inaccessible to so many Americans? There are fractional shares, and you do not have to be an accredited investor.

37% of Americans struggle with hunger [1] and 57% of Americans have less than $1000 in savings. [2] Would you be buying stocks if you didn't have enough to eat? [1] https://www.feedingamerica.org/hunger-in-america/facts [2] https://finance.yahoo.com/news/58-americans-less-1-000-09000... EDIT: Apologies, first should be 37 million Americans (NOT 37%)

It probably doesn’t apply to those struggling with hunger, but just because people don’t have savings doesn’t mean they don’t have expendable income. It could just as easily mean they prioritized stuff over savings, and I bet that’s the case for most of them.

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

#116

Post by dasudasu » Sun, May 10, 2020, 7:21 PM UTC

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…

I don't think it's unreasonable to not want to be holding cash (if one doesn't need it) in the face of so many monetary injections. 2008 showed us that all this stimulus money eventually ends up in assets, aka trickle-down economics, but in reverse.

If have been buying since the lows, you're just front-running the FED. The worse is over in that it is now very unlikely that the stock market will retest the lows in nominal terms.

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

#117

Post by jjoonathan » Sun, May 10, 2020, 7:22 PM UTC

lumost wrote: post #90

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…

How much of the TINA phenomenon could be due to lack of capital formation throughout the economy? e.g. if 90% of America is too capital poor to form businesses or dream up new economic needs, then wouldn't it follow that printing money into existing asset classes would simply raise their price with no viable places to invest the money?

Yes. I'm sure plenty of Theranos / WeWork style opportunities will emerge to pick up the slack.

It's a fundamental problem of capitalism: the market's notion of "value" is weighted by wealth, without growth to stir things up wealth concentrates, and those looking to create value are increasingly forced to search for marginal "rich people problems" rather than tackle obvious "poor people problems." You wind up in a paradoxical situation where there are lots of obvious problems that could be fixed by obvious application of labor (e.g. crumbling infrastructure) yet nobody can find a job.

This is why inequality is bad.

Equality is bad because then you can't incentivize people, but that point generally gets enough air time already.

To optimize this system, we should identify which extreme is currently posing a larger threat and back away from it.

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

#118

Post by PaywallBuster » Sun, May 10, 2020, 7:23 PM UTC

kerkeslager wrote: post #99

Because the stock market doesn't represent the economy as most people experience the economy. First, a lot of companies don't pay out dividends or buy back stock these days, so as time passes, removing their stock price from the price at IPO, their stock price becomes based on perception--not even perception of the reality of the company's value, but perception of the stock's value, which is increasingly just specula…

Sounds like an extreme view, many people, even lower income still have retirement funds who are being invested somewhere and they're not taking money out.

Sure, buybacks were responsible for a big part of stock buying activity for awhile. But that has completely stopped now as companies prepare for the uncertain future.

Should look into Central Banks activities...

e.g .BOJ is top-10 shareholder in 40% of Japan's listed companies

Central Banks everywhere are dumping more and more money in the economy. The one from Europe is ready to buy Italy bonds even if its moved to Junk bonds.

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

#119

Post by Ididntdothis » Sun, May 10, 2020, 7:24 PM UTC

kerkeslager wrote: post #99

Because the stock market doesn't represent the economy as most people experience the economy. First, a lot of companies don't pay out dividends or buy back stock these days, so as time passes, removing their stock price from the price at IPO, their stock price becomes based on perception--not even perception of the reality of the company's value, but perception of the stock's value, which is increasingly just specula…

“Because the stock market doesn't represent the economy as most people experience the economy.“

That’s my theory. The top 10% own most of the stock but their experience of this crisis is quite different from people who already had low wages now losing their jobs. I bet most of the people (not all) on this site don’t feel the crisis economically at all or only with minor pain.

Personally I think we should stop looking at GDP, stock markets or housing prices but instead the economy should be optimized towards raising things like median wages or purchasing power. In the end that’s what really counts.

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

#120

Post by rootusrootus » Sun, May 10, 2020, 7:24 PM UTC

davidw wrote: post #66

ethbro wrote: post #65

Earlier quoted context omitted.

Just wait until we get closer to the election. Then it's going to get absolutely bonkers.

I was already worried about what might happen with this election, but the pandemic is likely to make things worse. My wife and I have been discussing logistics to get somewhere safer in the event of different scenarios, but at the end... it's just difficult to predict what might happen and where.

The US has certainly endured worse in the past and came through strongly. Neither the coronavirus nor Trump are anywhere close to an existential threat for this country.