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

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

#701

Post by mixmastamyk »

arcticbull wrote: post #681
Galanwe wrote: post #665

Earlier quoted context omitted.

If you allow me to complement your breakdown: - bonds: Definitely not 0% interest rate, definitely better than cash. You can expect around 1.5% in the US for IG bonds. This is all relative to the default risk of course, the stronger your central bank, the less risky are the bonds, the less interests you earn. - Real estate: you don't have to own it directly. This exposes yourself to a huge idiosyncratic risk. You can…

> You can expect around 1.5% in the US for IG bonds. Sure, but the fed's target inflation rate is around 2%. That means you're in fact losing 0.5% of your purchasing power per annum. That's just losing money slower. There is in fact, no alternative.

Also the interest will be taxed.

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

#702

Post by mslot »

kgwgk wrote: post #411
paulpauper wrote: post #375

Earlier quoted context omitted.

if a $100 billion dollar company generates $10 billion of profit annually, then that is 10% returned to shareholders every year even if there is no earnings growth.

Sure, with no earnings growth and no price increase shareholders would be richer due to the cash returned via dividends. But that doesn't explain why the price you pay for $X in earnings is higher in one case than in the other. (Retained earnings could explain a minimal part of the increase.) There is no reason for that $100bn company to be a $110bn company next year if it has returned the $10bn it earned to sharehol…

A reason could be that the yields on other forms of investment are going down. If buyers are willing to accept a 1% yield because they cannot easily get it anywhere else then the share price can go to $1 trillion, or even further if yield is expected to go up over time.

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

#703

Post by nullc »

kelnos wrote: post #269
nullc wrote: post #131

Earlier quoted context omitted.

If your net worth is negative servicing your debts has a better risk adjusted return than investing in stocks unless the interest rates on your debt are extremely low.

Yup. If you have a bunch of credit card debt at 20+%, and/or are paying off a car in the high-single-digit percent range, then you really want to pay that off before you consider investments. If all you have is a sub-5% mortgage (though even that's pushing it), or a low-interest student loan, then you should put money toward retirement if you can. On the other hand, ~15 years ago I had a 3.5% student loan, and even t…

>On the other hand, ~15 years ago I had a 3.5% student loan, and even though rationally I should have carried that debt (

Right, but near or sub inflation rate student loans are mostly a non-existent thing anymore. They're much more likely to be at 8% and because of their special treatment in bankruptcy they're usually better to pay down than other loans at similar rates.

As a child I learned how to compute compound interest then shortly after saw a TV advertisement for some kind of predatory loan (not sure if there were payday loan places in the late 80s/1990, but something like that), did the math and for a long time thought all loans were essentially scams (not realizing that the interest rates of payday loans weren't representative). ... it turned out to serve me well: there are worse financial mishaps you could make than avoiding reasonable debt. :)

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

#705

Post by proverbialbunny »

DesiLurker wrote: post #101
MattGaiser wrote: post #56

Earlier quoted context omitted.

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...

wasn't that injection more like a loan that was paid back? IIRC we actually made a tiny profit on it. but this time they are just given it away or some terms that amount to it. so eventually there is a bigger chance of it. but then BOJ has been purchasing stocks for what a decade now and japan still does not has that level of inflation.

Between 2/3rds and 3/4ths were paid off. The current administration has been quite lax about paying off debt, instead pumping money into the market like jet fuel in 2018 and 2019.

I'm not worried about inflation. Most people do not understand how it works yet assume they understand it. Inflation is a complex subject.

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

#706

Post by Glyptodon »

Nasrudith wrote: post #685
Glyptodon wrote: post #435

Earlier quoted context omitted.

Even if they all did that, they still end up buying after all the really wealthy get in, whether it's investment bankers, venture capital, hedge funds, or whatever else, normal income people just end up buying from the 1% and 0.1% who got in privileged and early. Add on top of all that, think about all the investments with minimums that are thousands of dollars and it's obvious that regular money will always be behin…

That is zero sum thinking and misses the point entirely. You don't decide based upon more or less than others but the best option for you. Judging by percentages is like saying "Why jog or walk if you will never be a supermodel?" Invest because it is an end in itself. The reason VCs and hedge funds get in early is because they can afford to fail a lot and have their successes outweigh their failures. It isn't because…

It's not zero sum thinking. Clearly investing is likely better than not investing.

My point wasn't that people shouldn't invest, it's that previous poster suggested everyone investing would "chisel away" at the "86% number," and my general presumption is that so long as the return on wealth is nonlinear to the quantity of wealth, as enabled by the ability to access more expensive/specialized/higher-return investments, it's a lost cause as a simple comparison of function order and rate.

If those who are already richer are likely to have a higher rate of return from greater levels of access or unique opportunities and that rate of return compounds non-linearly, no matter how many regular people invest it's still basically comparing functions with nonlinear differences in rate of increase.

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

#707

Post by addHocker »

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…

Peak physical reality has been reached 2005 - after that is virtual values as gambling money, while the environment is constricting ever since.

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

#708

Post by anm89 »

emerongi wrote: post #641
anm89 wrote: post #579

Earlier quoted context omitted.

You are thinking like a small individual investor. Many larger players are highly leveraged. They don't always have the option to ride the lows. These players have wildly more influence over market prices than mom and pop investors who can ride crashes.

I thought it was the other way round. Mom and pop pull money out because they need to use it when the economy turns bad, big players can ride the wave because their everyday lives really aren't affected.

It can go both ways but institutional traders have access to huge leverage and can also handle large write downs. They take margin calls that are enormous by mom and pop standards all the time.

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

#709

Post by bosswipe »

Nasrudith wrote: post #663
JKCalhoun wrote: post #128

Earlier quoted context omitted.

I feel like there is a decade of guillotines in the future that they are either not seeing or are looking way past. But then I've always been cynical about the growing divide between the uber-wealthy and the other 99% of this country.

I loathe the guillotine rhetoric - did they all sleep through the rest of history class and that it ends with massacres of innocent people not even tenuously connected and getting a fucking emperor? Really it is an all too common attitude - they don't want to fix anything or even think; they just want to feel good about hurting people.

The Anciene Regime ceased to exist and that was a good thing. Many revolutions require violence but that doesn't mean they're never worth it. Nobody could have predicted Napoleon but he was still much better than the monarchy.

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

#710

Post by JMTQp8lwXL »

VRay wrote: post #653
JMTQp8lwXL wrote: post #546

Earlier quoted context omitted.

Are you saying every person who buys a home with a mortgage, while still throwing 5% of salary in their 401(k) is irresponsible? Many, many people do this.

If you think you can count on YOY 12-15% returns on the stock market, you should be buying 10% OTM LEAPs instead of shares. You'll be the world's first trillionaire in a decade or so

You don't need a 12-15% stock market return for your investment returns to beat the growth of your interest debt. For most mortgages, it's a fixed rate. About 4%, some well-qualified borrowers have in low-to-mid 3%, for mortgages originated in the last 12-24 months. Long-term, will an index fund stock market investment exceed 3% returns? Historically speaking, it's a likely outcome.
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