Personal take: A subset of "Main Street" is unhealthy not the entire country. Most things are not closed anymore and the stock market is propped up by tech stocks that saw little slow down due to COVID.
It's weird situation because I'd be willing to bet that the people who own stocks are simply not the one that have been laid off.
And if all businesses are hit by hard economic times, should all stocks go down? Wouldn't that mean that people are selling stocks and not buying other stocks?
I don't think modern investors just don't-buy-stocks unless they need the money for something else. They invest in something. And if everything is doing poorly, that means the market doesn't change.
I wouldn't assume everything is doing poorly. There are big winners and big losers in this economy, and the S&P 500 happens to be constituted primarily of the winners. Almost anything digital right now is gold.
There's also the fact that many companies that are doing well right now are keeping quiet about it. I know from personal experience at the company I work for (fintech midsized startup) that executives are very careful not to be openly positive about benefiting from the pandemic. Publicly admitting that you profitted by a global pandemic and an economic recession is in poor taste, and companies are rightly tentative about doing so.
From my work I've seen anything adtech related explode. Publishers or aggregators whose primary revenue stream is online advertising income are growing at incredible rates. Assuming that everyone is hurting because physical businesses are hurting is a huge mistake.
Additionally, as many analysts have been saying, the pandemics primary effect so far has been to accelerate existing trends, not create new ones. We're seeing a fast-foward in economic transition. Companies that were well positioned before the pandemic for the economy of the future (automation, digital) are doing swimmingly.
Easy Congress put on bandannas and robbed the tax payers of about $18,000 each.
Congress then turned around and gave taxpayers $1,200 each, of their own money, that total amount can be doubled that to account for the temporary unemployment benefits increase. The rest of the taxpayer money went to the FED so they will guarantee the prices of shit stock...the market can't lower because as many rich CEOs and investors cash out their shit stock the FED is there to buy at these artificial prices.
Its not healthy obviously, its just another in a long line of scams on taxpayers who paid for the golden parachutes and will be left holding the bag. There is about $4.2T the FED has to buy stock at artificial prices so it will be sometime before this bubble pops.
And state and city governments went ahead and took 80% of their covid money to pay themselves or their sinking pensions, etc.
> As part of the Coronavirus Aid, Relief and Economic Security Act signed in March, Sacramento County received $181 million to fund necessary programs or expenses tied to the COVID-19 pandemic ... Of the nearly $148 million that the county has already spent in the last few months, more than $104 million went toward paying for salaries and benefits
Tax revenues which have been decimated by the crisis. Unlike the Federal government which can effectively borrow/print whatever it needs, states and municipals are limited by the real world and either have balanced budget requirements or de facto requirements imposed by the bond market/fiscal realities. The equation is simple. Tax revenues have plummeted while expenses have risen due to the costs of coping with the crisis (unemployment, medical services, etc..). Am I saying all of these tax dollars are spent with great efficiency? Of course not. But imposing unnecessary austerity in the middle of a crisis has proven time and time again to do nothing but prolong and deepen economic pain. It would be arbitrary and destructive if say US defense spending can remain immune because it has access to infinite credit while our school district and firefighters will be cut because they are state/local funded.
Also, they are paying a lot of overtime in health related workers or to make up for workers who test positive and for increased cleaning crews, so not only are the hours going up but they are paying the 1.5x rate more often. Sacramento is also relatively expensive and I assume there are a high number of state employees there since it's the capital.
This is going to be a very interesting and telling litmus test for the future of the Country in the next few months.
If public schools go the route of remote teaching, which I think they will...then I don't see much choice but for State, County and local governments to go to war against the Teachers Unions and lay waste to upwards of 75% of the teacher workforce. Lets ballpark about 3M teachers losing their jobs and the entire educational system reformed where there is very limited public school in person attendance. As bad as losing 3M jobs would be to the economy, there will be untold negative impacts on children and parents that will have to leave their children unsupervised during the day.
It should take one really good "lecturer" and then a bunch of TAs. The TAs would be lower paid off course. Would it be fewer overall all? Maybe not, but salaries would change.
In a lot of states, it's not legal to leave your kids unsupervised depending on their age. I would guess that if they laid off teachers (which I think is unlikely on a massive scale due to them facilitating the online classes), then those laid off teachers might be hired as tutors or baby sitters.
I'm not so sure of this. First of all, remote learning takes just as many teachers as in-person learning unless the education plan is just "watch Khan academy and check in with us in a year." In fact under the hybrid models being proposed in areas like NYC it will take more teachers as the teacher doing in-class learning cannot simultaneously handle remote instruction. There are some decent ed-tech products out there but they can't put education on autopilot.
Second, even if you had the technology to automate remote learning during the crisis, are you going to fire all your teachers only to rehire them in Spring/Summer? No I don't have a crystal ball on the future but I'd be surprised if by Spring we didn't have some form of viable if not 100% effective vaccine. We won't be locked inside forever.
We've proven that the US can write a check whenever it wants, and yet whenever we talk about helping regular Americans with free college or healthcare or UBI the national conversation is "how are we going to pay for it?" Writing a check to wall street to bolster profits while leaving Americans to mostly fend for themselves is still theft.
And if you are working and don't pay income tax it's because your employer is legally allowed to pay you poverty wages.
>But people who don’t earn much money aren’t going to be responsible for that bill because they pay no (or almost no) income tax.
Maybe, but the devaluation of the dollar as a result of this additional and significant debt is only going to effect the daily lives of people "who don't earn much money."
I'd really like to read more about how tax payers are paying $18,000 each but all I can find as a source is some twitter comment and a reddit thread where the claim is disputed. Do you have something more substantial I could read? At first glance it seems extremely exaggerated so I'd like to get my head around it.
I think this is simply dividing the cost of relief packages by the number of taxpayers. It’s oversimplification of government budgeting to the point that it doesn’t mean much of anything other than to give a sense of scale.
Whether it gets repaid or not has no bearing on the fact that taxpayers were robbed and their future taxes were used in large part to prop up an historically overvalued stock market completely detached from traditional P/E ratios.
Plus the working class will be made to suffer as their measly incomes, taxed at significantly higher rates than capital gains, will be worth even less due to devaluation of the dollar and inflation.
The US doesn't have a history of defaulting on its sovereign debt, and I haven't heard any serious claims that that is going to change anytime soon. In fact, its a great time for the government to take on debt, since even very long term debt costs less than inflation - 30 year debt is 1.4%, and 10 year debt is <0.7%: https://www.treasury.gov/resource-center/data-chart-center/i...
Historically the US debt balance has gone up for longer and by higher amounts than it goes down. I don't see how this pattern leads to a zero balance in the future?
Where else are you gonna put your money? Stable governments are paying ~0 or negative interest.
I'm actually asking, right now I'm just paying off debt but would be curious what people think. If I didn't have the debt I'd probably buy equities (index fund, etc.) like everoyne else.
Commodities could be another option. I think gold and silver aren't great choices right now, but maybe platinum is. Along this same line, real estate has real value to it.
I'd be very nervous about real estate right now. It requires a lot of speculation about long-time remote work and how cities are going to come out of this. That said, it's something I'd keep my eye on.
I agree gold has had a good run up but the adviser on my managed account just sold the gold position.
You can certainly have (and probably should have) some amount in bonds, etc. but the returns will indeed be pretty low. Unless you're super-pessimistic to the point where you just want to put everything under your mattress, it's hard not to have at least a fairly significant share in equities.
It is with people moving out of cities. But a hot market is exactly when you probably don't want to invest, especially when there's at least some possibility that a couple years from now, the exodus from cities will be seen as a panic overreaction.
As for real estate in cities, property prices mostly don't yet reflect people moving out and a likely commercial real estate collapse. The other question is whether, to the degree prices in cities come down, people who have been pining to live in some city will still want to do this with so many businesses permanently gone and city services in shambles.
I guess I should add that the market has been hot for the past few years and hasn't slowed down. I think the bigger threat to property values will be if interest rates rise significantly. Barring a complete economic collapse, I think raw land or residential rentals should be fine, especially if we see inflation from the current monetary policy.
Personally, I would never buy real estate in a big city. I might be biased since the ones around here are the likes of Trenton, Philadelphia, and Baltimore. City services have been in shambles in these cities for a long time. I don't even like to visit them.
I live outside of Boston/Cambridge so I've been more tempted over the years and I do like visiting. But the prices have managed to continuously outpace my appetite for having a place in town. I will keep my eye on the market as the current situation plays out but I don't really expect a major drop; there wasn't in 2008.
I'd actually like to move to a more rural area with a lower cost of living. Prices and taxes constantly increase here. It seems like there's also an ever increasing number of invasive laws or policies.
I should have been more specific. Viewing it as a commodity, you can buy raw land and sell it to a developer in the future. It'd be a long hold and not a good idea in every region, but might be a good option as compared to government bonds or a savings account. Definitely riskier than an index fund.
Could be a good shortterm play. I'd be concerned about getting in now for a long hold. The price spikes are mostly due to covid related supply issues. Prices should normalize in the next few months (I think).
Real estate has intrinsic value but does it have returns? Residential real estate is fundamentally limited by wages but we are seeing huge unemployment.
And demand for commercial real estate is low due to the whole pandemic situation. If you want to invest in commercial real estate then you are betting that these tendencies towards doing things online are a temporary blip. That could well be false, people are developing new purchasing and working patterns, it's entirely possible that this pandemic will lead to permanent changes in real estate demand.
Actually, last year I inadvertently become a real estate investor because I was tired of paying rent and hated debt, so I looked for cheap rundown shacks I could live in (barely) and buy cash.
Ended up in an old cottage well under 100k on 3.5 acres an hour from the city. Which, in retrospect, was basically like hitting the jackpot for pandemic quality of life. Just dumb luck, though.
Yeah - I think we're going to see a large rebalancing of land values and salaries as remote work becomes more common. The areas that are too far to commute to the city, but close enough for a day trip or the odd visit, are looking really appealing right now.
Although, this is in Europe. A house on 3 acres of land where you could get the train to SF for work in an hour would cost a LOT more than 100k I imagine.
After years of squirreling away my cash like someone who spent their entire 20's working minimum wage jobs or in school I finally bought into some index funds. I too don't know what to do with my money - you can't save it (even in less crazy times it's eaten up by inflation), you can't buy bonds right now, so I said to hell with it, I'm not going to time the market, I'm just going to buy in to funds that try to match the S&P and hope that by the time I need it the market will be in a better place than it is today. I don't know what else you can do if you want to try and plan to have money 20 years out.
I'm sure others will have more nuanced options, and I look forward to hearing about them.
The money market is high risk, right? And looking at the high yield savings accounts - based upon a quick google the best option if you're American seems to be 1%?
Money markets are extremely low risk. In the 37 years before 2008 only three money market funds had ever failed to return the full investment (“broke the buck”).
Money market is very low (but not zero) risk which is why it’s suitable for short term savings. And yeah, 1% is about the best rate you’ll find, subject to change at any moment.
In the long run, time in market (how long you've been investing) is more important than timing the market.
This is in part because it is so hard to time the market, and in part because some stocks pay dividends, which you can compound by reinvesting them. Those count as part of your returns too.
But seriously I do agree — despite it being loved by PF/FIRE crowd — parking all your assets in Index funds with no other competitive option is terrifying.
Bitcoin is 100% speculative. It has no utility. You can't build with it. The fees make using it as fiat prohibitively expensive.
I agree that it will likely go up. I'm actually in the process of testing software I made to predict and exploit its movement. But since it's just speculative, it will also eventually go down hard like it did in 2018.
Was being sarcastic. ETF = risk-adverse and Bitcoin = exact opposite. Whole point was there is no competitive option to an ETF (and that is obviously not bitcoin)
Ah, thank you. Sarcasm is hard to read in text. I've seen a lot of people use "/s" to signify sarcasm, but I don't know how universally recognized it is.
You can send money anywhere in the world in any amount for a flat fee.
It provides an asset with a fixed supply to prevent against inflation.
these provide plenty of utility
What you may mean is that it doesn't generate earnings/cash flow so it's not a productive investment.
So many ways to approach that question. One might be, look at the shape of a graph of S&P 500 over the last 4 decades or so, vs the shape of wages adjusted for inflation.
At this point, assuming one can tell you much about the other requires justification.
The simplified version is that when the Fed wants to inject money/liquidity it buys assets (exchanging new "money" for the asset) in the open market. These operations are done within the financial system. The idea is that banks next loan the money to non-financial businesses which in turn stimulates economic activity. But that last part isn't happening, the injected liquidity is remaining within the financial system where it is being used to bid up the prices of existing financial assets rather than being used to create new ones.
Basically, you can think of the stock market (price) driven by two components: 1) an aggregate of all company profits in the stock market and 2) the cost of borrowing capital (discount rate).
1) Corporate Profits - From what I recall, corporate profits have been flat to down over recent quarters.
2) Discount Rate - The cost of borrowing capital has been falling as governments make access to capital easier for businesses. This has a huge effect on the valuation of the stock market compared to the impact of the profits. This is why the stock market continues to go up. The issue is that if you were to make access to capital harder, thus increasing the discount rate, companies in theory wouldn't be able to borrow as much, and therefore grow as much. Thus, the market would in theory go down, probably alot.
It's really not that complicated. Wall Street doesn't (generally) own businesses on Main Street. Main Street is skewed towards locally owned boutiques, cafes, shops, restaurants and so on. Those are getting killed but it doesn't matter to the S&P 500 because they're not listed there. To some extent it is good for the S&P 500 as the money shifts from those locally owned businesses to the mega corps in the S&P 500.
We've gone from ~4% unemployment to 10-15%. Which sounds bad. But if you flip it around, we've gone from 96% employment to 85-90%. The vast majority of people are still employed and the economy is mostly still humming along.
>We've gone from ~4% unemployment to 10-15%. Which sounds bad. But if you flip it around, we've gone from 96% employment to 85-90%. The vast majority of people are still employed and the economy is mostly still humming along.
This is not how it works.
The US measures unemployment using levels, the 10-15% are U-3, which only counts people without jobs who are in the labor force. To remain in the labor force, they must have looked for a job in the last four weeks.
The U-6, or real unemployment rate, includes the underemployed, the marginally attached, and discouraged workers and is at 25%.
There are plenty of deeper explanations online but basically politicians love to talk about U-3 but the true unemployment is U-6.
Because the rules around running a business in the COVID-19 environment have been set such that large companies can afford to comply with them but small business can’t without losing money. So all their employees, and eventually the business owners themselves, bear the brunt of that.
Just from a very theoretical level, low interest rates means the net present value (NPV) of companies, ie their stock prices, are weighted more heavily to future earnings and not just this year's earnings. So if the market is pricing in some return to normalcy, even if it's a year or two out, you wouldn't expect to see much of a hit. Assuming companies can get from here to there without going bankrupt, something the government has been very explicit about helping with by providing cheap/free funds.
Edit: Plus there's FAAMG driving the S&P500 up, who for obvious reasons are doing very well right now.
This is true but incomplete. The S&P500 is basically at the same level as mid-February, and even if expected earnings for, say, mid-2021 forward are the same as they were in February, the missing earnings between February 2020 and mid-2021 should be reflected in prices.
What's missing is that a decrease in interest rates also directly results in an increase in the NPV of future distributed earnings. That increase seems to have offset the decrease in the expected nominal (undiscounted) value of earnings. But this also makes for lower expected returns in the future: In principle, if interest rates and expected earnings stay the same, the unwinding of that discounting is what drives equity returns.
By holding interest rates so low, the Fed has created a double-bind: despite the systemic risks (which are very high) people who have investable cash have two options: the stock market or paying down debt.
The stock market is being "invested" in not because it is a good investment at this point (it isn't) but because there is no where else to go. If interest rates ever revert to anything normal, it will get crushed. In the meantime this means that large, multinational companies are flush and are able to destroy smaller, more local competition. This trend is aided by the lockdowns, as well as the fact that large companies have access to the extremely low interest rates, but smaller players do not. You will continue to pay usurious rates on credit cards and most small business loans, while Global Corp. can issue corporate debt as very low rates.
Paying down debt is the opposite of what the Fed wants: in our system debt is the true money supply, so when debt is extinguished the money supply contracts. You can see this clearly in 2008:
It seems like some of the COVID relief in the US provided a view into the "Modern Debt Jubilee". Apparently, many people used the infusion of cash to pay down short term debt.
This doesn't really make sense. If you force me to pay down debt and I want cash then I'm just going to take out more debt.
Low interest rates or high debt aren't really the fundamental problem. The problem is a concentration of cash/wealth. Adam Neumann is a billionaire because he convinced some morons in Japan to give his company 10s of billions of Saudi money. But an average Joe would be laughed out of a bank if they asked for 10s of thousands to start a business.
If we are worried about a deflationary spiral the solution is simple. Give everyone money.
> If we are worried about a deflationary spiral the solution is simple. Give everyone money.
Yeah, you might want to spend a bit more time thinking and reading about it. Keen has been ignored and mocked by the economics establishment, but he's the only guy I know who takes debt seriously and has developed computer models for dealing with the natural instability of exponential growth in it (Krugman famously has said "we owe it to ourselves").
You need to bring the total debt load down, to bring the absolute payment load down to a sustainable level and handle the exponent in debt growth. Giving everyone money without forcing them to pay down debt doesn't accomplish that, it's a linear response to an exponential problem. There's a reason debt jubilees were built into most pre-modern societies.
You saw the part where I said people would just take out new debt, right? You can't force people to lower their debt load unless you also prevent them from taking out more debt.
Numerate people understand debt is driven by ideology.
Enough people need to be enabled with skin in the game to jettison social narratives that elites must rule.
Debt is a fascistic social object intended to enable grift of the aristocracy.
It could be described in plainer math terms. But cortexes have had “facts” like “because a person has a lot of money they’re extra important” coded into them such that that’s all our limbic system can trigger as a response.
A lot of smart people hold conflicting belief there are no gods and their own personal skills make them invaluable.
France can’t even sort out who “holds” all of its national debt.
Why would the next generation or two not just argue to change the nature of this rather than feel beholden to all the people debating this today who will be long dead by then?
Nation states have hit “reset” on debt in the past. “People today” need to climb out their own arse and realize it’s not the first and last day of human existence.
Consider the real messes, environment and human tragedies, your culture is perpetuating.
Not the illusory idea that economists are more useful than real doers to a community. A lot of professional experts are just grifters extracting capital like you.
Cognitive science is showing muscle memory and hands on doing is more important than intellect and wealth when it comes to solving problems. “Educated” administrators who peddle context as king test lower on reading comprehension and have trouble thinking outside the box.
It’s not “government” that’s bad. That’s a logical straw man. Government is humans. It’s enabling human biology to exist in the state of feeling invulnerable. It leads to entitlement and fascistic defense of unrealistic idea any one or handful of people are that important.
They don’t have an information advantage. They have a social narrative advantage we’re trained from childhood to abide no different than children being taught to abide god. Elites falling will mean end times!
It’s just people saying things, doing things. Which people doesn’t matter. History clearly shows there will always be someone on every side of wavey debate. Using ones wealth to boost their side of the debate is authoritarian and anti-free market.
America is an oligarchy. Just like all of its “enemies”.
From the New York Times this morning, about the irrational stock market:
"As irrational as it might seem, here’s the way investors rationalize the bullish stock market to themselves (we’ll only find out whether they are right or wrong in the future):
1. The stock market is forward-looking: Investors are betting on what the world and the economy look like in 12 to 18 months from now, not what they look like today, tomorrow or this fall.
2. The big get bigger: Much of the stock market’s success has been the result of a run-up in value for a few big technology companies — including Apple, Amazon and Microsoft — that make up a large share of the index. And retailers like Walmart and Home Depot are growing in part because small businesses have closed, allowing the bigger companies to take even more market share.
3. Betting on a vaccine: Given the daily headlines about the potential for a vaccine, investors want to be invested in the market when the news comes that there is a genuine vaccine, on the assumption that it will send stocks even higher.
4. The only game in town: With the Federal Reserve planning to print money for the foreseeable future, investors don’t want to be in cash or bonds, which are steadily losing value. So where else can they put their money? The stock market has become a default.
5. Help from Washington: As dysfunctional as Congress has proved to be, investors are betting that Republicans and Democrats will find a way to keep plying the economy with stimulus. (Anecdotal stories suggest some Americans have even taken their $600 unemployment checks and invested them in the stock market.)
Of course, all of these rationalizations don’t take into account the possibility of a terrible second or third coronavirus wave, a delay in the discovery of a vaccine, a constitutional crisis come the election in November, runaway inflation, the prospect of higher taxes to pay for the stimulus, a more significant trade war with China, or the dozens of other risks that seem to be bubbling just below — and in some cases on — the surface.
In the meantime, happy trading!"
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#4 I hadn’t thought of, and is a VERY troubling sign I think. Cash is devaluing because of inflation. Bonds are devaluing because of a loss of hope of future repayment (they are debt instruments).
#4 seems like somewhat of an overstatement. It's true that you probably can't really keep money out of the stock market if you have appreciable money to invest. But that doesn't mean you can't reasonably hedge your bets at least somewhat. You won't get the full upside if the market continues to do well but you do have some downside protection that has at least a small return.
The bull case is that by mid-1Q we have a vaccine and the crisis is over. Government fiscal and monetary keeps the economy on life support until that happens. If you value a business bottom up and you think 2021/2022 sort of revert back to 2019 then by now in 2020 you are basing your valuations on those numbers and decreasing the equity value where necessary for businesses that took on debt to get through 2020. The Fed has said it will keep rates low for longer and overshoot 2% which is an average target not a ceiling. If your money has to go somewhere (and it does) then fixed income duration at paltry yields looks like a bad bet if we get a tick up in inflation. In an inflationary environment stocks aren't great but they will preserve purchasing power better than bonds. Sure you can play with commodities and bitcoins but are you as say a middle-aged saver with a family going to put your entire liquid net worth into gold bullion and bitcoin (of course this being Hacker News I expect a good number of "of course" responses!)
For my two cents I was embarrassingly late the the bull party and couldn't believe the rally back so fast. There will of course be a jobs recovery from the lows as the virus threat ebbs but I suspect a decent number of the jobs lost are structural and employment won't quickly rebound to sub 5%. Gun to my head I'd say high single digit unemployment could linger a while which is pretty painful. If the Federal government remains deadlocked then state and municipal austerity will multiply the economic pain.
There are several COVID vaccines in stage 3 trials, I think it is safe to say that we will have a vaccine being rolled out by mid 2021 at the very latest.
Are you an immunologist? I'm not, but it's my layman's understanding that most candidates are likely to make it to stage 3, and that most will fail in stage 3. As far as I can tell, the number of candidates in stage 3 trials is not a strong indicator of the likelihood of a successful vaccine being developed.
No but Dr. Fauci, along with other scientists working on the vaccine (ex. Dr. Sarah Gilbert), have repeatedly said we will likely get a vaccine by 2021, and have millions of doses rolling out by mid 2021.
> No but Dr. Fauci, along with other scientists working on the vaccine, have repeatedly said we will likely get a vaccine by 2021.
No, Dr. Fauci has said that if the vaccines currently in testing, which are being rushed to production before trials are complete, pass trials, then it is likely that there will be tens of millions of doses available in Spring 2021 and enough for everyone who wants them by the end of 2021.
But he's also acknowledged, at the same time, that that's an “if” and instead all of that vaccine could end up getting dumped if the trials fail.
Looking ahead, Fauci said he’s “cautiously optimistic that we will have a vaccine by the end of this year and as we go into 2021. I don’t think it’s dreaming … I believe it’s a reality (and) will be shown to be reality.”
Fauci is cautiously optimistic that a vaccine will exist by the end of the year, be in limited deployment in Spring, and generally fully available in the US by the end of the year to everyone who wants it.
But that's cautious optimism that stuff currently in testing and rushed into production in anticipation of success pans out, and there is a risk that it doesn't and we're back at square one. Nowhere does he even suggest a likely timeline if his cautious optimism about the current crop isn't realized, which he very clearly acknowledges it might not be.
It may seem to you to be “pretty sure” we'll have a vaccine in 2021, but that's certainly not a conclusion supporter by Dr. Fauci’s statement.
HIV doesn't cause an effective immune response in the first place, and there's no way to verify that a SARS or MERS vaccine works, because both the intervention and control groups will get zero infections.
Plus economies of scale on top of COVID killing mom & pop shops means that only large scale players can survive as Main Street offerings, e.g. the Starbucks on every block, or large chain eateries.
1. Stock markets are forward looking. Prices reflect expectations about the company going far into the future, not just right now. So yeah, this year and next year are going to be bad, but we expect that five years from now things will be back to normal or better and prices reflect that.
2. Companies in the S&P 500 (which is what people often mean when they talk about Wall Street/the market/etc) are by definition are big and have easy access to the capital markets. Consequently, they are the best positioned to whether the storm and seize the opportunities as they come. When things start recovering companies with money/easy access to the bond market are going to be the ones who can open new locations and capitalize on pent up demand.
3. There are a bunch of big companies that have actually done well for the last six months. The obvious ones are companies like Amazon, Netflix and Zoom, but for instance Target and Walmart have benefited from being allowed to stay open because they sell essentials while also selling everything else so they were often the only option other than Amazon.
4. When people talk about the S&P 500 recovering unbelievably fast, they often mean vs. the lows in March. Those lows were not reflective of the reality of what was happening (definitionally: nobody knew the reality of what was happening, lack of testing, etc.), but there was some concern that the actual apocalypse might have occurred... and everyday as merely bad news poured in that actually restored confidence because the news was not apocalyptic. So, the prices rose.
5. There really are a bunch of bored people buying stocks on their phone because they can't bet on sports anymore [1]. It's not clear how big an effect this is, but there really does seem to be extra retail demand for stocks.
The price of productive assets goes up as interest rates fall, this is a simple NPV calculation.
Interest rates are low, and have been low in the developed world for a while. The reason for this has nothing to do with central bank conspiracy theories. The neutral rate of interest is determined by productivity growth, profitability of available investments, and how much capital there is that can be invested in them. The best a central bank can do is 1. be good at detecting where this equilibrium is and reacting to it, and 2. move interest rates at the margins to smooth out the business cycle.
Think of it this way. If, in the aggregate, an average business would make a real return of 3% per year, then an interest rate above 3% would discourage all but the best business ideas from being pursued. Likewise a lower rate would encourage investment in worse ideas with lower profit margins. This is one way to think about the "neutral rate of interest." It is determined by exogenous facts about the real economy.
Now, we have fewer "profitable ideas" (and lower productivity growth correspondingly), and significantly more savings due to greying populations (people who are older/will live longer require more savings) and cultural tendencies (e.g. higher savings rates in China, Germany). So the neutral rate falls, and the result of that the price of capital goods rises.
Central banks' hands are effectively forced by this situation. If policy maintained an artificially high interest rate when the neutral rate is lower, economic contraction would ensue disadvantaging all parties.
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[ 3.9 ms ] story [ 52.9 ms ] threadIt's weird situation because I'd be willing to bet that the people who own stocks are simply not the one that have been laid off.
I don't think modern investors just don't-buy-stocks unless they need the money for something else. They invest in something. And if everything is doing poorly, that means the market doesn't change.
There's also the fact that many companies that are doing well right now are keeping quiet about it. I know from personal experience at the company I work for (fintech midsized startup) that executives are very careful not to be openly positive about benefiting from the pandemic. Publicly admitting that you profitted by a global pandemic and an economic recession is in poor taste, and companies are rightly tentative about doing so.
From my work I've seen anything adtech related explode. Publishers or aggregators whose primary revenue stream is online advertising income are growing at incredible rates. Assuming that everyone is hurting because physical businesses are hurting is a huge mistake.
Additionally, as many analysts have been saying, the pandemics primary effect so far has been to accelerate existing trends, not create new ones. We're seeing a fast-foward in economic transition. Companies that were well positioned before the pandemic for the economy of the future (automation, digital) are doing swimmingly.
Congress then turned around and gave taxpayers $1,200 each, of their own money, that total amount can be doubled that to account for the temporary unemployment benefits increase. The rest of the taxpayer money went to the FED so they will guarantee the prices of shit stock...the market can't lower because as many rich CEOs and investors cash out their shit stock the FED is there to buy at these artificial prices.
Its not healthy obviously, its just another in a long line of scams on taxpayers who paid for the golden parachutes and will be left holding the bag. There is about $4.2T the FED has to buy stock at artificial prices so it will be sometime before this bubble pops.
> As part of the Coronavirus Aid, Relief and Economic Security Act signed in March, Sacramento County received $181 million to fund necessary programs or expenses tied to the COVID-19 pandemic ... Of the nearly $148 million that the county has already spent in the last few months, more than $104 million went toward paying for salaries and benefits
1. https://www.sacbee.com/news/local/article244813632.html
This is going to be a very interesting and telling litmus test for the future of the Country in the next few months.
If public schools go the route of remote teaching, which I think they will...then I don't see much choice but for State, County and local governments to go to war against the Teachers Unions and lay waste to upwards of 75% of the teacher workforce. Lets ballpark about 3M teachers losing their jobs and the entire educational system reformed where there is very limited public school in person attendance. As bad as losing 3M jobs would be to the economy, there will be untold negative impacts on children and parents that will have to leave their children unsupervised during the day.
In a lot of states, it's not legal to leave your kids unsupervised depending on their age. I would guess that if they laid off teachers (which I think is unlikely on a massive scale due to them facilitating the online classes), then those laid off teachers might be hired as tutors or baby sitters.
Second, even if you had the technology to automate remote learning during the crisis, are you going to fire all your teachers only to rehire them in Spring/Summer? No I don't have a crystal ball on the future but I'd be surprised if by Spring we didn't have some form of viable if not 100% effective vaccine. We won't be locked inside forever.
On average, sure. But people who don’t earn much money aren’t going to be responsible for that bill because they pay no (or almost no) income tax.
And if you are working and don't pay income tax it's because your employer is legally allowed to pay you poverty wages.
Maybe, but the devaluation of the dollar as a result of this additional and significant debt is only going to effect the daily lives of people "who don't earn much money."
Or we could've all just worn masks and saved most of that but ya know...
[0]: https://newleftreview.org/issues/II123/articles/robert-brenn...
I think you're under the mistaken impression that the debt incurred by the aid packages will somehow get repaid.
Plus the working class will be made to suffer as their measly incomes, taxed at significantly higher rates than capital gains, will be worth even less due to devaluation of the dollar and inflation.
I'm actually asking, right now I'm just paying off debt but would be curious what people think. If I didn't have the debt I'd probably buy equities (index fund, etc.) like everoyne else.
I agree gold has had a good run up but the adviser on my managed account just sold the gold position.
You can certainly have (and probably should have) some amount in bonds, etc. but the returns will indeed be pretty low. Unless you're super-pessimistic to the point where you just want to put everything under your mattress, it's hard not to have at least a fairly significant share in equities.
As for real estate in cities, property prices mostly don't yet reflect people moving out and a likely commercial real estate collapse. The other question is whether, to the degree prices in cities come down, people who have been pining to live in some city will still want to do this with so many businesses permanently gone and city services in shambles.
Personally, I would never buy real estate in a big city. I might be biased since the ones around here are the likes of Trenton, Philadelphia, and Baltimore. City services have been in shambles in these cities for a long time. I don't even like to visit them.
And demand for commercial real estate is low due to the whole pandemic situation. If you want to invest in commercial real estate then you are betting that these tendencies towards doing things online are a temporary blip. That could well be false, people are developing new purchasing and working patterns, it's entirely possible that this pandemic will lead to permanent changes in real estate demand.
Ended up in an old cottage well under 100k on 3.5 acres an hour from the city. Which, in retrospect, was basically like hitting the jackpot for pandemic quality of life. Just dumb luck, though.
Although, this is in Europe. A house on 3 acres of land where you could get the train to SF for work in an hour would cost a LOT more than 100k I imagine.
I'm sure others will have more nuanced options, and I look forward to hearing about them.
You may be thinking of forex trading.
Yeah, that would be it.
This is in part because it is so hard to time the market, and in part because some stocks pay dividends, which you can compound by reinvesting them. Those count as part of your returns too.
But seriously I do agree — despite it being loved by PF/FIRE crowd — parking all your assets in Index funds with no other competitive option is terrifying.
I agree that it will likely go up. I'm actually in the process of testing software I made to predict and exploit its movement. But since it's just speculative, it will also eventually go down hard like it did in 2018.
You can send money anywhere in the world in any amount for a flat fee. It provides an asset with a fixed supply to prevent against inflation. these provide plenty of utility
What you may mean is that it doesn't generate earnings/cash flow so it's not a productive investment.
Debt is a negative bond, while bonds are currently paying around 0%, while terrible, is still way better than a negative #.
After your debt is paid off, then buy TSM(total Stock Market) index funds. I recently came across an example here of what a TSM index fund can do for one's financial life: https://deepnote.com/project/b7be8d06-b84c-4178-b51a-688bef9...
At this point, assuming one can tell you much about the other requires justification.
https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
The simplified version is that when the Fed wants to inject money/liquidity it buys assets (exchanging new "money" for the asset) in the open market. These operations are done within the financial system. The idea is that banks next loan the money to non-financial businesses which in turn stimulates economic activity. But that last part isn't happening, the injected liquidity is remaining within the financial system where it is being used to bid up the prices of existing financial assets rather than being used to create new ones.
1) Corporate Profits - From what I recall, corporate profits have been flat to down over recent quarters.
2) Discount Rate - The cost of borrowing capital has been falling as governments make access to capital easier for businesses. This has a huge effect on the valuation of the stock market compared to the impact of the profits. This is why the stock market continues to go up. The issue is that if you were to make access to capital harder, thus increasing the discount rate, companies in theory wouldn't be able to borrow as much, and therefore grow as much. Thus, the market would in theory go down, probably alot.
We've gone from ~4% unemployment to 10-15%. Which sounds bad. But if you flip it around, we've gone from 96% employment to 85-90%. The vast majority of people are still employed and the economy is mostly still humming along.
This is not how it works.
The US measures unemployment using levels, the 10-15% are U-3, which only counts people without jobs who are in the labor force. To remain in the labor force, they must have looked for a job in the last four weeks.
The U-6, or real unemployment rate, includes the underemployed, the marginally attached, and discouraged workers and is at 25%.
There are plenty of deeper explanations online but basically politicians love to talk about U-3 but the true unemployment is U-6.
1. https://www.bls.gov/charts/employment-situation/civilian-lab...
Edit: Plus there's FAAMG driving the S&P500 up, who for obvious reasons are doing very well right now.
What's missing is that a decrease in interest rates also directly results in an increase in the NPV of future distributed earnings. That increase seems to have offset the decrease in the expected nominal (undiscounted) value of earnings. But this also makes for lower expected returns in the future: In principle, if interest rates and expected earnings stay the same, the unwinding of that discounting is what drives equity returns.
The stock market is being "invested" in not because it is a good investment at this point (it isn't) but because there is no where else to go. If interest rates ever revert to anything normal, it will get crushed. In the meantime this means that large, multinational companies are flush and are able to destroy smaller, more local competition. This trend is aided by the lockdowns, as well as the fact that large companies have access to the extremely low interest rates, but smaller players do not. You will continue to pay usurious rates on credit cards and most small business loans, while Global Corp. can issue corporate debt as very low rates.
Paying down debt is the opposite of what the Fed wants: in our system debt is the true money supply, so when debt is extinguished the money supply contracts. You can see this clearly in 2008:
https://fred.stlouisfed.org/series/TCMDO
Steve Keen outlines our best hope, a modern debt jubilee, here:
http://www.profstevekeen.com/modern-debt-jubilee/
>http://www.profstevekeen.com/modern-debt-jubilee/
This doesn't really make sense. If you force me to pay down debt and I want cash then I'm just going to take out more debt.
Low interest rates or high debt aren't really the fundamental problem. The problem is a concentration of cash/wealth. Adam Neumann is a billionaire because he convinced some morons in Japan to give his company 10s of billions of Saudi money. But an average Joe would be laughed out of a bank if they asked for 10s of thousands to start a business.
If we are worried about a deflationary spiral the solution is simple. Give everyone money.
Yeah, you might want to spend a bit more time thinking and reading about it. Keen has been ignored and mocked by the economics establishment, but he's the only guy I know who takes debt seriously and has developed computer models for dealing with the natural instability of exponential growth in it (Krugman famously has said "we owe it to ourselves").
You need to bring the total debt load down, to bring the absolute payment load down to a sustainable level and handle the exponent in debt growth. Giving everyone money without forcing them to pay down debt doesn't accomplish that, it's a linear response to an exponential problem. There's a reason debt jubilees were built into most pre-modern societies.
You saw the part where I said people would just take out new debt, right? You can't force people to lower their debt load unless you also prevent them from taking out more debt.
Enough people need to be enabled with skin in the game to jettison social narratives that elites must rule.
Debt is a fascistic social object intended to enable grift of the aristocracy.
It could be described in plainer math terms. But cortexes have had “facts” like “because a person has a lot of money they’re extra important” coded into them such that that’s all our limbic system can trigger as a response.
A lot of smart people hold conflicting belief there are no gods and their own personal skills make them invaluable.
France can’t even sort out who “holds” all of its national debt.
Why would the next generation or two not just argue to change the nature of this rather than feel beholden to all the people debating this today who will be long dead by then?
Nation states have hit “reset” on debt in the past. “People today” need to climb out their own arse and realize it’s not the first and last day of human existence.
Consider the real messes, environment and human tragedies, your culture is perpetuating.
Not the illusory idea that economists are more useful than real doers to a community. A lot of professional experts are just grifters extracting capital like you.
Cognitive science is showing muscle memory and hands on doing is more important than intellect and wealth when it comes to solving problems. “Educated” administrators who peddle context as king test lower on reading comprehension and have trouble thinking outside the box.
It’s not “government” that’s bad. That’s a logical straw man. Government is humans. It’s enabling human biology to exist in the state of feeling invulnerable. It leads to entitlement and fascistic defense of unrealistic idea any one or handful of people are that important.
They don’t have an information advantage. They have a social narrative advantage we’re trained from childhood to abide no different than children being taught to abide god. Elites falling will mean end times!
It’s just people saying things, doing things. Which people doesn’t matter. History clearly shows there will always be someone on every side of wavey debate. Using ones wealth to boost their side of the debate is authoritarian and anti-free market.
America is an oligarchy. Just like all of its “enemies”.
"As irrational as it might seem, here’s the way investors rationalize the bullish stock market to themselves (we’ll only find out whether they are right or wrong in the future):
1. The stock market is forward-looking: Investors are betting on what the world and the economy look like in 12 to 18 months from now, not what they look like today, tomorrow or this fall.
2. The big get bigger: Much of the stock market’s success has been the result of a run-up in value for a few big technology companies — including Apple, Amazon and Microsoft — that make up a large share of the index. And retailers like Walmart and Home Depot are growing in part because small businesses have closed, allowing the bigger companies to take even more market share.
3. Betting on a vaccine: Given the daily headlines about the potential for a vaccine, investors want to be invested in the market when the news comes that there is a genuine vaccine, on the assumption that it will send stocks even higher.
4. The only game in town: With the Federal Reserve planning to print money for the foreseeable future, investors don’t want to be in cash or bonds, which are steadily losing value. So where else can they put their money? The stock market has become a default.
5. Help from Washington: As dysfunctional as Congress has proved to be, investors are betting that Republicans and Democrats will find a way to keep plying the economy with stimulus. (Anecdotal stories suggest some Americans have even taken their $600 unemployment checks and invested them in the stock market.)
Of course, all of these rationalizations don’t take into account the possibility of a terrible second or third coronavirus wave, a delay in the discovery of a vaccine, a constitutional crisis come the election in November, runaway inflation, the prospect of higher taxes to pay for the stimulus, a more significant trade war with China, or the dozens of other risks that seem to be bubbling just below — and in some cases on — the surface.
In the meantime, happy trading!"
*
#4 I hadn’t thought of, and is a VERY troubling sign I think. Cash is devaluing because of inflation. Bonds are devaluing because of a loss of hope of future repayment (they are debt instruments).
For my two cents I was embarrassingly late the the bull party and couldn't believe the rally back so fast. There will of course be a jobs recovery from the lows as the virus threat ebbs but I suspect a decent number of the jobs lost are structural and employment won't quickly rebound to sub 5%. Gun to my head I'd say high single digit unemployment could linger a while which is pretty painful. If the Federal government remains deadlocked then state and municipal austerity will multiply the economic pain.
No, Dr. Fauci has said that if the vaccines currently in testing, which are being rushed to production before trials are complete, pass trials, then it is likely that there will be tens of millions of doses available in Spring 2021 and enough for everyone who wants them by the end of 2021.
But he's also acknowledged, at the same time, that that's an “if” and instead all of that vaccine could end up getting dumped if the trials fail.
https://globalnews.ca/news/7242988/fauci-usa-coronavirus-vac...
Of course nothing is guaranteed, but to me that seems like we can be pretty sure that we will have a vaccine in 2021.
Fauci is cautiously optimistic that a vaccine will exist by the end of the year, be in limited deployment in Spring, and generally fully available in the US by the end of the year to everyone who wants it.
But that's cautious optimism that stuff currently in testing and rushed into production in anticipation of success pans out, and there is a risk that it doesn't and we're back at square one. Nowhere does he even suggest a likely timeline if his cautious optimism about the current crop isn't realized, which he very clearly acknowledges it might not be.
It may seem to you to be “pretty sure” we'll have a vaccine in 2021, but that's certainly not a conclusion supporter by Dr. Fauci’s statement.
Plus economies of scale on top of COVID killing mom & pop shops means that only large scale players can survive as Main Street offerings, e.g. the Starbucks on every block, or large chain eateries.
2. Companies in the S&P 500 (which is what people often mean when they talk about Wall Street/the market/etc) are by definition are big and have easy access to the capital markets. Consequently, they are the best positioned to whether the storm and seize the opportunities as they come. When things start recovering companies with money/easy access to the bond market are going to be the ones who can open new locations and capitalize on pent up demand.
3. There are a bunch of big companies that have actually done well for the last six months. The obvious ones are companies like Amazon, Netflix and Zoom, but for instance Target and Walmart have benefited from being allowed to stay open because they sell essentials while also selling everything else so they were often the only option other than Amazon.
4. When people talk about the S&P 500 recovering unbelievably fast, they often mean vs. the lows in March. Those lows were not reflective of the reality of what was happening (definitionally: nobody knew the reality of what was happening, lack of testing, etc.), but there was some concern that the actual apocalypse might have occurred... and everyday as merely bad news poured in that actually restored confidence because the news was not apocalyptic. So, the prices rose.
5. There really are a bunch of bored people buying stocks on their phone because they can't bet on sports anymore [1]. It's not clear how big an effect this is, but there really does seem to be extra retail demand for stocks.
[1] https://www.bloomberg.com/news/audio/2020-07-09/inside-the-m...
Interest rates are low, and have been low in the developed world for a while. The reason for this has nothing to do with central bank conspiracy theories. The neutral rate of interest is determined by productivity growth, profitability of available investments, and how much capital there is that can be invested in them. The best a central bank can do is 1. be good at detecting where this equilibrium is and reacting to it, and 2. move interest rates at the margins to smooth out the business cycle.
Think of it this way. If, in the aggregate, an average business would make a real return of 3% per year, then an interest rate above 3% would discourage all but the best business ideas from being pursued. Likewise a lower rate would encourage investment in worse ideas with lower profit margins. This is one way to think about the "neutral rate of interest." It is determined by exogenous facts about the real economy.
Now, we have fewer "profitable ideas" (and lower productivity growth correspondingly), and significantly more savings due to greying populations (people who are older/will live longer require more savings) and cultural tendencies (e.g. higher savings rates in China, Germany). So the neutral rate falls, and the result of that the price of capital goods rises.
Central banks' hands are effectively forced by this situation. If policy maintained an artificially high interest rate when the neutral rate is lower, economic contraction would ensue disadvantaging all parties.
I'd say that the institutions that own the majority of stocks, colluded and just decided to sit tight.