The stock market is not the economy, that is absolutely true. But why exactly is that made clearer right now? Considering we have been in a pandemic for 5 months now, I would say we are faring pretty well economically. Consumer spending is back up. Unemployment is going back down. The real estate market is healthy. Prices are stable. There are certainly people and industries not doing well and we should help them. There are also people and industries doing really well right now. I have seen no proof that the overall economy is hurting.
My customer owns a metal factory and complained about this: the unemployment boost made it impossible for him to fill low level positions as most would make more to stay home.
You are taking a risk coming off unemployment in a pandemic. If you get laid off again, good luck getting back on unemployment. If people aren't taking the job, that means the pay is lower than the perceived risk to the worker, and should be raised.
I think that explanation is more of a political talking point than reality.
I guess if you make people desperate enough, then they will start looking for new jobs. But I think he's grossly underestimating what's going on with society.
Most people on unemployment are laid off. They are not applying for new jobs because they assume that they will have a job to go back to shortly.
These people are also dealing with the clusterfuck surrounding schooling & childcare. From what I've seen, it's close to impossible to get your younger child back into childcare. The older ones taking remote classes in school require a good deal of adult attention.
I don't think a lot of people would change jobs even for a big raise because things are so hectic right now. Even people here on HN are struggling to balance their lives, and these are people who earn good wages and have a lot of flexibility with their schedule.
During a pandemic, that’s the point! You don’t want desperate people staying in the workforce and spreading the virus which kills more people. Having people stay home is what was supposed to happen!
Not bizarre at all if you think about it. The economic hardship will motivate a substantial portion of our population to become more industrious. They'll fill any available job and do it productively since they're now at or below the poverty line.
The stock market is setting new highs in anticipation of a renaissance in worker efficiency and business margins.
Can we stop perpetuating this idea that poverty is going to make people work super hard to escape? It’s a debilitating state that traps people. It’s not a blessing of motivation. Studies have show poverty lowers IQ and overall health in almost every way. Happy, financially secure workers are productive ones. Hard to focus on your job when you’re wondering where your next meal is coming from and which bills you can push off until your next paycheck.
Actually reading a study, researching who conducted and funding it, and their methods > calling a study crooked because it disagrees with your world views
Your thesis has an implication that is readily checked:
If living poverty makes people more industrious, then people who grew up in poverty should have better outcomes than people who never have.
And that's pretty well proven to by false. In fact, there's a name for all of the negative effects of living in poverty that perpetuate a life in poverty: the cycle of poverty.
Other than GDP cratering in Q2 or massive unemployment, with incomes only remaining stable because we gave the vast majority of Americans $1,200 checks and $2,400 income boost if they were unemployed?
We're not even in the first inning of this crisis - We're still in batting practice. The ripples and waves of this crisis will probably (just my arm chair opinion) last for years, if not the next decade.
But, hey, who knows! Maybe it'll all be over and done with next spring post vaccine. We'll be back to 4% unemployment and it'll be like it never happened from an economic perspective. Seems unlikely to me, but I'm not an economist.
> Maybe it'll all be over and done with next spring post vaccine. We'll be back to 4% unemployment and it'll be like it never happened from an economic perspective.
I don't bet on this happening, but it is certainly a possible outcome.
A lot of the issues we are facing are the result of supply shortages due to people not being able to operate in close proximity to one another. If not for Covid, then it's likely that the economy would have continued to grow.
If you think about it, the US economy continued to grow over the past decade even while the collapse of the retail, energy, and agricultural sectors during that time frame. Once people are able to return to being in large groups, it's not unreasonable to expect growth to continue.
This isn't much of a surprise. Previous large-scale disasters often destroyed capital. During the Blitz, bombs blew up factories.
COVID leaves physical capital almost entirely untouched. It is most harmful to people and in particular the poor who often work "essential" (but undercompensated) jobs, those without healthcare, and small business owners. National restaurant chains can ride it out while sole owner ones with less cushion fold. Small stores die while everyone flocks to Amazon.
The pandemic is essentially a net transfer of power to the rich. The stock market is an index of the rich—the wealthiest 10% own 85% of all stock. Of course it's going up.
Yeah, I feel like we're realistically far from "eat the rich" land, but I do feel like society is being pushed closer and closer to the precipice. I mean, just take a look at pg's wealth tax post, which while I won't necessarily say was "tone deaf", it was at least woefully out of touch IMO: "You can't add a wealth tax, founders will go elsewhere!"
If we don't figure out how to more equally distribute the rewards of capitalism, we may find there are very few people left to buy the goods founders want to sell, unless we all want to do high-end art marketplace startups.
> If we don't figure out how to more equally distribute the rewards of capitalism
We actually have figured it out. It's called "taxes". Taxes are how you do it. There, mystery solved.
The problem is that the rich have reached a level of power —through Citizens United, Fox News, disenfranchisement, and just straight up getting richer—that they can prevent taxes that harm them but would benefit the majority of Americans.
That's a bit of a simplification. Fact is, real estate is at or near peak as seen by slowing prices. The interest rate for any money vehicle is near zero. The stock market is the only place to stash it.
Also, banks tightened lending standards for real estate (commoners). My guess is that they didn't do the same for corporations. So all the money went to corporations... Probably stock buybacks; so it went to shareholders; tax-free too; and even when the shareholders decide to sell, they'll only pay capital gains tax, which is lower than income tax.
The stock market is a scam. A the biggest pyramid scheme the world has ever seen. CEOs who understand how the system works and willingly participate in it are criminals.
I don't see how this could all not fall apart. It seems like the divergence between the stock market and the rest of the economy, is going to be the biggest bubble that has ever been. Personally, I think it's going to be the end of the US dollar.
I don't think that's likely. The US has enough guns and control of major tech players driving things that it will hold its staying power as the major currency. But let's say you're right. What would the move be to diversify risk? Gold? Real estate?
The permanent portfolio is an investment portfolio designed to perform well in all economic conditions. It was devised by free-market investment analyst, Harry Browne, in the 1980s. The permanent portfolio is composed of an equal allocation of stocks, bonds, gold, and cash, or Treasury bills.
The stock market and the economy have never really been converged though. Stock prices are based on nothing more than the supply and demand of the stock itself. That supply and demand has nothing to do with how well a company is actually doing. It usually tracks company performance but if everyone wanted to buy the stock of a bankrupt company, the stocks value would still rise. It’s all an illusion and it never had anything to do with the economy which is actually just the aggregate confidence of consumers and businesses in the future.
Profitability is one part of the calculation, but there are plenty of unprofitable companies with higher stock valuations because of expected growth/investor sentiment
You can invest for free on nearly every trading platform now. If you have any disposable income to save in a savings account(which I am fully aware is the big IF), there is no reason that money can’t be invested in the market. That’s exactly why the market is doing so well.
You can buy fractional stock in an ETF with Robinhood. It's the savings account for everyone. RH revolutionized this with their commission-free trading and app access.
If your investments lose half their value in a recession you are horribly over-leveraged. In any case, we are back to Feb highs now, and whatever loss you might have sustained no longer exists, unless you sold at the bottom.
The Dow went from 14k to 7k during the Great Recession of 2007-2009. The S&P 500 saw a similar loss of half its value. Index investing is generally considered a safe approach, not "horribly over-leveraged".
The problem with using the market as a savings account is the times large numbers of people need to dip into savings tend to coincide with the times the market is dipping.
That's what everyone says, but it's based on conventional monetary policy. We have modern methods now and we know the government won't let you starve, won't let you be kicked out, and won't let you receive no money.
If you don't use the stock market as your savings account, that's reasonable for your risk tolerance but the truth is that people have cottoned on to the true risk and they've adjusted their behaviour to match their tolerance.
A savings account shouldn't be your emergency fund to dip into. It should be a lockbox you don't touch, in which case buying the index regularly is a no brainer. If you need to dip into your savings, you need to be expanding your emergency fund before you can think about saving and investing.
A long recession means exhaustion of emergency funds, which means dipping into savings. No matter how well-intentioned you start out, eventually money runs out and that savings/investment starts to look like the remaining option.
Having to do it when it's depleted by market crash sucks.
even without the fractional shares mentioned by sibling comments, you can open a vanguard account and get a single share of VTI, which is currently $170 something. no other fees, or hidden weirdness or anything.
or get some bond ETF that has less volatility. the dividends will still exceed anything you get from a savings account.
or even just leave the cash in the vanguard money market fund. that won't even lose value, and actually pays interest.
People get so upset when the monetary expansion is pointed out. S&P is headed to 4k within the next couple of years as the monetary expansion shows no sign of changing.
Given this as the reason, does that mean valuations will plummet once that supply slows down? If the best bet now is "things will keep growing while money is being pumped in", how does that balance out in the future?
There's too much weirdness and manipulation in the market not to own stocks right now. Apple, Amazon and Google have all started issuing bonds. For Apple it's the first time they've ever sold corporate bonds. They don't need the cash. It's just that you can sell corporate bonds right now for below inflation so you may as well. As the below article notes they'll use the proceeds for share buybacks.
If you're wondering who's buying 30year corporate bonds that have yields lower than pretty much any current inflation predictions, the US Federal Reserve has a new directive under the CARES act to buy into corporate bonds. https://www.marketplace.org/2020/06/16/the-fed-starts-buying...
If you are in a position to sell corporate bonds right now you can set the rates to well below inflation predictions and they will still sell thanks to government intervention. The real kicker is that the more this is done the more inflation will kick in making it an even better deal.
For the common person the only way to get advantage from this ridiculous situation is to own shares in these corporations that are issuing low rate bonds and buying back shares.
> For Apple it's the first time they've ever sold corporate bonds.
This just isn't true, Apple has sold debt for as long as their Non US cash position has been material, so they could access their non US cash without having to repatriate(pay US taxes on it) their cash.
A simple look on a Bloomberg terminal shows they have outstanding debt from 2014
Sorry i'll acknowledge that point. I misinterpreted one of the tech articles where it was stated as the first bond yield at such at low rate since 1980 as being the first bond issue full stop.
I think the point still stands as a whole though. When you see things such as
"Of the $10 billion on offer, the $1 billion five-year tranche was issued at a coupon of 0.45%, the lowest coupon seen on a U.S. corporate bond at that maturity, according to Refinitiv data, which goes back to 1980."
It's worth highlighting the rarity of these circumstances.
https://www.reuters.com/article/us-alphabet-bonds/google-own...
Bond yield dropped drastically back when the market crashed due to pandemic. It was caused by people panic-rushed money into bonds for safety. Classic case of more demand chasing fewer bond supply. The lower yield drew more companies to jump in to offer more bonds.
The corporate bond yield has since recovered as the stock market doing better and money moved out of bond into stock.
Issuing debt to buy yourself, what could go wrong?!?!
Seriously thought, this is a landmine. If the company faces cashflow issues and they can't pay their bond payments, then the company can be sent into a negative feedback loop where their stock price continues to fall, making it harder to borrow, which eventually leads to bankruptcy.
This is the situation that happens a lot with companies who are otherwise profitable. They just have too much debt as the result of a leveraged buyback. So they are operating on the edge, and one bad quarter throws them into a tailspin.
There’s been a pretty widespread consensus growing in recent years around buying low cost index funds and holding them for the long run. In crises of the past, people would panic sell, which would create a vicious downward cycle. I wonder if what’s going on is that everyone is just riding the market and content to see their stocks dip in the short term, knowing it’d only be temporary.
If that is the case, then you also have to wonder what this will do to the long term market. If everyone is only buying and holding (except when they retire), then the market can’t really go down. Or can it?
This is a fascinating thought. I suppose the key is 'everyone'. Passive investing is premised on the idea that markets rise. And markets rise based on someone providing proper valuation to the stocks in the market. If there's no one doing the picking, does the system fall apart?
Possibly consumer, buy-and-hold investors are out-influencing Wall Street traders? I find that hard to believe, but it does seem like a long-term possibility.
The market had a big dip in March, so it can go down. I imagine there was plenty of panic selling then. The Federal Reserve did a lot of interventions and what not since then, though.
> If everyone is only buying and holding (except when they retire), then the market can’t really go down. Or can it?
If a recession is bad enough that people have to liquidate investments to pay the bills, investment mentality is irrelevant. As it happens, in this particular recession, office workers who may have money in the market are generally not doing too bad because they can continue to work remote.
> (except when they retire)
In theory, if the amount of dollars being liquidated through retirees is greater than the amount of dollars being invested by workers (when the entire boomer generation has retired), this could imply that markets go down.
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[ 4.4 ms ] story [ 145 ms ] threadI don't think that's ever been any clearer than it is now.
The damage from this is just getting started, we're already in recession, and the stock market is setting all-time highs. It's a bit bizarre.
Most people on unemployment are laid off. They are not applying for new jobs because they assume that they will have a job to go back to shortly.
These people are also dealing with the clusterfuck surrounding schooling & childcare. From what I've seen, it's close to impossible to get your younger child back into childcare. The older ones taking remote classes in school require a good deal of adult attention.
I don't think a lot of people would change jobs even for a big raise because things are so hectic right now. Even people here on HN are struggling to balance their lives, and these are people who earn good wages and have a lot of flexibility with their schedule.
The stock market is setting new highs in anticipation of a renaissance in worker efficiency and business margins.
If living poverty makes people more industrious, then people who grew up in poverty should have better outcomes than people who never have.
And that's pretty well proven to by false. In fact, there's a name for all of the negative effects of living in poverty that perpetuate a life in poverty: the cycle of poverty.
We're not even in the first inning of this crisis - We're still in batting practice. The ripples and waves of this crisis will probably (just my arm chair opinion) last for years, if not the next decade.
But, hey, who knows! Maybe it'll all be over and done with next spring post vaccine. We'll be back to 4% unemployment and it'll be like it never happened from an economic perspective. Seems unlikely to me, but I'm not an economist.
I don't bet on this happening, but it is certainly a possible outcome.
A lot of the issues we are facing are the result of supply shortages due to people not being able to operate in close proximity to one another. If not for Covid, then it's likely that the economy would have continued to grow.
If you think about it, the US economy continued to grow over the past decade even while the collapse of the retail, energy, and agricultural sectors during that time frame. Once people are able to return to being in large groups, it's not unreasonable to expect growth to continue.
"We" as in "tech workers making several times the min wage" ? Or "we" as "people who already lived in precarious conditions before covid" ?
Not to rain on your parade but _a lot_ of people are _very badly_ affected by the situation, especially in the US.
At least “you are taking the same risk as the market” (roughly speaking).
COVID leaves physical capital almost entirely untouched. It is most harmful to people and in particular the poor who often work "essential" (but undercompensated) jobs, those without healthcare, and small business owners. National restaurant chains can ride it out while sole owner ones with less cushion fold. Small stores die while everyone flocks to Amazon.
The pandemic is essentially a net transfer of power to the rich. The stock market is an index of the rich—the wealthiest 10% own 85% of all stock. Of course it's going up.
If we don't figure out how to more equally distribute the rewards of capitalism, we may find there are very few people left to buy the goods founders want to sell, unless we all want to do high-end art marketplace startups.
We could have a financier as a main course as well as a dessert.
But trillions are being redistributed and that is why the stock market is up. Creating money out of nothing is a wealth tax.
We actually have figured it out. It's called "taxes". Taxes are how you do it. There, mystery solved.
The problem is that the rich have reached a level of power —through Citizens United, Fox News, disenfranchisement, and just straight up getting richer—that they can prevent taxes that harm them but would benefit the majority of Americans.
The stock market is a scam. A the biggest pyramid scheme the world has ever seen. CEOs who understand how the system works and willingly participate in it are criminals.
https://www.investopedia.com/terms/p/permanent-portfolio.asp
Companies that are more profitable have higher value stock - increasing the demand for it, no?
Case in point: https://news.ycombinator.com/item?id=23529088
If it is true though, then I don't see how it can last with so many of these new investor now being unemployed and losing the $600 a week.
The problem with using the market as a savings account is the times large numbers of people need to dip into savings tend to coincide with the times the market is dipping.
If you don't use the stock market as your savings account, that's reasonable for your risk tolerance but the truth is that people have cottoned on to the true risk and they've adjusted their behaviour to match their tolerance.
Having to do it when it's depleted by market crash sucks.
or get some bond ETF that has less volatility. the dividends will still exceed anything you get from a savings account.
or even just leave the cash in the vanguard money market fund. that won't even lose value, and actually pays interest.
so... s/the affluent/the educated/ perhaps
This is stupid. nothing's real anymore.
Hypothetical example:
Today, SPY is 339 and DXY is 92.82.
One year from today, SPY is 500 and DXY is 45. Is this valuation higher or lower than today's?
eg. https://www.marketwatch.com/story/apple-pulls-in-pricing-joi...
If you're wondering who's buying 30year corporate bonds that have yields lower than pretty much any current inflation predictions, the US Federal Reserve has a new directive under the CARES act to buy into corporate bonds. https://www.marketplace.org/2020/06/16/the-fed-starts-buying...
If you are in a position to sell corporate bonds right now you can set the rates to well below inflation predictions and they will still sell thanks to government intervention. The real kicker is that the more this is done the more inflation will kick in making it an even better deal.
For the common person the only way to get advantage from this ridiculous situation is to own shares in these corporations that are issuing low rate bonds and buying back shares.
This just isn't true, Apple has sold debt for as long as their Non US cash position has been material, so they could access their non US cash without having to repatriate(pay US taxes on it) their cash.
A simple look on a Bloomberg terminal shows they have outstanding debt from 2014
I think the point still stands as a whole though. When you see things such as "Of the $10 billion on offer, the $1 billion five-year tranche was issued at a coupon of 0.45%, the lowest coupon seen on a U.S. corporate bond at that maturity, according to Refinitiv data, which goes back to 1980." It's worth highlighting the rarity of these circumstances. https://www.reuters.com/article/us-alphabet-bonds/google-own...
The corporate bond yield has since recovered as the stock market doing better and money moved out of bond into stock.
Seriously thought, this is a landmine. If the company faces cashflow issues and they can't pay their bond payments, then the company can be sent into a negative feedback loop where their stock price continues to fall, making it harder to borrow, which eventually leads to bankruptcy.
This is the situation that happens a lot with companies who are otherwise profitable. They just have too much debt as the result of a leveraged buyback. So they are operating on the edge, and one bad quarter throws them into a tailspin.
If that is the case, then you also have to wonder what this will do to the long term market. If everyone is only buying and holding (except when they retire), then the market can’t really go down. Or can it?
Possibly consumer, buy-and-hold investors are out-influencing Wall Street traders? I find that hard to believe, but it does seem like a long-term possibility.
If a recession is bad enough that people have to liquidate investments to pay the bills, investment mentality is irrelevant. As it happens, in this particular recession, office workers who may have money in the market are generally not doing too bad because they can continue to work remote.
> (except when they retire)
In theory, if the amount of dollars being liquidated through retirees is greater than the amount of dollars being invested by workers (when the entire boomer generation has retired), this could imply that markets go down.
Outside of BTC, gold, and housing in some places, there really aren't any other choices. Government bonds are 0% or negative.