We need to talk about the Stock Market - Printable Version
+- The CardBoard (https://thecardboard.org/board)
+-- Forum: Emergency (https://thecardboard.org/board/forum-11.html)
+--- Forum: Covid-19 (https://thecardboard.org/board/forum-12.html)
+--- Thread: We need to talk about the Stock Market (/thread-19446.html)
+- The CardBoard (https://thecardboard.org/board)
+-- Forum: Emergency (https://thecardboard.org/board/forum-11.html)
+--- Forum: Covid-19 (https://thecardboard.org/board/forum-12.html)
+--- Thread: We need to talk about the Stock Market (/thread-19446.html)
Pages:
1
2
We need to talk about the Stock Market - OutsiderFan - 04-17-2020
My takeaway from the Dow Jones going up more lately than down is that this is a product of the Fed pumping almost free money into the banking system, and buying up all kinds of governments and corporate bonds.
The proceeds from these practically free loans and straight bailouts are being pumped back into the stock market to buy stocks at perceived low prices that drive the stock market up. You buy stocks low and sell them a bit higher, and you can easily pay the banks back because the yield you make on the stock sales is far greater than the cost of paying back the bank. IOW, the stock market is being held up artificially by absurd Fed actions that prevent the financial markets from doing their jobs of forecasting future economic realities.
I'm I misguided in my assumption here? Please correct me if I'm wrong, but 15% unemployment and depression forecasts should not give us a stock market going up in value, especially considering the gigantic changes the economy is going to convulse through and evolve into over the next year or more, regardless of what governments do or don't do to manage the pandemic.
RE: We need to talk about the Stock Market - Goose - 04-17-2020
(04-17-2020, 08:41 AM)OutsiderFan Wrote: I'm I misguided in my assumption here? Please correct me if I'm wrong, but 15% unemployment and depression forecasts should not give us a stock market going up in value, especially considering the gigantic changes the economy is going to convulse through and evolve into over the next year or more, regardless of what governments do or don't do to manage the pandemic.
In a rational market where prices are tied to corporate profits (or even expected profits), you would be correct. However, due to many factors (government interventions being a primary one) that has not been true for many years (Maybe 50 or so, but much worse after 2008). Right now, and over the past 15 years at least, there was so much cash out there with no "real" place to go that stock was considered the only outlet. However, lots of that "cash" was created by unrealistic stock prices. People were making money on paper, but not in reality. The "Greater Fool" theory was in full bloom. Now we will see if that insanity can continue or if a real big "correction" must happen.
Sadly, about this issue Trump's approach may be correct. It is not what is true that matters, but rather what investors THINK is true that matters.
RE: We need to talk about the Stock Market - stupac2 - 04-17-2020
I don't know, but I posted this earlier and he has some thoughts: https://www.vox.com/2020/4/13/21216549/stock-market-unemployment
RE: We need to talk about the Stock Market - Genuine Realist - 04-17-2020
(04-17-2020, 09:19 AM)Goose Wrote:I don't think it's simply Trump who voiced the view that investor expectations are what matters (rather than economic reality). It's just bout every one who's ever commented on the market.(04-17-2020, 08:41 AM)OutsiderFan Wrote: I'm I misguided in my assumption here? Please correct me if I'm wrong, but 15% unemployment and depression forecasts should not give us a stock market going up in value, especially considering the gigantic changes the economy is going to convulse through and evolve into over the next year or more, regardless of what governments do or don't do to manage the pandemic.
In a rational market where prices are tied to corporate profits (or even expected profits), you would be correct. However, due to many factors (government interventions being a primary one) that has not been true for many years (Maybe 50 or so, but much worse after 2008). Right now, and over the past 15 years at least, there was so much cash out there with no "real" place to go that stock was considered the only outlet. However, lots of that "cash" was created by unrealistic stock prices. People were making money on paper, but not in reality. The "Greater Fool" theory was in full bloom. Now we will see if that insanity can continue or if a real big "correction" must happen.
Sadly, about this issue Trump's approach may be correct. It is not what is true that matters, but rather what investors THINK is true that matters.
You can miss the elephant in the room here. The present turbulence is different from 2008 or 1929-30, or just about every market reversal in history, in that it has no relation to any quantitative economic factor. The American economy began to decline in mid-1928, and the market was staggeringly overvalued in October 1929, floating on a surreal amount of leverage. The 2008 fiasco has been too well documented for me to add to the comment here.
But in this case, we have a natural phenomenon, occurring out of a clear blue sky, to which the medical measures necessary require a drastic curtailment in economic activity. The one nut who suggested a visitation from outer space was goofy, but in terms of the effect on the stock market, it might as well have been. Out of a clear blue sky, havoc is unleashed. The number of unemployed don't relate to a collapse of credit or some worsening economic conditions, but to necessary health measures - completely different than anything we have experienced in the past.
You can't point to any pre-existing government policy that you'd name as a cause of the retraction, as you could in 1929 and 2008. There's nothing you'd really want to revise. We DO have long term, systemic problems with the division of wealth, but these do not bear on economic prosperity as such. Had the virus stayed in the Wuhan lab, there's nothing substantive you'd really change. I don't believe Trump deserves credit for this, any more than Obama did for four pretty good years in his second term. But he also didn't sabotage it, i.e., he's not in the same political position as Hoover or the unfairly blamed Bush. The hope of a TDS afflicted person such as Bill Maher for a recession because Trump represented an existential threat to the Union was TDS at its worst. (He's a bad obnoxious President you vote out of office - nothing more).
So if you're a stock market investor, what do you do? I think the bet is how fast semi-normal economic activity is restored. That that may be fairly soon. It's not fantasy.
Finally, despite the rally, the market is a good 20% down since February. There is some recognition of reality.
In short, bullish investors may be wrong. But they're not crazy. They're trying to figure out a phenomenon that has never occurred before.
RE: We need to talk about the Stock Market - chrisk - 04-17-2020
The 20% drop in the stock market averages is composed of stocks with highly variable results. The stocks of companies that may be driven to bankruptcy, such as airlines, highly leveraged real estate companies, weaker retailers, certain energy companies, etc., are down 70% or more.
On the other hand, some companies are setting or near all-time highs, such as Costco and Amazon. If a company can make it through the next year without filing bankruptcy or requiring a large bailout (public or private), there is not likely to be a 20% permanent impairment of their value. Some industries may have more intermediate-term impairment, such as restaurants, movie theaters, and others that depend on larger gatherings.
RE: We need to talk about the Stock Market - oregontim - 04-17-2020
Just a few months ago as I worried (as I have since November of 2016) that a stock market crash was imminent, I was presented with a line chart showing Dow Jones performance over the last seven decades.
I wish I had that chart to share, but it was paper, not digital, and I suck at saving paper archives.
What it showed, clear as day, is that the DJI correlates with energy prices (inverse correlation, the lower the energy prices, the higher the index) and corporate profits. Nothing else came even close to the power of these two variables.
That still strikes me as nonsense. Consumer confidence, liquidity, macroeconomics ... unemployment ... disastrous problem in federal government ... how could it be so tied to just these two factors? That seems way too simple.
But the chart was pretty clear. So the DJI was way up until March because of profits (tax cut for corporations) and declining energy prices. And most of the other factors we mention track right back to profits.
We have the once-in-a-lifetime (I hope) pandemic. So far, the DJI crash could be tied directly to declining profits and expectations of declining profits. But it could also be the black swan, right? Scares the daylights out of me.
Back in the early 1980s we had Ezra Solomon (Google him) teaching economics at the GSB. One of us asked him whether the crazy interest rates of the time were going to continue going up or back down. He shrugged, paused, sighed, and said (paraphrasing) "that's the magic of markets. Every price is the exact balance between those who think it's going up and those who think it's going down. It's automatic."
He paused again, and added (again, paraphrasing -- it was 40 years ago): "And look at me. I'm supposed to be an expert on these things. But if I knew that, I'd be rich. And I'm not rich."
RE: We need to talk about the Stock Market - BostonCard - 04-17-2020
Whatever the correlation between DJI and energy prices was, that all went to hell, with oil dropping to under $20 a barrel and the Dow dropping 20% from its peak.
BC
RE: We need to talk about the Stock Market - Genuine Realist - 04-17-2020
(04-17-2020, 02:00 PM)BostonCard Wrote: Whatever the correlation between DJI and energy prices was, that all went to hell, with oil dropping to under $20 a barrel and the Dow dropping 20% from its peak.I think dropping oil prices actually correlate directly, since some energy companies are part of the DJ base.
BC
BTW, I think UBI is definitely going to be on the table, with production capacity likely unimpaired and the services industry taking a terrific short tem hit. UBI has an impact roughly equivalent to my beloved net wealth tax, so I'm for it in principle. I supported Andrew Yang, until (alas!) he proved to be a one-trick pony.
It's an idea the GOP could endorse, since it is somewhat akin to Friedman's old negative income tax. But it probably won't. I could see Trump, whose traditional political alignment was somewhat New Deal Democrat, supporting it.
RE: We need to talk about the Stock Market - BostonCard - 04-17-2020
(04-17-2020, 02:16 PM)Genuine Realist Wrote:(04-17-2020, 02:00 PM)BostonCard Wrote: Whatever the correlation between DJI and energy prices was, that all went to hell, with oil dropping to under $20 a barrel and the Dow dropping 20% from its peak.
BC
I think dropping oil prices actually correlate directly, since some energy companies are part of the DJ base.
I suspect a lot of that correlation has to do with the 70's where spikes in oil pries due to the Arab embargos led to problems with the stock market. But my inclination was like your that in economic expansions, demand for energy would increase and thus raise the price of oil. But the OP wrote, "What it showed, clear as day, is that the DJI correlates with energy prices (inverse correlation, the lower the energy prices, the higher the index) and corporate profits. Nothing else came even close to the power of these two variables."
BC
Seems like the initial dramatic drop was based on fear of near total collapse, and not knowing just how bad it was going to get. As things seem to have stabilized, "the market" (and I realize I'm anthropomorphising it) probably has probably said to itself "could have been worse".
BC
RE: We need to talk about the Stock Market - JustAnotherFan - 04-17-2020
(04-17-2020, 11:12 AM)Genuine Realist Wrote: Had the virus stayed in the Wuhan lab, there's nothing substantive you'd really change. I don't believe Trump deserves credit for this, any more than Obama did for four pretty good years in his second term. But he also didn't sabotage it, i.e., he's not in the same political position as Hoover or the unfairly blamed Bush. The hope of a TDS afflicted person such as Bill Maher for a recession because Trump represented an existential threat to the Union was TDS at its worst. (He's a bad obnoxious President you vote out of office - nothing more).
I really liked your post except for this section which seemed to go off the rails.
RE: We need to talk about the Stock Market - Snorlax94 - 04-17-2020
Regarding the premise of the post: it’s not like the stock market is “wrong” now at these levels any more than it ever is.
If I believe any stock is way overvalued, I should avoid it or maybe even short sell it.
If I believe any stock is way undervalued, I should buy it.
Either way, the stock market is not right or wrong now any more than it ever is. If I see something that I deeply believe is incorrectly valued, it’s not wrong, it’s an opportunity.
For my part, I think many tech companies are in very good shape and one of my favorite tech companies is very close to its historic highs. I watch hotel stocks sometime and I just don’t get why they haven’t been hit harder — Hyatt and Hilton were going all-in on China until this year, and I don’t see that turning out well for at least 2 years, not to mention a decrease in European and US travel. Also, the vibe I get is that many corporations are going to play it safe on business travel and conferences no matter how low the ifr goes — there will still uncertainty and risk of sending your employees into a regional flareup. But there are relatively few cases like these.
RE: We need to talk about the Stock Market - chrisk - 04-17-2020
(04-17-2020, 03:36 PM)Snorlax94 Wrote: Regarding the premise of the post: it’s not like the stock market is “wrong” now at these levels any more than it ever is.
If I believe any stock is way overvalued, I should avoid it or maybe even short sell it.
If I believe any stock is way undervalued, I should buy it.
Either way, the stock market is not right or wrong now any more than it ever is. If I see something that I deeply believe is incorrectly valued, it’s not wrong, it’s an opportunity.
For my part, I think many tech companies are in very good shape and one of my favorite tech companies is very close to its historic highs. I watch hotel stocks sometime and I just don’t get why they haven’t been hit harder — Hyatt and Hilton were going all-in on China until this year, and I don’t see that turning out well for at least 2 years, not to mention a decrease in European and US travel. Also, the vibe I get is that many corporations are going to play it safe on business travel and conferences no matter how low the ifr goes — there will still uncertainty and risk of sending your employees into a regional flareup. But there are relatively few cases like these.
Hotel companies are definitely down more than the market average, but they have an advantage over airlines in that as primarily management companies, they are relatively asset light and have been shedding workers rapidly, unlike airlines. Some hotels have been getting revenue as shelters for the homeless or beds for people who need to be isolated.
RE: We need to talk about the Stock Market - Mick - 04-17-2020
These are strange times, with market forces that will follow what consumers are left with. So I might evaluate the Dow 30 by its industry-by-industry components:
Consumer. Nike, Walgreen's, Home Depot, Wal-Mart, McDonald's, Coca Cola, Procter & Gamble. I think most of these will thrive, given that consumers are and will be in a hoarding mentality for quite a while. McDonald's, maybe not. But the rest will probably thrive. Home Depot recently lost its largest competitor. Walgreen's should do great, same w/P&G, ditto Wal-Mart, Nike sells mainly to the young.
Energy. Chevron and Exxon. I wouldn't invest in either because of the glut and the transportation standstill. Both downers.
Finance. Amex, Goldman Sachs, Travelers, JP Morgan. All four heavily regulated, all four heavily leveraged. Two reasons I'd stay away from Finance. No idea what Feds will do post-coronavirus.
Healthcare/Pharma: Johnson & Johnson, Merck, Pfizer. Probably solid investments. God only knows what other medical nightmares are around the corner. Pfizer is working on a vaccine, maybe it hits.
Healthcare/Managed: UnitedHealth. See Finance. Regulated, leveraged. Not for me.
Materials. Dow Chemical. Keeper for me, particularly if we go protectionist, mercantilist, or just anti-one-single-country.
Telecommunications. Verizon. Usually stable.
RE: We need to talk about the Stock Market - Snorlax94 - 06-16-2020
For what it's worth, in Paul Krugman's latest email newsletter, he attributes recent market increases to amateur, former sport-betting "retail bros".
He gave about as clear of a"sell" signal as I see him make -- the last time he wrote a column like this was around March 2008.
For my part, I wouldn't call the market a "sell" but I do find it unattractive. If it is true that retail bros are driving up the market, they may unload and exit just as irrationally if things go south.
Quote:What are these investors thinking? I don’t think they are thinking — not really. The conventions of financial reporting more or less require that articles about market action ascribe rationality to investors, so stock movements are attributed to optimism about economic recovery, or something. But the reality is that we’re largely talking about young men, many with a background in sports betting, who have started buying stocks and are bullish because they’ve made money so far.
It’s possible, of course, that more conventional investors were too pessimistic, and that the “retail bros” will end up being vindicated. But history is not on their side.
Still, we shouldn’t be surprised that they haven’t given up despite steadily worsening news on the coronavirus. At this point it’s not just money that’s on the line; it’s egos too. That’s why we’ll probably see a series of temporary recoveries before the awful truth finally sinks in. But sink in it eventually will.
RE: We need to talk about the Stock Market - 76lsjumb - 06-16-2020
(06-16-2020, 02:24 PM)Snorlax94 Wrote: For what it's worth, in Paul Krugman's latest email newsletter, he attributes recent market increases to amateur, former sport-betting "retail bros".
He gave about as clear of a"sell" signal as I see him make -- the last time he wrote a column like this was around March 2008.
I gather you're talking about a different Paul Krugman than the one who wrote this in 11/2016:
https://www.nytimes.com/interactive/projects/cp/opinion/election-night-2016
RE: We need to talk about the Stock Market - burger - 06-16-2020
(06-16-2020, 03:09 PM)76lsjumb Wrote:(06-16-2020, 02:24 PM)Snorlax94 Wrote: For what it's worth, in Paul Krugman's latest email newsletter, he attributes recent market increases to amateur, former sport-betting "retail bros".
He gave about as clear of a"sell" signal as I see him make -- the last time he wrote a column like this was around March 2008.
I gather you're talking about a different Paul Krugman than the one who wrote this in 11/2016:
https://www.nytimes.com/interactive/projects/cp/opinion/election-night-2016
He retracted that a couple of days later: https://krugman.blogs.nytimes.com/2016/11/11/the-long-haul
Did Trump ever retract his statement that the virus was a hoax?
RE: We need to talk about the Stock Market - Genuine Realist - 06-16-2020
(06-16-2020, 03:58 PM)burger Wrote:Trump never actually said that.(06-16-2020, 03:09 PM)76lsjumb Wrote:(06-16-2020, 02:24 PM)Snorlax94 Wrote: For what it's worth, in Paul Krugman's latest email newsletter, he attributes recent market increases to amateur, former sport-betting "retail bros".
He gave about as clear of a"sell" signal as I see him make -- the last time he wrote a column like this was around March 2008.
I gather you're talking about a different Paul Krugman than the one who wrote this in 11/2016:
https://www.nytimes.com/interactive/projects/cp/opinion/election-night-2016
He retracted that a couple of days later: https://krugman.blogs.nytimes.com/2016/11/11/the-long-haul
Did Trump ever retract his statement that the virus was a hoax?
https://www.factcheck.org/2020/04/democratic-ad-twists-trumps-hoax-comment/
The problem with being an opponent of Trump the Man is all you suckers who believe in Trump the Demon keep obscuring the actual reality.
RE: We need to talk about the Stock Market - burger - 06-16-2020
120,000 dead, GR, and you're still defending him.
Not much of a realist, are you.
RE: We need to talk about the Stock Market - 2006alum - 06-16-2020
(06-16-2020, 09:22 PM)burger Wrote: 120,000 dead, GR, and you're still defending him.
Not much of a realist, are you.
People who need to loudly assert that they are a particular desirable trait often feel the need to do so for a reason. In my experience, genuine character speaks for itself. When was the last time Fauci said "I'm really good at epidemiology?" Has Warren Buffett ever needed to brag about his financial acumen? Etc.
RE: We need to talk about the Stock Market - BostonCard - 06-16-2020
As I recall, The moniker “genuine realist” dates back to the Tyrone Willingham days and was selected in opposition to another poster on another board who consistently derided the team and its direction. “Genuine Realist” refers to an assessment of the Stanford football team now more than 20 years ago.
Now I’ve read the fact check three times with particular attention to Trump’s quote and I can’t make heads or tails as to what he is referring to when he talks about being a “hoax”, and it specifically being “their [the democrats] hoax”. Since Democrats at the time were raising alarm about the virus and how serious it was, it is reasonable to infer that he was calling alarm about the virus a hoax. He later claims he was referring to Democrats badmouthing of his performance, but in context that doesn’t make sense. One would claim a “hoax” if one we’re disputing someone’s claimed facts, not their opinion. I mean, when someone emails me claiming they are a Nigerian prince, that’s a hoax. When my kids yell and scream saying they hate me because I didn’t get ice cream, I might disagree, but it would be hard to call it a hoax.
So, like a lot of things, this may be a case of Schroedinger’s message, where what Trump says can simultaneously mean multiple things, and one only knows what he meant if he gets called out on it.
Which is why I go by his actions, not his words. For weeks, Trump treated the coronavirus as if it were a hoax, and as a result, we now have many more dead than if he had taken it seriously.
BC