DOW at nearly 23k for first time in history...what is going on?

[HMS_Irruncible]

@Silver_lining

The corporate tax rate has been reduced and some costly regulations have been rolled back. This is the work of the President.

Since these changes happened, the DJIA is down 1000 points. That decline is the work of the President.

[WillFarnaby]

@allotrope

That’s true. 4% only looks good by comparison. But that’s why I think we’re no where near a significant downturn.

Look at it this way. If you’re a business looking to expand, how do you judge the feasibility of a new project? Your primary limiting factor is your cost of capital. With low interest rates as they are now, capital is virtually free - if you can convince someone to lend it to you.

So virtually any new endeavor with a positive rate of return after your capital costs is going to get the green light. That means more capital spending, more jobs, more money flowing through the economy. With more money, you have more lending and more expansion.

So my perspective on the current state of affairs is that we have a very long way to go before we enter a period of economic contraction.

Of course all of that could change depending on how the fed handles things. If we get a fed chair who is overly hawkish and decides to raise rates too much too quickly, that could put everything into a very different light.

Unfortunately, interest rates in a manipulated economy do not accurately reflect real savings. Artificially low rates cause entrepreneurs to pursue projects that would not make a profit in a market interest environment. A cluster of errors results when entrepreneurs pursue projects that they mistakenly forecast as profit-making endeavors. There is a squeeze brought on when interest rates are telling entrepreneurs that there are idle resources, but do not reflect reality. Eventually, the market asserts itself, and that’s the crash. Higher order capital goods are hit first. Chief among these are stocks.

[RTFirefly]

@WillFarnaby

Unfortunately, interest rates in a manipulated economy do not accurately reflect real savings. Artificially low rates cause entrepreneurs to pursue projects that would not make a profit in a market interest environment. A cluster of errors results when entrepreneurs pursue projects that they mistakenly forecast as profit-making endeavors. There is a squeeze brought on when interest rates are telling entrepreneurs that there are idle resources, but do not reflect reality. Eventually, the market asserts itself, and that’s the crash. Higher order capital goods are hit first. Chief among these are stocks.

How do you determine that interest rates are artificially low?

Apple has $267B that it doesn’t know what to do with.

[WillFarnaby]

@RTFirefly

How do you determine that interest rates are artificially low?

Apple has $267B that it doesn’t know what to do with.

If I could know what the interest rate would be in a free market, I’d be making a killing. What I do know is what the Fed says it can do. Namely, that it can manipulate the interest rate to pursue its dual mandate. Besides the theory behind it, can’t I simply believe what they say they can do?

I’m not sure how Apple having money contradicts my claims.

[RTFirefly]

@WillFarnaby

If I could know what the interest rate would be in a free market, I’d be making a killing. What I do know is what the Fed says it can do. Namely, that it can manipulate the interest rate to pursue its dual mandate. Besides the theory behind it, can’t I simply believe what they say they can do?

I’m not sure how Apple having money contradicts my claims.

Supply and demand. That’s how you can tell what the free market would do, if someone’s putting a thumb on the scales. Where’s the oversupplies? Where are the shortages? This isn’t rocket surgery.

[WillFarnaby]

@RTFirefly

Supply and demand. That’s how you can tell what the free market would do, if someone’s putting a thumb on the scales. Where’s the oversupplies? Where are the shortages? This isn’t rocket surgery.

So I am supposed to have an account of all savings and and all loan applications? Do you not believe the Fed when they say they are manipulating the interest rate?

Asset prices are bid up in a manipulated market. That is one clue that too many dollars are chasing few goods. This is concentrated in the higher order capital goods sectors, like stocks.

[WillFarnaby]

There are some people who believe the Fed cannot manipulate interest rates. They fall into the market monetarist camp. Some …interesting… thoughts over there.

[RTFirefly]

@WillFarnaby

So I am supposed to have an account of all savings and and all loan applications?

Well, if you disregard a company holding $267B rather than finding remunerative investments for it, I certainly don’t expect you to concern yourself with aggregating smaller amounts, no.

Do you not believe the Fed when they say they are manipulating the interest rate?

I believe them to an extent. I’ve got a crude understanding of what they’re doing. You may or may not have such an understanding, but you aren’t revealing one. You’re talking about the Fed’s capabilities as if they’re magic: they set the rate, and magically, it’s so.

Asset prices are bid up in a manipulated market. That is one clue that too many dollars are chasing few goods. This is concentrated in the higher order capital goods sectors, like stocks.

Well, yes. And if there are a whole bunch of excess dollars, what should happen to the interest rate??

:headdesk: