I am on the short side of the market until we see a 50% drop then I am neutral for a long while. This market will continue to suffer long past the last coronavirus death.
We are going to see cascading unemployment where unemployment begets unemployment. We just saw a 6% rise in unemployment in the last 2 weeks. Our unemployment is probably the highest it’s been since the great depression.
We are seeing catastrophic wealth destruction that will take a long time to rebuild.
Do you have a cite for that? Does it take into account the companies that went bankrupt?
From the cited article:
OPEC and the Russians are maybe meeting to set production and thus prices. What does this have to do with a free market again?
I think you may be a bit optimistic. There are tons of bad practices built into companies and the market after 10 years of the expansion. They are going to come back to bite us.
I think the Dow has only fallen as far as it has because there is still optimism in it, and a bunch of traders who have forgotten what happens when markets fall - or who have never lived through it.
When the internet is rife with stories of lives destroyed, divorces caused, and general strife and mayhem as a result of the stock market then we’ve probably bottomed.
Until “stocks are the dumbest thing you could buy” becomes the common concept amongst the average person, then you can rest assured the markets are clownishly overinflated and have a long way to fall.
In fact, the easiest way to spot a potentially undervalued asset is to listen for the things common people “know” are bad. By the time the average citizen figures out something was a good investment, the investment opportunity has passed. The reverse is also true: any “hot tip” you hear from someone who hasn’t effectively dedicated their lives to that thing is a good sell signal.
I’m still seeing waaaaaaay too much optimism.
So today stocks are rallying. WTF? CNN says it’s because the rate of new infections has slowed so investors are expecting the proletariat to be released from quarantine soon. Again, WTF?
Most of the time the reasons why the stock market does anything are just somebody’s WAG. It goes up a bit, goes down a bit, and nobody really knows why.
It’s speculation. Keep in mind that relative to a generation or two ago, the markets have a lot more inputs, so they react more to data in real-time. It can overreact both to positive and negative news. Even though the COVID-19 scare was a completely justified reason for a sell-off, there were probably one or two days of excessive selling; by contrast, we’ll have excessive optimism. This happens even in the very worst of bear markets - happened in 2007-8, and it even happened during the Depression. The market lows during the Depression really didn’t happen until about 1930-31, more than a year after the Crash of 1929.
I’m really not getting the optimism case. It seems to be that social distancing is working, but was that in doubt? This isn’t a curse from God, it’s an infectious, respiratory disease. Of course social distancing is reducing the incidence rate. But I haven’t seen any evidence that even with the extreme measures we’ve taken now that we’ve gotten R < 1, nor any real sign that we’ll be ready to get back to normal, even by May. Nor any real sign that getting back to normal is going to suddenly heal the economic side.
There’s also not going be a ton of scheduled economic news this week, other than another round of weekly new jobless claims on Thursday. But then the earnings reporting starts to ramp up next week. Everyone is expecting airlines, restaurant chains, auto makers, and cruise lines to get nailed. But I expect news - especially around expectations - from the financial sector to be interesting, and SaaS companies coming in with their expectations will give a real sense of if the recession is going to be confined to service workers, or become a white collar recession, too. If it’s the latter, it’s going to be a lot harder to expect a fast rebound from services even once things are back to normal from a virus perspective.
Keep in mind that as the numbers are peaking in Italy and Spain, they’re rising elsewhere: France, the UK, and elsewhere throughout Europe.
Also keep in mind that in order for the numbers to continue flat-lining, people have to essentially stay home, or risk reinfection and starting another wave of pandemic.
Here’s the other side of this: in Italy, there is a very serious risk of default. Their economy was already beleaguered with massive public debt, and now their health system (publicly funded) just got slapped with a 2X4 across the head. Ditto Spain. This is going to test the European Union’s economy and the unity of that institution in ways never seen.
The US can also count on having its public debt easily eclipse its GDP.
I’m not sure exactly what definition of ‘public debt’ you’re using, but either it’s already there (if you’re counting all federal gov’t debt, include that held by other federal agencies), or this may not much affect it (because you net out debt held by federal agencies, and the issuance of new debt by the treasury is canceled by Fed bond purchases.)
You may be right, lol. I admittedly haven’t checked that particular metric in a while
Just keep in mind that debt is debt and interest will come due. You, your children and your children’s children will be paying that debt one way or another. Probably through raised taxes, and cut services AND inflation. One can account for it any way they want, but the consequences A) haven’t arrived yet, and B) are unavoidable.
Debt held by the Fed just doesn’t matter for that purpose. The treasury pays the interest to the Fed. The Fed then sends all its ‘profits’ back to the treasury. The reason you don’t want the Fed to buy up all the debt is that it introduces new money into the system, which is theoretically inflationary. When that becomes a problem, it’ll be one we have to solve. But trying too hard to stamp out inflation has been a fool’s errand lately: inflation has been too low, not too high, even after the Fed’s balance sheet increases coming out of the Great Recession.
No, the fed actually pays dividends of 6% to member banks in addition to interest on reserves held at the fed. It does not pay everything back to the treasury, not remotely.
Not theoretically. Asset inflation is just as real as consumer price inflation. No, the fed’s stimulus didn’t get into the hands of every day consumers directly and right shift demand, but low interest rates from the fed purchasing bonds certainly blew up another housing bubble (and corporate debt bubble). That’s inflation. It’s just not reflected in the CPI, because the CPI is a self congratulatory pat on the back.
Inflation as measured by the CPI, which was never intended to be used as it has been used, nor is it at all an accurate reflection of inflation in the US. Your rent, healthcare, education and other large expenses aren’t included at all - even though these dwarf spending on things like food, which is a major component.
True, if by “~5200” you mean “381.17 (the day after Labor Day).”
As for where stocks go from here: I dunno but would not argue against using this recent bounce as an opportunity to reduce exposure.
That’s been my strategy also. When something shows up in an internet ad, you should have gotten out two weeks before.
But I was talking about the so-called professionals, who are subject to irrational strategies, just at a higher level.
6% is of the banks’ invested capital, not “profits”. Those flow back to Treasury.
I do happen to believe we’ve been experiencing an asset bubble, but it’s silly to conflate that with inflation.
This is just factually false. There are other measures of inflation besides CPI, which you brought up, not me, including chained CPI and PPI, and they all show inflation being low over the past decade. But for CPI:
From here. Bolding mine.
Personally, I look at LinkedIn, see who’s hiring shitloads of employees, check their P/E ratio, and go from there.