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0 pointstathougies6y ago0 comments

Stock prices don't really matter in the short-term, and we are lucky that the underlying financials are good, and that -- at the end of the largest bull run in history -- many of the largest companies have lots of cold hard cash. Apples hundreds of billions don't look so silly now, do they?

Oh, BTW, the floor is hard-set at zero, which they'll never get to, since -- given there is no underlying financial issue, and that demand is going to be higher than ever once we're done with this -- all these companies have intrinsic value.

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6 comments · 3 top-level

tempestn6y ago· 2 in thread

I won't opine on the correct value of the stock market at the moment, but the drop in demand due to measures needed to preserve life cause a financial issue. Many/most consumer-facing businesses can't withstand a drop in demand to near zero for a period of at least several months. So those businesses, absent some sort of national bailout, will go bankrupt. Or at the very least, they will go dormant. Either way there will be layoffs, and of course the laid off employees will reduce their spending further. Even once the virus is under control, it will take time to reverse this damage.

Yes, of course, the market won't go to zero. But some firms will go under, and we don't know how severe the economic impact will be. Just because the crisis began with a natural disaster rather than a financial one doesn't mean there can't be serious financial impact.

tathougiesOP6y ago

Sure, but economic fallout from natural disasters typically recover much faster. It doesn't shock our trust in the financial system, and people are more community minded, since no person can be blamed for it. Already, we are seeing bipartisan attempts at governmental stimulus. Did you ever think you'd see Trump and Pelosi agree on government spending, because the white house was pretty quick to endorse the house's plan.

But back to pandemics. Pandemics typically result in major booms due to (a) the die off, (b) the pent-up demand, and (c) the fact that everyone still trusts the financial system. The 1918 pandemic certainly caused major GDP losses, and short-term pain, but also caused the 20s

SketchySeaBeast6y ago

But doesn't the 20's then lead to the 30s? And can't an argument be made that WW1 would have contributed as well?

jader2016y ago· 1 in thread

I think you’re overlooking the cascading effect of a lot of small businesses closing doors (voluntarily or involuntarily) while this blows over — not knowing how long it will take to blow over.

Short of a bailout, that’s not going to be easy to recover from. And even a bailout won’t be enough to bring about a full recovery anytime soon.

kd5bjo6y ago

One potential path here is:

- Local and state governments provide bailout funds to suffering local businesses

- Said governments issue new bonds to pay for this relief

- Fed uses the recently-announced QE funds to buy the government bonds

The question then becomes if communities can get organized enough to approve this, and then convince ratings agencies that the new bonds are good.

tasssko6y ago

No issue? Corporate debt ...

https://www.economist.com/finance-and-economics/2020/03/12/c...

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