I did not invest heavily during the 2008 financial crisis, and looking back, I have regrets about that. I invested more aggressively this time around on the downturn.
And my younger siblings and colleagues all seem to be taking the same long-term approach. They all read /r/personalfinance and some are trying to “FIRE”—again, on a 10-20 year plan.
The article seems to take an implied short-term view by talking about how the recovery might or might not be V-shaped. Honestly that seems like the crazy approach. I don’t know anyone, personally, who is investing today with hopes of pulling that money back out in a few months. That is what a symmetrical “V” would be at this time. Obviously that is not going to happen.
We haven’t even felt the main wave of bankruptcies and disruption yet.
Credit is locking up (try getting an unsecured loan) and people aren’t paying bills. 50% of New York tenants didn’t pay rent. Every seasonal business is dead. Life looks ok for IT people working in their underwear right now, but we are heading into a very challenging time with fundamental changes in consumer behavior.
The next big thing will be underwater mortgages.
So are you making the argument that mortgage-centric stocks are going to go to zero?
It should be no surprise that Tech/NASDAQ is doing well since both individuals and companies are investing more in tech during this crisis, while industrial/travel/etc are all still down substantially.
Maybe the banks will take a larger hit, but the overall market has already priced in what you are saying.
I told a friend about it and he looked at me like I was crazy. "The system is melting down! What makes you think the stock market is ever going to recover?"
Six years later I sold that stock for a pretty massive profit.
The stock market will always recover because people are always going to want to make money. Yes, some businesses will fall by the wayside, and yes, we don't know when it will get better, but people like making money and that fundamental truth will always keep the economy moving forward after things like this.
Ah ha! The MUI is being skewed by IT workers expanding their new office wardrobes: https://en.m.wikipedia.org/wiki/Men%27s_underwear_index
Now it all makes sense!
Yep. Wife works for one of the big banks. They stopped taking applications for personal lines of credit this week. Stopped taking HELOC applications a couple of weeks ago.
I am not a financial planner, but just a few thoughts. First, folks who try to invest in crashes or divest on peaks tend to do it too early. Most of such events give you more than one opportunity to buy/sell and not being first in/out can give big advantages.
Second, we did not (yet?) see a big drop. A rise of 20% would put S&P at or near all-time highs. For comparison, during the 2008 crash, S&P dropped by over 50%, so the rise back would give you ~120% return. Thus the reward for "catching the knife" today is much, much smaller than in 2008.
Finally, a lot of stocks are now indexed and held in retirement accounts. Many folks there hold more than they should in stocks because they have been going up and seem to be the only game in town beating inflation. And all advisors say "leave your retirement accounts as is, long term view, yada yada". If a significant number of people start moving retirement money out of index funds, which they might do in uncertainty, there may be a lot of pain for stocks. For example, many smaller stocks just do not have the trading volumes to withstand even a moderate sales increase driven by index funds. My 2c.
A significant number of people do not also control a significant portion of total stock ownership. Droves of retail investors could sell, but their ownership is rather inconsequential: the top 10% of Americans own 84% of stock. https://money.com/stock-ownership-10-percent-richest/
If a significant number of people start moving money out of index funds, causing a decrease in the price of index funds, then that is just an opportunity for profit-making from other investors, which will stabilize the price.
I'm with you on this one, but it also feels like there's no other choice. Where else can you get high liquidity, with good returns, and a government ready to spring into action if the market goes down too much? European and Japanese markets generally have lower returns. Emerging markets are iffy. Bonds don't yield as much as equities.
It's like "I'm gonna take a bet that I'm going to keep working a 9-5 job". Most people have no other real choice.
You have no choice but to invest in a mix of US equities and bonds to be able to retire in a sane timeline.
This is an important aspect to the current craze not mentioned in the article.
There are people - retail & institutional players - literally banking large sums of money on this dynamic of socializing losses. So long as this continues, we'll see an artificially inflated market.
Plant trees in the tropics, then your money has roots and grows fast.
Different types of hardwoods give you a 5, 10, 20 year time to harvests.
Plus the monkeys, parrots etc like it (if you do it right). Many of my 5 yr old trees are already 10" dbh and 15m tall. Straight timber, some with cacao below.
~75 acres can increase your net worth by about $3k/day, indefinitely.
it's like the US government has been bluffing about capitalism being the answer the whole time and that bluff just got called.
Plus, you don't really retire, your job is now investing. If you really love that particular job (like Buffett does), then this works out well.
But if your innate talents and interests lie elsewhere, you'd be happier doing that... and the need for money can help motivate you, during those times you don't feel like it.
It doesn't seem like extra motivation should be important, but is was for me personally. Maybe I'm lacking somehow, as I note that many independently wealthy people do keep working without that motivation. e.g. YC itself. (Though pg now does seem to have really retired, or maybe is a fulltime career parent - there is no more important job!)
Thoughts on motivation?
I live off grid in the middle of nowhere, and I am busy and engaged, all day, every day, doing and learning. I’ve become an infrastructure engineer, a construction engineer and labourer, a farmer, an arboriculturist, and at night I’m an astronomer, an author, and an automation coder. Right now I’m putting together a multi-stage solar and hydro dump heating setup. All sorts of interesting challenges, and I’m experimenting with welding and (safely) testing large pressure vessels, which is a first for me.
Am I contributing to society? Not really - but I’m not taking anything from it either, other than passive income. My portfolio just sits there and grows for my dotage, the rental properties provide an income, and I do a tiny bit of tech consulting, both paid and pro bono, because it’s fun.
So, motivation? Do something you enjoy. That’s pretty much all there is to it. I like screwing around with matter and information and learning and making things, so I do that.
Lose yourself in the service of others (Ghandi). Find a problem that speaks to your skills and curiosity, something that feeds your soul by doing.
This has helped me find my path, I hope it helps you find yours.
This can be as easy or lazy as you like. Don't want to do anything? Get a target date/balanced fund and eat the slightly larger expense ratio and realised income. Ok with rebalancing maybe once a year or so? Put X% into a stock index fund, Y% into a bond index fund, reinvestment on and look on your birthday/whatever day once a year to see if you need to rebalance.
You can of course spend more time, but if you don't like it, you don't have to.
I do think “things are different” in many ways, in the sense that it’s impossible to ignore the interventions the Fed has taken to blow up their balance sheet to $7T and will likely reach $10T by end of year. The speed and size is unprecedented.
Unfortunately I think Millennials will be the ones that have to deal with the massive debt we are in as a country and unwinding of the Fed’s massive balance sheet, which will play out 10-20 years from now.
This market is highly manipulated and disconnected from reality on many levels - that's overtly obvious and intentional maneuvering via fed and pres. Only this pump and dump scheme isn't perpetuated by some shady OTC penny stock hype stunt.
When the equity bubble does burst (not if, but when) it will be very painful and unfortunately not just for those who are directly exposed but the collateral damage of all the free money will adversely affect those who are not day trading on the golf course, instead sold their clubs just to put food on the plate.
This is spot on. There are a lot of regulatory forces which help to prop up the stock market artificially. It's hard to imagine that pro-corporation regulations can go much further without severely damaging the underlying economy on which the stock market depends.
However, I offer up two counter thoughts to consider:
1) You say you don't need the money, but how do you know? There could be a better investment opportunity that comes up or we could go into a prolonged depression. Leaving some money not invested gives you more flexibility to allocate your capital down the road. You'll have lower highs but higher lows, which in the long run is good.
2) I actually do know a lot of people who are investing toady in hopes that there is a V-shaped recovery. This is particularly worrying to me and I can't tell you how many times I've overheard amateur investors at work say things like "the market is at a bottom so now is a good time to invest". These are people who have never invested before and only look at the stock price as the determining factor. Like Howard Marks says, market bottoms don't occur until all hope is lost. I'm not sure we've felt that yet.
What would that look like for a regular, middle class person? We've been educated to stay away from individual stocks; there is too little money and connections to suddenly be part of some lucrative real estate development plan or invest in some rocket ship ML startup. Most "normal" people incrementally a few grant here or there and what's available in the Vanguard or Fidelity account is what's on the menu. Maybe I am too narrow minded?
For the USA, business is affected, the question is if it's long term: Will closed businesses reopen? Will unemployed find work? Will the US lose its centrality to China? But however bad it is, the market overreacts.
Not to mention most americans' retirement is tied to their homes\ equity and their 401k/stocks. So it is political suicide for the government to let either drop in value for an extended period of time. Therefore, over the long term, house prices and stock prices will likely go up because politicians want to be reelected.
The only caveat is that eventually, we will reach out "limit" ( demographically, economically, etc ) and then housing/stock prices will drop and stay down for decades/maybe forever. Japan hit their limit in the early 90s and their housing prices and the nikkei today is a fraction of what it was back then.
https://tradingeconomics.com/japan/stock-market
If the check the 50Y chart, you'll see that the nikkei was at 37000 in the early 90s and is now at 20000. 30 years in and still nearly 50% down.
Don’t get me wrong, I’m a Brit and, though generally conservative, believe we have a batter balance between social support and economic flexibility. The US health care system appals me for example. That doesn’t blind me to the advantages of the US system.
Politicians have different time horizons than the cities, provinces and nations that they govern.
It's not political suicide if the politician enriched himself at the expense of the public and is out of office when the consequences are realized.
The obituary for Capitalism will point to this factor. The politicians killed it.
Everyone forgets about Climate Change...
https://taylorpearson.me/thedragon/
The basic idea is that you create a balanced portfolio of assets that are negatively correlated with each other so that, over a very long time horizon , your wealth retains its value even in the face of uncertainty, black swan events, and volatility. An example would be owning an equal proportion of stock, cash, bitcoin, gold, fixed income, commodities, and volatility. (Harder for the average person to get exposure to commodities and volatility - but I think bitcoin checks those boxes).
Edit: include original paper that describes the portfolio by Christopher Cole: https://docsend.com/view/taygkbn
It seems like one of the selling points must be "set and forget," which makes me wonder if the target audience is just people who don't want to actively learn about a thing, but would rather take someone else's word.
Christopher Cole is wicked smart, deserves attribution.
Are familiar with Japan's history over the last few decades?
I think in 99% of cases it's just a feeling - that the decline should have been bigger given how bad the economic impact seem.
When I say "I think stocks are overpriced" I don't necessarily have a specific number in mind. Rather, it's shorthand for "I think that the Fed and USG attempts to avoid deflation at all costs have created an economic environment that over-promotes stocks as an investment vehicle. In addition, I feel that these attempts have worsened inequality by injecting liquidity in a way that increases asset prices more than it increases the velocity of money".
But what else is there? Holding cash is terrible because it even loses value and the real estate market feels grossly over-expensive. So if you earn more than you spend, where do you put your extra money? I don't think that bonds, p2p-lending or precious metals perform better in risk/reward.
This begs the question. You've just hidden your premise in this paragraph. What external metric makes an asset over-promoted or under-promoted?
That’s basically how you evaluate what to pay for a company. When you buy stocks, you buy fractional ownership in a company.
Edit: many think the market is overvalued, because it’s currently at historically high price relative to the estimated earnings potential. This, while risk of insolvency for many companies is much higher.
It's high compared to expected earnings over the next year. Which is to be expected, because the ratio of expected lifetime earnings over expected 12 month earnings is also at a high, owing to a pandemic significantly impairing earnings for a year or so but not forever. Looking at 12 month numbers is usually fine as a proxy, but terrible now.
We are still at the highest point ever except for the dotcom bubble and black tuesday of 1929 (and directly before the recent crash, although not by much).
So to answer the parent, pick a ratio somewhere below that. Price has been the main thing moving upward disproportionately for the past decade, now earnings will take a dive.
The problem, of course, is that we've been in an unprecedented financial situation since 2009 fueled by massive debt inflation among corporations due to near-free money from the government for an entire decade. When will the party end? Who knows. The other problem is that it's hard to predict what will happen post-lockdown globally. As a result, traditional analysis is easily beat by irrational investment even on multi-year timescales these days.
> I think in 99% of cases it's just a feeling - that the decline should have been bigger given how bad the economic impact seem.
As you are suggesting, prices are simply what they are, whether or not someone views them as being "too high" or "too low" the only Goldilocks price is the one you agree to.
However, the markets can be distorted. The Federal Reserve, through policies such as lowering interest rates to zero, eliminating reserve requirements, and announcing purchases of corporate debt, has all but published "we will not let the stock market crash under any economic circumstance" as their official policy.
And, if history is any guide, SPX can fall all the way to ~500 without breaking all time lows on CAPE (this would be extreme, but is not entirely impossible, and inflation is not required for this scenario - look at 1950s).
Numbers would have to be adjusted if inflation speeds up. It hasn't sped up at all yet, in fact all we see today is deflation.
https://alhambrapartners.com/2020/03/11/what-happens-when-ce...
It's a 2 month old article by perhaps the most respected figure in valuation. He came up with 2750 for S&P at that time (market value was much lower, maybe he would be more pessimistic now). You can enter your own assumptions into his spreadseet and it will output a valuation.
I'm also leaning towards a longer recovery in consumer discretionary right now. Someone posted a story here about how people started self locking down before government lockdowns. While I think people are over the strict versions and are ready to get out of the house, I also think they'll be slow to return to malls and movie theaters.
Pricing takes into account projected future earnings.
It does make me wonder how many people are using total market indexes without caring about anything in them and how that could prop up the underlying assets.
This isn’t an original idea, there’s been lots of talk about index funds being a bubble, but there isn’t a great alternative.
Though I’m starting to wonder if I should pull most of the money out and split it between Apple, Amazon, Google, Microsoft, and Facebook.
The long tail of the market index funds I find more likely to have issues than these companies (particularly Amazon and Apple).
MSFT +21%
AAPL +15%
AMZN +37%
FB +6%
NFLX +50%
UBER +21%
SQ +22%
SNAP +16%
MTCH +10%
NVDA +60%
TSLA +128%The stock market is generally governed by two feelings: confidence and fear. Often times those feelings are outwardly feigned for one's own self interest
This is not a bad bet at all. The dominant ideology in Washington seems to be laissez faire when big businesses are doing well and bailouts when they aren’t. It must be nice to play with a stacked deck like that.
Inflationary expectations and wage growth remain low and the Fed has plenty of tools to tame it (interest rates, a huge balance sheet), so the question really is now: where is the inflation going to come from?
Basically my take-away was: don't bet against the house, even if it's crumbling. Because they won't agree you've won the bet until they resell it off to some other sucker; or they'll declare bankruptcy and you won't get paid; or they'll get bailed out and you'll be wrong even though you were right. [I'm not a finance person, so this is all a layperson's interpretation.]
Our entire economy is like a mining company that steadily mines a gold seam, paying out healthy dividends and executive bonuses all the while and then as soon as the seam is mined out declares bankruptcy leaving toxic waste cleanup and employee pensions for the government to take care of. We don’t just allow ourselves to be exploited by sociopaths, we actively seek it out.
> You still believe in the system, don't you
Why do individuals think they should receive the same treatment as key infrastructure companies?
The same is true of most industries, bailouts protect investors not economic capacity, but there are exceptions. I don’t like it but there are very few big banks, and it’s just not possible for fresh investors to rapidly buy up the assets of a failed bank and start a new bank. The heavy regulation of the industry is a serous obstacle to that kind of renewal and this is a dangerous problem.
Does it take a lot of companies going bankrupt?
Is it enough for lots of companies to report big revenue drops? Or is that priced in the minds of most investors?
Maybe I have some shares I bought for $10; the price dropped and now I can only sell them for $8. There is a solar farm off to one side selling bonds at some unreasonably high yield.
I could be stubborn and hold the shares until the price comes back - but that would lose me money in the big picture. Instead I sell for whatever I can get and put the money where it will be generating a good return.
If a bunch of people behave like that, sellers quickly overwhelm buyers (potential buyers are flocking to the new opportunity too) and the price corrects to something reasonably fair.
What bothers me is that most traders don't care about control or profits - they just want the number to go up (or down). How does the price get grounded in reality in this case? The answer is presumably: in trades between speculators and those who do care about profits and control. But where is the guarantee that those trades happen? What if speculators mostly trade among themselves?
There might be a few companies that fall into neither group, being so fundamentally unsound that they will simply be shuttered with no sale, but that would surely be a small percentage of the stock market.
How about not "correcting" the corrections in the first place? Let the market actually be a market, don't inject huge amounts of money into it?
Not to be confused with helping out ordinary people who need money for spending.
Update: I think I need to add that I have no economic education - I wrote this after reading recent Ray Dalio posts to see what others think about it.
Most consumers don’t have direct access to cheap FED money and the trickle-down effects (startup boom) have had limited impact on average wages.
Anyone ever seen such indices?
The source of the flow of dollars is changing, because businesses are shut down, so dollars are flowing more directly from the Fed, which is trying to make up for the loss of flow elsewhere in the economy.
Gold prices are up because of the collective fiction around the idea of "assets" and "store of value."
There is no risk of loss of "reserve currency" status. There is always jostling around relative currency valuations, but the Fed has only strengthened its position as world premiere source of liquidity. And for the west there is no viable alternative.
Aka you don’t have to outrun the bear just the other guys.
It is not clear how these two are sustainable.
Seven percent is generally accepted as the expected market return over a period of time sufficiently long enough to mitigate systemic risk, not that seven percent is the highest return in market history. Or said another way, if there's ever a chance to buy a treasury bill with a seven percent or better return, take it, because that's the best you'll earn in the market but with much much much less risk.
Says who? For which stock? I understand a company's stock price to represent the net present value of the expected future performance of that company alone. I don't see how there can be one expected return on investment that applies equally to all companies, as expected return on investment will be determined heavily by risk which will vary considerably company by company.
I do wonder and am concerned what the endgame is. Is this all gonna crumble like a Ponzi scheme? Is it just gonna smooth off as more investors start retiring and pulling money out? Maybe at that point this will all just turn into a fairly indirect redistribution from working, young people to current retirees, as we see in some national pension systems?
One thing is for sure, the stock market reflecting on people's near- to mid-term outlook of the economy is likely over.
Yes. That's where my RIA has 33% of my assets now, we moved them in 2019. We will be "piecing back into" the market over the next 12 months. I'm 50 and have a 30 year investment horizon. I've been investing since I was 21. I've been through two massive drops in the market that took years to recover. Don't panic. Valuations will correct themselves and fundamentals will continue to hold until the next bubble. I think that is model we're facing at the upper limit of an exponential.
> Is this all gonna crumble like a Ponzi scheme?
It has to stay alive so that the rich can get richer. Remember the players in the Panama Papers? There's an entire society that runs the planet. And this isn't a conspiracy, it's out in the open! Look at the Carlyle Group: it is an investing firm funded by people liek MBS (The Saudi), the Clintons, the Bushes, and many other politically-culturally diametrically opposed clients. It's no mystery that rich world leaders who go to war with each other give their money to the same investors.
You know that there are investments only available to people with $5, $10, or $100 million more in holdings? There are entire class of investment devices that you and I will never see. It takes tens of millions to even play in hedge funds. The "real" markets are for the 0.1%. Those will continue to feed off the other markets, which they need to distance themselves from the pack. (Look at wealth distribution over the past 50 years.) But these top tier funds require us schlubs to hand them money while we scrape by with 5-8% yearly returns. They will keep the dials set just right so that we'll have a reasonable retirement while they own the planet (Larry Ellison owns a Hawaiian island. Techbros are buying up New Zealand [Theil]. Think about what happens when trillionaires start to buy entire countries.
Yeah, the market will survive and make sure the upper middle class continues to invest, otherwise there won't be a wealth generating machine for the 0.1-0.01%. As for people who can't afford to even put money in a 401k? Well, we know what one political party things about those people.
That's a bummer - you missed out on the rally and pricing is about the same as what it was in 2019.
At a certain point, we should just admit that we're taking money from the middle class and using it to play-act private investment while actually socializing investment. We should then go the full distance and actually socialize most of the economy, so that twice a month people are compensated not with abstract, speculative 401(k) prospectuses, but with an equal vote and a dividend in their own workplace.
https://www.jacobinmag.com/2017/08/sweden-social-democracy-m...
https://journals.sagepub.com/doi/full/10.1177/08969205134853...
What else should it be backed with? Dollars are subject to (hyper)inflation. Real estate is nice, but I need more liquidity.
Seems like owning a chunk of the economy is where the action is.
Honest question about FIRE: you hear stories about people retiring and dying a few years later in part because they lost their purpose in life, or people nearing 65 asking themselves "what am I going to do with my time." Purpose in life is strongly tied to emotional well being. What's FIRE's answer to that? Retirement is not an end unto itself.
I am not advocating for removing old people from the economy. I am just thinking of some economic consequences of this terrible pandemic.
I'll take it a step further. Animals have coexisted with nasty viruses for a long time, and lots of animals are still susceptible to them. Are threats that constantly cull the population beneficial to the strength of the species? Are there viruses some species are genetically immune to because the virus killed indiscriminately, while other viruses provided a net benefit?
That's a low risk premium if you measure it against historical interest rates, but it doesn't seem completely unreasonable when interest rates are expected to be ~0% for the forseeable future, and the inflationary pressure on the dollar could be on the order of 40%.
It's certainly very high in historical terms, but you can't consider the history in isolation.
This document looks at the historical trend from a variety of perspectives: https://www.yardeni.com/pub/valuationfed.pdf
Current valuations are roughly in line with post-2008 history, but looking at a longer history suggests that they’re actually undervalued relative to other assets.
If there's a sharp rebound and everyone gets re-hired in a month when things open up again, and there's no second wave, then perhaps this will all blow over soon given valuations are based on future cashflows of which two months isn't a big deal.
But there's lots of reason to believe that will not happen. There is no vaccine, the virus is highly infectious, restrictions will be relaxed but they will need to remain in partial effect and this will impact employment/productivity in many sectors.
And eventually (particularly leveraged or low-margin industries) companies will simply collapse, there won't be any organisational framework to rehire these people and you'll just have to rely on new companies to form from scratch, which is a much slower process than rehiring furloughed workers under business-as-usual.
Average, but to believe it you have to assume the E doesn’t change meaningfully over the next couple of months.
They certainly don't explain what people are actually betting on.
It makes total sense to bet now. The incumbants are fish out of water. Their algorithms isn't built for this.
Does it make more sense to compete in a normal decade long stable market against billion dollar companies? That's stupid.
The article is talking volume not so much me. You can't sit at home and watch tv and invest without some volume.
Basically they wanted a /r/WallStreetBets angle but didn't want to say the word which confused the article.
These are two different ways of expressing the same thing. (Gambling versus investing, on the other hand, are different. But a “bet” can be utilitarian, i.e. not entered into for fun.)
The price of any asset in the market is best viewed as a predictive time portal into the sum of all potential future value that can be generated by that asset. So, when you see TSLA at $800, that does NOT mean that investors, the market, et. al. are perceiving Tesla as worth that much today or even this decade. The market is continually modeling and adjusting how much that asset could be worth in 5+ years considering everything everyone knows at current time.
It is easy to fall into the trap of believing that the market is operating in first-order terms. Obviously, stocks react immediately to bad or good news on a quarterly or better basis, and this can send hilariously-conflicting signals regarding the longer-term modeling that is implicit with every asset price. This is where day-traders and other near-term speculators always get stuck. They make a few observations and then believe they have identified a regime in which the stock market does indeed operate in first-order terms. And then out of nowhere, their assets are wiped to zero or worse because of some sell-side risk model that was just run at Goldman Sachs indicating that no one wants electric cars in 2025. Obviously, this example is totally bullshit, but it's conceptually how you get burned when you play the short game.
https://futureoflife.org/2017/07/31/podcast-art-predicting-a...
Absolutely, and quite a few people making this error on this thread.
But the borrowed funds used to do this is probably not as productive as investing in capital infrastructure.
Say, you are risk averse investor who has 15-20 year investment time horizon. What you should do? Will bonds yield better returns? I don't think so. You should keep doing what you do. Dollar-cost averaging reduces the volatility over long term. If you have some balanced strategy like 60/40 stocks/bonds then rebalance like before.
I would also of thought volatility over 15-20 year term when choosing between DCA or lump investment is largely irrelevant and not worth hedging against.
You can see the effect for the total return of your investment even in 15-20 years. Try for example SP500TR for 20-year period and slide the starting point over dot-com-bubble. 20 year ROI(TR) alternates from >300% to 180% and back to >300% within 3-4 years.
a higher expected value. If you expect positive returns, the sooner all your money is earning the better.
https://seekingalpha.com/article/2788885-how-old-was-that-sh...
Equities are less exposed to low to moderate inflation than assets with fixed pay-outs. No need to model stocks as currency.
(Condé Nast publishes the New Yorker)
Perhaps we are approaching a time where capital can be converted directly into labor in a way that scales. If this is the case the market is ridiculously undervalued, almost comically so.
I have maintained high savings rates and acquired capital ever since I read that book, regardless of valuations. I consider my portfolio insurance against this scenario.
The shutdown already spotlights the fact that the true economic value of non-essential business and workers is primarily as consumers.
And investors probably are too optimistic about some tech companies since the recession will surely impact enterprise spending.
But it’s not as irrational as you may think once you look at the individual companies doing good and bad now.
Chipotle has bought some good will in the past and probably is making decent cash on deliveries.
The stock market is growing because the owners want to start the new growth cycle. They think that's enough value have been collected, they have no intent to destroy the engine, and want to start the new cycle. They achieve it by letting Fed print trillions and buy the stocks. This dilutes the share of everybody not invested in the stocks, but it works for the US because dollar is the internatiinal common stock and the US has the right to issue new shares. Whoever complains gets a friendly visit by aircraft carriers and experiences sudden difficulties in participating in the international economy.
It's possible that the owners have messed up this time, as they are often just lazy greedy types, and the engine will stall, but in that situation it won't matter whether you hold dollars or sp500.
What the Fed is buying is bonds. Which are non-dilutive.
I understand the sentiment, but let’s try to get the facts right
I'd dump all stock right now if I was holding, thank the tax payer and buy bullion.. don't know why people would still remain invested in a market that will obviously crash..
[0]: https://www.federalreserve.gov/releases/h41/current/h41.htm
The best way I’ve found to trade is to listen to what the market is telling you. Take positions with discipline. Scale out when you have profits. Wait for next sign of direction.
It is as easy as that while at the same time very challenging.
None of what you said means anything. You may as well be saying "Listen to what the roulette wheel is telling you".
After the previous bottom sUch threads here, on reddit and on the financial times were convinced markets had nowhere to go but down and couldn’t possibly go up.
The author is way out of touch if he thinks this. Many of my friends playing around in the stock market have a portfolio of less than $1000. When I started learning it my portfolio wasn't much bigger. At that level, if you trade even semi-actively, you get eaten alive by fees
The stocks are not worth more inherently, you just need more (depreciating) dollar units to describe the price.
Markets need to go way down before things normalize ( eg. Tax cuts won't hold I think)
We are now back at the level before tax-cuts, which is nuts considering people are not spending currently.
I bought any way.
I'm up 24%. The average annual increase for the S&P 500 is 6%.
Now HN is saying it's crazy to buy.
I see stores reopening. Local stores in Seattle, but also chains. Apple is planning to reopen its US stores soon. Grocery store shelves are full.
NYC is opening its beaches for Memorial Day.
Yet again, "it will get worse." I see the market going sideways.
I think I'm going to hold on.
Sure, US stocks is a pyramid, but Euro stocks have been and keep performing very bad. Only china could surprise the world , but they are not going to open up their economy anytime within the next 2 years.
Purchasing power is what's important.
I wrote up a more detailed argument at https://gitlab.com/kragen/derctuo/-/blob/master/pandemic-col....
And, investors know that Republicans, Democrats, everyone will sacrifice everything to save "market growth".
Seems like a rational, safe bet.
No, investors haven't lost their minds. They are betting that the Fed will backstop the stock markets by any means necessary.
Try this though experiment. Which US companies will not be allowed to fail under any circumstances? You might be surprised to find companies far outside of the banking and national defense industries on this list. Given the chain reaction that often takes place in debt defaults, you might be surprised to find almost every large US company on the list.
That's what the Fed needs to "backstop." The scale is beyond any balance sheet expansion currently being discussed. Of course, this isn't capitalism, either, but that seems to bother fewer people than it should given their rabid espousal of anti-socialist doctrine.
Whatever you calculate the current US national debt to be needs to factor in the market value of those companies that can not fail under any circumstances. Most tallies don't.
Now, try to use any traditional metric of value (P/E ratio, dividend yield) or risk to buy some stocks. You'll quickly throw in the towel and remember that ultimately the Fed has your back. Right?
For all the scare mongering sheltering at home the facts are that the disease is not radically dangerous.
Note the hysteria and the fake outrage when pointing out that an 80 year old' "premature" death is not nearly as sad, impactful or tragic as that of 30 year old'.
Modern society keep its citizens in check by promising them that they are all "equal" and that they will do "everything" possible for everyone. The outrage is to salvage that facade, that illusion.