
Why Is the Stock Market Booming? - martinlaz
https://www.nytimes.com/2020/04/10/upshot/virus-stock-market-booming.html
======
caseysoftware
The subhead gives the entire answer:

 _Investors are betting that powerful interventions from Washington will
protect the long-term profitability of major companies._

Which means that the market is 100% detached from the overall economy,
economic outlooks, and company earnings.. again.

~~~
mandelbrotwurst
What makes this worse is that it isn't even necessary.

Allowing companies (even ones that are large and considered important like
airlines) to "fail" just means that they'd have to go through bankruptcy
proceedings and that the owners would lose some money - it doesn't mean that
their operations will shutter, or that the planes will suddenly disappear, or
that everyone in those companies will suddenly be out of work.

There are many examples of how this works - a recent one being PG&E in
California, who filed for bankruptcy last year. Our electricity is still
running and the linemen are still working.

~~~
j-walker
Isn't the counter-point to this the stock price of PG&E? Look at its
performance over the last 5 years, it's down to ~$11 from ~$50.

If the the whole market looked like this in the next year, people's 401k
accounts would probably be demolished.

~~~
paulhodge
Just optimizing for 401ks is going about it wrong. $500b from the stimulus
went to corporations, which indirectly boosts stock prices, which indirectly
boosts 401ks. (unless the market still crashes). It's essentially trickle-down
economics. If we wanted to improve individual's retirement savings then it
would more effective to just divert more of that $500b to social security.

~~~
bitcoinbutter
The stimulus packages seem more focused on ensuring that asset prices remain
inflated. The idea that the average person will see any major impact from the
S&P500 dropping to 2000 points is laughable.

How many people do you know that truly had their lives ruined by the 2008
crash? Allowing the markets to find a bottom and recover creates opportunities
for social mobility.

The people who don't want asset prices to drop are rich people. They are the
ones who own the assets.

------
ackbar03
I thinks it's just way too much liquidity sloshing around. I'm guessing we're
going to see a more volatility in prices in future. A tip in any direction of
an asset class will cause money sloshing into it and out again at the first
sign of trouble.

That's just a guess. I think the text book answer of equivalent of this is
just hyperinflation (except that's when the money starts flowing into real
price of goods and services)

~~~
taneq
I think you're right. What we've been seeing for the past 10+ years with wages
and real-world earnings staying about the same isn't some weird effect on
salaries. It's rapidly dropping goods prices (which everyone's been asking
about - why aren't prices of basic goods dropping?) due to globalisation,
automation and economies of scale, combined with hyperinflation.

~~~
tdfx
There's been some discussion that wages haven't actually been flat at all,
just take home earnings. The difference is theorized to have been siphoned off
by rapidly increasing health insurance premiums [1].

[1] [http://laborcenter.berkeley.edu/health-care-costs-under-
job-...](http://laborcenter.berkeley.edu/health-care-costs-under-job-based-
plans-have-grown-rapidly-while-wages-remained-flat/)

------
rafiki6
I've read so much amateur and professional analysis on what's happening. The
one common thing I realized is it's all entirely speculative and offers little
to no empiricism (stats aren't empirical evidence, they're an explanation of
data).

Absolutely no one knows what's happening right now. There are many
explanations that are attempting to rationalize the behavior of the markets
but the reality is the system has gotten so complex and there are so many
derivative financial instruments and institutions who make their living off of
some type of market manipulation that what we are likely witnessing is a
confounding of different mechanisms all occurring at once.

The one absolutely conclusive thing you can gather from all of this is the
prices of stocks have been and will likely continue to be detached from
fundamentals for the foreseeable future.

My guess is that a future economist will gain their fame studying what is
happening right now and creating a new theory out of it.

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CyanLite4
1\. These large 20%+ rallies are always common in bear markets.

2\. The Fed has committed all told nearly 10 trillion dollars, maybe more.

3\. Very little macro data has been released. Market is pricing in a V-shaped
recovery which isn’t out of the question if we can open up in May.

Having said all of this, I think we head lower as the health crisis turns into
a really bad recession. There may not be jobs for these workers to go back to.

~~~
soperj
>Market is pricing in a V-shaped recovery which isn’t out of the question if
we can open up in May.

Market was due for a fall, this was just what kicked it into gear. I doubt
it'll be V shaped. I also doubt that you'll be opened back up in May. I don't
see Italy opening up any time soon, and New State alone looks like it'll be
worse than Italy.

~~~
SpicyLemonZest
I'm not sure what you mean by "alone" here. New York is by far the worst hit
area of the US; many states are doing no worse than Denmark or Austria, which
are going to start opening up next week.

~~~
soperj
Denmark completely shut its borders. Austria has made everyone wear masks, and
have been shutdown for a long time. US states like Mississippi are still
arguing that everyone should be essential. There are at 11 states with double
the number of confirmed cases as Denmark, and I don't see any of them actually
slowing down currently. They're all experiencing 4 times more daily cases than
Denmark.

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nostromo
It seems insane to me that the market is now higher than it was at the end of
2018, given that entire sections of our economy are closed, default risk for
almost every business is up, and unemployment claims are making new record
highs.

In 2018 the fed was reducing their balance sheet - which seems to be the most
important driver to equity prices rather than fundamentals.

~~~
bluGill
Not to me markets are a 10+ year term investment, in 10 years this will be a
memory and things will be back on track

~~~
icedchai
Yep. 2008 was the time to get in cheap. This is the same thing.

------
axegon_
There is a bigger picture here: there is undeniably a crisis but it's an
external factor as far as the economy is concerned. Fact of the matter is,
plenty of big businesses are doing better than ever: everything online is
exploding, online shopping, payments, entertainments, online education as well
as delivery services.

And a more specific example(for the sake of illustration), so are many grocery
stores: I have 3 small grocery shops around me in a quiet and residential area
and they can take a breath. Even after the toilet paper crisis ended, every
time I look out the window I see at least 5 vans unloading. And we are talking
really tiny shops: the combined are of all 3 combined would probably not cover
an area of 100 square meters. With that you have large production lines,
warehouses, transportation companies and logistics fully operational and have
probably reached their maximum capacity.

While tourism, air travel, restaurants(those that don't deliver food) and
pubs, public events, concerts, all all of those will suffer for years to come,
others will flourish.

And with all that, I'd argue that a lot of new markets will appear.

I'm well aware it's too soon to tell for certain but that's what seems very
plausible to me.

~~~
eshyong
While I agree with some of your points re: online companies doing well, I
don't see how you can take anecdata about local grocery stores and extrapolate
it to the rest of the economy. Also, don't forget that _16 million_ (that's
5%!) Americans are unemployed right now. Can you imagine the damage that's
going to do to businesses across the country?

If that isn't a sign that a recession is coming, I don't know what is.

~~~
axegon_
The US is a very different beast altogether. I'm a bit far away from there but
as a spectator, I'd say the US had the absolutely __WORST__ reaction to this
situation. Given that about 40 to 45% of all confirmed covid19 cases are in
the US suggests that to put it mildly. As a matter of fact, most of the
world's reaction was nothing short of appalling. But there are exceptions to
the rule: as an eastern European myself, most of the countries in Europe, east
of Germany have managed to contain the situation really well. It might have
something to do with considerable experiences with crisis(of different nature
in all 1 billion instances over the past 100 years), but let's hope that's
been to our benefit for once. Again - only time will tell

I never said average Joe won't be affected by this. What I am saying is that
the big players will still be big once this is over but there will be new
players as well. Also China will likely lose ground in the global production
lines, and companies will likely look at alternatives, even if they have to
make a compromise with scale and price. Investors like safe bets and what the
current situation has taught is is that China isn't a safe option. We knew
that already but the nets around the foxconn factories are a bit... Out of
sight, out of mind.

16 million is a horrific number and I sincerely hope they pull through without
paying a heavy price. But put your mind in a different mindset - 16 million is
an incredible amount of manpower. For the 16 million - that's a tragedy but
for the people with deep pockets - that's a once in a lifetime opportunity if
they play their cards well. And I'm more than certain that many out there
will.

------
mikekij
A properly functioning stock market is predicting the next ~15 years of
companies' profits by weighing the prior ~15 years of companies' profits
combined with their current growth. Even a 12 month period of $0 profits
should decrease the NPV of a firm's future earnings by 10%, not 50%.

As scary as the next 12 months appear to be, we will eventually return to a
new normal, just as we did in 2010, 2004, 1990, etc.

~~~
drchickensalad
Why 15 years?

~~~
brianwawok
And how could anyone predict a company 15 years out?

We have a real hard time with 1 year out.

~~~
mikekij
Agreed. But you make a forecast in which you calculate an "expected outcome".

~~~
brianwawok
A forecast that has nothing to do with reality is garbage.

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chrisgd
A lot of people will say that earnings expectations are higher than the
current price projected and they bought. I think it is more likely that after
the first up day, a lot of people saw that they could have made $4 / share
(hypothetically) and started buying.

Personally, I am waiting to see what 1Q earnings are and what 2Q projections
look like for a few names I like.

My 401k hasn’t changed through all of this, just any spare change I have for
my fidelity account.

Even fertility, dermatology and orthopedic doctors are all closed still.

------
hanoz
Would this be the same market which completely ignored the epidemic in the Far
East and the obvious implications of its trajectory, until the morning after
the weekend it hit Italy?

------
maxcan
One word: inflation. The government is turning on the printing presses and
while investors expect _real_ returns to take a hit, they expect _nominal_
returns to do fine. In an inflationary environment, assets like equities will
outperform.

------
Beefin
My thought is that the majority of the markets rely on high frequency trading
algorithms, which base their models off historical data. Given this is
unprecedented times, the models are going haywire because nothing fits.

------
lordnacho
The authorities have essentially said they aren't going to let businesses
fail. Even though that's what limited liability is for, but I digress.

So if there's a much lower chance of failure, prices for equities can be
higher. Corporate bonds too.

But I'm not so sure this bounce will last. There's a fair chance this is some
sort of short squeeze dynamic. Longer term we'll see what the damage to the
economy actually is, whether people simply go back to how it was or things
have actually changed.

------
dustingetz
This chart is why
[https://fred.stlouisfed.org/series/WALCL](https://fred.stlouisfed.org/series/WALCL)

------
totemandtoken
I'm probably wrong about this and I'll probably get told so and downvoted to
hell, but to throw my $.02 in to the mix

I think the fundamental issue is that the stock market doesn't reflect reality
at all anymore. Which isn't a novel point, a bunch of other commenters are
saying the same thing. I think the only thing I have to add is that a small
army of forex bots, automated buybacks, and zombie index funds has made it so
that the stock market is programmed to never not boom. A market that reflects
reality would be governed by supply and demand, not by seeing a ticker go up
or a graph go up and to the right. But that's what investors want, so that's
what all these mechanical interventions are optimized to do.

So why is the stock market booming? Because that's what it was programmed to
do.

(Yes, yes, cite my sources, but it's a Friday and I'm lazy)

------
pepy
Welcome to the new America where the debt is public but the profit is private

------
throwaway8291
My brief analysis tells me that there will be some grinding down in Q2 with a
negative peak in Q3. While the virus seems to be "managed", the consequences
of millions of people dropping out of the workforce in the first world is not
that pronounced. We will see bank failures and maybe dozens of cascades, all
leading to the point where someone has to stand up and swallow it.

Solid states go into deep debt today, previously failed states will chew on it
for the decade to come.

------
jrockway
Stock is a bet on the company until the end of time, and 30 years from now,
nobody will remember the Great Pandemic of 2020. Even if we imagine a worst
case worse than the predictions, things will probably be fine for the economy.
If 10% of the human race dies tomorrow, that just means everyone else needs to
do 10% more work; a 40 hour workweek becomes a 44 hour workweek.

(Obviously if sucks if you or your loved ones die. But the economy doesn't
care.)

~~~
volkk
this doesn't make any sense. by that logic, why do recessions simply not exist
since in 30+ years we'll probably have overcome whatever current problem we're
facing now

------
simonblack
The 'Greater Fool Theory' seems to be the main one. No matter how silly it is
to buy something that is overpriced, it's practically certain that a 'greater
fool' will come along and buy it from you. You profit.

[https://www.wisegeek.com/what-is-the-greater-fool-
theory.htm...](https://www.wisegeek.com/what-is-the-greater-fool-
theory.htm#didyouknowout)

------
naveen99
Stock market already took its hit. Most real wealth is in private markets:
residential real estate, private equity, and bonds. Bonds are being bailed out
by the fed. Residential real estate and private equity will take some time to
deflate. Then the rent collectors in residential real estate (state property
taxes) will take their hit...

------
adventured
[http://archive.is/oWxNu](http://archive.is/oWxNu)

------
mattnewton
Where does all the money go if not in stocks?

The government is pretty preoccupied with the current stock market, for better
or for worse. If they are unable to fix the the economy and appease
shareholders, the thinking might be that we have bigger problems with the
value of the dollars themselves.

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zenlot
Bull trap.

------
phonerphone
[https://www.youtube.com/watch?v=FwvZql6RToE](https://www.youtube.com/watch?v=FwvZql6RToE)

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thysultan
Not yet booming, mealy recovering.

~~~
gnulinux
It's almost the same as where it was Jan 2019. Business is nowhere near as
good as it was in Jan 2019, so clearly there is a discrepancy.

------
splitrocket
Everything you need to know about the wisdom of the stock market can be easily
discerned from this single, simple fact: They believed Donald Trump when he
claimed Saudi Arabia and Russia would cooperate to raise oil prices. They did
not.

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Mc_Big_G
Because the market is rigged. The idea that it's a free market is ridiculously
dumb.

------
cryptica
It's interesting to note that gold has significantly outperformed S&P500 over
the last 5 years (and so has Bitcoin and many other 0-yield assets).

If we were to redraw stock charts using gold as the x axis (instead of $ USD),
we would realize that company stocks have in fact all been dropping for the
last 5 years.

The US dollar is not so different from the Venezuelan bolivar, it's also
inflating and making the stock market appear to grow... But it's not the value
of the stock which is growing, it's the value of the dollar which is shrinking
(and so are all other fiat currencies which are pegged to it).

