
Stocks Are Recovering While the Economy Collapses - colinprince
https://time.com/5828898/stocks-recovering-economy-collapses-makes-sense/
======
ryndbfsrw
3.85 million more Americans filed for unemployment last week and the stock
market barely moved. Its because your Fed is printing money to buy up assets
and corporate junk bonds.

[https://www.federalreserve.gov/monetarypolicy/bst_recenttren...](https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm)

This is also the sign of the kind of plumbing that is baked into the US system
- protect capital when things go belly up and allow labor to hit the reset
button through unemployment and wage cuts. Flood the market with cheap credit
and then eventually growth comes back. It’s a rehash of the financial crisis
response because it’s the only sort of response the USA is configured for.

~~~
api
When all you have is a hammer...

The Fed has a twin mandate (price stability, maximum employment) and two tools
to satisfy it with: rate adjustments and liquidity injection (QE). That's just
about it. They aren't allowed or configured to do much of anything else.

If those two tools stop working or produce distorted results, they can't
switch tools. They have to keep banging the hammer or choose to do nothing.

What we are seeing here is a failure of Congress and the Presidency, not the
Fed. The Fed is doing the only thing it can possibly do in this situation. It
has no more tools.

~~~
ryndbfsrw
Completely agree. The Fed is one of the few institutions that has bipartisan
support so its allowed to fulfil its mandate and the 'plumbing' so to speak
works well when its trying to pump money into markets. But as we've seen
getting money into people's pockets is more challenging in the USA as that bit
of infrastructure wasn't seen as needing investment due to the way USA
normally reacts to market shocks. (And by infrastructure I think of benefit
systems running 50 year old bits of cobol, sending benefit payments via
cheques, patchworks of state benefits instead of universal coverage etc.)

~~~
camelite
Nonsense. Money isn't getting into people's pockets because the political will
isn't there. If it was an influential Bloc screaming for assistance, they
would get it, and the details would be worked out later. Where there's a will
there's a way, and where there's no will there are a bunch of phony excuses.

~~~
Red_Leaves_Flyy
If the people protesting the lockdowns instead protested to demand immediate,
and sustained benefits, and supporting policy, until the lockdowns are lifted
under we may see different results. Of course, for that to work the protests
must end entirely if demands are met.

Instead we get more reality TV. I keep going to bed every night wondering when
I'll wake up from bassackwards nightmare.

~~~
api
I feel like a lot of Americans won't ask for help because they fear it will
mean that others who are not just like them might also get help, and that
quite a bit of it boils down to latent (and even assumed and subconscious)
racism.

I wouldn't have said this 10 years ago. 10 years ago I thought racism was dead
except for a few crackpots and maybe a few rural areas. The seemingly out of
nowhere explosion of it in otherwise more contemporary settings on the
Internet prove this is wrong and it's still very much alive. I don't think it
ever died. It just became something you don't talk about in polite settings or
in mainstream media. All it took was a few Youtube blowhards and trolls to
challenge the taboo and it was back with a vengeance.

Other than racism the rest is self-righteousness: "I'm responsible and hard
working, so sure I could deserve help, but what about _those_ people over
there? If they're in trouble they must be lazy or stupid."

~~~
Red_Leaves_Flyy
I've got a bit more hope in the median American than you I think. I don't
expect racism to disappear entirely. It's an extension of a natural reaction
to change or experience. It takes education, and good experiences to counter
racism. Some people are just stupid, but even they aren't beyond help. Those
who are should be imprisoned.

Anyways, if you care to know, I suspect that people etal have merely forgotten
how much power to effect change we have when we unite towards a common goal.
If every person claiming unemployment started protesting tomorrow for: [weekly
stimulus money no delays no excuses, 100% free to consumer health care and
treatment extended into single payer after covid19, and policies preventing
repossession, evictions, foreclosures, and garnishment due to un/under-
employment] then I would bet everything I own that you would see our
politicians act with a swift decisiveness, to either effect a nationwide
tianemin square or capitulate to the will of the people. I fully expect
capitulation, but realize we have an absentee president.

------
aazaa
Hypothesis: the face-ripping rally in stocks and total disconnect from the
real economy is the result of trading bots that have mistaken the flood of
central bank liquidity as a demand spike.

The algos haven't yet been updated to reflect the fact that there's a man
behind the curtain with an infinite supply of liquidity pumping, pumping as
fast as he can.

And it's far from clear that the distinction matters anymore. Assets have
become a kind of video game. When you strip stocks and bonds from their
anchors to valuation (P/E multiple or inflation), you're left essentially with
something very similar to gold and cryptocurrencies - assets that are
difficult to value by any conventional means, but which become sensitive to
central bank shenanigans. This could explain why all asset classes are now
moving in unison.

~~~
ThePowerOfDirge
Alternative hypothesis: bailouts are a temporary smoke screen for the pension
and hedge funds, other financial institutions and the super rich to cash out,
once they have liquidated their positions, the real crash happens.

~~~
rileymat2
Alternate hypothesis: The next year to 18 months of earnings reductions due to
covid is not enough to justify a 30% drop in net present value of the market
at large.

~~~
scrimps
The the companies were accurately priced prior to COVID then that would be the
case. If companies were in an overvalued bubble before COVID then that would
not be the case.

------
computator
> _The Fed has committed to lend or buy [up to] $8 trillion in financial
> assets_

The M2 money supply[1] is currently $16T. If the Fed creates $8T in new money,
does that mean that the M2 grows to $24T and therefore the purchasing power of
U.S. dollars will be 2/3 of what it used to be? If your nest egg is mostly in
cash right now, what should you do?

[1]
[https://www.federalreserve.gov/releases/h6/current/](https://www.federalreserve.gov/releases/h6/current/)

~~~
DrAwdeOccarim
I'm a layman when it comes to economics, so take my opinion with a grain of
salt. The way I think about it is, when the Fed "creates" like this, who
actually gets it? Well, it's the person who holds the asset the Fed will buy.
Those assets (like bonds) are held primarily by the wealthy _. The wealthy_
already have enough money to do the things they want and most of the time it's
about watching the number in the account go up.

What I mean is, it seems like there are two economies. The economy where the
wealthy* buy things. Things like art, yachts, houses in coastal cities,
stocks, bonds, fancy education, fine collectables, fancy cars, fancy clothes.
And the economy where the normal people buy their normal things like TVs, cell
phones, commercial air travel, food, normal clothes.

So when the wealthy* get money for their assets from the Fed, they aren't
really buying the same things normal people are buying. So inflation so far
has not crept into normal things. It has crept into wealthy* people things, a
lot.

Of course there is bleed-over, like housing and education and medicine, where
inflation is showing up because the wealthy* and the normal people compete for
the same resources or similar types of resources.

So when you're talking about purchasing power, are you referring to living a
normal life or a wealthy* life? If it's the former, the current CPI seems like
not a big problem.

~~~
jcfrei
> So when the wealthy* get money for their assets from the Fed, they aren't
> really buying the same things normal people are buying. So inflation so far
> has not crept into normal things. It has crept into wealthy* people things,
> a lot.

They are not buying or rather spending more - that's the problem. The money
stays within financial assets, rather than rich people buying a second and
third yacht. If they did then more companies would build more yachts, creating
additional jobs and eventually that wealth would trickle down. Now it just
leads to higher asset prices.

~~~
lazulicurio
> They are not buying or rather spending more - that's the problem

I think that you might be missing the point of the GP. They're not saying that
trickle down will invigorate the economy. They're saying that QE is bread and
circuses for the wealthy. Asset inflation is precisely the point. This does
has some negative secondary effects (the GP mentioned housing, education, and
medicine), but as long as consumer goods stay cheap there's essentially no
downside to inflating the cost of Veblen goods.

~~~
jcfrei
> Asset inflation is precisely the point.

No it's not. The mandate of the FED is (among others) to maximize employment.
The FED hopes to achieve this by stabilizing asset prices, therefore
stabilizing pensions and housing prices, which creates consumer confidence and
incentivizes spending. However as we can see there are diminishing returns -
consumers are not nearly spending as much as the FED balance sheet would make
you believe.

The real problem I see with FED interventionism is that it lets fiscal policy
off the hook. If you want to actually stimulate the economy you need a strong
effort by the politicians, increase government debt and let the government
massively invest in infrastructure, health, education or even create a
universal basic income. However because deficits are already high, lots of
politicians (and a sizeable part of the voters for that matter) are not
willing to do that. Central banks around the world keep calling for more
fiscal measures - but in reality politicians are mostly kicking the can down
the road.

~~~
camelite
The commenter you are responding to is positing the hidden mandate of the Fed
is to inflate asset prices on behalf of the already wealthy. So to say the
feds stated mandate is contrary to that is to say nothing.

------
m3nu
Stock markets are also priced according to _expectations_ about the future,
rather than the events at this very moment. So if a recovery is expected, the
market will reflect it sooner than the economy at large.

~~~
martinko
You're basically saying that whatever the price is, the market is right. How
do you square that with the elephant in the room, the FED's market
interventions? Does it have an effect on prices? If it does, then the prices
are obviously not driven only by expectations. If not, where does the excess
liquidity on the other side of the FED's treasuries and bond trades go?

~~~
rich_sasha
Markets may well be, often are, irrational.

But it's not crazy to expect the markets to rebound. People are becoming
unemployed for a _transient_ reason of lockdown etc., economic recession is
due to the pause button being pressed, and not a fundamental breakdown in
economic activity.

Of course prolonged lockdown etc. could make things worse still. But the main
pain we see is definitely expected to me short-medium term.

As for markets being irrational - actually, I think they are more often
rational than not. They are mostly bashed for being irrational in hindsight,
which, well, is not really fair. Also, it is just often rational, but with
respect to different criteria than what is widely assumed.

~~~
bitcoinbutter
The market seems to be pricing in the best case scenario here. They're saying
that almost everything is back to normal by Q3.

This would be 4 really bad months (March-June) total. The reality is that the
future is very uncertain at this point. The market drastically underestimated
the virus in early February, and it appears the same phenomenon is happening
now.

~~~
lonelappde
Covid 19 will eventually (a year or 2) go through the whole population and
kill a lot of people, especially pensioners. Then it will be a background
level killer like flu and cars. This is bad for many humans and people who
love them but it's not bad for the _economy_.

~~~
saati
Just the real estate price collapse that will follow the deaths is very bad
for the economy.

------
tempf123
My 2c as an active trader:

There’s a lot of speculation, and I love it. Keeping an open mind is a
necessity. Think of from the perspective of the funds managing billions of
dollars: it’s not in their interest to be predictable. There’s nothing in the
stock market that can be explained by a single headline. Misdirect, delay,
prepare.

Coronavirus in February was already a red alert and we had a brief panic, but
the stock market went back up. I promise you it wasn’t a return to normal, it
was a strategic delay. It’s fun exercise to follow the timestamps, the down
move started at exactly opex.

The move back up was more statistically sound than you’d think. The headlines
saying expect a double bottom were basing that on history and ignoring the
magnitude of the move. We were many many many standard deviations out of
expectations. Put another way, the massive amount of short positions opened
when closed out would put us roughly back at (starting price - 2 ln). A smooth
drop would line up with expected move models and would have room to continue.

You have to be very careful drawing conclusions between current news and
current stock prices. You also can’t explain it all by forward looking
expectations. If you’re actively trading and don’t have a full model based on
past, present and future these types of articles will ruin you.

~~~
gdubs
Technical trading is astrology — convince me otherwise.

~~~
amf12
I don't mean to challenge you, I don't believe in technical trading too. But I
don't think its equivalent to astrology, which IMO is completely bogus.

Technical patterns work somewhat better than a coin toss in the short term. It
is basically follow the trend. They might not be the most optimal, and might
as well be self-fulfilling prophecies, but I don't think it can be compared
with astrology.

------
TekMol
Or in other terms "Money tanks while an unprecedented amount of it is
printed".

When looking at a stock chart, don't forget it is not the value of the company
you are looking at. It is the ratio of two values. Of the company and a
currency.

~~~
jknz
The Euro at $1.10 is at one of its lowest level. This suggests that the dollar
does not drop in value, or that the Euro drops faster.

~~~
TekMol
Well, while the FED is printing $, the ECB is printing €.

Who prints more is hard to say. One reason is the question, which definition
of money we look at. Only central bank money? Or also private bank money? And
there are many other forms of money.

Even if we only look at central bank money, it is tricky: Central bank money
is not only created at the central bank. But also in private banks. For
example in Germany, the central bank just announced they will back up 100% of
loans that private banks give to businesses. So the private banks now can loan
money without risk. Basically printing central bank money on their own.

------
ciconia
> ...these moves by the Fed and governments are the equivalent of flooding a
> drought stricken area with water for a few days. It feels like a relief, but
> if there is no rain in the months after, it does little good.

That's a very insightful metaphor.

At this point, after 12 years of QE policies that were meant to maintain the
status quo, it's clear that the global economy is failing. Those "floods" of
liquidity don't have any connection with actual value. They're just there to
maintain the illusion of growth. Without central banks propping up stock
markets, the entire globe would have already been deep in a painful
unprecedented contraction.

At some point all this will unravel. Just like actual floods where a huge
quantity of water washes the landscape, removing topsoil and flowing to the
sea, so will those ever-growing floods of make-believe money wash the economy,
removing what little real value still exists, and disappear into nothingness.

~~~
tasuki
> ever-growing floods of make-believe money

Does there exist any other kind of money?

> removing what little real value still exists

Care to elaborate how an influx money should remove real value that exists?
Isn't the relation between influx of money and real value a relatively loose
one?

~~~
ciconia
How? Central banks are essentially buying stock. The aid given to "normal"
people is peanuts in comparison. This will further tip the balance between
rich and poor, capital and labour. Lots of people lost their jobs, the value
of labour is taking a nosedive.

But yes, your are of course right. Money has no intrinsic value.

------
brewdad
Expectations have been all over the place. If you sold in February you saved a
lot of paper losses in March. If you missed out on April you lost a lot of
gains as expectations improved.

For now, I'm keeping 5-year money (college tuition starts in a little over a
year) really conservative. Retirement is staying diversified mostly in stocks
and I'll try not to obsess over it too much. A little bit of "fun" money may
go into play if I feel like a gamble.

~~~
abootstrapper
Oof. I blew my “fun” money in a couple weeks. My mistake was thinking the
stock market tracked the economy and would fall on bad news. I was wrong, and
learned I don’t know shit about the stock market. Buy and hold. Amen.

------
ur-whale
> Stocks Are Recovering While the Economy Collapses

Let's reconvene here in one year and ponder the "stocks are recovering"
statement again.

As the French saying goes: "Achetez au son des canons, vendez au son des
clairons"

~~~
tpowell
“Buy to the sound of cannons, sell to the sound of bugles”

(I was unfamiliar. I like it.)

------
Aloha
The markets seem to be priced with lots of 'hopium' and Federal Reserve
dollars propping them up. Assets have been overvalued by a lot for quite
sometime now.

~~~
CalRobert
Only 11-12 years ago the Federal government propped up many companies that
were poorly run and would have died without assistance by robbing taxpayers
and giving the money to said companies.

If you view ownership of said failing companies as a way to get on the Fed
gravy train it makes sense. They're not even "overvalued" if that's how you
look at them.

How many people who would have started new, competing companies went on to
have their taxes fund the competition?

~~~
kortilla
> by robbing taxpayers and giving the money to said companies

... as loans, which had to be paid back with interest (and were).

~~~
jcbrand
It's not only via loans.

By pushing down interest rates via QE, the Fed has allowed so-called zombie
companies to exist longer than they otherwise would have in an unmanipulated
interest rate environment.

------
alkonaut
This isn't countrerintuitive. This isn't just about massive money printing and
stimulus packages or some voodoo economics. People rush to stocks because
stocks are long term investments, and there are no other good investments.

------
adventured
After the peak of unemployment during the great recession, it took three years
to get the U3 unemployment rate down from 10% and back below 8%. Three years.
2%.

We're somewhere around 23% right now. Call the peak 28%-30%. Assume a sharper
bounce from the peak for various likely reasons. Can you imagine what things
are going to look like in three years, if we're still near 14% unemployment?
How about six years to get back to the worst of the great recession levels?
It's going to take nearly a decade to get back to a normal job market. The
market obviously isn't properly pricing based on the economic destruction and
the fiscal consequences that will be entailed. The stock market is rolling
around on the floor high on the Fed's supply while the house is on fire. How
long can that last? I'm going to specifically watch for the inflection point
of how fast the economy bounces back (or not), as that'll be an enormous
confidence juncture for the market. It's pricing for the sharpest V shaped
recovery imaginable, when the real recovery is more likely to look like a
jagged, slowish, prodding swoosh; the difference between those two realities
and how the present is being priced, is supplied by the Fed.

Can the US Government spend an extra $8 trillion beyond what they already have
to pad everything through the next three years? They can, I don't know if they
will. I suspect after this very brief period of barely bipartisan voting to
support the population and economy, Congress will rip at eachother like we've
rarely seen before. The partisan walls will go back up before this year is
out. Each stimulus measure will separate the parties a bit more than the last.
There will be wild political brawling between those who have survived this
mostly intact and don't want to keep spending at the highly elevated rates,
and those who want to keep providing full stimulus-level benefits to the very
large number of unemployed persons for many years. The cost will be something
beyond extreme to handle a situation with unemployment ranging between 10%-30%
for a mere three years (how about if we spend six years elevated beyond the
great recession peak unemployment rate?). Sympathy will dwindle rapidly in
large segments of the population and people will begin to argue primarily from
their personal bias and economic condition, seeking to guard their own
survival against economic disaster.

------
moosey
The stock market is perfectly representing, well, something. Any attempts to
explain it require loads of mental gymnastics because it's a layer of
abstraction over so many layers of abstraction that I fear we've collectively
lost sight of human welfare and real human advancement. I can assure you that
the stock market doesn't represent that.

------
boublepop
The stock market is perfectly accurately representing the fact that every
world leader and everyone filling their pockets have so much wealth invested
in the assumption of the stock market increasing that no-matter the reality,
every government in the world will print money and do everything in their
power to keep the stocks valuable even while the companies they represent
stakes in go bankrupt.

------
buboard
As a non-US person, where would i invest instead of US equity ?

~~~
tarsinge
I'm a layman but my understanding is that this is in fact the issue stated in
the article, there is nowhere else to invest, real economy is stopped, so
currently everyone from individual to institutions and corporations put their
money into stocks, thus the price increase.

------
stjohnswarts
It's a bit early for any of these predictions.

------
indymike
The future isn't as dark as the present.

------
LatteLazy
"Hibernates" seems more accurate to me. And for big sections of the economy
(healthcare, Amazon) is a fantastic time to be in business!

~~~
Leherenn
Healthcare not so much, most non emergency procedures have been cancelled. I
don't know about the US, but over here a lot of staff has temporarily been
laid off, and hospitals are struggling financially.

~~~
makomk
It's all over the US news that the healthcare system is having this exact same
problem - because of all the procedures being cancelled, hospitals are in a
terrible financial state and staff are being furloughed, laid off, and having
their pay cut all over the place. What's interesting is that Americans seem to
think that this is the result of some unique failure in how healthcare is
structured over there.

------
solatic
Article's argument boils down to the claim that outright inflation would buoy
the prices of airlines, hotels, and retailers, and since that isn't happening,
therefore QE isn't causing inflation.

Ongoing wealth inequality is producing a divergence in where currency is
distributed in the economy, and thus producing an uneven effect on pricing.
Where desirable investments exist, excess capital is flooding in to capture
limited supply and causing inflation _in the prices of those investments_.
Without a return to high employment, injections into capital markets cannot
and will not reach Main Street and restore demand. Where demand is primarily
driven by Main Street and is relatively elastic, we are beginning to see
deflation, e.g. in the CPI which saw 0.4% deflation in March alone.

Arguing that the dollar, as a single fiat currency, has a single value is
slowly becoming an outdated concept. The dollar is increasingly valued by Main
Street and decreasingly valued by Wall Street. Ordinarily, this would be
bridged by arbitrage - by Wall Street purchasing deflated investments and by
Main Street selling inflating assets. But Wall Street can't capitalize on the
low price of airline and retail stocks until governments permit those
businesses to fully return to the market (whether they go bankrupt or not
before that happens still being an open question, in spite of the Fed's
injections), and Wall Street is failing to capitalize on other deflated
opportunities, most spectacularly the failure to seize the opportunity posed
by the collapsing price of oil due to a lack of storage. Meanwhile, Main
Street has no appreciating assets to sell - the most common of which used to
be real estate, but the failure of housing policy to encourage affordable
mortgages and home-ownership has caused more and more of Main Street to rent
their housing instead.

So there's real deflation that's being masked by an assets bubble. What will
burst the bubble? If the Fed is committed to infinite QE, then eventually,
political intervention. Look for the following:

* Intervention in housing: price-controls in rent and mortgages, as they become increasingly inaffordable for a Main Street with no income.

* Intervention in medical care: expansion of Medicare and Medicaid, as the demand for healthcare grows among the unemployed who have lost access to employer-provided health insurance.

* Intervention in additional markets that cater mostly to Main Street demand - food, clothing, energy.

Already we see Trump intervening in meat production to force meat suppliers to
stay open. Why does the government have to force meat suppliers to stay open,
unless they're no longer profitable because of production cuts (i.e.
unavailability of labor) for reasons outside of their control?

The Caracas Stock Exchange, denominated in bolivars, has been doing
_exceptionally_ well, some 220% YTD ROI. Anybody in the audience running to
purchase bolivars?

