
The stock market and economy have parted ways - cs702
https://www.washingtonpost.com/opinions/the-stock-market-and-economy-have-parted-ways-its-a-fomo-market-now/2020/07/12/c14246d8-c2bf-11ea-b4f6-cb39cd8940fb_story.html
======
hitpointdrew
> “I’m not sure what will trigger a sustained sell-off in stocks, but surging
> [virus] infections and another round of more business closures will be
> difficult for investors to ignore much longer.”

An alternative place to put investments will trigger it. When your options are
savings accounts paying 0.25% interest, and treasury notes paying nothing, and
CD's being garbage, what are your alternatives for investing? If interest
rates were 5%+ on savings/CDS's/Treasury notes then you would see a bunch of
money move from stocks to these other safer more stable investments. But the
safety/stability doesn't mean shit if the return is near 0.

~~~
danhak
This trope gets repeated over and over but it just makes no sense. Volatility
is risk. What rational investor says "interest rates are too low, I MUST
deploy my capital into a market that is seeing wild 30% gyrations from month
to month instead of parking it safely while this global crisis plays out."

~~~
erentz
A very large percentage of the market is _required_ to achieve a certain
return. Think insurance companies. Giant pension plans. Etc. They have all
been forced further and further out the risk curve over the past decade due to
low interest rates.

~~~
api
Everything is being forced further out on the risk curve. Everything.

This also explains wacky basketcase unicorns like WeWork, perpetually
unprofitable companies raising round after round, the continued existence of
the cryptocurrency world in spite of it being like 90%+ scams, real estate
going up in cities where >25% of people are behind on their mortgages, etc.
There's no "alpha" anywhere. Money is chasing its tail.

All this QE is just going to give us is more asset bubbles. The financial
economy is completely detaching from the real economy and becoming a pure
fantasy LARP for the rich and of course governments.

~~~
willcipriano
My guess is when the financial economy goes bust and those dollars start
chasing real economy assets all the inflation we were assured wouldn't happen
due to all the money printing will happen all at once.

People act like the big short guys were geniuses to see this trend come out of
nowhere. I was a teenager asking questions like "How can housing prices rise
nationally at a multiple of wage increases for any sustained period of time?"
and was short down by the "smart money" on forums not unlike this one.

~~~
pjc50
Once you allow for the fall in interest rates over the past decades, the house
price rise looks less surprising. However, there's a weird corollary: what
happens when rates go negative?

~~~
objektif
US will not allow interest rates to go negative.

~~~
api
Will we have a choice? The Fed has tremendous influence over the economy in
the short-medium term, but over long time horizons they are actually at the
mercy of it.

------
subsubzero
There are some very strange happenings goings on with a small number of
stocks. AMZN, TSLA, AAPL and a few others have seen stratospheric gains in the
past few months with especially Tesla with no clear reason why. Not trying to
knock tesla but there is something that I have never seen happening and given
store closures, spiking covid cases and virus antibodies that seem to last
months and in some cases weeks these are all very gloomy predictors. The
typical explanations seem to be as follows(ordered them in my opinion has the
highest probability of reality and weight):

#1 Interest rates are as low as they have been in an extremely long time,
people/institutions want higher returns so they are putting money into
vehicles with higher returns(stocks).

#2 Given the Govt./Treasury has been printing money like crazy dealing with
the pandemic, money in cash is not great, stocks offer better returns.

#3 Given sports are mostly shut down(primarily in the US) sports betters are
putting money into stocks instead and betting there so to speak.

#4 People are using their stimulus checks extra unemployment money to invest
in stocks.

All of these don't seem to jibe, and alot of these stocks seem similar to what
as known as a 'melt-up' which precedes a meltdown, see 2000's tech and 2008
financial crisis. I hope that is not the case but Tesla jumping 10-14% a day
doesn't seem healthy for the stock and the stock market in general and
something very strange is going on.

~~~
snoshy
Your speculation doesn't appear unfounded to me, but I think you're painting
the picture with too broad of a brush here. AMZN, TSLA, and AAPL (just to
limit the discussion to the ones you explicitly mentioned) are tech stocks,
but have fundamentally different business dynamics that I would expect to be
affected quite differently by the effects of COVID.

* AMZN: huge swaths of new and existing are customers moving their shopping online. They stand to profit from this in the short and medium term at least, and I would wager that the change in shopping habits would result in a noticeable number of long term changes sticking.

* TSLA: a lot to unwind here, but it's a combination of their recent delivery numbers and large amounts of retail investor speculation. While I believe the stock was undervalued before, quarterly delivery numbers wouldn't fully explain such large jumps.

* AAPL: I'm at a loss on this one, but I also don't know a lot about it. With many folks not able to spend their discretionary income on bars/restaurants/travel/etc. I can see more of this money being channeled to iPhones.

~~~
filoleg
>AMZN: huge swaths of new and existing are customers moving their shopping
online. They stand to profit from this in the short and medium term at least,
and I would wager that the change in shopping habits would result in a
noticeable number of long term changes sticking.

Don't forget about AWS. With a lot of people being stuck inside due to covid
lockdowns, people watch more Netflix and use more online services in general.
With AWS powering a gigantic chunk of the modern web, it is no surprise that
they are doing so well right now.

------
ideals
The amount of friends I have that are out of work and posting screenshots of
robinhood on ig and snap right now is wild. This feels like crypto 2017 all
over again.

I suppose the difference is there is a real market under it all and retail
traders aren't entirely driving this, but they're the ones left holding the
bag when the curtain drops.

~~~
Loughla
That's where the FOMO comes in. I, and many, many of my friends, missed out on
Bitcoin in college.

Many of my friends are posting the same things you state on their social
media, and are making it clear they won't be left behind this time.

Not sure what all that means, but it's fascinating.

~~~
3pt14159
It means a massive crash is coming.

Money printer go brrr is funny, but it's not capable of propping up the entire
market forever. There's a flight to safety that happens when countries really
start printing.

~~~
lumost
If a money printer channels money directly into assets than its entirely
feasible that the money printer can drive the asset to an arbitrary valuation
e.g. asset hyperinflation.

Great for making the economy appear solvent, terrible for everything else.

~~~
3pt14159
If this were true, Zimbabwe would have a lucrative stockmarket. It's not true
though. A high enough inflation rate damages investor confidence and makes
business operations more complex. I means constantly needing to minimize cash
on hand in the local currency, or having to price contracts in inflation
adjusted dollars increasing risk and mental overhead of doing business. At
extremis, it means many market participants refusing to do business in the
currency at all. Large economies like Germany have gone to the printers before
and it doesn't end well.

~~~
lumost
This is true when viewing from an external currency. If I only care about the
nominal value of the S&P500 or the nominal price of
oil/copper/steel/aluminum/Gold in dollars. Then the nominal price can inflate
indefinitely.

Historically no one has been able to inflate assets, without inflating the
real economy. If the Fed's QE approach is having this effect then even as a
dollar spender you would want to hold assets above all else.

~~~
blueblisters
Contracts and price tags of things you buy are also is nominal dollars. When
they change daily, it becomes extremely frustrating for consumer or producers
to manage the overheads of these price swings.

~~~
lumost
This also depends on whether asset price inflation trickles into the real
economy. Historical examples where asset prices were multiple orders of
magnitude beyond the earning capability of workers include feudalism.

From a pure economics standpoint it's feasible to have a society where only
some people can afford an asset, and everyone else pays a comparatively small
fee to rent the asset roughly equivalent to their entire disposable income.
This is a pretty terrible system overall where assets are allocated to those
with money and ROI is bounded by the amount that can be. extracted from a
servitude class.

The point of this example is that we should not constrain our economic
concerns to simple hyper-inflation, as that can mislead us into thinking that
as long as we aren't observing consumer price inflation we can print money
indefinitely.

------
adaisadais
I spoke to my financial advisor a month ago and he told me he was not worried
of a major and sustained drop as FED and Congressional intervention had helped
curtail that before it spiraled out of hand.

But I cannot help but see current market prices and see current for lease and
boarded up building. I wonder if he was correct. I wonder if the advice he has
given me is wrong?

I believe we are about 9months away from the greatest financial disaster of
our times. We should be and should have looked at COVID-19 as a war and not as
a pandemic and we as a nation should have encouraged others to do the same (as
they have). We should have legally declared war on the virus, shut down the
economy for three months, passed a massive stimulus, and gone back to business
when the “war” was over.

Unfortunately we have weak politicians at every level and extremely divisive
leadership at the top. The good news is that we are just as informed and can
find truth like never before. The hard part is that the truth is hard to find
especially when we have something as large as the stock market lie to us on a
day to day basis.

~~~
tossAfterUsing
my first (only) financial advisor was a manager at RadioShack for 10 years
before he got the advisor job.

relatedly, i once applied as a network admin at Ed Jones. They didn't have
their shit together when i showed up for the interview, and gave me the
questions for the financial advisor interview instead. it was an automatic
process, about 100 questions that were some variant of "how good or bad do you
feel about asking your friends to buy financial products you don't understand
well, and will you also please ask them to recommend you to their friends?"

i didn't get the job. and i fired the advisor.

~~~
soared
Financial advisors study for months and are legally required to pass tests
before giving financial advice. It’s not like one day you’re at radio shack
and the next you’re a cfa/cfp.

Series 7, series 63, cfp, cfa, etc. when you get a job at fidelity you
literally just go to class and study 8 hours a day for a few months.

Also you were asked sales rep questions, not actual advisor questions.

------
marvin
There is nothing strange about the current valuations of the stock markets.
Yields of just about every fixed-income security not exposed to stock-like
risk is zero.

Global stock market indexes are at a P/E of ~20 - that means a yield/direct
return on equity of 5%. This doesn't seem so unreasonable when there are no
returns to be found anywhere else. The global economy is still making money,
just not hand over fist. Assuming no further catastrophe and no permanent
reduction in earnings, the stock market is still a good investment when
looking at the returns you get from profitable companies every single day.

The risk premium is very low, yes. Rising returns in other places and an
increase in the risk premium would cause a permanent loss when investing at
these level, yes.

But you're getting a 5% return if you invest today, albeit exposed to a risk
of this number falling. And what is the alternative? Let's say the P/E was at
the historical average of 15. That's a yield of 6.5%. That seems
_unreasonably_ high to me when other investments yield zero, so of course
market prices are going to be bid up until it falls to a more reasonable
level. We should be happy that the global yield is still as high as 5%.

Either there will be a correction or a crash in the future, and things will
return to normal, or this is just another indicator of a late post-industrial
world where capital is very cheap. The third alternative is a global war and
destruction of life and wealth on an absolutely tragic scale. That would put
us back in known territory real fast.

I can easily imagine today's children hitting their twenties and complaining
that the millennials pulled up the ladder, there is now nowhere to park their
hard-earned money to make an investment income.

~~~
devalgo
>complaining that the millennials pulled up the ladder

The millennials that currently invest a pittance compared to Boomers or even
Gen-Xers?

------
vit05
In addition to everything he mentioned, there is still the possibility that
immunity, acquired after infection, is only for a short period. Nothing makes
sense. Everyone was already waiting for some kind of correction before Covid.
And now, in addition to the covid, we have conflict tensions, unemployment and
lack of income on a global scale.

Stock market became a casino.

[https://www.theguardian.com/world/2020/jul/12/immunity-to-
co...](https://www.theguardian.com/world/2020/jul/12/immunity-to-
covid-19-could-be-lost-in-months-uk-study-suggests)

~~~
nsnick
If immunity acquired after infection is only for a short period, immunity
acquired after a vaccine will also only be for a short period.

~~~
FlyMoreRockets
Very likely, yes. However, it is much less debilitating to get a shot every
three months.

~~~
woeirua
It's unlikely that would be sustainable for long for various reasons. You're
talking about needing literally tens of BILLIONS of shots a year for the
forseeable future?

If immunity is not long lasting, then the only path out is global eradication.
We have done it before with smallpox.

~~~
evan_
I don't see us getting to the levels of vaccinations that would be necessary
for eradication. A quarter of the people in the US think the whole thing is a
ploy to implant everyone with microchips and nothing will ever convince them
otherwise. Maybe some of those people will change their minds when they get it
but I wouldn't count on enough to matter. We're all going to be sick and dying
for decades.

------
snarf21
The have parted ways because the Fed is buying lots more than just treasuries.
There is so much money desperate for returns because interest rates are so
low. That is why we have such inflated equities right now. It is a mental
game: if people don't know the economy is awful, maybe they won't change their
behavior and maybe it will actually get better before they realize it.

~~~
treis
The Fed buying bonds isn't pushing Tesla to the 14th largest market cap. It's
currently trading $200 per share higher than any analyst recommendation that
the WSJ or Yahoo has. Not to mention Hertz, a bankrupt company, has a market
cap of 200 million.

Something very unusual is going on.

~~~
everybodyknows
9.5% of float shorted, up 13% mid-day. Short squeeze, methinks.

[https://www.marketwatch.com/investing/stock/tsla](https://www.marketwatch.com/investing/stock/tsla)

~~~
jansan
Here is the Volkswagen stock chart from October 2008:

[https://www.ft.com/__origami/service/image/v2/images/raw/htt...](https://www.ft.com/__origami/service/image/v2/images/raw/https%3A%2F%2Fd1e00ek4ebabms.cloudfront.net%2Fproduction%2F1e612401-e2f9-4260-aa53-8f39d4fa4b4c_FINAL.png?source=Alphaville)

------
DeonPenny
Theres literally no where to put you money now.

The stock market would be down if you could put money in any government bonds
that you thought would immediately start increasing spending or any stock or
bond market that would do any better. Emerging markets are shaky with China
destroying HK and corona running through cities everywhere in the world.

If you could even remotely tell me a safer place to get returns then I concede
the point but I doubt you could

~~~
UncleOxidant
As was commonly heard in '08: The time has come to worry about return _of_
investment more than return _on_ investment.

~~~
dbancajas
can you explain the difference?

------
currymj
concretely, how much does the sentiment of retail investors actually matter to
prices -- in general for the whole market, and for specific stocks that dumb
retail investors get excited about (Tesla, Hertz, or whatever)?

I have no idea what the answer to this question is or even how to formulate it
in a clear, answerable way. But it seems very important!

It seems that stock prices move, newspapers publish a narrative to explain it,
but in many cases there is no way to tell whether the narrative is correct or
not. Right now there is a narrative about Robinhood and other no-fee brokers,
but is it true?

~~~
gas9S9zw3P9c
You're asking a great question. I used to work as a professional trader and
the answer is that probably nobody really knows. Like you said, any
explanation you hear about prices moving is just a narrative fallacy.

People love hearing simple explanations to complex questions like "why did X
price move" when in reality there is no such thing. The stock market is an
incredibly complex interconnected system, with so many types of participants
and algorithms optimizing for different outcomes over different time horizons.

Retail flow can certainly influence the market, but in my experience the
influence is more indirect than direct, as algorithms may jump onto the retail
order flow signals to profit from it, which may then create positive feedback
loops. But who knows, the fact is that a lot of volume is being bought, and
that's all you can conclude.

I'd go as far as saying that anyone who tries to connect the stock market with
economic events doesn't understand a thing about trading. They're just not
connected, except in a few special instruments. They're only connected in so
far that people believe they are connected and invest based on that, just like
Bitcoin is only worth what people believe it to be worth.

~~~
currymj
in some limited cases it seems like maybe we can be pretty confident that
retail investors "caused" a price move. even if professionals magnify it, the
core thing would not happen without retail investors. Like the Hertz thing, or
"Long Blockchain Corp", or when people get confused over ticker symbols.

but I agree it does seem sort of unanswerable in general. very odd, then, to
see people making these public assertions with total confidence.

I am curious: based on your experience, do you think that, in principle, an
omniscient observer of all transactions on stock exchanges and who made them
could answer questions like this in many cases? If so, what concrete things
would they hypothetically want to look at to figure it out?

~~~
gas9S9zw3P9c
> I am curious: based on your experience, do you think that, in principle, an
> omniscient observer of all transactions on stock exchanges and who made them
> could answer questions like this in many cases? If so, what concrete things
> would they hypothetically want to look at to figure it out?

Not necessarily, because the order flow they see goes through brokers, is
anonymized, and order execution is optimized algorithmically as to not reveal
any patterns. You can't easily tell what is retail flow and what isn't,
however you want to define that. What you would need is not just to exchange
data, but also the internal user data from companies like robinhood, and an
understanding of how exactly algorithms from hedge funds and HFT firms behave.
In theory this would be possible if you had complete access to and a full
understanding of all of this. In practice it's impossible.

------
justin66
Robert Shiller's piece, which is linked to in the article, is worth reading:

[https://www.project-
syndicate.org/commentary/understanding-u...](https://www.project-
syndicate.org/commentary/understanding-us-pandemic-stock-market-by-robert-j-
shiller-2020-07)

------
FreeHugs

        Historically, the PE for the entire
        U.S. stock market is about 15. But
        today’s market PE of roughly 23 is
        about 50 percent higher than the
        historic average
    

Every time I see statements about the PE of the market, I wonder which PE they
mean?

The price of the companies divided by their past revenue? If so, which past?
Last month, last quarter, last year?

The price of the company divided by future revenue? Then future revenue
guessed by whom and for which time frame?

~~~
rnai
Normally this is 12 month trailing PE.

"The PE ratio of the S&P 500 divides the index (current market price) by the
reported earnings of the trailing twelve months."

So it's current total market value (add the market cap of all 500 companies in
the index),

And divide by the total past 12 months earnings of the same 500 companies.

If that doesn't answer your question, please let me know.

------
drewnick
A combination of FOMO and the never-ending flow of passive money into the
market, which is 45%+ [1] and probably growing. Passive investors do not
analyze their investments, they blindly buy market indices like the S&P 500.

With all of the stimulus into the economy, that flow of passive investment
money is probably not too impaired, yet.

1\. [https://www.cnbc.com/2019/03/19/passive-investing-now-
contro...](https://www.cnbc.com/2019/03/19/passive-investing-now-controls-
nearly-half-the-us-stock-market.html)

------
atemerev
I have two explanations: one optimistic and one pessimistic.

The optimistic is that the Fed is prepared to unleash the runaway inflation
(you can keep the stock market records if you want... it’s just the dollars
that will buy much less) — and the markets are currently busy of pricing it
in. That’s fine... more or less.

The pessimistic scenario is that the current administration is determined to
keep the stock market alive and kicking at all costs, whatever means
necessary, until this November — and then it wouldn’t matter this much
anymore. They think they have the resources for buyouts before November...
however, the UK and Japanese governments somewhat famously failed to uphold
the market in very similar scenarios, which ultimately led to decades of
stagnation.

I wonder what it will be this time.

~~~
UncleOxidant
> The pessimistic scenario is that the current administration is determined to
> keep the stock market alive and kicking at all costs, whatever means
> necessary, until this November

This is a given. Look at the push for schools to open in the fall. They're
even talking about tax credits for attending sporting events and for traveling
and staying in hotels. All kinds of craziness in the midst of a pandemic.

------
vorpalhex
I'm a bit surprised nobody has called out the obvious.

The market did correct for these fears and in doing so, dramatically
overcorrected. Initial estimates were quite worse than the current situation,
and unemployment is terrible - but has been recovering at a rate significantly
greater than anyone expected.

That doesn't mean we won't see declines or corrections in the near market, as
it's possible the market is too optimistic now - but short of a crystal ball,
nobody can actually predict that.

------
isabelc
The stock market is a popularity contest. A simple mention on the news of a
stock can create a buying or selling frenzy over it, and this has been the
case for a long time.

~~~
harryh
In the short run, yes. But in the long run it's a weighing machine.

~~~
chii
but then explain why the current prices aren't reflecting a weighing from a
few decades ago?

when does "short term" become "long term"?

~~~
xondono
They can do both at the same time, it's just that a time series is not a very
useful representation, you want something similar to an FFT.

------
JoshTko
One theory is that many small business owners are using their PPP loan money
to invest in the market. This is local restaurants with millions of dollars in
the bank that can't really invest in their own business due to slow business.
If they are fearful of going out of business then taking a shot in the stock
market doesn't seem all that risky.

~~~
smallgovt
Interesting theory. Is there a way to quantify how evenly investing, say
$200B, across the S&P would affect the index's price?

~~~
JoshTko
It wouldn't be evenly distributed. It would disproportionately be invested in
well know consumer brand as these would be novice investors.

~~~
Apocryphon
So they pay it back into the economy, because quarantine restrictions prevent
them from producing their own economic activity. Now that's stimulus.

------
shawnz
Related, "The Stock Market vs The Economy" by Ben Felix:
[https://www.youtube.com/watch?v=0ECqDaPjjV0](https://www.youtube.com/watch?v=0ECqDaPjjV0)

------
twblalock
At least we can dispense with the idea that the stock market is driven by
short-term thinking.

Prices are high because investors expect things to be better in the future,
even though things are bad right now. Maybe the investors are wrong, but at
least they are thinking about the long term, or at least the intermediate
term.

~~~
deelowe
I think prices are high b/c retail investors are being taken for a ride and
have no other recourse. A ton of cash has been injected into the system.
People are rightly concerned about inflation. What do they do? Bonds aren't a
good investment. Real estate will be affected by unemployment, so that's not
an option. No one gives a crap about gold any more. Plus retirement funds
carry insane penalties. It's not like pulling that stuff out is an easy
decision.

~~~
taurath
One thing - real estate going down while inflation rises gives you a pretty
clear hedge. If real estate goes down a lot faster than inflation rises, its
best to hold cash. If inflation rises a lot faster than real estate goes down,
its a lot better to buy real estate.

------
talkingtab
Original thinking and therefore probably wrong, but perhaps interesting:

A more precise explanation than FOMO is that the stock market is simply a form
of poker.

In poker, the cards themselves have zero value, they are simply a tool used to
determine a winner.

While stocks may have some intrinsic value, it is commonly acknowledged that
their value as assets is substantially lower than their stock market price.
Moreover companies continue to buy their own stocks further reducing the value
of stocks as assets.

Unlike the card game of poker, in stock market poker the players _share_ the
pot. This simple fact explains why there is a relentless pressure to increase
the size of the pot.

In 2017 the richest 10% of Americans owned 84% of stocks. These are the major
poker players. They have the resources to absorb major losses and then simply
bid up the next hand.

Any small players (yes that means you and me) can easily lose their shirt in a
down turn as we do not have reserve assets or other means (hedge funds) and
are not able to participate in the next hand.

Many investment funds, pension funds and others fraudulently present stocks as
assets and participation in the stock market as "investment".

It is the equivalent of asking that people invest in poker game by
representing that the cards themselves have value. If participants in pension
funds and retirement plans begin to recognize this fraud this may cause the
stock market to collapse. However even this is unlikely. Poker games don't
collapse, people just stop playing.

Just a thought.

~~~
wesleyy
> While stocks may have some intrinsic value, it is commonly acknowledged that
> their value as assets is substantially lower than their stock market price.
> Moreover companies continue to buy their own stocks further reducing the
> value of stocks as assets.

This is not really relevant. Companies have larger market caps than their
intrinsic assets because people trade on discounted cash flow.

> Any small players (yes that means you and me) can easily lose their shirt in
> a down turn as we do not have reserve assets or other means (hedge funds)
> and are not able to participate in the next hand.

1\. There's no mechanism that forces you to "call" a bet in investing. It's
not winner takes all. 2\. Why can't you allocate your bond/equity split such
that you do have reserve assets?

------
michaelangerman
For people like me who had no clue that

FOMO = Fear of Missing Out

------
sershe
Conspiracy theory time! I don't really believe either of these with any non-
trivial degree of probability, but I figure at worst I'd get downvoted, and
maybe I'd get some insightful takes.

There was an opinion expressed after '08 that the crisis was used by "elites"
to conveniently get rid of (as in fire, mostly) a bunch of people that were,
to them, superfluous. Like, that was long overdue and there was a good excuse
to fire and not rehire a lot of people, decimating small towns, etc.

So, here comes COVID. Seems like a convenient excuse to get rid of the pesky
"main street" businesses. Hence, the corner store is going out of business,
but people still need stuff. Yes, the pie might get smaller, but more
importantly it gets redistributed much more towards Amazons and Walmarts of
the world (don't get me wrong, personally I am fine with Amazon and don't care
about corner stores). Amazons and Walmarts are the ones being traded as
stocks. Hence, stocks go up!

~~~
B4CKlash
I have a bolt on to this conspiracy theory. How many business have reduced
wages and implemented hiring freezes? It's difficult to manipulate a salary
worker into shouldering more responsibility if they have choice and
alternatives. Perhaps what we're watching isn't necessarily the 'winner take
all' world playing out. Perhaps we're watching capital reorganize labor. The
first nail in the technical revolution. The businesses that survive this
crisis will be leaner and, in a likelihood, more profitable (higher margins).
Also justifying higher stock prices. Hell, even a combination of both theories
make sense.

The real tell will be 10/1/2020 an on-wards. That's when a lot of the
governmental layoff-freezes disappear. We'll get a real sense of what
industries have been seriously propped up.

------
cs702
The page is archived at [http://archive.is/uDZCq](http://archive.is/uDZCq)

------
DarthGhandi
It's moral hazard in a nutshell, the backstop provided to the markets is so
large that the risk/reward is completely out of whack. When the fed is buying
junk bonds the signal to investors is loud and clear.

You'd be foolish not to participate until reserve banks start signaling
otherwise.

------
RobertoG
What I would like to know is who the market is. I mean, I'm pretty sure that
my investments don't decide if the market goes down or up and, I doubt very
much the traditional narrative that the market movements are the result of the
aggregate decisions of a lot of people like me.

I would not be surprised if one hundred (random number) people were the one
that decide what the market does. The controllers of the investment banks and
the big funds are the real players, I suppose.

So, if that theory is right, and we want to know why the market is doing what
is doing, we should look to those people. I don't know, maybe even ask them
directly what are they thinking.

------
ianai
My profs said it was whenever that last, most staunch hold out joins the
market that the end of irrationality is near. Granted, that assumes exogenous
demand is not ballooning the market. So I don’t know how or when this ends.
What would trigger the fed to stop pouring liquid oxygen into the fire? A
vaccine? A general election?

Edit-I also don’t think we’ve seen the full ramifications of the newly, long
term unemployed begin to hit. Much of the current numbers assume people who
were layed off for the shutdown are all coming back and paying their mortgages
and other bills. Presumably there’s possibly a 3 month lag time due to
earnings reports.

------
zby
My theory is that this is a kind of latent inflation - it is still visible
only in the financial assets sector - but eventually it will show up in
consumer products too.

------
stateofnounion
The phrase "the stock market" appears 7 times in this article, but is never
discussed let alone defined.

It doesn't make sense to analyse "the market" as a monolith--not that there
was much of that in the article anyhow. Yes, there are winners, which has led
to a net-postive macro trend but there are losers which have crashed as well.

The interesting question is what causes some companies to generate revenues
while others fail.

------
acd
Central banks keep printing money forever. Now we are at the point where the
real economy and stocks have diverged. Of course central authorities cannot
always just buy all bad debt. There is somehow a distortion of risk. Ie buyers
of financial papers are not exposed to their risk fully if central banks buy
“bad debt”. This financial printing of limitless debt is putting many at debt.

I am worried if there is no caps in debt printing and freedom. You are not
free if you are forever a life time in debt.

Somehow I feel there is a symbiosis between politicians winning elections on
promises which central banks deliver by creating through new debt.

I am trying to say that we are at global warming and constantly creating more
stuff is requiring more energy and we are already using too much of that.

Thus the economy and the environment are diverging. We probably cannot
maintain status quo for too long.

Something better more sustainable will come after that.

Zero interest rates are not causing inflation through salaries increasing they
flow to more automation and robotics. Automation lower cost of production and
are thus deflational.

------
nabla9
"stock market" has not parted from the economy.

SP500 Equal Weigh Index is -11.64% YTD, -6.02% for 1 year.

It's only the top 20-50 companies that are doing fine.

------
doh
Here is what I believe it's the cause.

1) More than a half of assets are now passive [0] 2) People with some money
are bored at home and with no sports, they moved their betting to stocks [1]
3) Most trading is now hugely amplified by HFT [2]

[0] [https://qz.com/1623418/index-funds-now-account-for-half-
the-...](https://qz.com/1623418/index-funds-now-account-for-half-the-us-stock-
market/) [1]
[https://www.bloomberg.com/news/articles/2020-02-26/reddit-s-...](https://www.bloomberg.com/news/articles/2020-02-26/reddit-
s-profane-greedy-traders-are-shaking-up-the-stock-market) [2]
[https://www.bundesbank.de/en/tasks/topics/high-frequency-
tra...](https://www.bundesbank.de/en/tasks/topics/high-frequency-trading-can-
amplify-financial-market-volatility-667194)

------
quickthrowman
For the last week or so I’ve been buying ATM QQQ call spreads and rolling them
up and out as they become ITM.

I’m up 100% in one week, this is silly.

~~~
umvi
Mind expanding the acronyms and explaining what exactly you've done? I'm still
an investing novice.

~~~
tryptophan
He is doing leveraged bets that the QQQ stock fund will go up a certain
amount. When it goes up to that certain amount, he makes another bet it will
go up again.

~~~
marketgod
At the same time he is using a call spread so the upside is limited to the
difference between the contract he bought and sold. Also at the same time,
losses are limited.

Suppose $TWTR is $49 a share, you buy a call for $50 and sell a call for $60.
Suppose the $50 call is $3 that means you paid $3. Then you sell the $60 for
suppose $1. So now you are out $2. That's your max loss.

Now tomorrow $TWTR goes to $35. Everything expires and you lose $2. Suppose it
goes to $300. Then your profits are ($60-50)-$2=$8 Profits Suppose it went to
$55. Suppose this is after expiry, then your contract is worth $5 but you paid
$3 so you made $2 profit, but you also sold 1 contract, so now you have $3
profits.

So in essence, the spread limits your upside, further limits your downside
while you are bullish.

------
MattGaiser
Or the markets are just assuming the Florida strategy is the one that wins
out. Let people die and carry on.

------
yalogin
I feel like we have taken a turn for the worse in terms of income inequality
in the US. The differences between the poor and the rest has been greatly
exaggerated by the virus and there is a chasm now.

The lower rung of the economy has no bearing on the stock market as that
section doesn't contribute to it. Sectors like tech are entirely created by
middle/above middle class individuals for those that are wealthier than them.
The stock market is doing well because it has realized this fully. Some
sectors like Airlines, retail etc are not doing well because they depend on
the lower rung of the economy. I am not sure how this will change.

------
bachmeier
I have no way to read the article, but I will nonetheless comment on the
headline. You can't sensibly talk about the economy and the stock market at a
time like this without also talking about current and expected future policy.

~~~
dmtroyer
add a dot after washingtonpost.com

[https://www.washingtonpost.com./opinions/the-stock-market-
an...](https://www.washingtonpost.com./opinions/the-stock-market-and-economy-
have-parted-ways-its-a-fomo-market-
now/2020/07/12/c14246d8-c2bf-11ea-b4f6-cb39cd8940fb_story.html)

~~~
harambae
how does that trick work?

------
thedudeabides5
This is the part of the cycle where all the printed money goes into financial
assets (rather than poor people's hands) and we inflate our asset bubble as a
way to feel bad about the fact the real economy is a shit show.

------
boring_twenties
How to tell the market is not at a top: the Washington Post is calling a
market top.

When a major publication like this starts _promoting_ retail stock buying,
that's when it's time to head for the lifeboats.

------
watertom
Please, the stock market has been disconnected from the economy for decades.

It's all a big scam. I worked for a an extremely large financial institution,
and I worked directly for a Chief Investment Officer.

------
btbuildem
I imagine that behind the scenes they're doing everything and anything to keep
things in the green until the day after the US elections..

------
jb775
I think the simple explanation here is money parked in millennial 401k
accounts. If a millennial gets laid off, they collect unemployment.....none I
know would dare mess with their 401k.

Kind of crazy it's socially acceptable for the finance world to slice & dice &
profit off the life savings of an entire generation while transferring any
risk taken back to taxpayers.

------
SpicyLemonZest
"FOMO" makes an entirely natural market process sound problematic. If an
investor is confident that the economy will fully recover in 2022, they
_should_ be willing to buy stock at a very slight discount from fully
recovered today, even if current economic conditions aren't great. That's not
a psychological trap, just an efficient market.

~~~
danhak
A very slight discount? As of writing, the Nasdaq is at all time high and the
S&P only 5% below. All this with depression-level unemployment.

~~~
SpicyLemonZest
Again, this just seems like a confused perspective. Market indices measure the
expected future performance of large companies, not current unemployment
rates.

~~~
danhak
In a consumer-driven economy, current unemployment rates are inextricably
linked to the expected future performance of large companies.

------
anonu
Market in January == market today

World in January != World today

But that's an overly simplistic view of the world. There have been winners and
losers, namely tech in the winning camp and retail in the losing camp.

Our world is forever changed and the innovations and ideas that come about in
the coming years to deal with this change will mostly come from tech and will
be fascinating to watch

------
neonate
[https://archive.is/uDZCq](https://archive.is/uDZCq)

------
ur-whale
[http://archive.is/uDZCq](http://archive.is/uDZCq)

------
oh_sigh
Anyone with a theory about the current markets: Put your prediction here for
what you think will be the state of the market or specific stocks/indices as
of, say, Aug 13 2020(Q3 earnings reports will be generally issued by then).

------
joshfraser
The stock market isn't up, it's just being measured in devalued dollars.

------
vmception
yeah, well 2.5 trillion dollars tossed out to Americans will give you a lot of
speculation and A LOT of fireworks. economists didn't predict the fireworks,
but turns out we are a simple people.

------
grandinj
My theory is that there is too much money seeking to be invested, because too
much of current society revolves around time-shifting money (which is
essentially what investing does).

------
monadic2
Cynically, perhaps this is a sign of confidence that the US will continue to
prioritize its economy over everything.

------
GorsyGentle
The title on this should be prefixed as '[OPINION]'

------
apta
Interest is one of the main reasons the economic and financial system is in
ruins. It is an exploitative, parasitic practice and we've known that for
thousands of years. But some people only care about their pockets.

~~~
yonaguska
Let me know when you figure out a better way to put a price on the risk of
loaning money.

As evil as you may think interest rates are- without a price on the risk of
loaning money- access to loans dry up and only the already wealthy will have
access to capital.

~~~
apta
Loaning money should not be done to make money, it's parasitic. It should
purely be a charitable contribution without expecting a return. If the loanee
decides, out of his or her own goodness to return more money than they took,
then that's up to them.

Now the obvious and direct effect of this is that people will generally not
loan their money. This is a good thing. The follow up is that they will invest
their money in hopefully legitimate and moral ways.

~~~
danans
> It should purely be a charitable contribution without expecting a return. >
> Now the obvious and direct effect of this is that people will generally not
> loan their money. This is a good thing. The follow up is that they will
> invest their money in hopefully legitimate and moral ways.

What kind of investor are you referring to that doesn't expect returns? Even
"social impact" investors expect returns in reputation, or in buttressing the
foundation on which their primary profit driven business is built.

~~~
apta
You can expect returns, but not fix them ahead of time as what people do with
interest bearing loans (i.e. usury). Loaning money for money is parasitic and
immoral. Investing that can incur a profit or a loss is fine in general.

~~~
danans
> You can expect returns, but not fix them ahead of time

Fixing them ahead of time is an attempt to quantify risk. It doesn't eliminate
risk - loan defaults happen. The riskier a loan, the higher the interest rate.
As long as the lendee has the option of refinancing with another institution
(i.e. there is a competitive market for loans), usury shouldn't be an issue.
Usury is an issue when the lendee has no other resort due to being persona-
non-grata in the credit system (i.e. people whose only option is payday loans)

Without loans, there would be no way for people without extraordinary amounts
of capital to purchase such basic items of modern life as a home or a car.
What other mechanism do you suggest for those? Also, a lot of businesses are
not public investment like technology firms, i.e. a neighborhood deli. If they
have multiple investors, they are just partnerships, often with the partners
in the same family. Loans are how such businesses find "investors".

I'd like a world where housing (in the right place), transportation, and costs
of small enterprise startup were cheap and good enough for everyone to pursue
without loans, but we aren't in that world yet. Maybe some technology
advancement (modular homes, self driving buses, 3d printers) will help to
reduce the cost of these things such that people won't need to make such large
purchases, but that's still to be seen.

~~~
apta
You can try to rationalize it in any way you want, however, that does not
change the fact that engaging in an interest bearing transaction is parasitic
and immoral.

> What other mechanism do you suggest for those?

Pay in installments with 0% interest, for a reasonable period of time, not
like we see today that even for auto loans they're giving them out to people
who can't afford them over insane periods of time. This is a symptom of a
corrupt underlying cause.

The hyper capitalistic economy today is built on consumerism. Pushing people
to buy things they don't need. Once we eliminate easy debt, consumerism will
go down, prices will stabilize, and producers will be forced to give out 0%
interest loans if they want to sell (or people can buy in cash).

For small businesses, they can get investors to pitch in money in exchange for
ownership of a specific percentage of the business. This way, the risk is
carried by all parties, and both parties expect to either gain or lose, unlike
with usurious loans.

~~~
nitrogen
_engaging in an interest bearing transaction is parasitic and immoral._

You keep stating this, but you have not proven it.

~~~
apta
Is it not parasitic practice to feed off the needy? When a small player does
it, they're called "loan sharks", when bank or the Fed does it, it's
"finance".

~~~
beervirus
So when I open a savings account, I'm immorally and parasitically feeding off
the poor, needy bank?

~~~
apta
The bank is using your money to feed off the needy, the bank takes most of it,
and gives you a small percentage of the money they made by exploiting them.

------
3327
More like YOLO, lets go market orders only boys DKNG rocket ship get on board.

