
How can Wall Street be so healthy when Main Street isn’t? - woldemariam
https://apnews.com/6cadd78335fd98926ffb1e5d6ecb2916
======
recursivedoubts
By holding interest rates so low, the Fed has created a double-bind: despite
the systemic risks (which are very high) people who have investable cash have
two options: the stock market or paying down debt.

The stock market is being "invested" in not because it is a good investment at
this point (it isn't) but because there is no where else to go. If interest
rates ever revert to anything normal, it will get crushed. In the meantime
this means that large, multinational companies are flush and are able to
destroy smaller, more local competition. This trend is aided by the lockdowns,
as well as the fact that large companies have access to the extremely low
interest rates, but smaller players do not. You will continue to pay usurious
rates on credit cards and most small business loans, while Global Corp. can
issue corporate debt as very low rates.

Paying down debt is the opposite of what the Fed wants: in our system debt is
the true money supply, so when debt is extinguished the money supply
contracts. You can see this clearly in 2008:

[https://fred.stlouisfed.org/series/TCMDO](https://fred.stlouisfed.org/series/TCMDO)

Steve Keen outlines our best hope, a modern debt jubilee, here:

[http://www.profstevekeen.com/modern-debt-
jubilee/](http://www.profstevekeen.com/modern-debt-jubilee/)

~~~
treis
>Steve Keen outlines our best hope, a modern debt jubilee, here:

>[http://www.profstevekeen.com/modern-debt-
jubilee/](http://www.profstevekeen.com/modern-debt-jubilee/)

This doesn't really make sense. If you force me to pay down debt and I want
cash then I'm just going to take out more debt.

Low interest rates or high debt aren't really the fundamental problem. The
problem is a concentration of cash/wealth. Adam Neumann is a billionaire
because he convinced some morons in Japan to give his company 10s of billions
of Saudi money. But an average Joe would be laughed out of a bank if they
asked for 10s of thousands to start a business.

If we are worried about a deflationary spiral the solution is simple. Give
everyone money.

~~~
recursivedoubts
> If we are worried about a deflationary spiral the solution is simple. Give
> everyone money.

Yeah, you might want to spend a bit more time thinking and reading about it.
Keen has been ignored and mocked by the economics establishment, but he's the
only guy I know who takes debt seriously and has developed computer models for
dealing with the natural instability of exponential growth in it (Krugman
famously has said "we owe it to ourselves").

You need to bring the total debt load down, to bring the absolute payment load
down to a sustainable level and handle the exponent in debt growth. Giving
everyone money without forcing them to pay down debt doesn't accomplish that,
it's a linear response to an exponential problem. There's a reason debt
jubilees were built into most pre-modern societies.

~~~
treis
> bring the total debt load down

You saw the part where I said people would just take out new debt, right? You
can't force people to lower their debt load unless you also prevent them from
taking out more debt.

~~~
recursivedoubts
I would again suggest reading and thinking about Keens much more extensive
treatment of the topic. We aren't going to make much progress here.

------
treis
It's really not that complicated. Wall Street doesn't (generally) own
businesses on Main Street. Main Street is skewed towards locally owned
boutiques, cafes, shops, restaurants and so on. Those are getting killed but
it doesn't matter to the S&P 500 because they're not listed there. To some
extent it is good for the S&P 500 as the money shifts from those locally owned
businesses to the mega corps in the S&P 500.

We've gone from ~4% unemployment to 10-15%. Which sounds bad. But if you flip
it around, we've gone from 96% employment to 85-90%. The vast majority of
people are still employed and the economy is mostly still humming along.

~~~
big_youth
>We've gone from ~4% unemployment to 10-15%. Which sounds bad. But if you flip
it around, we've gone from 96% employment to 85-90%. The vast majority of
people are still employed and the economy is mostly still humming along.

This is not how it works.

The US measures unemployment using levels, the 10-15% are U-3, which only
counts people without jobs who are in the labor force. To remain in the labor
force, they must have looked for a job in the last four weeks.

The U-6, or real unemployment rate, includes the underemployed, the marginally
attached, and discouraged workers and is at 25%.

There are plenty of deeper explanations online but basically politicians love
to talk about U-3 but the true unemployment is U-6.

~~~
Miner49er
U-6 was 16.5% in July - it's improving. It was 6.8% pre-COVID, so it's not
really any worse off then U-3. It's still about a 10% jump in both.

------
CalRobert
Where else are you gonna put your money? Stable governments are paying ~0 or
negative interest.

I'm actually asking, right now I'm just paying off debt but would be curious
what people think. If I didn't have the debt I'd probably buy equities (index
fund, etc.) like everoyne else.

~~~
giantg2
Commodities could be another option. I think gold and silver aren't great
choices right now, but maybe platinum is. Along this same line, real estate
has real value to it.

~~~
badwolf
Lumber has been having quite the ride the last several weeks

~~~
giantg2
Could be a good shortterm play. I'd be concerned about getting in now for a
long hold. The price spikes are mostly due to covid related supply issues.
Prices should normalize in the next few months (I think).

------
DebtDeflation
Federal Reserve balance sheet:

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

The simplified version is that when the Fed wants to inject money/liquidity it
buys assets (exchanging new "money" for the asset) in the open market. These
operations are done within the financial system. The idea is that banks next
loan the money to non-financial businesses which in turn stimulates economic
activity. But that last part isn't happening, the injected liquidity is
remaining within the financial system where it is being used to bid up the
prices of existing financial assets rather than being used to create new ones.

------
belval
Personal take: A subset of "Main Street" is unhealthy not the entire country.
Most things are not closed anymore and the stock market is propped up by tech
stocks that saw little slow down due to COVID.

It's weird situation because I'd be willing to bet that the people who own
stocks are simply not the one that have been laid off.

~~~
wccrawford
And if all businesses are hit by hard economic times, should all stocks go
down? Wouldn't that mean that people are selling stocks and not buying other
stocks?

I don't think modern investors just don't-buy-stocks unless they need the
money for something else. They invest in _something_. And if everything is
doing poorly, that means the market doesn't change.

~~~
ry_co
I wouldn't assume everything is doing poorly. There are big winners and big
losers in this economy, and the S&P 500 happens to be constituted primarily of
the winners. Almost anything digital right now is gold.

There's also the fact that many companies that are doing well right now are
keeping quiet about it. I know from personal experience at the company I work
for (fintech midsized startup) that executives are very careful not to be
openly positive about benefiting from the pandemic. Publicly admitting that
you profitted by a global pandemic and an economic recession is in poor taste,
and companies are rightly tentative about doing so.

From my work I've seen anything adtech related explode. Publishers or
aggregators whose primary revenue stream is online advertising income are
growing at incredible rates. Assuming that everyone is hurting because
physical businesses are hurting is a huge mistake.

Additionally, as many analysts have been saying, the pandemics primary effect
so far has been to accelerate existing trends, not create new ones. We're
seeing a fast-foward in economic transition. Companies that were well
positioned before the pandemic for the economy of the future (automation,
digital) are doing swimmingly.

------
AngrySkillzz
The price of productive assets goes up as interest rates fall, this is a
simple NPV calculation.

Interest rates are low, and have been low in the developed world for a while.
The reason for this has nothing to do with central bank conspiracy theories.
The neutral rate of interest is determined by productivity growth,
profitability of available investments, and how much capital there is that can
be invested in them. The best a central bank can do is 1. be good at detecting
where this equilibrium is and reacting to it, and 2. move interest rates at
the margins to smooth out the business cycle.

Think of it this way. If, in the aggregate, an average business would make a
real return of 3% per year, then an interest rate above 3% would discourage
all but the best business ideas from being pursued. Likewise a lower rate
would encourage investment in worse ideas with lower profit margins. This is
one way to think about the "neutral rate of interest." It is determined by
exogenous facts about the real economy.

Now, we have fewer "profitable ideas" (and lower productivity growth
correspondingly), and significantly more savings due to greying populations
(people who are older/will live longer require more savings) and cultural
tendencies (e.g. higher savings rates in China, Germany). So the neutral rate
falls, and the result of that the price of capital goods rises.

Central banks' hands are effectively forced by this situation. If policy
maintained an artificially high interest rate when the neutral rate is lower,
economic contraction would ensue disadvantaging all parties.

------
ryansmccoy
Basically, you can think of the stock market (price) driven by two components:
1) an aggregate of all company profits in the stock market and 2) the cost of
borrowing capital (discount rate).

1) Corporate Profits - From what I recall, corporate profits have been flat to
down over recent quarters.

2) Discount Rate - The cost of borrowing capital has been falling as
governments make access to capital easier for businesses. This has a huge
effect on the valuation of the stock market compared to the impact of the
profits. This is why the stock market continues to go up. The issue is that if
you were to make access to capital harder, thus increasing the discount rate,
companies in theory wouldn't be able to borrow as much, and therefore grow as
much. Thus, the market would in theory go down, probably alot.

------
evancox100
Just from a very theoretical level, low interest rates means the net present
value (NPV) of companies, ie their stock prices, are weighted more heavily to
future earnings and not just this year's earnings. So if the market is pricing
in some return to normalcy, even if it's a year or two out, you wouldn't
expect to see much of a hit. Assuming companies can get from here to there
without going bankrupt, something the government has been very explicit about
helping with by providing cheap/free funds.

Edit: Plus there's FAAMG driving the S&P500 up, who for obvious reasons are
doing very well right now.

~~~
tfehring
This is true but incomplete. The S&P500 is basically at the same level as mid-
February, and even if expected earnings for, say, mid-2021 forward are the
same as they were in February, the missing earnings between February 2020 and
mid-2021 should be reflected in prices.

What's missing is that a decrease in interest rates also directly results in
an increase in the NPV of future distributed earnings. That increase seems to
have offset the decrease in the expected nominal (undiscounted) value of
earnings. But this also makes for lower expected returns in the future: In
principle, if interest rates and expected earnings stay the same, the
unwinding of that discounting is what drives equity returns.

------
throwaway_USD
Easy Congress put on bandannas and robbed the tax payers of about $18,000
each.

Congress then turned around and gave taxpayers $1,200 each, of their own
money, that total amount can be doubled that to account for the temporary
unemployment benefits increase. The rest of the taxpayer money went to the FED
so they will guarantee the prices of shit stock...the market can't lower
because as many rich CEOs and investors cash out their shit stock the FED is
there to buy at these artificial prices.

Its not healthy obviously, its just another in a long line of scams on
taxpayers who paid for the golden parachutes and will be left holding the bag.
There is about $4.2T the FED has to buy stock at artificial prices so it will
be sometime before this bubble pops.

~~~
thieving_magpie
I'd really like to read more about how tax payers are paying $18,000 each but
all I can find as a source is some twitter comment and a reddit thread where
the claim is disputed. Do you have something more substantial I could read? At
first glance it seems extremely exaggerated so I'd like to get my head around
it.

~~~
svachalek
I think this is simply dividing the cost of relief packages by the number of
taxpayers. It’s oversimplification of government budgeting to the point that
it doesn’t mean much of anything other than to give a sense of scale.

~~~
ttul
Over-simplification in the extreme. Much of the stimulus was in the form of
lending. The government will get most of that money back over time.

------
chubasco
Because the rules around running a business in the COVID-19 environment have
been set such that large companies can afford to comply with them but small
business can’t without losing money. So all their employees, and eventually
the business owners themselves, bear the brunt of that.

------
blaser-waffle
TINA -- There Is No Alternative [to Wall Street]

Plus economies of scale on top of COVID killing mom & pop shops means that
only large scale players can survive as Main Street offerings, e.g. the
Starbucks on every block, or large chain eateries.

------
watertom
Remember the stock market has always been a game, it's never mirrored reality.

I'd say that the institutions that own the majority of stocks, colluded and
just decided to sit tight.

------
robjan
"Main Street is the now, Wall Street is the future" is the main point. Yes,
things are bad now but it's not permanent.

------
zacherates
1\. Stock markets are forward looking. Prices reflect expectations about the
company going far into the future, not just right now. So yeah, this year and
next year are going to be bad, but we expect that five years from now things
will be back to normal or better and prices reflect that.

2\. Companies in the S&P 500 (which is what people often mean when they talk
about Wall Street/the market/etc) are by definition are big and have easy
access to the capital markets. Consequently, they are the best positioned to
whether the storm and seize the opportunities as they come. When things start
recovering companies with money/easy access to the bond market are going to be
the ones who can open new locations and capitalize on pent up demand.

3\. There are a bunch of big companies that have actually done well for the
last six months. The obvious ones are companies like Amazon, Netflix and Zoom,
but for instance Target and Walmart have benefited from being allowed to stay
open because they sell essentials while also selling everything else so they
were often the only option other than Amazon.

4\. When people talk about the S&P 500 recovering unbelievably fast, they
often mean vs. the lows in March. Those lows were not reflective of the
reality of what was happening (definitionally: nobody knew the reality of what
was happening, lack of testing, etc.), but there was some concern that the
actual apocalypse might have occurred... and everyday as merely bad news
poured in that actually restored confidence because the news was not
apocalyptic. So, the prices rose.

5\. There really are a bunch of bored people buying stocks on their phone
because they can't bet on sports anymore [1]. It's not clear how big an effect
this is, but there really does seem to be extra retail demand for stocks.

[1] [https://www.bloomberg.com/news/audio/2020-07-09/inside-
the-m...](https://www.bloomberg.com/news/audio/2020-07-09/inside-the-mind-of-
a-young-retail-day-trader-podcast)

------
coldcode
Fed invents money. It has to go somewhere. It goes into stocks. Someday it
stops and so do stocks. Your grandchildren eventually pay it off somehow.

------
danesparza
From the New York Times this morning, about the irrational stock market:

"As irrational as it might seem, here’s the way investors rationalize the
bullish stock market to themselves (we’ll only find out whether they are right
or wrong in the future):

1\. The stock market is forward-looking: Investors are betting on what the
world and the economy look like in 12 to 18 months from now, not what they
look like today, tomorrow or this fall.

2\. The big get bigger: Much of the stock market’s success has been the result
of a run-up in value for a few big technology companies — including Apple,
Amazon and Microsoft — that make up a large share of the index. And retailers
like Walmart and Home Depot are growing in part because small businesses have
closed, allowing the bigger companies to take even more market share.

3\. Betting on a vaccine: Given the daily headlines about the potential for a
vaccine, investors want to be invested in the market when the news comes that
there is a genuine vaccine, on the assumption that it will send stocks even
higher.

4\. The only game in town: With the Federal Reserve planning to print money
for the foreseeable future, investors don’t want to be in cash or bonds, which
are steadily losing value. So where else can they put their money? The stock
market has become a default.

5\. Help from Washington: As dysfunctional as Congress has proved to be,
investors are betting that Republicans and Democrats will find a way to keep
plying the economy with stimulus. (Anecdotal stories suggest some Americans
have even taken their $600 unemployment checks and invested them in the stock
market.)

Of course, all of these rationalizations don’t take into account the
possibility of a terrible second or third coronavirus wave, a delay in the
discovery of a vaccine, a constitutional crisis come the election in November,
runaway inflation, the prospect of higher taxes to pay for the stimulus, a
more significant trade war with China, or the dozens of other risks that seem
to be bubbling just below — and in some cases on — the surface.

In the meantime, happy trading!"

 __ __ __*

#4 I hadn’t thought of, and is a VERY troubling sign I think. Cash is
devaluing because of inflation. Bonds are devaluing because of a loss of hope
of future repayment (they are debt instruments).

~~~
ghaff
#4 seems like somewhat of an overstatement. It's true that you probably can't
really keep money out of the stock market if you have appreciable money to
invest. But that doesn't mean you can't reasonably hedge your bets at least
somewhat. You won't get the full upside if the market continues to do well but
you do have some downside protection that has at least a small return.

------
flerchin
Money printer goes brrrrr.

------
draw_down
So many ways to approach that question. One might be, look at the shape of a
graph of S&P 500 over the last 4 decades or so, vs the shape of wages adjusted
for inflation.

At this point, assuming one can tell you much about the other requires
justification.

------
jshaqaw
The bull case is that by mid-1Q we have a vaccine and the crisis is over.
Government fiscal and monetary keeps the economy on life support until that
happens. If you value a business bottom up and you think 2021/2022 sort of
revert back to 2019 then by now in 2020 you are basing your valuations on
those numbers and decreasing the equity value where necessary for businesses
that took on debt to get through 2020. The Fed has said it will keep rates low
for longer and overshoot 2% which is an average target not a ceiling. If your
money has to go somewhere (and it does) then fixed income duration at paltry
yields looks like a bad bet if we get a tick up in inflation. In an
inflationary environment stocks aren't great but they will preserve purchasing
power better than bonds. Sure you can play with commodities and bitcoins but
are you as say a middle-aged saver with a family going to put your entire
liquid net worth into gold bullion and bitcoin (of course this being Hacker
News I expect a good number of "of course" responses!)

For my two cents I was embarrassingly late the the bull party and couldn't
believe the rally back so fast. There will of course be a jobs recovery from
the lows as the virus threat ebbs but I suspect a decent number of the jobs
lost are structural and employment won't quickly rebound to sub 5%. Gun to my
head I'd say high single digit unemployment could linger a while which is
pretty painful. If the Federal government remains deadlocked then state and
municipal austerity will multiply the economic pain.

~~~
the-dude
AIDS never got a vaccine, SARS and MERS neither.

~~~
GhostVII
There are several COVID vaccines in stage 3 trials, I think it is safe to say
that we will have a vaccine being rolled out by mid 2021 at the very latest.

~~~
0xffff2
Are you an immunologist? I'm not, but it's my layman's understanding that most
candidates are likely to make it to stage 3, and that most will fail in stage
3. As far as I can tell, the number of candidates in stage 3 trials is not a
strong indicator of the likelihood of a successful vaccine being developed.

~~~
GhostVII
No but Dr. Fauci, along with other scientists working on the vaccine (ex. Dr.
Sarah Gilbert), have repeatedly said we will likely get a vaccine by 2021, and
have millions of doses rolling out by mid 2021.

~~~
dragonwriter
> No but Dr. Fauci, along with other scientists working on the vaccine, have
> repeatedly said we will likely get a vaccine by 2021.

No, Dr. Fauci has said that _if_ the vaccines currently in testing, which are
being rushed to production before trials are complete, pass trials, _then_ it
is likely that there will be tens of millions of doses available in Spring
2021 and enough for everyone who wants them by the end of 2021.

But he's also acknowledged, at the same time, that that's an “if” and instead
all of that vaccine could end up getting dumped if the trials fail.

~~~
GhostVII
_Looking ahead, Fauci said he’s “cautiously optimistic that we will have a
vaccine by the end of this year and as we go into 2021. I don’t think it’s
dreaming … I believe it’s a reality (and) will be shown to be reality.”_

[https://globalnews.ca/news/7242988/fauci-usa-coronavirus-
vac...](https://globalnews.ca/news/7242988/fauci-usa-coronavirus-
vaccine-2021/)

Of course nothing is guaranteed, but to me that seems like we can be pretty
sure that we will have a vaccine in 2021.

~~~
dragonwriter
Your source leaves out a lot of context; see this article with more context on
the same remarks: [https://www.businessinsider.com/fauci-coronavirus-vaccine-
li...](https://www.businessinsider.com/fauci-coronavirus-vaccine-likely-
available-to-all-americans-in-2021-2020-8)

Fauci is _cautiously optimistic_ that a vaccine will exist by the end of the
year, be in limited deployment in Spring, and generally fully available in the
US by the end of the year to everyone who wants it.

But that's cautious optimism that stuff currently in testing and rushed into
production in anticipation of success pans out, and there is a risk that it
doesn't and we're back at square one. Nowhere does he even suggest a likely
timeline if his cautious optimism about the current crop isn't realized, which
he very clearly acknowledges it might not be.

It may seem _to you_ to be “pretty sure” we'll have a vaccine in 2021, but
that's certainly not a conclusion supporter by Dr. Fauci’s statement.

