
Have the record number of investors in the stock market lost their minds? - seek3r00
https://www.newyorker.com/news/our-columnists/have-the-record-number-of-investors-in-the-stock-market-lost-their-minds
======
snowwrestler
I don’t need the money I’m investing today for at least 10 years, maybe 20.
I’m betting that the U.S. economy will not stay depressed for 10-20 years,
which seems like a pretty good bet.

I did not invest heavily during the 2008 financial crisis, and looking back, I
have regrets about that. I invested more aggressively this time around on the
downturn.

And my younger siblings and colleagues all seem to be taking the same long-
term approach. They all read /r/personalfinance and some are trying to
“FIRE”—again, on a 10-20 year plan.

The article seems to take an implied short-term view by talking about how the
recovery might or might not be V-shaped. Honestly that seems like the crazy
approach. I don’t know anyone, personally, who is investing today with hopes
of pulling that money back out in a few months. That is what a symmetrical “V”
would be at this time. Obviously that is not going to happen.

~~~
Spooky23
Betting on that now is insane.

We haven’t even felt the main wave of bankruptcies and disruption yet.

Credit is locking up (try getting an unsecured loan) and people aren’t paying
bills. 50% of New York tenants didn’t pay rent. Every seasonal business is
dead. Life looks ok for IT people working in their underwear right now, but we
are heading into a very challenging time with fundamental changes in consumer
behavior.

The next big thing will be underwater mortgages.

~~~
koheripbal
That's a fair point, but most of those Mortgage assets have already lost
70-80% of their value. Look at the REM ETF.

So are you making the argument that mortgage-centric stocks are going to go to
zero?

It should be no surprise that Tech/NASDAQ is doing well since both individuals
and companies are investing more in tech during this crisis, while
industrial/travel/etc are all still down substantially.

Maybe the banks will take a larger hit, but the overall market has already
priced in what you are saying.

~~~
nostrademons
The risk is in financial contagion. The economy can handle individual firms
going bankrupt - they'll just get replaced by other firms. The problem is when
creditors start taking haircuts and going bankrupt themselves. At that point,
things that people _thought_ were secure assets (like, say, their bank
accounts) suddenly get called into question, and markets lock up because of
panic.

In 2008 we thought that the problem was contained to the subprime housing
market, and once the Fed started supporting that market people breathed a sigh
of relief and there was a rally and recovery from March-May. It wasn't until
first Bear Stearns and then Lehman Brothers failed that people realized we
were in a crisis. These were centuries-old, multi-hundred-billion-dollars
institutions. The idea that they could cease to exist was unthinkable to
anyone not actively looking at their balance sheet and doing the math, which
is why there was such a panic when they did cease to exist.

~~~
koheripbal
> The problem is when creditors start taking haircuts and going bankrupt
> themselves.

But this isn't really a risk to the broader market, because the government has
already made it plain that it's going to backstop the liquidity to prevent any
liquidity crisis, from buying commercial debt, to even buying equity. ...so if
the gov't is the lender of last resort, then your argument doesn't make sense
because.

Lehman Brothers going under is something the Fed has said it will not let
happen again. Particularly in this scenario where bad debt is due to a pure
externality.

...not to mention that people's bank accounts are protected by FDIC, and
equity/retirement accounts are protected by a similar program.

Not that it really matters, because the banks are all much better capitalized
than they were in 2008.

The real danger here is the potential for snap-back inflation (in a
stagflation scenario), which I'd argue actually makes equities MORE
attractive, not less - since stocks are inherently inflation protected.

~~~
nostrademons
I'd agree that inflation is probably a bigger risk right now than a 2008-style
liquidity crunch. This is not necessarily mutually exclusive to a financial
panic though.

Stocks tend to perform chaotically during major inflationary episodes. Over
the long run corporate earnings are inflation-protected. The problem is that
inflation hits unevenly, depending on where relative shortages are, and some
businesses can raise prices much more than other businesses can. That can make
some businesses non-competitive (= insolvent) during an episode of high
inflation, while also pooling profits within a small number of survivors. You
often see a big consolidation of winners, great companies of the next era
born, and then a lot of bankruptcies. Mainstream investors are often not very
good at predicting the winners, so you get panic and malaise in the short
term.

~~~
klipt
> Mainstream investors are often not very good at predicting the winners

Index investors don't care about that part.

~~~
nostrademons
A very likely outcome of inflation is for the indexes to underperform and
gains to be concentrated in a few big winners (like, say, FAANG stocks). The
big winners from inflation are generally chokepoints in the economy, companies
that have monopoly pricing power over their industry, so by definition the
majority of companies will be losers. Index fund investors are effectively
subsidizing individual investors of the winners: the savvy individual investor
gets in (looking at the competitive position of the company), their profits
rise, the less-savvy individual investor gets in (looking at the new P/E
ratios), the indexes rebalance to include more of stocks with higher market
caps, and then the index rebalance forces index fund investors to buy in,
raising the prices further for shareholders who already bought.

To some extent, this is already happening: the S&P 500 is down about 15%, but
stocks like Amazon, Zoom, and Beyond Meat are skyrocketing.

~~~
klipt
Right, "savvy investors", mostly professionals, compete with each other to be
first to set the market prices at their truer values. The index investor just
goes along for the ride.

> then the index rebalance forces index fund investors to buy in

That's not really how it works for cap weighted whole market indices. They
remain cap weighted as prices change, there's no need to "buy more" of a
winning stock, you already had the stock, it won, now you have more of it (in
USD terms).

------
bradleyjg
Investors are betting that while the US government will continue to shrug off
higher and higher unemployment numbers, any significant move downwards in the
stock market will spur immediate action from both the administrative and
legislative parts of the Federal government.

This is not a bad bet at all. The dominant ideology in Washington seems to be
laissez faire when big businesses are doing well and bailouts when they
aren’t. It must be nice to play with a stacked deck like that.

~~~
aantix
You would probably get a better deck too if you provided flights for millions
of people or helped disburse money or manufactured vehicles to keep people
going to their jobs.

Why do individuals think they should receive the same treatment as key
infrastructure companies?

~~~
simonh
The companies as such aren’t at risk, only the investors. Take the cruise
industry. If Carnival goes bust, the ships and crew will still be there. They
will just be bought up by fresh investors at bargain prices and soon be up and
running again. If long terms demand for cruises does fall some ships might be
scrapped, but that would happen with or without a bailout. The risk of losing
necessary infrastructure for that industry without a bailout is close to zero.

The same is true of most industries, bailouts protect investors not economic
capacity, but there are exceptions. I don’t like it but there are very few big
banks, and it’s just not possible for fresh investors to rapidly buy up the
assets of a failed bank and start a new bank. The heavy regulation of the
industry is a serous obstacle to that kind of renewal and this is a dangerous
problem.

~~~
corebit
It's not a forgone conclusion that the ships will be there. In liquidation
those ships have valuable equipment and scrap metal that could be broken down
and sold, returning value to creditors and investors.

Ship breaking is big business.

~~~
freehunter
As they mentioned, if the ship is worth more as scrap than as a ship, they
would have happened with or without a bailout.

~~~
leetcrew
sure, but the ship might suddenly become worth less as a working vessel in the
absence of a functioning cruise line to operate it. my guess is that a
operating a single cruise ship is considerably less profitable than each ship
in an n-ship fleet.

------
bitcurious
One thing that I don’t see addressed in these posts, but I think makes a huge
difference, is that the stock price reflects global demand for ROI. It’s
entirely possible for stock values to go up while SP500 expected profitability
goes down if the expected profitability of other markets goes down even more,
shifting money out of Europe/HK/Japan into the USA.

Aka you don’t have to outrun the bear just the other guys.

~~~
hn_throwaway_99
And it's important to note that one of the "other guys" is plain cash.
Interest rates are near 0, in many places they are negative, so I think it's a
fair bet to think "In 10 years it will make more sense to own a sizable
investment in the productive capacity of the US, vs dollars which the fed has
been printing like crazy."

~~~
MiroF
Value of cash is determined by inflation, not by interest rates. Since the fed
prints money to hit inflation targets, this reasoning doesn't really make
sense.

~~~
hn_throwaway_99
Most people are putting that cash somewhere, aka a bank, so interest rates
absolutely determine the expected rate of return on that cash.

~~~
MiroF
Yes, but focusing on the interest rates is reasoning from a price change.
Interest rates are going down due to central bank action to combat
deflationary pressure, so you can’t just look at interest rates in a vacuum
and say that the rate of return is going down.

Otherwise why has the value of the dollar increased since early March?

Also, you realize that when the fed “sets rates” it’s not literally the rate
of interest in your bank account, right?

------
RivieraKid
For people who think stocks are overpriced: what would be an appropriate price
and how did you come up with that number? I haven't seen an answer to this yet
from the "stock market is irrational" crowd.

I think in 99% of cases it's just a feeling - that the decline should have
been bigger given how bad the economic impact seem.

~~~
lazulicurio
Let me take a stab at this:

When I say "I think stocks are overpriced" I don't necessarily have a specific
number in mind. Rather, it's shorthand for "I think that the Fed and USG
attempts to avoid deflation at all costs have created an economic environment
that over-promotes stocks as an investment vehicle. In addition, I feel that
these attempts have worsened inequality by injecting liquidity in a way that
increases asset prices more than it increases the velocity of money".

~~~
neural_thing
The Shiller P/E ratio for the S&P500 is around 26 now. Mean/median historical
values are around 16. So a 40% decline in the stock market assuming no change
in earnings would make stocks not seem overpriced to me.

~~~
brutusborn
Why do you think the historical value is more valid than the current trend? Is
there some dynamic in the market that keeps the p/e ratio above 15, for
example?

I would think to calculate a "good" ratio you would need to compare it to
returns from property and other investments?

------
ajmurmann
I think the underlying question is "what is the alternative?". Twice a month
everyone in the US from the middle class up, has to invest a fairly
substantial chunk of money. With the FIRE movement this is only growing. Where
but in the stock market should that money go? We've created this firehose that
will continue to pump money into the market regardless of what the economy is
doing. If you take the perspective of an individual, long-term investor, this
isn't even irrational. What else are you supposed to do with the money? Keep
it in cash? You also don't want to start playing the market timing game. So
the firehose keeps on hosing.

I do wonder and am concerned what the endgame is. Is this all gonna crumble
like a Ponzi scheme? Is it just gonna smooth off as more investors start
retiring and pulling money out? Maybe at that point this will all just turn
into a fairly indirect redistribution from working, young people to current
retirees, as we see in some national pension systems?

One thing is for sure, the stock market reflecting on people's near- to mid-
term outlook of the economy is likely over.

~~~
freefriedrice
> What else are you supposed to do with the money? Keep it in cash?

Yes. That's where my RIA has 33% of my assets now, we moved them in 2019. We
will be "piecing back into" the market over the next 12 months. I'm 50 and
have a 30 year investment horizon. I've been investing since I was 21. I've
been through two massive drops in the market that took years to recover. Don't
panic. Valuations will correct themselves and fundamentals will continue to
hold until the next bubble. I think that is model we're facing at the upper
limit of an exponential.

> Is this all gonna crumble like a Ponzi scheme?

It has to stay alive so that the rich can get richer. Remember the players in
the Panama Papers? There's an entire society that runs the planet. And this
isn't a conspiracy, it's out in the open! Look at the Carlyle Group: it is an
investing firm funded by people liek MBS (The Saudi), the Clintons, the
Bushes, and many other politically-culturally diametrically opposed clients.
It's no mystery that rich world leaders who go to war with each other give
their money to the same investors.

You know that there are investments only available to people with $5, $10, or
$100 million more in holdings? There are entire class of investment devices
that you and I will never see. It takes tens of millions to even play in hedge
funds. The "real" markets are for the 0.1%. Those will continue to feed off
the other markets, which they need to distance themselves from the pack. (Look
at wealth distribution over the past 50 years.) But these top tier funds
require us schlubs to hand them money while we scrape by with 5-8% yearly
returns. They will keep the dials set just right so that we'll have a
reasonable retirement while they own the planet (Larry Ellison owns a Hawaiian
island. Techbros are buying up New Zealand [Theil]. Think about what happens
when trillionaires start to buy entire countries.

Yeah, the market will survive and make sure the upper middle class continues
to invest, otherwise there won't be a wealth generating machine for the
0.1-0.01%. As for people who can't afford to even put money in a 401k? Well,
we know what one political party things about those people.

~~~
MiroF
> Yes. That's where my RIA has 33% of my assets now, we moved them in 2019.

That's a bummer - you missed out on the rally and pricing is about the same as
what it was in 2019.

------
ZhuanXia
A few years before I started working, I read Average is Over. Made a good case
that labor power's decline would ramp up ever further. People like to poo-poo
AI, but I have been following AI since the dark times before 2012. Winograd
schemas, style transfer, GTP-2, image recognition - it is hard for people now
to understand how impossible these tasks seemed at the time. The rate of
progress is insane and it is foolish to bet against it.

Perhaps we are approaching a time where capital can be converted directly into
labor in a way that scales. If this is the case the market is ridiculously
undervalued, almost comically so.

I have maintained high savings rates and acquired capital ever since I read
that book, regardless of valuations. I consider my portfolio insurance against
this scenario.

~~~
kgin
You put into words the vague thesis I've been operating under. Robots aren't
going to take everyone's jobs tomorrow, but we've entered a period where
growth comes ever decreasingly from labor and ever increasingly from
technology.

The shutdown already spotlights the fact that the true economic value of non-
essential business and workers is primarily as consumers.

------
AznHisoka
If you analyze specific sectors or stocks, it really isn’t as irrational as it
seems. Hotel, airline and restaurant stocks are more than 50% down YTD while
tech/saas stocks are flat to positive. That said, there are some stocks that
seem mispriced like Chipotle, which is still up YTD.

And investors probably are too optimistic about some tech companies since the
recession will surely impact enterprise spending.

But it’s not as irrational as you may think once you look at the individual
companies doing good and bad now.

~~~
WrtCdEvrydy
> that seem mispriced like Chipotle, which is still up YTD

Chipotle has bought some good will in the past and probably is making decent
cash on deliveries.

------
fasteddie31003
I'm going to hell for this but could a virus that removes people past the
retirement age be actually beneficial to an economy? I can think of a few
mechanisms: 1. Reduced draw from social security and pensions. 2. Less long
term medical costs. 3. Increases housing supply.

I am not advocating for removing old people from the economy. I am just
thinking of some economic consequences of this terrible pandemic.

~~~
brutusborn
I can't be sure, but I imagine this would be offset by the productive segment
of the older population who die from the virus. Older workers are valuable
because often they have the widest experience and are best able to train
others.

~~~
fasteddie31003
I said retired people. Meaning, they don't work anymore.

~~~
brutusborn
Ah, I misread it. Interesting concept but the point is sort of moot since a
virus can't specifically target people who dont work. Sure, a virus can be
more likely to be fatal in older people, but there are still a lot of older
people who work, and enough unproductive young people that i still think it
would be a net negative.

------
microtherion
I'm reminded of the anecdote / legend that Joseph Kennedy (or JP Morgan)
decided to sell his stock portfolio as the market crash of 1929 approached,
because he started getting stock tips from a shoeshine boy.

[https://seekingalpha.com/article/2788885-how-old-was-that-
sh...](https://seekingalpha.com/article/2788885-how-old-was-that-shoeshine-
boy-again)

~~~
WrtCdEvrydy
It's funny that I learned this right as bitcoin approached $17,000... and was
treated to sitting in a bathroom taking a poop while one of the low level
managers came in on the phone telling his wife he was buying $50,000 worth of
Bitcoin that day.

------
marvin
What's the average P/E ratio these days? 20-ish? That implies a direct return
of 5% (what's the English word for this?), assuming no future growth or
reduction in earnings.

That's a low risk premium if you measure it against historical interest rates,
but it doesn't seem completely unreasonable when interest rates are expected
to be ~0% for the forseeable future, and the inflationary pressure on the
dollar could be on the order of 40%.

It's certainly very high in historical terms, but you can't consider the
history in isolation.

~~~
nycdatasci
Just to provide some data to back up your point: Forward earnings yield (from
analyst forecasts & company guidance) for the S&P 500 is 4.84% vs 0.67% for 10
yr treasuries.

This document looks at the historical trend from a variety of perspectives:
[https://www.yardeni.com/pub/valuationfed.pdf](https://www.yardeni.com/pub/valuationfed.pdf)

Current valuations are roughly in line with post-2008 history, but looking at
a longer history suggests that they’re actually undervalued relative to other
assets.

------
maliker
Some of the classic recession indicators (Sahm, Chauvet) are just starting to
peak [1]. Both have led multi-year declines in stock prices. Is this time
different from last time and the time before that?

[1]
[https://fred.stlouisfed.org/graph/?g=qYNJ](https://fred.stlouisfed.org/graph/?g=qYNJ)

------
oxymoran
The stock market is nothing more than a casino of supply and demand. It is not
rational and is based on nothing more than greed and fear. It has absolutely
nothing to do with the “economy”.

------
graeme
The number of people here convinced there is no alternative to stocks and that
they are a good bet makes me wonder whether we’re at a temporary peak.

After the previous bottom sUch threads here, on reddit and on the financial
times were convinced markets had nowhere to go but down and couldn’t possibly
go up.

------
bob1029
I think the problem a lot of people have when looking at the stock market is
they assume everything is modeled against current time.

The price of any asset in the market is best viewed as a predictive time
portal into the sum of _all_ potential future value that can be generated by
that asset. So, when you see TSLA at $800, that does NOT mean that investors,
the market, et. al. are perceiving Tesla as worth that much today or even this
decade. The market is continually modeling and adjusting how much that asset
could be worth in 5+ years considering everything everyone knows at current
time.

It is easy to fall into the trap of believing that the market is operating in
first-order terms. Obviously, stocks react immediately to bad or good news on
a quarterly or better basis, and this can send hilariously-conflicting signals
regarding the longer-term modeling that is implicit with every asset price.
This is where day-traders and other near-term speculators always get stuck.
They make a few observations and then believe they have identified a regime in
which the stock market does indeed operate in first-order terms. And then out
of nowhere, their assets are wiped to zero or worse because of some sell-side
risk model that was just run at Goldman Sachs indicating that no one wants
electric cars in 2025. Obviously, this example is totally bullshit, but it's
conceptually how you get burned when you play the short game.

~~~
LudwigNagasena
The worth today and net present value of worth tomorrow are the exact same
thing. So I am not quite sure what you mean by "when you see TSLA at $800,
that does NOT mean that investors, the market, et. al. are perceiving Tesla as
worth that much today or even this decade".

------
zby
It is all relative - stocks prices are in dollars, if USD goes down - then it
is rational to buy stocks with it even if the business perspectives are not
perfect. In other words there is so much USD being printed that high inflation
seems probably (this time - the same thing was said in 2008 - but this time
the printing is even bigger). Look at gold prices:
[https://goldprice.org/gold-price-chart.html](https://goldprice.org/gold-
price-chart.html). Also there is some non negligible danger of USD losing its
reserve currency status: [https://www.linkedin.com/pulse/chapter-1-big-
picture-tiny-nu...](https://www.linkedin.com/pulse/chapter-1-big-picture-tiny-
nutshell-ray-dalio/) , [https://www.linkedin.com/pulse/money-credit-debt-ray-
dalio/](https://www.linkedin.com/pulse/money-credit-debt-ray-dalio/) ,
[https://www.linkedin.com/pulse/changing-value-money-ray-
dali...](https://www.linkedin.com/pulse/changing-value-money-ray-dalio/)

Update: I think I need to add that I have no economic education - I wrote this
after reading recent Ray Dalio posts to see what others think about it.

~~~
IkmoIkmo
Would be cool if someone built a simple S&P500 or All-world stock index,
expressed in gold instead of USD, or expressed in a weighted basket of all
currency index. This may give a better representation of the stock market
value, corrected for some of the inflationary effects of quantitative easing.

Anyone ever seen such indices?

~~~
nycdatasci
[https://www.macrotrends.net/1437/sp500-to-gold-ratio-
chart](https://www.macrotrends.net/1437/sp500-to-gold-ratio-chart)

~~~
strawhatguy
Neat chart. So it’s been decreasing but still above 1. Maybe that means
there’s room for the sp500 to go down more (or gold up)?

------
trfhuhg
From my armchair, the market situation looks very simple. When the economy
hits the ceiling, people at the top create a crisis, collect the remaining
value and let the newly poor labor work hard to earn a better life and create
value for the owners. Then the cycle repeats. It's somewhat similar to how the
combustion engine works.

The stock market is growing because the owners want to start the new growth
cycle. They think that's enough value have been collected, they have no intent
to destroy the engine, and want to start the new cycle. They achieve it by
letting Fed print trillions and buy the stocks. This dilutes the share of
everybody not invested in the stocks, but it works for the US because dollar
is the internatiinal common stock and the US has the right to issue new
shares. Whoever complains gets a friendly visit by aircraft carriers and
experiences sudden difficulties in participating in the international economy.

It's possible that the owners have messed up this time, as they are often just
lazy greedy types, and the engine will stall, but in that situation it won't
matter whether you hold dollars or sp500.

~~~
rladd
The Fed isn’t actually buying any stocks. And neither are companies diluting
anybody to sell anything to the Fed.

What the Fed is buying is bonds. Which are non-dilutive.

I understand the sentiment, but let’s try to get the facts right

------
tomc1985
"If you invest five thousand dollars in Apple or Tesla, the five or ten
dollars you saved in fees won’t have much effect on the ultimate outcome."

The author is way out of touch if he thinks this. Many of my friends playing
around in the stock market have a portfolio of less than $1000. When I started
learning it my portfolio wasn't much bigger. At that level, if you trade even
semi-actively, you get eaten alive by fees

------
bigdict
My amateur guess is the stock prices are being adjusted for the implied
inflation due to trillions being pumped into the economy.

The stocks are not worth more inherently, you just need more (depreciating)
dollar units to describe the price.

------
AdrianB1
Nothing changed recently, the situation is bad in some sense since people
started treating stocks like toys and not as pieces of companies. Investing
used to be building companies and shares were the ways to raise the required
capital, now people play with it and more money are extracted from playing
with the stock than the actual output of the company the stocks are
speculated.

~~~
jl2718
They are toys. You pay money and get nothing in return. Let’s say AMZN shuts
down. What do common equity holders get? What if they never shut down? Then
what do the common equity holders get?

~~~
AdrianB1
You get a part of that company and dividends. If you have enough shares, you
have influence, control or even ownership of the company. That is the primary
purpose of shares.

------
dr_dshiv
If you think of stocks as a form of currency, given that the dollar and euro
are being so heavily inflated, perhaps it makes sense to stay in the markets
than convert to cash at a definite loss?

~~~
JumpCrisscross
> _perhaps it makes sense to stay in the markets than convert to cash at a
> definite loss?_

Equities are less exposed to low to moderate inflation than assets with fixed
pay-outs. No need to model stocks as currency.

~~~
dr_dshiv
Why? Or source?

~~~
JumpCrisscross
> _Why?_

Long story short, corporate earnings can absorb small and moderate inflation
shocks. That lets dividends, and enterprise exit values, respond to low
inflation.

------
FartyMcFarter
If the stock market is wrong, what will force it to correct?

Does it take a lot of companies going bankrupt?

Is it enough for lots of companies to report big revenue drops? Or is that
priced in the minds of most investors?

~~~
roenxi
It takes more people selling shares (or being forced to sell shares) than
there are buyers.

Maybe I have some shares I bought for $10; the price dropped and now I can
only sell them for $8. There is a solar farm off to one side selling bonds at
some unreasonably high yield.

I could be stubborn and hold the shares until the price comes back - but that
would lose me money in the big picture. Instead I sell for whatever I can get
and put the money where it will be generating a good return.

If a bunch of people behave like that, sellers quickly overwhelm buyers
(potential buyers are flocking to the new opportunity too) and the price
corrects to something reasonably fair.

~~~
ak39
For every stock sold there’s always a corresponding buyer at the market price.

~~~
ThePhysicist
You might want to look into order books to get a better understanding of the
price determination mechanism of stocks/assets:
[https://en.m.wikipedia.org/wiki/Order_book_(trading)](https://en.m.wikipedia.org/wiki/Order_book_\(trading\))

~~~
ak39
Thanks for your link. I read it. But does it explain/re-affirm that prices go
down when there are more people selling than there are people buying?

~~~
csomar
There are exactly as many buys/sells. You can't have more "Sellers". The price
can move down, however, without much trading. For stocks with low trading/high
volatility it might make sense to give the mid order book price rather than
last trade.

~~~
ak39
Imagine a closed off room of 100 traders. There are three sets of people here:
a group of pairs doing a transaction, a group of pairs _negotiating_ a strike
price, no deals yet, and a final group "sitting on their hands". Only the
executed trades are ordered in descending timestamps. The one at the top is
the market price. It's the only reliable indicator of what actually got sold
and bought.

So, in this room, the price of each transaction, from any negotiations, is a
consequence of the _conviction_ of each party in the negotiations and
eventually the trade. This includes how optimistic or pessimistic they feel
about the value of the stock, how aggressive each one's stance about the
predicted future price of the stock, how much greed or fear exists in the
minds of the traders etc. This is what moves the price. Prices can move just
as rapidly (be more volatile) with a few traders and many sitting on their
hands as can be the case that prices hardly move with the entire 100 people
transacting.

Conclusion: what moves prices up or down are opposing _beliefs_ with differing
levels of conviction in the minds of the traders.

~~~
csomar
That's a massive and dangerous over-simplification of the market. The market
is really complex and the factors that play in determining and moving the
price are inter-mingled in a very complex way.

Here are a few ones of the top of my head:

\- Someone getting liquidated on a big contract and crashing the whole market
with him. (see Oil prices a few weeks ago).

\- Someone trading exotic/complex derivatives. His trades on the stock will
not make sense unless you account for his whole trade/structure that he
created. He can/does move the market in unusual ways.

\- Someone trading in a certain way because of taxes. His trades will not make
sense if the tax rate was 0%.

\- Someone laundering money through the market by buying the stock somewhere
and selling it somewhere else in a derivative market making his net position
neutral and trying in the process to move proceeds from one place to another.
This is, actually, a big one.

\- Someone getting out of position when it would be profitable for him not to.
But he has better alpha somewhere else he is going to chase.

------
NicoJuicy
All these predictions and no one mentions the serious tax cuts by the
government that was the cause of the pre-corona rally.

Markets need to go way down before things normalize ( eg. Tax cuts won't hold
I think)

We are now back at the level before tax-cuts, which is nuts considering people
are not spending currently.

------
starpilot
Near the bottom of the market in March, HN said to wait. N% of past crashes
went lower than this. It's like catching a falling knife. It will get worse.

I bought any way.

I'm up 24%. The average annual increase for the S&P 500 is 6%.

Now HN is saying it's crazy to buy.

I see stores reopening. Local stores in Seattle, but also chains. Apple is
planning to reopen its US stores soon. Grocery store shelves are full.

NYC is opening its beaches for Memorial Day.

Yet again, "it will get worse." I see the market going sideways.

I think I'm going to hold on.

------
buboard
For me it is either US stocks, gold, or bitcoin , or USD / EUR. Central banks
have made it clear they plan to destroy your wealth. Bitcoin is still frowned
upon, gold is out of reach, so what's left?

Sure, US stocks is a pyramid, but Euro stocks have been and keep performing
very bad. Only china could surprise the world , but they are not going to open
up their economy anytime within the next 2 years.

------
noelsusman
The market is still down 13-14% in 3 months. Besides, where else are you
supposed to put your money? I don't have much confidence in predicting where
the market will be next week or next month, but I have a lot more confidence
in stocks over the next 10-20 years than any other place I can store my money,
so I'm gonna keep buying stocks.

------
aaron695
It's like the author doesn't know you can bet on the stock market falling.

They certainly don't explain what people are actually betting on.

It makes total sense to bet now. The incumbants are fish out of water. Their
algorithms isn't built for this.

Does it make more sense to compete in a normal decade long stable market
against billion dollar companies? That's stupid.

~~~
GrumpyNl
So it has become a casino, people are not investing, people are betting.

~~~
david-gpu
A casino bet has negative expected returns, while a long position in the stock
market has positive expected returns.

------
sub7
The stock market in nominal terms means very little when the currency has been
grossly inflated.

Purchasing power is what's important.

------
CyanLite2
The article makes great points. Alot of commenters here all make great points.
However, what part of "The U.S. has pumped $20 trillion dollars" do people not
understand? There is a massive amount of stimulus and the Federal Reserve has
also said it'll do more if necessary.

------
nabla9
Stocks prices react to supply and demand and there is genuinely more demand
than ever before relative to supply (no, it's not all just Fed's doing as
somebody in the comment section always wants to say). Population is aging and
retirement savings is all time high. Global pension assets were 44.1 trillion
worldwide at the end of 2018. Large part of that sums stays in stock and goes
to stocks, no matter what.

Say, you are risk averse investor who has 15-20 year investment time horizon.
What you should do? Will bonds yield better returns? I don't think so. You
should keep doing what you do. Dollar-cost averaging reduces the volatility
over long term. If you have some balanced strategy like 60/40 stocks/bonds
then rebalance like before.

~~~
TomGullen
DCA assumes you have a lump sum to invest right? If you did have a lump sum,
dropping it in one go vs DCA has the same expected value (or perhaps all in
one go has higher EV due to reduced transaction costs).

I would also of thought volatility over 15-20 year term when choosing between
DCA or lump investment is largely irrelevant and not worth hedging against.

~~~
nabla9
> I would of thought volatility over 15-20 year term when choosing between DCA
> or lump investment is largely irrelevant.

You can see the effect for the total return of your investment even in 15-20
years. Try for example SP500TR for 20-year period and slide the starting point
over dot-com-bubble. 20 year ROI(TR) alternates from >300% to 180% and back to
>300% within 3-4 years.

------
kragen
I think a lot of people commenting here are taking a surprisingly narrowminded
approach to predicting possible consequences. It's like their spectrum of
conceivable outcomes runs from Great Depression to Baby Boom. But many worse
things have happened in human history than the Great Depression, and this
could well be one of them.

I wrote up a more detailed argument at
[https://gitlab.com/kragen/derctuo/-/blob/master/pandemic-
col...](https://gitlab.com/kragen/derctuo/-/blob/master/pandemic-collapse.md).

------
okareaman
The market timing strategy rationale for investing now is that the world
economy and the U.S. economy will resume growing. "I don't need the money for
20 years. Surely by then we will have grown our way out of this." What if that
is not true, despite being true for the last 100 years? Western populations
are ageing. Populations are shrinking in some countries, like Russia. The real
costs of fossil fuel and resource extraction are starting to hit hard.
Environmental devastation may unleash more viruses. I'm not predicting, I'm
just saying continued growth may not resume or even be desirable.

------
chuckus
I found this particular post from a hedge fund owner quite insightful why the
the stock market is unlikely to crash spectacularly if things keep going the
way they go with the Fed bank-rolling [https://medium.com/@dan_60967/devils-
advocate-the-bull-case-...](https://medium.com/@dan_60967/devils-advocate-the-
bull-case-338718cf177c). The ones stating the market is going to crash are
also the ones that are either shorting or have closed out their positions, and
waiting to swoop in to profit.

------
rubyskills
I think one should look at the velocity of money very closely right now to get
a good sense of where the general market will be headed in the next couple of
years. As the velocity slows down, economic activity overall will slow and no
amount of government stimulus is going to help.

[https://fred.stlouisfed.org/series/M1V](https://fred.stlouisfed.org/series/M1V)

------
random32840
If you think the stock market is overvalued, buy. If you don't, sell. Money
talks, articles in the New Yorker don't.

~~~
dehrmann
In other news, [https://variety.com/2020/digital/news/conde-nast-
layoffs-100...](https://variety.com/2020/digital/news/conde-nast-
layoffs-100-employees-coronavirus-1234605421/)

(Condé Nast publishes the New Yorker)

~~~
random32840
Heh

------
afpx
"The market" has become a tool for politics, so we can assume politicians will
never let the market die. They will just keep dumping money into it.

And, investors know that Republicans, Democrats, everyone will sacrifice
everything to save "market growth".

Seems like a rational, safe bet.

------
_bxg1
If not stocks, then what? I wonder if there's some other investment vehicle
that's become more appealing than it was before in this shifting landscape.
Obviously not real-estate. Is hoarding cash really the advice for now?

------
narrator
Anything that doesn't fit into a keynesian model is called "animal spirits".
Wouldn't it be great if we could keep newtonian physics and call all that
radioactivity stuff "quantum spirits"?

------
monkeydust
Are there any indicies that track companies that are positioned to capitalise
on the current new norm? (ecomm, distribution, gaming, streaming...)

------
wmnwmn
Record number of investors means dumb money, just like 2000. If you don't know
who the greater fool is...it's you

------
kgin
It's sentiment like this that keep stocks from becoming too overpriced. The
market at work!

------
aazaa
> “The consensus seems to be, ‘Don’t worry, the Fed has your back,’ ”
> Druckenmiller said in his presentation. “There’s one problem with that: our
> analysis says it’s not true.”

No, investors haven't lost their minds. They are betting that the Fed will
backstop the stock markets by any means necessary.

Try this though experiment. Which US companies will not be allowed to fail
under any circumstances? You might be surprised to find companies far outside
of the banking and national defense industries on this list. Given the chain
reaction that often takes place in debt defaults, you might be surprised to
find almost every large US company on the list.

That's what the Fed needs to "backstop." The scale is beyond any balance sheet
expansion currently being discussed. Of course, this isn't capitalism, either,
but that seems to bother fewer people than it should given their rabid
espousal of anti-socialist doctrine.

Whatever you calculate the current US national debt to be needs to factor in
the market value of those companies that can not fail under any circumstances.
Most tallies don't.

Now, try to use any traditional metric of value (P/E ratio, dividend yield) or
risk to buy some stocks. You'll quickly throw in the towel and remember that
ultimately the Fed has your back. Right?

------
ruminasean
I was under the impression that the vast majority of investing was automated,
algorithm-based, no?

~~~
nabla9
No. You are thinking trading, not investing.

~~~
ruminasean
Gotcha. Thanks.

------
api
They are betting on soaking up QE money. That's it.

------
dznodes
Have the financial markets become decoupled from the real economy? Like a
parasite consuming its host, now they just wait to be bailed out to bankroll
stock buyback schemes...

------
dmingod666
If the FED pumps so much money in the market, at what point do they start
getting such significant stakes in the companies that they get board seats?
Does it not become a roundabout 'socialism' if the state owns huge stakes in
publicly listed companies?

I'd dump all stock right now if I was holding, thank the tax payer and buy
bullion.. don't know why people would still remain invested in a market that
will obviously crash..

~~~
mrep
The FED is mainly buying U.S. Treasury securities and Mortgage-backed
securities [0]. They just started buying bonds this week but haven't bought
very much and they haven't bought any equities.

[0]:
[https://www.federalreserve.gov/releases/h41/current/h41.htm](https://www.federalreserve.gov/releases/h41/current/h41.htm)

------
jarym
One thing I appreciate these days is the stock market can be disconnected from
the realities of the economy and can remain that way for an indefinite period
of time.

The best way I’ve found to trade is to listen to what the market is telling
you. Take positions with discipline. Scale out when you have profits. Wait for
next sign of direction.

It is as easy as that while at the same time very challenging.

~~~
Traster
It's comments like these that make me think we're in a bubble. People who
confidently talk about investing in the stock market but are actually talking
absolute nonsense. 'Take positions with discipline'? 'Listen to what the
market is telling you'. 'Wait for next sign of direction'. 'It is as easy as
that while at the same time very challenging.'

None of what you said means anything. You may as well be saying "Listen to
what the roulette wheel is telling you".

~~~
jarym
Seriously? Take a daily chart, plot a 10d moving average and tell me you can’t
make money.

------
glofish
It is the wisdom of the crowds. People do know that the group think and
hysteria are all made up.

For all the scare mongering sheltering at home the facts are that the disease
is not radically dangerous.

Note the hysteria and the fake outrage when pointing out that an 80 year old'
"premature" death is not nearly as sad, impactful or tragic as that of 30 year
old'.

Modern society keep its citizens in check by promising them that they are all
"equal" and that they will do "everything" possible for everyone. The outrage
is to salvage that facade, that illusion.

