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.<p>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.<p>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.<p>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.
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.<p>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.
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.<p>Aka you don’t have to outrun the bear just the other guys.
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.<p>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.
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.<p>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?<p>One thing is for sure, the stock market reflecting on people's near- to mid-term outlook of the economy is likely over.
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.<p>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.<p>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.
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.<p>And investors probably are too optimistic about some tech companies since the recession will surely impact enterprise spending.<p>But it’s not as irrational as you may think once you look at the individual companies doing good and bad now.
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.<p>I am not advocating for removing old people from the economy. I am just thinking of some economic consequences of this terrible pandemic.
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.<p><a href="https://seekingalpha.com/article/2788885-how-old-was-that-shoeshine-boy-again" rel="nofollow">https://seekingalpha.com/article/2788885-how-old-was-that-sh...</a>
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.<p>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%.<p>It's certainly very high in historical terms, but you can't consider the history in isolation.
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?<p>[1] <a href="https://fred.stlouisfed.org/graph/?g=qYNJ" rel="nofollow">https://fred.stlouisfed.org/graph/?g=qYNJ</a>
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”.
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.<p>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.
I think the problem a lot of people have when looking at the stock market is they assume everything is modeled against current time.<p>The price of any asset in the market is best viewed as a predictive time portal into the sum of <i>all</i> 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.<p>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.
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: <a href="https://goldprice.org/gold-price-chart.html" rel="nofollow">https://goldprice.org/gold-price-chart.html</a>. Also there is some non negligible danger of USD losing its reserve currency status: <a href="https://www.linkedin.com/pulse/chapter-1-big-picture-tiny-nutshell-ray-dalio/" rel="nofollow">https://www.linkedin.com/pulse/chapter-1-big-picture-tiny-nu...</a> , <a href="https://www.linkedin.com/pulse/money-credit-debt-ray-dalio/" rel="nofollow">https://www.linkedin.com/pulse/money-credit-debt-ray-dalio/</a> , <a href="https://www.linkedin.com/pulse/changing-value-money-ray-dalio/" rel="nofollow">https://www.linkedin.com/pulse/changing-value-money-ray-dali...</a><p>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.
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.<p>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.<p>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.
"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."<p>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
My amateur guess is the stock prices are being adjusted for the implied inflation due to trillions being pumped into the economy.<p>The stocks are not worth more inherently, you just need more (depreciating) dollar units to describe the price.
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.
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?
If the stock market is wrong, what will force it to correct?<p>Does it take a lot of companies going bankrupt?<p>Is it enough for lots of companies to report big revenue drops? Or is that priced in the minds of most investors?
All these predictions and no one mentions the serious tax cuts by the government that was the cause of the pre-corona rally.<p>Markets need to go way down before things normalize ( eg. Tax cuts won't hold I think)<p>We are now back at the level before tax-cuts, which is nuts considering people are not spending currently.
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.<p>I bought any way.<p>I'm up 24%. The average annual increase for the S&P 500 is 6%.<p>Now HN is saying it's crazy to buy.<p>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.<p>NYC is opening its beaches for Memorial Day.<p>Yet again, "it will get worse." I see the market going sideways.<p>I think I'm going to hold on.
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?<p>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.
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.
It's like the author doesn't know you can bet on the stock market falling.<p>They certainly don't explain what people are actually betting on.<p>It makes total sense to bet now. The incumbants are fish out of water. Their algorithms isn't built for this.<p>Does it make more sense to compete in a normal decade long stable market against billion dollar companies? That's stupid.
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.
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.<p>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.
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.<p>I wrote up a more detailed argument at <a href="https://gitlab.com/kragen/derctuo/-/blob/master/pandemic-collapse.md" rel="nofollow">https://gitlab.com/kragen/derctuo/-/blob/master/pandemic-col...</a>.
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.
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 <a href="https://medium.com/@dan_60967/devils-advocate-the-bull-case-338718cf177c" rel="nofollow">https://medium.com/@dan_60967/devils-advocate-the-bull-case-...</a>. 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.
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.<p><a href="https://fred.stlouisfed.org/series/M1V" rel="nofollow">https://fred.stlouisfed.org/series/M1V</a>
"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.<p>And, investors know that Republicans, Democrats, everyone will sacrifice everything to save "market growth".<p>Seems like a rational, safe bet.
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?
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"?
> “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.”<p>No, investors haven't lost their minds. They are betting that the Fed will backstop the stock markets by any means necessary.<p>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.<p>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.<p>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.<p>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?
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...
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?<p>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..
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.<p>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.<p>It is as easy as that while at the same time very challenging.
It is the wisdom of the crowds. People do know that the group think and hysteria are all made up.<p>For all the scare mongering sheltering at home the facts are that the disease is not radically dangerous.<p>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'.<p>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.