The economy is confusing

Perhaps it’s because we’re reducing the burden on Social Security and Medicare and Medicaid. All people cost a lot of money. I’m pretty sure that’s how Ivanka and Jared felt about it in their decision to open up the country for business.

Millionaires & billionaires who generally own a ton of equity in companies can see they are safe and will make money off this stimulus.

While it's difficult to say for certain what's happening right now, here's how it works in general (greatly simplified):

- The value of a company is determined by how much money it makes. Free Cash Flow (FCF) is discounted back at the company's weighted average cost of capital (WACC) which is essentially the weighted average of the cost of their debt and their cost of equity. These cash flows along with a "terminal value" (TV) are used to estimate the current value of a company.

- Both the FCF and TV will be affected by such things as investments (stuff like R&D or new equipment), expectations about production costs, or less tangible things like the view that Apple would stop innovating when Steve Jobs died.

- The so-called valuation is divided among the number of shares outstanding to get stock price.

- Therefore, the stock price will go up or down based on the future expectations for the future FCF.

- When the stock market crashed, investors may have over-reacted - they thought that company profits and FCF would decline - so drove down the stock price. Things like how long the businesses would stay closed, what the impact of not being able to go out would be, how much costs would increase, how much business a company might lose, etc.

- However, as the lockdown has progressed, companies and investors have gotten a clearer view of the impact, perhaps suggesting that business and profits would not drop as much as originally feared. Additionally, the growing calls to ease the restrictions may have lowered the amount of time investors thought we would be in lockdown, raising hopes for improved businesses.

All of this could lead to rising stock prices - at least on individual stocks.

What is important to remember is that investors (and companies) do not like uncertainty. Uncertainty=risk. Therefore, whenever uncertainty increases, investors will ALWAYS extract a risk premium. As uncertainty decreases, risk decreases, and the risk premium is lowered.

Your post is confusing

[quote] How is the stock market souring

do you mean soaring?

OP there is a saying about the stock market "buy on the rumor and sell on the news"

In other words people buy stocks on the rumor of something good happening and sell when it actually happens.

You are making the same mistake as Trump, the stock market does not reflect the economy if anything it somewhat reflects the hopes or fears of the future, not now. Of course the stock market is not easy to predict, if it was then investing would be easy.

It's all a huge scam, OP. The rich are getting richer off of us. Oh and we'll continue to do nothing about wall street. Americans are dumb and lazy.

Government said they would pay the salary for pretty much everyone in the US for 2 months.

The markets like Trump’s push to “reopen”.

Printing trillions of dollars out of thin air is like monetary heroin.

The markets absorb it and equities scream MOAR!

IT’S THE ECONOMY STUPID!

Apparently, the libertarians have joined us.

R11

Economics

Check it out.

The crisis allowed Trump/Fed to slash interest rates and unleash unprecedented (trillions) stimulus.

It also gave Trump additional powers to do whatever he wants to the economy.

Next, fear is a powerful emotion. For centuries, those with money have been buying while they convince you to sell your shares.

Finally, the possibility of a President Sanders has been eliminated.

For workers it sucks, for the super wealthy, not so much.

[quote][R11]...Economics...Check it out.

As I'm also r3, I'm certain I have a sufficient grasp of economics to know a libertarian idiot when I see one, r12.

Pssst...peekaboo, I see you!

The stock market will crash, I have no idea as to why it has gone up over the last month.

It's a sucker rally

People who got back into the market during the 2008 recession, when many others were quaking in fear, made fortunes, because the economy rallied much faster than most anticipated. No one wants to miss out again on money like that.

Also, the Fed pumped trillions of dollars into the market. Our government won’t help you with healthcare, but if you a member of the shareholder class, it will do anything to protect your investments.

Interesting, R3. Thank you.

R3 is Paul Krugman slumming on DL.

That kind of simple minded “understanding” is the reason we are in a crisis.

The virus was just a catalyst for the necessary liquidation of bad loans and poorly allocated assets.

Here is a better look at why corporations shouldn’t be bailed out.

[quote]That kind of simple minded “understanding” is the reason we are in a crisis.

[quote]The virus was just a catalyst for the necessary liquidation of bad loans and poorly allocated assets.

What crisis would that be? Unless you think a pandemic was unleashed at the behest of our global overlords to improve their financial positions.

Oh, I forgot. The financial markets are actually just for show and the prices go up and down based on the instructions from the World Bank and the illuminati.

By the way, your video has nothing to do with the mechanics I described. Whether I agree or not with the premise of bailing out corporations has nothing to do with the mechanics of market valuations and price per share.

Whether stock buybacks are efficient, judicious, or good management is a wholly separate matter. The reason they work and are used as a crutch is exactly because the basic mechanic I described - valuation divided by number of SHARES OUTSTANDING - yields an increase price per share.

[quote]However, as the lockdown has progressed, companies and investors have gotten a clearer view of the impact, perhaps suggesting that business and profits would not drop as much as originally feared. Additionally, the growing calls to ease the restrictions may have lowered the amount of time investors thought we would be in lockdown, raising hopes for improved businesses.

I don't think we have a clearer view of anything at this point. Even if they open up businesses, how many people are going to risk getting the virus by going out shopping, to the gym to restaurants? And that will be for those who have the money to spend. On top of the current situation we are also being advised that this Fall will probably be worse.

I do not understand why the market has been going up over the last few weeks, but I have a lot of my money on the sidelines right now. We are going down.

Op, the drop down to 18k was pretty much the market writing off the economy until later in the year.

[quote]I don't think we have a clearer view of anything at this point. Even if they open up businesses, how many people are going to risk getting the virus by going out shopping, to the gym to restaurants?

While a valuation is always going to occur on a company by company basis, investors will discount widely across the entire market in general until they can get a better sense of the magnitude of the problem.

For example, as the financial crisis continued, the news kept getting worse and worse, so expectations kept dropping and dropping, taking the overall market with them. Even while individual companies many not have been hit as badly, their valuations (and stock prices) took a hit along with everyone else.

The notion of a clearer view is relative. If investors had expectations for the situation to be much worse than it is, perhaps akin to the financial crisis (or perhaps because they remember the financial crisis and getting burned), but the actual situation is not as bad as they initially expected, prices and values would increase.

Again, I'm not saying that is what's happening, merely providing a look at the type of underlying mechanics that MIGHT be in play. For all I know, some of you could be right and the market is merely kabuki theater for the masses and values are controlled by the illuminati overlords at the World Bank.

But, this is how "they" and general historical experience, says the market works. The market rises and falls relative to expectations about the future. Uncertainty (=risk) causes prices to discount. So, if you think a stock's price will drop to $X, but there is significant uncertainty around that number based on variables (like how long the lockdown will last, the amount of the stimulus which became certain and would increase stock prices as $x billion is pumped back into the economy) and many, many other variables (like which industries are being hit harder - Amazon appears to be doing quite well as the lockdown seems to have driven more business that would otherwise have gone to traditional stores) become clearer.

At the start of the lockdown in March, Amazon's price dropped like everyone else's. Yet, clearly that was an over-reaction to events and the market has adjusted for it.

Much better explanation for the stock market, and the economy in general.

r25, thank you for the book suggestion, I think I will order it.

^^^ Never mind Peter Schiff is a libertarian.

[quote]Much better explanation for the stock market, and the economy in general.

[quote]^^^ Never mind Peter Schiff is a libertarian.

I guess I don't have to ask r25 what made that book a "better" explanation since the mechanics I describe are relatively independent of libertarian philosophy.

It always amazes me that Ayn Rand and L. Ron Hubbard were able to start cultish groups around their works of science fiction.

R27

Pathetic excuse to remain ignorant of basic economics.

[quote]basic economics.

...from a libertarian-skewed point of view.

An unbiased review of basic economics would, at least, be up front about it's biases, rather than hiding them, as well as provide comparative arguments and points of view.

[quote]Pathetic excuse to remain ignorant of basic economics.

No, I just see no reason to deep dive into the libertarian mind set.

Because the stock market has nothing to do with the real economy. It's a...

[quote]Because the stock market has nothing to do with the real economy. It's a...

For the vast, vast majority of people, you're not wrong.

The idea that the average person can invest with the same acumen as institutions with hundreds of people whose primary job every day is to invest or provide research, analysis, and support for people who invest is laughable.

Also, the idea that someone with even a few paltry million could have the same access as people investing hundreds of millions is laughable on the surface.

Whenever you hear about a "level playing field" in the market, you really need to consider level FOR WHOM. It's only slightly uneven among large and institutional investors - and that shifts from situation to situation on whom it favors.

Even without "insider" information, the average person will never have the same access to information since the cost for equity research and analysis is prohibitive.

So many only look at (and report) the stock market and unemployment numbers. The media is a lot to blame and it enables people to not look deeper.

[quote] R33: Because the stock market has nothing to do with the real economy. It's a...(gamble).

R33, I don’t agree with you on this, and I don’t concede the point; however, most people have so little invested in the market, by which I mean under $1,000,000 for example, that the pros normally just ignore them. My belief is that small investors such as this, can nonetheless make money in the market by following good practices. You just need to do research and then invest in the market while being cognizant of the rules, such as they are. Even if the rules are slanted to the ultra rich.

There must be some cute cliche that references this. No?

[quote]Even if the rules are slanted to the ultra rich.

The "rules" do not slant toward the ultra rich. The "rules" are the same for everyone.

The problem is that your average Gomer is playing checkers and winning a few here and there while others are playing chess.

Gary Hamel and CK Prahalad once wrote that industry structure favors the incumbent market leaders because they are, by definition, good at the bases upon which the industry competes. The same is true for investing. The "market" for investment favors those with access to huge amounts of information, real time data and tracking, and ability to perform complex analyses. Given the speed at which trades are done (computer algorithms) where seconds can make the huge difference between making money and financial ruin, small investors and individuals on the whole cannot compete.

That said, of course, you can make money and a sound investment strategy that focuses on diversification and the relative mix of stocks and bonds will provide solid returns through most market cycles. Study after study has shown that for most investors, it is the mix of stocks and bonds in the portfolio over time that yields the best results. Beyond index funds, EFTs, and some TIPs (or similar investments), most people simply don't have the bandwidth to monitor individual stocks and buy/sell profitably.

Can you have a hunch and make money on a stock - sure. But, that's what people who bet the horses or go to Vegas do, as well, is bet hunches.

[quote] R36: The "rules" do not slant toward the ultra rich. The "rules" are the same for everyone.

I have no doubt that the rules are the same for every billionaire, but the application of these rules is not universal. For example, Fidelity has some mutual funds that require a minimum investment of $1,000,000, to buy into those funds. This rule applies to everyone equally, no matter what their wealth is, as long as they have that $1,000,000 to invest. Even the poor are welcome, if the can meet that initial investment Obviously, the effect is that only wealthy people and institutions are able to meet the minimum required investment into such a fund. The rule applies to everyone, though.

My Credit Union had an interesting promotion when I was first opening an account. For some particular type of account, you needed a $1000 initial investment, but after opening, you could let the balance fall to $0 without penalty. I was confused and asked why any interested person wouldn’t just open the account with $1000; and then withdraw most of that initial thousand, if they wanted to. The bank officer opened my eyes in saying, “because not everybody has that initial $1000.” I was still living off my paper route money at the time, lol. But, the banking “rule” was the same for everyone.

There are untold numbers of such rules that apply evenly to everyone in principle, but are not in practice.

Personally, I believe that US society is designed to make the wealthy, more wealthy, in many different ways,

Off with dey heads

We're in late stage capitalism.

r28, I wouldn't describe Rand so much as a science fiction writer as a literary dominatrix.

[quote]Personally, I believe that US society is designed to make the wealthy, more wealthy, in many different ways,

I don't disagree with your position that the "rules" may be designed to be the same, but the practical application is not. In mortgage lending, they look at both the actual underwriting guidelines AND whether they implicitly red line communities. So, the rules are the same, but the practical application has uneven impacts on various segments.

However, the statement that US society is designed to make the wealthy more wealthy is incomplete. True, lobbying and influence attempt to preserve the wealth of those already wealthy. While I do NOT wholly subscribe completely to the "land of opportunity" notion, many of the wealthiest people made their wealth themselves - Bloomberg, Bezos, Buffet, Gates, Brin (and Page) - 9 of the 10 richest people in the world made their fortunes, rather than inherited them.

It is entirely possible to become very wealthy without starting out that way.

R36 Wealth Management Advisor looking for commissions.

[quote][R36] Wealth Management Advisor looking for commissions.

"Wealth Management Advisor" / used car salesman.

Po-tay-to / po- tah-to.

I'd kill myself if I were reduced to being a "wealth management advisor" or similar - even if it were for HNW in private client services at Goldman.

It's like selling Amway without the prestige or glamour.

If there were no buyers, the stock market would sink like a stone. However, every pay period millions of dollars get automatically invested in the market from 401k contributions. Those zombie contributions are what keep the market always pushing higher.

r44, the percentage of american workers that contribute to a 401k is nil. It doesn't make a nick in the stock market.

r45, you betray your ignorance. Even one buyer can push a stock price higher.

r46, Could you explain the reasoning behind your statement?

[quote]How is the stock market souring

you're a fucking mess

[quote] the percentage of american workers that contribute to a 401k is nil. It doesn't make a nick in the stock market.

"The latest stats from the Investment Institute Company find total U.S. retirement assets were $28.3 trillion"

I would say $28.3 trillion is a bit more than a nick. However, I don't think it fully explain the recent rise in the stock market.

R3 has a small penis — for sure

[quote] Amway without the prestige or glamour.

Selling Amway is prestigious and glamorous??

r50 thinks with his penis - for sure.

[quote]Amway without the prestige or glamour.

[quote]Selling Amway is prestigious and glamorous??

Clearly, doesn't understand "irony."

Clearly, doesn't understand "irony."

OP, the brokers' mothers are all on the trading floor. Sucking a lemon.

Food for thought, should any be found...

From r55's link. This sums it up well:

"A one-month bear market scarcely seems enough time to absorb all the possible bad news from the pandemic and the huge uncertainty it has created. This stockmarket drama has a few more acts yet"

CNBC: Stocks surge more than 2% at today's opening, pushing the S&P 500 back above 3,000 for the first time since early march. The Dow Jones Industrial Average rose around 600 points, or 2.4%. The 30-stock average also traded at levels not seen since early March, jumping above 25,000. The Nasdaq Composite advanced 1.6%.

I do not understand this market at all.

Buoyed by the numbers above, I just checked my IRA for the first time in two months. Still wasn't pretty.

Depends on what you're invested in, r58. Consumer staple stocks are doing very well while airlines are not.

The stock market is currently fake. Completely manipulated.

R60

Exactly. It’s bullshit.

What's the magic number that reflects all loses under DJT? 18000?

Complete puppet market set up by the Fed. Cannot see it lasting. The bubble has burst. They are just patching it up with a cheap Band Aid by printing money like Trump on Adderall.

I’m back to where I was in mid-February, the high point of the market until now. I’m retired, thus relatively sheltered, but there’s money to be made if one knows where to look, is flexible, and has a long timeline.

The stock market is looking at the future, not the present. It’s the stock market and not to be confused with the economy.

The stock market is millions of bets on the expectation of a possible future.

If I still had left my investments in the market, instead of selling on and before February 25th, I’d be down about 10% from where I am today. It looks like the NASDAQ is doing better today, within 5% of its top, whereas other more common indexes are still down 10%-17%.

I did not do any analysis for the above, I just looked at a portfolio of indexes I created in February as a quick reference for this kind of thing, but it’s not exacting and mostly serves to quickly tell me how I’m doing, but I thought I’d relay it.

CNBC: JW Morgan warns investors not to ‘overstay welcome,’ says market bounce will ‘peter out’ soon.

Oh, Cassie...still predicting the market will crater by June? I'd be broke if I invested based on your advice.

The stock market is NOT the economy OP.

That seems to be your primary misunderstanding.

Jack Chapple =

[quote] R68: Oh, Cassie...still predicting the market will crater by June? I'd be broke if I invested based on your advice.

Sorry, Poindexter, I never predicted that. I think you have confused it with the THREE times you made some dumbass prediction, and signed my name in the signature line. Then later, you referred back to your own prediction, claiming that it was inaccurate and that this somehow discredited me! Seriously, that is despicable.

I recall that you were repeatedly telling everyone to “buy the dip” in February and March as the market cratered; whereas I wrote in February that I was getting out of the market because we were at the beginning of a major correction. We differed. I was right. You were wrong. Very wrong. And so now you’re butt hurt, but posing as me to create bogus posts, that you later point at and deride - it’s mental. You know that, right?

You’re taking this entirely too seriously. Let it go! Then feel free to argue in opposition to something that I actually wrote. That’s how this normally goes, Poindexter.

Nope wrong on everything in that post. Own up to your dumbassery, Cassie.

Poindexter, we’ve been through this before. It was thoroughly discussed. It’s been proven. You’re a very strange man.

Ah, Cassie, I'm not Poindexter. And you were still wrong.