Is going to have to explain to me why the stock market is almost back to the level it was at Pre-Covid. None of the fundamentals support these numbers. Plus based on historical valuations, the Pre-Covid market was expensive.
The Fed Chair is warning about a very uncertain future. Unemployment is unbelievably high even with the recent hire backs. Commercial mortgage defaults are at record highs.
What gives and how is this not a bubble?
the Fed is at 0% Fed Funds Rate and is willing to buy everything(including Corporate Debt) to keep this propped up as long as possible…the Boomers 401k depends on this, also don’t forget that the Stock Market is not the economy…let me repeat that again…the Stock Market is not the economy…that being said, its a great time to make money in the market knowing that the FED has everyone’s back, you can’t lose…one last thing…DJT…the man is obsessed with the Stock Market…he is not going to let it go down…“POWELL PRINT MORE MONEY!!!”…and yes its a bubble, but guess who’s paying for it? the young kids, us
Gary Shillings makes a lot of interesting observations:
I hope he is right about Mexico.
We are still off of our highs by 11%. It was the fq[quote=“Coog51, post:3, topic:24136, full:true”]
Gary Shillings makes a lot of interesting observations:
I hope he is right about Mexico.
[/quote]
We are still off of our highs by 11%. Still a lot of potential risk on the seas ahead of us. Definitely desire to ride it and get out. Almost all bear markets have a double dip as we did in 2009 but most predicted that was unlikely to happen this time around when we fell by 39% off of our highs.
Its all about the future projections of the economy which remain strong. But plenty of risk from COVID economic impacts, vaccines that don’t come through, but the big one is the election and the future direction of the country and the economy. Just watch it and be ready to protect yourself.
It’s a classic bull-trap.
Long story short is that the stock market reacts to specific data points and metrics that are not always in touch with the reality of the present. But there is a lag in the reporting of things like 2nd quarter financial results, unemployment numbers, etc etc.
Traders know the long-term risks, but they also know they can make a buck trading the near-term volatility too, so they take positions based on how the market will react in the short-term…not where it is headed next month.
There was a sense at the start of the pandemic that the markets might have oversold, and things started to turn around once the stimulus packages were deployed, and the infection rates were kept relatively in control during lockdowns. There was a thought that we’d see a rapid v-shape recovery as we snap back into normalcy in the summer. That hasn’t panned out.
July and August will be interesting…stimulus money has been long spent, loan forbearance policies, enriched unemployment benefits, and eviction bans will be coming to an end. The narrative of the v-shaped recovery will not play out because the threat of the virus still lingers. Even if we open everything back up, consumer sentiment and habits drive the economy as a whole and businesses cannot function with 50% of their normal sales when they have fixed costs to cover, and variable costs associated with operating when they do open.
Mystik I tend to agree with you. I have a feeling that the stock market is responding to the fed flooding the markets with monetary stimulus and the money has to go somewhere. With rates being so low stocks are the only available investment. Too much money and not enough return is the classic underpinning of a bubble.
Plus these “now we are open and now we are not” policies you are seeing in California, Florida and Texas is no doubt going to be the final nail in the coffin of countless thousands of small businesses.
Yeah low interest rates lead to inflation and bubbles. In general, we need to stop looking at the stock market to measure the health of the economy as a whole because it doesn’t capture the full picture.
The thing is the fed has been propping up the stock market for a while now. They kept interest rates right around the level they are at now for close to a decade after the 2008 financial crisis, and even when they started raising the rates, they were nowhere near a historically normal level. So we’ve been in this bubble of inflation for things that are financed with debt: housing, student loans/tuition, automobiles etc. When a big chunk of the middle class cannot afford to buy a home and are diverting most of their income to service debt, there is a systemic issue in the economy that is bound to correct itself. The correction just needed a catalyst.
The thing about COVID is that the longer it drags out, the more it feels like it will be much more than the catalyst for the recessionary period of a normal economic cycle. A typical recession tends to be more financial in nature, but COVID shutdowns/slow downs are going to ravage main street businesses that employ vast swaths of the middle class. We’re going to see real fast just how dependent the economy and financial system is dependent on them. i.e. if we start seeing mass and mortgage and other debt defaults because people are out of work or their household incomes are impacted, it could trigger another financial crisis that will impact the economy and financial system as a whole. We’ve already seen the secondary impact to commodity prices. Even giants like Amazon will be impacted if the middle class does not have the disposable income to support them.
The stock market is always looking way out 6 months or longer from now when a vaccine hits/ this is over. Also like mentioned, the fed has rates so low there’s no where else to put your money.You can do real estate but that requires more work vs the market or gold but gold doesn’t grow much long term. So there you have, we have no place else to easily put money and as mentioned , the fed is doing all they can for the economy and market.
Stock market tends to be short-term focused as it can only price in the hard data it has in front of it, and there is a delay in understanding what the real financial impacts of something like COVID are. i.e. mortgage foreclosures started happening in 2007 and a lot of people knew something was up so the market retracted. But there was a false sense that the worst was behind us and the market actually rallied for a couple months. It wasn’t until the delayed impacts to the banking system started occurring that the market really started to tank in the latter end of 2008.
What I’ve seen in the past couple of months is traders making a buck off the volatility in the short-term as prices react to every piece of news that hits the street. i.e. market reacted positively to unemployment numbers improving, but the June figures that had been reported hadn’t accounted for the second wave of infections and consequent shut-downs again. Also, second quarter earnings haven’t been reported yet, and if a lot of companies start reporting negative impacts because of COVID and lowering their guidance for the rest of the fiscal year, then traders will flip their positions and the markets will quickly turn.
There is also always a big risk of some financial distress occurring out of left field. There is a lot of corporate and consumer debt in the economy and COVID shutdowns are the perfect storm to put entire industries in a position where debtors can no longer service their debt and the banking system is impacted the way it was in 2008.
Its all the quarantined people who decided that day trading was going to be their new thing!
Other thing about stocks is they really are looking 6 mos ahead and the market thinks this might be over in 6 or 8 mos as a major prob and they don’t want to devalue too much bc a lot of money is at stake. They think once over pent up demand will boom the market.
Market is overall pricing to the speculation of a v shaped recovery. We qualitatively know from this summer wave of infections that a v shaped economic recovery is not going to happen, but there is a delay in the quantitative data proving this. Even if we avoid full shutdowns and attempt to re open businesses, infections will happen and that will impact the behaviors of consumers. there will be a steep reduction in economic activity across several industries for a long while. There are many companies that cannot sustain another 6-8 months with only a percentage of their typical sales…especially because a lot of these companies have racked up enormous amounts of debt that they have to continually service
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