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The Stock Market is Not the Economy
Old 06-08-2020, 08:09 AM   #1
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The Stock Market is Not the Economy

I am happy we kept our AA strong in equities. Helps us personally and we can decide whether to keep the AA with some comfort in the near future.

But really! Where does that leave us? I can be optimistic today...be in the moment. I have to keep looking at the big picture though. It's upside down. Does not make sense. Most of my posts fizzle into oblivion, but I felt I had to make this statement. This article published April 22, 2020 makes my world spin. The more I look at our portfolio the more uncomfortable I get.

"So where does that leave us? Likely in a recession, even if we can’t officially call it one yet. “It’s almost impossible to imagine that we’re not already in a recession,” Furman says. “We won’t be able to call it until we see all the data later on but almost certainly the recession started in the month of March.” "

"The economy, simply put, just isn’t behaving normally, so that’s why economists and financial experts tend to use the word recession now, says Joseph Stiglitz, a Nobel Prize-winning economist and professor at Columbia University. “Whether you call it a technical recession in the sense of two quarters, we are in a deep, deep downturn.”

"Stiglitz predicts the U.S. will have six months of negative growth. “That’s a little bit of what you might say, a risky forecast, an uncertain forecast, because we don’t know how long the pandemic will be with us.”
Yet it’s the uncertainty that’s leading many to worry about the full economic impact of the coronavirus pandemic. Some experts even fear that the U.S. is heading into a full-blown depression."

https://www.cnbc.com/2020/04/22/us-e...ssion-yet.html
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Old 06-08-2020, 08:14 AM   #2
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The article is somewhat helpful. But it is based on speculation and tries to seem authoritative. But no one knows the future!

I'm amazed at the market and how it has risen. Is it temporary? One could read about the market all day and miss a meal or two.
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Old 06-08-2020, 08:22 AM   #3
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I agree that the stock market isn't the now economy. I think it's a voting machine ("market") on what the economy will be in 6-12 months. It is loosely based on valuations, but also equally important, on the supply and demand of the asset of stocks vs alternatives.
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Old 06-08-2020, 08:30 AM   #4
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Rianne - I am exactly where you are. Markets are rocketing today (6/8), despite 50% of US households reporting they lost (some if not all) income during the pandemic. Equities are floating on hope and Fed bandaids. My cash position is already higher than usual and I am strongly considering liquidating a sizable chunk of equities during this run-up to boost our cash (or cash-like) position to (GULP!) about 20%.

Just typing that thought makes me uneasy. But I agree with you: markets are ignoring a very harsh reality we haven't even begun to understand.
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Old 06-08-2020, 08:37 AM   #5
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The market is back to being expensive. Over 20M w/out a job. The Feds have flushed trillions down the toilet. We haven't realized the economic impact yet. Red alert.
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Old 06-08-2020, 08:38 AM   #6
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Quote:
Originally Posted by footenote View Post
...

despite 50% of US households reporting they lost (some if not all) income during the pandemic. ...
Source? Unemployment is ~20%ish, and reportedly 2/3 of people on unemployment compensation are making more than when they were working.
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Old 06-08-2020, 08:40 AM   #7
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^And many working took a paycut.
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Old 06-08-2020, 08:47 AM   #8
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Originally Posted by USGrant1962 View Post
Source? Unemployment is ~20%ish, and reportedly 2/3 of people on unemployment compensation are making more than when they were working.
https://www.forbes.com/sites/jackbre.../#4cdfa80e1950

Quote:
The survey, conducted by the Associated Press-Norc Center for Public Affairs Research and released on Thursday, found that 53% of Americans households report having received a pay cut, taken unpaid time off or had their hours reduced since the crisis began; 23% of Americans say they or someone in their household have been been laid off.
This was from April, so it might have been before a lot of people started collecting unemployment. Even if some of the lowest paid laid-off workers make more on unemployment for about 10 weeks, I'm not sure that makes up for so many higher paid workers earning less. I know many people who are earning 10% to 25% less than they were in January but still earn too much to be eligible for any type of unemployment assistance (some pay cuts by employers and some commissions not earned because customers aren't buying).
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Old 06-08-2020, 09:01 AM   #9
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This morning Carl Quintanilla tweeted an image of the stats on 50% of households reporting loss of income. The attribution reads Haver Analytics, DB Global Research as data sources.
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Old 06-08-2020, 10:14 AM   #10
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Aren't stock markets a leading indicator? Haven't all severe drops in the market been followed by a rebound? (although this rise is rather quick) Everyone has now been conditioned to buy back in after a meltdown, despite a lack of encouraging signs.
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Old 06-08-2020, 10:20 AM   #11
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^Consumer confidence is maybe a better indicator, or a least one of many. Rising market could help confidence for some but it's still abysmally low. About half of US households still have less income than before COVID, due to job loss or pay cut. It could take another month or so before the snowball effect kicks into gear. And now stocks are back to being expensive.
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Old 06-08-2020, 10:39 AM   #12
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The part of the stock market that is a leading indicator must be expecting that companies will reap a bonanza when the economy recovers this year.

The stock market is wacky.
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Old 06-08-2020, 10:51 AM   #13
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The market, by any historical valuation method, is extremely overvalued. In my opinion, I don't believe that the economy has truly recovered from 2008 due to the fact that the Fed's balance sheet went from $800B to $4.5T after the Great Financial Crisis and this was supposed to be temporary. They never normalized their balance sheet and except for a short time that they tried to normalize interest rates over those 12 years, they were not able to do so without causing convulsions in the markets.

So here we are again in 2020 with zero interest rates and QE infinity. This is not all due to the pandemic...the FED was injecting huge amounts of liquidity into the repo markets since September 2019, corporate profits and GDP growth were weak, and most of the market performance appears to be the result of corporate buybacks, permanent corporate income tax reductions and low interest rates. The Fed's balance sheet is now over $7T and rising and they are buying everything from treasuries to junk bonds to ETFs and municipal debt to keep the ship afloat.

Market value to GDP ratios have exceeded year 2000 internet bubble highs to never before seen levels. Over 40 million people have lost their jobs and real unemployment is at or over 1930s depression levels. The markets are irrational and certainly not supported by fundamentals. At some point, things will have to normalize but no one knows when. There is a reason Warren Buffet is not buying anything...he realizes what is going on and the risks for buying into this FOMO market can't be justified. That doesn't mean they can't continue going up and up and up over the coming months.

I want no part of this casino. Maybe one day...but not now. I'm not that greedy.
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Old 06-08-2020, 11:56 AM   #14
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^Yeah I've been pulling out of market last few years and into Private Equity. Pulled remaining out in Jan not because of COVID but because it was insanely overvalued relative to actual income growth. Am done with the casino, no plans to get back in. The deficit could've been improved last few years but instead artificially inflating the market was the focus, despite you know who's wacky promise to shrink deficit to zero.
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Old 06-08-2020, 12:02 PM   #15
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None of you know nothing. Made 88000 this year and I know nothing. If you think its gambling get out. I retired because of the market, Hope you out of the market enjoy your SS. The market is strong because America is strong.
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Old 06-08-2020, 12:09 PM   #16
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None of you know nothing. Made 88000 this year and I know nothing. If you think its gambling get out. I retired because of the market, Hope you out of the market enjoy your SS. The market is strong because America is strong.
“America is strong because I say so.”
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Old 06-08-2020, 12:12 PM   #17
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OTOH, I heard the US savings rate reached over 30% in April.

Compare that with the long term average of like 10% or less.

Not saying consumer spending will rebound quickly but there could be some pent up demand that's fulfilled.

For instance, people miss going out to restaurants and travel.
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Old 06-08-2020, 12:17 PM   #18
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Old 06-08-2020, 12:58 PM   #19
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You can listen to economists, or you can grow wealth in the stock market.

You can't do both.
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Old 06-08-2020, 03:36 PM   #20
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Well I guess the markets are looking past all the crap, and hoping for the best, particularly quick resolution to the health emergency and a very fast economic rebound. Despite some trimming related to tax loss harvesting, I’m almost back to my pre-COVID-19 allocation which now instinctively feels too high!

Gosh, not even able to normalize rates and the Fed balance sheet from the 2008 QE before having to get back to supporting the credit markets again! It does seem like QE forever. I guess we’re caught in a liquidity? trap.

I agree that huge amounts of corporate buybacks financed by low interest rates fueled the bull market over the past several years, and plus a large permanent corporate tax cut that juiced things even farther. I don’t see how companies can continue buybacks in the current economic contraction in the US and globally, so that’s no longer there to support prices. I think there are headwinds now. Consumers 70% of the US economy? That’s suffered a huge blow. Global trade? Same. Entire industries have ground almost to a halt. All ignored as far as I can see. AAPL hitting new all time highs again, when they’ve been dealt several body blows? Boggles the mind, and DH unloaded more this past week. It just looks like FOMO all over again.

So I will continue with my more conservative stance for a long time yet, and take profits as warranted if the party continues.

The V-shaped recovery seems ridiculous, but all I can do is trim after big rallies and buy after big sell offs. And take my time.
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