What in the world is propping up this market?

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Lee_WSP
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Re: What in the world is propping up this market?

Post by Lee_WSP » Tue Apr 14, 2020 11:15 am

Valuethinker wrote:
Tue Apr 14, 2020 4:47 am
The "herd immunity" term is really about mass vaccination, which is not applicable right now to Covid-19.
I am unsure what gave you the impression that I was using the term differently.

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Re: What in the world is propping up this market?

Post by cherijoh » Tue Apr 14, 2020 11:23 am

LMK5 wrote:
Mon Apr 13, 2020 4:09 pm
I know we Bogleheads aren't supposed to pay attention to market movements but I really am fascinated by the resiliency of this market. I mean, the economy is all but shut down folks. The market is supposed to price companies based on book value and projected earnings, so what does the market see in the future that doesn't seem apparent to most people? Can companies be worth only 20% less than their recent highs? On the face of it it seems preposterous. Does it see some near term light at the end of the tunnel, along with a federal government that is committed to goosing the economy no matter the cost?
Quite a bit of the "economy" is not reflected in the stock market. Most small businesses have borrowed money (either from a bank or in the form of a HELOC against their home equity) but they don't have stock to be included in any market index. Other companies, even (I believe) some medium-sized ones are privately owned.

It is the same reason that pre-corona-virus, some people claimed the economy was booming (i.e., DJIA = Economy) while others claimed that it had never fully recovered from the Great Recession (% of people worse off financially vs. pre 2008).

In addition, from the market's perspective, laying off employees is good for a company's future viability and profits.

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Re: What in the world is propping up this market?

Post by VeganBH » Tue Apr 14, 2020 11:23 am

nisiprius wrote:
Tue Apr 14, 2020 10:11 am
I'm not going to act on it, nor do I put much credence in my own mood swing, but... yeah... I'm having a little trouble coordinating what the market is doing with opinions like

IMF says the world will ‘very likely’ experience worst recession since the 1930s.

I know the US isn't the world, and I know the stock market isn't the economy, but, still. I don't follow the IMF exactly, is the IMF a permabear?
+1
Yes, and similarly (for me at least), I woke up to the headline "Stocks surge as big banks kick off earnings season" - and I think to myself, I really don't understand a thing. Zilch. :confused
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Re: What in the world is propping up this market?

Post by minimalistmarc » Tue Apr 14, 2020 11:26 am

Bears are getting slaughtered.

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Re: What in the world is propping up this market?

Post by fatcoffeedrinker » Tue Apr 14, 2020 11:31 am

Wanderingwheelz wrote:
Tue Apr 14, 2020 4:25 am
fatcoffeedrinker wrote:
Mon Apr 13, 2020 11:44 pm
Wanderingwheelz wrote:
Mon Apr 13, 2020 8:14 pm
mptfan wrote:
Mon Apr 13, 2020 4:44 pm
LMK5 wrote:
Mon Apr 13, 2020 4:09 pm
I mean, the economy is all but shut down folks.
This is hyperbole and your argument is based upon a false premise. The Wall Street Journal estimates that 29% of the U.S. economy is shut down, so if 71% of the economy is still going on then the economy is not "all but shut down."

https://www.thedailybeast.com/coronavir ... conomy-wsj
It depends what was measured. Did it include mortgages and rents?

I agree that a person can still find a burger and fries, and if he has to wait to buy a skateboard for a couple more months that’s far from catastrophic to the economy, but that person is very likely not paying his rent and probably not his car note either. That’s where things begin to get real.
Why? The federal programs are putting money into people's pockets for just sitting home.
Most people are not so stupid as to not realize that the $600/wk has a very short duration. Tell me.. the federal program that is joining state unemployment benefits, when does it stop?
Which is why we need to reopen the economy sooner rather than later.

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Re: What in the world is propping up this market?

Post by m@ver1ck » Tue Apr 14, 2020 11:38 am

Short-squeeze is my uneducated guess. Can we get a 50% drop already and be done with it. The suspense is killing me. Or go up some more so I can rebalance out of stocks into bonds again. :-) Still - I'll use this as an opportunity to increase cash position in taxable while buying more stock in retirement.

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Re: What in the world is propping up this market?

Post by nisiprius » Tue Apr 14, 2020 11:45 am

atdharris wrote:
Tue Apr 14, 2020 10:53 am
The government injected $7 trillion into the economy in various ways, and given the level of interest rates, there are few others places to invest your money outside of equities. Why would you want to own a bond paying less than 1%?
Because I don't believe the relationship between stocks and bonds has changed. And as I write this, the relationship between bonds and bank accounts hasn't really changed, either. The SEC yield of Total Bond is currently 1.83%, and all my banks are busily racing to the bottom on interest rates for savings accounts.

If Capital One 360 holds the line on 1.50% and Total Bond dives well under 1.50% and looks as if it is going to stay there, then, yes, I might jump ship from bond funds to bank savings accounts.
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Re: What in the world is propping up this market?

Post by guyinlaw » Tue Apr 14, 2020 11:54 am

nisiprius wrote:
Tue Apr 14, 2020 10:11 am
I'm not going to act on it, nor do I put much credence in my own mood swing, but... yeah... I'm having a little trouble coordinating what the market is doing with opinions like

IMF says the world will ‘very likely’ experience worst recession since the 1930s.

I know the US isn't the world, and I know the stock market isn't the economy, but, still. I don't follow the IMF exactly, is the IMF a permabear?
20% unemployment, >> 12-months of rolling shutdowns and very little global travel.. Aren't these signs of " worst recession since the 1930s"?
Time is your friend; impulse is your enemy. - John C. Bogle

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Is this a market bubble?

Post by tennis5 » Tue Apr 14, 2020 11:59 am

[merged into existing thread - moderator prudent]

I'm following the top 6 Economic Indicators:

- Earnings - companies Q1 2020 and forecasted profits
- Inflation – Inflation measures the cost of goods and services. ...
- Employment – People with jobs can spend and invest. ...
- Housing – In a land of increasing house prices, banks lend and the economy booms. ...
- Spending – We live in a consumption-based society. ...
- Confidence – Although it is elusive, confidence drives everything.

All the indicators are negative (especially unemployment), so why is the market going up?

Did the Federal Government pump the tires with enough air to sustain a short-term market lift?

What are the factor(s) that will burst this bubble (assuming this is a bubble)?

What will happen in 3 months when all the factors above are still in negative territory?

Can/will the Federal Government continue to pump more air in the tires?

I find myself asking more questions these days and the answers are unknown at best and scary at worst.

The current market reminds me of the late 1990's Dot-Com Bubbles burst.

Do other agree / disagree?
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: What in the world is propping up this market?

Post by willthrill81 » Tue Apr 14, 2020 12:02 pm

guyinlaw wrote:
Tue Apr 14, 2020 11:54 am
nisiprius wrote:
Tue Apr 14, 2020 10:11 am
I'm not going to act on it, nor do I put much credence in my own mood swing, but... yeah... I'm having a little trouble coordinating what the market is doing with opinions like

IMF says the world will ‘very likely’ experience worst recession since the 1930s.

I know the US isn't the world, and I know the stock market isn't the economy, but, still. I don't follow the IMF exactly, is the IMF a permabear?
20% unemployment, >> 12-months of rolling shutdowns and very little global travel.. Aren't these signs of " worst recession since the 1930s"?
And yet the market's current prices would have us believe that we're in a better position now than we were in December of 2018. :confused
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Re: Is this a market bubble?

Post by Tellurius » Tue Apr 14, 2020 12:04 pm

tennis5 wrote:
Tue Apr 14, 2020 11:59 am
[merged into existing thread - moderator prudent]

I'm following the top 6 Economic Indicators:

- Earnings - companies Q1 2020 and forecasted profits
- Inflation – Inflation measures the cost of goods and services. ...
- Employment – People with jobs can spend and invest. ...
- Housing – In a land of increasing house prices, banks lend and the economy booms. ...
- Spending – We live in a consumption-based society. ...
- Confidence – Although it is elusive, confidence drives everything.

All the indicators are negative (especially unemployment), so why is the market going up?

Did the Federal Government pump the tires with enough air to sustain a short-term market lift?

What are the factor(s) that will burst this bubble (assuming this is a bubble)?

What will happen in 3 months when all the factors above are still in negative territory?

Can/will the Federal Government continue to pump more air in the tires?

I find myself asking more questions these days and the answers are unknown at best and scary at worst.

The current market reminds me of the late 1990's Dot-Com Bubbles burst.

Do other agree / disagree?
The entire world gets valued according to the yield on US Treasuries. It has dropped.

More seriously, how do you know that they will still be in negative territory in 3 months?
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Re: Is this a market bubble?

Post by BW1985 » Tue Apr 14, 2020 12:10 pm

Chase the good life my whole life long, look back on my life and my life gone...where did I go wrong?

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Re: Is this a market bubble?

Post by iamcam » Tue Apr 14, 2020 12:11 pm

Your guess is as good as mine regarding what the market will do next. I've just dropped in to point out that markets are still off 20% from the highs of early 2020. The market has gone up in the last few weeks, yes, but it's still not UP relative to those highs.

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Re: Is this a market bubble?

Post by MortgageOnBlack » Tue Apr 14, 2020 12:13 pm

To me, it seems many are still in denial. There are many who feel their job is still untouchable and will soon receive a reality check along with their stimulus check - The 2nd wave of layoffs are coming.

Even the Titanic momentarily floated before it came sinking down into the abyss.

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Re: What in the world is propping up this market?

Post by Taylor Larimore » Tue Apr 14, 2020 12:14 pm

LMKS wrote: What in the world is propping up this market?
LMKS:

This article by Jason Zweig explains:

"I Don't Know. I Don't Care."

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Nobody Knows Nothing."
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vipertom1970
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Re: Is this a market bubble?

Post by vipertom1970 » Tue Apr 14, 2020 12:16 pm

no, it's not a bubble looking 10 years from now.
Last edited by vipertom1970 on Tue Apr 14, 2020 12:23 pm, edited 1 time in total.

KSActuary
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Re: Is this a market bubble?

Post by KSActuary » Tue Apr 14, 2020 12:16 pm

The market is a bubble, just at various levels of inflation at varying times.

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Wiggums
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Re: Is this a market bubble?

Post by Wiggums » Tue Apr 14, 2020 1:02 pm

The relief rally seems very normal after the big drop that we had. I don’t pay attention when people say that the bad news is priced in. Was it priced when we were down -37 from the highs or is tech priced right up 28% from the lows?? I have no answer for you, so I just buy weekly and ignore the noise.

Its certainly possible that we get a selloff in the 2nd quarter if the virus prevents businesses from reopening. Don’t confuse the price that people are willing to pay for stocks with the economy. Sometimes, things don’t make sense to a long term investor.

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Re: What in the world is propping up this market?

Post by Phineas J. Whoopee » Tue Apr 14, 2020 1:03 pm

LMK5 wrote:
Mon Apr 13, 2020 4:09 pm
I know we Bogleheads aren't supposed to pay attention to market movements but I really am fascinated by the resiliency of this market. I mean, the economy is all but shut down folks. The market is supposed to price companies based on book value and projected earnings, so what does the market see in the future that doesn't seem apparent to most people? ...
It seems as if OP has a case of the sposdas; and as if most people means OP personally.

OP: There's no telling, especially over the short term, like a matter of days or weeks, such as what we're experiencing now. Security prices are not deterministic. If they were there would be no competitive market. Over the past several weeks US stock prices, as measured by indexes, are very noticeably down. Is that resiliency?

Without a competitive market there would be no Equity Risk Premium, ERP.

Risk, of course, means one might not get the premium.

PJW
Last edited by Phineas J. Whoopee on Tue Apr 14, 2020 1:27 pm, edited 1 time in total.

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Re: Is this a market bubble?

Post by magicrat » Tue Apr 14, 2020 1:06 pm

You'll have to define "bubble"

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Re: What in the world is propping up this market?

Post by LadyGeek » Tue Apr 14, 2020 1:09 pm

tennis5 - Your threads have been merged into the on-going discussion. Also, you had a duplicate post, which I've removed.
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Re: Is this a market bubble?

Post by TechGuy365 » Tue Apr 14, 2020 1:55 pm

tennis5 wrote:
Tue Apr 14, 2020 11:59 am
[merged into existing thread - moderator prudent]

I'm following the top 6 Economic Indicators:

- Earnings - companies Q1 2020 and forecasted profits
- Inflation – Inflation measures the cost of goods and services. ...
- Employment – People with jobs can spend and invest. ...
- Housing – In a land of increasing house prices, banks lend and the economy booms. ...
- Spending – We live in a consumption-based society. ...
- Confidence – Although it is elusive, confidence drives everything.

All the indicators are negative (especially unemployment), so why is the market going up?

Did the Federal Government pump the tires with enough air to sustain a short-term market lift?

What are the factor(s) that will burst this bubble (assuming this is a bubble)?

What will happen in 3 months when all the factors above are still in negative territory?

Can/will the Federal Government continue to pump more air in the tires?

I find myself asking more questions these days and the answers are unknown at best and scary at worst.

The current market reminds me of the late 1990's Dot-Com Bubbles burst.

Do other agree / disagree?
Disagree.

- Earnings - so far Q1 earning reports haven't been bad at all, and there is no indication that blue chips and SP500 will get worse aside from a few sectors. Healthcare inc Pharma and Tech companies will probably carry SP500 Q1 as indicated by JNJ today. Walmart (retail) and Amazon (both tech and retail) are at 52-week high.
- Inflation - higher inflation leads people to find higher returns to beat it (only equity can do that)
- Employment - low employment drives down labor cost to offset lower earnings in certain sectors, so it's providing an equilibrium
- Housing - impacting only banking because of forbearance
- Spending - not impacting retail sector broadly on a cap-weighted basis. Heavier weighted Costco and Target are both within 15% of their 52-week high, and WMT at all-time high
- Confidence - market is very confident that there is no better investments than equity over long period of time, esp right now (16%+ discount off SP500 high)

Fed intervention is just icing on the cake.

I'm investing 35%+ with every paycheck (at 100/0 like I have for the past 30 years), and sleep very well at night.

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Re: What in the world is propping up this market?

Post by nisiprius » Tue Apr 14, 2020 1:59 pm

fatcoffeedrinker wrote:
Tue Apr 14, 2020 11:31 am
...Which is why we need to reopen the economy sooner rather than later...
But it is critically important not to do it too soon. We cannot have economic health without personal health.

The Indicator, from Planet Money: Lessons from the Spanish Flu

During the 1918-1919 flu pandemic, there were a number of "natural experiments." Minneapolis shut down aggressively, early, and for a long time; St. Paul acted less aggressively, later, and ended sooner.
Cities that intervened earlier and more aggressively actually experienced a relatively stronger bounce back in their economy in 1919, the year after the pandemic.

GARCIA: Measured by jobs growth and manufacturing production, for example, Minneapolis, which aggressively enforced social distancing and earlier, was more resilient to the economic destruction of the pandemic than St. Paul. And that was mostly true for other cities throughout the country. Even though social distancing actively shuts down big parts of the economy, having those policies actually led to better economic outcomes.
The two goals--saving lives and saving the economy--go together, they are not in opposition.

There is an interesting natural experiment going on right now, with Norway (lockdown, social distancing) and Sweden (kindergartens, elementary schools, bars and cafés are still open as normal). I'm not clear on either the rationale or the goals, but we will be able to see what the economic effects turn out to be, probably too late to learn from them here.
Last edited by nisiprius on Tue Apr 14, 2020 3:03 pm, edited 1 time in total.
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FIREchief
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Re: What in the world is propping up this market?

Post by FIREchief » Tue Apr 14, 2020 3:02 pm

whodidntante wrote:
Mon Apr 13, 2020 4:49 pm
rossington wrote:
Mon Apr 13, 2020 4:44 pm
JoMoney wrote:
Mon Apr 13, 2020 4:26 pm
What in the world is propping up the value of cash or bonds ?
... How can people keep money in cash that pays nothing (or less) in interest, while the government shows they're committed to supplying whatever amounts of cash liquidity the market desires. Who in the world is selling their long-term investments to exchange it for paper earning nothing, over these short few weeks that will certainly come to end (sooner or later) ? Were all those investments really short-term money that needs to be spent over these few weeks? Are the government guarantees, stimulus, and bailouts not enough? Do people they think they're going to buy back into those same long-term assets cheaper, despite there being a lot more money in the system all vying for those same assets ?
I would add that there are those investors who feel this situation has been grossly exaggerated and that the economic insanity will end soon.
You can kind of see their point. There are only 1.9 million cases and only 119 thousand deaths. At some point, it goes from a tragedy to a statistic. :twisted:
In 2017 (the latest year that data is available) there were 215,000 deaths in the US attributed to respiratory disease, flu and pneumonia. To date, there have been 25,000 US deaths attributed to Corona virus, and well over 80% are known to have involved patients with significant underlying health issues. There have also been many reports that suggest that Corona deaths have been significantly over-reported (e.g. deaths that were caused by pneumonia, but are being included in the Corona virus totals because the patient either had been tested positive or, and I'm not making this up, had been exposed to an individual who later tested positive). We won't know the real facts for months or years, but investors likely understand a lot of this and it puts things in a much different perspective.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Noobvestor
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Re: What in the world is propping up this market?

Post by Noobvestor » Tue Apr 14, 2020 3:18 pm

Wanderingwheelz wrote:
Tue Apr 14, 2020 4:38 am
Noobvestor wrote:
Tue Apr 14, 2020 3:30 am
Wanderingwheelz wrote:
Mon Apr 13, 2020 8:28 pm
Capitulation never really happened here. I’m not saying it has to, or even should, but the fact that it never did tells me there’s still a lot of weak hands out there.
I can't claim to know a ratio, but it sure seems to me there are a lot of threads by people who have been selling :shock:
Vanguards data says retail investors were net buyers.
Sorry, I took your claim to be that no one was capitulating. If you mean most people aren't, that's something different. I believe it and I would certainly be interested to know the history of that metric at Vanguard - is there a whitepaper about that?
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Re: What in the world is propping up this market?

Post by fingoals » Tue Apr 14, 2020 4:22 pm

FIREchief wrote:
Tue Apr 14, 2020 3:02 pm
whodidntante wrote:
Mon Apr 13, 2020 4:49 pm
rossington wrote:
Mon Apr 13, 2020 4:44 pm
JoMoney wrote:
Mon Apr 13, 2020 4:26 pm
What in the world is propping up the value of cash or bonds ?
... How can people keep money in cash that pays nothing (or less) in interest, while the government shows they're committed to supplying whatever amounts of cash liquidity the market desires. Who in the world is selling their long-term investments to exchange it for paper earning nothing, over these short few weeks that will certainly come to end (sooner or later) ? Were all those investments really short-term money that needs to be spent over these few weeks? Are the government guarantees, stimulus, and bailouts not enough? Do people they think they're going to buy back into those same long-term assets cheaper, despite there being a lot more money in the system all vying for those same assets ?
I would add that there are those investors who feel this situation has been grossly exaggerated and that the economic insanity will end soon.
You can kind of see their point. There are only 1.9 million cases and only 119 thousand deaths. At some point, it goes from a tragedy to a statistic. :twisted:
In 2017 (the latest year that data is available) there were 215,000 deaths in the US attributed to respiratory disease, flu and pneumonia. To date, there have been 25,000 US deaths attributed to Corona virus, and well over 80% are known to have involved patients with significant underlying health issues. There have also been many reports that suggest that Corona deaths have been significantly over-reported (e.g. deaths that were caused by pneumonia, but are being included in the Corona virus totals because the patient either had been tested positive or, and I'm not making this up, had been exposed to an individual who later tested positive). We won't know the real facts for months or years, but investors likely understand a lot of this and it puts things in a much different perspective.
What is your point of comparing two numbers above, when the first one belongs to the "normal life and thriving economy" era and the second one belongs to the "social distancing / stay-at-home / almost-standstill-economy" era? I'm sure that most people realize that, if not for current drastic measures (even though in some states, with much delay), the second grim number would have been one or even two orders of magnitude higher.
Last edited by fingoals on Tue Apr 14, 2020 4:23 pm, edited 1 time in total.

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Re: What in the world is propping up this market?

Post by JackoC » Tue Apr 14, 2020 4:23 pm

cherijoh wrote:
Tue Apr 14, 2020 11:23 am
Quite a bit of the "economy" is not reflected in the stock market. Most small businesses have borrowed money (either from a bank or in the form of a HELOC against their home equity) but they don't have stock to be included in any market index. Other companies, even (I believe) some medium-sized ones are privately owned.

It is the same reason that pre-corona-virus, some people claimed the economy was booming (i.e., DJIA = Economy) while others claimed that it had never fully recovered from the Great Recession (% of people worse off financially vs. pre 2008).

In addition, from the market's perspective, laying off employees is good for a company's future viability and profits.
True, the economy isn't the stock market. But here we are or should be talking about the stock market, 'what's propping it up'. It's not directly relevant if people die or small businesses close. Those things can every easily highly indirectly relevant since those things affect large company profit (the S&P or even Total Market are dominated by large cap as the Dow obviously is though the Dow really isn't 'the stock market'). But every similar discussion I've seen here lately tends in at least a lot of posts to drift off into issues of general public well being as ends in themselves, which they are in the political realm and not saying they shouldn't be. But those things are not ends in themselves to the stock market*.

In terms of your example, pre pandemic big company profits were high by any past measure, and the market didn't expect them to diminish greatly (though that could have proved wrong even sans pandemic), so it was at historic highs. Whether that meant 'the economy was booming' was basically a 2020 election political debate that the market wasn't passing and doesn't pass judgement on.

Likewise lots of potential virus and 'reopening the economy' issues. There are political set piece debates going on underneath a lot of the oversimplified back and forth about those things. The market (always) has to try to determine real expected outcomes minus (omnipresent) political BS. But the VIX tells you the market is less sure of its answer now than usually.

*again without the double bank shot hypothesis that you can determine whether the market is mispriced now to the upside because it's irrationally failing to consider how it will later irrationally overreact to the downside from greater death and suffering tolls even if those have little impact on even medium let alone long term profits.

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Re: What in the world is propping up this market?

Post by Xrayman69 » Tue Apr 14, 2020 6:03 pm

02nz wrote:
Tue Apr 14, 2020 10:01 am
fatcoffeedrinker wrote:
Mon Apr 13, 2020 11:10 pm
02nz wrote:
Mon Apr 13, 2020 8:37 pm
fatcoffeedrinker wrote:
Mon Apr 13, 2020 8:29 pm
LMK5 wrote:
Mon Apr 13, 2020 4:09 pm
I know we Bogleheads aren't supposed to pay attention to market movements but I really am fascinated by the resiliency of this market. I mean, the economy is all but shut down folks. The market is supposed to price companies based on book value and projected earnings, so what does the market see in the future that doesn't seem apparent to most people? Can companies be worth only 20% less than their recent highs? On the face of it it seems preposterous. Does it see some near term light at the end of the tunnel, along with a federal government that is committed to goosing the economy no matter the cost?
Many people keep saying this but it's just not true. Morningstar, for example, estimates that 85% of GDP is still operational.

https://www.morningstar.com/articles/97 ... -recession
That's not what the article actually says. "The hardest-hit sectors (mining, retail, transportation, arts and entertainment, hotels and restaurants, and miscellaneous services) account for just over 15% of GDP but nearly 30% of U.S. employment."

That does NOT mean that those sectors (accounting for 15% of GDP) are totally shut down, and it also does NOT mean that the other 85% is producing at normal levels.

I do not think, at this moment, the U.S. economy is producing at anywhere near 85% of the pre-pandemic level, particularly given that the country's most important economic engines - cities and especially on the coasts - have been hardest hit and/or have been most aggressive in shutting down.
"About 70% of GDP is from businesses that are exempt from orders, and about half of the businesses that aren’t exempt can continue with remote operations." So shutdown orders do not affect 85% of GDP. You can argue whether 85% is the correct number, but my point remains completely accurate, which is that the statement that "the economy is all but shut down" is wrong and should stop being repeated just to fear monger.
You're very narrowly focused on what businesses have been required to shut down, but there are far-reaching effects on many businesses that have not been required to shut down. Many such businesses have nevertheless seen a steep (much higher than 15%) drop in business. To give an example - a restaurant is ordered to close, and it stops buying food from suppliers that have not been ordered to close. "All but shut down" may be an exaggeration, but the hit to GDP at this moment is definitely higher than 15%.
My business is operating at about 40%. When we come out the other side, I am preparing for only about 70-80% of business year over year. I don’t expect customers to return to 100% for over 1 year to 18 months (based upon the availability of a safe vaccine).

My experience is only anecdotal, but that’s all I have. The COVID19 pandemic will have many losers in which business will go bankrupt, but it will also have winners that survive. Through the carnage new replacements will rise and the efficiency machine will hopefully take its course and we will see a duration of growth and decline in a more narrow range.

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Re: What in the world is propping up this market?

Post by LadyGeek » Tue Apr 14, 2020 7:54 pm

I removed a number of posts discussing coronavirus. In this thread, please stay focused on the market.

Coronavirus can be discussed:

- Coronavirus and the market, the main intent of the post must be on the market

- Bogleheads community discussion - Coronavirus - general comments

Also see: Please read before posting on coronavirus/COVID-19
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Re: What in the world is propping up this market?

Post by index2max » Tue Apr 14, 2020 8:00 pm

LMK5 wrote:
Mon Apr 13, 2020 4:09 pm
I know we Bogleheads aren't supposed to pay attention to market movements but I really am fascinated by the resiliency of this market. I mean, the economy is all but shut down folks. The market is supposed to price companies based on book value and projected earnings, so what does the market see in the future that doesn't seem apparent to most people? Can companies be worth only 20% less than their recent highs? On the face of it it seems preposterous. Does it see some near term light at the end of the tunnel, along with a federal government that is committed to goosing the economy no matter the cost?
I used to ask myself the same thing about the 2008 recession. News reports said millions of people were unemployed, yet the stock market jumped right back up after just a few months. The disconnect made absolutely no sense to me. Then I found out about the Austrian School of Economics.

Basically, the Federal Reserve printed more money to paint over problems with the credit bubbles in our economy propped up by low interest rates. Of course, the money they create out of thin air isn't distributed evenly. It winds up going towards purchases of assets, which is why assets like stocks and real estate wind up having sky-high valuations.

Mark Spitznagel, a founder of a "Black Swan" hedge fund gives a good description of what's going on.

https://archive.vn/kzywS

How the Fed Favors The 1%
The Fed doesn't expand the money supply by dropping cash from helicopters. It does so through capital transfers to the largest banks.

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Re: What in the world is propping up this market?

Post by averagedude » Tue Apr 14, 2020 8:05 pm

I expected the SP500 would reach 2900 fairly quickly. Now expect a sideways market for a while. Just a prediction, please don't act on this because I'm certainly not.

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Re: What in the world is propping up this market?

Post by dmcmahon » Tue Apr 14, 2020 8:16 pm

averagedude wrote:
Tue Apr 14, 2020 8:05 pm
I expected the SP500 would reach 2900 fairly quickly. Now expect a sideways market for a while. Just a prediction, please don't act on this because I'm certainly not.
Unlock won't be swift. I still don't think that's priced in to the market as a whole. Sideways action will slowly shake winners to the top and likely losers downward. Market was pulled ahead today by the big-cap winners of the pre-crash world. They're not facing bankruptcy and some may even flourish in the brave new world of lockdowns. Feds are pushing a lot of dough into the system, it has to go somewhere. Also just a prediction based on my magic ouija board, worth everything you paid for it!

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Re: What in the world is propping up this market?

Post by averagedude » Tue Apr 14, 2020 8:32 pm

dmcmahon wrote:
Tue Apr 14, 2020 8:16 pm
averagedude wrote:
Tue Apr 14, 2020 8:05 pm
I expected the SP500 would reach 2900 fairly quickly. Now expect a sideways market for a while. Just a prediction, please don't act on this because I'm certainly not.
Unlock won't be swift. I still don't think that's priced in to the market as a whole. Sideways action will slowly shake winners to the top and likely losers downward. Market was pulled ahead today by the big-cap winners of the pre-crash world. They're not facing bankruptcy and some may even flourish in the brave new world of lockdowns. Feds are pushing a lot of dough into the system, it has to go somewhere. Also just a prediction based on my magic ouija board, worth everything you paid for it!
Not comprehending clearly. So what you are saying is that the effects of the corona virus will persist slightly longer than expected and large cap stocks will continue to lead the market over the small cap stocks which is what we have witnessed over the last 10 years? If this is what you are saying, it is a reasonable theory and I wouldn't bet against it. I do think that one day this trend will end, and small caps will be the leader once again. Just don't know how many years we will have to wait for this to happen. I appreciate anyone's insight that has a reasonable theory behind it like yours.

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Re: What in the world is propping up this market?

Post by KEotSK66 » Tue Apr 14, 2020 9:00 pm

the market isn't being propped up

the market is realizing it reacted irrationally
"i just got fluctuated out of $1,500", jerry

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Re: What in the world is propping up this market?

Post by watchnerd » Tue Apr 14, 2020 9:06 pm

KEotSK66 wrote:
Tue Apr 14, 2020 9:00 pm
the market isn't being propped up

the market is realizing it reacted irrationally
I'm not sure it was irrational.

It can be rational to de-risk *everything* until there is a clearer view of the situation.

Note: doesn't necessarily apply to individual investors
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Re: What in the world is propping up this market?

Post by KEotSK66 » Tue Apr 14, 2020 9:24 pm

de-risking everything was the irrational reaction
"i just got fluctuated out of $1,500", jerry

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Re: What in the world is propping up this market?

Post by watchnerd » Tue Apr 14, 2020 9:31 pm

KEotSK66 wrote:
Tue Apr 14, 2020 9:24 pm
de-risking everything was the irrational reaction
Doesn't that depend on your mandate?

If you're a hedge fund, it may not be.
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Re: What in the world is propping up this market?

Post by dmcmahon » Tue Apr 14, 2020 9:32 pm

averagedude wrote:
Tue Apr 14, 2020 8:32 pm
dmcmahon wrote:
Tue Apr 14, 2020 8:16 pm
averagedude wrote:
Tue Apr 14, 2020 8:05 pm
I expected the SP500 would reach 2900 fairly quickly. Now expect a sideways market for a while. Just a prediction, please don't act on this because I'm certainly not.
Unlock won't be swift. I still don't think that's priced in to the market as a whole. Sideways action will slowly shake winners to the top and likely losers downward. Market was pulled ahead today by the big-cap winners of the pre-crash world. They're not facing bankruptcy and some may even flourish in the brave new world of lockdowns. Feds are pushing a lot of dough into the system, it has to go somewhere. Also just a prediction based on my magic ouija board, worth everything you paid for it!
Not comprehending clearly. So what you are saying is that the effects of the corona virus will persist slightly longer than expected and large cap stocks will continue to lead the market over the small cap stocks which is what we have witnessed over the last 10 years? If this is what you are saying, it is a reasonable theory and I wouldn't bet against it. I do think that one day this trend will end, and small caps will be the leader once again. Just don't know how many years we will have to wait for this to happen. I appreciate anyone's insight that has a reasonable theory behind it like yours.
My really short summary would be the winner-takes-all effect. Trend has been in place for a decade. Lockdown appears to accelerate it. Amazon (AMZN) is the poster-child for this.

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Re: What in the world is propping up this market?

Post by KEotSK66 » Tue Apr 14, 2020 9:43 pm

then the AA wasn't appropriate

you can't claim capital preservation as a mandate, invest everything in sv, then when sv crashes move to cash and claim you preserved capital
Last edited by KEotSK66 on Tue Apr 14, 2020 9:49 pm, edited 2 times in total.
"i just got fluctuated out of $1,500", jerry

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Re: What in the world is propping up this market?

Post by goldendad » Tue Apr 14, 2020 9:45 pm

The discounting of future earnings.

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Re: What in the world is propping up this market?

Post by Ocean77 » Tue Apr 14, 2020 10:10 pm

I think the market is propped up by mass delusion that this crisis isn't that bad. But of course we will only know in hindsight.

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Re: What in the world is propping up this market?

Post by wordsmith11 » Tue Apr 14, 2020 10:19 pm

Perhaps the idea that the center cannot hold. That the country will tip toward jumping through the fire and accepting what comes in order to get this over with, believing (perhaps correctly, perhaps not, early to tell) that the virus impact was overstated e.g. will harm quite a number but kill relatively few and then settle into a recurring flu-like threat.

Put another way, if Disney World were open today it would be PACKED. The market knows this. The typical Boglehead may not be there but legions would (will) be. That moment will come sooner, not later.

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Re: What in the world is propping up this market?

Post by index245 » Tue Apr 14, 2020 11:07 pm

FIREchief wrote:
Tue Apr 14, 2020 3:02 pm
whodidntante wrote:
Mon Apr 13, 2020 4:49 pm
rossington wrote:
Mon Apr 13, 2020 4:44 pm
JoMoney wrote:
Mon Apr 13, 2020 4:26 pm
What in the world is propping up the value of cash or bonds ?
... How can people keep money in cash that pays nothing (or less) in interest, while the government shows they're committed to supplying whatever amounts of cash liquidity the market desires. Who in the world is selling their long-term investments to exchange it for paper earning nothing, over these short few weeks that will certainly come to end (sooner or later) ? Were all those investments really short-term money that needs to be spent over these few weeks? Are the government guarantees, stimulus, and bailouts not enough? Do people they think they're going to buy back into those same long-term assets cheaper, despite there being a lot more money in the system all vying for those same assets ?
I would add that there are those investors who feel this situation has been grossly exaggerated and that the economic insanity will end soon.
You can kind of see their point. There are only 1.9 million cases and only 119 thousand deaths. At some point, it goes from a tragedy to a statistic. :twisted:
In 2017 (the latest year that data is available) there were 215,000 deaths in the US attributed to respiratory disease, flu and pneumonia. To date, there have been 25,000 US deaths attributed to Corona virus, and well over 80% are known to have involved patients with significant underlying health issues. There have also been many reports that suggest that Corona deaths have been significantly over-reported (e.g. deaths that were caused by pneumonia, but are being included in the Corona virus totals because the patient either had been tested positive or, and I'm not making this up, had been exposed to an individual who later tested positive). We won't know the real facts for months or years, but investors likely understand a lot of this and it puts things in a much different perspective.
Why are you comparing numbers from a time frame of 8+ months with a time frame of 2 months?

Flu and Pneumonia often kill people with underlying conditions, have they been removed from your numbers?

And most importantly, any number you see related to coronavirus is understated to the extreme dearth of available testing. A few references below. In my region, with a large number of cases, tests were literally non-existent for anyone under 30. Even using deaths as a proxy to determine total cases will not work. Many have died in nursing homes without any testing.

https://news.yahoo.com/health-experts-o ... 38038.html
https://www.nytimes.com/2020/04/05/us/c ... count.html

Per Dr. Fauci, President Trump's top infectious disease expert:

"Anthony Fauci, the top US infectious diseases expert, has warned that baseless “conspiracy theories” are swirling around the coronavirus crisis following claims that America’s official death toll from Covid-19 has been overstated.
Coronavirus US news: New York sees record daily death toll as unemployment rises by 6.6m – as it happened
Read more

Fauci, who has been director of the National Institute of Allergy and Infectious Diseases since 1984, said he had seen unfounded conjecture attach itself to previous crises and dismissed the emerging idea, largely promoted by high-profile figures in rightwing media, that the US’s Covid-19 death toll is being inflated by unrelated medical conditions.

“There is absolutely no evidence that that’s the case at all,” Fauci told NBC on Thursday. “I think it falls under the category of something that’s very unfortunate – these conspiracy theories that we hear about. Any time we have a crisis of any sort there is always this popping up of conspiracy theories.”

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Re: What in the world is propping up this market?

Post by ilan1h » Tue Apr 14, 2020 11:38 pm

After 20 years of buy and hold and absolute devotion to Boglehead philosophy, I sold all of my equities at a 23% loss from the highs. I am still breathing a sigh of relief even as I see the market moving upwards. Even without the pandemic the market was due for a 20% sell off; so, the fact that the pandemic counts for nothing makes no sense whatsoever. We've spent 6 trillion dollars and still have no idea when the world will open for business as usual. 10 million are unemployed and that number is growing. Small businesses (such as mine) are absolutely trashed and will remain so for quite some time to come. Even when the "all clear" signal is given people will be very slow to resume life as usual. Certain industries will remain trashed for years to come and some may never recover. It's mystifying to me that the market is as good as it is. I can only assume that it's a combination of fool hardiness, wishful thinking, lack of other investable options and a total misunderstanding of what is actually happening. At this point I only own munis and bond funds so I no longer have any meaningful stake in this market but at the age of 60 I think I'm out of it forever. I am fully expecting very sharp declines when people come to their senses and see what devastation this has wrought on the economy. Right now I think they're sheltering at home and don't have a clue!

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Re: What in the world is propping up this market?

Post by EddyB » Tue Apr 14, 2020 11:52 pm

ilan1h wrote:
Tue Apr 14, 2020 11:38 pm
After 20 years of buy and hold and absolute devotion to Boglehead philosophy, I sold all of my equities at a 23% loss from the highs. I am still breathing a sigh of relief even as I see the market moving upwards. Even without the pandemic the market was due for a 20% sell off; so, the fact that the pandemic counts for nothing makes no sense whatsoever. We've spent 6 trillion dollars and still have no idea when the world will open for business as usual. 10 million are unemployed and that number is growing. Small businesses (such as mine) are absolutely trashed and will remain so for quite some time to come. Even when the "all clear" signal is given people will be very slow to resume life as usual. Certain industries will remain trashed for years to come and some may never recover. It's mystifying to me that the market is as good as it is. I can only assume that it's a combination of fool hardiness, wishful thinking, lack of other investable options and a total misunderstanding of what is actually happening. At this point I only own munis and bond funds so I no longer have any meaningful stake in this market but at the age of 60 I think I'm out of it forever. I am fully expecting very sharp declines when people come to their senses and see what devastation this has wrought on the economy. Right now I think they're sheltering at home and don't have a clue!
Do you consider that to be the end of your devotion to Boglehead philosophy?

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Re: What in the world is propping up this market?

Post by mrspock » Tue Apr 14, 2020 11:54 pm

Wanderingwheelz wrote:
Mon Apr 13, 2020 8:14 pm
mptfan wrote:
Mon Apr 13, 2020 4:44 pm
LMK5 wrote:
Mon Apr 13, 2020 4:09 pm
I mean, the economy is all but shut down folks.
This is hyperbole and your argument is based upon a false premise. The Wall Street Journal estimates that 29% of the U.S. economy is shut down, so if 71% of the economy is still going on then the economy is not "all but shut down."

https://www.thedailybeast.com/coronavir ... conomy-wsj
It depends what was measured. Did it include mortgages and rents?

I agree that a person can still find a burger and fries, and if he has to wait to buy a skateboard for a couple more months that’s far from catastrophic to the economy, but that person is very likely not paying his rent and probably not his car note either. That’s where things begin to get real.
There's a website for that... www.nationalmortgagenews.com, www.corelogic.com etc

I'll save you the trip. The vast majority of people are paying their mortgages just fine. We also started from a position of strength, January delinquency rates were the lowest in over 20 years.

Image

Typically, March also has the lowest delinquency rate of the year due to tax refunds. Combine this with the lessons of 2008 i.e. forbearance programs which were proven effective in 2008, I wouldn't hold your breath if you are expecting massive defaults this time around. Will they spike? Very likely, but will it be worse than 2008? Pretty unlikely.

A good quote [1]:
...forbearance programs that have in the past helped those who had a temporary job loss stay in their homes could partially offset the rise in delinquencies if implemented here.

"Pointing to the effectiveness of forbearance programs in a time of crisis, of the more than 140,000 seriously delinquent mortgages caused by the 2017 hurricane season, just 1% of homes were lost to foreclosure or short sale two years after the storms," Graboske said. "Although, should financial disruptions become more long-term, additional assistance programs may become necessary. Of course, a surge of forbearance requests brings its own challenges, both operational and financial."
I'd encourage you to stop guessing and dive into the data, all the data I can see suggested the scenario you are describing is unlikely to play out.

[1] https://www.nationalmortgagenews.com/ne ... recessions -- Ignore the sensational headline, this musing applies if there were no forbearance programs (which have already been announced).

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Re: What in the world is propping up this market?

Post by FIREchief » Wed Apr 15, 2020 12:01 am

index245 wrote:
Tue Apr 14, 2020 11:07 pm
Why are you comparing numbers from a time frame of 8+ months with a time frame of 2 months?
Because that's all we have. I just threw out some facts as they are reported. As you suggest, we're missing a whole lot of information, so there likely aren't enough true facts available to understand much of anything at this point. What I would really like to see is how many people died in NY in March/April of this year versus March/April in the previous five years. I'm guessing that information isn't readily available.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: What in the world is propping up this market?

Post by justsomeguy2018 » Wed Apr 15, 2020 12:05 am

ilan1h wrote:
Tue Apr 14, 2020 11:38 pm
After 20 years of buy and hold and absolute devotion to Boglehead philosophy, I sold all of my equities at a 23% loss from the highs. I am still breathing a sigh of relief even as I see the market moving upwards. Even without the pandemic the market was due for a 20% sell off; so, the fact that the pandemic counts for nothing makes no sense whatsoever. We've spent 6 trillion dollars and still have no idea when the world will open for business as usual. 10 million are unemployed and that number is growing. Small businesses (such as mine) are absolutely trashed and will remain so for quite some time to come. Even when the "all clear" signal is given people will be very slow to resume life as usual. Certain industries will remain trashed for years to come and some may never recover. It's mystifying to me that the market is as good as it is. I can only assume that it's a combination of fool hardiness, wishful thinking, lack of other investable options and a total misunderstanding of what is actually happening. At this point I only own munis and bond funds so I no longer have any meaningful stake in this market but at the age of 60 I think I'm out of it forever. I am fully expecting very sharp declines when people come to their senses and see what devastation this has wrought on the economy. Right now I think they're sheltering at home and don't have a clue!
At 60 I do not fault you.

If I were 60 and at the end of an 11 year old bull run at the hands of a pandemic that still hasn't been solved yet, I would do the same.

Some posters have suggested keeping a 40% to 60% allocation to srocks even all throughout retirement but that just doesn't make a lot of sense to me. I would be 20%-25% max.

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Re: What in the world is propping up this market?

Post by watchnerd » Wed Apr 15, 2020 12:24 am

justsomeguy2018 wrote:
Wed Apr 15, 2020 12:05 am

Some posters have suggested keeping a 40% to 60% allocation to srocks even all throughout retirement but that just doesn't make a lot of sense to me. I would be 20%-25% max.
Whether 20-25% is likely to work well in retirement all depends upon your SWR.

That is outside the AA that Trinity study would imply for 4% SWR, for example.
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Re: What in the world is propping up this market?

Post by Irenaeus » Wed Apr 15, 2020 12:28 am

index2max wrote:
Tue Apr 14, 2020 8:00 pm
LMK5 wrote:
Mon Apr 13, 2020 4:09 pm
I know we Bogleheads aren't supposed to pay attention to market movements but I really am fascinated by the resiliency of this market. I mean, the economy is all but shut down folks. The market is supposed to price companies based on book value and projected earnings, so what does the market see in the future that doesn't seem apparent to most people? Can companies be worth only 20% less than their recent highs? On the face of it it seems preposterous. Does it see some near term light at the end of the tunnel, along with a federal government that is committed to goosing the economy no matter the cost?
I used to ask myself the same thing about the 2008 recession. News reports said millions of people were unemployed, yet the stock market jumped right back up after just a few months. The disconnect made absolutely no sense to me. Then I found out about the Austrian School of Economics.

Basically, the Federal Reserve printed more money to paint over problems with the credit bubbles in our economy propped up by low interest rates. Of course, the money they create out of thin air isn't distributed evenly. It winds up going towards purchases of assets, which is why assets like stocks and real estate wind up having sky-high valuations.

Mark Spitznagel, a founder of a "Black Swan" hedge fund gives a good description of what's going on.

https://archive.vn/kzywS

How the Fed Favors The 1%
The Fed doesn't expand the money supply by dropping cash from helicopters. It does so through capital transfers to the largest banks.
Here's a Forbes article on Mark Spitznagel's Universa Investments: How A Goat Farmer Built A Doomsday Machine That Just Booked A 4,144% Return

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