"The stocks are up but the economy's down"--good "Indicator" podcast episode

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"The stocks are up but the economy's down"--good "Indicator" podcast episode

Post by nisiprius »

Just mentioned this in another thread but I think it deserves its own.

The Stocks are Up but the Economy's Down

Short answer: it's the luck of the composition of the stock market:
Because by a fluke of history, it just so happens that the companies that are the best positioned for the environment we find ourselves in and what we will find ourselves in over the next six months to a year, the companies that are best positioned happen to already be the largest weighted components of the indices.
I like this, even better than Benjamin Graham's "Mr. Market:"
JOSH BROWN: Now I'm going to give you my favorite analogy. So a woman is walking through Central Park, and she's got a dog. What's a very active kind of dog?

VANEK SMITH: Oh, like a Jack Russell terrier or something like that.

BROWN: Fine. Jack Russell terrier is great. If you just looked at her, what is she doing? She's taking normal steps. She's going in a straight line. She's, you know, walking upright at a moderate pace, nothing terribly exciting. Then let your eyes pan down a little bit. Look at the dog. The dog is going crazy. It's chasing birds. It's digging up clumps of mud. It's running at trees. It's [marking territory] all over the place. The dog is the stock market. The woman is the economy....

GARCIA: Yeah, Josh's point is that the stock market and the economy usually end up in the same place just like the lady and her crazy dog, but that there are times when they do not act or look the same at all.
Last edited by nisiprius on Mon May 25, 2020 12:29 pm, edited 1 time in total.
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Re: "The stocks are up but the economy's down"--good "Indicator" podcast episode

Post by thx1138 »

Dog analogy is a great one!

That said in this case the point is made near the end of the interview:
BROWN: The worse outcome is that there are people who lose their jobs right now that never get those jobs back and either can remake themselves doing something else or can't. And the long-term ramifications of mass shock unemployment, we have no idea what those will be. They could be benign and go away, or they could be catastrophic in terms of consumer aggregate demand and in terms of societal change and who needs to be taken care of forever because there just isn't a place for them anymore. So I think it would be a mistake - to go back to the dog and the woman analogy, I think it would be a mistake to say that the dog is right necessarily just because of where the dog has arrived at. I think it would be - it would be premature.
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Re: "The stocks are up but the economy's down"--good "Indicator" podcast episode

Post by ResearchMed »

I'm getting a "The requested page could not be found." for the link to the transcript.

RM
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Re: "The stocks are up but the economy's down"--good "Indicator" podcast episode

Post by stilts1007 »

"The Indicator" and its parent podcast "Planet Money" are both great listens. Lots of interesting and unusual topics related to economics, as well as some in-depth but easy-to-understand coverage of what's been going on the last few months.
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Re: "The stocks are up but the economy's down"--good "Indicator" podcast episode

Post by Nowizard »

Another dog analogy: Two dogs fighting, but not particularly seriously, one named "Economy," the other "Market." An observer asks, "How can I tell who will be the winning dog?" Another observer responds, "The winning dog will be the one that gets fed the most." The dog named "Market" wins this fight since much of the effort to boost the economy is related to the Trickle Down theory resulting in corporations receiving greater fund totals in the current crisis cycle.

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Re: "The stocks are up but the economy's down"--good "Indicator" podcast episode

Post by Silence Dogood »

Thanks for sharing, nisiprius!

I listened to this episode the other day and recommend it as well.
stilts1007 wrote: Mon May 25, 2020 8:59 am "The Indicator" and its parent podcast "Planet Money" are both great listens. Lots of interesting and unusual topics related to economics, as well as some in-depth but easy-to-understand coverage of what's been going on the last few months.
+1
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Re: "The stocks are up but the economy's down"--good "Indicator" podcast episode

Post by Xrayman69 »

nisiprius wrote: Mon May 25, 2020 7:12 am Just mentioned this in another thread but I think it deserves its own.

The Stocks are Up but the Economy's Down (transcript)

Short answer: it's the luck of the composition of the stock market:
Because by a fluke of history, it just so happens that the companies that are the best positioned for the environment we find ourselves in and what we will find ourselves in over the next six months to a year, the companies that are best positioned happen to already be the largest weighted components of the indices.
The Stocks are Up but the Economy's Down

I like this, even better than Benjamin Graham's "Mr. Market:"
JOSH BROWN: Now I'm going to give you my favorite analogy. So a woman is walking through Central Park, and she's got a dog. What's a very active kind of dog?

VANEK SMITH: Oh, like a Jack Russell terrier or something like that.

BROWN: Fine. Jack Russell terrier is great. If you just looked at her, what is she doing? She's taking normal steps. She's going in a straight line. She's, you know, walking upright at a moderate pace, nothing terribly exciting. Then let your eyes pan down a little bit. Look at the dog. The dog is going crazy. It's chasing birds. It's digging up clumps of mud. It's running at trees. It's [marking territory] all over the place. The dog is the stock market. The woman is the economy....

GARCIA: Yeah, Josh's point is that the stock market and the economy usually end up in the same place just like the lady and her crazy dog, but that there are times when they do not act or look the same at all.

Which is the dog and which is the lady?

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Re: "The stocks are up but the economy's down"--good "Indicator" podcast episode

Post by Phineas J. Whoopee »

The stock market is not the economy. The economy provides products and services and consumes products and services. Some publicly-traded companies do that, perhaps most. But the great majority of production and consumption is not business-to-business publicly-traded corporations.

It is unreasonable to suppose public companies and the economy as a whole will closely track each other. They certainly interact, but they aren't identical.

For example, about two thirds of the US economy's production is consumed domestically. I may or may not be a typical producer and consumer, but nobody, except potentially a spouse, can buy stock in me.

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Re: "The stocks are up but the economy's down"--good "Indicator" podcast episode

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stilts1007 wrote: Mon May 25, 2020 8:59 am "The Indicator" and its parent podcast "Planet Money" are both great listens. Lots of interesting and unusual topics related to economics, as well as some in-depth but easy-to-understand coverage of what's been going on the last few months.
+1

I listen to both podcasts, and highly recommend them.
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Re: "The stocks are up but the economy's down"--good "Indicator" podcast episode

Post by JoMoney »

I like it, a good visual analogy.

But some Jack Russell Terriers can run far off if something catches their eye and 'prey' instincts. I want a market dog that's prone to more herding and doesn't stray too far off :mrgreen:
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Re: "The stocks are up but the economy's down"--good "Indicator" podcast episode

Post by nisiprius »

ResearchMed wrote: Mon May 25, 2020 8:41 am I'm getting a "The requested page could not be found." for the link to the transcript.

RM
A typo on my part. I'm sorry. It's fixed in the original post now. The correct link is: Stocks are up but the economy's down
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Re: "The stocks are up but the economy's down"--good "Indicator" podcast episode

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And suddenly, something that made no sense makes a lot more sense. Thanks!
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Re: "The stocks are up but the economy's down"--good "Indicator" podcast episode

Post by YRT70 »

nisiprius wrote: Mon May 25, 2020 7:12 am Just mentioned this in another thread but I think it deserves its own.

The Stocks are Up but the Economy's Down

Short answer: it's the luck of the composition of the stock market:
Because by a fluke of history, it just so happens that the companies that are the best positioned for the environment we find ourselves in and what we will find ourselves in over the next six months to a year, the companies that are best positioned happen to already be the largest weighted components of the indices.
I like this, even better than Benjamin Graham's "Mr. Market:"
JOSH BROWN: Now I'm going to give you my favorite analogy. So a woman is walking through Central Park, and she's got a dog. What's a very active kind of dog?

VANEK SMITH: Oh, like a Jack Russell terrier or something like that.

BROWN: Fine. Jack Russell terrier is great. If you just looked at her, what is she doing? She's taking normal steps. She's going in a straight line. She's, you know, walking upright at a moderate pace, nothing terribly exciting. Then let your eyes pan down a little bit. Look at the dog. The dog is going crazy. It's chasing birds. It's digging up clumps of mud. It's running at trees. It's [marking territory] all over the place. The dog is the stock market. The woman is the economy....

GARCIA: Yeah, Josh's point is that the stock market and the economy usually end up in the same place just like the lady and her crazy dog, but that there are times when they do not act or look the same at all.
If the analogy is accurate, wouldn't that mean that the stock market should take a big hit in the near future?

Iirc I remember seeing some charts from Ben Carlson showing that the stock market usually bottoms before the economy does. Would that go against the analogy?
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Re: "The stocks are up but the economy's down"--good "Indicator" podcast episode

Post by YRT70 »

Does anyone else have an answer to my question above?

Phrased differently: I've read the stock market is always forward looking while economic data is backward looking. This is why they usually don't match up. If true, in this analogy the person would generally be behind the dog.
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Re: "The stocks are up but the economy's down"--good "Indicator" podcast episode

Post by DonIce »

Phineas J. Whoopee wrote: Mon May 25, 2020 6:21 pm For example, about two thirds of the US economy's production is consumed domestically. I may or may not be a typical producer and consumer, but nobody, except potentially a spouse, can buy stock in me.
Off topic but I've always thought it's odd that you can't invest in people. I'm sure a lot of people going into college could benefit from having the option of equity financing rather than debt financing, for example. And it would create an interesting new asset class...
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Re: "The stocks are up but the economy's down"--good "Indicator" podcast episode

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DonIce wrote: Wed May 27, 2020 1:42 am Off topic but I've always thought it's odd that you can't invest in people. I'm sure a lot of people going into college could benefit from having the option of equity financing rather than debt financing, for example. And it would create an interesting new asset class...
If you remember that equity typically means ownership, it becomes all to clear why you can't buy equity in a person...
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Re: "The stocks are up but the economy's down"--good "Indicator" podcast episode

Post by Stinky »

bryanm wrote: Wed May 27, 2020 4:54 pm
DonIce wrote: Wed May 27, 2020 1:42 am Off topic but I've always thought it's odd that you can't invest in people. I'm sure a lot of people going into college could benefit from having the option of equity financing rather than debt financing, for example. And it would create an interesting new asset class...
If you remember that equity typically means ownership, it becomes all to clear why you can't buy equity in a person...
Maybe more like a limited partnership...... :D
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Re: "The stocks are up but the economy's down"--good "Indicator" podcast episode

Post by Clever_Username »

DonIce wrote: Wed May 27, 2020 1:42 am
Phineas J. Whoopee wrote: Mon May 25, 2020 6:21 pm For example, about two thirds of the US economy's production is consumed domestically. I may or may not be a typical producer and consumer, but nobody, except potentially a spouse, can buy stock in me.
Off topic but I've always thought it's odd that you can't invest in people. I'm sure a lot of people going into college could benefit from having the option of equity financing rather than debt financing, for example. And it would create an interesting new asset class...
Depends on the person. Zach Johnson, the PGA Tour player, had investors early in his career who paid $500 for some small percent of his career professional golf earnings. Not a very diversified asset but it paid off quite well for them!
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Re: "The stocks are up but the economy's down"--good "Indicator" podcast episode

Post by willthrill81 »

David Stein had a similar episode on his podcast, Money for the Rest of Us, a couple of weeks ago titled "The Stock Market is Not the Economy."
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Re: "The stocks are up but the economy's down"--good "Indicator" podcast episode

Post by Phineas J. Whoopee »

DonIce wrote: Wed May 27, 2020 1:42 am
Phineas J. Whoopee wrote: Mon May 25, 2020 6:21 pm For example, about two thirds of the US economy's production is consumed domestically. I may or may not be a typical producer and consumer, but nobody, except potentially a spouse, can buy stock in me.
Off topic but I've always thought it's odd that you can't invest in people. I'm sure a lot of people going into college could benefit from having the option of equity financing rather than debt financing, for example. And it would create an interesting new asset class...
In the US at least, we established doing such a thing is inherently impossible. I seem to recall it happened in 1865.

Except for convicted criminals. The state is allowed to use them as possessions. It's in section one of the Thirteenth Amendment.

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Re: "The stocks are up but the economy's down"--good "Indicator" podcast episode

Post by willthrill81 »

Phineas J. Whoopee wrote: Wed May 27, 2020 8:05 pm
DonIce wrote: Wed May 27, 2020 1:42 am
Phineas J. Whoopee wrote: Mon May 25, 2020 6:21 pm For example, about two thirds of the US economy's production is consumed domestically. I may or may not be a typical producer and consumer, but nobody, except potentially a spouse, can buy stock in me.
Off topic but I've always thought it's odd that you can't invest in people. I'm sure a lot of people going into college could benefit from having the option of equity financing rather than debt financing, for example. And it would create an interesting new asset class...
In the US at least, we established doing such a thing is inherently impossible. I seem to recall it happened in 1865.

Except for convicted criminals. The state is allowed to use them as possessions. It's in section one of the Thirteenth Amendment.

PJW
Claims on a person's future income/assets are not necessarily involuntarily servitude. The courts have been doing that for many years in divorce proceedings where there is no criminal behavior. Wage garnishments are obviously legal and often stem from private debts. Both public and private student loan lenders have been "investing in people" via debt for many years. But outside of divorce proceedings, most of this is limited to debt owed by the borrower, not ownership of another person's work.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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