Economy vs Markets

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rockthisworld
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Economy vs Markets

Post by rockthisworld »

How long can this disconnect go on for? Rising debt past 26 trillion, half of small businesses won’t come back at least half of the jobs lost won’t come back. Fed balance sheet at new highs and rates are on hold til 2022 the fed believes we can’t normalize rates. A lot of pressure on the dollar. Fixed income and treasury’s have practically no yield. We are seeing big time inflation in food. It would have cost me $25 to get a haircut instead of $15 etc.

When will all of this catch up to us? I do believe in holding long term but the future isn’t looking as great even with the SP 500 3000. It just seems like the market is going to react to an overly optimistically priced in v shape recovery that needs to recorrect?
Do you think America brings back the gold standard?

What do you all think about this?

P.S. I’m still 100% VTSAX and believe that long term it’s still best way to generate wealth.
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firebirdparts
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Re: Economy vs Markets

Post by firebirdparts »

I'll be interested to see if the answers in your thread are the same as the answers in the other ones. So far, some people have been pretty trite and laconic about this.

One thing is for sure; Nobody knows nothing. If you weren't convinced of that, you should be now.

When you're sure there's a speculative bubble, you still can't fight it and you can't pop it.
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arcticpineapplecorp.
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Re: Economy vs Markets

Post by arcticpineapplecorp. »

what would bringing back the gold standard accomplish? what was life like when we were on a gold standard? would you like to go back to that?

do you think it will always cost twice the price for a haircut? do you think prices don't ever adjust downward as they do upward? Have you not been following the news that "The price of baking flour fell last month along with the price of eggs" (source: https://www.npr.org/2020/06/16/87747993 ... ay-be-over)

do you think there will never be treatments? Do you think there will never be a vaccine? If so, have you not been reading the news. Here's an article from today that shows promise for those with serious symptoms requiring a ventilator (whether it works for those with serious symptoms from coronavirus is under testing now): https://www.bbc.com/news/health-53061281

do you understand what recency bias is? could you be suffering from recency bias? It's the belief that the future will be just like the recent past. Has this ever been true? When?

Regarding when this will "all catch up with us", who knows. Are we in worse shape than other countries who are also deeply in debt?
Regarding a V shaped recovery, who knows?

What should you do? Changing your long term plans due to short term events is never a smart strategy.

Save and invest, live below your means, increase your human capital, be flexible. these behaviors never go out of style.

(and vtsax may be fine, but from 2000-2009 you would have done better holding any percentage of VTIAX in your portfolio and wouldn't have experienced a "lost decade").
Last edited by arcticpineapplecorp. on Tue Jun 16, 2020 10:38 am, edited 2 times in total.
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
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JoMoney
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Re: Economy vs Markets

Post by JoMoney »

The recession we had/have isn't going to be a permanent thing, and I'm not buying equities on the expectations of them over the next year alone. The outrageously low return on cash/interest rates is the bogey in my mind. Equities seem quite reasonable by comparison and 'TINA' (there is no alternative).
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
CardioMD
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Re: Economy vs Markets

Post by CardioMD »

The market and the economy are not the same thing so there is no disconnect. They’re each behaving the way they behave. The market is way ahead of the economy so if you wait for economic conditions to catch up you’ll be way behind (but since you’re 100% VTSAX this isn’t an issue for you specifically).

The USD is the world’s reserve currency so we likely have a long time. Hence no one really cares about the debt (even though they should).

No. Unless you want a highly volatile currency, the gold standard will never come back.

How do you know it’s priced in? What do you believe the market should be priced?
“The stock market is a giant distraction from the business of investing.” -Jack Bogle
Robot Monster
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Re: Economy vs Markets

Post by Robot Monster »

JoMoney wrote: Tue Jun 16, 2020 8:35 am The recession we had/have isn't going to be a permanent thing, and I'm not buying equities on the expectations of them over the next year alone. The outrageously low return on cash/interest rates is the bogey in my mind. Equities seem quite reasonable by comparison and 'TINA' (there is no alternative).
Even if the recession is permanent, does it matter, though, if the Fed is in our back pocket pumping stock prices for us? Heck, maybe we want the economy to be in recession. Imagine if the Fed actually normalized on us...took away our cheap money and killed TINA...a nightmare!
"Happiness comes from being connected in the right ways to: other people, your work, something larger than yourself."
am
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Re: Economy vs Markets

Post by am »

The true value of market assets will be determined over longer time periods. No one knows where things are going. Market makes no sense and you can’t predict it. Go do something else and stay the course.
Jeff Albertson
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Re: Economy vs Markets

Post by Jeff Albertson »

Put your money in a Target Retirement fund, or similar, and spend your time on more productive things, like being a better husband, father, & employee. Time spent on fringe economic and investing sites is more than a waste of time. It's also very hazardous to your wealth.
Robot Monster
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Re: Economy vs Markets

Post by Robot Monster »

am wrote: Tue Jun 16, 2020 12:31 pm The true value of market assets will be determined over longer time periods. No one knows where things are going. Market makes no sense and you can’t predict it. Go do something else and stay the course.
I paused on this for a while on this "markets make no sense, but stay invested" concept, which I bizarrely find myself agreeing with. But why?

Why should I invest in something that makes no sense?

Let's say my pal Jimmy Creamcheese has a shack he wants to sell me for $50k, and just as I'm about to buy it, the Fed comes along and starts buying other shacks in the neighborhood for $500k, and now Jimmy wants me to match that. I say, "I'm not gonna give you hundreds and thousands for a shack! That makes no sense!" and he's stamping his feet, running around the room yelling TINA! So of course I end up buying...

*Sigh*
"Happiness comes from being connected in the right ways to: other people, your work, something larger than yourself."
am
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Re: Economy vs Markets

Post by am »

Robot Monster wrote: Tue Jun 16, 2020 12:46 pm
am wrote: Tue Jun 16, 2020 12:31 pm The true value of market assets will be determined over longer time periods. No one knows where things are going. Market makes no sense and you can’t predict it. Go do something else and stay the course.
I paused on this for a while on this "markets make no sense, but stay invested" concept, which I bizarrely find myself agreeing with. But why?

Why should I invest in something that makes no sense?

Let's say my pal Jimmy Creamcheese has a shack he wants to sell me for $50k, and just as I'm about to buy it, the Fed comes along and starts buying other shacks in the neighborhood for $500k, and now Jimmy wants me to match that. I say, "I'm not gonna give you hundreds and thousands for a shack! That makes no sense!" and he's stamping his feet, running around the room yelling TINA! So of course I end up buying...

*Sigh*
You should invest because there are no alternatives that have historically given such returns over long periods of time. The price you pay is gut wrenching volatility and uncertainty over future returns.
garlandwhizzer
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Re: Economy vs Markets

Post by garlandwhizzer »

I am not aware of investing alternatives in today's market that offer the compelling risk/reward tradeoffs going forward of the kind that were available in much of our past history. There is a great deal of savings in the world, most of it concentrated in the investing class, and it is constantly searching for attractive risk-adjusted investing opportunities and rather quickly arbitraging them away as soon as they appear. The massive bull market from the March 23 lows to now is an example of this IMO. There was plenty of risk in the air, almost panic with economic shutdown on March 23 at the market lows. However some investors believed that with the market down more than 30% it was time to buy even during a sharp deep recession and with record levels of unemployment. Once buying started, fear of missing out (FOMO) and MOM investors piled on driving stock prices ever higher even as the economy suffered more. Such is the thirst for attractive long term investment opportunities because because they are so rare these days. Ultimately most of us believe that over the long term equity will outperform bonds. The only question for those with cash who need significant real returns, whether individuals, funds, or institutions, is not whether to buy stocks but when to buy them.

S&P 500 profits this year will likely be $80 - $100 which means that the index now is selling at a PE in the 30 - 35+ range for the year 2020. A lot of good news about the recovery is already baked into current prices. The problem is that the next time you want to buy in, it may be even more expensive. FOMO and MOM investing can create a wide gulf between the current state of the real economy and current market prices which are based not on present reality but on rather optimistic future expectations. It doesn't have to make sense on a daily basis.

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assyadh
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Re: Economy vs Markets

Post by assyadh »

Why do you think a rising debt is a problem? Debt as been rising for a century now. What is different than 40 years ago? 50 years ago? 20 years go?

MMT
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willthrill81
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Re: Economy vs Markets

Post by willthrill81 »

rockthisworld wrote: Tue Jun 16, 2020 8:18 am How long can this disconnect go on for?
There hasn't been a strong connection between the stock market and the economy in the first place.

Only 17% of American workers are employed by a firm in the S&P 500, which represents the lion's share of the stock market.
rockthisworld wrote: Tue Jun 16, 2020 8:18 am Do you think America brings back the gold standard?
Economic issues existed when America was on the gold standard. Contrary to what some seem to believe, the gold standard did not prevent macro financial problems. In many cases, it exacerbated them.
“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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SmileyFace
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Re: Economy vs Markets

Post by SmileyFace »

Jobless claims weren't as predicted for May (went down instead of up). As others pointed out - no correlation is necessary between debt and markets. Big businesses drive the markets more so than small businesses.
Thinking of my micro-local-economy: Personally I know several furloughed workers that have either gone back to work or will be soon. Our local restaurants re-opened with restrictions (less people) and the ones I have checked with have been booked solid every night. I believe Retail spending will boom as well with pent up demand - there are lines at the stores to buy clothing, electronics, etc. (people aren't afraid to go which was what many predicted). I wouldn't be surprised if folks hop on cruises and start vacation travel with vigor as well (also against many dark predictions out there). Consumers aren't as afraid as you may be thinking (or what many have/are predicting). People like to buy things and do things and will do so even with some additional risk of getting sick.
Valuethinker
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Re: Economy vs Markets

Post by Valuethinker »

DaftInvestor wrote: Tue Jun 16, 2020 2:16 pm Jobless claims weren't as predicted for May (went down instead of up). As others pointed out - no correlation is necessary between debt and markets. Big businesses drive the markets more so than small businesses.
Thinking of my micro-local-economy: Personally I know several furloughed workers that have either gone back to work or will be soon. Our local restaurants re-opened with restrictions (less people) and the ones I have checked with have been booked solid every night. I believe Retail spending will boom as well with pent up demand - there are lines at the stores to buy clothing, electronics, etc. (people aren't afraid to go which was what many predicted). I wouldn't be surprised if folks hop on cruises and start vacation travel with vigor as well (also against many dark predictions out there). Consumers aren't as afraid as you may be thinking (or what many have/are predicting). People like to buy things and do things and will do so even with some additional risk of getting sick.
What happens if their cruise line gets a Covid-19 infection?

The median age of passengers is probably over 60?

Over 60 is not an age you want to get Covid-19. Even if you don't have a pre existing condition.

I can't see a lot of those mass leisure industries doing well in the current environment. Every time there is a mass outbreak they will be shut down?

More outdoor focused forms of entertainment like sports events or outdoor cafes? Maybe. The virus does not seem to spread as well out of doors.
Gufomel
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Re: Economy vs Markets

Post by Gufomel »

Real yield for a 10 year treasury is -.52%. Even a 30 year treasury has a 0% real yield right now.

Shiller CAPE is at 29.30, so if I understand correctly that implies a 3.4% expected real return for the S&P (1 / 29.30). I don’t think that can be used to “time the market“, but just a point of reference when talking about how expensive stocks are vs. other investments.

As a long-term investor, I’ll take my chances with a stock heavy portfolio. Stocks don’t look so bad if you compare it to the other options out there.
KlangFool
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Re: Economy vs Markets

Post by KlangFool »

rockthisworld wrote: Tue Jun 16, 2020 8:18 am
How long can this disconnect go on for?

P.S. I’m still 100% VTSAX and believe that long term it’s still best way to generate wealth.
rockthisworld,

Good luck!! Make sure that you can survive long enough to see the long-term.

You have to survive in order to succeed.

What is the long term for you? 10 years? 20 years? Can you survive financially while unemployed for 10 years? 20 years? If not, how does the long term helps you?

KlangFool
Last edited by KlangFool on Tue Jun 16, 2020 4:38 pm, edited 1 time in total.
reln
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Re: Economy vs Markets

Post by reln »

rockthisworld wrote: Tue Jun 16, 2020 8:18 am How long can this disconnect go on for? Rising debt past 26 trillion, half of small businesses won’t come back at least half of the jobs lost won’t come back. Fed balance sheet at new highs and rates are on hold til 2022 the fed believes we can’t normalize rates. A lot of pressure on the dollar. Fixed income and treasury’s have practically no yield. We are seeing big time inflation in food. It would have cost me $25 to get a haircut instead of $15 etc.

When will all of this catch up to us? I do believe in holding long term but the future isn’t looking as great even with the SP 500 3000. It just seems like the market is going to react to an overly optimistically priced in v shape recovery that needs to recorrect?
Do you think America brings back the gold standard?

What do you all think about this?

P.S. I’m still 100% VTSAX and believe that long term it’s still best way to generate wealth.
Markets and economies are never connected.
Fallible
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Re: Economy vs Markets

Post by Fallible »

OP, on another recent thread titled (by that OP, not you) "I Almost Sold At The Bottom," you replied:

"Right now I’m 100% VTSAX and just going to hold that and hope that the odds are in my favor that it will provide a baseline decent return over the long haul. It is scary because I personally saw my net worth drop to under 100k and I panicked but by continuing to add what I can and a few more $$$ thrown in like making coffee at home vs Dunkin for example and I know it will make a difference. So yes I expect less than market returns but I still like the idea that there will be something to complement what’s left of social security. Stick to the plan."

In your current thread here, you express more concerns resembling more panic and end by saying, "I’m still 100% VTSAX and believe that long term it’s still best way to generate wealth."

Since panic may (or may not) lead to panic selling, have you considered lowering your risk?
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
JAR89
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Re: Economy vs Markets

Post by JAR89 »

I can’t decide if all of us getting comfortable with the logic that the stock market is disconnected from the economy is something we will laugh at in 6 months if/when we crash again. Like we all laugh at ourselves for thinking the RE market would only go up in 2006.

I’m not changing my investment approach though. But while there is some logic to it, there’s a certain “boy was that stupid” feeling to the statement.
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SmileyFace
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Re: Economy vs Markets

Post by SmileyFace »

Valuethinker wrote: Tue Jun 16, 2020 4:01 pm
DaftInvestor wrote: Tue Jun 16, 2020 2:16 pm Jobless claims weren't as predicted for May (went down instead of up). As others pointed out - no correlation is necessary between debt and markets. Big businesses drive the markets more so than small businesses.
Thinking of my micro-local-economy: Personally I know several furloughed workers that have either gone back to work or will be soon. Our local restaurants re-opened with restrictions (less people) and the ones I have checked with have been booked solid every night. I believe Retail spending will boom as well with pent up demand - there are lines at the stores to buy clothing, electronics, etc. (people aren't afraid to go which was what many predicted). I wouldn't be surprised if folks hop on cruises and start vacation travel with vigor as well (also against many dark predictions out there). Consumers aren't as afraid as you may be thinking (or what many have/are predicting). People like to buy things and do things and will do so even with some additional risk of getting sick.
What happens if their cruise line gets a Covid-19 infection?

The median age of passengers is probably over 60?

Over 60 is not an age you want to get Covid-19. Even if you don't have a pre existing condition.

I can't see a lot of those mass leisure industries doing well in the current environment. Every time there is a mass outbreak they will be shut down?

More outdoor focused forms of entertainment like sports events or outdoor cafes? Maybe. The virus does not seem to spread as well out of doors.
You are off by nearly 20 years on the median age for cruise passengers (its 46). All of these industries can take extra precautions - time will tell but early indications are showing people wanting to get back out and about.
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bottlecap
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Re: Economy vs Markets

Post by bottlecap »

The short answer is that this can go on for longer than you or I are alive. The costs right now are felt, but largely unseen.

Some day there will undoubtedly be a reckoning.

Until then, all people can do is invest normally.

JT
KlangFool
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Re: Economy vs Markets

Post by KlangFool »

Fallible wrote: Tue Jun 16, 2020 5:34 pm OP, on another recent thread titled (by that OP, not you) "I Almost Sold At The Bottom," you replied:

"Right now I’m 100% VTSAX and just going to hold that and hope that the odds are in my favor that it will provide a baseline decent return over the long haul. It is scary because I personally saw my net worth drop to under 100k and I panicked but by continuing to add what I can and a few more $$$ thrown in like making coffee at home vs Dunkin for example and I know it will make a difference. So yes I expect less than market returns but I still like the idea that there will be something to complement what’s left of social security. Stick to the plan."

In your current thread here, you express more concerns resembling more panic and end by saying, "I’m still 100% VTSAX and believe that long term it’s still best way to generate wealth."

Since panic may (or may not) lead to panic selling, have you considered lowering your risk?
+1,000.

Evaluate your risk-tolerant now before the next major drop forced you into capitulation. You may not be able to sleep at the next drop.

KlangFool
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Riley15
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Re: Economy vs Markets

Post by Riley15 »

-duplicate-
Last edited by Riley15 on Sat Jun 20, 2020 1:31 pm, edited 1 time in total.
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Riley15
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Re: Economy vs Markets

Post by Riley15 »

willthrill81 wrote: Tue Jun 16, 2020 2:05 pm
rockthisworld wrote: Tue Jun 16, 2020 8:18 am How long can this disconnect go on for?
There hasn't been a strong connection between the stock market and the economy in the first place.

Only 17% of American workers are employed by a firm in the S&P 500, which represents the lion's share of the stock market.
rockthisworld wrote: Tue Jun 16, 2020 8:18 am Do you think America brings back the gold standard?
Economic issues existed when America was on the gold standard. Contrary to what some seem to believe, the gold standard did not prevent macro financial problems. In many cases, it exacerbated them.

If the S&P500 only employs 17% of the workforce why is the Federal Reserve hell bent on supporting the stock market in any way possible from buying corporate bonds and providing nearly unlimited liquidity to corporations.

This would not be the most effective way to meet their mandate of maximum employment. There must be a much larger trickle down effect from the stock market which effects the underlying economy.
Last edited by Riley15 on Fri Jun 19, 2020 6:29 pm, edited 1 time in total.
UpperNwGuy
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Re: Economy vs Markets

Post by UpperNwGuy »

Keep calm, and stay the course.
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