American Economics Thread

horse

horse

Colonel
Registered Member
FairAndUnbiased said:
WTF is going on in the US stock market?
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Two funny things, or curious advice somebody, two difference sources told me a long time ago.

One I read out of a book, I read it later, but that book was published in 1980 maybe, and that what what happening at the time.

It advised to buy short term T-Bills, long term US-Treasury Bonds, stocks, and gold.

The idea was, that the guy who wrote that claim he had no idea what will happen, will the inflation continue (inflation meant high short term interest rates)? Will the economy collapse (bonds go up)? Will they cut inflation down (and therefore the stock will rally)? He was clear that he did not know what will happen, so he wrote that if anything happens, something from the T-Bills, T-Bonds, stock market, gold, one of those will go up.

He was right. Paul Volker the Fed chairman crushed inflation, ushering the prolong period of disinflation leading to the generational bond rally and stock market rally in America.

The other piece of advice someone told me a couple of decades ago, as we were standing around looking at the market, he said, you know what to do, the market was hitting new highs, what I said, then he said that you should close your eyes and buy.

That guy always wanted to be short, but he knew too!

What is the point?

I don't know. That advice would have worked.

The first story, is a case where no one had a clue, and a diversified portfolio was able to take advantage of anything that would have happened.

The second story, that guy knew that it was a generational event that stock rally, just close your eyes and buy, and hope it continues, that you get lucky.
 
horse

horse

Colonel
Registered Member
FairAndUnbiased said:
WTF is going on in the US stock market?
Click to expand...

If I had to guess WTF is going on in the US stock market, this would be my suspicion.

First, we must be aware of the times we live in.

The Washington Consensus has won, in America. Elsewhere it is a mixed picture. All this means is financialization of the economic system. That is a long story, but the key point we must understand, to understand what the west lives under.

The key point is that when they loosen monetary policy, such as the Fed cutting interest rates, that money flows out and into financial assets. If I would have to guess, of every $10 dollars the Fed pumps into the economy, $8 will wind up with the bankers, and the $2 will go to the people, so the bankers with all the money will buy assets like stocks, bonds, real estate.

Since interest rates are this low, it is a rally of everything, of all financial asset classes, stocks bonds and real estate.

That is the main point, of what is today.

Here is an important footnote, the stock market in the United States has changed. Today there are more ETFs than actual stock issues. All that means is that there is less quality stocks to buy, and big tech is monopolizing the market too in terms of who is the market. Before, the United States economy and stock market was very diversified, now it is all tech and all the tech. So it is a case when the market moves, maybe it is not the market moving, it is just some tech stocks moving.

Now there is an important question in the background, that cannot be answered, and that not about inflation or deflation, it is about the US Dollar, will it preserve its value.

Historically, when the hegemonic power starts to print money, the currency will go and and it collapses.

That is the biggest threat out there, a USD collapse.

That probably will not happen next week, or next month, or even in the next few years. Still, if it happens, then all asset classes will go down hard.

Financial crisis tend to be unpredictable, and just don't know when it will happen.
 
horse

horse

Colonel
Registered Member
FairAndUnbiased said:
WTF is going on in the US stock market?
Click to expand...

So what is happening like WTF on a day to day basis, it seems more like the market does not believe the Fed.

1) The Fed says the US economy is doing fine and they would have to tapper soon. But a lot of people think that is kind of like bs, me included. If the US economy is endemic, then the Fed will not raise interest rates that much.

2) This pandemic is a big factor, because the lockdowns and the workers giving up the 9 to 5 job should reduce efficiency and would be a drag on economic growth.

3) The US bond market refuses to sell off. The bond market believes the inflation is transitory.

4) If the economy is doing poorly right now, the market should go up, that is the idea. If the economy is doing poorly, then they will inject cash into the system, like they are doing now in China. When the Fed loosen monetary policy because of weak economic conditions the market goes up.

The stock market often follows the bond market. When the economy is doing great, and the Fed is raising rates, and the bond market is tanking, that means the stocks will go down sooner or later.

5) Here is a mean and nasty idea. Inflation is like what Maria Anttonette said, "Let them eat cake."

Inflation is a problem for the people who storm the Bastille, and not a problem for the minority who own financial assets in America. So there is a little inflation, so what. Eat some cake.

6) Okay, too long winded, I think the stock market is going up, because the economy is no where close to firing on all cylinders, which means sooner or later, Jerome and Janet will relent, and crank up the printing presses again. Also that political thingy with the Biden infrastructure bill that was axed by his own party, everyone waits until they will pass that, after the Republicans win the election and take all the credit. So everyone knows there is more money coming down through the plumbing into the market.

Blah, blah, blah.

:):oops:
 
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