Corona and Stockmarkets...
What determines the huge drop in value?
In this current dramatic drop, the explanation is often that everyone is dumping stocks... everyone is selling. But, I'm confused here... there cannot be a seller without a buyer, and if someone is buying all the shares being sold, then how are they losing value? What difference does it make how many shares are being sold/bought, so long as they are? How does more selling and buying result in an overall drop in value?
Are the shares being sold at discount prices; below the current stock value? If not, then what reason is there for the value to drop?
Someone please explain this to me.
In this current dramatic drop, the explanation is often that everyone is dumping stocks... everyone is selling. But, I'm confused here... there cannot be a seller without a buyer, and if someone is buying all the shares being sold, then how are they losing value? What difference does it make how many shares are being sold/bought, so long as they are? How does more selling and buying result in an overall drop in value?
Are the shares being sold at discount prices; below the current stock value? If not, then what reason is there for the value to drop?
Someone please explain this to me.
Comments (102)
One of the factors is that the stock market has been inflated by the injection of 'cheap money' as a consequence of very low interest rate regime which has held sway since the 2008 crisis. This has arguably resulted in a massive bubble or over-valuation of stocks, which has now been thoroughly deflated by the appearance of a global pandemic. This pandemic is going to have huge economic consequences with many businesses, large and small, collapsing or going into hibernation, and possibly millions of jobs lost.
Other than that, in this age of google, have a look for some stock market primers.
What matters is the price that they are being bought and sold at. People are still buying, but they are buying at lower and lower prices. Reciprocally, sellers are selling at lower prices too (because buyers are only willing to buy at low prices). It's not the volume or rate of shares traded ('more buying and selling') that makes the difference, but how much people are willing to pay to acquire stocks.
The rough reason they are dropping is that people are worried about the profitability of the companies they hold shares in, which is dropping across the board because are people no longer spending money on things (like flights, entertainment, retail, etc). People not spending money = no profits. No profits = no return on investments in stocks = better to unload (sell) those stocks.
The other rough reason is the self-fulfilling one that if others sell, then stock value drops, so you have to sell too in order not lose money on your investment. Example: if you bought a stock at $100, and it's now selling for $40 and the price is falling, you've made a 'paper' loss of $60, and you risk losing even more by holding onto the stock. Better to 'get out' and take the real loss now rather than wait for it to fall further and make a bigger loss down the track. The big problem is that if everyone thinks like this, everyone sells, and you get a reinforcing cycle of panic selling which drives the stock prices down sheerly because everyone is worried about everyone else selling - and therefore sells.
You assume way too much. Arbitraging a trade ensures no market bubbles. But, go figure.
Because they still have PRICE even if nobody is buying. If you own stocks (or anything else) in such a market, you can see the price drop all the time, while you are sitting on your goods.
Quoting Wayfarer
Hey Jeep!
I'm remain hesitant to use the notion of 'dark art'. However, there is something very suspicious about it all.
Quoting Wayfarer
Yeah, I appreciate the view you're presenting here but there's nothing about it that answers the direct questions I'm on about. Seems might be able to give me some answers that I'm looking for.
Tim, it is easier to arbitrage in a digital world because price information is more readily accessible.
Shawn, arbitrage does nothing for bubbles. Bubbles are structural imbalances in the market and arbitrage only ensures price differentials (which can exist through correlation not just dual listings) are closed. High speed traders do nothing else and they're having a field day in such a volatile market.
Virtu, Citadel, IMC, Optiver, Flow Traders are all interesting stock at the moment because of it.
Right. That's what I'm asking about, but I'm not asking for generalities. I have a strong interest in this.
What and/or who determines the selling price?
In the world that I live in the seller does that, and only drops the purchase/sales price if they see fit for whatever reason. That reason is never ever to intentionally reduce profitability or consumer confidence. That reason is never to sell my product as a means to render my customer at a financial loss.
That would be a public disservice.
In the world I live in, the seller cannot buy back half of their own product(half of what they've recently sold) in order to use that sales information(including the higher sales price) as a tool for convincing potential buyers to believe that the value of the product is higher than it is. This creates an illusion of more customer/consumer demand than there actually is.
That is a deliberate deception. Fraud. A public disservice.
Colonel Sanders cannot buy back my bucket of chicken as well as all my neighbors' for a dollar more than we paid, and then go on to use that information to convince us and others that there has been an increase in the value of the bucket of chicken, based upon an increase in sales(demand) only then to sell it back to us for more.
Quoting StreetlightX
You make it sound as if the buyer is driving and/or establishing the actual share(selling) price. Is that a misreading?
Someone is spending money, because someone is buying the stocks at a discounted price. What I want to know is who what when where and how is the market price set to begin with?
How can so many people be selling if there are no buyers. There cannot, and unless I'm mistaken, a seller does not have to sell at a discounted price...
So, it all started somewhere and snowballed. Who first began dumping huge numbers of shares at a lower price, and who is buying them? Is this a matter of public record?
Quoting Benkei
That's putting it mildly...
IT'S A MARKET. The selling price is determined by what people will pay. Hope that's direct enough for you.
There are buyers. The price of a stock indicates the last price at which a stock was traded at (the last time a buyer and seller 'agreed' on a price). Stop thinking in terms of 'dsicounted price': there is no 'discounted price', just the price, that's it. It just happens to be low (in relation to where it was in the past).
Quoting creativesoul
Not a misreading, that's exactly right. Or at least it is in this case, where it's a buyer's market. Again, it's just supply and demand dude: there's alot more supply than there is demand, so the price falls. Economics 101.
All sellers and buyers make a market. They all put in orders to buy or sell at a certain price. The price you see on the stock market is the last price at which a buyer and seller meet (eg. they put in orders for the same price).
Sellers will be willing to sell at lower and lower prices because of expectations of either market sentiment or performance of the underlying company. (this doesn't concern bonds obviously, which is in some ways more complicated and in others simpler).
In uncertain times a lot of investors like to invest in more stable investments and are prepared to "take a loss". They end up buying gold and AAA-rated government bonds (hooray for Germany and the Netherlands).
So, it all started somewhere and snowballed. Who first began dumping huge numbers of shares at a lower price, and who is buying them? Is this a matter of public record?
:brow:
No, but it doesn't particularly matter. This isn't some grand conspiracy. Economic conditions are shit right now, which means alot of people will be looking to sell their shares.
So... hypothetically, such an investor could sell off all his airline stock at a lower price than the current market value, or would those lower prices be the new share price?
It doesn't seem like some grand conspiracy to me either. Just many nefarious agents all doing what's allowed. I'm just attempting to get some questions answered.
If it is not a matter of public record, then what's stopping a corporation from buying back most of it's own stock at a higher price for the sole purpose of convincing others that it's value has increased?
of course it is. Shares are traded in public companies and every transaction is a matter of public record.
If you watch movies, try The Big Short, or Wall Street. Plenty of insights into Wall St shenanigans in both.
The "police of the market" like the SEC in the US can investigate if things seem manipulated. Such as lots of shares being dumped before a big announcement usually indicates insider trading.
In principle, all the transactions and accounts can be traced, but in practice sometimes it is too complicated to figure out (as anonymous offshore "businesses" can also buy and sell stocks).
However, in this case the crash is not some algorithm gone haywire or just "mass hysteria".
Well, there is mass hysteria, but good reason for it. (The world won't end or go "madmax" but problems are not binary between "nothing to worry about" and "now I have to learn to to play a flame thrower guitar").
The reason for the crash is that the lockdown of entire economies has massive implications for the stocks of most industries. To take one sector, tourism, it's clearly not going to making much profits over the short to medium term.
You may say, well "it's temporary", things will get back to normal.
First, even if that's true, all stocks primarily related to the tourism industry are (all else being equal) worth less because they will be making less profits. A business that skips out on a year of profit is simply worth less than had it been able to pocket that year of profits. So even in the though experiment of "putting a business on pause" and then going back to normal after some time, that business is still worth less and we may expect the stock to trade lower.
Second, the disruption of the pandemic is so severe that the assumption that things will ever go back to normal is tenuous. Tourism may simply never get back to the level it was before because people change their habits during these travel restrictions, and, more importantly, due to the entire market being disrupted people will have less money to do tourism (what money they have they may also say ... hmm, black swan events to happen, I'm going to hold on to this money).
Quoting creativesoul
Essentially yes. In practice, a offering to buy or sell shares has to be "big enough" to move the market.
If someone is offering to sell 1 million shares at a certain price, if you then offer 1 share below that price it will, usually, just disappear and it's not noticeable as a share price move.
Keep in mind, that the listed price does not mean someone is buying or selling, only that there is (usually a substantial) offer at that price.
If no one buys at 90 dollars all or part of an offer of 1 million shares, then the seller may move their offer lower to 89 dollars. It's only when those million shares actually trade hands that we can say "that's the new value according to the stock market"; and it's not "all or nothing", someone may think 90 dollars is a good price and will sell quickly, but they only want to buy 10%, then if it goes lower they will say to themselves "well, should have waited"; of course, it's easier to say "buy low and sell high" than actually do so.
So, people wanting to sell stock may need to "march their price" down until someone buys. If this process takes an hour for sellers to test each price point on the way down, then it seems the stock went down over an hour; however, there was no one actually buying at all those price points. Seller A sets a price, no one buys, seller B is willing to sell at a lower price, no one buys, seller C offers an even lower price, seller A sees this and really wants to sell so sets an even lower price. In age of electronic algorithms this process can be very quick, which is why you can have huge drops essentially instant.
Nothing. Share buybacks are a thing.
That all said, depending on one's area of jurisdiction, there can be and are certain rules regarding the transparency of shareholder ownership, which usually come into effect at certain thresholds of ownership. Lots of ways around this through - shell holdings and so on.
Why would he sell at a lower price than the at market price? But yes, depending on the stock exchange rules either the highest bid price will be the new share price (and conversely the seller would receive a higher price than he asked) or it is settled at the low price of the seller.
My understanding of the situation is as follows:
1. Corona is causing massive disruptions to most sectors of the economy: collapse of air travel and tourism for an unknown time, closing of local restaurant and entertainment and every other "in person" businesses for an extended period, many old people dying which will put more homes on the market, disruptions to supply chains due to manufacturing shutdowns in China, and long term psychological based changes in behaviour, damage to health systems (mainly skills dying or being so traumatized that they quit during or afterwards), and all related supply industries.
2. The positions taken by central banks to paper-over the 2009 "great recession" have not been unwound.
3. There are no more tools available (nor the prospect of until now "unthought of" tools) that can encourage traders to believe the free market will be stabilized by collectivists schemes of one form or another.
4. Therefore, any market actions by regulators of central banks will simply encourage people in the know to use those actions to get out even faster (not anticipate those actions will actually work and therefore stay in).
5. Large businesses will be bailed out anyways, even if long term structural changes to the economy mean there are no viable paths back to profitability.
6. Large sectors of the US economy, such as the fracking industry, have essentially never turned a profit and are faced with an economic down turn and a Russia and Saudi price reduction to force them into bankruptcy. Bailing the fracking industry out cannot even be imagined to make sense; they may actually be left hanging due to problems elsewhere being simply too great for friends to look after each other. (but this is an analytic side-quest to maximize one's schadenfreude at the expense of fracking executives and investors, and yes, a little bit at the expense of fracking workers too; but of course, doesn't help the financial system to have a giant rotten lemon on their desks as no one drinks rotten lemonade, except the fed of course)
7. Therefore, the central banks and regulators, by monetizing one way or another, trillions in losses will cash-up the investor class and be left holding what is technically referred to as "a big bag of dog shit".
8. This cash reentering the market when things are stabilized will cause massive inflation of whatever good assets remain.
9. There are no policy tools left (I am of aware of anyways) that could counter-act this inflation (US is already in trillion dollar deficit, 1.5 trillion "plausible deniability bailout" is already started in first week of this crisis and there will be much more, interest rates are zero or negative, the deficit will go even higher, and the fed will stop reporting on their financial alchemy projects).
10. We can reasonably conclude that inflation therefore will not be controlled (i.e. controlled less than the current policy mechanisms as well as just changing the definition of "what people need" on the fly).
11. International trade will start to collapse back to "real assets" (do you have something tangible I want, do I have something tangible that you want), rather than the previous regime of debt based trade (well, debts haven't been a problem before, therefore I will continue to pretend they will never be a problem in the future).
12. Referring back to tangible assets will be a radical simplification of the current trade system (not clear if there will be markets for most of the crap currently produced).
13. Regulators will realize at this point that there is no way to reboot the system without even more inflation since they just gave most of the money to the wealthy ... and have been doing so for the last decade already (and trickle down theories obviously make no sense, so the money will sit there but ready to pounce on any assets that do start to go up in price if the governments do try to bailout the poor through small "throw them a bone" inadequate measures, as horrifying as that sounds they will be forced to face their deepest fears of needing to throw those bones).
14. Service economies will collapse as credit dries up. Manufacturing will radically simplify, but countries with modest manufacturing capacity will be forced to protect their manufacturing due to over-capacity of larger manufacturing centers trying to shift production to "anything and everything that is still being bought somewhere"; the interdependence of manufacturing economies will make such policy shifts acrimonious and volatile.
15. Bottom line: isolationism as we saw in the great depression is now unavoidable, with all tools in the policy shed hemmed in and blunted by inflation.
16. World War would be great to just nationalize whole manufacturing bases and get people jobs in the business of killing people and use the nationalist furor to crush socialist agitation that's trying to help the poor, but nuclear weapons render this no longer "the go to" easy solution for capitalism's woes. It will still be tried, of course, using conflicts to get people focused on something else, but with unknown efficacy / survival of the human species.
17. The only solution will be a UBI, after a currency re-issue wiping out all that money held by the investor class (and all the debts held by everyone else). A UBI works because manufacturing technology has incredibly high efficiency today; you can just reset the currency domestically, issue a UBI and people will sort out how to make what people actually need (though resulting in a very different looking economy as people may change their life goals if they can relax about their short term survival). Countries that already have a well-fare state already have the institutions to keep things stable throughout the transition (most essentials are already organized by the state, staffed with dedicated public servants, and can continue to function without much reorganization). Renewable energy means there is no core-dependence on unfriendly parties to sell you oil, and therefore no need for major countries to go to war to secure critical resources, and no need for smaller countries to accept "free-market" destruction of their manufacturing base in exchange for access to oil. The unmitigated incompetence of the technocratic neo-liberal governing order, as demonstrated in this crisis, will make the propaganda needed to keep this power structure in place ineffective. People who can think critically and care about the poor have therefore a much easier time to get into power and immediately bailout the poor in what amounts to, one way or another, a UBI and currency reset collectivist enterprise. Investor class will try to prevent this from happening (and may succeed by killing everyone) but, as they are already on the back foot in their propaganda at the moment, I believe it is more probable we will be seeing, in essence, Marx's core predictions come true: Capitalists undermining their own basis of power due to "the greed horizon" becoming too short, such as causing this crisis by trying to avoid a much smaller dip in airline stocks literally just 2 months ago, and people taking control of the means of production to satisfy their own needs through equal political participation.
Exactly. Some people here do not seem to understand that. A "price" for a stock does not mean that anybody is actually buying or selling. Anybody who has owned stocks and try to sell them in a downturn like this has had this experience.
That the Global economy goes into a sudden recession.
Trump has already hinted that now the US economy is going to recession. Here the are making forecasts of a -5% GDP growth.
Markets price in this. And let's see if this is a huge buying opportunity or if that is in the summer.
The selling price is determined by what people are willing to pay. it's a simple matter of supply and demand. Sellers are plentiful, buyers are not, prices drop. The sellers are motivated for numerous reasons, to cover margins (loans), or whatever, and the buyers are not. There are times of year, where the markets are more vulnerable due to predictable expenses, like income tax payment in the spring, people need cash.
Quoting creativesoul
Right, the share price reflects the last sale.
There are many ways to make money from buying and selling stock. Some actually contribute to the market drop. Check out short selling. In this practise, you take advantage of the period of time which you have to settle your transaction. You can sell stock which you do not presently own, and buy it at a later time, for a lower price. Your time is limited, so it's extremely risky, but if the market is in free fall one might reap significant rewards in that short period of time. Strategic short selling can actually induce a market drop by providing an abundance of stock for sale (large lots) creating significant drops, margin calls (demands to pay up debt as collateral vanishes), and general panic, while buying back in dribs and drabs to cover what has been sold. Don't underestimate conspiracy within the market place. Prostitution might be the oldest known sin, but conspiracy remains unrevealed and therefore might be even older.
There are plenty of tools available. The problem is that solutions are based on stochastic models for a global economy that is too complex to be caught in such models. So the cure doesn't cure or creates a lot of unwanted side effects.
Here I am mainly referring to financial institutions like the central banks.
I.e. no more tools that can work in the existing paradigm to maintain it's central aspects (i.e. get back to "normal").
Of course, the solution I propose, UBI, is obviously a tool, but it's legislative and a fundamental departure from the current paradigm.
I'm not sure if we disagree here; do you mean to say if central banks had "better models" that they could get the economy back on track (as they would understand that track to be)?
Asset prices are decreasing on average because of (1) in a feedback loop. It's not just that though. (1) happens even in times of market stability, it's just how they work. What makes this different is that a lot of people are selling, and (1) ensures this drives down the price (and people know it will). To answer that you've got to ask why they're selling.
(2) Some people will be selling simply because they can see the price is going down on average.
(3) Some people will be selling because there are mounting economic risks regarding the coronavirus in general; it's a (borderline) pandemic, everything conceivable will be disrupted in some way to some degree, all along production chains, in travel and logistics etc.
(4) Some people will be selling because they know (2) and (3) are happening and will turn a profit by selling now for (comparatively) lots and then buying stuff for cheaper in the case of an even more major economic disruption (if this starts looking too likely, governments will try to respond in some way, like they're doing now in the US with another "fiscal stimulus" package in congress).
The whole thing's just a movement of hot air, which may or may not currently be percolating around the insides of an overfilled financial balloon. The political north's largely been stagnant or declining in productivity since 2008, AFAIK the relative price of goods to median income's typically been increasing since then (this is the opposite trend expected from when there's growth rather than a bubble). Let's hope that all this is wrong, and that continued disruption won't lead to another 2008 wealth/power transfer.
The unstable market is the trader's market. That's where the traders make easy money. So why would the traders want to stabilize the market? Traders will never allow for a stable market. And unfortunately, if traders are making easy money it usually means that other people are losing their hard earned money. If a stable market is desired, the solution is to ban traders. This was demonstrated by the 2008 crash.
It does not matter what the the traders want. Or rather, what they want is incidental to how they will try to act.
If they think the market is going down they will tend to sell. If they think it's going up they will tend to buy. If they think it will stay the same they will tend to hold.
I say "encourage traders to believe the market will stabilize" not in the sense of encouraging them to want the market to stabilize and cooperate to achieve that end is a great way to run a free market economy (because the free market is efficient and therefore needs a lender of last resort whenever it collapses into dysfunction), but only in the sense of believing that it will actually happen (because they believe others believe it will happen due to believing the action of the FED will have this psychological effect on others, weaker minded people, that regardless of "fundamentals" the "smart money" needs to hop on the trend to fleece these fools later). If they think it will actually happen their behavior will change, and collectively they will make that change by anticipating it will actually happen.
So, previously, when the FED and other central banks had what they called "ammunition" left, their interference in the market in the name of saving a free market ideology as a basis for world government, would have both a primary numerical effect in the market as well as a secondary psychological effect.
If traders believe "geniuses in the FED obviously know what their doing, as otherwise they wouldn't wear suits and hold press conferences" they interpret any actions by the FED as "obviously going to work in stabilizing the market", regardless of the primary consequence of the FED's actions (indeed, the primary consequence of the interference could actually have a negative effect, because they don't know what their doing, but the secondary psychological effect could completely dwarf that; just like the placebo effect can completely dwarf negative side-effects and the treatment seems to "work great" reinforcing the placebo effect).
So, if the FED has a carefully cultivated cult following that believe the public providing a private entity with the monopoly on what legislatively created entity people can pay taxes in, then basically anything it does or says to move the market will move the market because people believe it will work and thus anticipate it working, moving the market to were the FED wants it to be. And it works! Prediction came true! Reinforcing this psychological influence over traders.
When "placebo psychology" is not enough to counteract real changes in the market (such as a bank going bankrupt) then a "real action" is needed (such as bail out all the other banks and a select few giant corporations).
This real action has some real stabilizing affects, but also amplifies the psychological effect as traders say "wooeee, trillions dollars to me and my friends baby! FED's got this".
However, if traders lose confidence in the FED, then the psychological leverage can not only be zero, but can actually be negative. Whatever actions the FED takes will be anticipated not to work and only indicating how dire the situation is and, in anticipation of the FED's actions not working, traders will reinforce the opposite direction, and again regardless of the primary effect of the market interference (such as buying junk mortgages should support the junk mortgage market), the opposite of what they want will occur (that they can support the price only insofar as they are the only buyer, and as soon as they stop it tanks even more). And the market's prediction comes true! Reinforcing the belief that the FED is a pathetic bunch of has-beens that don't know anymore than your common stock of shoeshine boys.
Why people who care about this sort of stuff as "the most important thing you could possibly know about and cause of all good things in the universe" blabber on about "confidence".
Due to the 2009 crisis (and wanting to bail out their friends, and even make them richer, rather than pursue any sound fiscal policy even according to their own ideology, which is just a public position to keep useful-fools inline and not their private position of doing whatever idea, socialist or capitalist, will get them more power in any given situation), the FED and central banks have spent all their ammunition blasting holes in their own floor in which to shovel in trillions of dollars and lighting it on fire.
This ammunition is mainly rate cuts to the interest banks can loan new money at, large market interventions that represent "a lot" but not so much as to legitimately be on the path of central banks owning whole markets, as well as the fractional reserve limit.
Right now interest rates are zero or negative, the FED owns over a trillion dollars of mortgages and have announced buying some hundred billions more, and the fractional reserve limit has been place at zero (which means banks don't actually have to even loan money from the FED ... but can leverage 0 dollars to make their own infinity dollars anyways).
There's simply nothing of significance left central banks can really do (as far as I know), and so traders will simply ignore their actions, or even interpret any given action as signs of the financial armageddon.
But the central banks will be forced to keep creating money anyways. For instance, US federal government has a trillion dollar deficit, may need to go to 2 trillion due to this crisis (in a combination of not collecting taxes and bailouts for everyone and the direct costs of the crisis).
The crash of the stock market also means the crash of the junk bond market (there's no reason to have confidence in a company who's market cap is lower than their outstanding debt, and due to real changes in the economy there's no reason to believe they can bounce back and that bailouts will come to the rescue rather than postpone the inevitable). FED will need to take all these junk bonds onto their books because the banks tell them to or their crash the system.
All this is a lot of money entering the system to accomplish nothing.
At some point even economists will be going around saying "tut, tut, tut, no free lunch, tut, tut, tut, no free lunch" and wagging their fingers in the faces of every econ 101 students who is trying so desperately to believe regulators are playing some sort of arcane zero dimensional chess and have a point to their actions. (wagging those fingers through video-link of course).
The financial system was already on life support, and so anyone who even imagines that a pandemic walking slowly by regulators over three months as they just stare at it, then quickly jump on the patient in a bear hug squeezing out all the oxygen, as regulators slowly put down their issue of foreign affairs and prance elegantly across the room, careful not to spill their martinis, and then lightly paw at the pandemic while preparing 1000 shots of adrenaline for when the patient codes -- actually believes all this won't have a massive consequence, is a beautiful, beautiful dreamer, just unfortunately in a opiate induced coma at the moment.
That's why no one's coming in here to say "market's at a record high douche bag; do you even know what a blockchain is bro, do you even know crypto isn't a code bro? do you even know anything bro?".
Traders make their money from transactions. If they think the market Is staying the same (stable) they will hold, as you say, therefore they make no money. So the trader's livelihood is dependent on an unstable market, and they will do what they can (strategic buying and selling) to ensure that the market is unstable.
Quoting boethius
Impossible, because a stable market makes no money for the traders.
Quoting boethius
Traders know they have more control over the market than the FED could ever hope to have.
Quoting boethius
Your analysis is faulty boethius, because you are not distinguishing between the general population and the traders. Perhaps the general public might believe that the FED has control over the market, but this is an illusion, and the traders know that. The traders will play along with the FED at strategic times, because it's in their interest to encourage the deception, which keeps the public money rolling in. The FED may claim to act in a predictive, preemptive way, but the fact is clear that its only significant acts are post hoc. Therefore the Fed's actions do not move the markets, stabilize them, or anything like that. This is an illusion created by the traders playing along with the Fed, to exercise what you've called "psychological influence" over the general population. In the end, what influences the general population in its perception of the market, is what happens in the market place, and this is where the traders have all the leverage.
Quoting boethius
The traders don't give a fuck about the FED. The FED protects their livelihood, but when it's time to make their money they don't give a damn. It's not a symbiotic relation.
Quoting boethius
See, now the traders are not only taking money from the general population, they are taking it from the FED as well, in the form of bailouts. Clearly the traders don't give a fuck, so long as they can feed the greed, and keep stuffing it in their pockets, they'll take it from wherever they can get it. Greed is an incorrigible disease.
Quoting boethius
So long as traders are allowed free access to the market there will be always be an abundant supply of free lunches.
"Traders" (as a whole) do not engage in strategic buying and selling to create more volatility.
Some traders, who believe they can both A. contribute significantly to volatility and B. profit from that happening, do as you say. Others, who can not do A or B, or likely both, do not engage in such a strategy.
Traders tend to stop selling if they believe the market is stabilizing as to not lose money, as if they wait they may be able to profit from their current positions. Indeed, the market stabalizing in-between up-and-down is simply the definition of traders no longer selling more than others are buying and a new equilibrium reached (therefore, a net tendency not to now sell; and a stable market this tendency is only slightly out of balance leading to slow rises and falls).
Quoting Metaphysician Undercover
Explaining this is the whole point of my answer to your first comment.
The FED is effective insofar as traders believe it's effective. An individual trader can hate the FED and what it represents and believe it to be unconstitutional and created through conspiracy and moreover run by delusional cronies, but will still trade based on the assumption that the FED's actions will be effective (at accomplishing the FED's stated aims) if that trader believes other traders believe the FED's actions will be effective.
Quoting Metaphysician Undercover
You may misunderstand my analysis, and maybe it is faulty, but you have not uncovered that fault.
Mostly, we are saying the same thing, but you are considering all traders as some sort of "cohesive group" that have some sort of agreed on strategy. This is not true.
Traders are not cohesive, they trade against each other, and the net-result of this trading is "supposed to be" corralled and shepherded around by the FED and other central banks.
Yes, we agree, the system is corrupt and will result in bailouts (first tranche already announced; in order to avoid a 5-10% decrease in airline stock due to a major containment operation two months ago ... now their shares are tanking, they are on the brink of bankruptsy and they need a bailout ironically almost proportional to the stock-buybacks they performed using low-interest public loans debt from the previous continuous bailout scheme).
What I am describing is how those bailouts will result in uncontrolled inflation because all the "control inflation leavers" the FED has, have been already pulled due to the 2009 recession (to prop up their fellow cronies; we completely agree there).
Unlike last time, the wealthy will not simply bail themselves out and keep the system running in some semblance of "free market capitalism" while the left cries fowl and (many) libertarians explain that paying back a bailout in inflated currency retroactively deletes that bailout from existence and ta-da: capitalism is alive and well. The wealthy have completely borked the system this time. There's no putting humpty-dumpty back together again.
A monetary system starts to truly enter dysfunction in itself (rather than mere social dysfunction of inequality that is a "values question" plutocrats can ignore) when A. inflation can no longer be controlled and B. more inflation is needed to bailout friends and the government itself (so that it can continue to do its job of protecting the rich from the poor). We have already seen the first obvious but ineffective measure in the long term, measure at dealing with inflation: price controls. It starts small on just a few "necessities" but give it time, give it time.
It's a tourist town, so basically 75% or more of the town is unemployed. About the same percentage of businesses are going to be broke quite quickly. Trade is seasonal, so there is no prospect of any upturn for a year.
If that wasn't enough, quite a lot are going to get ill and because it is a retirement town as well, quite a lot are old and vulnerable.
So when the olds die, and the businesses go broke, property prices will crash, and mortgage companies will be in difficulty. Government has already promised payouts of £330 billion which it hasn't got and will not get because no one will be working and paying taxes.
Traders will take advantage if they can, but when the town goes tits up the best advantage is to be able to leave town. Mars anyone?
Why Mars? Nah, just cancel all debt, cancel all mortgages, communalize the means of production, appropriate the rich, destroy capitalism, and we're all good, right here on earth.
Quoting Reuters front page
Obviously, no one has confidence in this "stimulus" and everyone wants out. If the FED steps in to make sure their friends can get out ok too (what they are already doing) one way or another, as well as step into monetize huge leveraged losses, it only delays the inevitable, while creating a ton of new money.
"Fiscal responsibility" based crony capitalism, however, is premised on the ability to provide welfare to the investor class while implementing harsh austerity on the government and everyone else (yes, you have inflation from the bailouts, but only the investor class benefit and the inflation can be balanced somewhat by austerity; it's not completely uncontrollable over the time span of a decade at least; which is all the time you need to build bunkers on islands). If problems are self created in the financial system, they've been pretty successful at doing this bailout-austerity trick (it's a good trick spins things this way), but since this current crisis isn't only a self-created problem of the financial system, yes it one of those too, but also a real world problem; austerity is impossible and inflation will start to get out of control as soon as the dust settles on the immediate crisis.
It's a really great place to trade, because everything's in short supply. Honest. It's where all the smart money is going.
Quoting StreetlightX
I'm doing my bit to undermine confidence - Capitalism is a confidence trick, right?
Trump Feb 24:
“The Coronavirus is very much under control in the USA. … Stock market starting to look very good to me”
Trump now: "Stockmarket? What stockmarket? Never hear of the guy."
I agree that "traders" are not a cohesive group, and they don't have an agreed strategy. Nevertheless, they have the same intention, which is to make money off the market. And they make money in similar ways, so they develop similar strategies, which feeds the herd mentality.
Another axiom is "buy low/sell high". A good share of the sales sending the stock market down are still profitable for those who bought the stock LOW a while ago, and are (from their point of view) selling high.
Of course, that won't be true for a lot of people. A good share of the sales sending the stock market down are people who bought high and are bailing out as fast as they can. There is apparently a huge flight to cash, with all sorts of assets (gold, stocks, etc.) being liquidated.
A plunging stock market is an opportunity for those with piles of cash to acquire assets that will, in the long run, PROBABLY appreciate. Some investors can afford to wait years for their bets to pay off. When their cheaply acquired stocks have appreciated a lot, they will sell at a profit -- maybe in the next big crash a decade (or less) down the line.
Another axiom: what goes up must come down.
https://m.youtube.com/watch?v=tkVAUGaEcfA
An opportunity was presented in 2008 whereby the financial system (which really is only a shadow of the real economy system) was at breaking point. As Roosevelt (who was a reasonable man) did in the 1930s around the Great Depression, he took reasonable action by breaking up the banks. The banks got too big to be an accurate shadow of the real economy. Recognising this, he took action. And what followed, was real growth.
Unfortunately, when the same opportunity was presented in 2008, our leaders at that time relied on logical outcomes, instead of reasonable ones and DIDN'T break up the banks. The result of such is likened to a forest fire.
There is a natural sequence of events in a forest. A forest grows and grows. When it grows to big and the conditions are right, there is a fire. The fire "thins" out the excess growth and creates the ground for a new growth to occur. That's the natural sequence.
In our financial system, when the fire took hold in 2008, instead of allowing it to be, they put the fires out by adding more money to the financial system. If we liken this back to the forest, to put the forest fire out, they quickly planted loads more trees which the logical argument of, "well if we create enough trees, there wont be enough oxygen for the fire to breath". This is logical and makes sense. However, it is not reasonable and creates an even bigger problem. Now we have 10 times as much fuel available for the next fire.
What we are seeing now is a new fire. The financial system, swelled with so much "fake money" means that the shadow it produces of the real economy is completely, and madly out of proportion.
The fires have started, and they are taking hold. But this is precisely as it should be. If we look at the forest again (and we do this in real forests too) we put the fires out. But then we have created the grounds for a "super forest fire" when the next one strikes and there is little chance of putting it out. Because there are only so many trees we can plant before there is no more space.
The only real, and sensible and reasonable thing to do, it let nature takes it course and let the fires burn. This is painful but necessary. Once they have burnt out all the excess, we can then start re-growth. And re-growth will actually mean something this time because it will be "real" growth, not just a growing of the shadow.
If we use logic without reason, we are insane in our actions. We can use reason on its own, or we can use reason and logic together to solve our problems. But we cannot use just logic to solve our problems without reason.
And of course, Burr isn't the only one, across party lines...
I was reading about this earlier. It happens across party lines and it's very glaring.
How is that corrupt? Corruption is when one acts on inside information, private to the company. Coronavirus was public information, and if some savvy individuals could foresee problems coming for specific types of companies, and sold, you cannot call that corruption. The market was extremely high anyway, and it was obviously time to sell, if you are inclined toward making money off the market.
Quoting ssu
What would the slap on the wrist be for? The people were just doing what we are all entitled to do. If there was evidence of inside information that would be punishable, but Coronavirus is fully and completely an external condition. But only so many stocks can be sold before a crash. First come first served.
And despite the fact that Trump insisted it was not a problem, there is no indication that any evidence was withheld from the public, which would constitute a conspiracy within the governing body. It's just a matter of which media companies one would source their information from. Trump's fake news tweets can hit you in the pocket book. Some poor innocent people were taken advantage of, to make them even poorer. What else is new in the world of Trump?
Perhaps politicians know what they will do and can understand the consequences. And that isn't public information. That's the point.
Quoting Metaphysician Undercover
This actually isn't about Trump. Note the party of Dianne Feinstein.
Yeah, and any finance minister and central banker will insist that they won't devalue their currency (if it's a fixed rate) until they do. But of course, you could then argue that "Everybody know that the economy was in a bad shape". You see, it is about timing.
I don't see that you have a point.
Well, it's a law. But who cares in this administration...if it's not Joe Biden etc.
And it goes on, but I think anyone interested gets the picture...
I don't see how any nonpublic information was used.
But why at least I am suspicious:
Now, which politicians have that information first?
The Federal Reserve just pledged asset purchases with no limit to support markets
Remember this picture from the financial crisis with Fed Chairman Ben Bernanke? At least now they are open about it!
So now we have the chance perhaps for that monetary crisis afterwards...
Price of gold is shooting up. That reflects the fact that the dollar is being destroyed. Mnuchin said the total bailouts are adding up to $6 trillion. There's no corresponding increase in productivity or actual wealth. The dollars in your pocket are simply worth less ... soon to be worthless.
And in the end it ought to be the voters who decide what to do, if nothing is done and it's just business as usual. Unfortunately these kind of things will just die out because there is much bigger news. And the real corruption will happen when giving those trillions away of the freshly created money.
Why do you think that neither party wants Bernie?
Sickening.
Or then the loonies of Modern Monetary Theory are correct and I and you are wrong.
What has to be understood that in the end this con game the end, a monetary crisis, is about the credibility of the currency and about inflation. Now if inflation would start picking up...that would be a sinister sign.
But I think it won't.
You see, the money goes only to the rich and connected. It goes to prop up corporations. That's the secret. But this can indeed change if or when those trillions start flooding the real economy. But that can take time as otherwise things are quite deflationary now.
The price of gas is down and we can celebrate! There's no sports, we need to celebrate something. In this case we're all winners and we can all celebrate together.
Quoting ssu
That information cannot be characterized as knowledge of an impending stock market crash. In hind sight you say it is, but predictions are excellent in hind sight. That the virus posed a huge threat was common knowledge, reported in the media. We went through this already with SARS, but that threat didn't materialize in the same way as this one. But this demonstrates that there is no necessary relation between the information and the crash. That some people were lulled into complacency, perhaps because we were so successful against SARS, doesn't nullify the fact that the threat posed by the novel coronavirus was public information well before the market crash.
Do you recognize that the real crash did not occur until the drop in oil prices? If you're looking for verifiable insider trading you should look to see who had information on the events which caused the oil price drop. There are verifiable events here, rather than the fears and suspicions involved with the virus. The virus is a red herring. The dip prior to the oil price drop, which is blamed on coronavirus, may have actually been caused by those people exiting, with inside information about the coming oil price drop.
Quoting ssu
It is just business as usual. Why fuss over it now?
Really?
Like Senator Burr after an closed door representation of the virus dumping ALL OF HIS STOCK PORTFOLIO?
If you think that is normal, you don't know anything about investing? Normal would have been to sell 20% or even 50%, if the economy is in high gear. Dumping everything is not normal, actually.
When the politician Burr was briefed by Fauci and others, it's obvious that the "lock down" option was explained. And this is where the inside information comes into existence: Burr as head of the Intelligence Committee (and others like Feinstein) had then a pretty clear idea what the US government / states has to and would do. Fauci and others could (and likely did) clearly say then what they know have said that the US isn't prepared. And when Burr himself behind closed doors talked to others, he compared the virus to the Spanish flu.
As I said to Benkei, there's a way to discipline members of the Congress and this case it should be looked at. Burr can explain his innocence. How it goes who knows. And will the voters notice? Unlikely.
Actually it's refreshing to put a clip from FOX NEWS to show that even they can a little bit of journalism sometimes, even if the tone isn't the best in my view:
Quoting Metaphysician Undercover
Many will agree with you that it's business as usual! But I don't know if that's sarcasm to you. Or just trolling.
Ok that is a good point. There's deflation in most commodities; but gold is going up. As a striking contrast, silver went way down and the gold/silver ratio as I understand it is at record levels. I should mention I'm not a gold bug or gold nut, but I do keep an eye on what's going on.
Silver, and oil, and most other commodities, reflect the expected state of the economy. Industrial stuff, the stuff you use to run the world, is falling in price. There's no demand. Everyone's hunkering down. In fact even dropping helicopter money on businesses won't help because there's nobody to buy their products. There's a demand crash. So everything useful is going down.
But gold is going up. Because while there's some amount of industrial use for gold, the main use is to serve as a collective measure of confidence in paper money. Even though the dollar is up against all the other currencies, it's down against gold. Short term, the US dollar is always the safest asset in a crisis. Long term. all this printing is going to crash the dollar sooner or later.
That's what I think's going on.
I drove around downtown in my little town today on the southern California coast. It's a ghost town. Restaurants and shops. All those small business people and their workers out in the cold, no income, no answers, no help. Meanwhile Nancy Pelosi is jamming abortion and DACA and green new deal and every other line items of the social justice agenda. Of course the GOPs are a little too pro-business.
Personally I'm steamed that the airlines, to pick one industry, all plowed their profits into stock buybacks the last ten years; and now they want a bailout. We should have let the incompetent greedy banks fail in 2008 and we should let the incompetent greedy airlines fail today. Because when we don't, we create a moral hazard. The bank bailout of 2008 now turns into the everything bailout of 2020. Socialism for the rich, capitalism for the poor.
No wonder the kids are angry.
Yes. Some Very Smart People think that the wealth of a nation comes from its ability to print currency. If I think that's insane and Paul Krugman thinks it's perfectly correct; then what razor can decide who's sane and who's insane? He has a Nobel prize in economics, right? Which tells you more about the Nobel prize in economics (which is not actually a Nobel prize) than it does about the estimable Paul Krugman.
Quoting ssu
Gold crashed the first day of the DOW crash but it's up sharply. I think people are going to bet on big inflation as the Fed and Congress flood the country with what Ben Bernanke called Helicopter money.
Quoting ssu
Yes. This is the continuation of the fraud perpetrated on the public in the 2008 bailout. The moral hazard was created and now every big company in America is "too big to fail." You know airlines have always failed. TWA, Pan Am, Pacific Southwest. But now the airlines plow a decade's worth of profits into stock buybacks and now demand a public rescue for their greed and incompetence. It's obscene. If the people understood this they'd march on Washington with pitchforks. Or, as I fear, they DO understand this and are resigned to it, as the citizens of the Soviet Union became resigned to their fate until the regime collapsed of its own weight.
Quoting fishfry
Yes, it is.
Inflation didn't happen after 2007-2008 in the "Great Recession". Neither it happened in economic crash of the 1990's in my country (and other Nordic countries), which was a classic speculative bubble that started from deregulation of banking and ended in a banking crisis. In both cases many thought that inflation would kick next in. Others thought that deflation would happen. Either didn't happen. What simply happened is that the money stayed propping up the banks first stayed in the banks (with the banks sitting on the money as Uncle Scrooge) and then raised the prices stocks and financial instruments, created asset price inflation. That was different from classical inflation.
Now it's interesting what will happen when again trillions are poured into the system. Those money given to people will likely be either saved or with the poorest people spent on necessities. But here's the interesting million dollar question: if and when this pandemic is over, will the economy get going again. Or has the corona-virus shown that there wasn't any recovery and we will just continue having the Japanese-disease in our economy of low to negative growth?
Or will this spending with the recession create finally a dollar crisis?
Quoting fishfry
Ah. Good that you mentioned those stock buybacks. Think about all that money wasted in propping up the stock prices by stock buybacks, so the managers can get money from their options. And now they have disappeared into thin air. And all those index funds that have been propping up the price of Apple and Google and the like. Ouch! And of course, that's the thing Trump and his supporters are worried about.
It's neither sarcasm nor trolling. There's nothing new here. It is business as usual.
Yes thank you for reminding me. Excellent point. Many people, myself included, believed QE1, 2 and 3 would blow up the dollar and send gold to the moon. Instead, gold peaked in 2011 and has been way down and sideways since then. Somehow the system accommodated all the money printing. And instead of inflating consumer goods, they inflated stocks and real estate and corporate profits. Part of the economy did really well, and other parts, mostly populated by the deplorables, didn't. No wonder Trump got elected.
But your point means that we must consider, what if they get away with it again? What if they inject another six trillion dollars of funny money into the economy and the rich keep getting richer and they still don't blow up the dollar? How long can this go on?
Keynes said: "Markets can stay irrational longer than you can stay solvent!" Smart guy.
NQuoting ssu
Yes, for some reason the ultimate crash just never happens. Maybe they really can borrow and print their way to prosperity. It's been working far longer than you'd think it could.
Quoting ssu
One theory is that the stock crash isn't about the virus at all. The market was in a huge bubble and if it wasn't the virus it would have been something else. Blowing 10,000 points out of the DOW was a much-needed pressure relief. In which case this might just be the start of the next leg up! Or maybe this is just the start of the great crash and the world economy's gone for good, and all the printing in the world won't help. Nobody knows. Could go either way.
This massive corporate bailout though. I think there will be a lot of unintended consequences. You can't just keep subsidizing bad corporate behavior like this. It's far worse than the 2008 bailout.
Quoting ssu
Paradoxically, at times of crisis everyone flees into dollars. All the other fiat currencies are in even worse shape. How long this insanity can go on, nobody knows. Maybe it really is time to buy Bitcoin.
Quoting ssu
I opposed the 2008 bailout. I was for actual capitalism. Let the "too big to fail" banks fail. If they managed their affairs in such a way as to not be able to continue to be in business, let them be liquidated and their assets absorbed into more profitable and sound companies. That's exactly how it's supposed to work.
Instead, the system propped up and rescued the worst operators, who learned the lesson that crime pays. They kept on doing what they were doing, and now not only the banks, but every other company overloaded with debt is lining up for a bailout.
I think the consequences of this are not going to be bad. But as you say, I thought the consequences would be bad in 2008 but the powers that be seem to be gliding along on a magic carpet of money printing.
I have a friend who inherited a lot of money and put it all into gold in 2009. He wakes up every day and checks to see if the global economy blew up yet. This time he may be right. Who's to say.
Right, the market was a huge bubble set to burst. The real drop was triggered by Russia's refusal to cooperate with OPEC, Friday March 6, which sent the price of oil into the basement. Planned event? Lots of money to be made. The price of oil has a huge overall significance in the market, and coinciding with corona fears the drop was amplified. Notice the usual rebound now, lots of waves yet to come. Sell high, buy low. Social distancing isn't so bad when you're sitting at home with the same portfolio and lots of cash in the pockets.
Quoting fishfry
The problem might be foreign elements in the US markets. With the globalized economy, the factors with the greatest power to influence the markets have moved outside the country. Despite laws against inside trading, conspiracy, etc., much remains an honour system. If you cheat the market, you might get caught, therefore don't cheat the market. Foreigners might play by different rules, if I cheat the market, no one has the power to punish me. It would be a big problem if the US government was channelling huge amounts of money into bailouts, and that money was being siphoned off by foreigners who cheat the market.
That's the view of the Modern monetary theory (MMT) and Chartalism say.
But I firmly believe there is a limit when people simple have doubts or lose confidence in the currency system. But that might be a long way from now. Or not. But then again, it isn't an apocalyptic thing: it's just one of the crisis we experience and wealth just changes hands.
Quoting fishfry
I say it's definitely both. Our system was a reinflated bubble-economy, yet now the stock market is truly responding to events in the real economy.
Rarely do you see stats like this:
Quoting fishfry
I was too, with the exception that ordinary people with bank accounts up to 200 000$ would have been guaranteed by the Fed printing the money at the last case. I would have been for that horrific -20% deflation and shock and then have. The have bankers (banksters) who broke the existing laws worst to go to jail. That would have sent a message not only to the financial community, but also to the people. The close it came was that the Fed looked at the "Nordic Model" of rearranging the banking system. That they didn't do.
Wall Street was in charge, literally. Nobody went to jail except a con-man that simply was fed up of lying to the World. He too would likely have gone as nothing has happened, if only he would have denied it and gotten some of that bailout money. It's real ugly when you think about it.
And they are now trying to do the same thing: keep alive a bursting bubble.
Very interesting reading! MMT is neo-chartalism. Today I learned! I actually understand MMT a bit now. Maybe they do have a point. Thanks for the links.
I ran across something of great interest. I saw a video of a guy who's figured out why the 2008 bailout didn't crash the dollar and paradoxically led to a strong dollar. In a nutshell the thesis is that even though the Fed was printing like crazy, every other central bank is printing like crazy too. Since the dollar is still the reserve currency, all international debts settle in dollars creating great demand for dollars, the least-weak paper currency. Hence a strong dollar and a strong American stock market. He thinks the same thing will happen with the current bailout, and lead to a stronger dollar and a strong American stock market for another two or three years. After that, when the world finally moves off the dollar ... look out below.
The guy's name is Brent Johnson. Here's the video. I don't know if this is true or not, he's just some guy with an opinion. It seems to explain 2008 though.
https://www.youtube.com/watch?v=PWVRWUkm54M
Quoting ssu
My little coastal town's a ghost town. It's shocking. I went for a walk yesterday, easy to social distance since hardly anyone was on the street. Normally this time of year they're getting ready for summer and people are walking around buying stuff and eating at the many restaurants. Now everything's closed except for a few restaurants that have takeout, but there are no customers. It's awful. Multiply this by the entire country and this is truly a disaster. My heart goes out to everyone who lost their job because of this. These are all little people, store workers and small business owners. $1200's not going to save these people's lives and businesses. And what happens to state budgets when tax collections are down and welfare and unemployment spike through the roof? How bad is this going to get?
Quoting ssu
Yes didn't Iceland or somebody just let the banks fail and now they've come through the crisis in better shape? In the US we just papered it all over, created a huge moral hazard, and now here comes yet another bailout.
Quoting ssu
Well they just did it. We'll see what happens. The media are shrieking every day and reporting the death numbers and everyone's just whipped up into a hysteria and they just snuck in this corporate bailout and I can personally see my entire town shut down except for grocery stores and gas stations. Is this the end? Time to build a bunker, or what?
Yep. Our whole financial system is so f*ed up that as crazy it may sound, they may have a point. But perhaps up only to a point I would argue. But I may be wrong.
Quoting fishfry
Yes. Iceland is a great example. Estonia is also: they let the free market mechanism handle it and they had a quick and very sharp recession and then things got better. With stimulus and bail out you get the zombie economy of Japan. Here's a great short recap on what happened to Iceland when they didn't choose the "socialism for the few rich"-option:
Unfortunately those that argue for free markets seldom argue for the same mechanism to carry us out when bad times come (and hence the bail out those who created the bubble).
Quoting fishfry
From which we come to a really callous and despicable topic specifically on this thread:
We may be soon coming to the best possible moment to buy stocks ever in our lifetime, perhaps. Who knows when exactly, this summer or next year? Or are we seeing the bottoms because of helicopter money? I don't think the last option is probable.
Because even if now you don't have blood on the streets, you do have a shock quite the same. Never in our lifetime has the economy been literally shutdown. All around the World. Yet we know that the pandemic will go away. The economy will open afterwards to people who are quite timid people and living in an economic depression, but we will get through this and the economy will come back. Many people understand this. But when they are at the verge of bankruptcy or in bankruptcy, those assets will have to be sold on the cheap. And that's what economic depressions are: events where huge transfer of wealth takes place. I remember my great aunt, a real-world example of the classical stereotype of a stingy landlady. She went during our 90's economic depression into these compulsory auctions of homes organized by the authorities. She didn't buy any of the flats back then, a few did with usually a person from the bank in the end buying it back to the bank. Years later we would be walking in the city center of Helsinki and she point out at these old expensive apartment buildings "Here was a lovely two-room flat being auctioned only for X marks. I wish I would have bought it back then!"
(A good motto for the times?)
I got worried about the financial state of the World in 2007 thanks to this forum (or basically the precursor of it) because of a great warning from an intelligent poster (although I don't remember who it was). So I do respect people here for their intelligence and knowledge. Also when philosophy loving people here started a thread about "Cryptocurrencies", I thought this itself was a alarm bell that it was the highest point of the bubble (like the saying "taxi drivers giving you stock advice"). It seems to have been that time then.
People have been predicting the burst of this 2008 Fed-induced bubble since 2008! The virus was a convenient excuse. If it had collapsed of its own weight, which it was about to do any day now regardless of the virus, then the bankers and the Fed would have been blamed. Now the virus is blamed ... and they did yet another identical money-printing bailout of the bankers only this time much larger. And out of thr $2.2T they graciously threw in $360B for the proles. That's 300 million people times $1200 each, that's my rough estimate. The actual number's probably a lot smaller. What a swindle and what a scandal. They're blowing an even bigger bubble leading to an even worse crash down the road.
Quoting Metaphysician Undercover
The Davos crowd. George Soros blowing up the economy to screw Trump. The Illuminati. Who the hell knows. But the DOW was definitely ripe for a sharp drop. A lot of smart people were selling in January, you didn't have to be a Senator to see this coming one way or the other.
And that's the problem.
It was 12 years ago. 12 years is quite a long time in the lifespan of anybody. And typically the forecasters can be divided into "bears" and "bulls" that unfortunately turn into permabears and permabulls, talking just to a specific crowd that either wants to be pessimistic or optimistic. It's hard first to paint a picture of doom & gloom and then suddenly change it to a rosy dawn with great optimism. Or vice versa. I remember this one commentator I've followed who was very bullish about gold (before and in the start of the great recession), yet then changed his view and finally disregarded the hyperinflation argument. He got at first so much flak from his audience that basically he stopped answering questions of the public.
And people politicize these issues. Those buying gold started to be the Tea-party type libertarians while on the other side the liberals upholded Paul Krugman etc. as real economists to be listened to. The idea of "right" and "wrong" economists isn't the way one should approach these issues: one economist has one point, another has another point. Hopefully we won't see a similar politicization of the response to corona-virus, but those lines can be seen emerging with Trump "let's go back to work" attitude and with his opposition.
Quoting fishfry
And will we have a long economic depression or can it be a shorter sharper depression? Is that easy to predict too?
I'll concede your point that people have been calling for this crash for a long time.
Quoting ssu
Krugman is a fool. I mean that sincerely. And he got his Nobel prize (which isn't actually a Nobel prize) for some technical work, not for insight into public monetary policy.
Trump's not foolishly saying let's get back to work. After hoping publicly that we could lift the restrictions by April 12, now he says end of April. He's a pragmatist. He says stuff, gets new information, changes course.
I've heard it said that Trump's supporters take him seriously but not literally; and his detractors take him literally but not seriously. This is an example of that. What on earth is wrong with hoping this thing will be over soon? I was at the store the other day and they couldn't bag my groceries because they're not allowed to touch the paper bag I brought in (paper bags are outlawed where I live). I sighed, "I sure hope this is over soon!" and someone else said, "We all feel that way!"
So having some enthusiasm and hope for a better future is regarded as a sin? This is what's wrong with the left. This is how they think. How dare anyone express optimism and hope. Don't you know there's hysteria on?
Quoting ssu
I'm one who does think the market was incredibly overvalued and due for a major correction. I take your point that this is "only an opinion" and that no matter what arguments I gave in support of it, many smart people hav eequally strong arguments to the contrary. But we need not be nihilists about ever figuring things out. The Fed tried to unwind its balance sheet at the end of 2018 and the market immediately tanked. Since then they've been accommodative and it was just a matter of time before the thing blew. That does seem obvious to me. You're right, I have no idea whether there will be a recovery. I think a lot of damage is being done to the economy the longer this drags on. Tomorrow's rent day, millions of unemployed people and small business owners won't be paying their rent. This thing could go south. I have no idea.
Now that's a great way to put it!
I always try to look at administrations beyond their figurehead leader, be it a president or a prime minister. Here with this pandemic it's obvious that crucial part of the response and the policy actions are taken by the states. Rerunning Trump's gaffes isn't so important.
Quoting fishfry
Well, what will happen is the technical rebound at some stage: when the first pandemic wave is over, when the infections and deaths decrease and when people come out after the "all clear, but use caution" sign is given. When they open the restaurants again I'll go to eat with my family. I think many others will too. Life continues. With the massive halt now taken there will be that uptick. I assume that rebound won't go far and naturally will not erase the destruction already taken place. So the question is as we have lost this year, how about the next one?
It is not just about some businesses re-opening. The longer the shut-down, the more businesses will simply not exist, the more loans will have to be called, which are backed up by nothing than more promises, and the more physical supply chains will be destroyed. What you are looking at is an entire financial system baseed on mutual promises collapsing. And the government creating more money out of nothing that is not backed by physical assets does not help.... Germany tried that in the Weimar Republic, as did Zimbabwe.
I do not claim to be able to predict how this complex mess will resolve, but it will not simply just return to normal. In an ideal world, we might return to national currencies backed by gold, and cut down the globalist tricksters? Lets hope.
The technical rebound will happen. Now consumption is dramatically reduced. Travel is banned. The downturn is a free fall. Shelter in place will have it's consequences. Once you stop it, there is the technical rebound. Even if you are midst of the worst economic depression of all time and that rebound doesn't correct anything.
I do not know how it will work out. But There is a gigantic collective debt bubble in the finance system that has to be be deflated. Different economists are predicting different scenarios. But it is pretty clear that Corona was just the trigger for a bigger financial event. Once the shelter in place stops, you do not go back as if nothing had happened. Do you really want to re-construct all those supply chains from China that proven to dangerous? Who is going to pay for the trillions that the US government (and others) just magically created out of nowhere to give to people and companies went idle during the Corona months? Who? Money is just supposed to exchange medium... what are you exchanging for 2 trillions based on simply a promise, backed by what?
Some economists are predicting a return to the gold standard. I hope they are right. In the long term that will be good. But it would definitely not be easy or painless.
Even a gold standard is a confidence game. I'd the best role for gold is what it has now. It's a good investment and performs well along other currencies. And those that think that it has no value, you are wrong: if gold cost 1 cent per kilo, we would use it in a lot of things starting with coating our water pipes with it.
Quoting Benkei
Fun fact: the divide between the rich and poor closes during economic depressions. But then there's the "recovery". The outcome might be less rich people, more poor people with the gap widening again.
Not really. Gold has been around since humans discovered the stuff and how rare it is.
And a real "role for gold" we would only have once governments return to a gold standard. Of course, they all hate that.
The system prior 1973? Or 1933? And even then, there was the lure to borrow that gold, because people wouldn't demand the solid metal.
Prior to 1973. I am not saying everything was perfect then, but there was less freedom to create fictional wealth with empty promises.
I'd say that was a confidence game. A system where the dollar was valued in gold and other currencies in the dollar gives the leeway for the US to be irresponsible as it did. Other countries didn't believe in it and so it was left for Nixon to face to the obvious and pull out from the system.
And this is the problem when gold is held somewhere as the reserve. Just who's gold is it is a real question. Current gold markets show this obvious failure, where in the end some markets can pay in cash if for some reason they don't have the gold.
I do not see that. If the base is solid, then everything is solid.
Quoting ssu
I am sure there was and is lots of shady stuff going on in the system. That is why e.g. Russia keeps its gold at home. But that is a question of cheating within the system, not setting up a system that is based on cheating.
To have today's politicians in charge of a monetary system, think it will be a solid base?
Quoting Nobeernolife
It's meaningless to have a constitution and the rights of the individual written in law if the rulers disregard them totally. And so is when you have in the monetary environment the foxes guarding the hen house.
If the monetary system is backed by gold there is a limit to what the politician can do.
And do populist politicians have those limitations? Nope. Both Bernie and Trump wouldn't like it.
We have actually a great example of what in reality a gold standard would mean and look like in this World, not a hypothetical scenario where everybody is a libertarian and irresponsible regimes (and voters) wouldn't exist.
That's the Euro seen from INSIDE the Euro-system. It has functioned like a gold standard (inside the euro zone).
So when the Euro came (nearly) everybody was first really excited about it! Shrewd London City bankers understood that this wasn't for them. But otherwise the majority of European countries were for it. No more goddam competitive devaluations! No more currency risk with EU transactions and no more differences with interest rates as there's no country risk. Everybody will have THE SAME CURRENCY. Just like with a gold standard.
But what happened...
The Germans continued to have that awesome economy of theirs as earlier and the Greeks lied themselves into the system (with the help of the banksters, of course) and continued to have their weak economy, yet were now able to enjoy low interest rates in order to be as irresponsible as possible. And the irresponsible one's were especially the Greek elite. And hence who benefited from the system was Germany with Italy, Greece and Spain getting later into huge troubles. And so came the bailouts of the irresponsible ones. And yeah, only the stupid suckers followed the rules.
That would basically happen in a larger scale in a functioning gold standard: without the inability to devalue their currencies, the better economies would benefit and the weaker one's could use the devaluation injections.
And who would get it's ass kicked the most with a gold standard? The US. That's why the Russians just love the idea of a gold standard. It would be the end of the Superpower they think is out there to get them.
You think that those gold bullions in Fort Knox give you security? Nope! That gold would go there where the money transactions go, just like between Germany and Greece.
With a true gold standard, you simply couldn't just finance your forever wars, the most expensive and extremely inefficient health care system in the World and give your richest people tax breaks all the time. The economy likely would look more like the Mexican economy than the Canadian economy. Your infrastructure would be even worse. Your already not well functioning public sector would in even bigger dire straits than now when there's not that huge debt that you can just pile away like crazy.
And would people like Trump accept that? HELL NO!!! They would holler how the evil foreigners are stealing everything from the Americans! Make America Great Again!!!
But that's just a nightmare that won't happen. Now you can create all the debt in the world and have the central bank pay for it with the Fed adding those zeros on a computer screen. Now with over 5 trillion balance sheet. Perhaps 10 trillion dollars later?
Hence, better idea just have some gold in your investment portfolio for exactly these kind of times. All time highs in euros now.
Wow... guess what? The markets aren't really reacting.
:rofl:
Just shows how rigged and corrupt the whole system is.
This was cathartic and bloody glorious - "A bunch of billionaires getting wiped out? Who cares?". The host's face of incomprehension is the most delicious thing ever.
:clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap:
:clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap:
:clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap:
:clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap:
:clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap:
:clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap: :clap:
"As usual the major corporations are putting aside their copies of Ayn Rand and rushing to the nanny state to be bailed out. "
:fire:
More on the terribleness of the American bailouts and the shape of the economy to come. By Mark Blyth, who is an economic GOAT.
Saw that one. :up: