Record Stock Market High - How to Spin?

[Laodicean60]

Something positive in investing, which may or may not be the same. It's like the Saturday morning I was feeling meaner than usual and someone came by and started with "Wouldn't it be nice if there was no more war?"

"I don't know," I said. "I may have money in arms companies."

If I knew much about investing, I'd be rich. I obviously don't know much. I do know that high P/E ratios means that enthusiasm in investing is exceeding the reasonable return on investing.

I feel you. It has been a rough year for me learning this stuff. lol seems around elections gun stock goes up. I forgot to add that the main driver for this market is the big FAANG stocks. The war stock has done well but just like anything else what goes up must come down.

 

[rambot]

That would come as a shock to those who lived through the Great Depression, or those who have retirement invested in a stock fund.

But it would NOT come as a shock to dozens of millions of Americans....RIGHT NOW.

 

[rambot]

Anyone can contribute to their 401k or IRA.

Check that: Anyone with extra money to invest in their future can.

 

[JustOneWay]

You know that the first two of the three rounds of stimulus, and a little over half the total dollar amount was signed by Trump, right?

I don't think they know. Why would they? Trump never says these things in public.

 

[Tuur]

But it would NOT come as a shock to dozens of millions of Americans....RIGHT NOW.

I don't follow your point. First you seem to argue the stock market is irrelevant to most people, now it seems you do. What's your position on this?

 

[rambot]

I don't follow your point. First you seem to argue the stock market is irrelevant to most people, now it seems you do. What's your position on this?

No no. We see success in the stock market but we see a LOT of people suffering right now regardless of the performance of the stock market due to greedflation (and inflation mixed together).

Yes, their retirement may seem a bit better financed but what's the point in that if they can't afford food bills and housing?

 

[Laodicean60]

I would never use the stock market to establish the health of an economy again.

Never then and now. This reminds me I've heard before that the stock market is not the economy.

 

[Tuur]

The price of stocks, just like any other commodity, increases due to inflation.

During Covid, Bidenomics made the boneheaded basic economic mistake of stimulating (~ $5 trillion) an economy facing, not a demand problem, but a supply problem. The pandemic economic shutdown reduced the supply of goods and services available to people. Short on goods and services and long on Bidenomics "free" money = inflation. Throwing money at a dwindling supply always does just that.

If it was due to inflation, wouldn't the P/E remain close to constant? As the value of money drops dues to supply, earnings should lag behind share price, but wouldn't they increase as well?

 

[Tuur]

No no. We see success in the stock market but we see a LOT of people suffering right now regardless of the performance of the stock market due to greedflation (and inflation mixed together).

Yes, their retirement may seem a bit better financed but what's the point in that if they can't afford food bills and housing?

Okay. I see your point. Regardless, it still has an impact, though the impact of a market crash may be easier to see. Each share is an investment in the company. Corporate investment is where you find expansion, and that means more jobs.

Here is where it gets tricky, because it's obvious that a rise in share prices is not the same as a share offering. It does increase the value of a company through shares owned by the company.

Corporate expansion is also not geographically uniform. Was watching the ground breaking on a new plant on a newscast, but that plant was maybe a couple of hundred miles away or more. That worked out well for them, not so much for those of us here. The same thing when a plant moves. Yet because it's not a uniform improvement doesn't mean there's no improvement at all.

 

[rambot]

Okay. I see your point. Regardless, it still has an impact, though the impact of a market crash may be easier to see. Each share is an investment in the company. Corporate investment is where you find expansion, and that means more jobs.

Here is where it gets tricky, because it's obvious that a rise in share prices is not the same as a share offering. It does increase the value of a company through shares owned by the company.

Corporate expansion is also not geographically uniform. Was watching the ground breaking on a new plant on a newscast, but that plant was maybe a couple of hundred miles away or more. That worked out well for them, not so much for those of us here. The same thing when a plant moves. Yet because it's not a uniform improvement doesn't mean there's no improvement at all.

The issue sadly is not that north America needs more jobs (though of course, more is better than less), it needs the jobs that CURRENTLY exist to be able to meet the financial needs of its citizenry and that is not happening.

As the rich get perversely richer, the poor (and the middle class) barely get anything. The one thing they do get told is "If you do anything we don't like your retirement will be ruined". But that is an impact for further down the road.

Again, not much positives for the working class with a high stock market. GREAT news for rich people, those with expendable income and a penchant for financial management.

 

[o_mlly]

You know that the first two of the three rounds of stimulus, and a little over half the total dollar amount was signed by Trump, right?

And there were both supply and demand problems. Demand disappeared from some sectors (e.g. restaurants, concerts, anything where people gather) and shifted towards others that produced things that could be consumed at home (e.g. residential toilet paper vs commercial). A lot of people work in industries that saw their demand tank.

The laws of economics do not change when different political parties come into power.

If the politicians shut down the economy then the supply of goods and services drop precipitously, as they did. The container ships queued up along our coastlines for want of unloaders and truckers to transport their goods inland did not carry only commercial toilet paper.

Demand is measured by the number of customers willing and able to purchase goods. The underlying problem during the Covid shutdown IMO was not a lack of consumer purchasing power but a lack of goods and services from suppliers due to the government shutdown, ie., a supply problem.

A downward shift in supply results in price increases as consumers bid up the prices for the fewer goods available. The idiotic massive government stimulus to demand only exacerbates that short supply situation; consumers now have even more money with which to bid up prices even higher. ECO 101.

 

[o_mlly]

If it was due to inflation, wouldn't the P/E remain close to constant? As the value of money drops dues to supply, earnings should lag behind share price, but wouldn't they increase as well?

What does the "it" above refer to?

 

[evoeth]

Why?

Because it implies a potential overvaluation of stocks by 100%

Stocks could fall 50% which would severely harm retirees and pensions.

 

[iluvatar5150]

The laws of economics do not change when different political parties come into power.

And yet you chose to only blame Biden.

If the politicians shut down the economy then the supply of goods and services drop precipitously, as they did. The container ships queued up along our coastlines for want of unloaders and truckers to transport their goods inland did not carry only commercial toilet paper.

Demand is measured by the number of customers willing and able to purchase goods. The underlying problem during the Covid shutdown IMO was not a lack of consumer purchasing power but a lack of goods and services from suppliers due to the government shutdown, ie., a supply problem.

Again, it was both supply and demand problems - or it would have been both had stimulus measures not been implemented. It's true that we white collar workers saw little-to-no impact on our purchasing power. However, what happened to the purchasing power of workers in industries shuttered (either by fiat or by vanishing demand) by the pandemic? It disappeared. I work in the entertainment industry; I used to work in concert production and still know a lot of people who do - those guys were out of work for something like two years. A lot of organizations are still struggling to get back on their feet.

A downward shift in supply results in price increases as consumers bid up the prices for the fewer goods available. The idiotic massive government stimulus to demand only exacerbates that short supply situation; consumers now have even more money with which to bid up prices even higher. ECO 101.

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Again, I understand the phenomenon. What was the alternative? Not helping people who were out of work? As I understand it, the general wisdom regarding the response to the 2008 crisis is that the government was too stingy and let the recovery drag out longer than it needed to - that things could have recovered more quickly if they'd been more aggressive in stimulating the economy. This time around, the people in charge took that lesson to heart and tried to get money into people's hands quickly in order to stave off a serious recession. In that pursuit, they were largely successful.

 

[DaisyDay]

Never then and now. This reminds me I've heard before that the stock market is not the economy.

Right, it's just one indicator.

 

[NxNW]

Check that: Anyone with extra money to invest in their future can.

Anyone can adjust their budget, improve their skillset, and improve their situation.

 

[NxNW]

Because it implies a potential overvaluation of stocks by 100%

Over the long run, price follows earnings and the markets rise. In the short term, there will be fluctuation.

Stocks could fall 50% which would severely harm retirees and pensions.

Any valid financial plan will take into account the possibility of a downturn or recession.

 

[Akita Suggagaki]

There's even better than that.
There's the Case Shiller trailing P/E.
That's the current price, divided by 10 years of past earnings (to smooth out recessions).

Shiller PE Ratio - Multpl

Shiller PE Ratio chart, historic, and current data. Current Shiller PE Ratio is 39.05, a change of +0.33 from previous market close.

www.multpl.com

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Also the Buffet Indicator. (ratio of the total United States stock market to GDP).

Buffett Indicator Shows Stock Market is Overvalued

The Buffett Indicator is currently 57.05% higher than its historical average, signifying that the stock market is Overvalued.

www.currentmarketvaluation.com

Stock market is ALWAYS over valued.

 

[rambot]

Anyone can adjust their budget, improve their skillset, and improve their situation.

Yeah. But if you listen to them, I don't quite think you get how dire it is....

 

[o_mlly]

And yet you chose to only blame Biden.

I blame "Bidenomics". In as much as "Bidenomics" spends more borrowed money increasing the federal debt on unproven technologies.

Again, it was both supply and demand problems - or it would have been both had stimulus measures not been implemented. It's true that we white collar workers saw little-to-no impact on our purchasing power. However, what happened to the purchasing power of workers in industries shuttered (either by fiat or by vanishing demand) by the pandemic? It disappeared. I work in the entertainment industry; I used to work in concert production and still know a lot of people who do - those guys were out of work for something like two years. A lot of organizations are still struggling to get back on their feet.

Aggregate demand was not a problem. The market corrects imbalances in demand. (See below.)

The pandemic in itself did not cause the bulk of the supply problem. People who were sick missed work; some small reduction in production capacity followed. However, government policy that shut down the economy caused both sick and healthy workers to stop production.

After 14 years of "free" and easy money from the Fed's monetary policy and irresponsible fiscal policy by both administrations, the corrective pain of an economic maelstrom was merely postponed. The pandemic was the straw. And, I don't think it's over yet.

A recession corrects imbalances in the economy. It's painful. Companies that are producing goods for which there is insufficient demand layoff their employees and, if bankrupted, have their assets removed. Both employees and assets are made available to investors/entrepreneurs that produce products that people do want.

Again, I understand the phenomenon. What was the alternative? Not helping people who were out of work? As I understand it, the general wisdom regarding the response to the 2008 crisis is that the government was too stingy and let the recovery drag out longer than it needed to - that things could have recovered more quickly if they'd been more aggressive in stimulating the economy. This time around, the people in charge took that lesson to heart and tried to get money into people's hands quickly in order to stave off a serious recession. In that pursuit, they were largely successful.

The alternative was to stop spending money we don't have. If government raised taxes or reduced spending on other projects to increase transfer payments then the eventual pain of excessive borrowing could have been avoided. But both administrations just kicked the can down the road (to keep their jobs, I suppose.)

I no longer follow as closely as I once did fiscal and monetary policy maneuvers employed in Wahington to postpone the inevitable. The last accounting gimmick not widely know that I recall the Fed used to reduce the inflationary effect of its quantitative easing policy (buying junk bonds) of the multiplier effect on the money supply was to introduce paying interest on the all reserves -- required or excess -- of banks held at the Fed. Rather than take on risky loans in the marketplace, the banks just left the funds on deposit at the Fed enjoying a risk-free reward. The multiplier effect on the money supply was quashed. The Fed doesn't make (just makes accounting entries) any money so who do you think paid the banks the interest?