[HN Gopher] Ask HN: Is the stock market's growth largely anythin...
___________________________________________________________________
Ask HN: Is the stock market's growth largely anything more than
inflation?
It seems like the stock markets (USA) growth is strongly correlated
to inflation. The more money the government prints the more the
stock market goes up. So the market doesn't actually represent
value in a company but instead debt owed to somebody else. What
are the implications of this and is it a bad thing? What would the
market look like if we corrected for the money supply? PS: I'm
asking here because when asking at other places I was told to just
not worry about it.
Author : coned88
Score : 69 points
Date : 2022-06-01 18:46 UTC (4 hours ago)
| dasil003 wrote:
| > _The more money the government prints the more the stock market
| goes up. So the market doesn 't actually represent value in a
| company but instead debt owed to somebody else._
|
| The second sentence doesn't follow from the first. Owning stock
| literally means owning part of a company. Now the worth of that
| ownership is determined by what people are willing to pay, and
| what people are willing to pay is subject to all the whims of
| human judgement. The money supply is just one piece of that
| though, it's not the end-all-be-all (not for stocks, and not even
| for "inflation"). For one thing, the _perception_ of the money
| supply and the stock market as a whole are major influences, but
| the fortune and perception thereof of individual companies will
| move related to its performance which over time will diverge from
| broader macroeconomic trends.
| donthellbanme wrote:
| throw8383833jj wrote:
| There are several components that make up long term stock returns
| (from a macro level):
|
| - Population growth
|
| - Growth in productivity per capita
|
| - Dividends
|
| - Inflation
|
| It used to be that populations were growing and productivity was
| increasing and dividends were high (becuase PEs were normal).
| Those days are all over. You can forget about seeing any return
| above inflation. Population growth has slown to 0.5% (down from
| about 1.5%+). Productivity per capita is almost 0 for the last 20
| years (down from 2% per year for the last 200 years prior).
| Dividends which used to be 4.5% in the 60s+ and 6%+ at 1900-1950
| are now down to about 1.3%.
|
| So, the answer to your question, at least going forward from here
| is NO, it's mostly just going to be inflation plus 1.3% from
| dividends. Note, this was not the case for the last 100 years.
| MrPowers wrote:
| The biggest factor influencing long term stock returns in real
| growth in earnings.
|
| Companies don't pay out all profits to shareholders as
| dividends. They can also reinvest in their own business (e.g.
| build a new factory) or buy back shares.
|
| The go-forward nominal rate of return on stocks should be
| higher than the inflation rate + the dividend yield. The
| nominal rate of return could be closer to shareholder yield +
| inflation (shareholder yield is the dividend yield + share
| buybacks). I think the real earnings growth is the best
| predictor of long term returns. Earnings growth is correlated
| with population growth & productivity growth, but those aren't
| the only important variables.
| throw8383833jj wrote:
| Look at it this way. In the forever long term, stock
| valuation (without dividends) can't exceed the GDP growth
| curve. Otherwise the warren buffet ratio would be
| meaningless. So what is GDP growth? It's population growth
| plus productivity growth. everything else just is just
| productivity growth. Sure, stocks can increase their earnings
| as a larger percentage of gdp, but that is also finite and
| will in the long term still fit the GDP growth curve.
|
| So if Pop growth and productivity growth are 0 in the long
| term (it might be higher i don't know), GDP is Inflation. if
| GDP is inflation then equity returns without dividends is
| inflation as well.
| ChrisLomont wrote:
| >You can forget about seeing any return above inflation.
|
| That's not true. Here's a calculator you can play with that
| shows S&P 500 returns for any time period you like. Or you can
| go to FRED data and play around and get the same information.
|
| https://dqydj.com/sp-500-return-calculator/
| throw8383833jj wrote:
| i meant, going forward from here.
|
| in the past, we had great returns due to increasing
| population, plus productivity increases and in large part due
| to dividends. all three of those are severly decreased going
| forward for the next 100 years.
| sleepdreamy wrote:
| So how should I go about investing/creating a portfolio? I'm 29
| and finally making decent money. Not sure how to move forward
| dragontamer wrote:
| Two-portfolio theory is a good place to start.
|
| VTI (Vanguard Total Stock Market) + BND (Vanguard Total Bond
| Market).
|
| If you're saving for retirement, 30% BND + 70% VTI is a good
| starting point. Bonds grow slower than stocks, but stocks are
| riskier than bonds. Both grow over time.
|
| VTI charges a 0.03% fee/year.
|
| BND charges a 0.03% fee/year.
|
| These are very low fees. The management style is hands-off
| (which is why its so low): VTI buys every stock in the stock
| market proportional to their size. BND buys every bond in the
| bond market proportional to their size (ie: mostly US
| Treasuries, but also some company-debts). Since these are
| broad and diversified, you should perform decidedly
| "average", which is fine.
|
| --------
|
| If you're saving for something near term (ex: new car, new
| house) that's within 5 years, you'll want to be more-bonds
| and fewer-stocks, 50/50 or maybe even 70% bonds / 30% stocks
|
| Research bonds and stocks very closely. Learn their details,
| how companies work, dividends / profits are distributed (in
| particular, learn the theory between dividends vs capital
| expenditures vs stock buybacks).
|
| For Bonds, learn about inflation risk, interest-rate risk,
| and more.
|
| Once you understand the basics, feel free to branch out and
| put small amounts of money into specific stocks (or specific
| stock-sectors).
| PopAlongKid wrote:
| >If you're saving for something near term (ex: new car, new
| house) that's within 5 years
|
| A more conservative suggestion that I read once and have
| mostly adhered to says that any money you expect to need in
| the next five years should not be in the stock market at
| all.
|
| >BND (Vanguard Total Bond Market)
|
| Individual bonds and bond funds are two quite different
| types of investment and should not be considered
| equivalent.[0]
|
| [0]https://www.fidelity.com/learning-center/investment-
| products...
| dragontamer wrote:
| > Individual bonds and bond funds are two quite different
| types of investment and should not be considered
| equivalent.[0]
|
| Bond funds move based off of the sum of bonds that are
| inside of them.
|
| Much like we programmers study assembly code to
| understand the machine, even though we write code in C++
| or Javascript, any bond fund owner should study bonds to
| understand the underlying mechanics and risks of the
| overall fund.
| throw8383833jj wrote:
| You've got some great advise that straight out of the
| investment handbook and has served investors very well for
| the last 100 years.
|
| But, the mainstream investment handbook is a little out of
| date. With a 50 year Bond bubble brewing, bonds are close
| to an all time high right now, which means interest rates
| are close to all time lows. This means, you'll get very low
| returns from bonds, much lower than the last 50 years and
| almost certainly won't keep up with real inflation. Much of
| the bond returns from the last 50 yrs were from increasing
| bond prices/decreasing interest rates. those days are over.
| so, now we only have the yield left, which averages about
| 2% or so.
|
| In a secular low rate world or ever low rates, risk assets,
| unfortunately are the only life boat available to rescue us
| from the onslaught of inflation. :(
|
| this is Not financial advise.
| dragontamer wrote:
| I mean, that or TIPS / I-Bonds, if you really care about
| inflation.
|
| There's a lot of instruments out there.
| abakker wrote:
| If it were easy, everyone would be doing it. Since it is easy
| to do what everyone is doing, your investments will not do
| better that the market. Therefore, if you want to beat the
| market, it is difficult. Consider the most efficient easy
| strategy to be minimizing fees.
| throw8383833jj wrote:
| the most important thing is diversification. First of all,
| max out your 401K immediately and then get an IRA if you're
| income is low enough. Within there buy the SPY and maybe VTI
| (you want as much diversification as possible). Outside, of
| the 401K and IRA, you also buy SPY, VTI (but remember, you
| won't be able to sell that in any year where you make income
| above 40K because of "capital gains", lolz "gains", history
| 100 years from now will call that a misnomer.)
|
| If you invest in GOLD, do it in an IRA otherwise you will be
| hit with 28% collectibles tax, no matter how low your income
| is.
|
| Get some bitcoin (or GBTC in an IRA), the two wrongest
| allocations for bitcoin are 0% and 100%, but many financial
| professionals today will recommend 3-5%.
|
| Disclaimer: I know nothing and This is NOT financial advise.
|
| Most importantly, try not to pick winners. that's a fools
| errand. Pros that know absolutely everything can't even beat
| the market, so just try and be average. If you can be average
| with the VTI, then you'll beat the returns of most people who
| try to pick winners.
| nick__m wrote:
| Most importantly, try not to pick winners. that's a fools
| errand.
|
| Trying to pick winner is fun tought and it's a great way to
| learn. I don't think that there is something wrong with
| having a few percentage (<10%) allocated to play the market
| like it's a casino.
|
| But start with index and etf because if you start with
| individual stock you are already over 10% ;)
|
| This series of articles https://www.investopedia.com/articl
| es/basics/11/3-s-simple-i... gives a good overview of how
| to start investing. However, it don't cover country
| specific things like taxes and 401k.
|
| Edit: Disclaimer: I know probablay less than throw8383833jj
| about finance so This is NOT financial advise.
| PopAlongKid wrote:
| >get an IRA if you're income is low enough.
|
| There is no high-income restriction on contributing to a
| traditional IRA. Only the possible tax deduction is
| limited, however earnings on any contribution are still
| fully tax deferred.
|
| >, you won't be able to sell that in any year where you
| make income above 40K because of "capital gains"
|
| Let's clarify: for U.S. tax purposes, if your _taxable_
| income (which is much lower than gross income) as a single
| filer is below about $40K (double that if married filing
| jointly), your tax rate on long term capital gains is zero
| (for now). But even if you go over that, you still receive
| a highly favorable rate of only 15%, it doesn 't go higher
| than that until _taxable_ income gets up around $450K, so
| if you must sell with a gain, it 's still quite tax-
| friendly. (Unfortunately, some states such as California
| have no special capital gains tax rate).
| ericmay wrote:
| > There is no high-income restriction on contributing to
| a traditional IRA. Only the possible tax deduction is
| limited, however earnings on any contribution are still
| fully tax deferred.
|
| Yep. Which is why I think it's a great little bucket for
| REITs and perhaps dividend stocks where distributions
| would have counted toward your annual income but don't
| when you use the TRAD IRA.
|
| Dividends are taxed at max 20% (AFAIK) but REIT dividends
| are taxed like income at your highest marginal rate, so
| if your marginal rate is high enough (above 20%) you may
| want to buy REITs in a traditional IRA.
|
| This is not financial advice.
| ericmay wrote:
| There's no _great_ answer here. Even those advocating for
| something like a two or three-fund portfolio have to contend
| with great arguments for 100% equity allocations
| (https://www.gocurrycracker.com/path-100-equities/ for
| example - haven't vetted numbers myself).
|
| But I do think I have some 100% guaranteed "advice" (this
| isn't financial advice and you would be stupid to listen to
| anything I write here) which is that you should _always_ max
| out tax-advantaged accounts. It will depend on your income
| level and specifics, but you should basically max out your
| 401k and any IRA vehicles you have access too (depending on
| income level) with whatever you do. While the regulatory
| environment can and will change, based on what you know today
| and can predict, these accounts are huge up-front 0 risk ways
| to save even more money.
|
| With all of that being said, generally it's advised to follow
| something like a 2 or 3 bucket portfolio with a mix of total
| US stock market (or S&P500) making up something like 90% at
| your age and then reducing by 10%/decade + emerging market
| funds + bonds. Allocations depend on goals/ideas.
|
| Speaking of goals, the #1 thing to do is figure out your
| goals. Want to be financially independent at 35? Well you
| will want to put money into different accounts and probably
| different assets. Want to "work" until you are 50? That's a
| different strategy. Etc.
|
| When it comes to investing, you don't get rich and then all
| of a sudden you are rich.
| mupuff1234 wrote:
| That might be true for the US market but most listed companies
| are global.
| ckardat123 wrote:
| What metric are you using for productivity growth per capita?
| The data I'm looking at shows around a 25% increase (inflation-
| adjusted) over the past 2 decades in the US.
|
| Source: https://ourworldindata.org/grapher/labor-productivity-
| per-ho...
|
| Intuitively, it certainly seems like humans are a lot more
| productive now than we were two decades ago with wider adoption
| of the internet
| throw8383833jj wrote:
| https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(real.
| ..
|
| Look at North ameria: 2000 to 2010: 0.73% 2010 to 2018: 1.45%
| Eurozone is just under 0.7% to 1% for the last 20 years.
|
| Keep in mind I'm projecting forward over the next 100 years.
| Developing countries have slightly higher growth rates of
| 1.5% but they will one day be a developed country too, if
| they keep "growing".
|
| Also, keep in mind that the BLS CPI overstates CPI by 2%
| (according to shadowstats.org ~ and the BLS's own CPI from
| the 80s). So, this means that real producitivy is also
| overstated by 2% since.
| austinsharp wrote:
| Not all companies (stocks) have the same sensitivity to
| inflation. Depends on all sorts of things that are business
| specific. One example is how easily price increases from
| suppliers can be passed on to customers. A company that sells a
| commodity into a very liquid market won't suffer as much.
|
| At the other end of the spectrum, inflation decreases the real
| value of future cash flows, so tech stocks have been hammered.
| Here's an explanation I like:
| https://fullstackeconomics.com/rising-interest-rates-are-ham...
| focusgroup0 wrote:
| Institutions pumping huge loads of 401K money every pay period
| also props the scheme up
| fdr wrote:
| Inflation is (over a long enough time) embedded in stock price,
| since what you own is really a share of the production and assets
| of the firm you purchased a share in...it only happens to be
| denominated in dollars. If a firm you bought stock in is in the
| business of making shoes, and it is making a larger number of
| well-received shoes, regardless of the price level for shoes (and
| the price level of the stock), this kind of stock will generally
| appreciate in real terms.
|
| In principle, the denominating currency does not matter: someone
| could give you some number of shoes for your share, and your
| dividends could likewise be in shoes. We tend to find it more
| convenient to work in dollars.
| vanniv wrote:
| Over time, humans produce capital. Insofar as this capital is
| productively deployed, one should expect the total amount of
| capital stock to increase.
|
| The stock market represents only a part of the total capital
| stock, as not all capital is owned by companies, and not all
| companies are public. But, on the whole, one should expect the
| stock market to rise over time so long as society is not dying.
| formerkrogemp wrote:
| > But, on the whole, one should expect the stock market to rise
| over time so long as society is not dying.
|
| That's the rub, eh? Are there limits to the growth on a finite
| planet? Is climate change posing an existential threat? Has
| technology produced highly scalable and entirely altogether too
| interdependent international production systems?
| nootropicat wrote:
| >Are there limits to the growth on a finite planet?
|
| Yes, but we are 4 orders of magnitude away from them. Adding
| the potential for space industry, this grows to 13 orders of
| magnitude. That's ~1000 years of 3% annual growth assuming no
| efficiency gains, but we still have about 8 orders of
| magnitude available in computation efficiency, which gives us
| about 1600 years of 3% growth until hitting 2 on the
| Kardashev scale. Only close to it limits to growth become a
| real consideration.
|
| Anyone claiming we are hitting fundamental limits of growth
| now is a doomer. We may be hitting limits of growth given
| currently deployed technology, but that's a completely
| different statement.
| david_shaw wrote:
| _> Yes, but we are 4 orders of magnitude away from them.
| Adding the potential for space industry, this grows to 13
| orders of magnitude_
|
| Would you mind providing a reference for this? I don't
| doubt your statements, but it would be great to be able to
| research further.
| tmcw wrote:
| Post on whether returns are correlated to inflation:
| https://awealthofcommonsense.com/2021/10/inflation-vs-stock-...
|
| tl;dr if there is any correlation, it is weak
| MrPowers wrote:
| Yes, stock market growth is largely driven by the real growth in
| earnings and dividends.
|
| Nominal figures are not adjusted for inflation. "Real" numbers
| are adjusted for inflation (in economics-speak).
|
| The stock market (e.g. S&P 500 index) has real earnings that have
| consistently grown over time (although earnings are quite
| volatile). The real dividends paid by the companies that make up
| the stock market have also grown over time.
|
| Jeremy Siegel, a finance professor at Wharton, wrote a great book
| called Stocks for the Long Run that shows stocks have grown about
| 7% per year (inflation adjusted) over the last 200 years.
|
| > What would the market look like if we corrected for the money
| supply?
|
| I think it's better to correct for inflation. The money supply
| can grow and it doesn't necessarily cause inflation (see the 2008
| monetary response to the Great Financial Crisis as an example).
|
| > It seems like the stock markets (USA) growth is strongly
| correlated to inflation
|
| I'm not sure this is true. In the 70s, inflation was high and
| stock returns are low. In the 90s, inflation was low and returns
| were high. In 2021, inflation was high and returns were high.
| itsoktocry wrote:
| We don't have to speculate on this stuff, or base it on
| academic research from books: market P/E is easy to look up. Lo
| and behold it fluctuates dramatically. Same with stock returns.
| Averaging 7% doesn't mean you get that return annually, or ever
| for that matter.
| i3oi3 wrote:
| I was discussing low-load index investing with a friend, and
| the 7% over the last 200 years sounds great.
|
| He suggested the hypothesis that that's a reflection of the
| rise of the United States as a superpower over the last 200
| years, and if anything were to impugn the United States' status
| as the market of refuge, those numbers would not be predictive
| of consistent long-run returns in the future.
|
| That's a hard hypothesis to refute. Are there similar long-run
| numbers from all stable countries around the world, or is the
| US market unique in that aspect?
| idkyall wrote:
| Here's a source referencing the UK stock market:
| https://globalfinancialdata.com/stocks-for-the-very-long-
| run...
|
| "Between 1692 and 2018, stock prices increased at an average
| rate of 1.87% per annum before inflation and 0.36% after
| inflation, and with reinvested dividends averaging 5.04% per
| annum, investors received a total return of 6.62% per year.
| PS1"
|
| Now, that being said, during this time frame, clearly the UK
| is also a western superpower, and after a certain point in
| time the UK & US stock markets probably have a very strong
| correlation with the rise of electronic trading/risk
| management.
|
| For another example of an older equity market, we might look
| to Japan, which has had a negative rate of return:
| https://www.afrugaldoctor.com/home/japans-lost-
| decades-30-ye...
|
| That being said, as we see in that article the monthly $833
| purchase DCA still gave a positive return over 30 years.
| ericmay wrote:
| I think it's hard to compare Japan with the US or UK or
| other countries because unlike those countries, Japan can't
| turn on what I'll call an immigration valve and just flat-
| out import people to grow the economy.
| svachalek wrote:
| Can't or won't?
| ericmay wrote:
| Both really. They can't because they won't, but also
| because they can't.
| l30n4da5 wrote:
| only so much space on an island. Japan is pretty crowded
| as it is, isn't it?
| bardworx wrote:
| About the size of east coast, from Canada to Florida.
| It's fairly large.
|
| Tokyo is crowded, however.
| arrosenberg wrote:
| Would be much harder even if they wanted to. Lots of
| countries teach their kids English, only one teaches
| their kids Japanese.
| wahern wrote:
| You don't need to speak the local language to live and
| work some place. I wouldn't be surprised if the majority
| of migrant workers (temporary or permanent) around the
| world are unable to speak the local language upon entry.
| arrosenberg wrote:
| That works in America and the UK because there are
| already large immigrant communities for you to arrive
| into. If you arrive in Japan speaking Spanish or Hindi
| today, how's that going to go?
|
| It's not impossible, but it would take a lot of time and
| Japanese culture isn't exactly known for xenophilia.
| dsr_ wrote:
| The US stock market is semi-unique: there are others around
| the world in the 20th-21st centuries that are comparable, but
| also correlated.
|
| https://en.wikipedia.org/wiki/List_of_stock_exchanges
| aeternum wrote:
| UK stock markets have returned a similar 7.5% over the last
| 119 years (~4.9% above inflation).
|
| MSCI China over the last 2 decades has returned over 12%.
| DOsinga wrote:
| > MSCI China has returned over 12%
|
| Not per year: https://www.msci.com/documents/10199/aa99c3a4
| -d48b-44ac-8caa...
| staticman2 wrote:
| I tried to look up what you said about China. IShares MSCI
| China ETF data on portfoliovisualizer.com only goes back to
| 2012 and shows 4.27% returns .
|
| I don't know if your statement about MSCi China is correct
| but if so you are cherry picking based on an unusual start
| date.
| jollybean wrote:
| I think this is missing a giant factor, which is let's say
| 'inflation leverage'.
|
| Inflation will hit some parts of the economy differently than
| others.
|
| Consumer goods, homes, stocks, bonds - different kinds of
| inflation.
|
| Quantitative Easing and other such policies, may impact the
| stock market differently than others.
|
| As interest rates drop, the amount of leverage goes up
| dramatically, causing bubble.
|
| Recent increases in valuations were not commensurate with
| profits, ergo, an ugly kind of inflation.
| jacobr1 wrote:
| > Recent increases in valuations were not commensurate with
| profits, ergo, an ugly kind of inflation.
|
| But we also have downturns that reduce returns significantly.
| If you average out the returns the presumption is that the
| cost of that "inflation leverage" is accounted in the
| inevitable bubble pop.
| coned88 wrote:
| > I think it's better to correct for inflation. The money
| supply can grow and it doesn't necessarily cause inflation (see
| the 2008 monetary response to the Great Financial Crisis as an
| example).
|
| I may be a layman but I'm pretty sure that was just one type of
| inflation.
|
| > I'm not sure this is true. In the 70s, inflation was high and
| stock returns are low. In the 90s, inflation was low and
| returns were high. In 2021, inflation was high and returns were
| high.
|
| I'm not exactly talking about returns. I mean prices. In my
| eyes when you look at the S&P 500, every time there's money
| printing it's like a rolling snowball. It just gets bigger and
| bigger. But it's weird because that growth itself is not
| reflective of companies doing things but just them investing
| money or buying back stocks.
| svachalek wrote:
| I think there's a subtle bit that a lot of people don't see
| about the stock market, that it's trading dollars for bits of
| companies. This says something about the value of those
| companies, but also about the value of dollars. I think a lot
| of what we've seen over the past two years makes little sense
| if you think about it in terms of the value of American
| companies, but from the perspective of the value of a dollar
| (to those who have easy access to them) it's all a lot more
| logical.
| throw0101a wrote:
| > _I think it 's better to correct for inflation. The money
| supply can grow and it doesn't necessarily cause inflation (see
| the 2008 monetary response to the Great Financial Crisis as an
| example)._
|
| See also Japan for several decades:
|
| * https://fred.stlouisfed.org/graph/?g=PA7P
| VirusNewbie wrote:
| >Jeremy Siegel, a finance professor at Wharton, wrote a great
| book called Stocks for the Long Run that shows stocks have
| grown about 7% per year (inflation adjusted) over the last 200
| years
|
| You two are talking past each other. When he says inflation, he
| means M2, you're referencing something that adjusts to CPI.
| guerrilla wrote:
| You might be interested in reading some value investors, like
| Jeremy Grantham, for example. Most see it as a kind of longer-
| term bubble that can be propped up in various ways and has
| nothing to do with the fundamentals of companies (which is what
| you or your funds should actually care about.)
| markus_zhang wrote:
| I think starting from QE the market basically is just a plaything
| of whoever have access to cheap $$. In many occurences bad news
| were good news for the market because Fed would drop the idea of
| tightening, and vice versa.
|
| Just my 2 cents. I'm not a professional anyway.
| theandrewbailey wrote:
| > The more money the government prints the more the stock market
| goes up.
|
| I'm not an economist, but I have some speculation (no pun
| intended):
|
| When the government prints money, most of it ends up with the
| rich. The smart rich know that it's unwise to have lots of money
| lying around, so they buy investment assets, like real estate and
| stocks.
|
| When quantitative easing started in 2008-ish, guess what got more
| expensive? When COVID hit and money printer go brrrr, what got
| more expensive?
| alaricus wrote:
| When government prints money, people don't go and drive the
| price or bread and butter up. They go and invest in financial
| markets, driving the price of financial products like stocks
| up.
| coned88 wrote:
| You're the one who seems to get what I'm saying exactly. It's
| like a big snowball that the more you feed it the more it grows
| as it rolls.
|
| I can't tell if this is good or bad or not. Because it seems
| like funny money to me.
| SilverBirch wrote:
| I could be completely wrong about this, but the counter side
| of this is that when stock prices goes down (due to interest
| rates or whatever else) the value destruction is not equal to
| the money transacted. If you buy 1000 shares of TSLA for
| $1000 your position was $1m. When I buy 1 share for $5 after
| the crash you've lost 99.5% despite not transacting a penny.
| Hey presto! All that inflation disappeared!
| Bostonian wrote:
| Historically, U.S. stock market returns have exceeded inflation
| substantially -- there is data at
| https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile... .
| Inflation can increase corporate profits in nominal terms, but
| usually it also leads to higher interest rates and lower
| price/earnings yields, as bonds become more competitive with
| stocks. I believe that after-inflation returns of stocks have
| tended to be highest when inflation is low but not negative.
| witty_username wrote:
| The stock prices are nominal and therefore assuming the same real
| stock return, the nominal prices will go up under higher
| inflation.
| aynyc wrote:
| My unsubstantiated view is the growth of broad market index
| funds. Because billions coming in to buy and hold, why would it
| drop value?
| coned88 wrote:
| Because the money is funny money that's not real or robust. The
| US dollar has lost 85-96% of it's value since the early 70's.
| Just my view atleast
| mjevans wrote:
| Imagine a stock market where shares _had_ to be held for at least
| a week. Possibly even one where each day it was a dutch auction
| match of buyers and sellers during the overnight accounting.
|
| I think this would be a healthier form of investing in the
| ownership of companies.
| SilverBirch wrote:
| I'm not sure what this has to do with this particularly
| question. However, what do you plan to do to tackle the
| massively increased spread due to lack of liquidity? Let's say
| I'm a market maker today. I can be a counter party to your
| trade safe in knowledge I can unload it in the next for
| microseconds. Under the new scheme I have to hold for atleast a
| day, this is a massive risk so I'll ask for an equally large
| premium on the price. Do you worry this head-wind on liquidity
| would damage the market?
|
| I mean I can see the argument about the nature of nanosecond
| scale arbitrage, but hold times of a day would be quite wild.
| ezconnect wrote:
| There's no other place to park cash right now. Central banks have
| zero and some negative interest rates. Having cash on bank is
| very expensive so the stock market is the new bank.
| coned88 wrote:
| I'm worried about a complete crash that would plummet
| everything. Imagine if every year the stock market represented
| real industry and work and value. It would be strong and
| sturdy. But with this money being so loose. It's similar to if
| I just gave you decks of cards year after year and said build,
| build, build. That house of cards is not going to be great and
| can collapse.
|
| What happens in 80 years when milk is $34 a gallon?
| scottm01 wrote:
| > What happens in 80 years when milk is $34 a gallon?
|
| Milk was $0.14/gallon 80 years ago[1] ($.13/gallon 81 years
| ago), and $3.77/gallon last year[2].
|
| $34/gallon in 80 years would seem to represent a slowdown of
| inflation.
|
| [1] https://www.lmtonline.com/lifestyles/article/Milk-went-
| for-1... [2] https://www.ams.usda.gov/sites/default/files/med
| ia/2021Retai...
| alaricus wrote:
| This is probably the worst time to be buying fixed income
| assets like bonds. You'll get crushed as the interest rates go
| up.
|
| Commodities is a good place to be. This war does not look like
| it's going to end. You can expect high commodity prices as long
| as it continues.
| alaricus wrote:
| Inflation isn't a single number. It's reported as a single number
| because anything more doesn't fit into a headline.
|
| Different things inflate in different amounts. Right now the
| inflation on fuel is much higher than the inflation on tomatoes
| or hotel prices where Russian instagirls used to visit.
|
| When central banks started printing money, people didn't bid the
| price of bread, butter or automobiles up. So this didn't register
| as a increase in the cost of living (except for housing, which
| they did indeed bid up).
|
| This central bank money went to financial assets like stocks.
| That is why the price increases in stocks have been faster than
| the price increases in consumer products.
| greenthrow wrote:
| That is not how inflation works. Anyone complaining about the
| government printing money has an incredible naive view on the
| economy.
| coned88 wrote:
| Mind explaining then? To me printing money is always bad.
| erispoe wrote:
| Prices are a function of supply and demand, largely. New
| money being created and spent is only an issue when it
| durably creates more demand than supply can absorb. This is
| where inflation happens. With covid we had across the board
| stimulus that didn't care too much if supply was matching,
| but we also had supply disruptions everywhere.
|
| This is incredibly hard (impossible?) to do in practice, but
| imagine that you create new money and use it to buy goods
| where supply can be perfectly adjusted in regards to demand.
| Now your money creation has zero effect on prices.
|
| On top of that, a low level of inflation is actually a policy
| target. Low, but not null, because public policy wants to
| incentivize productive investment and not hoarding cash. And
| because deflation is much harder to curb (hello Japan) than
| inflation for a reasonably developed and productive economy.
| goo wrote:
| This is my favorite article about inflation
| https://economicsfromthetopdown.com/2021/11/24/the-truth-
| abo...
|
| Inflation is not simply a matter of the government adding
| more money to the supply (although that's one of the actions
| that can help reduce the value of currency)... the flow of
| money (and power) is immensely complex, and inflation as a
| measure is a procrustean bed
| (https://en.wikipedia.org/wiki/Procrustes)
| baq wrote:
| actually buybacks
| emehex wrote:
| This graph of M2 and the Wilshire 5000 might be of some interest:
| https://fred.stlouisfed.org/graph/?g=Q311
| yieldcrv wrote:
| > What would the market look like if we corrected for the money
| supply?
|
| It would look like it does right now! You're almost asking the
| right questions, but not quite. People look at stretched
| valuations and high price to equity ratios and other metrics, to
| forecast doom and gloom (big selloffs). It is true that earnings
| have not increased with prices for quite some time. But there is
| are decent metrics to track this kind of thing (which you won't
| find in Technical Analysis books from 40 years ago, so just burn
| those), one metric _is_ to look at the price to equity ratio to
| treasury bill interest rate spreads.
|
| During money supply expansion, whoever has access to cheap money
| then goes and buys stocks (amongst other things), hoping to
| increase that cheap money faster than the money is given to other
| people (diluting the purchasing power of the money the last
| person received). Many times these people are publicly traded
| corporations, who buyback their own stock, or their shareholders
| who also increase their positions in the same source of wealth.
| There is a psychological component, and when people say that, it
| really relies on identifying who the biggest movers in the market
| is and what they do and why. Hope that helps.
| pizlonator wrote:
| I think that the stock market's rise since the 90s has been a
| very particular kind of inflation. It's a classic case of
| benchmark hacking.
|
| At some point, journalists and media decided that the stock
| market indices are a good indicator of the economy. It's
| convenient. They don't have to actually investigate anything to
| see how the economy is doing - they just look at one number.
|
| That's been the economy's benchmark for decades. I think that
| around the 90s, regulators started to bias their behavior based
| on this observation. These are people who tend to lose their jobs
| when the economy crashes and fails to swiftly recover. Nevermind
| that the stock market crashing doesn't necessarily mean that the
| economy crashed. But I think they realized that if they make
| choices that result in the stockmarket going up, then they get to
| keep their jobs (or they even get praised for being oh so smart).
|
| So. We have a kind of inflation. It's really a case where the
| benchmark that is being reported as "the status of the economy"
| is being actively hacked by regulators. Given any opportunity to
| intervene, they will carefully finetune the intervention with the
| singular purpose of making the benchmark look good.
|
| So. We have been getting poorer since the 90s while the
| stockmarket has been skyrocketing in a historically
| unprecendented way. These are two sides of the same coin, and
| that coin is that the purpose of modern monetary and fiscal
| policy in democratic countries is to elevate the stockmarket even
| if it makes everything else go to shit. They do this because they
| know that then, journalists will report that the govt is doing a
| Great Job and the regulators get to keep their jobs.
| alaricus wrote:
| I agree, but it's not just regulators. It's also politicians
| and to a lesser extent anyone else whose position depends on
| "the status of the economy".
|
| Furthermore, if the stocks didn't go up liek they did, there
| would be a massive issue meeting pension and retirement
| obligations.
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