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I found it very surprising on another forum that many people, in response to a question on the recent market’s rise, said the drop was an overreaction and that the states are reopening and the economy is strong.

Sure things are reopening but at a fraction of previous levels with significantly less employees, higher expenses and a very uncertain future. And that is true for much of the world. In my simplistic view, much less income means much less spending and less income for most companies.

Several gave the comment “where else are you going to put the money “. I don’t view that as a reasonable reason to invest in the market.

I honestly cannot imagine a scenario where the market will be higher in 12 months from now.

I guess we’ll see in a year assuming we are still around.
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Several gave the comment “where else are you going to put the money “. I don’t view that as a reasonable reason to invest in the market.

I honestly cannot imagine a scenario where the market will be higher in 12 months from now.




Hi rich,
Could you save this post and mark the date for a "year from now", please?

Then, a year from now repost what has happened in the market?

I think you are wrong but respectfully I am curious.

Cheers,
MoneySlob
YTD 67.76%
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You provided zero facts that would suggest it is wrong. How does lower employment, lower income lead to high stock prices?

Most of the SaaS stocks are horribly over valued based on pure speculation. I've seen that played out before.

Not trying to be rude but at least provide why you think I'm wrong. Is overall employment going up? Are incomes going up?

I'm lucky where it has had zero effect on my income and I've had 2 people reach out to me for jobs but I think that falls into the minority.
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No. of Recommendations: 12
Several gave the comment “where else are you going to put the money “.

There was a post recently on METAR that discussed this issue.
https://boards.fool.com/it8217s-tina8217s-fault-34519754.asp...

The microeconomic argument is something like this.

The stock market, like pretty much any other market, is driven by supply and demand. When demand increases, prices increase. When alternatives (bonds, real estate, cash) have pathetically low returns, it drives investing dollars to stocks. That increases demand for stocks, which increase prices. The underlying economics of profit and loss matter less in stock prices at the moment, since it is believed that stocks are the only positive return investment alternative in town.

There's also some monetary and fiscal policy at work. In the US, both the Federal government and the central bank are doing things that would normally spark inflation.

On fiscal policy, the government has been handing out money all over the place. $2 trillion dollars are in the CARES act, with another $2 - $4 trillion under consideration. Much of this is going into businesses, which props up corporate profits and supports stock prices.

On the monetary side, the Fed is buying all sorts of bonds to support those prices. But they're also keeping interest rates near zero. Normally, that would be inflationary. But since consumers aren't spending, the inflation is going into investments. And the only thing investors seem to want is stocks.

So while I agree with you that stocks prices seem to be inflated, I don't see anything that would change that situation. Stock prices should be lower based on fundamentals, but there are other forces at work keeping stock prices up.

--Peter
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I've had several friends over time predict the future of individual investments. Rather than argue, specific predictions of asset, predicted price, and predicted date are recorded for future reference.

Valuing the friendship, I don't bring the topic up again, but no one has been close to accurately predicting the future.
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Maybe 12 months. As I've said before, my crystal ball has the Eye of Sauron in it, so it is dangerous.

I think the magnitude of the second wave (which I believe we're about to experience as people flock to bars and beaches) will be key. I expect stocks to be lower in the coming months. A year from now? Maybe they have a vaccine by then. Dunno.

I also read an article that I cannot find quickly (naturally!) that indicated that the market was being propped-up by people thinking this was a buying opportunity, and flooding cash into equities. But the actual business numbers have shown a marked decline. Sweet Tomatoes shuttered their business entirely. American Airlines is on the verge of bankruptcy. NCL was also until they found funding. Etc.

Some businesses are flourishing. Zoom (ZM) has seen an up-tick in business because of the shutdown (not in spite of it, but because of it).

I think the next six months are going to be rocky, especially as the body count in the US goes to 200K (which I expect).

1poorguy
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I think much depends on the new infection numbers. Is social distancing and common sense sufficient to allow limited opening of businesses? Public responses clearly show people are eager to resume their normal activities. And that will likely increase as people gain confidence in safety.

In a sense, stay at home was about buying time for authorities to get testing and contact tracing organized and in place.

To the extent all these measures succeed, the economy will recover quickly.

Note that 20% unemployment means 80% of the workforce is still working, getting paychecks and spending. And some of that 20% probably has adequate savings and is little effected by the turmoil (beyond stay at home, work at home and social distancing).

Someone recently mentioned the Grapes of Wrath as a model for the Great Depression. People definitely suffered and many lost jobs, businesses, farms. But plenty of middle class Americans made do. What was your family story of the Great Depression? The media love to feature the suffering. That emphasizes need but is not representative of everyone.

The market has confidence that the economy will recover and that is likely to last until bad news arrives. The Democrats seem to be selecting a moderate candidate. You suspect the market finds reelection of the President least threatening, but Biden is more acceptable than the more liberal candidates.
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How does lower employment, lower income lead to high stock prices?

The economy and the stock market are not synonymous.

FWIW, I'll stick with the historical averages and say their is a 70% chance the market is higher 12 months from now.

JLC
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" You provided zero facts that would suggest it is wrong. How does lower employment, lower income lead to high stock prices?

Most of the SaaS stocks are horribly over valued based on pure speculation. I've seen that played out before.

Not trying to be rude but at least provide why you think I'm wrong. Is overall employment going up? Are incomes going up?

I'm lucky where it has had zero effect on my income and I've had 2 people reach out to me for jobs but I think that falls into the minority."

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Basically, the Fed started injecting money into the economy - trillions of dollars.
Now, the economy will contract.
But trillions will keep the chicks eating.

There will be impacts - in specific areas of the economy - and there will be terrible times
for folks in areas. Down the road 5 or 10 years there could be worse - but that is always
true. There are many alternate futures - and some will be worse than now. Some will be better.

The question for the markets right now is "how adaptable is the U.S. economy?"
Really that is both in the short run as well as the long run.
So far I have been shocked at how few companies have cut their dividends.
As a "predictor" of earnings, the dividends are holding remarkably well.

Howie52
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I generally agree except for this statement:

And some of that 20% probably has adequate savings and is little effected by the turmoil (beyond stay at home, work at home and social distancing).

They almost certainly do not. Certainly not to go for 4-8 weeks without a paycheck. I read a while back that a $400 unexpected expense could break 1/3 of American workers. They are paycheck-to-paycheck. They cannot afford to be out of work.

I'm among the 80%, though technically on disability leave I am WFH anyway. I could cover that expense pretty easily. The 20% are probably wait staff at restaurants and such, and I suspect a large overlap between those sorts of jobs and the people who can't afford a $400 unexpected expense.
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I honestly cannot imagine a scenario where the market will be higher in 12 months from now.

Why is it so important that the market be higher in 12 months?

The market value of my traditional IRA and taxable investment accounts are, as of 29 May 2020, down 1.65% from their value on 01 January 2020. On 19 February 2020, they had increased in value by 4.10%, Between 19 February and 23 March, they had decreased in value by 27.86%. The value of the accounts on 29 May 2020 is only 5.52% below their 19 February value.

If the market continues to drift along for the remainder of the year as it has since 23 May, it will be up for the year on 31 December 2020. The market gain for 2020 could be somewhere in the 4-6% range.

Several gave the comment “where else are you going to put the money “. I don’t view that as a reasonable reason to invest in the market.

One can always invest in another mattress so that you have more places to stash your money until the market declines some more.
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I honestly cannot imagine a scenario where the market will be higher in 12 months from now.

I've thought that about a few triple-digit P/E stocks over the past decade. They continue to prove me wrong.

I don't know what people are buying.
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You provided zero facts that would suggest it is wrong. How does lower employment, lower income lead to high stock prices?

Most of the SaaS stocks are horribly over valued based on pure speculation. I've seen that played out before.

Not trying to be rude but at least provide why you think I'm wrong. Is overall employment going up? Are incomes going up?

I'm lucky where it has had zero effect on my income and I've had 2 people reach out to me for jobs but I think that falls into the minority.



Hi rich,
Could you save this post and mark the date for a "year from now", please?

Then, a year from now repost what has happened in the market?
Cheers,
MoneySlob
Stop dodging
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Here’s a stock rose 29% today.

ZS

Some cloud firewall thing.
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They almost certainly do not. Certainly not to go for 4-8 weeks without a paycheck. I read a while back that a $400 unexpected expense could break 1/3 of American workers. They are paycheck-to-paycheck. They cannot afford to be out of work.


We don't know if those 1/3 of workers are the same ones who lost their jobs.

It is certainly possible that *many* that got laid off or furloughed are not on the low end (the 1/3). For example numerous airline workers and other travel/hotel workers were let go and may not come back soon...including pilots and hotel managers. There are also many health care workers furloughed because they were not in essential services...including doctors and nurses. Restaurants are probably mostly minimum wage workers, but higher end restaurants where the waiters make big tips are mostly closed or doing a small take out business compared to the fast food places that can remain mostly open with drive throughs. I see dozens and dozens of cars lined up with special traffic control at places like In-N-out and Chick-Fil-A.

So I'm not arguing that I know the relative numbers in each group, just that it not obvious.

Mike
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1poorguy,

They almost certainly do not. Certainly not to go for 4-8 weeks without a paycheck. I read a while back that a $400 unexpected expense could break 1/3 of American workers. They are paycheck-to-paycheck. They cannot afford to be out of work.

I'm among the 80%, though technically on disability leave I am WFH anyway. I could cover that expense pretty easily. The 20% are probably wait staff at restaurants and such, and I suspect a large overlap between those sorts of jobs and the people who can't afford a $400 unexpected expense.


You almost document my point.

a $400 unexpected expense could break 1/3 of American workers. 2/3 of Americans can handle that expense.

20% are probably wait staff at restaurants and such Sure, but the 20% also includes plenty of professionals.

The bottom third of the population probably needs help. The top third can probably manage on their own. The middle third often needs some coaching. Not necessarily handouts. We keep hearing that places like Amazon and grocery stores and other mail order businesses are hiring.
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I honestly cannot imagine a scenario where the market will be higher in 12 months from now.

While I agree with you in the short-term, I think your timing is wrong. I recently increased my cash allocation but I fully expect the market to be higher a year from now (or close enough - it be the end of May beginning of June and all that such sometimes entails).

Remember, come November, we should have a high degree of certainty as to the direction of the monetary and fiscal policy, if not the economy and the market abhors uncertainty.
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I honestly cannot imagine a scenario where the market will be higher in 12 months from now.

I'm not worried about what "the market" will be 12 months from now. I'm concerned in what it will be 10 years and longer from now. I don't have to be right about *why* "the market" will be higher then (probably many reasons), just that it will be ahead of where bonds and cash (and probably commodities) will be. Many many people have gotten out at the wrong time, and then been fearful of getting back in, losing out on years of gains.

There have been several articles about how trying to time the market requires you to be right most of the time because missing some of the good outweighs side-stepping the bad. If you don't need the money for 10 years, don't sweat the gyrations. If you need the money soon, like the one year in your statement, then you should have the money in cash. If your retirement is imminent, some of your money (which you will be needing soon) should be in cash/bonds, but the dough you'll need in 10 or 20 or even 35 years is almost assuredly better in the stock market. Now, if you really can foresee market movements, selling at the peak and buying at the trough will work, but most people need to follow a "recipe" rather than be able to make correct market direction predictions.

If I had some good answers for you on why the market would be XYZ in 12 months, it would be information available to most everyone else, and the market would price that in.

If there's truly a combination of pandemic, uprising, and economic collapse, our market predictions won't matter and we'll be glad we kept some firearms and spare food.
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There have been several articles about how trying to time the market requires you to be right most of the time because missing some of the good outweighs side-stepping the bad.

Here's a great one:
https://www.marketwatch.com/story/this-is-the-last-article-y...

Investing in stocks on the way up, but in cash when the market is declining, doesn't beat DCA by much, even with perfect knowledge of the inflection points (i.e., when the highs and lows occur).

Of course, what works great in our building phase doesn't always perform the best in the withdrawal phase, hence holding a more balanced portfolio in retirement (and maybe even a "bond tent" in the last few working years and early in retirement to address the sequence of returns risk).
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