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The market is probably correctly pricing virus re closures as forcing expanded UI, more fiscal support etc.
SPX will correct to 2600-2900 if it has to force Congress.
Base valuations are higher now because it is understood that Congress and the Fed can be forced at any time.
SPX will correct to 2600-2900 if it has to force Congress.
Base valuations are higher now because it is understood that Congress and the Fed can be forced at any time.
Convexity / Duration + Capital supply / asset / return shortage impacts on competitive positioning reinforce this. Equities are options on capital stacks which must be state sponsored. If downsides now are 10-30% dilution + some leverage in worst case correlated failures...
It feels wrong, I get it, but the reality is *overall* people are making more now, particularly the bottom 50% of income population. The sarcastic remark is always "yeah but just stocks." This is false. https://twitter.com/TheStalwart/status/1277542741958955008?s=20
If the market has finally cornered the government into preventing serious liquidations during shocks and also retaining low interest rates, a lot of the logic behind equity risk premia (as an asset class) no longer makes sense.
There are obvious and clear qualifiers here.
There are obvious and clear qualifiers here.
Problem is with where yields and a lot of other things are, the losses that would occur if these actions are not taken are hard to fathom. The/an issue with Austrian criticisms is you would have to blow the world up to enact any of their ideas. Path dependency is real.
Debates about the Fed kind of remind me of debates about GMO crops. It's not so much that some LT issues are invalid. It's more the absolutely insane body count you'd rack up RIGHT NOW if you eliminated them globally. Not tenable for anyone.
Getting angry about "down the road" is not productive. No one is going to turn this battleship. The situation must be framed as it is, and then if you want to plan asset allocations to manage the actual possible future scenarios on the table that's appropriate.
It's important to note than any fed / government related bear thesis is probably worst / not expressed via short equities. A number of scenarios where anti fed people are right would assuredly not result in SPX lower in dollar terms. @LukeGromen I think has been on this a while.
I think all of this explains why the market seems to grind up with little concern for this or that and then crash now.
When the preconditions here are legitimately in question, there is no liquidity.
Each time we've had a crash, govts made more explicit they wont/cant change
When the preconditions here are legitimately in question, there is no liquidity.
Each time we've had a crash, govts made more explicit they wont/cant change
FWIW: I think you're going to see what happened to commodities post 09 happen to a lot of businesses. Old school supply/capacity analysis is going to pay next few years.
