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‘Natural Symbiosis’ Between Stocks, Fundamentals ‘Rendered Almost Dysfunctional,’ One Bank Says
Over the course of the market's dramatic rebound from the March panic lows, one of the most difficult questions to answer is this: Is the disconnect between equities and the economy even more absurd than "usual"?
There are two parts to this discussion. The first part entails reiterating that, in the post-financial crisis world, ultra accommodative monetary policy means financial assets can (and will) simply ignore fundamentals, turn a blind eye to economic policy uncertainty, and brush aside ge
We’ve yet to name this new discipline, which is closer to kremlinology than most pseudo-scientific finance and economic theory. A lot of expensive university degrees are becoming irrelevant.
Here is the American dream, as I understand it currently. Develop a following by starting some sort of business, making brash statements, and attracting investors. An alternate route is through social media, TV, etc. It does help to be good at something at this point, but it’s not really necessary, as long as you are good at self-promotion. You then attract investors to bigger and bigger enterprises that you launch. These do not need to be profitable, or have a sustainable business model, but it is crucial to be able to convince people that you have the answer, that you are a visionary, and that you are connected. These enterprises are able to compete against, and ultimately destroy, profitable companies in the sector by attracting ever more capital due to the personality cult surrounding the founder. Certainly not everyone gets to this point, but the lucky (and perhaps, able) few are able to ride this wave to the point of dominating a market in which they were never competitive in the conventional sense (Tesla, Amazon). If you can get to this point, you potentially never need to earn an actual profit, ever. Your company is in the SP500 or in another index, and then money printing takes over. The index goes up, and hence your company stock goes up, because there is more money available and nothing else to invest in but the index of stocks.
LOL, great post. Sad but accurate.
MMT on the way too!
Random thought. Goodhart’s law says that when a measure becomes a target, it is subsequently no longer a good measure. Has balance sheet expansion, forward guidance, low rates reached this point? More generally it would be worth to imagine a scenario in which asset prices reacted negatively to policy stimulus. Is that possible?