These Markets Are Nihilists, Donny.
No, Donny, these men are nihilists. There's nothing to be afraid of.
--Walter Sobchak
"Nothing matters but liquidity", BofA's Michael Hartnett writes, describing what he calls "The Nihilistic Bull of 2020".
Much has been made of the disconnect between Main Street and Wall Street in the post-financial crisis world, but the pandemic threw the already dramatic divide into even starker relief.
There are any number of ways to visualize the disparity, but second quarter earnings results from
Nihilists, f*** me. I mean say what you will about the tenets of MMT, Walt, at least it’s an ethos.
Maybe this time really is different but even entertaining these thoughts let alone discussing rings a bell in my head. Sure there may be a blow off top and maybe Fed buying at some point but ultimately people will require a real return (divdends) financed by free cash flow rather than debt. Sure that may be a ways away but if everyone believes there is only one way to rock they are probably over invested and the marginal transaction may just not be supportive.
Good luck everyone, be smart.
Surely I am an idiot to say this, but if the vast majority don’t own stocks, and stocks are not the economy. why would it matter if stocks got crushed?
Well, there’s the looming public sector pension crisis. It’s already bad, but would be outlandish if stocks crash as most pension funds have a lot invested in stocks. And from the Fed’s perspective, they have relatively few policy levers to pull. If manipulating the stock market is one of them, then they’re going to use it.
Vlad,
The theory is the weath effect influence of stock owners pulling back on spending that support non stock owner’s jobs.
I think the other influence rarely discussed is the corp actions due to lower stock prices. Restructuring a that result in job cuts. Less capital spending. A pullback in advertising. Even a reduction in innovation/R&D. In order to “beat” lowered estimates and get stock options back in the money and cash bonus targets being reached.
Of course those corp actions have a negative impac on the economy but often enrich executives (which is all many or most really care about).
The hollowing out of the middle class will continue and be particularly severe in the next downturn which we are near and may last years.
BTW as a retired HF manager I am not a bitter middle manager. Just saddened by all the mis-steps the country seems to take every year. We never address the underlying causes. These recent mis-steps will prove to be the most egregious of them all imo though an alternative to avert disaster is not readily apparent either.
I feel badly for 95% of Americans.