Early on in the pandemic I was convinced that the US economy was going to have an extremely tough year, and I placed options bets accordingly that were absolutely slaughtered.
By July I realized a couple things (and adjusted my investments accordingly):
1) The shifts to online delivery of food and products was 10 years of change pulled forward in 6 months
2) Unprecedented liquidity of the money supply is giving any individual or business access to $$ to invest, spend, etc. It's unequal, but it's there and it's driving the economy right now.
3) We're witnessing one of the greatest wealth transfers in the history of our country, from the less fortunate to those with means, from stagnant businesses holding on to dear life to the quick and nimble, and from the legacy businesses to the already prepared distribution channels.
4) The fundamental shift of where people work has been upended, resulting in massive dislocation of where dollars flow to residential and commercial real estate.
Those that study economics must have thought they stumbled into a gold mine of topics to study this year. It's absolutely fascinating and heartbreaking at the same time.
It is not that the economy collapsed due to Covid, as many wrongly predicted would happen, but rather it got shifted and re-organized to a more efficient state dominated by online firms, big retail, food delivery, etc. The pandemic had the effect of accelerating the US economy to a more efficient state. This is why you should generally be skeptical of media narrative of crisis. yes, in 2007-2008 the media was wright about a housing crisis, but they tend ot get it wrong more often than not. Even when there is crisis ,it tends to be short lived and many underestimate the v-shaped nature of recoveries. If you sell your stocks, waiting a few months may mean having to buy back at a higher price even if the crisis has not subsided. Covid is gonna be with us for years and many jobs and businesses will never returns, yet the market made new highs by July 2020.
If large companies were not making record profits, the market would not be this high no matter what the interest rates the Fed chose to set.
Yes, stocks are the only investment that has a decent return right now -- but don't let that obscure the real changes to the economy that are happening. Large companies and e-commerce companies are doing fantastically well this year. (So are their employees, for the most part.)
no, that is not the main reason. the reason is strong corporate profits and earnings. FAANG stocks generating record profits and earnings, Same for retail and companies like Disney and Walmart.
There's some odd things about what you might have thought would have been a straight economic dump (and which might still be);
a) House prices in the UK have gone up a lot - because being forced to work from home people want to work from somewhere nice, and they may as well get out of the city - I didn't expect a big house price rise!
b) Plenty of low paid sectors are busy; things like those food delivery etc are all busy and the people working for them are - but then again the pubs/resteraunts are doomed.
c) There's a lot of pent-up demand for when it's safe; people who want repair work done just as soon as you're prepared to let workmen into your house, holidays to be taken, special meals to be had at restaurants
I'm assuming (b) & (c) will soften the outcome when the governments stop pumping money into the economy.
I've been reading Lords of Finance, which covers the early 1900s. It's eerie how the current situation reflects the pre Black Thursday boom. Investments started to concentrate into a few stocks (then RCA and Montgomery Ward) as retail investors piled in. Folks were buying on margin, credit was easy. The difference now I think is the willingness of the Fed to reduce interest rates to support the stock market as well as a too big too fail ethos. At the time, the Fed wanted to drive out speculators which exacerbated things. I wonder how long the Fed will keep it up.
Where is the evidence of this wealth transfer? That just seems like the same old mistake of thinking that wealth is zero-sum.
Isn’t most of this stock market gain from new wealth that is being created? Much of it goes to people wealthy enough to own stocks, but if it’s new wealth that’s not a wealth transfer, plus not all of it does. Companies with higher stock prices will tend to hire more, reinvest into growing the business which requires more employees. Amazon has been on a hiring tear all year, for example.
Then there was also the whole CARES act this year, and the follow-up package that should be passed any day now. Which offered an unprecedented level of unemployment insurance for laid off workers and actually reduced the poverty rate in the country over this summer to lower than pre-pandemic levels.
Wealth is not zero-sum, but when you artficially create liquidity it steals value from the labour class - note how the price of the mcchicken, which at $1.00 was a staple for laborers, went to $1.37.
The labor class is not generally directly seeing the fruits of this liquidity. Even when progressives channel these funds to say low income housing, it's still trickle-down, much of it winds up in the pockets of, e.g. construction firm contracted to build it, politically connected solar panel company because these projects must fulfill green bona fides, etc.
Accounting for inflation, there is a wealth transfer. As the rich get richer, supply-constrained assets like housing become more expensive. Folks whose income doesn't scale similarly lose purchasing power, and their quality of life drops as a higher portion of their income goes to rents.
Maybe you’re right, I’m generally wondering if there is a wealth transfer, but so far it seems much more complicated than any simple analysis or example I’ve seen.
The example you chose is a particularly bad one though because rents are down a lot this year in high cost of living areas.
Also, just in general there’s no reason housing should be a “supply constrained resource” by definition like you seem to be taking as a basic fact. Take a look at Tokyo for example.
The reason large cap stocks are going up the way they are is because their small- and medium-sized competition is being systematically suffocated by lockdowns and doesn't have the same access to publicly subsidized credit to wait out the storm. The DoorDash and Amazonification of the economy is not some organic development, it is being directly fueled by the pandemic response.
The CARES Act was a joke for everyone except the large corporations to which it made $5 trillion available. A single $600 check and some meager UI for everyone else, and for small businesses, coverage for a measly 10 weeks of payroll.
One COVID related transfer of wealth involves the Paycheck Protection Program. I know of several local profitable small businesses that received loans through this program. They were never in a position to layoff workers. When those loans are forgiven, as most are, or will be, where does that money go? Right in to the owner's pocket. It's interesting how many law firms qualified...
> That just seems like the same old mistake of thinking that wealth is zero-sum.
The mistake is actually thinking that wealth is never zero-sum. Although the myth is so pervasive among HN circles, it's almost like an old wive's tale and extremely hard to combat at this point. It's also just a very incorrect generalization.
Anyone who's had more than a rudimentary brush with economics should have no trouble understanding why that is.
To give a few reasons why that statement is usually either outright false or a gross oversimplification to the point of being useless:
1. Whether something is zero-sum or not depends on the period of time you're looking at. Always. When you say something is or isn't zero-sum, you need to specify what time period you're referring to. Good place to start is here.
In this particular case, I'd consider the COVID-19 lockdowns to still be short-run. And it isn't particularly evident if the wealth during this time has increased, is zero-sum or negative-sum
2. Many things that traditionally generate or store wealth for the people are indeed zero-sum. Desirable land within a certain zip-code, for example. Or in an area with high economic activity, e.g. downtown of a city. These things are both explicitly zero-sum (although it doesn't directly transfer 1:1 as wealth). Their valuation may grow in the long-run, which, if sold, and transferred to other economic activities by their owners, would make the wealth a net gain.
3. Market Cap/Valuation is not wealth. When sellers/buyers are large enough, the price of a stock does not directly transform into the same amount of wealth. You can't take AMZN and sell off all of its stock at its current price.
4. Pertaining to the current situation, it isn't really clear if companies that are hiring more and generating more wealth right now is compensating for the country-wide loss of jobs from the pandemic. Not even economists can predict with good accuracy whether this is going to result in a net wealth gain when all is said and done. However, this is evidence of a wealth transfer, because the surplus labor generated by extra AMZN workers goes directly to its largest shareholders, e.g. Bezos.
(Note, that you can have a positive-sum wealth generation and a wealth transfer at the same time)
> Then there was also the whole CARES act this year
> Unprecedented liquidity of the money supply is giving any individual or business access to $$ to invest, spend, etc. It's unequal, but it's there and it's driving the economy right now.
It is not driving the economy. That's the problem that is being addressed by the continuing printing of money to issue bonds. The banks have every incentive to lend, but they don't. Why? You can see that the banks have a rather simple calculation.
Make money via:
* Lend small amounts to people at a relatively low rate who have an unqualified risk value due to covid and justify the administration of that loan that might get written off at 50% value. Profit, hopefully.
* Buy some sub 1% bonds. Profit a little.
* Buy equities (like mortgages) that are the most reliable (of the other unreliable lending) payoffs. Profit...until people start losing their housing and properties all at once. The govt helps indemnify against this a bit, but in the end of the day you get your inflated property if the little people can't tough it out.
* Buy stocks (like their own) because of the massive debt bubble inflating tech and financial stock portfolios that grow as the massive bond purchases prop it up (every company tries to diversify by buying a couple million here and there). Profit.
* others that are not lending related...
> (3) We're witnessing one of the greatest wealth transfers in the history of our country,
Yes, for the reasons listed. Small banks are doomed. Even credit unions are combining.
> 4) ...resulting in massive dislocation of where dollars flow to residential and commercial real estate.
I'm not sure why you were so vague. Residential real estate has been inflated and commercial real estate has cratered.
These trends will continue as long as there are covid fears and lockdowns. The economy is already so damaged, it will not recover in our lifetime and will likely result in an alternative currency...that is also strictly controlled by the central banks, of course.
I don't think banks are borrowing any money (reserves). Banks borrow reserves from other banks or the central bank when they are lending and they have not enough reserves.
In the current situation the central banks has been buying assets from the banks in order to increase the reserves available, so banks have a lot of reserves and don't need to borrow. In fact, I don't think they know what to do with so much liquidity because there are not enough demand of credit in the economy.
> The economy is already so damaged, it will not recover in our lifetime and will likely result in an alternative currency...that is also strictly controlled by the central banks, of course.
Institutional players are increasingly warming to Bitcoin and it seems like that’s where things are headed imo.
> By July I realized a couple things (and adjusted my investments accordingly)
You're definitely making valid points, but this sounds like a whole lot of hindsight bias: you're rationalizing something that was rather unpredictable (the full impact of the pandemic on the economy, and whether that would surpass the market's expectations or not).
How did you possibly adjust your investment strategy based on these "learnings"? It sounds like this can only lead to the same forms of losses you've had with your initial risky investment (overly confident that pandemic = stock market crashing).
You're chasing the money after it's already gone to those stocks.
Piling onto an investment trend late is the classic retail investor mistake - because most of the upward movement already happened and that leaves limited upside and large downside potential.
I don't recommend that as an investment strategy. It would be safer and likely better to just buy the index instead.
If you want to make money actively investing you really need an insight that most other investors don't yet have.
In a bull market you can make money picking stocks with darts, but that doesn't make it a good strategy.
To be clear to the three instant downvoters, I'm saying parent is deluded and is going to lose repeatedly, not that active investing is a losing proposition in general:
> 2) Momentum driven companies where tons of liquidity is flowing to (TSLA etc)
Put the money in the money thing! Yea! Parent is the portrait of sad hype-driven retail investor.
Correct me if I'm wrong, but isn't momentum a well-known and fairly tried-and-tested strategy, and hasn't it greatly outperformed value over the past decade or two? Doesn't mean it will keep working forever, of course.
> Correct me if I'm wrong, but isn't momentum a well-known and fairly tried-and-tested strategy, and hasn't it greatly outperformed value over the past decade or two?
If that was true everyone would be doing it, and then the advantage would go away.
In short: if you think there's a "tried-and-tested strategy" that outperforms over anything but the short-term, then you either reject the efficient markets hypothesis--which would be pretty remarkable--or you don't understand it.
Momentum trading is a specific TA approach which I seriously doubt parent knows about. It doesn't sound like identifying "Momentum driven companies" (wut) but specific technical signals. More likely they have $1000 in RobinHood and their "big loss" was $200, so this entire thread is pointless.
OP here: My options trading account is well into 7 figures, and I do a tremendous amount of selling premium and wheel strategies on quite a few stocks, in addition to momentum trading.
Have you made that money in bad times as well as good though? Plenty of people posting gain porn for 2020, but they may not be the next Warren Buffett....
Active investing is a full time job that people who do it full time often fail it. You often need multi millions in the bank for it to start outperforming your actual job income too, so it doesn't make sense outside of investment firms and banks most of the time.
Realize that part of active investing is you have to beat the returns of VTI + your current job / biz income.
someone could have used that logic to avoid TSLA when it was at $50 Not that he is wrong, but heeding aphorisms is not that useful in terms of making money.
Yup, exactly. There is such thing as momentum trading.
Most of my positions were already closed out last month. So all the above thesis’ that said I was doing the wrong thing were.... wrong.
I also have significant positions that are DCA boring stuff, angel investments, real estate, all across the board. As well as I do a lot of selling premium in the options markets (theta gang).
> 3) We're witnessing one of the greatest wealth transfers in the history of our country, from the less fortunate to those with means,
Those without means are the ones mostly getting unemployment benefits and the other benefits, paid for by taxes, i.e., paid for by the most affluent. Then when they retire, they will get SS benefits, which again is progressive, i.e., a slight transfer of wealth from the richer to poorer.
Also the less fortunate benefit from a whole host of post-tax transfer programs to assist them, also paid for by the more/most fortunate.
Finally, both pre and post tax household income has grown for all quintiles for some time. So if the rich are somehow taking money from the poor and leaving the poor richer, it would be an amazing feat.
Prices of consumer goods may be flat, and nominal income may be increasing, but workers increasingly can’t afford housing.
Also, as someone that refinanced a house this year, I can assure you the wealthy are receiving much larger payments than the working class got from their stimulus checks.
Yes, I am. All econometrics comparisons are in real (i.e., inflation adjusted) dollars.
Here's [1] one example: median inflation adjusted household income from 1985 ($52K) to today ($68K) has grown a lot. Dig up the same info per quintile, and you see the same trends.
This also ignores that households have fewer not more dual income over this time (check Census data to confirm if you don't belive), and that the average worker has gotten younger (thus are earlier in a career, thus lower income on the career ladder - this can be checked with BLS and Census data), and the actual person in the precise same set of circumstances now as then has shown even more growth than this simple median metric shows.
>workers increasingly can’t afford housing
Also false. Here [1] presents inflation adjusted price per square foot of new housing - remarkably consistent over the period listed 1978-2020. What has changed over this time is the median house has increased in size tremendously.
I've ran these numbers back as far as I can find data, and the trend is the same - flat per square foot price when inflation adjusted.
So I agree some places are expensive, but the vast majority of the US is not, and overall workers are not facing increased housing costs for the same housing. What they do now is want more than their predecessors want, and complain the prices are more.
>Also, as someone that refinanced a house this year, I can assure you the wealthy are receiving much larger payments than the working class got from their stimulus checks.
I also refinanced, and I don't how you conclude this from doing one refi, or even how you can conclude such a claim from a single anecdote. Care to explain?
If you;re going to claim some statement testable with real values, please provide a citation to your data. I don't find any of the stuff you're claiming to match these sources (Fed, Census, BLS, CBO) which are pretty well regarded sources of economic data.
> from stagnant businesses holding on to dear life to the quick and nimble
It's not "the quick and the nimble," it's the connected and the too-big-to-fail. Our local Mexican restaurant which used to host salsa dancing every Friday and Saturday was doing a thriving business until they were ordered to close for indoor dining. Meanwhile Target, Home Depot, and the Amazon warehouses are allowed to remain open (essentials, donchaknow), and other giant corporations which might otherwise have been in trouble, like the airlines, will be allowed to borrow whatever they need at 0% interest rates to last until the lockdowns are lifted.
My philosophy is you don't know what crazy shit the govt and rich will do in response to socio-financial disasters like the 2007 housing crisis or covid 19, so it's very risky to make bets on systemic things like that.
I would agree. Delivery services aside from Amazon weren't doing great before the pandemic and it's not clear it's a great business to be in at anytime.
that is what people said in 2011-2013 after the S&P 500 had already doubled off the lows of the crisis, expecting the market to fall after what had been such a big rally. Instead the market would proceed to double again.
Price and value have almost no correlation though. As future cashflows dwindle in number, the cost to buy a chunk of those future cashflows go up, and the people who have the most free money to buy that stuff are the ones getting free cash from the Fed.
Not to make the connection, I don't think we're at any risk of hyper inflation, but the Caracas stock exchange went up 200,000 percent in 2018. Had nothing to do with value creation.
Agreed in general on the printing of free money, but there is a phase-lag.
The big difference in Caracas is that the price of a cheeseburger may have risen by the same amount when priced in the same currency. That isn't nearly as much the case in the US of 2020.
My immediate reaction was (1) virus fears were overblown and (2) inflation. I was clearly wrong about the virus but the latter may come to haunt central banks. People should be investing in real assets such as commercial real estate at distressed levels and in particular privately held luxury hotel properties.
You were not wrong. The initial estimates in jan-feb was an infection fatality rate in the 1-5% range, which is pretty bad and comparable to something like prostate cancer or lymphoma, yet by March/April, when the stock market bottomed, a bunch of studies such as study of asymptomatic prison cases and a study of California cases, showed a much, much lower IFR, of around .2-.5%, which has fallen ever since as more people are tested, which came as major phycological relief even as the death and case count costumes to rise.
The estimates back then were 0.5%, but many media outlets were conflating them with case fatality rates, which were the percentage of hospitalized people that died (and are well above 1%)
Absolutely agree. The main takeaway was an accelerated stratification. The big got bigger, small companies shrank (went niche), and the (major) middle collapsed. That doesn’t bode well for the average employee.
Because millions of people are sliding into poverty through no fault of their own, and the effects of this pandemic will continue to reverberate for them for decades to come even though the vast majority of people who visit this website will have suffered few or no effects.
Yes. In other crisis you could argue that people over extended themselves or for greedy. Here a lot of small business are going to get wiped off through no fault of their own. Politicians have not helped
Agreed, and yet looking at the Biden transition team the wealth transfer is going into hyperdrive. I can’t see the Dems winning progressives again with the “other guy is real bad” argument, so let’s hope the next Trump isn’t even worse.
As long as we're engaged in extremely reductive reads of the political situation, Trump and the Senate GOP were ready to agree to $1,200 checks and UI extension before the election, but Nancy Pelosi used the pretext of being opposed to employer immunity from Covid lawsuits (which they have since caved on) to block the legislation.
If you want you can replace the word "pretext" with "reasoning," the rest of it is a matter of fact and public record. Although I'm not sure how one justifies any kind of read other than a "cynical" one after this year.
Number 3 is highly unethical, and outweighs all the benefits IMO. Wealth inequality was already sky high. After this, it won’t be even possible to see those with nothing in the rear view mirrors.
(To be clear, the wealth transfer is from those who already had very little (too little to invest) to those who already owned massive amount of stocks and real estate.)
By July I realized a couple things (and adjusted my investments accordingly):
1) The shifts to online delivery of food and products was 10 years of change pulled forward in 6 months
2) Unprecedented liquidity of the money supply is giving any individual or business access to $$ to invest, spend, etc. It's unequal, but it's there and it's driving the economy right now.
3) We're witnessing one of the greatest wealth transfers in the history of our country, from the less fortunate to those with means, from stagnant businesses holding on to dear life to the quick and nimble, and from the legacy businesses to the already prepared distribution channels.
4) The fundamental shift of where people work has been upended, resulting in massive dislocation of where dollars flow to residential and commercial real estate.
Those that study economics must have thought they stumbled into a gold mine of topics to study this year. It's absolutely fascinating and heartbreaking at the same time.