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Sat Aug 29, 2020, 12:04 PM

Why the stock market is doing so well in a crap economy?

It began with the $2 trillion dollar tax cut for the wealthy.

They did not use it to create jobs. They used it to buy back their stocks and drive up the prices on the stock market.

As if that were not enough, much of the stimulus subsidy went to the most wealthy, rather than to small businesses that were in need. That also contributed to the rise in stock prices, even as tens of millions of Americans were losing their jobs.

Also, the Chair of the Fed had announced that he would spend whatever it took to keep the stock market up. The big gamblers on Wall Street had a no-lose proposition.

But, it should be noted that Wall Street has very little to do with Main Street at this time. They are only gathering their gains.

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Reply Why the stock market is doing so well in a crap economy? (Original post)
kentuck Aug 2020 OP
kimbutgar Aug 2020 #1
ProfessorGAC Aug 2020 #5
kimbutgar Aug 2020 #9
ProfessorGAC Aug 2020 #10
PSPS Aug 2020 #2
calguy Aug 2020 #3
unblock Aug 2020 #4
PoindexterOglethorpe Aug 2020 #12
ooky Aug 2020 #6
ProfessorGAC Aug 2020 #7
moondust Aug 2020 #8
Wounded Bear Aug 2020 #11

Response to kentuck (Original post)

Sat Aug 29, 2020, 12:06 PM

1. The federal reserve is getting money from the US Treasury

And they are buying the Dow stocks and pushing up the market. It is all smoke and mirrors. And you can bet when Biden is elected it will go down. Munchin will pull the plug and stop propping up the market.

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Response to kimbutgar (Reply #1)

Sat Aug 29, 2020, 12:24 PM

5. Almost

They're not buying stocks. They're buying up bonds.
This cements the cash flow of business experiencing contraction of demand which maintains cash position, prevents the dumping of treasury stock, and props up the price.
They're not directly buying stock. That's illegal, but what they're doing is the next closest thing.

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Response to ProfessorGAC (Reply #5)

Sat Aug 29, 2020, 01:08 PM

9. Just saw this on Twitter you are right it's bonds not stocks.

Thomas Kaine
@thomaskaine5

Aug 27
HUGE STORY not getting much press. First time in USA history, the USA gov't controls stock prices. The Fed and Mnuchin are buying $1,250,000,000,000 (yep Trillions) of corporate bonds resulting in spikes in the stock prices of those companies."

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Response to kimbutgar (Reply #9)

Sat Aug 29, 2020, 01:17 PM

10. It's Still Fed Intervention

But, a legal version of overreach.
Those companies maintain their cash position or improve it (analysts are crazy about strong cash) and they don't need to sell treasury to raise cash, which stabilizes management as there are fewer "free" shares out there.
Then they can pay themselves dividends, further improving cash flow.
If they have to sell treasury shares, the extra volume makes all the "free" shares less valuable. Stock price falls as supply outpaces demand.
It is truly a propping up of the share prices.

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Response to kentuck (Original post)

Sat Aug 29, 2020, 12:13 PM

2. The PPT + corporate tax cuts spurring stock buy-backs rising stock prices

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Response to kentuck (Original post)

Sat Aug 29, 2020, 12:21 PM

3. When the FED loans the big banks trillions at near zero percent interest.....

Those same big banks turn around and use that money to jack up the market and make 5-15% profit and more. Most of the stimulus money is being invested in the stock market, not the economy. It's a house of cards that will collapse at some unknown time in the future.

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Response to kentuck (Original post)

Sat Aug 29, 2020, 12:22 PM

4. The stock market is mostly a function of the profitability of large public companies

Keep in mind that even small public companies are large compared to a lot of "Main Street". A single-store restaurants isn't likely to have an ipo.

Covid is punishing small, private companies far more than big public companies because it's the small companies that depend most on direct customer interaction.

Big public companies that do everything by phone and email and websites and big factories with robots and big warehouses where they can fairly easily enforce social distancing, they're doing fine.

So amazon is actually doing fantastic in the environment. Demand is way up and they can fulfill it. Of course, that's not the case of every single big company; life sucks right now for Boeing and the airlines as passenger travel is way, way down (although cargo is doing fine). But mostly the big public companies have teen able to adapt. Main Street has not.

That means more demand for the public companies, also lower expenses as their own employees work from home and aren't traveling to visit clients. Beyond that, there are consolidation opportunities for more profit for companies in a position to acquire businesses and assets from the failing companies.


And this is on top of the government and the fed spewing money, which the big companies benefit from even though it's really mostly the smaller companies that really need it.

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Response to unblock (Reply #4)

Sat Aug 29, 2020, 08:25 PM

12. Well said.

A lot of people here don't understand that the economy and the stock market are two entirely different things.

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Response to kentuck (Original post)

Sat Aug 29, 2020, 12:26 PM

6. More buyers than sellers.

No place else to put their money and produce any earnings from it, keeps it resilient and artificially high.

If interest rates ever rise it's going to burst like a big giant balloon.

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Response to kentuck (Original post)

Sat Aug 29, 2020, 12:32 PM

7. Others Have Answered, And...

...I agree. In addition, it's a bit of an illusion.
S&P has gone up 50+% since PINO took office. 12%+ per year.
It went from 770 to around 2,200 under Obama. That's 285% over 8 years. That's around 15% per year.
So, the supported markets are doing well, but they're gaining at an inferior annual return, and very likely below where they would be if PINO hadn't f'd things up.

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Response to kentuck (Original post)

Sat Aug 29, 2020, 12:41 PM

8. Maybe some fat cats trying to help Dump?

Giving him something to run on with the expectation that if he wins they will get more tax cuts and deregulation?

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Response to kentuck (Original post)

Sat Aug 29, 2020, 01:55 PM

11. The Stock Market has been largely decoupled from the general economy...

Stock prices don't have a lot of bearing on local economies any more.

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