Originally posted by biz-engineer Investment is psycho, not real, self fulfilling prophecy. It's enough for investors to think the market is going to go up to make them decide to invest, as they invest new products and services are offered and GDP goes up. So if everyone of us if positive, the GDP will go up. If everyone says like you, GDP will go down. You have to say that the market is going to go up if you want it to go up.
Economic activity - employment, consumption, production, capital investment, Fiscal spending, tax revenue - all these are real. M * V = P * Q
1 is theory, and good theory at that.
Investment is rational.
Trading ticker symbols in the stock market is something else entirely, governed by Behavioral Finance, which is psycho.
You seem t be talking about the stock market. I'm talking about the Economy. Current circumstances are real - very real. They likely will improve over time and there likely will be relative normality at some point next year, but nevertheless there will be real, permanent financial damage, real demand destruction, real impairment of capital (some of it permanent - see airlines and restaurants) real fear among the population to venture back out, and possibly Coordination
2. We need to be very thoughtful and deliberate about how we order our decisions for the next couple years. For a rational investor with staying power and a long term view, this is likely an opportunity to own shares of great companies at once-a-decade prices and put them away for - essentially - ever. I'm actually a cautious optimist longer term but a realist very short term.
At this point I think it best that we move on to a more photography oriented discussion, OK?
1. Money Supply x Velocity of Money = Production * GDP Deflator (1-Inflation). The Velocity of Money always declines substantially in these crises. in 4Q2008 V declined 50%. This time would be worse but for recent Monetary and Fiscal actions.
2. Consumers won't buy (at the margin) until their jobs are secure. Producers won't hire to restart production until they're sure there are people who will buy their products. The Fed's big fear is that we lock up in this "Coordination" at the end of the forced shutdown.
Last edited by monochrome; 04-04-2020 at 11:45 AM.