Why Is The Stock Market Doing So Well In A Bad Recession?

[ThatOwlWoman]

Seems a bit baffling.

It's like nobody told Wall Street there is a serious recession going on.

There is lots of bad economic news out there, but investors don't seem to care.

Is it only a recession for vulnerable disadvantaged people?

Have the big corporations they invest in figured out how to make money no matter what happens to the powerless?

How long can that go on?

Are we inching closer to a big crash when the human support mechanisms for all this wealth extraction begin to crack and fail?

Will there be an 'October Surprise?'

Please explain, thanks.

Because the Fed cut interest rates to almost zero, so the markets are the only place investors can go to make $$. Usually when markets are up, gold is down and vice versa -- but not in this Year of the Plague. Have you looked at gold prices lately?

 

[Micawber]

I was just thinking of your last sentence as well. I don't quite imagine supporters of a wealth tax will argue rich people shouldn't pay a tax on their equities holdings because they haven't hatched and gone peep.

You are conflating wealth tax with capital gains tax on income produced by sale of an asset resulting in a realized and recognized gain.

If there is a wealth tax, a sale is immaterial. I pay a property tax every year based on value, not only when I sell. It's like that, ad valorem.

 

[Flash]

Companies can only issue new stock in two ways. First, they can announce a stock split, in which case they issue shares to everyone that already holds them and they become worth half of what they were. 2. They can make a preferred stock issuance for a specific purpose. They can't just magically issue new stock for the heck of it. As for treasuries, they pay interest, and inflation devalues every dollar out there. The money supply is increased by the velocity of money, it isn't produced out of thin air. And again, if a company eventually liquidates, your share are worth what the company was worth, regardless of how much you paid for it. Seriously, this is a silly semantics argument. I stated that the supply of dollars is fixed, and for all intents and purposes it is. If you print more, it becomes worth less. If you give someone a tax break, you can't print money to make up the difference, you have to tax someone else more.

The genesis of this discussion was whether taxation policy can distribute wealth in an efficient manner. The fact is that a dollar taken from the upper 20% and transferred to the bottom 20%, that will increase consumer spending. It's simple math.

Or, if the top 20% spends that money on consumer goods it will also increase consumer spending. But, if the top 20% increased their income by 20% due to increases in the value of their stocks (which they sold and got real money), that is an increase in their income which allows them more consumer spending. And, since the top 20% accounts for 60% of consumer spending consumer spending increases more because those people who account for most of it will be spending even more.

That is a much better policy than taxing one group to redistribute it to another. Consumer spending increases either way.

We essentially just did what you propose by paying everyone a $1200 stimulus check. Since the top 20% pay 80% of federal income taxes they are the ones who will have to make most of the interest payments on the $3 trillion in borrowed money.

 

[Concart]

Is that fact or conjecture?

Conjecture, and totally false conjecture. Irish is an idiot.

 

[Concart]

Or, if the top 20% spends that money on consumer goods it will also increase consumer spending. But, if the top 20% increased their income by 20% due to increases in the value of their stocks (which they sold and got real money), that is an increase in their income which allows them more consumer spending. And, since the top 20% accounts for 60% of consumer spending consumer spending increases more because those people who account for most of it will be spending even more.

That is a much better policy than taxing one group to redistribute it to another. Consumer spending increases either way.

We essentially just did what you propose by paying everyone a $1200 stimulus check. Since the top 20% pay 80% of federal income taxes they are the ones who will have to make most of the interest payments on the $3 trillion in borrowed money.

Yes, but the top 20% IS NOT spending that money on consumer goods. We know this. That's the point.

 

[PoliTalker]

Hello Flash,

I did not say people do not lose money in the market. I said if I buy a stock for $100 and sell it for $150, I made $50 but nobody lost because of my profit.

The original point was that if the top 20% make 10% gain on their stocks, it does not take any money away from the bottom 80%. The erroneous assumption was that there is only X amount of money and if I gain somebody else lost.

If people choose to buy more bicycles for the pandemic that increases the profits for bike manufacturers and their stockholders. Those consumers voluntarily chose to exchange their money for bikes which transferred some of their money to bike stockholders. Nobody lost anything.

Oh, OK. I see where you're coming from. It's a conditional statement that nobody loses anything, based on an assumption of nothing but rising values. In the case of a bicycle company stock increasing as a result of increased bike sales, the loss comes to auto companies that sell fewer units. And gasoline companies selling less product. And governments receiving lower revenue because lower gasoline sales also mean less gas tax being paid.

The 'nobody lost anything' statement is sort of myopic. There is an element of truth to it in that overall, over a long period of time, as a country and an economy grows, overlooking the boom and bust cycle, more money is made than lost. But there is a very real reason that anybody buying stocks is warned that their investment is not guaranteed to make money.

Additionally, we should not discount that when stock is sold and the previous stock owner is paid in cash for the value of the stock sold, that cash comes from somewhere. It doesn't come out of thin air. Where does that cash come from? If somebody else bought the stock and the value of the stock continues to rise, that buyer is now out the case they paid. Unless that holding continues to rise until they sell, they could be the loser. If the consumer market opens back up again and people start buying more cars and gasoline and fewer bicycles, the bike company stock might fall. That buyer who bought just before it peaked would then be facing a loss of they sold their stock.

'Nobody lost anything' is quite the loaded statement. It is loaded with some assumptions that do not always hold true. As you say, people do lose money in the stock market.

The statement 'if the top 20% make 10% gain on their stocks, it does not take any money away from the bottom 80%' does not always hold true. It would be folly to think it does. We know that people do lose money in the stock market and there is no restriction on who loses. It can happen to anyone, including the lower 80%.

 

[Micawber]

Because the Fed cut interest rates to almost zero, so the markets are the only place investors can go to make $$. Usually when markets are up, gold is down and vice versa -- but not in this Year of the Plague. Have you looked at gold prices lately?

2 grand or so? The rate of return has sucked like 1400 15 yaers ago. So much for the hedge with gold cuz the world is imploding predictions.

 

[Concart]

I was just thinking of your last sentence as well. I don't quite imagine supporters of a wealth tax will argue rich people shouldn't pay a tax on their equities holdings because they haven't hatched and gone peep.

Correct. If we did impose the one time wealth tax it would include the current value of the stock. So they can just liquidate the stock to pay for the tax. Problem solved.

 

[PoliTalker]

Hello ThatOwlWoman,

Because the Fed cut interest rates to almost zero, so the markets are the only place investors can go to make $$. Usually when markets are up, gold is down and vice versa -- but not in this Year of the Plague. Have you looked at gold prices lately?

Yeah, that's strange. Does DT have the fed wrapped around his little finger? Why are interest rates so low if the economy is doing so well? Well, the answer is the economy is NOT doing so well that they can raise interest rates. The economy is propped up by having the government subsidize it. Without the socialist government life support the economy would be in the ICU on a ventilator.

 

[Geeko Sportivo]

Seems a bit baffling.

It's like nobody told Wall Street there is a serious recession going on.

There is lots of bad economic news out there, but investors don't seem to care.

Is it only a recession for vulnerable disadvantaged people?

Have the big corporations they invest in figured out how to make money no matter what happens to the powerless?

How long can that go on?

Are we inching closer to a big crash when the human support mechanisms for all this wealth extraction begin to crack and fail?

Will there be an 'October Surprise?'

Please explain, thanks.

You can thank the Federal Reserve Bank for the success in the stock market!

As long as bank rates are this low- The stock market is going to soar and roar!

It has created the world's largest bubble of money on earth!

A lot of the money riding on the stock market is BORROWED. That may become a problem some day as it has before- BUT SO FAR- SO GOOD.

And now that we are in recession- THE FRB rates will remain low- THE SUCCESS IN THE STOCK MARKET WILL CONTINUE THROUGH THE NEXT PRESIDENTIAL ADMINISTRATION.

 

[cawacko]

You are conflating wealth tax with capital gains tax on income produced by sale of an asset resulting in a realized and recognized gain.

If there is a wealth tax, a sale is immaterial. I pay a property tax every year based on value, not only when I sell. It's like that, ad valorem.

That's exactly what I was referring to. At the end of the day this is a stupid discussion but Poli's argument was you have no value until you sell. With a wealth tax you will pay taxes on that 'no value' based on the amount of holdings like you said.

 

[Micawber]

Correct. If we did impose the one time wealth tax it would include the current value of the stock. So they can just liquidate the stock to pay for the tax. Problem solved.

And if they don't we can foreclose on the asset, force a fire sale at public auction and throw them in jail.

 

[Micawber]

That's exactly what I was referring to. At the end of the day this is a stupid discussion but Poli's argument was you have no value until you sell. With a wealth tax you will pay taxes on that 'no value' based on the amount of holdings like you said.

Yes you are correct and if so poli was in error. I don't read every post.

My solution to this I think is a better one. Rather than a wealth tax simply make the capital gains tax higher. Much higher.

 

[Concart]

Yes you are correct and if so poli was in error. I don't read every post.

My solution to this I think is a better one. Rather than a wealth tax simply make the capital gains tax higher. Much higher.

I agree on that (despite the impact it would have on me) as a solution going forward, but we still need to make some attempt to get to level. We've neglected this for too long. The one time wealth tax seems like a sensible approach.

 

[Micawber]

The idea that people can be taxed less....much less...when their efforts consist in nothing more than placing bets on securities
rather than making widgets is repugnant, and should be to anyone, especially any protestant work ethic conservatives out there.

But until the working class has the lobbyists of the caliber as do the rich and indolent, we will have bad tax laws that increase wealth disparity
until this country rips at the seams.

 

[Flash]

Yes, but the top 20% IS NOT spending that money on consumer goods. We know this. That's the point.

Evidence?

Consumer spending is down among all groups (8%). It is down less among lower income (2%) because of the stimulus checks. There is no evidence the top 20% don't continue to account for 60% of consumer spending.

Since college educated have been hurt less or recovered faster than lower income, it is very possible they are making up a larger than normal share.

On the one hand people complain about the wealthy buying more cars, homes, and luxury goods. On the other hand, they complain the wealthy are not spending.

https://www.washingtonpost.com/busi...-is-over-rich-working-class-is-far-recovered/

 

[Flash]

The idea that people can be taxed less....much less...when their efforts consist in nothing more than placing bets on securities
rather than making widgets is repugnant, and should be to anyone, especially any protestant work ethic conservatives out there.

But until the working class has the lobbyists of the caliber as do the rich and indolent, we will have bad tax laws that increase wealth disparity
until this country rips at the seams.

Taxes should be based on the difficulty of a person's job?

A guy placing bets on securities that provides income for the pensions of state employees, union retirement programs, and teachers provides a pretty valuable service. Their entire retirement depends on that guy's bets. And, he probably works many more hours a week than the widget maker.

 

[Micawber]

I agree on that (despite the impact it would have on me) as a solution going forward, but we still need to make some attempt to get to level. We've neglected this for too long. The one time wealth tax seems like a sensible approach.

The problem with a quick fix (for me) is the injustice. Some people did acquire wealth making widgets and were taxed along the way. If we tax capital gains
based on equivalent footing as income, then that will not occur, whereas if we place a wealth tax on the ants and hand it to the grasshoppers a righteous grievance is created.

 

[Concart]

Evidence?

Consumer spending is down among all groups (8%). It is down less among lower income (2%) because of the stimulus checks. There is no evidence the top 20% don't continue to account for 60% of consumer spending.

Since college educated have been hurt less or recovered faster than lower income, it is very possible they are making up a larger than normal share.

On the one hand people complain about the wealthy buying more cars, homes, and luxury goods. On the other hand, they complain the wealthy are not spending.

https://www.washingtonpost.com/busi...-is-over-rich-working-class-is-far-recovered/

I already posted the evidence. Just go back and look. The top 20% are spending 53.3% of their income. The bottom 20% are spending 100% of theirs.

 

[cawacko]

Or, if the top 20% spends that money on consumer goods it will also increase consumer spending. But, if the top 20% increased their income by 20% due to increases in the value of their stocks (which they sold and got real money), that is an increase in their income which allows them more consumer spending. And, since the top 20% accounts for 60% of consumer spending consumer spending increases more because those people who account for most of it will be spending even more.

That is a much better policy than taxing one group to redistribute it to another. Consumer spending increases either way.

We essentially just did what you propose by paying everyone a $1200 stimulus check. Since the top 20% pay 80% of federal income taxes they are the ones who will have to make most of the interest payments on the $3 trillion in borrowed money.

This is a separate topic and different discussion but the argument has been made ITT we need to transfer wealth because essentially poor people spend and rich people don't. It reminded me when people have posted articles on this board (and in the real world) bemoaning the number of people who live paycheck to paycheck in this country. So you have people sh*tting on savers yet then disliking that more people don't have any savings. It brings to mind the book The Millionaire Next Door and my recollection of the general premise was there were people who didn't necessarily earn a whole lot of money but lived frugally and saved and over time had a decent little nest egg. It's much more fun to spend, YOLO, but with that comes trade offs.

(and yes there are certain people who are in a position where saving is not an option for them as they don't make enough money to live otherwise. It's pretty hard to save if you can't afford rent and food as it is. But there are plenty of others who could save, even a little, and don't.)