Originally published at: https://boingboing.net/2020/10/29/whats-going-on-with-the-stock-market.html
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i’m also curious how much it has to do with middle class america’s pensions having been turned into 401ks and investment vehicles. lots of individual and state plans are directed into the stock market, and even if you have the option to not be involved, what else would you do with your retirement money?
the tax laws don’t seem to give you much of an option. either you watch your retirement get taxed away, or you invest it and help support ridiculous stock prices.
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A big problem are the long term interest rates hovering at or around zero for so long. It drives all the huge investment firms into the stock market and away from the relative safety of bonds and T-bills.
Add in the practice of private firms using cash to buy back their own stock instead of investing in improving their business or hiring and you see the artificial sweetener effect of driving stock prices higher and higher.
It’s gonna come crashing down sooner or later. Unfortunately only the regular shmoes like you and me will get hurt.
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The correct word is stonks.
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Correct. Wealthy investors will lose what is for most of us eye-watering amounts of money in the inevitable crash that comes from the decoupling of Wall Street and Main Street, but they’re not really worried about losing their homes or their jobs or access to health care or the ability to pay for groceries.
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Basically, I agree that the pension and 401k system weigh heavily in the decisions of the FED to liquidate everything. The problem is that pensioners and 401k holders are small fry compared to the concentrated wealth holders. It’s the top asset holders that make out, literally, like bandits (robber barons) from the FED’s largesse, so that becomes a very tetchy political problem. That everyone not in the top 10% or large asset holder class (same thing) is priced out doesn’t seem to bother the FED nor the political elite.
Working people (even professionals) are left with wages that can’t keep up with asset prices (stocks, homes, gold, diamonds…) and are priced out of an economy that doesn’t include asset inflation in the CPI.
You’d think it was a class vs. class issue almost?
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Well pension funds invest in the stock market too, maybe not as heavily but perhaps that is a bit of an illusion. Pensions used to invest a lot more in bonds and other more stable investments, but when pensions were popular interest rates were higher. With interest rates chronically near zero a lot of investments – pension or individual accounts have been pushed to stocks.
Of course a big driver is income inequality. The people making a lot of money now already have more than they know what to do with. So they invest it. This drives up demand for investments of all kinds. I think this is a major part of the stock market rise over the past ~20 years and also explains some of the insanity coming out of the venture capital world. Venture capital funds have way too much money for sensible investments so they basically “have” to fund non-sensical investments.
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Really they lose nothung. None of that money is real. It’s just however much speculators reckon the invested corporations are worth.
And remember, every time there’s a story about bezos inching closer to being a trillionaire, there’s always plenty of zombies who come out to say “he’s not really a trillionaire, it’s all stonks, he’s poor. How can you tax the boor baby none of his trillion dollars is liquid”
Well, who the fuck should care? He can sell stocks to pay his taxes. He’s stealing from the wealth of the collective and we have fucking NPC level intelligences diving in front of nerf darts to defend him.
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Stonks gonna stonk.
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We gotta open the schools guys. Children and teachers must be sacrificed to moloch so that stonk line go up
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Bezos can also get as many loans as he wants using the stonks as collateral because the banks only lend money at non-usurious rates to those who don’t need it. An ultra-wealthy person has to be an outright grifter and deadbeat like Il Douche before reputable banks will stop lending them money (and it took three decades for the banks to finally admit he was all smoke and mirrors).
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A whopping 84 percent of all stocks owned by Americans belong to the wealthiest 10 percent of households. And that includes everyone’s stakes in pension plans, 401(k)’s and individual retirement accounts, as well as trust funds, mutual funds and college savings programs like 529 plans.
The middle class doesn’t have many options outside of the stock market, but they don’t make up a large part of it, either.
The other thing about 401ks is that I think people really overvalue the short term stock market’s effect on them. You’ll be paying into them for 30-40 years then drawing down over ~20. Any large spikes or drops won’t have a big impact. Even if it dropped the day you retired (although many delay retirement for a few years out of an abundance of caution). In addition, most 401ks default to a target date fund that rebalances away from stocks as you approach retirement.
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Didn’t trump spurt out something like reducing getting rid of social security and replacing it with a plan to have people invest in the markets with some sort of tax free incentive?
(Yes, I know, bullshit from the mouth of the BS King.)
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Normally the uncertainty of an election scares the stock market. Stock prices are ridiculously shortsighted. Not this time.
Usually the stock market does better under Democratic presidents since they spend more money. Trump has been an exception (ignoring COVID) but he has also spent lots. He has loosened regulations and generally sold the country to the corporate interests. Balancing that, he’s generally inept (see COVID) so all that selling out didn’t help the stock market near as much as the country lost.
Net net, Trump and Biden are about equal in how much they will jack stock prices. So no uncertainty about the election just blue sky.
You don’t have to put your 401k/403b money into the stock market, at least for every retirement plan I’ve ever contributed to. Fidelity or whoever will happily let you loan it to them for free and keep it as ‘cash’ in the default money-market account. Or you could put it entirely into bonds if you have an ethical reason to avoid stock ownership–this will at least give you a return that will beat inflation. I’m not sure how there is a scenario where any retirement account value can diminished over time by taxes–you pay taxes on the money (principle plus gains) only when you take the money out. Paper gains, dividends and gains from selling stock don’t get taxed annually if you keep the money in the account. Even then, your income at retirement will probably put that money at a lower marginal tax rate than the one you avoided by putting into the account, so you will be taxed less, not more, by putting into a retirement account and letting it sit until you retire.
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right, that’s the thing that diverts people’s money into the plans. that and employer matching, which likewise is a tax advantage for them.
i guess that’s the part that answers my question best. if less than 15% of stock is owned by standard middle class plans, than the year to year investment of those plans wouldn’t really influence the market much.
that institutional investors play such a large role really does make the whole system seem like a fiction. like they’re all just trading each other’s money around amongst themselves ( and making money off the movement instead of the investments )
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Do you have any data on spending more money? I can only find debt, not spending, but Republicans seem to set new records every time they’re in office. Obama added a lot of debt. I couldn’t find year by year, but I’m confident a lot of it was in the recovery and it was going down.
I do think that’s the truth
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Well…maybe, except that the political economy of the Federal Reserve and the U.S. Treasury, and the Justice department, and the SEC, and the IRS have all gone full bore to insure wealthy investors (speculators, Wall Street banks, hedge funds, and private equity) will never have to accept long term losses on risk assets. Until that is a complete impossibility (when?), I don’t see a scenario where asset investors aren’t continually propped up, regardless of the effect on the actual (real) economy. Looking for the crash might be a fools game when you have the money power of the Fed and the Treasury willing to spend all political capital relieving the worries of the asset holder class.
It’s been my lifetime since there was any sense that the actual earning power of public corporations bore any relevance to the actual stock market worth of said institutions.
We live in a corporate/financial dystopia.
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That’s a mighty fancy facade you are describing there.
