The Wall Street bulls embracing sky-high stock values and the Washington pols embracing big deficits may be ideological opposites, but they have something important in common. Both draw sustenance from near-zero interest rates which make stocks more valuable and debt more supportable. And both risk taking this basically sound logic to extremes.
The rally in everything from big tech stocks to Tesla Inc. to bitcoin are all manifestations of what Wall Street calls “TINA” for “there is no alternative”: when bank deposits pay nothing and government bonds next to nothing, investors will grasp at almost anything in search of a return. Directionally, this is not wrong. The value of an asset is its future income, discounted to the present using interest rates, plus a “risk premium”—the extra return you expect for owning something riskier than a government bond. A declining interest rate or risk premium boosts the present value of that future income.
This can certainly justify some of the market’s rally. The ratio of the S&P 500 to expected earnings has jumped from 18 in 2019 to 22 now, lowering the inverse of that ratio, the “earnings yield,” from about 5.5% to 4.6%. That happens to closely track the decline in the 10-year Treasury yield from 1.9% to around 1%. Low rates also help explain the outperformance of big growth companies like Apple Inc. and Amazon.com Inc., for whom the bulk of profits lie far in the future.
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Think, reader, if I was discouraged at the sound of the cursed words, because I didn't think I would ever return.
I agree, the short sellers were caught in magical thinking
Republicans friggin LOVE deficits when they’re in power. I mean, they’ll give trillions to the rich and not blink. And that’s their favorite thing. Republicans have been in the land of magical thinking for years.
It's only magical thinking when you ignore real people and focus on the numbers.
Connection, Washington and Wall Street, Pocketbook. How do you think JoeBiden got there. How do you think Wall Street survived the inevitable meltdown. QUID PRO QUO.
Maybe it’s not a year of magical thinking for the normal person. It’s a year of magical thinking for the DBs who are running this mess. How long did they expect to get away with almost 0% LIBOR and 6% student loans on a crisis they caused? pitchforks lulz
See for example Opinion for a masterclass on magical 'thinking'.
No magic. Just the simple truth. PonziAssets
nice