Stocks and Trading Thread - Channeling your inner Mono

[Admiral Yi]

Not something which really came into my thought process. They could well be.
More that the money which is available, whether on hand or borrowed, is being pumped into pushing some tech stocks ever higher rather than into actual businesses.
There seems to be little confidence for startups or even established businesses looking to raise funds. Instead everyone is trading amongst themselves, speculating on pushing up tesla, apple, etc... ever higher and higher.
The more I learn about this stuff the more it becomes clear that there are two kinds of high stock market, a healthy and an unhealthy one...and we are very much in the latter.

What I'm trying to point out is that "money is being pumped into pushing some tech stocks ever higher" is not an accurate representation of the workings of monetary policy.  You need an actual channel through which low interest cause people to borrow money to speculate on stocks.

[Josquius]

Don't most people buying stocks just use their salary?

[Admiral Yi]

Don't most people buying stocks just use their salary?

Absolutely.  They don't borrow to do so.  So "pushing money etc. etc." doesn't make much sense.

[Josquius]

I'm lost. I never mentioned borrowing at all.
The money is there and being invested in the stock market.
Rather than a healthy spread that can go into actually helping businesses that need investment, ipos, non stockmaret investments  etc... It is instead going into trading top stocks back and forth.

[garbon]

https://www.forbes.com/sites/danrunkevicius/2020/08/27/the-stock-market-is-near-correction-levels

[Admiral Yi]

I'm lost. I never mentioned borrowing at all.
The money is there and being invested in the stock market.
Rather than a healthy spread that can go into actually helping businesses that need investment, ipos, non stockmaret investments  etc... It is instead going into trading top stocks back and forth.

Let's start at the beginning.  We agree that most people put aside some portion of their salaries and wages and buy stocks with that money. 

In this scenario, who is doing the pushing and what does pushing consist of?  This is just a guy buying stocks.

[Admiral Yi]

A share of Tesla is only $442 now!  Super cheap.  Time to pile in everyone!

[Josquius]

I'm lost. I never mentioned borrowing at all.
The money is there and being invested in the stock market.
Rather than a healthy spread that can go into actually helping businesses that need investment, ipos, non stockmaret investments  etc... It is instead going into trading top stocks back and forth.

Let's start at the beginning.  We agree that most people put aside some portion of their salaries and wages and buy stocks with that money. 

In this scenario, who is doing the pushing and what does pushing consist of?  This is just a guy buying stocks.

Buying the same few stocks. The more demand there is for a stock the more its price is pushed up by people trading it back and forth.
In more healthy times a lot of this money would instead be going elsewhere, much of it into areas that help the economy.

Also not sure that this is most people. Quite a minority I think. Maybe a majority if you weigh people by salary.

[Admiral Yi]

Buying the same few stocks. The more demand there is for a stock the more its price is pushed up by people trading it back and forth.
In more healthy times a lot of this money would instead be going elsewhere, much of it into areas that help the economy.

Got it.  Two critiques.  One is that if you sell me shares in company X, that's just a transaction between you and me.  The company can't use that money to purchase plant and equipment.  So buying this stock or that stock doesn't help any area of the economy.

Second, why do you think tech companies don't help the economy?  They hire people, they invest, they produce goods and services.  They contribute to GDP.

[DGuller]

Buying the same few stocks. The more demand there is for a stock the more its price is pushed up by people trading it back and forth.
In more healthy times a lot of this money would instead be going elsewhere, much of it into areas that help the economy.

Got it.  Two critiques.  One is that if you sell me shares in company X, that's just a transaction between you and me.  The company can't use that money to purchase plant and equipment.  So buying this stock or that stock doesn't help any area of the economy.

Second, why do you think tech companies don't help the economy?  They hire people, they invest, they produce goods and services.  They contribute to GDP.

Do public companies typically hold some of their stock in their coffers, in case they want to cash in on the "enthusiasm" for their stock without a formal issuance of additional shares?  Regardless, I imagine that higher valuation allows the companies to borrow cheaper, I know that's how it was in Railroad Tycoon 3.

[Admiral Yi]

Do public companies typically hold some of their stock in their coffers, in case they want to cash in on the "enthusiasm" for their stock without a formal issuance of additional shares?  Regardless, I imagine that higher valuation allows the companies to borrow cheaper, I know that's how it was in Railroad Tycoon 3.

I don't think they hold shares on the company account, but they can always do a secondary IPO to raise money.  Tesla did that in March.  The proceeds went to the company, not any shareholders.

I don't think a higher share price decreases borrowing costs, though someone like Fredo could correct me.  I think it's all about the balance sheet, debt service, cash flow, etc.

[Hamilcar]

I hate to answer with a question, but why do you think that ratio is a signal that the Nasdaq is overvalued?

FWIW, you're mixing flow (GDP per year) with asset value (which includes flow from future years).

Why do you think ratio is not a signal that the Nasdaq is overvalued?

Interest rates are super low and will stay low, so DCF calculations extend far into the future.

[Josquius]

Buying the same few stocks. The more demand there is for a stock the more its price is pushed up by people trading it back and forth.
In more healthy times a lot of this money would instead be going elsewhere, much of it into areas that help the economy.

Got it.  Two critiques.  One is that if you sell me shares in company X, that's just a transaction between you and me.  The company can't use that money to purchase plant and equipment.  So buying this stock or that stock doesn't help any area of the economy.

Second, why do you think tech companies don't help the economy?  They hire people, they invest, they produce goods and services.  They contribute to GDP.

1: Yep. Thats exactly my point. This is why the NASDAQ-100 and the like hitting all time highs is not necessarily the great economic indicator it is presented as. Often its quite the opposite. And there's a feedback loop built in that makes it more than just an indicator. We are in one of those times.

2: Because of point 1. The money isn't going to them. It isn't contributing to anything other than higher stock prices.

[Admiral Yi]

I am having a great deal of difficulty following your train of thought Squeeze.

[Richard Hakluyt]

There is an immense amount of capital/money available; but instead of funding new firms and industries it is inflating existing stock and property prices. If the economy was more innovative then people would have better things to invest in.

I think that is what Tyr is saying; I'm inclined to agree if it is.