Investing (aka GameStonk and other gambling events)

[MrWookie]

wat. This is the STONKS thread, imo.

[nonfiction]

STONKS

[anon38180840]

Here’s the deal with the stonks situation imo. Wealthy people have all this cash, and they hate hate hate hate hate leaving it in cash. That’s just not an option. So if the Fed cuts interest rates, bonds suck too. So it has to be in stocks, basically.

Then you get the big corporate tax cuts, and what are they going to do? The economy is churning along and they’re already fully invested in their business interests anyway, because interest rates were super low. So they can’t really spend it on like expanding business, hiring people, etc… So it’s dividends and corporate buybacks, and oh shit the stock prices went higher again!

Everything is intrinsically overvalued in all likelihood, but it’s kind of like the financial crisis. Until somebody looks under the hood, it’s going to be fine… and also we might have solved the entire mystery of the economic/financial universe by realizing that apparently you can just print trillions of dollars when there is deflationary pressure and it evens out and the music keeps playing. That part I don’t really understand, but it seems to be what is happening.

I think, like you said, as long as it’s the reserve currency…

[anon38180840]

@bobman0330

The critical point is that all asset prices are inversely related to the expected rate of return. As a simple example, a perpetual, risk-free bond that pays $X a year in interest has a value equal to $X divided by the discount rate for that asset (generally, the discount rate equals the amount of interest you’d demand to get paid a dollar next year instead of this year). If the discount rate for an asset falls by half, with nothing else changing, the value of the bond increases by 100%, purely as a matter of accounting.

I’ve been up for 27 hours, so my cognitive abilities are not all there at the moment. Correct me if I’m wrong, but another way of putting that would be:

The discount rate equals the expected value of your best investment tool available over the next 12 months.

In other words, if you expected value of the S&P 500 is to return 10% over the next 12 months, your discount rate is 10%. This assumes you’re willing to tolerate the risk of the S&P vs the bond, but the degree to which you are will impact your personal discount rate.

@bobman0330

A lot of apparent STONKS craziness is just people interpreting price moves that are about the discount rate as actual being about whether “the economy” is good or bad.

I skipped your post while I wrote my last one cause I was too tired to think, this is basically what I just repeated in different words in the post above this one, right? People have to put the money somewhere and they’re not real keen on the return on bonds.

@bobman0330

If the discount rate falls by a percentage point from 10% to 9%, the impact on value is a ~10% increase. If the rate falls from 1.5% to 5%, it’s a 200% increase. And vice versa. Falling rates automatically increase volatility. Second, because discounting is exponential, the effect disproportionately weights far-future cash flows. In a 10% discount rate environment, a company that has a risk-free plan to start generating $1bn a year in 10 years is worth around $3.5bn today. In a 1% discount rate environment, it’s worth $90bn, or 25x as much.

Maybe this will make sense tomorrow morning after I’ve slept, but right now it’s not clicking for me. Can you explain it in a different way, or show me the formula or something?

[suzzer99]

@anon38180840

I think, like you said, as long as it’s the reserve currency…

And when that goes I don’t want my money in dollars either. And I’d like a lot of it in a Euro bank (which I found it is surprisingly easy) just in case the US completely collapses.

[Riverman]

bobman is right

[00cooler00]

So I’ve got a question that had differing opinions from some finance bros I know. I’ve got a 529 plan for our little one. Not much in there now but have like 15 years or so to grow before we need it. Is the play to just contribute on a regular monthly basis like a retirement account? Or are there better times to make that deposit into the account? I know loltiming markets and all that but I just want to make sure I’m getting the most bang for my buck since I can contribute whenever. The fund is a pretty simple vanguard target fund that reallocates every few years.

[Riverman]

Absent tax considerations (the state tax deduction is capped, I think at something like $15k a year), just dump the money in whenever.

[spidercrab]

Obviously I’m misunderstanding something, because this seems like the greatest feat of financial engineering I’ve ever seen:

https://twitter.com/Reuters/status/1272738167939104768

United Airlines appears to have used an existing liability as collateral for a new loan.

[TheDuker]

I still don’t really get it but I found this paragraph in a cnn article:

United (UAL) estimates the value of its Mileage Plus program as a standalone business at $20 billion. It gets revenue from partners who pay the airline to award miles to their own customers, such as credit card issues and hotels. It had sales of $5.3 billion last year, about 12% of United’s overall revenue.

[anon38180840]

At long last it’s… INFRASTRUCTURE WEEK!!!

Dow jumps more than 500 points as Wall Street cheers record retail sales...

[mukdukaluk]

Building the wall finally?

[Riverman]

This is especially incredible to me because its not like this “asset” has any value in a liquidation. What is the lenders security?

[mosdef]

There is probably some intrinsic value in the database of personal contact information plus some data points on consumer behavior. These air miles programs harvest a lot of rich data because people will swipe them at the grocery store, the pharmacy, etc.

[WichitaDM]

Looks like I got lucky selling my puts during the downswing last week (still at a loss). Going to be taking that $$$ and buying Oct expiration puts.

[mukdukaluk]

Retail sales increase DOUBLED the forecast. Seems legit.

[nonfiction]

infrastructure week, retail crushes, and vax pump

Coronavirus: Dexamethasone proves first life-saving drug

[Spinetta]

Anecdotal, but my mom works for Bassett in the Bay Area. They reopened on a limited schedule and only by appointments about 3 weeks ago and she’s told me that their sales have been much higher than anticipated.

[grue]

I don’t know where this goes but my giant fortune 50 retail company gave everyone* June 19th off today as a paid company holiday for every year starting friday.

* Not the people who actually sell things.

[anon38180840]

Furniture sales up almost 90% in the retail report, BSET up over 7% today so far! Still trading below liquidation value, though.