There are few things less important for the future of America right now than the stock market. But the disconnect between rising stocks and everything else is still interesting. So a few notes 1/
One key point for making (some) sense of stocks is the question, where else are you going to put your money? Interest rates, especially on inflation-protected bonds, have plunged 2/
This interest plunge, incidentally, basically reflects long-term economic pessimism. So in a perverse way strong stocks may in part result from *bad* economic prospects 3/
Now, traditionally we would expect the effect of low alternative yields on stock valuations to be dampened. Why? Tobin's q, which has nothing to do either with conspiracy theories or with this guy 4/
Instead, the argument is that higher valuations relative to the replacement cost of capital will induce investment, which drives returns down over time. And markets will supposedly take those future effects into account, limiting the initial rise 5/
But this assumes that profits are a return to physical capital — which in some industries they are. But what if they're largely rents reflecting some kind of monopoly position? Then lower interest rates won't lead to investment that reduces these rents. 6/
And of course that's a good description of the tech giants whose stocks have soared most. So a good guess is that at least part of what's going on is that long-term pessimism has reduced interest rates, and this has *increased* the value of stocks issued by monopolists 7/
@paulkrugman It’s simple: most major industries are controlled my monopolies or duopolies. Their economic outlook is long-term positive.
@paulkrugman An interesting reason to watch the war @TimSweeneyEpic is waging with Apple on the gaming front, as it goes directly after the rent seeking behavior of the tech monopolists.
@paulkrugman Except that Tesla is one of the stocks that soared most, while Tesla can hardly be called a monopolist.. unless you mean a monopoly on affordable electric self-driving performance cars, with highly efficient batteries + cheap high-efficiency solar-energy generation and storage..
@paulkrugman Monopoly is even fought for by the US government which wants Microsoft to own TikTok. Perverse. What about antitrust? What about competition. Free market ideology exposed as just that. Reference: Larry Kudlow.
@paulkrugman But this ignores the fact we’ve become entirely tech dependent during the pandemic so naturally these companies are going to receive higher investment due to the complete reshaping of our economy and future profit opportunities
@paulkrugman Only wonder if the inflated #Valuations of #Stocks fuelled by #Liquidity, and if the steam of Relief packages, Tax $ find its way to this Liquidity!
@paulkrugman Got a bit of a headache trying to follow that logic. But interests rates have been stagnant since ‘08. And my thought is that a society on the brink of retirement lost some animal spirit. Bonds seem safer. Perhaps you might be interested in the weighting of portfolios.
@paulkrugman Global reach scrambles the measurements of tech potential. If small cos fold globally, as they are in the U.S., global tech cos with global distributional capabilities & plenty of cash & credit are positioned to profit from economic contraction.
@paulkrugman Or...trillions and trillions of extra, unexpected government spending will find their way to corporations, boosting estimates of their future profitability.