Yes, I know that the markets are not related to the economy but hear me out... Ok, so during this coronavirus pandemic, the stock market has been booming. But businesses have had a hard time of it and they might shut down permanently. So, I've been thinking that it's probably a good idea to wait for the inevitable collapse of businesses and the destruction of wealth before investing in the market again. On the other hand, however, the central bank has been buying up stocks to bail out the markets, or something like that. In which case it's a buyer's market and the little line will keep going up forever.
Not exactly. By having virtually zero interest in bonds (and some of the world's bonds with negative interest), there are only a few viable safer alternatives--Hold cash and lose purchasing power to inflation; hold it in a money market and get no return but hold value; or buy stocks and pray.
My view, or at least from what I've seen from past history, is the central bank seems to try to prevent things from going down and nearly compensates for everything happening in the economy with their monetary policy. This can have a dangerous effect however. If I can describe it with this analogy, imagine holding on to the rubber band of a slingshot to try to prevent it from moving. The part of the rubber band you are holding will stay still. However, if the slingshot itself moves too far away from you, the rubber band could snap and there will be a disaster. This is the same thing that can happen with the central bank's policies over the long-term. The economy has natural cycles of highs and lows. If you try to compensate too much for the economy during the low part of the cycle, then when it eventually starts naturally going back up again of its own accord, there is the danger that the central bank will still be compensating during the high part of the cycle. It will look like an economic boom, but that will in reality only be a bubble. Because the central bank's monetary policy was overinflating the economy and contributing to a bubble. When it then eventually pops (because bubbles are not sustainable) bad things will happen. Getting back to the point to more specifically answer your question, if the central bank is trying to buy up stocks to keep the stock price up, to compensate for stock prices that want to go down, typically what will happen is stock prices will not change too much. The effects will mostly cancel each other out. That is in the short-term of course.
What do you think will happen in a few years when we recover and the central bank sells their stocks?
That doesn't sound good. But, I guess that's why the interest in my high-interest savings account fell below 1% since The Great Recession.
That's really hard to say. I think overall, looking at the long-term, the central bank activity will depress the economy a little bit, preventing some growth, but we probably won't see any huge changes. What I mean by that is that any change will mostly tend to be gradual and steady over time, even if there are big effects. There of course is a risk of a crash, but that is very hard to predict in this situation. If that causes you to be confused, the central bank is not going to sell the stocks at a time that would cause the prices to suddenly go far down. The effects would be more long-term than that.
I personally am hoping that within a few years money will be abundant and we will be deliberately turning deserts green in the Middle East, Australia, California and anywhere else where there are water shortages. After the Abraham Peace Accord turn deserts green...
You are going way off-topic again, Dennis. It's fine if you want to go off-topic in a discussion, from time to time, with a few quick statements and maybe a link, but to post whole long articles about that off-topic thing is taking it way too far.
Turning deserts green produces food..... food is an important form of wealth......... off topic by your standards may not offend wgabrie at all.....
You are correct, even then, the next wave up might takes years. We are at a HUGE problem, 0% rates, printing money and creating ever larger debt. Yet, a Guy from any investment house, Raymond James, Edward Jones would tell you. "all is well, over the course of the stock market you would have made xxxx% on your money" It is GREAT to be in the market. They always have a lot to say when the Market is up, and use adjusted charts to show you their great returns. Ones that never include Inflation, or compounded interest. You literally have to learn this all yourself and you can NEVER trust these guys. NEVER. it is their job to take your money.
