Personal income was higher, lost wages were offset by unemployment benefits and stimulus programs. Consumers spent less on services (hotels, air travel), more on durable goods (e.g. better home office equipment), and saved 173% more money than last year. More people are buying homes, in part due to low interest rates and the pandemic. Low interest rates also investors into higher risk asset classes (they can no longer get the same returns from bonds for example) which pushes more capital into the stock market (lowering the federal funds rate causes all asset classes increase in value).
The stock market surge is fueled by people that escaped the economic damage from the pandemic—those in higher paying jobs that can operate during the shutdown. In fact, some businesses are booming and the rise in wages from say a bonus due to strong company performance can offset the lost wages of low paid front-line workers.
Read the article from the NY Times.
Links to this note
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Economists and financial analysts often assume high interest rates are associated with tight monetary conditions and, conversely, low interest rates are associated with easy money. In reality they indicate the opposite because of the supply side of credit.
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Tech Stocks Go Down When 10-Year Treasury Bond Yields Go Up
The 10-year treasury bond is a benchmark for investors and recently signals the end of Fed stimulus efforts. When bond yields rise tech stock prices fall because bonds are lower risk and tech stocks are expensive for their respective returns.
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Reflections on Writing 1000 Notes
I’ve now written 1,000 notes since May 25, 2020 in my Zettelkasten. You can see my reflections on writing 500 notes and here are my thoughts since then.
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Tech Company Valuations Are Growing Faster Than Headcount
A recent analysis from Crunchbase looked at venture-backed tech companies that went public in the last 8 months found the value increased from $1-4MM per employee to $10+MM per employee.
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Psychology Overwhelms Fundamentals in the Short Run
In discussing market changes, Howard Marks, remarks that psychology overwhelms fundamentals in the short run as the reason why markets can appear irrational. This is a neat way of holding both the idea that investors are rational and markets are irrational simultaneously.