Glad you asked. No, "the markets" are not simply a handful of rich people, banks and large corporations. The markets are also more than just "stocks."
In fact, the majority of "the markets" is actually bonds, and most of those bonds are debt issued by nearly all the countries of the world (sovereign bonds). I think roughly 80 Trillion dollars, but don't quote me.
If you live in a country with roads, infrastructure, buildings, etc.--then the markets are responsible for everything around you.
But you seem to be complaining about stocks since they get the most media attention, so let's look at those.
You may not realize it, but the future of every single country with a socialized pension system, sovereign wealth fund, etc. depends on the returns of global stocks. They make up only a portion of most pension portfolios, but deliver nearly all of the returns. Everybody has a stake in them even if they don't realize it.
Are the markets all-knowing or perfectly efficient? Of course not. But it's literally the only place where you can measure how a global herd of humans are feeling about the state of the world at any given time with a single number. This makes it a default reference for journalists to cite, ie. "thing happened, this is what the humans and their algorithms collectively think about it."
The journalists are often wrong and don't understand what's happening, but this case seems to be pretty straightforward.
See, this kind of thing really gets to me. Here's you circa 1290: "If you live in a fiefdom with wells, irrigation, castles, etc. -- then your Lord is responsible for everything around you." See how fallacious that sounds when you transpose it this way?
The central issue is that you're justifying a thing from the context of the thing itself. You're explaining modern capitalism from the framework of modern capitalism. It's circular, and you get ridiculous things like "the markets built the roads". Ahm, no, workers built the roads!
>Are the markets all-knowing or perfectly efficient? Of course not. But it's literally the only place where you can measure how a global herd of humans are feeling about the state of the world at any given time with a single number.
They are a weighted way of seeing how some humans are feeling about things. A number that gives as much weight to 8 guys as it does to 3.7 billion. It's a pretty shitty indicator, I'd say.
Of course it sounds fallacious--you've constructed a straw man out of my original argument.
There's nothing circular about the concept of debt. It's a fundamental aspect of how our economy works. The way debt is raised is through markets. Again, this is not a controversial or political statement.
Of course workers built the roads. And they were paid to build those roads by debt raised via bond markets. Governments and organizations use debt to bring the future into the present and amortize large investments over long periods of time. The liquidity and demand for this debt in the global markets allows them to do this.
No marketplace for debt = no way to reliably execute big infrastructure projects for all but the richest of countries. The market (the demand for debt) is literally the enabler.
Nothing I've said here is a mischaracterization of reality.
> It's a pretty shitty indicator, I'd say.
Again, I'm not advocating that short term financial market gyrations have any explanatory power for the future. I'm simply explaining why journalists use it: because it's easy.
I'm not yet but hoping to be...
> They are neither wise nor competent
That's me again, but doesn't preclude my success...
However this 1995 paper (1) indicates that the S&P 500 behavior does "Granger Cause" changes in USA GDP. i.e changes in S&P 500 does predict changes in GDP from 1 to 3 quarters out. So that's the one legitimate reason to be encouraged by rising markets. Perhaps the woman who cuts my hair will be able to get off food stamps by spring.
1. https://digitalcommons.iwu.edu/cgi/viewcontent.cgi?redir=1&a...
Or are you lamenting that much attention is given to something that is primarily driven by wealthy organizations? I guess I might sympathize with you there.
There has been other vaccine news in the past which my friends/family talk about excitedly but the broader market didn't budge much.
I don't see any problem in using it a general barometer for this sort of news.
I'd argue that has a lot more to do with the election uncertainty being over with. This is incredibly promising news, but probably not enough to account for SP500 jumping 400 points this morning.
More generally, The DOW is way up, S&P up moderately, and NASDAQ only up a little bit. That looks like it may well be a result of vaccine news to me, which is less good for the big tech companies that make up the NASDAQ than the broader set of companies tracked by the DOW and S&P. I would expect an election related bump to have pretty equal effects on all three indices.
All these new technologies, the techniques, the principles were in development since years if not decades.
Not trying to diminish the accomplishments achieved, great effort nontheless. Just saying nobody started from zero here, that would have been insane and frankly impossible.
Yes, I first heard about intramuscular nucleic acid injection around the year 2000. At the time it was naked DNA and not RNA in a lipid nanoparticle suspension, but the principle was the same.
They might be working on this particular vaccine since 2020, but AFAIK they have been working on the specific principle the vaccine uses since 2008.
If we could somehow develop rapid testing in some way, it's shocking to me that the vaccine could have entered mass production by the Summer.
There was a time where the only true way to test a new model Aircraft was to build one, but nowadays pretty much every characteristic is well understood by the time it enters service. To reach a similar point with vaccine testing will be important when the next pandemic hits.
My point is that the market overreacts to every piece of good or bad news, then settles down as the full implications become clear. There are still a lot of unanswered questions about the vaccine, how we handle rollout, etc etc etc. That’s not really considered in immediate reactions like this, it’s all gut feeling.
We have seen mutations due to minks recently which could make the vaccinations ineffective. These mutations might have been controlled but similar situations may arise in the next years.
For these reasons I am not entirely sure this is the beginning of the end.
What's more, any new strains we do see spreading more widely will do so because their mutations confer a competitive advantage. In practice that usually means more drift towards higher infectiousness but less severe symptoms - the same mechanisms that have left us with 4 other endemic but mild common cold coroanviruses.
The new SARS-COV-2 vaccines may be a useful tool to get us over this hump where the virus is still novel to a large proportion of the population, but are unlikely to be required indefinitely.
This is why OP is asking and mentioning the minks in Denmark.
Regardless of whether the mutations are significant enough to affect vaccine efficacy, it won't likely be a problem. These new mRNA vaccines have a development/production time measured in weeks and months, not years. It changes vaccines from a hardware problem to a software problem. Once the underlying delivery technology is proven safe and effective, reacting to new strains will be as swift as patching a codebase. It's hard to overstate what a massive advance in vaccine tech is happening here.
https://www.nature.com/articles/nrd.2017.243
The basic idea is that now rather than needing to culture live viruses in chicken eggs, we can literally just encode the RNA for a specific antigen into a synthetic substrate and produce vaccines through a chemical process like any other drug. The RNA is then absorbed into your cells, and your own body creates the proteins which stimulate an immune response.
So I think it's somewhat likely that we'll see mutations emerge all over the world.
Whether this vaccine works depends on how early we get most people vaccinated. It may only be a short term patch, which we will see once it's rolled out, you can't really predict the long term without any measurements.
Really puts the nails in coffin of the whole "we're gonna work more remotely after the pandemic" narrative.
Zoom has been doing up ~500% this year. The large fluctuations are expected. Online learning/work will continue to grow regardless of a vaccine. It's not going to be in a crazy rate like it has been this year because of covid. I'm not even talking about companies, cause that's a no brainer. I'm talking about education and hospitals. For example, the convenience of having a virtual appointment is great for both doctors and patients and it's not going away no matter what.
My opinion about Zoom. Selling because of a vaccine is pretty stupid. You should sell if you think they are over valued and not be able to compete with the big companies long term. One thing to pay attention to is their future plans. If they don't have plans to expand their product line I would worry long term. There's no problem for a company to pay for Zoom for video calls and for another company for things like slack/docs etc. But when you have companies like Google/Microsoft who package and integrate everything together, and can give you a good price for it too, then it's a concern. Google/Microsoft make many subpar products, and this year zoom showed it nicely. But they keep copying the important features and will eventually close the gap.
Zoom was 500 at close yesterday, in premarket trading it's dropped 13% to 435.
Nasdaq open at 1430 GMT
^ check the pre-trading price
When will one be developed?
How effective will it be?
Will it have any negative side effects?
How hard will it be to manufacture and distribute?
All of these are important questions that were hard to predict. Today's announcement sheds some light on possible answers to these questions, so this new information is being priced into the market.
Because of day traders and HFT, it's hard to say how long your average investor holds a stock, but it's fair to say that some hold it for a long time and others "speculate" most of the time. The speculators probably have a greater impact on the movement of a stock, but over time it must move in line with the performance of the company.
The price of a stock is thought to be a "risk adjusted present value" of the underlying company. Even if you could be 100% sure a company would make X dollars per year in perpetuity, the price would not be infinite. Instead each year of earnings is "discounted" by risk, inflation rate, the cost of borrowing money, the value of competing investments, and other factors.
If it was assumed by investors that Zoom would make lots of money for the next 5 years, and then make very little money, and this news meant they would only make lots of money for the next 3 years, then that will have an impact of 2 years worth of discounted earnings immediately.
(of course it's not like Zoom pays or is planning to pay a dividends but there's still an underlying value, for instance they could be purchased by a larger company that does pay dividends.)
[1] https://www.reuters.com/article/us-health-coronavirus-short-...
The same thing happened to Hertz, which even after declaring bankruptcy and almost certainly being worthless continued to trade at a healthy volume. In fact, Hertz tried to get approval to dilute and sell more shares to capitalize off the fact that people were buying their worthless stock.
Thanks for putting it so succinctly. I really hope someone who knows a thing or two about the efficient market hypothesis can elighten us a bit.
When the defining event actually occurs, it will either move from $125 to $50, or $125 to $200.
So the news event in this example is priced in at $125, but there is still scope for big moves when certainty is realised.
Obviously in real life the values are never as certain. In the above example if the stocks ever trades < $125 before the event, you would make money in the long run.
EMH shouldn't be taken seriously as the market actors are compromised of irrational humans.
I really appreciate the guidance as I'm quite new to it. Especially so because you're enthusiastic about this book :D