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Apropos nothing, random finance.
May. 31st, 2017 08:40 amThis was a reply to somebody's post. If you have an opinion on this, I'd love to hear it. I feel like this is obvious, but... Finance is an area where "I feel like it's obvious" is often "pride goeth before a fall."
The prompts to this were questions about the phrase "the US market is overvalued" and developing markets and what Trump is doing with the US economy.
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Figuring out what the markets are doing is always very, very hard -- it's a giant many-player-winner-take-all game against a lot of people with more and better information than you have, after all. But "the US market is overvalued" basically means "I think people are treating the US market as more secure than it is and paying, on average, too much for US securities."
Similarly, looking at developing markets has historically been a bit of a losing strategy - we keep thinking they're going to start outperforming US and Europe and they keep not doing that. But when they finally do it'll be a big deal (and we'll stop calling the ones that do "developing markets.") He's basically assuming he knows how to time that better than the market. Which is his job, but still a dubious proposition. But also not the end of the world if he fails, so, whatever.
Trump is maybe a reason to get out of US securities because if he manages to do something *so* bad that US bond status downgrades, you're gonna see a huge (temporary) dip in US prices, during which you'll need to be *very* sure you don't have a short-term need for that money for a few years. Oof. The flip side is that if he ever gets around to proposing the (promised during the campaign) drop of corporate income tax to 10% and the stock market believes he can do it, you're going to see a *huge* spike in *every* US stock price -- sell after the spike happens, because it all goes down the toilet after that.
The prompts to this were questions about the phrase "the US market is overvalued" and developing markets and what Trump is doing with the US economy.
====
Figuring out what the markets are doing is always very, very hard -- it's a giant many-player-winner-take-all game against a lot of people with more and better information than you have, after all. But "the US market is overvalued" basically means "I think people are treating the US market as more secure than it is and paying, on average, too much for US securities."
Similarly, looking at developing markets has historically been a bit of a losing strategy - we keep thinking they're going to start outperforming US and Europe and they keep not doing that. But when they finally do it'll be a big deal (and we'll stop calling the ones that do "developing markets.") He's basically assuming he knows how to time that better than the market. Which is his job, but still a dubious proposition. But also not the end of the world if he fails, so, whatever.
Trump is maybe a reason to get out of US securities because if he manages to do something *so* bad that US bond status downgrades, you're gonna see a huge (temporary) dip in US prices, during which you'll need to be *very* sure you don't have a short-term need for that money for a few years. Oof. The flip side is that if he ever gets around to proposing the (promised during the campaign) drop of corporate income tax to 10% and the stock market believes he can do it, you're going to see a *huge* spike in *every* US stock price -- sell after the spike happens, because it all goes down the toilet after that.
