They will just claim it is further evidence that government is broken and they were right all along. You are basically asking southern conservative voters to turn on southern conservative legislators. Even if congress demanded decimation of the south, Roman Style, I think they would just circle the wagons.
It cannot be the fault of Trump, his policies, or anything even vaguely associated with Republicans. Therefore, a collapse on bond prices and a recession must be the fault of:
At least for the past century and more, the party in power has taken a hit with voters for anything perceived as negative, even shark attacks or foul weather. Larry Bartels has shown some particularly vivid examples. There will be few Trump voters who will switch to voting for Mamdani, to be sure, but there will be many who no longer be ardent enough to bestir themselves to vote at all.
No one will ever admit they're wrong. Instead, if we're lucky, in 10-15 years Republicans will just say "I never supported all that tariff stuff," like the Iraq War.
I bet the tech weasels on the Right are already formulating the narrative that its Biden who tanked the economy and that the Big Beautiful Bomb that the Reps tossed into the economy has not had time to fully fix it yet.
One major problem (and I don't know how this gets fixed) is a lack of critical thinking skills, or curiosity, or ? I mean, everyone's right: this is being spun as too soon, Biden's economy, Jewish Space lasers, everything. Anything. And I imagine a substantial part of Trump's base accepts these explanations and carries on. It's almost as if they are going to have to get hosed by the BBB to finally get that they're been had.
Judging from my MAGA relatives, they fervently believe that liberals/Dems and the liberal media are monsters of evil who have been preying upon real, honest (white) Americans since Vietnam days. They genuinely fear and hate us, and hate the media, conservative tho it is.
To them we are the Devil: baby killers, homo-loving, advocating for 'unnatural' women's equality, anti-racists (and they are racist to the bone). And we give money to "lazy bums, druggies, cripples, old people who should have planned for their retirement!" They'll never vote Dem or liberal, their emotions are too intense. Or so I see in my family and their friends. They are also very ignorant.
I imagine that "planned" for their retirement by including Social Security and Medicare? And if they have no long-term medical insurance, they will go on Medicaid --if any of the above are still available. Hypocrites.
Without some form of economic "Pearl Harbor", they will continue to deny and slumber.
Corporations will buy up neighborhoods and they will have no opinion until decay and negligence set in. Starbucks might go under, but most people don't go there because it's always been expensive. When they can't afford pasta, chicken or eggs, things will begin to stir.
They can always just raise chickens in their backyards, like Ag Secretary Brooke Rollins suggested a few months ago. If you happen to live in an apartment, just tell your landlord you want to use the basement storage area as your personal farm.. even give him/her a coupla free eggs every month out of the MAGA spirit of kindness, brotherhood, empathy and good eatin's.
What Trump does not seem to understand is that under the long- time BLS process, the head of BLS cannot change the numbers. The jobs numbers are the work of hundreds of persons whose work is checked at the end by about 40 persons are of various specialties, and locked into the computers by the Monday of the week of release. Thr text of the release is then drafted.
The Commissioner of the BLS does not participate in any of this, and does not see the release and the job numbers until the Wednesday of the week of release.
The White House gets the numbers on Thursday night, and they are released at 8:30 am Friday morning. If anything has been changed,
there are at least 40 professionals at the BLS who will know and likely blow the whistle. Only a wholesale, disruptive change in the process can change this.
After a new Commissioner of the BLS is installed, he or she will have to report whatever the process comes up with. This is likely to be the worst of the year, and to also revise July DOWNWARD. What will Trump do then?
The process was apparently designed to enhance the credibility of the numbers by making it impossible for the politically appointed head of BLS to change or “rig” the numbers.
The process was apparently designed to enhance the credibility of the numbers by making it impossible for the politically appointed head of BLS to change or “rig” the numbers.
Trump is quite adept at making his own reality. What if his new head of the BLS just pulls numbers out of the air that sound good and simply bypass the agency? They are all Democrats who hate Trump.
Would it make a difference? Who would call them on it. Bond markets? Probably, but that's not the stock market.
Sharon: answer, Yes. The bond markets were spooked by Trump’s tariffs in March and, quietly helped by former central banker Mark Carney talking to his counterparts in Germany, Japan and the UK, Trump folded in only four days. The UK bond market rolled Liz Truss in less time than the shelf life of a lettuce. The bond market is MUCH more powerful than the stock market.
I think the replacement will not only lie and say that things are perfectly normal, that person will also begin to crow about how perfect the new normal is. Fear can make someone say many strange things. "Many people are saying that the new normal is not just normal, it's more normal than it has ever been - quite possibly the most normal type of normal that we have ever seen .......ever..."
The Stock Market is how the rich (and trillion dollar corporations) acquire their wealth, and how they keep it. The original purpose of the Market (investment) has vanished. It is just a piggy bank-casino for the wealthy and for corporations. They keep the stock market "high" to protect their rigged carnival of unearned wealth.
I also wonder about the number of individual speculative investors in the market. My sense (from watching friends’ young adult, mostly bro male, children) is that ever more of them are betting online and view the stock market as one more online casino. They are also fueled by trump’s questionable guidance that lots of people were getting rich on the heels of his TACO decisions. Sadly, for many of them, job prospects don’t look good, so they’re trying to strike it rich with bets.
I did this, and I agree. The whole experience is gamified, fun, and all too easy to roll the dice, what with online trading. Some years back (almost 20 years) I had a significant sum of money appear in my account after the sale of a business that I helped create, in which I still had shares. I was struck with how, literally overnight, I - the same schmo I had always been, who my bank knew not of - was getting calls from my *new best friends at the bank* who were offering me overnight investments in commercial paper. They literally had me come down to meet them in their board room, to offer me credit lines and whatnot: such brown nosers.
My experience taught me that if you have money, you also have many, many opportunities to have more. And if you've always had money, you might actually believe you're special, maybe even entitled.
This is what Trump's selling to the wannabes: the system is stacked, ,why not stack it in your ("our") favor ; the "others" want to eat your pudding - don't let them; unabashed greed is good (we're there again, "Greed is Good").
It has always been obvious to me that if you have money, the opportunities to make more- or to lose more are plentiful. Our political system has been creating the support system for the people with money to continue that process with the rest of us taking the risk.
It wasn't junk. It was literally overnight investments. One issuer I remember was AMEX. I don't recall what the yield was. Very short term. That said, I wouldn't put it past a bank to sell low-rated paper. They don't really care.
Banks buy, sell, issue, and guarantee commercial paper. They need there to be a market for it. They need it to keep their commercial customers. They need it to make money. Why does it surprise you to learn that they would be pushing junk. Junk is tempting to buyers. Would you be surprised if someone tried to sell you a dying horse ?
If people are willing to light money on fire by buying memecoins from the Trump family, they will bet on anything, including whether the sun will rise tomorrow morning. What’s maddening and depressing is that Agent Orange wants to use tax dollars to create a crypto repository and make America the crypto (a.k.a. crime) capital of the world. But of course the Federal Reserve is prohibited from creating an official digital currency because that would compete with the family graft. What would we expect from a career criminal?
When I happen to be stuck in Vegas for a convention, a group of friends and I go out gambling. I always take along a book. They laugh at me when I explain that I have X dollars to have fun with, and when it's gone I'll wait in the bar reading while enjoying my favorite over-priced, but necessary, scotch. It's the same plan if I double my money within the time allotted for gambling, I'll walk away and read/scotch in the bar. I rarely lose all my money, but I always walk away after doubling it even if it's 15 minutes. I am no student of economic theory, but I've always thought this is because I am satisfied with doubling my money and do not believe there's more gold in that glittering sinkhole. My investments are the same. I do not expect to become a multimillionaire by the time I fully retire. Maybe a solidly single-digit one who's happy with the slow, plodding growth I've thus far experienced, or something just south of there. I wonder if this is because I have been poor before, where boiled rice, margarine, and brown sugar was breakfast when the food ran out each month, and a canned ham for supper made us feel exceedingly rich. Treating Wall Street like a casino and coming up losing is how we gamble away our democracy. People who wildly bet their investments seem to believe they are entitled to huge sums in response. They imagine that "more" was the experience of other people but they've been somehow cheated. So they easily buy into new scenarios that might make them rich. Trump is merely the festering boil on the butt of that sick body of financial discipline. And yes, I am a fun person about half the time. 😉
I wonder if the market is more resilient now that there are more 401k investors. It's actually work to find alternatives to stocks. Most 401k investors are not active traders and just let it ride.
There are articles about the gameafied no hope attitude of the generation looking for opportunities in this new job market. Frankly it's becoming a no choice no job options type environment. That leads to crimes or chance taking. Someone throw out a conservative work regime that leads toward a profitable savings profile.
Cryptocurrency....a young bartender realizes he's going nowhere with his economics degree from a local university, so he is investing in Bitcoin. Billboards up promoting it. Anytime something is being advertised as investment, it's pretty certainly something to separate one's money from one's bank account....perhaps I should mention to him that billboard.
I don't wonder. I am convinced that gamblers have mostly taken control of the market. They're not investors, they're not doing any analysis, they're just betting stocks will keep going up. No different than a wager on red at the roulette table.
Retail investors have been adding to the market while institutional investors have been taking money out of the S&P. Institutional investors have the AI momentum already built into their price target.
Is that still a thing? Now that you mention it, I remember Supermicro ads from 2012, when they offered overclocked (!) Xeon servers specifically for that purpose, but haven't heard about these things for a very long time.
As a former small business owner, we always felt a recession months before it was announced. Look at small business, not the stock market, for your information.
Julia, we were also owners of a small business, and I'd say there are so many externalities beyond what Paul is writing about today that affected us (ours was a seasonal business that depended on good weather between April and June, so Mother Nature was the biggest factor, but still...)
Unless a small business is providing goods and/or services in its market and things people rely on it, consumers are also affected by the emotions of the day: a drop in the stock market, or in real estate (or increases in either) give relative buoyancy to one's buying decisions. I'm so glad to be retired!
I'm happy to be retired, too. No more worrying about the weather 24/7.
It's true that there are many other factors impacting a small business but recessionary patterns stand out over the last 40 years of business. I can't tell you how many times my accountant and others tried to convince me that there wasn't a recession coming only to have one recognized in the future.
The stock market is not an economic indicator. July boxboard orders forecast fourth quarter sales and January stock prices. Commercial real estate occupancy rates and residential building permits can be more solid than consumer sentiment indicators.
Thinking about Trump's tariffs as economic policy misses the point. These wildly arbitrary tariffs feed Trump's megalomania. He believes the tariffs will place him at the center of the world's economy. His dream is for other nations and domestic industry leaders to come crawling to kiss his ring. That's what he craves: power and attention. That Trump may ravage the world's economy in the process is of no consequence to him. His narcissism is insatiable.
That's only the effect of ONE of his destructive policies. He has a whole flower bucket of them: increasing corruption, decreasing labour force, killing off lucrative renewable investments for ideological reasons, gutting scientific research, decreasing confidence in US institutions and rule of law, depressing domestic consumption and increasing crime by cutting social services,... the list is endless.
The narrative that I hear from my children in their early 30s is that the stock market always goes up.
The massive money management industry has done a fantastic job in convincing people that their job as investors is to stay the course when markets dip, hinting that it may actually be an opportunity to put more money into equity.
Pesky details about the impact of tariffs, the collapse of the rule of law, and the massive disruption of labor caused by a crackdown on immigration are all noise that do not impact the inevitable parade toward progress and financial enrichment. Markets go up because markets go up.
It's very similar to the mid 2000's when the story was that housing prices always went up, never down. It served as the underlying predicate for irresponsible decisions with catastrophic consequences.
Erik, but they are right, over the long term. In 1978 the Dow was at $753 (I have a newspaper from back then showing the average); today it's north of $40,000. My wife had come into some money back then, and we met with an investment advisor (who we are still with.) He taught us kids a lesson we remember to this day: over the short term, the market rises, the market falls, pay no attention to it. But over the long term the direction is *always* up.
I think that was correct. But it's hard to think that things haven't drastically changed in the last 6 months. Trump is destroying so much of what made America great. Rule of law, science, international allies. Those are major structural changes to the system.
I’ll still take my chances. If there’s one thing America loves, it’s money and wealth. People always kill themselves to make more and more and more money, and owning stocks gives one a piece of that. Just like investing knowing a nuclear war could happen, if it does, nothing matters anyway, and if it doesn’t, the investments will have done well. I say invest, and also fight like hell.
They are right, short term all bets are off, long term however, the market goes up. What exactly is short term and long term. 5 years? 10 Years? 100 years? The market moves with the income and growth of the economy. The economy grows with population, more people, more income, more food, more goods and services etc. it also serves as sort of an inflation hedge. However, if you retire at the start of a pullback and depend on your investments to provide income, you would be a very unhappy person. If the next 5 years you had to consume your hard earned retirement savings, when the market finally turns around and recovers you have far less basis to produce that income you needed for your retirement. So your 10 to 15 years of retirement may be not what you dreamed it would be. On the other hand, if you retired right at the bottom of a market pullback (recession?), your retirement savings would grow substantially benefiting from the market recovery.
I wonder what today's average is in 1978 dollars. Having that, we can calculate the rate of growth in real terms. And compare it to other things. But if course the DJ is a beauty pageant. And losers get dropped from it. So maybe we should just follow those stocks that comprised the DJ in 1978, and calculate the weighted average rate of return on them in terms of 1978 dollars. That would include the rate of return on Electric Bond and Share, and the Pennsylvania Railroad and things like that I should think.
So many derivative markets emerge based on a truism about long-term trends. These markets don't allow for the patience or time to correct over the long term when everyone is rushing for the door at once.
Calamity in an obscure part of the market can contaminate other sectors, leading to forced selling and financial meltdowns. Some of you may remember the cascading collapse that ensued with the 1997 run on the Thai baht.
This eventually led to the Long-Term Capital Management Crisis. LTMC was a hedge fund run by financial engineering geniuses whose flawed model failed to factor in short-term fluctuations. External intervention saved the day.
Who knows how many land mines like this exist in today's free-wheeling, lightly regulated non-banking environments, especially around cyber currency?
Japans stock market has been stagnant / beneath its 1989 high for 35 years (it has only recently made it back to a similar valuation). Looking at one market going up and seeing a trend does not mean all markets go up and will go up forever.
Blackjack, thankfully we are not in the Japanese market (which I know nothing about.) The Dow has historically gone up, even though it's sometimes flat for long periods. Like a lot of people, we are observers of the stock market and passive players, content to let the market do its thing. But as we age (we are 70-ish) in this shambolic time, we grow more uncertain of its direction when we'll be needing more financial security, especially with threats to social security, Medicare, etc.
The "long term" strategy works when you are 20 or 30 something and have that nice long time line.
When you are in your 60s or 70s, you no longer have the certainty of 30 or 40 years to let your money ride the market. Sure, you might live to be 90, but you might also be hospitalized next year and need the money that is now in a tanked market. For older people, I think now is the time to take your money and run!!
Linda, the original commenter was talking about his kids who are in their 30s, which prompted my response. Everybody needs to make their own investment decisions based upon their own situations, of course, hopefully with the advice of a competent advisor. Of course, not having all one's eggs in a single basket is always good.
Professor Krugman: i've always viewed the stock market as legalized gambling (with a strong dose of self-delusion thrown in), and my perception is only strengthened as i watch the market's insensitivity to the very real struggles of 95% of americans' lives. destroying science, in particular, will destroy this nation, both because many people will become even more anti-science anti-expertise knuckledraggers, but also because the intellectual infrastructure will collapse or migrate to other countries, where their skills and expertise is appreciated and rewarded.
It’s not the stock market that is insensitive to the needs of average Americans but its components-corporations. Their only purpose is to make as much profit as possible and altruism does not play in to that. The system is designed to bring out the worst in people.
Some years ago I was playing Monopoly (which I will never play again) with my wife and two other people. My wife is a kind and generous person. But as she began winning the game her demeanor changed and she became greedy taking advantage of her good fortune (which was gained mainly through luck) and never gave anyone any slack. This is exactly the way corporations act, they may start out with the best of intentions but end up being ruthless.
It really isn't gambling: gambling is a guaranteed long term loss. When you buy a stock, you're buying a share of an actual company. I have a retirement account, invested 100% in stocks, untouched since 1987 that went up 9.5% per year (6.6% / year after taking inflation into account).
When you play something like roulette, you're betting against the house, with probabilities set to ensure that over time you lose.
I agree roulette isn’t a good analogy, except maybe for AI speculation. Our retirement accounts have done extremely well over the years even with the crash of ‘08 because our funds are invested in serious companies whose goal is to make a profit for shareholders.
I do worry about what will happen to the Mag. 7 when they realize that no one is going to pay the exorbitant amounts for AI that would be required to pay for all those Nvidia cards. I mean, it won't bankrupt them, and some of that data center investment will probably be useful, but I have to imagine overall it will hurt the S&P 500 index funds pretty hard.
They are looking to disrupt your job. Your employer has already decided to pay you, but it could pay them less for the same work. AI has some ways to go to realize this outcome, but I do feel it is inevitable. Even if no ordinary consumer buys AI, there is a 100 $trillion market or more when businesses buy AI to put us out of work. Even if it was equal pay for equal work, robots don’t pay FICA.
In the last 5 years, I've worked for both the M and G of the Magnificent 7, which should have been the easiest for AI to disrupt, and I just wasn't seeing it. The AI tools could make looking up interfaces a little easier, and in a few cases, they could actually write a skeleton of what you wanted (though I didn't actually see that for more than a toy project), but it just wasn't qualitatively different from programming without those tools.
Now, I realize that some of the M7 did a small # of layoffs in the last couple of years, but I think that was more a reaction to over-hiring during the pandemic, than anything to do with LLM's writing code.
I do think LLM AI can be used as a sort of interactive text book for some things, though there are risks there as well -- they still frequently get wrong answers.
What's really amazing to me is the sheer volume of the $$$ that are being burned here building data centers filled with soon to be obsolete Nvidia cards, all for revenues that appear to be about 5% of the capex spent. And a non-trivial amount of that 'revenue' is just a company, for example, like MSFT being paid for OpenAI's data center use, with money that MSFT put into Open AI in the first place. And AFAICT, the only company making *income* from AI (as opposed to revenue) is Nvidia.
The “final solution” for getting rid of troublesome labor is so close they can taste it! They will push through if it is at all possible. We might see a market crash before then as a lot of the excess cash unwinds, but eventually I think they will get “there” where there is some arbitrary metric where they convince themselves they can lay off half+ of development staff, whether they can or not, then lay off some more when that isn’t working.
*Can you imagine? Getting rid of labor has been the capitalist’s wet dream for centuries. So close! No more dealing with people with *opinions* and vacations and pushback against your most profitable and clearly best ideas. Legal slavery will be possible once again! Finally!*
All we need now is more independently wealthy customers. I’m sure they are here somewhere….
I think it's a useful analogy to think of it as gambling. When I started I thought it was investment and trusted the system. After numerous failures, I now see that there are insiders who control the small waves and all I can try to do is ride the big ones; the real crashes and highs. It's very, very hard to sell high and buy low.
However, I do think there has been a very serious change in the US economy and I'm damned if I know what to do with our retirement investments. I don't even trust that FDIC will hold, nor the Fed after all of the hits it's taking.
What happens when there's a huge "theft" of crypto and everyone starts to ask, "Can I get my money out NOW. How does the Fed defend the economy when our reputation for being solid citizens is gone? Who will come to our aid after Trump (our elected President and king) has told the world to bow down and suck his @@@@?
If I could get my money out and into a place with a rational economic system I'd do it, but we're just small time nobodies.
Right. If that is your goal, you are doing it wrong. The average investor who does that earns barely above inflation buying and selling into a market averaging +10% or so / year.
There are a variety of reasons for this, but for the most part it comes down to the fact that over the long term 95% of the companies lose money for investors and it is just the rare winners that pay for everything else. Add that to the disturbing tendency of investors to pile on to stocks that have already had their 10x gains and you can see why most fail. The way to capture the rare unicorns that make money is to buy everything, using an index fund that will work for you to ensure you continue to own everything as companies come and go.
I absolutely agree that trying to ride the small waves (I assume you mean trading on a time scale less than a couple of years) is futile. My view is that you don't put money in the stock market that you might need in less than 5 years.
I've never even been able to ride the big waves. I didn't see 2008 coming, and I thought that Trump's tariffs would have hit the stock market harder than they have so far.
I bought on the 2008 downturn. I did see it coming but like this next one, you don't know when it will hit. All you can see is unsustainability of what's currently going on. I do think this time is significantly different than the last 60 years. We were once basically a country that believed in rule of law and now we're not.
If you had invested in the Japanese stock market, you would have ended up with roughly the same amount of money as you started with (drastically less when adjusted for inflation).
Same with QQQ Nasdaq and MSFT purchased during market drop in 2000 and sold in 2015? the year that FB went public. Those funds never paid the dividends that American Century in foreign investments did nor were they ever more valuable than at the price when purchased.
The main difference between gambling and the stock market is in gambling the house fixes the odds “perfectly” to benefit the house. In the stock market, the system fixes the odds imperfectly to encourage losses. There is at least one game — highly diversified, long term investments — which do favor the investor.
There is another 'top of the market' signal out there now to add to all the others. The Financial Times leads today with an article about how much Berkshire Hathaway is underperforming the S&P500, which is what always happens near market tops. Buffett knows when to reduce risk, pull back and let the market run ahead, until the narrative changes and he looks like a genius again.
I am worried and working like hell to hold my sources of happiness close and closer. Oddly enough, Dr. Krugman, and I think you should know this, you are among them. That someone with such a sense of responsibility to inform and educate your readers, giving us in some wise access to the edifice of educated thought is still putting out so much information and useful perspective gives me faith that, one day, we will emerge from this fever swamp in which we're all being forced to stew. Alligator Alcatraz? Yep.
"Mr. Market" is notoriously erratic, but one thing we know for sure.... he is RICH. And wealthy people aren't worried about the economy going south, because the Trump guys have their backs. Whatever happens to ordinary working folks, the incredibly wealthy people who now control the US government will make sure that people with money will keep getting more of it.
I think you need to add "the market always goes up OVER A LONG ENOUGH TIME HORIZON". This is absolutely born out by history. Could that change? Sure! But if you are an investor there are few safer bets than betting on the total U.S stock market returns over a decades-long time period.
Also housing prices since the 2008/2009 crash have more than doubled so housing similarly has historically gone up and up over a decades-long time horizon.
But of course in any given year or even 5 year period, both housing and the stock market CAN fall. They are fantastic investments over the long haul though.
Can Trump's destruction of American science be reversed by the next, hopefully, Democratic President? Maybe. The research funding can be restored, and laid-off employees might be rehired. Foreign researchers might return to the US after the threat of their incarceration is ended. But, can the US be trusted after it has demonstrated that it has many irrational voters inclined to elect a completely unfit demagogue?
Laid off employees will need to find other employment.
Researchers gone to foreign lands will have new homes.
Research programs are like small businesses, they don’t just “come back”. If the expertise is published, there’s a historical record, but a lot of the new isnt yet there and that know-how is erased.
This is a classic humpty-dumpty. It will take much more effort to put him together. He’ll be smashed, not just need to be helped to get back on the wall.
Yes, we'll be like Great Britain, the last major empire to fall and its main industry now is tax havens and money laundering. Par for the course for former drug dealers (opium wars).
The project I am part of is 100% NSF funded. There are international scientists here who are so specifically skilled that putting them out of work guarantees they'll need to find work somewhere else in the world, and when they do, they aren't going to completely uproot their lives to come back when a new administration returns to DC.
Science is entirely dependent on human capital. That human capital is seeking more stable, predictable, well-funded work elsewhere in the world - or worse, turning to the private sector for an income source. The writing is on the wall: a large portion of American politicians don't value science or any of the results that stem from it. There's no reason to assume that a change in administration will entice anyone to return.
Ugh. 100% agree with human capital as the key asset. I’m encouraging translational activities, and do know that NSF just created a TTP -translation to practice program. Current nsf awardees eligible for administrative supplement, rolling submission, a couple years additional funding if you can imagine practical applications of the basic research.
Use/share this spreadsheet (bit.ly/Goodtrouble) as a resource to call/email/write members of Congress, the Cabinet and news organizations. Reach out to those in your own state, and those in a committee that fits your topic. Call. Write. Email. Protest. Unrelentingly. We deserve better ❤️🩹🤍💙
Please let me add an example and a 4th point to your list:
Our supplier of office automation software (the famous quasi-monopolist) some weeks ago unilaterally increased the price of our yearly-subscription by 30%.
The same company in these last days just crossed the treshold of 4kB$ of market capitalization.
So please let's all guess who will really pay for this enormous investment in IA.
In fact there is a link between Wall Street and Main Street: the value of WS is directly linked to the speed with which MS's wealth is siphoned off from our pockets (and retirement savings) to the ones of big financial investors ("too big to fail", indeed).
As you often say "They do it just because they can".
DJT and his clan are clearly determined to go full speed on this attack to honest people and their 401(k), also as a way of future social control.
Also worth noting that the stock market values already installed capital. Economic growth is partly, maybe largely, driven by new capital formation and that’s exactly what Trump’s killing of research will retard. Killing new capital formation kills the competition for legacy capital, thus supporting, even increasing, its present value.
This is an interesting way of approaching the question. I will ponder it's meaning. Another might be found by just stepping back the ask just what the question is. What is it Krugman is asking ? What are we trying to understand ? That may be many different things. So stocks went up Monday after a week of very bad news. What does that mean ? Does it mean anything at all ?
It means literally that stock prices in the aggregate rose. Gains outweighed losses. But the market dropped Friday. So what ? What was the volume of trading ? It's August. Not the busiest time of the year. Knowing what the volume was like might tell us more. Indeed without knowing that it is hard to find any meaning in how the market performed yesterday or the day before, or over any period.
Stock valuations create access to money. They are used to leverage debt. And de t is used to leverage more earnings hence higher returns. A never ending cycle ...so long as it runs in forward gear. The stock market is always pushing the limit. Rates are up. There is crowding out. As you note new issues and growth stocks are competing with old money investments for access to capital markets. So as you imply, tis an ill wind that blows no man good. Bad news favors the tortoise over the hare.
And to top it all.. while those with money are quick to take advantage of per rived opportunities, investors are very slow recognize losses. As Professor Krugman has noted, some never do.
So what to make of it all ? Nothing really. Study volume. It may tell us more.
Isn’t the drop in the USD also related here? I believe if you were a European or Japanese investor, you would actually have lost money in U.S. because the stock market gains did not outpace the dollar depreciation.
IOW, dollar denominated U.S. indices rising says less about the value of the companies increasing and more about the value of the dollar decreasing.
Bloomberg: " Treasury yields rose for a second day after an auction of notes and bonds drew weak demand."
Trump's cheerleaders and enablers are, eventually, going to have to be held accountable for the wreckage they are bringing to America.
They will just claim it is further evidence that government is broken and they were right all along. You are basically asking southern conservative voters to turn on southern conservative legislators. Even if congress demanded decimation of the south, Roman Style, I think they would just circle the wagons.
They'll blame it on Biden. And MAGA will agree.
It cannot be the fault of Trump, his policies, or anything even vaguely associated with Republicans. Therefore, a collapse on bond prices and a recession must be the fault of:
The Deep State
Democrats and liberals
George Soros
Immigrants
Lazy minority types
Biden
Obama
Clinton
Carter
Liberal Lo flow shower heads and electric cars caused the recession.
And low flow toilets!
Only because they couldn't get the refuse out of the offal [intentional misspelling] office
And the fact that US does not have a nuclear power plant on the Moon.
You forgot schoolteachers and college professors.
unrelated spam from a bot. Reported.
At least for the past century and more, the party in power has taken a hit with voters for anything perceived as negative, even shark attacks or foul weather. Larry Bartels has shown some particularly vivid examples. There will be few Trump voters who will switch to voting for Mamdani, to be sure, but there will be many who no longer be ardent enough to bestir themselves to vote at all.
We can only hope! When uninformed voters are encouraged to vote you get a Trump.
No one will ever admit they're wrong. Instead, if we're lucky, in 10-15 years Republicans will just say "I never supported all that tariff stuff," like the Iraq War.
I bet the tech weasels on the Right are already formulating the narrative that its Biden who tanked the economy and that the Big Beautiful Bomb that the Reps tossed into the economy has not had time to fully fix it yet.
One major problem (and I don't know how this gets fixed) is a lack of critical thinking skills, or curiosity, or ? I mean, everyone's right: this is being spun as too soon, Biden's economy, Jewish Space lasers, everything. Anything. And I imagine a substantial part of Trump's base accepts these explanations and carries on. It's almost as if they are going to have to get hosed by the BBB to finally get that they're been had.
Judging from my MAGA relatives, they fervently believe that liberals/Dems and the liberal media are monsters of evil who have been preying upon real, honest (white) Americans since Vietnam days. They genuinely fear and hate us, and hate the media, conservative tho it is.
To them we are the Devil: baby killers, homo-loving, advocating for 'unnatural' women's equality, anti-racists (and they are racist to the bone). And we give money to "lazy bums, druggies, cripples, old people who should have planned for their retirement!" They'll never vote Dem or liberal, their emotions are too intense. Or so I see in my family and their friends. They are also very ignorant.
I imagine that "planned" for their retirement by including Social Security and Medicare? And if they have no long-term medical insurance, they will go on Medicaid --if any of the above are still available. Hypocrites.
Are you by any chance related to me? Just wondering because I have some MAGA relatives in Arkansas who sound just like yours!
Without some form of economic "Pearl Harbor", they will continue to deny and slumber.
Corporations will buy up neighborhoods and they will have no opinion until decay and negligence set in. Starbucks might go under, but most people don't go there because it's always been expensive. When they can't afford pasta, chicken or eggs, things will begin to stir.
They can always just raise chickens in their backyards, like Ag Secretary Brooke Rollins suggested a few months ago. If you happen to live in an apartment, just tell your landlord you want to use the basement storage area as your personal farm.. even give him/her a coupla free eggs every month out of the MAGA spirit of kindness, brotherhood, empathy and good eatin's.
. . . and they will blame you for burning their hand. Blame anyone but themselves.
Wow! They sound just like my MAGA relatives, too!
Really?? Imagine that... Trump kills the messenger so he can replace her with a compliant one who will lie. No, that couldn't have any effect.
What Trump does not seem to understand is that under the long- time BLS process, the head of BLS cannot change the numbers. The jobs numbers are the work of hundreds of persons whose work is checked at the end by about 40 persons are of various specialties, and locked into the computers by the Monday of the week of release. Thr text of the release is then drafted.
The Commissioner of the BLS does not participate in any of this, and does not see the release and the job numbers until the Wednesday of the week of release.
The White House gets the numbers on Thursday night, and they are released at 8:30 am Friday morning. If anything has been changed,
there are at least 40 professionals at the BLS who will know and likely blow the whistle. Only a wholesale, disruptive change in the process can change this.
After a new Commissioner of the BLS is installed, he or she will have to report whatever the process comes up with. This is likely to be the worst of the year, and to also revise July DOWNWARD. What will Trump do then?
The process was apparently designed to enhance the credibility of the numbers by making it impossible for the politically appointed head of BLS to change or “rig” the numbers.
I don’t how it will be done but I predict fake numbers in the future.
What he always does - lie.
The process was apparently designed to enhance the credibility of the numbers by making it impossible for the politically appointed head of BLS to change or “rig” the numbers.
Trump is quite adept at making his own reality. What if his new head of the BLS just pulls numbers out of the air that sound good and simply bypass the agency? They are all Democrats who hate Trump.
Would it make a difference? Who would call them on it. Bond markets? Probably, but that's not the stock market.
Sharon: answer, Yes. The bond markets were spooked by Trump’s tariffs in March and, quietly helped by former central banker Mark Carney talking to his counterparts in Germany, Japan and the UK, Trump folded in only four days. The UK bond market rolled Liz Truss in less time than the shelf life of a lettuce. The bond market is MUCH more powerful than the stock market.
I think the replacement will not only lie and say that things are perfectly normal, that person will also begin to crow about how perfect the new normal is. Fear can make someone say many strange things. "Many people are saying that the new normal is not just normal, it's more normal than it has ever been - quite possibly the most normal type of normal that we have ever seen .......ever..."
(Now do you like me Donny?)
Based on those facts the greater fool theory of investing predicts the stock market will rise. And indeed it is up again today.
The Stock Market is how the rich (and trillion dollar corporations) acquire their wealth, and how they keep it. The original purpose of the Market (investment) has vanished. It is just a piggy bank-casino for the wealthy and for corporations. They keep the stock market "high" to protect their rigged carnival of unearned wealth.
I also wonder about the number of individual speculative investors in the market. My sense (from watching friends’ young adult, mostly bro male, children) is that ever more of them are betting online and view the stock market as one more online casino. They are also fueled by trump’s questionable guidance that lots of people were getting rich on the heels of his TACO decisions. Sadly, for many of them, job prospects don’t look good, so they’re trying to strike it rich with bets.
I did this, and I agree. The whole experience is gamified, fun, and all too easy to roll the dice, what with online trading. Some years back (almost 20 years) I had a significant sum of money appear in my account after the sale of a business that I helped create, in which I still had shares. I was struck with how, literally overnight, I - the same schmo I had always been, who my bank knew not of - was getting calls from my *new best friends at the bank* who were offering me overnight investments in commercial paper. They literally had me come down to meet them in their board room, to offer me credit lines and whatnot: such brown nosers.
My experience taught me that if you have money, you also have many, many opportunities to have more. And if you've always had money, you might actually believe you're special, maybe even entitled.
This is what Trump's selling to the wannabes: the system is stacked, ,why not stack it in your ("our") favor ; the "others" want to eat your pudding - don't let them; unabashed greed is good (we're there again, "Greed is Good").
We're in crazy land now.
Only this time it would appear that Greed is God.
It has always been obvious to me that if you have money, the opportunities to make more- or to lose more are plentiful. Our political system has been creating the support system for the people with money to continue that process with the rest of us taking the risk.
It wasn't junk. It was literally overnight investments. One issuer I remember was AMEX. I don't recall what the yield was. Very short term. That said, I wouldn't put it past a bank to sell low-rated paper. They don't really care.
Banks buy, sell, issue, and guarantee commercial paper. They need there to be a market for it. They need it to keep their commercial customers. They need it to make money. Why does it surprise you to learn that they would be pushing junk. Junk is tempting to buyers. Would you be surprised if someone tried to sell you a dying horse ?
If people are willing to light money on fire by buying memecoins from the Trump family, they will bet on anything, including whether the sun will rise tomorrow morning. What’s maddening and depressing is that Agent Orange wants to use tax dollars to create a crypto repository and make America the crypto (a.k.a. crime) capital of the world. But of course the Federal Reserve is prohibited from creating an official digital currency because that would compete with the family graft. What would we expect from a career criminal?
When I happen to be stuck in Vegas for a convention, a group of friends and I go out gambling. I always take along a book. They laugh at me when I explain that I have X dollars to have fun with, and when it's gone I'll wait in the bar reading while enjoying my favorite over-priced, but necessary, scotch. It's the same plan if I double my money within the time allotted for gambling, I'll walk away and read/scotch in the bar. I rarely lose all my money, but I always walk away after doubling it even if it's 15 minutes. I am no student of economic theory, but I've always thought this is because I am satisfied with doubling my money and do not believe there's more gold in that glittering sinkhole. My investments are the same. I do not expect to become a multimillionaire by the time I fully retire. Maybe a solidly single-digit one who's happy with the slow, plodding growth I've thus far experienced, or something just south of there. I wonder if this is because I have been poor before, where boiled rice, margarine, and brown sugar was breakfast when the food ran out each month, and a canned ham for supper made us feel exceedingly rich. Treating Wall Street like a casino and coming up losing is how we gamble away our democracy. People who wildly bet their investments seem to believe they are entitled to huge sums in response. They imagine that "more" was the experience of other people but they've been somehow cheated. So they easily buy into new scenarios that might make them rich. Trump is merely the festering boil on the butt of that sick body of financial discipline. And yes, I am a fun person about half the time. 😉
It also seems that “technical analysis” has become legitimate over the last 20 years. It used to be a punch line.
This is a useful take, thanks.
I wonder if the market is more resilient now that there are more 401k investors. It's actually work to find alternatives to stocks. Most 401k investors are not active traders and just let it ride.
It should make it more volatile, because the volume of active participants goes down. Less stock is required to move the market.
There are articles about the gameafied no hope attitude of the generation looking for opportunities in this new job market. Frankly it's becoming a no choice no job options type environment. That leads to crimes or chance taking. Someone throw out a conservative work regime that leads toward a profitable savings profile.
Cryptocurrency....a young bartender realizes he's going nowhere with his economics degree from a local university, so he is investing in Bitcoin. Billboards up promoting it. Anytime something is being advertised as investment, it's pretty certainly something to separate one's money from one's bank account....perhaps I should mention to him that billboard.
I don't wonder. I am convinced that gamblers have mostly taken control of the market. They're not investors, they're not doing any analysis, they're just betting stocks will keep going up. No different than a wager on red at the roulette table.
As a counterpoint, institutional invesment continues to rise — index funds, 401ks and the like. I don’t think they are day trading.
That said if I buy and hold for 30 years and you trade every day, then you will helping to set the market price 10,000+ times for every time I do.
Retail investors have been adding to the market while institutional investors have been taking money out of the S&P. Institutional investors have the AI momentum already built into their price target.
"momentum trading"
"risky business"
This is well put. Thank you much.
"high speed, low latency, algorithmic trading."
Is that still a thing? Now that you mention it, I remember Supermicro ads from 2012, when they offered overclocked (!) Xeon servers specifically for that purpose, but haven't heard about these things for a very long time.
Think think they are betting against "you".
"bandwagon"
As a former small business owner, we always felt a recession months before it was announced. Look at small business, not the stock market, for your information.
Julia, we were also owners of a small business, and I'd say there are so many externalities beyond what Paul is writing about today that affected us (ours was a seasonal business that depended on good weather between April and June, so Mother Nature was the biggest factor, but still...)
Unless a small business is providing goods and/or services in its market and things people rely on it, consumers are also affected by the emotions of the day: a drop in the stock market, or in real estate (or increases in either) give relative buoyancy to one's buying decisions. I'm so glad to be retired!
I'm happy to be retired, too. No more worrying about the weather 24/7.
It's true that there are many other factors impacting a small business but recessionary patterns stand out over the last 40 years of business. I can't tell you how many times my accountant and others tried to convince me that there wasn't a recession coming only to have one recognized in the future.
The stock market is not an economic indicator. July boxboard orders forecast fourth quarter sales and January stock prices. Commercial real estate occupancy rates and residential building permits can be more solid than consumer sentiment indicators.
Shorten sail and bring her in to the wind !
Thinking about Trump's tariffs as economic policy misses the point. These wildly arbitrary tariffs feed Trump's megalomania. He believes the tariffs will place him at the center of the world's economy. His dream is for other nations and domestic industry leaders to come crawling to kiss his ring. That's what he craves: power and attention. That Trump may ravage the world's economy in the process is of no consequence to him. His narcissism is insatiable.
But 0.4% drop over several years? This is not exactly carnage…
That's only the effect of ONE of his destructive policies. He has a whole flower bucket of them: increasing corruption, decreasing labour force, killing off lucrative renewable investments for ideological reasons, gutting scientific research, decreasing confidence in US institutions and rule of law, depressing domestic consumption and increasing crime by cutting social services,... the list is endless.
The stock market has a well known conservative bias. It gets really excited about really terrible ideas but is mostly driven by fear and greed.
The narrative that I hear from my children in their early 30s is that the stock market always goes up.
The massive money management industry has done a fantastic job in convincing people that their job as investors is to stay the course when markets dip, hinting that it may actually be an opportunity to put more money into equity.
Pesky details about the impact of tariffs, the collapse of the rule of law, and the massive disruption of labor caused by a crackdown on immigration are all noise that do not impact the inevitable parade toward progress and financial enrichment. Markets go up because markets go up.
It's very similar to the mid 2000's when the story was that housing prices always went up, never down. It served as the underlying predicate for irresponsible decisions with catastrophic consequences.
Erik, but they are right, over the long term. In 1978 the Dow was at $753 (I have a newspaper from back then showing the average); today it's north of $40,000. My wife had come into some money back then, and we met with an investment advisor (who we are still with.) He taught us kids a lesson we remember to this day: over the short term, the market rises, the market falls, pay no attention to it. But over the long term the direction is *always* up.
I think that was correct. But it's hard to think that things haven't drastically changed in the last 6 months. Trump is destroying so much of what made America great. Rule of law, science, international allies. Those are major structural changes to the system.
I’ll still take my chances. If there’s one thing America loves, it’s money and wealth. People always kill themselves to make more and more and more money, and owning stocks gives one a piece of that. Just like investing knowing a nuclear war could happen, if it does, nothing matters anyway, and if it doesn’t, the investments will have done well. I say invest, and also fight like hell.
There’s that fraction (35% or so) who are convinced that everything is wonderful. Committed MAGA believe in tariffs are just fine because Trump does.
They are right, short term all bets are off, long term however, the market goes up. What exactly is short term and long term. 5 years? 10 Years? 100 years? The market moves with the income and growth of the economy. The economy grows with population, more people, more income, more food, more goods and services etc. it also serves as sort of an inflation hedge. However, if you retire at the start of a pullback and depend on your investments to provide income, you would be a very unhappy person. If the next 5 years you had to consume your hard earned retirement savings, when the market finally turns around and recovers you have far less basis to produce that income you needed for your retirement. So your 10 to 15 years of retirement may be not what you dreamed it would be. On the other hand, if you retired right at the bottom of a market pullback (recession?), your retirement savings would grow substantially benefiting from the market recovery.
I wonder what today's average is in 1978 dollars. Having that, we can calculate the rate of growth in real terms. And compare it to other things. But if course the DJ is a beauty pageant. And losers get dropped from it. So maybe we should just follow those stocks that comprised the DJ in 1978, and calculate the weighted average rate of return on them in terms of 1978 dollars. That would include the rate of return on Electric Bond and Share, and the Pennsylvania Railroad and things like that I should think.
I'll just say they were right in the mid 2000's, too--so long as you looked at it on a 50-year time horizon.
So many derivative markets emerge based on a truism about long-term trends. These markets don't allow for the patience or time to correct over the long term when everyone is rushing for the door at once.
Calamity in an obscure part of the market can contaminate other sectors, leading to forced selling and financial meltdowns. Some of you may remember the cascading collapse that ensued with the 1997 run on the Thai baht.
This eventually led to the Long-Term Capital Management Crisis. LTMC was a hedge fund run by financial engineering geniuses whose flawed model failed to factor in short-term fluctuations. External intervention saved the day.
Who knows how many land mines like this exist in today's free-wheeling, lightly regulated non-banking environments, especially around cyber currency?
Japans stock market has been stagnant / beneath its 1989 high for 35 years (it has only recently made it back to a similar valuation). Looking at one market going up and seeing a trend does not mean all markets go up and will go up forever.
Blackjack, thankfully we are not in the Japanese market (which I know nothing about.) The Dow has historically gone up, even though it's sometimes flat for long periods. Like a lot of people, we are observers of the stock market and passive players, content to let the market do its thing. But as we age (we are 70-ish) in this shambolic time, we grow more uncertain of its direction when we'll be needing more financial security, especially with threats to social security, Medicare, etc.
The "long term" strategy works when you are 20 or 30 something and have that nice long time line.
When you are in your 60s or 70s, you no longer have the certainty of 30 or 40 years to let your money ride the market. Sure, you might live to be 90, but you might also be hospitalized next year and need the money that is now in a tanked market. For older people, I think now is the time to take your money and run!!
Linda, the original commenter was talking about his kids who are in their 30s, which prompted my response. Everybody needs to make their own investment decisions based upon their own situations, of course, hopefully with the advice of a competent advisor. Of course, not having all one's eggs in a single basket is always good.
Much depends on whether you are investing your money for yourself or your heirs.
The Dow is not denominated in dollars but is a measure in points of the index magnitude to which a formula has been applied.
Yes Michael, thanks for the clarification -- my error.
Professor Krugman: i've always viewed the stock market as legalized gambling (with a strong dose of self-delusion thrown in), and my perception is only strengthened as i watch the market's insensitivity to the very real struggles of 95% of americans' lives. destroying science, in particular, will destroy this nation, both because many people will become even more anti-science anti-expertise knuckledraggers, but also because the intellectual infrastructure will collapse or migrate to other countries, where their skills and expertise is appreciated and rewarded.
It’s not the stock market that is insensitive to the needs of average Americans but its components-corporations. Their only purpose is to make as much profit as possible and altruism does not play in to that. The system is designed to bring out the worst in people.
Some years ago I was playing Monopoly (which I will never play again) with my wife and two other people. My wife is a kind and generous person. But as she began winning the game her demeanor changed and she became greedy taking advantage of her good fortune (which was gained mainly through luck) and never gave anyone any slack. This is exactly the way corporations act, they may start out with the best of intentions but end up being ruthless.
It really isn't gambling: gambling is a guaranteed long term loss. When you buy a stock, you're buying a share of an actual company. I have a retirement account, invested 100% in stocks, untouched since 1987 that went up 9.5% per year (6.6% / year after taking inflation into account).
When you play something like roulette, you're betting against the house, with probabilities set to ensure that over time you lose.
I agree roulette isn’t a good analogy, except maybe for AI speculation. Our retirement accounts have done extremely well over the years even with the crash of ‘08 because our funds are invested in serious companies whose goal is to make a profit for shareholders.
I do worry about what will happen to the Mag. 7 when they realize that no one is going to pay the exorbitant amounts for AI that would be required to pay for all those Nvidia cards. I mean, it won't bankrupt them, and some of that data center investment will probably be useful, but I have to imagine overall it will hurt the S&P 500 index funds pretty hard.
They are looking to disrupt your job. Your employer has already decided to pay you, but it could pay them less for the same work. AI has some ways to go to realize this outcome, but I do feel it is inevitable. Even if no ordinary consumer buys AI, there is a 100 $trillion market or more when businesses buy AI to put us out of work. Even if it was equal pay for equal work, robots don’t pay FICA.
In the last 5 years, I've worked for both the M and G of the Magnificent 7, which should have been the easiest for AI to disrupt, and I just wasn't seeing it. The AI tools could make looking up interfaces a little easier, and in a few cases, they could actually write a skeleton of what you wanted (though I didn't actually see that for more than a toy project), but it just wasn't qualitatively different from programming without those tools.
Now, I realize that some of the M7 did a small # of layoffs in the last couple of years, but I think that was more a reaction to over-hiring during the pandemic, than anything to do with LLM's writing code.
I do think LLM AI can be used as a sort of interactive text book for some things, though there are risks there as well -- they still frequently get wrong answers.
What's really amazing to me is the sheer volume of the $$$ that are being burned here building data centers filled with soon to be obsolete Nvidia cards, all for revenues that appear to be about 5% of the capex spent. And a non-trivial amount of that 'revenue' is just a company, for example, like MSFT being paid for OpenAI's data center use, with money that MSFT put into Open AI in the first place. And AFAICT, the only company making *income* from AI (as opposed to revenue) is Nvidia.
There is no $100T market here.
The “final solution” for getting rid of troublesome labor is so close they can taste it! They will push through if it is at all possible. We might see a market crash before then as a lot of the excess cash unwinds, but eventually I think they will get “there” where there is some arbitrary metric where they convince themselves they can lay off half+ of development staff, whether they can or not, then lay off some more when that isn’t working.
*Can you imagine? Getting rid of labor has been the capitalist’s wet dream for centuries. So close! No more dealing with people with *opinions* and vacations and pushback against your most profitable and clearly best ideas. Legal slavery will be possible once again! Finally!*
All we need now is more independently wealthy customers. I’m sure they are here somewhere….
I think it's a useful analogy to think of it as gambling. When I started I thought it was investment and trusted the system. After numerous failures, I now see that there are insiders who control the small waves and all I can try to do is ride the big ones; the real crashes and highs. It's very, very hard to sell high and buy low.
However, I do think there has been a very serious change in the US economy and I'm damned if I know what to do with our retirement investments. I don't even trust that FDIC will hold, nor the Fed after all of the hits it's taking.
What happens when there's a huge "theft" of crypto and everyone starts to ask, "Can I get my money out NOW. How does the Fed defend the economy when our reputation for being solid citizens is gone? Who will come to our aid after Trump (our elected President and king) has told the world to bow down and suck his @@@@?
If I could get my money out and into a place with a rational economic system I'd do it, but we're just small time nobodies.
> It's very, very hard to sell high and buy low.
Right. If that is your goal, you are doing it wrong. The average investor who does that earns barely above inflation buying and selling into a market averaging +10% or so / year.
There are a variety of reasons for this, but for the most part it comes down to the fact that over the long term 95% of the companies lose money for investors and it is just the rare winners that pay for everything else. Add that to the disturbing tendency of investors to pile on to stocks that have already had their 10x gains and you can see why most fail. The way to capture the rare unicorns that make money is to buy everything, using an index fund that will work for you to ensure you continue to own everything as companies come and go.
I absolutely agree that trying to ride the small waves (I assume you mean trading on a time scale less than a couple of years) is futile. My view is that you don't put money in the stock market that you might need in less than 5 years.
I've never even been able to ride the big waves. I didn't see 2008 coming, and I thought that Trump's tariffs would have hit the stock market harder than they have so far.
I bought on the 2008 downturn. I did see it coming but like this next one, you don't know when it will hit. All you can see is unsustainability of what's currently going on. I do think this time is significantly different than the last 60 years. We were once basically a country that believed in rule of law and now we're not.
If you had invested in the Japanese stock market, you would have ended up with roughly the same amount of money as you started with (drastically less when adjusted for inflation).
Same with QQQ Nasdaq and MSFT purchased during market drop in 2000 and sold in 2015? the year that FB went public. Those funds never paid the dividends that American Century in foreign investments did nor were they ever more valuable than at the price when purchased.
The main difference between gambling and the stock market is in gambling the house fixes the odds “perfectly” to benefit the house. In the stock market, the system fixes the odds imperfectly to encourage losses. There is at least one game — highly diversified, long term investments — which do favor the investor.
There is another 'top of the market' signal out there now to add to all the others. The Financial Times leads today with an article about how much Berkshire Hathaway is underperforming the S&P500, which is what always happens near market tops. Buffett knows when to reduce risk, pull back and let the market run ahead, until the narrative changes and he looks like a genius again.
I am worried and working like hell to hold my sources of happiness close and closer. Oddly enough, Dr. Krugman, and I think you should know this, you are among them. That someone with such a sense of responsibility to inform and educate your readers, giving us in some wise access to the edifice of educated thought is still putting out so much information and useful perspective gives me faith that, one day, we will emerge from this fever swamp in which we're all being forced to stew. Alligator Alcatraz? Yep.
"Mr. Market" is notoriously erratic, but one thing we know for sure.... he is RICH. And wealthy people aren't worried about the economy going south, because the Trump guys have their backs. Whatever happens to ordinary working folks, the incredibly wealthy people who now control the US government will make sure that people with money will keep getting more of it.
I think you need to add "the market always goes up OVER A LONG ENOUGH TIME HORIZON". This is absolutely born out by history. Could that change? Sure! But if you are an investor there are few safer bets than betting on the total U.S stock market returns over a decades-long time period.
Also housing prices since the 2008/2009 crash have more than doubled so housing similarly has historically gone up and up over a decades-long time horizon.
But of course in any given year or even 5 year period, both housing and the stock market CAN fall. They are fantastic investments over the long haul though.
Can Trump's destruction of American science be reversed by the next, hopefully, Democratic President? Maybe. The research funding can be restored, and laid-off employees might be rehired. Foreign researchers might return to the US after the threat of their incarceration is ended. But, can the US be trusted after it has demonstrated that it has many irrational voters inclined to elect a completely unfit demagogue?
No.
Laid off employees will need to find other employment.
Researchers gone to foreign lands will have new homes.
Research programs are like small businesses, they don’t just “come back”. If the expertise is published, there’s a historical record, but a lot of the new isnt yet there and that know-how is erased.
This is a classic humpty-dumpty. It will take much more effort to put him together. He’ll be smashed, not just need to be helped to get back on the wall.
Yes, we'll be like Great Britain, the last major empire to fall and its main industry now is tax havens and money laundering. Par for the course for former drug dealers (opium wars).
The project I am part of is 100% NSF funded. There are international scientists here who are so specifically skilled that putting them out of work guarantees they'll need to find work somewhere else in the world, and when they do, they aren't going to completely uproot their lives to come back when a new administration returns to DC.
Science is entirely dependent on human capital. That human capital is seeking more stable, predictable, well-funded work elsewhere in the world - or worse, turning to the private sector for an income source. The writing is on the wall: a large portion of American politicians don't value science or any of the results that stem from it. There's no reason to assume that a change in administration will entice anyone to return.
Ugh. 100% agree with human capital as the key asset. I’m encouraging translational activities, and do know that NSF just created a TTP -translation to practice program. Current nsf awardees eligible for administrative supplement, rolling submission, a couple years additional funding if you can imagine practical applications of the basic research.
The answer is "no." You can't simply restart most research projects. You have to start all over again.
Use/share this spreadsheet (bit.ly/Goodtrouble) as a resource to call/email/write members of Congress, the Cabinet and news organizations. Reach out to those in your own state, and those in a committee that fits your topic. Call. Write. Email. Protest. Unrelentingly. We deserve better ❤️🩹🤍💙
Thanks for this spreadsheet and actionable steps!
You’re welcome! Thanks for being aware and active right now!
Wanton destruction of the US agriculture will also hurt.
Agree completely.
Please let me add an example and a 4th point to your list:
Our supplier of office automation software (the famous quasi-monopolist) some weeks ago unilaterally increased the price of our yearly-subscription by 30%.
The same company in these last days just crossed the treshold of 4kB$ of market capitalization.
So please let's all guess who will really pay for this enormous investment in IA.
In fact there is a link between Wall Street and Main Street: the value of WS is directly linked to the speed with which MS's wealth is siphoned off from our pockets (and retirement savings) to the ones of big financial investors ("too big to fail", indeed).
As you often say "They do it just because they can".
DJT and his clan are clearly determined to go full speed on this attack to honest people and their 401(k), also as a way of future social control.
Ponzi scheme by the Bankrupter-in-chief
Also worth noting that the stock market values already installed capital. Economic growth is partly, maybe largely, driven by new capital formation and that’s exactly what Trump’s killing of research will retard. Killing new capital formation kills the competition for legacy capital, thus supporting, even increasing, its present value.
Good point. Deportations also kill new capital formation, and growth, as immigrants start new businesses at the high rates.
This is an interesting way of approaching the question. I will ponder it's meaning. Another might be found by just stepping back the ask just what the question is. What is it Krugman is asking ? What are we trying to understand ? That may be many different things. So stocks went up Monday after a week of very bad news. What does that mean ? Does it mean anything at all ?
It means literally that stock prices in the aggregate rose. Gains outweighed losses. But the market dropped Friday. So what ? What was the volume of trading ? It's August. Not the busiest time of the year. Knowing what the volume was like might tell us more. Indeed without knowing that it is hard to find any meaning in how the market performed yesterday or the day before, or over any period.
Stock valuations create access to money. They are used to leverage debt. And de t is used to leverage more earnings hence higher returns. A never ending cycle ...so long as it runs in forward gear. The stock market is always pushing the limit. Rates are up. There is crowding out. As you note new issues and growth stocks are competing with old money investments for access to capital markets. So as you imply, tis an ill wind that blows no man good. Bad news favors the tortoise over the hare.
And to top it all.. while those with money are quick to take advantage of per rived opportunities, investors are very slow recognize losses. As Professor Krugman has noted, some never do.
So what to make of it all ? Nothing really. Study volume. It may tell us more.
Isn’t the drop in the USD also related here? I believe if you were a European or Japanese investor, you would actually have lost money in U.S. because the stock market gains did not outpace the dollar depreciation.
IOW, dollar denominated U.S. indices rising says less about the value of the companies increasing and more about the value of the dollar decreasing.