During discussion about things where you had strong opinions and then changed your mind, someone mentioned EMH. Do you believe in EMH and if so is it strong or weak version?
I used to believe EMH but not strongly. The pandemic changed my view because I managed to invest some money when the stock market dived and was clearly influenced by overly pessimistic view of the impact of covid. Some might argue that the market reacted to the irrational government measures, so it is not that the case that the market was mistaken. I still think that investors were equally irrationally pessimistic. I reject the view that this is a hindsight and I was merely lucky. I am not big expert and I did not possess any proprietary information. I had the same information as everybody else, I just didn't let my emotions take over me. This is further confirmed that even today when all the events have passed exactly as predicted, majority of people still maintain their mistaken views that covid was very dangerous to young and non-risk population.
It is the only time when I saw the rest of the society to be so wrong in their views and clearly this was my once-a-lifetime chance. I haven't see any other opportunities for easy money so far but I think that people who are experts in their fields and investors might have been able to find more opportunities.
One of them was found by Michael Burry who definitely saw that the 2008 financial crisis was coming. He wasn't just lucky because he had read and analysed all the documents and had to create special investment instruments to profit for it. In this way, it wasn't easily accessible by laypersons like me who have no time or understanding about investment. Again, most professionals were blinded by collective frenzy.
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Well, I had read Krugman's “End This Depression Now” explaining why stimulus in certain conditions is needed. I read the book because I was going through personally depressive period in my life but the book had some insights anyway. Krugman was proven right with sufficient evidence that I was surprised that so many experts still disagreed with him and demanded austerity policies instead. Nevertheless, even the staunchest critics have to admit that stimulus worked better during economic contraction, so it was no-brainer that the governments faced with economic contraction during covid pandemic would try to use stimulus too. I didn't believe that it will be very effective because unlike normal conditions people were prevented from spending money. The government had little choice though because they had to make sure that people who were forced out of work by their policies can still pay rent, buy food etc.
Incidentally, the lack of spending opportunities also gave me chance to invest some money. I expected that other people would do the same and it seems that eventually they did. But when I saw stock market taking a dive, it made no sense. I didn't expect to make a quick profit, I thought that recovery would take longer time. I believed that eventually everybody would get covid and then all the restrictions will be shown useless. Even the most totalitarian governments would have to admit that their policies are futile. Once restrictions are gone, people would quickly restart economic activities and stock market would rise.
Scott wrote that the stock market dive actually happened due to automatic selling. Many funds set automatic scripts to sell when the price reaches certain low threshold to prevent from further losses. Selling moved the price even lower with more and more funds initiating automatic selling.
My central point wasn't that you didn't know what stimulus was. It was that you ascribed the large stock returns to covid-related measures rather than unprecedented stimulus, and I believe this is wrong and demonstrates that you beating the market was, in fact, luck and not skill.
I'm not against government stimulus. In fact, I'd even consider it plausible that the central bank and federal bank have never used too much stimulus prior to 2020. But it should be obvious that they used too much in response to the covid pandemic.
Biden signed a $1.9 trillion stimulus package on March 11, 2021 - inflation was 1.7% and unemployment was 6.1%. For context, the inflation target is 2% and the median unemployment rate historically is 5.5%. In other words, the economy was only ever so slightly below average in business-cycle terms. Meanwhile, the stimulus package was larger than all stimulus spending in response to the Great Recession. And that's just the federal government. The Fed continued its quantitative easing and purchased over a trillion dollars in assets after March 11th, above and beyond it's previous purchase, all the while keep nominal interest rates at 0% (and therefore real interest rates negative). It is really hard to overstate how unprecedented the degree of stimulus was. This is why stock prices surged: the degree of stimulus was enormously unexpected and had enormous direct and indirect effects on financial markets.
Stimulus can have three effects: employment, inflation, savings. I agree it was less effective at promoting employment and inflation, but this (again) goes back to my point: it mostly promoted savings - i.e. investment. But also it's not like stimulus was completely ineffective at boosting employment: unemployment dropped from 14.1% to 6.1% in 12 months, a feat literally never seen in US history.
They had lots of choice. The most effective way to achieve their goals would have been to send checks to the unemployed. Increasing unemployment benefits is bog standard during a recession anyway. Sending checks to everyone and engaging in generic stimulus was not a forced moved on the government's part. But this is all besides the point. We're talking about financial markets, not whether stimulus is good.
Ok, but the question is NOT whether this line of reasoning is correct. The question is whether hedge funds et al had already priced it in. You have given no evidence indicating they hadn't.
Yes, this is due to forced unwinding of leveraged positions, which often results in short-term liquidity spirals. I'm not sure what your point is though?
You are missing the main reason why the stimulus was too much this time. It was simply because the government acted in contradictory ways and prevented people spending money. The fact that different restrictions continued after most elderly had received vaccine was the biggest unforced error.
I'm not saying the restrictions were justified, but you are dramatically overstating their macroeconomic impact, especially post-vaccine rollout. In 2021-Jan, vaccines had just started rolling out and personal consumption had returned to its pre-covid peak. You think that's a bigger factor than the largest stimulus bill in history being passed during middling economic conditions? Not to mention monetary policy...
I am not sure I believe that. The reason of the crash and everything that followed was solely due to the government's mistaken actions. I don't know specifically about the US, but the life in 2021 was far from normal and it was also solely due to the government's mistaken actions. It would be strange if it had no deleterious effect on the economy.
The government was trying to whitewash the negative effects on people.
I never said it had "no deleterious effect on the economy".
The data is easily found.
This data does not show this. Even if the expenditure increased but it could be the case that it went to wrong sectors of the economy.
Can you be more specific? Eating in restaurants, for instance, was more than recovered by March 2021. There was a significant shutdown between March and May of 2020, but outside those three months, we're talking like a 10% decline in eating out. This is in the sector that I saw most harped on as ruined by Covid.
I was in Spain and it definitely hadn't recovered in 2021. The amount of people on streets were visually lower.
Healthcare utilization in the UK during covid was 80% of normal. That is one of the most contra-intuitive things because most people believe that healthcare was totally overwhelmed during pandemic. Well, some places were but in general the income of healthcare workers took a hit.
However, the amount of money we spent on vaccines that later were thrown out were unusually high. That means that other needs did not get financed sufficiently. The distortions are quite clear and apparent in every sector where I look.
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