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My assumptions : 1. There is a finite amount of money in USA (lets ignore transactions in and out of the country for now) 2. The inflation is 1-3% every year My questions : 1. What on EARTH makes the SP500 and NASDAQ increase 20% every single year if monetary supply increases by only 2% yearly? 2. For Example : How can companies like Tesla be close a Trillion dollars? (No hate I'm a TSLA bull) - Where did this Trillion come from? - Did some other asset lose value so Tesla could gain? - Or Did people have close to a Trillion sitting in their bank accounts My background : 1. TC : 200k 2. 3x my portfolio this year 3. 10x on TSLA Calls (20% of portfolio) 4. I am thinking of moving out of the stock market but have FOMO and hence need a deeper understanding of why the stonk market keeps increasing. In your answer : 1. Please try to answer with facts and real world figures such as : - total monetary supply of US - total value of equities, real estate, commodities, cash, etc I was literally unable to figure out why and how the monetary system works after hours of googling. I did learn a few things but I still did not understand the fundamentals of why the biggest companies(of SP500) and small-medium(in RUSSELL 2000) keep increasing. TLDR : Where does all that money come from? How much of it is remaining? Lets assume there's 100 Trillion dollars remaining in cash, so does that mean the market cap of companies can increase by MAXIMUM of 100 trillion if all of the cash was poured into stocks - and that is the highest the stock market can ever be? #stocks #finance #market #SP500 #tesla #nasdaq #qqq #investing #investments #money #finance
Easy the country produces more and that would drive down prices, we don't want that, we want to keep prices stable, so the government prints money to kidnap that increased productivity
My understanding is that inflation is the US is just 2% (barring this year's stimulus where monetary supply was increased considerably). So if only 2% of the monetary supply is printed each year, how can the stock market increase by 20% on a compounded basis from the last 13 years?
Monetary supply isn't necessarily directly proportional to inflation. You can increase supply without inflation if the economy is growing. Search for supply increase in the last 20 years, it wasn't 2%. Actually just Google supply vs inflation, lots of great starting points
Your assumptions are a bit flawed. 25% of the money supply was created in the last 2 years. (Stimulus packages + massive quantitative easing) That represents a roughly 33% increase in the money supply. So assuming all things are equal, everything should cost 33% more. The reality is the distribution of that additional money in the economy is uneven. You now have more money chasing the same shares in the stock market. So the price of shares increase. Looking at your stock example, the price of a single share of stock is simply the price that was most recently paid for that block of shares. It does not mean you can sell every share for that price in the open market. The buying/selling pressure would cause that price to fluctuate. Now, this is very ELI5, but that's the basis for the current bull market.
Oh okay great, I think that definitely explains the current bull market.
There's more demand for some limited supply assets (stock, real estate) but not for others. Inflation is not a real average across everything
And it's all vaporware. Not like gold standard, so total stock value is not equal to total money.
I agree the gold standard provided a great benchmark. But it was abandoned by most nations to avoid deflation risks, slower economic growth amongst others. But why is total stock value not equal to total money? Can you elaborate on that?
Because stock vales are independent of money supply. One person buying 1stock at higher price Jack's up the price of all stocks on paper, but only real money exchange happened for 1stock
Stock value is based on what the last few schmucks bought it for. It has nothing to do with the companies net sales/worth/revenue/profit. And people can value a company based on its future potential.
I agree. While what you say is correct, please take a look at the other posts and comment if you are aware of where the additional money comes from with statistics and facts.
You've got to be kidding me. There is nothing left to explain after what I said. You're trolling everyone.
> There is a finite amount of money in USA Well, the assumption is wrong from the start 😂
🤣
Please explain as to how. In few of the posts the below are the reasons the stock market has increased from 2007 : A. QE : 8 Trillion added to the economy Please answer the following : 1. Why is there not "finite amount of money in USA"? 2. What are the other sources that make money "not finite"? 3. Please mention the actual statistics with numbers.
Well gdp grows in every country every year. Yeah not everyone is printing money, but that’s why we have 20T+ in debt.
1. Okay so the debt is one of the factors causing the market to increase? 2. So once the debt is paid off, does that mean the market should correspondingly decrease again?
Folks, OP is trolling.
Google really not. I want to understand it from a barebones point of view. So sorry if my questions sound silly or like I am trolling. The post has helped out quite a bit in my understanding of the market as you can read from my other comments.
Simple answer is that market cap != money in the market. Your last $100k trade that moves APPL by 1 cent will move its market cap by $170M
Awesome, think I got it. Thanks for the reply.
It's basically the price that people are willing to pay for it at that point in time even if it doesn't make sense from a fundamentals/technical point of view.
1. Incorrect 2. Incorrect
Almost anybody can invest in US stocks and you need to consider the global money supply. Also you can do stuffs on margins and warrants as well as companies can issues debt notes
Okay assume my same arguments above. The global monetary supply is fixed. 1. So is the only reason US stocks increase yearly is because it keeps pulling money from other countries? 2. Do you have articles or facts to back this up? 3. If you buy on margin, you will have to pay the margin back. So you may temporarily inflate the market. Eventually when its time to pay back, you will have to cash out stock and pay back the margin right?
My essential thesis is that it is a Zero Sum Game. I may be and think wrong somehow, but don't understand why and need someone to chime in on whether it is in fact a 0 sum game or not.