The widely accepted Wall Street conventional wisdom is that the market discounts the future.
Think about it. Price is established at the margin right? I can agree to that piece of economic theory. Stock prices are set in individual trades.
Who are the actors in those trades?
Two guys sitting on the toilet with their phones in hand trading their robin hood accounts? A computer algo in Silicone [sic] Valley, and a Russian oligarch in his Trump Tower Miami penthouse? Two Primary Dealers helping each other mark up the prices of their inventories? A hedgie trying to hedge his puts? Or worse, a dealer forced to short calls by the lopsided Robin Hood trader, then being forced to hedge that by buying the underlying?
Look, I did discounted cash flow analysis for institutions for a living, for 15 years. I know how I did them and I know how the bankers and REITs did them. The vultures- the guys with the cash when the smoke had cleared did not do them.
DCF was always done as an exercise in CMA. Cover my ass. They would see prices rising, and say JFC, I gotta get in. This was commercial real estate, but are stocks any different? No, the time is just compressed.
So they’d look at how much cash they had, how much they could borrow, and then find a way to justify paying that much using a DCF packed with unsupportable assumptions. Unsupportable because as far as I know, there’s no future data. And projecting the present only works for prices, and only up to a point. It does not work for economic assumptions. So as prices keep rising, the assumption input variables keep rising with them. It’s entirely circular. It’s the essential mechanism of inflating bubbles.
Price is everything. Sure some infinitesimal percentage of price setting uses DCF with wild assumptions as an excuse. The rest is just trend momentum. The quantity of money in the accounts of buyers, the offsetting quantity of inventory to absorb that money, and human emotion, are the drivers. People who are attempting to discount the future can make up whatever shit they want to justify their result. The result is a foreordained conclusion. It’s whatever the price is today. The price set by traders for all sorts of reasons, none of which have anything to do with business conditions today, or expected in the future.
They make up all kinds of excuses for their actions other than the real one. They are buying because prices are uptrending. Other than that, THERE IS NO WHY. It’s like like itself. It just is.
So please disabuse yourself of the notion that stock prices are a discounting mechanism.
The 2-3 day cycle projection was 3821. Done.
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