Investing General Discussion

Sanrith Descartes said:

XOM and CVX both up 3% while oil plunges 7% to 18.50 a barrel. Crazy times.

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June contract looks much better at $25.33 right now.

grumblethorn said:

sorry to bother you, could you possibly put this in i guess dummy terms?

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Assume you mean the "fed put" part. When the Federal Reserve shows itself to be very accommodative there are several effects on the market. Stepping back first, a fear of the common stock holder is insolvency as they are secondary lien holders behind bond holders. Now with that in mind, dovish Fed intervention, lowers the risk of bond default which has two outcomes, it results in equity holders feeling more secure and it drives people out of bond and into equity as rates decline to reflect the reduced risk narrative.

So in our current situation we have the Federal reserve supporting credit markets to a larger degree than we have ever seen. This will keep rates lower and increase liquidity (companies ability to acquire new debt). This raises peoples optimism that companies will survive the down turn driving stock prices up. So our economy is in trouble but these actions help the stock holder to look past that pain to the recovery because the risk of bankruptcy amongst their holdings has now been diminished.

It's called a Fed put because holding a option put is viewed as a protective instrument against loss, so in this case the Fed is acting as a put option against credit loss and thus the term.

If you meant in regards to bull markets being dicks, we look back at historical bulls and imagine wow it must have been so easy to make money then but as you learn to experience them that is only in hindsight. Bull markets are driven higher by skepticism, by investors constantly not trusting them and shorting them. This is often called "Climbing the wall of worry" This emotional response during bulls that go up when we don't believe they should is why for the vast majority of investors buy and hold over decade long periods wins because you eliminate the constant emotions that will do nothing but steer you wrong.

It's hard to explain any of this without using finance jargon, to understand some of the concepts requires more financial education than many lay people might have. The TLDR is Fed increasing money supply is called DOVISH and support stock prices, the Fed restraining money supply is called HAWKISH and can constrain stock prices. In theory the Fed is not dovish or hawkish for the purposes of moving stocks, their goal is to control inflation employment and provide price stability.