I think the best interpretation of the overall stock market valuation is as a barometer of the wealthy's feelings, i.e. expectations of future returns rather than true future returns... but doesn't it seem like feelings have completely unmoored from the baked-in damage to the global economy from the current shortage?

Or has GDP growth become so decoupled from energy use that I'm wrong and stock market valuations are completely OK, even as airlines brace for fewer flights due to energy shocks?

I wonder if some of this is because of the "prices are set on the margins" effect of markets. The price of anything is set by the folks who are actively transacting at any given time; if you're not buying and selling, your opinion doesn't matter.

Oftentimes, near a market top, the people who are value investors and actually care about price end up selling off all their holdings. But because they have already sold, and are not buying, they drop out of the market entirely. Prices get set by the people who are price insensitive, because they're the only ones willing to participate. As a result, you often get the "blow off top" right before a market crash, where the stock market moves sharply upwards even though fundamentals say it should crash. All the folks who believe it will crash have already left and no longer participate in price-setting.

The stock market has stopped making sense since the 2008 financial meltdown. Many reasons for this. In part, ZIRP is to blame -- a ton of money flowed into stocks simply because they were the only way to tread water and get a return. In part, you can blame Bitcoin (which demonstrated at scale that you can have an "asset" with zero underlying value and net-negative social utility that still functions as an appreciating value token,) and the meme-stock.

The stock market is basically detached from the industrial manufacturing/production economy -- and even to some extent the services/insurance economy -- and is now vibes/feels based.

One of the explanations I've heard is that a lot of traders were caught out by how quickly the economy rebounded from COVID-19, so they're overcompensating by underreacting to the current situation.

Probably markets expect the situation to be resolved soon.

You can check the term structure of oil to confirm: https://www.cmegroup.com/markets/energy/crude-oil/light-swee...

Equities are (in theory) priced on net-present-value of future cash flows, so a temporary <1 year disruption is important but not massively so.

Is it possible that a lot of people are hoping for a dot-com bubble 2.0 so they can sell at the market peak before it pops?

That would explain why they're ignoring fundamentals.

They could think that OpenAI and Anthropic IPOs will drive prices higher, and it still isn't time to sell.

Another explanation is that their expectation of the future value of money is very low. If money turns out to devalue 10X then owning stocks (call on the future income stream of companies selling presumably useful things/services in the future) that seem to be 10X overvalued makes sense.

It's a multi-layered question. On the one hand if energy is more expensive and you still consume roughly the same amount but actually that raises gdp. However you're assuming that there's demand destruction with the rise of energy was your reasonable assumption... but that's uneven and there's going to be an increase in demand for certain things that actually benefit from higher energy prices like anything in electric tech or green energy.

Probably most importantly the economy at this point is largely a digital economy rather than one centered on goods.. in other words GDP growth is no longer coupled to energy consumption. The fact that we're able to transition to a largely remote workforce around covid is a testament to this.

The implication is that in the event that these high prices sustain and there is some demand destruction a lot of fundamental parts of the economy will continue to function in an evolved way for example online.

And then of course there's AI which could be considered sort of an extension of this digital economy which is driving so much of the underlying growth.

That doesn't mean there won't be hot spots like this article is pointing out perhaps the UK is particularly exposed. On the other hand the fact that so much of the UK's economy is financial services and hence in a way benefits from all this volatility ... means it is not all so clear.

It would be easier to say that the real impact will be on the manufacturing powerhouses but even they will benefit from the transition to a solar and battery based energy system.

Now if you believe that it's inevitable that this bubble will have a slowdown and you speculate that the bubble might be partially punctured by these high energy prices that seems like a reasonable hypothesis... but it could also be the opposite.. In other words the demand destruction for energy could actually mean capital is looking for a place to invest fruitful elsewhere.

Counterintuitive as it all may seem, this system is simply not one anyone can reasonably expect to make predictions around at least any more reliably than walking into a casino and expecting to beat the house.

Similarly the experts and talking heads telling you the implications of this war or the Ukraine war are making one dimensional predictions that are simply not honest enough about how chaotic and reflexive these systems are

Probably people are betting that the situation resolves itself before shit hits the fan.

And there is a bunch of plausible reasons that this belief is not crazy (of course nobody really knows).

- trump literally is called TACO

- the war is really unpopular in usa and midterms are getting closer. There is domestic usa pressure to wrap this up.

- Iran's ecconomy was a mess before all this and is now a disaster. The blockade goes both ways and it seems unlikely iran can keep it up long term

- As shortages approach international pressure from uninvolved parties to resolve the situation one way or another will mount.