[HN Gopher] How This Ends
___________________________________________________________________
How This Ends
Author : imartin2k
Score : 309 points
Date : 2022-05-22 14:05 UTC (8 hours ago)
(HTM) web link (avc.com)
(TXT) w3m dump (avc.com)
| d3nj4l wrote:
| I was very close to switching from a safe-but-boring FAANG type
| job to a slightly more exciting but very wary stage startup.
| While there were a few other signals that it might not be the
| right place for me, the biggest factor was that I wasn't
| confident in the company's ability to survive the next two years,
| for the exact same reasons the author outlines in that post:
| tightened money supply spells doom for startups founded when
| money was flowing freely, especially if they haven't found a good
| market fit yet.
| Geee wrote:
| This seems quite accurate, and enforces my own sentiment.
| Personally, I'm seeing even more doomsday scenario, but I'm not
| sure if that's just fear talking. I'm not even worried about the
| market, but I'm worried how everyone is going to actually
| survive, especially in poor countries. As in, how many % of the
| world population will die.
|
| Both energy and food are scarce, and at the same time monetary
| inflation is running record-high, caused by monetary stimulus. To
| me it looks like we're entering an era of unprecedented global
| stagflation.
|
| I could be totally wrong, and in general I trust the error-
| correction capability of humans, so take this with a big grain of
| salt. However, if wrong political decisions and monetary policies
| are used, instead of relying mostly on free markets, it will very
| likely make the problem worse.
|
| This is based mostly on intuition. It's just how I feel right
| now. I don't have the tools to predict something like this
| accurately.
| lettergram wrote:
| I kind of disagree with the analysis, largely because there's now
| a large block of the world separated from western commerce.
|
| Russia isn't purchasing goods, yet the west is giving them wealth
| for oil, natural gas, wheat, etc.
|
| That's effectively wealth leaving the system and entering
| there's.
|
| More over, the west is increasingly looking at China as a threat
| AND China has locked down a large amount of economic output.
|
| This is just starting imo and it's not likely to improve for the
| time being.
|
| In the 70s and 80s the US had a large manufacturing base and
| purchasers around the globe.
|
| Today the largest exporter is China and most nations have china
| as their largest import. China is supporting Russia and looks
| like their looking to leave the western financial system. This is
| on a downward spiral far different than the 70s and 80s and I
| don't see it reversing until the market bottoms out at its new
| size (much smaller than previously).
| margalabargala wrote:
| Are you claiming that since Russia invaded Ukraine and various
| sanctions were applied, the value of goods that we purchase
| from them has not decreased as much as the value of goods that
| we sell them? That's the opposite of what I would expect, do
| you have a source on that?
| matthewaveryusa wrote:
| Genuinely curious : Russia's GDP is < 10% that of the US or
| China. What's up with this fascination with Russia
| (economically speaking -- the humanitarian tragedy they are
| creating is a different topic)? The only question is if they
| align with the west or with china ---they've already lost as a
| super power, and their best strategic choice is to become a
| prized and expensive proxy between the west and china. The
| thing is, china and the west _trade_, so the calculus for
| russia is losing on all fronts. they can inflict a decade worth
| of pain to europe energetically, and then what?
| chewz wrote:
| > so the calculus for russia is losing on all fronts
|
| Look at EURRUB at 7 years high... with forecast of going much
| higher.. Rouble is best performing currency (after short
| drop) this year (YTD)...
|
| Looks like Russia is wining the war big time...
|
| [] Ruble Hits 5-Year High as Gas Buyers Bend to Putin's Will
| - https://www.bloomberg.com/news/articles/2022-05-20/ruble-
| sur...
| mejutoco wrote:
| Without entering on who is winning and things like that.
|
| With the capital controls in place today idk how much the
| price of the ruble means.
| chewz wrote:
| You can google "Credit Suisse strategist Zoltan Pozsar -
| Bretton Woods 3"... His thesis is that we are going from
| dollar based monetary order to commodities based order.
| Not everyone agrees with Pozsar (I don't) but this is
| making waves.
|
| Russia forcing Europe to pay for gas in roubles is
| significant step, no matter the outcome on the
| battlefields... And financial markets reflect that fact
| through EURRUB and USDRUB...
| lettergram wrote:
| Exactly, the war itself is much broader than Ukraine.
| It's naive to consider this conflict a regional war.
| lettergram wrote:
| All GDP is not equal. As an example, Ireland's GDP was ~1/3
| tourism, with covid they lost that GDP.
|
| Russia GDP is primarily raw goods, commodities. They also
| have a decent domestic market for manufactured goods. Look up
| the global production of wheat, natural gas, oil, etc and
| look for Russia and Belarus. To put it bluntly, USA GDP is a
| mix and has everything from commodities to information tech
| to finance. Russia is a producer of raw goods.
|
| Commodity prices are made at the margin, meaning a 1-2%
| reduction in supply could cause prices to go up 5-10%
| (similar for the reverse).
|
| So Russia has an outsized ability to both weather sanctions
| (they don't import as much raw materials, particularly
| energy) AND the world must continue to purchase their goods
| and/or dramatically reduce in production themselves.
|
| For instance, German energy prices are up 500% (as of feb
| 2022) when compared to two years prior.
|
| https://www.statista.com/statistics/1267541/germany-
| monthly-...
|
| It's now up 1000-1500%, how is German GDP going to be
| impacted? While Russia's will maintain much of its GDP,
| Germans will likely drop substantially, as they're
| effectively deindustrializing. Their factories / industries
| can't function economically at such high prices.
|
| > so the calculus for russia is losing on all fronts
|
| I see Russia winning on all fronts tbh. They're increasing
| domestic resilience and culture. They're also winning the war
| in Ukraine (see Mariupol, Donbas encirclement), and winning
| the economic war with the west paying them even with the
| sanctions.
|
| What's their goals? To me it seems they are achieving the
| objectives Putin laid out at the rambling speech at the
| beginning of the war (independence from the west and
| "freeing" Russian sections of Ukraine)
|
| I find it so interesting people think Russia is losing. I
| just don't see it.
| axiosgunnar wrote:
| > I see Russia winning on all fronts tbh.
|
| I do not, and anyone else not trying to be contrarian and
| edgy on the back's of a humanitarian catastrophe does not
| either. Russia's goal was a blitzkrieg surprise win,
| measured in hours, taking over the capital and the
| government, before the West could even muster up sanctions.
| They have failed abysmally at that, and capturing a few
| towns in Eastern Ukraine (just a little bit more than they
| already had captured since 2014) is Putin's attempt to have
| something in his hands to present as a victory and hope not
| to get couped to death (a fate all warmongers rightfully
| deserve).
|
| Russia most certainly isn't winning.
| puranjay wrote:
| I wonder how much irreparable damage the lockdowns did to the
| economy as we knew it before the pandemic.
|
| The more subjective aspects of the economy are hard to map - are
| people motivated enough to work? Do they feel invested enough in
| the future to work? Have they been burnt out by the yoyo cycle of
| work/lockdowns? Was their industry severely damaged and they
| pivoted to other careers?
|
| Like there's a massive pilot shortage. I have friends who are
| pilots. They were already planning on retiring by 40 (pilots get
| paid very handsomely here) and starting a business. They just
| shifted their plans forward by 5 years instead of sitting at home
| and doing nothing. That's two skilled captains the airlines will
| have to find replacements for.
|
| I really don't think anyone really sat down and thought through
| these issues when the lockdowns were announced. You can't expect
| people to go from 100 to 0 and back to 100 over two years. People
| are not resources that can be put to use or discarded whenever
| you want.
| PaulDavisThe1st wrote:
| > I wonder how much irreparable damage the lockdowns did to the
| economy as we knew it before the pandemic.
|
| Reasonable enough to wonder, but not without the corollary
| question: how much damage would have been to the economy
| without lockdowns? Yes, there were no doubt _many_ side effects
| of the lockdowns that were not anticipated. But we lost at
| least 1M people in the USA (significantly more if you use
| excess death data). Lockdowns may have prevented that from
| being anywhere from 2-5 times higher. If we had lost 3M people,
| we get close to 1% of the total population of the USA, and the
| impact of that on the economy seems potentially enormous.
| jfengel wrote:
| Yes, they did sit down and think that through. That's their
| job. This is not the first epidemic. Public health departments,
| unlike people on the Internet, actually study the topic.
|
| You might consider sitting down and thinking about who is
| making these decisions and what their backgrounds are before
| you pronounce that they didn't take something into account. On
| what basis are you making that accusation? Do you have any idea
| what other things went into that decision?
|
| Perhaps they made the wrong choice. But they weren't guessing.
| And I don't have a lot of respect for your guess about it if
| you don't even know that much.
| SV_BubbleTime wrote:
| >Yes, they did sit down and think that through. That's their
| job. This is not the first epidemic.
|
| So was "Two weeks to flatten a the curve" the plan that _just
| happened_ to extended into a year or an always an intended
| lie?
| randomsearch wrote:
| Reality is the public couldn't handle the facts.
|
| When scientists in the U.K. started talking about herd
| immunity - the only way out of a pandemic - people went
| nuts and they quickly had to stop using the term and start
| reassuring more than informing.
|
| Average pandemic is about four years, not much has changed.
| They just had to keep people going at the time.
| josephcsible wrote:
| > the public couldn't handle the facts
|
| That sounds a lot like saying "I'm smarter than you, so
| I'm going to lie to you, but trust me, it's for your own
| good".
| randomsearch wrote:
| Except they accidentally did a real-world experiment and
| we discovered that people needed to be consoled and not
| confronted too suddenly with the inevitable
| FooBarBizBazz wrote:
| I don't think it was a big conspiracy; it was just people,
| in positions of responsibility, muddling through as best
| they could.
| puranjay wrote:
| Their complete bewilderment about the labor shortage and
| insistence that inflation was transitory suggests otherwise.
| soheil wrote:
| Probably biggest change between this recession and all the
| others is the people's willingness to work in an office. This
| is all orthogonal to the massive $24T budget deficit, not sure
| what impact that growing deficit will have, but it's been
| pretty large for decades now anyway.
|
| US is mainly a services driven economy, which means people can
| work from anywhere. Offices and adjacent sectors will suffer
| irreparable damage, but the gain in productivity in other
| sectors will more than compensate for it. I think we will come
| out with a stronger and more efficient economy after this
| recession.
| simonw wrote:
| "I really don't think anyone really sat down and thought
| through these issues when the lockdowns were announced."
|
| People clearly thought very hard about this. Different parts of
| the world came to different conclusions about it. Nobody
| thought that the lockdowns wouldn't cause immense amounts of
| economical and societal damage.
|
| The calculation was whether they would have a worse impact than
| letting huge numbers of people die. And huge numbers of people
| died anyway!
|
| I'd like to learn more about the economic impact of over a
| million deaths (in the USA). I would expect that to affect
| communities and industries in very complicated ways as well.
| johnNumen wrote:
| Most of those deaths probably had a positive or null effect,
| since they primarily occurred in the 65+ demographic.
|
| edit: It is interesting to contemplate the possibility that
| the death of so many seniors exacerbated the inflation
| problem. That's a lot of assets that were previously tied up
| in retirement accounts and real estate that suddenly flowed
| into the hands of middle aged people.
| rsfern wrote:
| Current CDC estimate has 220k deaths among working age
| people (under 65). Maybe you're not meaning to minimize
| that impact, but that's sort of how your comment reads
| gmm1990 wrote:
| Seems callous and erroneous. Also ignoring increased
| morbidity and strain on the healthcare system. Plus that
| would have the opposite effect on inflation
| chiefalchemist wrote:
| 65+ and often at the lower end of economic scale (at least
| in the USA). I can't imagine that much flowed. E.g.,
| housing prices would have feel as supply outpaced demand.
|
| For the non 65+ that died, that's a negative for the
| economy. Loss of productive years, etc.
| wombatpm wrote:
| There are also follow on effects. My Inlaws passed away
| over the last three years. It has been a huge time sink
| and blow to productivity this whole time.
|
| Long Covid among the survivors is the big unknown to
| productivity
| [deleted]
| upsidesinclude wrote:
| You are on to something there.
|
| Additionally, if we had people sit down and think about the
| situation, we would have protected and isolated the elderly
| instead of the insipid and endless all or nothing crusade
| we were handed instead.
| zht wrote:
| not to mention the millions of people who basically cannot
| work anymore because they've be irreparably damaged by
| COVID...
| rhexs wrote:
| I'm sure a good chunk of the same people who were
| "irreparably damaged by COVID" would have been irreparably
| damaged by diseases such as lyme, fibromyalgia, chronic
| fatigue syndrome, etc. in another universe.
| v-erne wrote:
| What's Your point? You are suggesting that this people
| would find another disease to get out of job market? If
| so that is some high level dystopian stuff you believe.
| creamynebula wrote:
| I thought it was very weird how the parent comment just
| glossed over it all as if it wasn't an issue.
| starkd wrote:
| I fear they have not learned this lesson. Already ramping up
| fears of monkeypox.
|
| https://www.barrons.com/news/biden-warns-of-potentially-cons...
| SV_BubbleTime wrote:
| Why wouldn't they?
|
| Name a government or public sector institution that _lost
| power_ during covid. It's tough to do.
| FooBarBizBazz wrote:
| > Name a government or public sector institution that _lost
| power_ during covid.
|
| I honestly think: "Nearly all of them."
|
| We've seen some significant _exercise_ of power, but the
| underlying _legitimacy_ that _gives rise to_ power is
| severely eroded. So I am not at all sure that the various
| institutions have come out of this ahead.
|
| Only in their unification against Russia have I seen an
| _increase_ in organizational capacity.
| cma wrote:
| For some reason the EPA?
| https://www.theguardian.com/environment/2020/mar/27/trump-
| po...
| [deleted]
| 88913527 wrote:
| Is there actually a major pilot shortage? Can I not book a
| flight and get anywhere in the continental US and be there in
| 24 hours from now? I suppose I'm asking, in what ways is the
| shortage presenting in a way practically visible to the
| consumer?
| hotpotamus wrote:
| One thing I learned is that many jobs that are considered
| essential are also considered dead-end. I assume that's pretty
| demotivating for anyone doing such a job.
| hn_version_0023 wrote:
| The thing that I learned was that "essential" really meant
| "an acceptable loss of life so long as the profits keep
| flowing to the upper management class".
|
| This isn't just _demotivating_ , its _dehumanizing_ , and
| it's the reason so many people I work with now won't lift a
| finger to help stop the collapse of society. Just the
| opposite in fact: many people seem to be looking for a match
| to start the fire.
| XorNot wrote:
| > and it's the reason so many people I work with now won't
| lift a finger to help stop the collapse of society
|
| I'm sorry but what exactly do these people do that this is
| a power they have?
|
| The "collapse of society" so frequently seems to be "small
| business owners need to actually give their staff enough
| hours and stop treating them valid targets for abuse".
| bitL wrote:
| EU is going to irrelevance much faster than expected and it's
| going to be US vs China everywhere. That's going to be the main
| outcome/damage.
| cwilkes wrote:
| Is this a bad thing to though? The pilots are doing what they
| eventually wanted to do. Hopefully they are happier.
|
| As for the shortage in general: economies have to adapt. Maybe
| that means more robotic flown aircraft. Or train travel
| increases. Or people stay at home and do more virtual visits.
|
| When you said "0 to 100 back to 0" I think that applies more to
| existing business models rather than how workers perceive /
| enjoy / want to their jobs.
| closedloop129 wrote:
| >I wonder how much irreparable damage the lockdowns did to the
| economy as we knew it before the pandemic.
|
| You can also look at it the other way round:
|
| The lockdown forced companies to establish home office,
| something that was overdue for up to 20 years.
|
| This can enhance the economy much more in the long run than it
| harmed during the last two years. Maybe the productivity gains
| are big enough that they outweigh the amount of artificially
| generated money. Then there shouldn't be much of an inflation.
| newman8r wrote:
| Is WFH actually more productive? I've heard conflicting
| reports, but haven't seen any data.
| hotpotamus wrote:
| I was very productive over 2 years working from home. I
| actually managed to complete a few home construction
| projects while answering a few slack questions from my
| phone once in awhile.
| izacus wrote:
| That's nice, but was does your personal *feeling* have to
| do with actual productivity across the economy?
| hotpotamus wrote:
| I'm just one data point. Where do we aggregate such data
| to show knowledge worker productivity? I'd be curious to
| look at it.
| SV_BubbleTime wrote:
| I don't think anyone argues that work from home allows
| for self beneficial gains.
|
| Really you're just saying the quiet part out loud ;)
| hotpotamus wrote:
| Well the other quiet part that executives don't say out
| loud often is that if the job can be done from home, then
| it can be done from Mexico, India, or Eastern Europe as
| well which is where that job is now. To be fair, that was
| happening before even the pandemic, and I was mentally
| half checked out too. Now I work in healthcare which has
| a bit more of a US centric moat to it.
| SV_BubbleTime wrote:
| >Well the other quiet part that executives don't say out
| loud often is that if the job can be done from home, then
| it can be done from Mexico, India, or Eastern Europe as
| well which is where that job is now.
|
| Or heading to. Yea, I largely agree. But I fired two
| people during pandemic from not-exactly-wfh, so I'm
| perhaps a little biased.
| cma wrote:
| > Like there's a massive pilot shortage. I have friends who are
| pilots. They were already planning on retiring by 40 (pilots
| get paid very handsomely here) and starting a business. They
| just shifted their plans forward by 5 years instead of sitting
| at home and doing nothing. That's two skilled captains the
| airlines will have to find replacements for.
|
| > I really don't think anyone really sat down and thought
| through these issues when the lockdowns were announced. You
| can't expect people to go from 100 to 0 and back to 100 over
| two years. People are not resources that can be put to use or
| discarded whenever you want.
|
| Didnt the paycheck protection program work towards this? We
| made a system to avoid unemployment strife and later
| inefficiency of rehiring everyone once it was over, by funding
| payrolls.
| chiefalchemist wrote:
| I wonder how much irreparable damage the central banks have
| done by "printing" unprecedented amounts of money. And that is
| what makes this "cycle" unique (i.e., is comparing it to the
| 80s accurate). Is it realistic to expect the economy to "catch
| up" given the excessive amounts of money supply that's been
| pumped into it?
| runeks wrote:
| > In the early 80s, the G7 economies tightened the money supply,
| raising interest rates dramatically, in an effort to bring
| inflation under control.
|
| This article points out a similarity between the early 80s and
| now. So I think it's appropriate to point out a major difference
| as well.
|
| Consider this chart[1] which shows both the short term interest
| rate (Federal Funds rate) and long term interest rate (10-year
| Treasury yield) since 1962. Before rates started rising in the
| late 70s, the market was used to an interest rate between 5-10%
| (both long and short term), after which it rose to 15% (long
| term) and 20% (short term). Compare this with the current
| situation. Markets now have been used to 0% short term interest
| rates and 2-3% long term interest rates for over 10 years. The
| little blip you see to the far right of the chart is how much
| interest rates have risen so far (to 0.83% short term and 2.85%
| long term). If such a tiny blip (historically speaking) is the
| cause of the current correction, then it seems reasonable to
| expect that this is only a tiny part of a much greater correction
| that comes if interest rates get even close to the levels seen in
| the start 80s.
|
| [1] https://fred.stlouisfed.org/graph/?g=PIsi
| CapmCrackaWaka wrote:
| Surely speculation about the rise in interest rates has been
| taken into account by the market, though? If I expected stocks
| to decrease _drastically_ in the future as the fed increases
| rates, I would just sell right now, maybe even hold a short
| position. I feel that real interest rates do effect the market,
| but the expected future interest rates must also be a part of
| the "where do I put my money right now" formula.
| runeks wrote:
| Relevant point. I agree that the current correction is a
| reflection of the market's expectations/predictions. But only
| for the medium term. The market has no idea what the interest
| rate will look like in 10 years -- which is at least how long
| it's going to take if it ever gets to 15-20%. There are
| simply too many unknowns to predict that.
| 55555 wrote:
| lol the way you started your comment led me to believe I was
| going to be reading good news. Then it was just more horrible
| news.
| bjornsing wrote:
| Are Americans this certain that the Fed will put an end to
| inflation? The economic incentives to let it rip are
| extraordinary...
|
| In Sweden there's a lot of political debate around this, and many
| are arguing that it would be better to let inflation eat the debt
| burden.
| yung_steezy wrote:
| Inflation is the most destablising thing in an economy. It
| would be wise to keep raising interest rates until inflation
| gets back to 2/3% even if that causes a recession.
| bjornsing wrote:
| I agree. But many Swedes are heavily indebted (with
| mortgages), and their parents made a fortune from negative
| real interest rates in the 70-ties + the asset bubble of the
| 2000s. Now they want the same. Understandable.
|
| The Swedish Riksbank (actually the oldest central bank in the
| world) is formally independent, but everything is politics in
| Sweden. I would not be surprised if the indebted middle class
| come out on top here.
| chewz wrote:
| FOMC members are paid 250 thousand dollars per diner not by
| American savers but by bankers and high asset value types.
| FED will go back to inflating asset bubbles at the first
| opportunity.
| idiotsecant wrote:
| > let inflation eat the debt burden.
|
| Good news everyone! By destroying our economy we have
| successfully reduced the real cost of the debt by 80%!
| Unfortunately, we now need to print massive piles of money to
| incentivize economic activity again!
|
| Ouroboros, meet tail.
| gz5 wrote:
| history doesn't repeat but it often rhymes is a useful base
| construct, how much do the macro differences between the 80s
| example cited in the post and today change the model?
|
| we know the world is now much more interdependent, interconnected
| and moves at a faster pace, and that this can result in massive
| growth, but that we are also much more fragile to shocks.
|
| does it also mean that post-shock 'new normals' or 'next normals'
| may be fundamentally different than the previous state -
| punctuated equilibrium type models?
| omginternets wrote:
| I don't have any good mental tools to distinguish between useful
| and useless economic predictions like this. How does HN navigate
| this kind of thing?
| largbae wrote:
| Buy an index fund and when the market is down try and buy more.
|
| If you do wish to do something to actively manage things, try
| giving Nassim Taleb books a read, or just read about his or
| Mark Spitznagel's investment strategy. They also keep 97% of
| their money in an index fund, but the other 3% are slowly
| wasted away buying far out-of-the-money PUT options on boring
| stocks that are very cheap to buy because they'll "never
| happen". And most of the time, they lose that money. But when
| COVID hits, or airplanes crash into famous buildings, or
| <insert next surprise here>, those little never-gonna-happen
| options pay for all the damage to the 97%.
|
| Their core theory is that humanity systematically
| underestimates the probability of very rare events. So it's not
| about timing the market, it's about using this exploit in human
| psychology to reduce or eliminate your "risk of ruin" from very
| rare events.
| wkyle wrote:
| To give a brief counter to the Taleb/Spitznagel Empirica
| Kurtosis strategy, the pricing of deep out of the money
| options is systematically overvalued in relation to the
| Black-Scholes model, suggesting that the market correctly
| prices in fat tails.
|
| The volatility smile pattern describes the 'overvalued'
| nature of these options, and the SKEW index tracks their
| pricing.
|
| https://en.wikipedia.org/wiki/Volatility_smile
|
| https://www.cboe.com/us/indices/dashboard/skew/
| largbae wrote:
| I wonder if this adjustment is enough... Spitznagel's fund
| did return 4,144% in Q1 2020. Maybe they found some other
| similar hole, but one seems to still exist.
|
| https://finance.yahoo.com/news/mark-spitznagel-univesa-
| cio-o...
| wkyle wrote:
| It's certainly possible that even with the volatility
| smile markets still underprice unlikely events, but high
| returns from a tail-heding fund during a black swan event
| hardly provides any evidence. Regardless of pricing, the
| expectation of the strategy is infrequent high returns
| and frequent poor or negative returns. Whether the market
| accurately prices these events also depends on how bad
| returns are during years without anomalous market
| conditions, and the intervals between fat-tail events.
| ajross wrote:
| This isn't much of a prediction. It's saying this correction is
| going to look like all the others. We had an overheated market
| in an inflationary feedback loop with pandemic relief, and that
| stopped, and now prices have corrected and we wait for growth
| to start again. That's... like predicting autumn will come some
| time after the end of summer.
|
| The takeaway here is that there are no unique circumstances at
| play. This is a market cycle just like any other.
| jatins wrote:
| I am generally generally wary of one liner predictions that
| people throw out on Twitter.
|
| We have all seen those recently: "This is going to be worse
| that dot com", "This is nowhere near the bottom" and basically
| bold but unsupported predictions of that flavor.
|
| This, however, seems like a reasonably balanced take. Tries to
| take cues from the historical events, which doesn't always work
| imo but still is _something_ to base your arguments on.
| alexashka wrote:
| You don't. It's all useless.
|
| If you have a high paying job/lots of money, it doesn't matter.
| If you don't have a high paying job, it also doesn't matter.
|
| Do you see why?
|
| That leaves people people for whom it doesn't matter, but they
| choose to entertain themselves with horoscopes, ahem, I mean
| market predictions.
| tsunamifury wrote:
| The outcomes for those two are significant. And those in
| leveraged positions even more so.
| alexashka wrote:
| How do you think your comment relates to mine?
| kache_ wrote:
| I don't navigate it. It's a bit like trying to predict the
| weather. You can kind of guess that it's going to rain
| tomorrow, but you can't guess if it's going to rain in a year,
| let alone how much rain there will be in the next 10
|
| I just buy a little bit of monero, funnel money into 30+ year
| tax advantaged retirement savings, and work on my skills I
| guess
| scandox wrote:
| Predictions are rarely useful. A good description of the
| present sometimes is a help though.
| voisin wrote:
| Be wary of anyone making firm statements about the future of
| anything. This article doesn't do that.
|
| This article is merely drawing similarities with past events
| and concludes:
|
| > First, we need to see the economy slow down and inflation
| slow down. We need to see stocks bottom out and hang out there
| for a while. And we need to be patient. None of this is going
| to happen fast.
|
| This seems reasonable. Wait and see based on variables that
| were important in the only comparable period in recent times.
| [deleted]
| starkd wrote:
| The article may be conflating inflation with economic growth
| though, hoping that inflation comes under control merely by
| slowing down the economy.
| abhayhegde wrote:
| > Be wary of anyone making firm statements about the future
| of anything. This article doesn't do that.
|
| Although the article does not state anything firmly, the last
| line of the article, as quoted below, is still an indication
| it predicts something:
|
| > I would be planning to ride this thing out for at least
| eighteen months or more.
| ryanSrich wrote:
| Eh, not really. Having a plan to ride it out if things get
| bad is never a terrible idea. Personally you should have a
| rainy day fund that can sustain you and your family for 12
| months. You should have the same as a business, but that
| fund should really be like 24 months instead of 12.
| unethical_ban wrote:
| This has the feeling of an article posted here in early 2020
| about the coronavirus, "The Hammer and the Dance".
|
| It was pretty spot on for the level of info it had on hand.
|
| This feels similar.aybe I shouldn't buy that watch I've been
| wanting.
| tlb wrote:
| Here it's entirely about the source. Fred Wilson is an
| unusually smart and honest investor, and has experienced more
| market corrections than I have. So I weight his opinion higher
| than mine.
|
| I also weight his opinion higher than my favorite financial
| columnists because he's the man in the arena, and focused on
| the part of the economy I care about -- startups -- while
| columnists have to think about housing prices and other stuff.
| jacquesm wrote:
| Smart, honest and _ethical_. The last one is the really rare
| one in that domain.
| soheil wrote:
| > I also weight his opinion higher than my favorite financial
| columnists
|
| I don't think he's saying anything that you couldn't find in
| Barron's or FT.
| tlb wrote:
| Maybe, but Barron's also has plenty of day-trader hype. How
| do you separate the good long-term predictions in Barron's
| from the bad ones? Read someone else. (You can optimize the
| process by skipping Barron's entirely.)
| soheil wrote:
| By ignoring the day-trader hype? (shouldn't be that
| difficult to spot)
| tlb wrote:
| There are domains where I feel I can judge an argument
| solely on its content. Predicting the economy isn't one
| of them. While I can discard some bogus arguments, there
| are plenty of coherent and self-consistent arguments
| pointing in different directions. So I have to consider
| the source.
| soheil wrote:
| I'm still not sure why you'd weigh his opinion higher, he
| may be honest or have experienced more recessions than
| you have, but why not find an old columnist who doesn't
| lie? His lack of consideration for the other parts of the
| economy like real estate, etc. and his focus on startups
| to me seems like a handicap and not something that makes
| his _economic_ predictions more accurate.
| sgustard wrote:
| Fred's also the author of "Get Paid In Crypto." Yet crypto
| warrants no mention in his analysis of the current bubble?
| https://avc.com/2022/02/get-paid-in-crypto/
| aabhay wrote:
| Take every major future scenario and make sure you have some
| idea of how your strategy and portfolio survives it. There is
| no difference between a useful and useless economic prediction
| in a highly uncertain environment -- they're all roughly
| plausible.
| fny wrote:
| You need to understand more about macroeconomics, monetary
| policy, ad government, along with studying past how past
| markets behaved under similar conditions.
|
| History doesn't repeat but it rhymes becomes the mantra.
| omginternets wrote:
| What are the must-read books in macroeconomics and monetary
| policy?
| OrangeMonkey wrote:
| You can't.
|
| The best you can do is to build a market thesis that represents
| your views, try to find reasons that you are wrong to help
| harden / shape your views, and only then try to find others
| that believe the same way your thesis does to try to see how
| they predict.
|
| Everyone has their own crystal ball, and everyone believes
| theirs is the right one. If you look at fintwit, you will see
| "the world is ending", "the worlds ended, we going up", and
| "lets wait and see". At least a few of them will get it right,
| to some extent or another. I dont think you can figure out at
| this time which is the right one.
|
| So, best you can do is form your own thesis I think. I've
| formed mine. It helps me not panic when things are temporarily
| against me.
| zw123456 wrote:
| One factor that I think might be different this time than from
| the 1980's is productivity increases from WFH. There are a number
| of studies showing that WFH has resulted in an increase in
| overall productivity. And has also helped curtail the demand for
| gas, although that is picking up. It remains to be seen if the
| Fed can wrangle the so called "soft landing", but productivity
| increase could potentially make that a bit more likely.
| randomsearch wrote:
| That can't possibly be true, right? GDP plummeted and
| employment is high, so productivity can't have increased...
| zw123456 wrote:
| https://www.apollotechnical.com/working-from-home-
| productivi... there are other studies if you just search on
| productivity and WFH
| mym1990 wrote:
| https://fred.stlouisfed.org/series/OPHNFB
|
| Although we've had gains from Q4 2019 to Q4 2021, I am not sure
| they are significantly higher than baseline in other periods. I
| would be skeptical of a productivity increase due to WFH simply
| because of the supply crunch that in many ways hindered the
| ability of people to output at maximum levels.
|
| _Maybe_ if we are talking some specific sectors.
| zw123456 wrote:
| Example https://www.apollotechnical.com/working-from-home-
| productivi...
|
| True, it depends on sectors but that is always the case with
| productivity, it never improves across the board, any
| automation or other changes will positively affect some
| sectors and negatively others. It's the macro net effect I
| think that could change things. I just think there has been
| some real fundamental changes due to the lock down that may
| have a lasting impact and make it difficult to use past
| patterns to make predictions.
| TekMol wrote:
| When governments rise the interest rate, is that the interest
| rate the government _pays_ when you lend money to the government?
| bombcar wrote:
| Yes, but the main effect is how much it costs to "buy" money -
| if the fed rate is zero then companies can often get money at
| 1% or so - which means if they have a way of making only 1.5%
| on the money it's worth doing it and they grow.
|
| When the rates rise, it's no longer worth doing these marginal
| businesses and so growth slows down. You're not going to borrow
| at 5% to make 3%.
| throwaway_1928 wrote:
| Yes that is called the _risk free rate_ because you assume your
| government with its magic money printer will always pay you
| back.
| ProAm wrote:
| yes, among other things.
| tomesco wrote:
| Close. The federal reserve (or any central bank) will lend
| money to other banks at a rate just below the target rate, and
| it will borrow from other banks at a rate just above. Because
| banks can borrow and lend largely risk free at those two rates,
| banks will transact amongst themselves at a rate in between.
| This is how the federal reserve makes banks transact at the
| target rate.
| TekMol wrote:
| Why do banks lend money? I thought they create it via writing
| into their database "Tomesco: $100" and _boom_ $100 was
| created?
| LegitShady wrote:
| generally central banks raise the interest rate, not
| governments.
|
| https://www.investopedia.com/terms/o/overnightrate.asp
| MaysonL wrote:
| The pandemic isn't over. Assuming that it is will lead to rather
| unpleasant outcomes.
| ChrisMarshallNY wrote:
| _> I would be planning to ride this thing out for at least
| eighteen months or more._
|
| I'm betting more like three to five years.
|
| I was talking to a friend (another old guy, like me, but really
| rich, unlike me).
|
| We've both been through at least two recessions (big, nasty ones,
| with teeth and claws). We realized that there's an entire
| generation of folks; many running companies, that have never seen
| a real bear market.
|
| It's likely they are having a shit hemorrhage, right now.
|
| The company I used to work for, was (still is) an over 100-year-
| old Japanese company. They lasted through a devastating war, a
| depression, multiple recessions, and were still around. I'm
| hoping that they stay around. They've made some choices that
| could be disastrous (I think that sidelining my team was one ;),
| but not the same kind a lot of companies are making now. Lots of
| people are leveraged to the hilt. Bad place to be, when the
| economy starts tanking.
|
| HODL is the word. Live cheaply, so you don't need to cash out in
| a trough. Don't rely on other people's money, keep debt _way_
| down, keep margins high, optimize processes, etc.
|
| Old-fashioned stuff. It worked 100 years ago, and still works
| today.
|
| Not everything old is bad.
| jacquesm wrote:
| That is roughly how I see it.
| rsanek wrote:
| >there's an entire generation of folks; many running companies,
| that have never seen a real bear market
|
| If anything, this is a problem that is much less bad than it
| was in previous down markets.
|
| "7% of CEOs were younger than 50 years old at the end of 2018,
| compared with about 16% at the end of 2009." [0]
|
| "Data on S&P 500 companies measured over the last two decades
| by executive recruiter Spencer Stuart shows a small but steady
| increase in the age of the CEO." [1]
|
| [0] https://www.wsj.com/articles/ceos-under-50-are-a-rare-
| find-i...
|
| [1]
| https://www.bloomberg.com/news/articles/2021-11-30/twitter-s...
| 88913527 wrote:
| _S &P 500_ CEO's. That's a very select subset of CEOs. Many
| large companies aren't public today and this leaves out CEOs
| of small-to-mid sized businesses.
| rsanek wrote:
| The number of private companies that are comparable to the
| size of the ones in the S&P 500 is quite low. [0] If we're
| talking about macro trends, public co's are much more
| important than private ones.
|
| Do you have a source for small-to-mid sized businesses
| having a decreasing average age of CEOs?
|
| [0] Compare the implied ranking based on revenue for
| https://en.wikipedia.org/wiki/List_of_largest_private_non-
| go... vs. https://companiesmarketcap.com/usa/largest-
| american-companie.... There are only 14 private companies
| with more revenue than Visa, the 100th-largest public co by
| revenue. Cargill, the largest US private co, wouldn't even
| break the top 20 when compared to publics.
| [deleted]
| jeffbee wrote:
| How could there be a whole generation of CEOs who never saw a
| recession? Are there 13-year-old CEOs?
| lukeramsden wrote:
| I would imagine ChrisMarshallNY means they weren't running
| companies when the last recession hit, not that they
| literally weren't alive....
| bittercynic wrote:
| Recessions don't always hit you so hard if you're not an
| adult with a career and bills.
| ChrisMarshallNY wrote:
| I was a kid, in the 1970s, when things were _really_ bad. I
| didn 't notice it, but my parents sure did.
| ineedasername wrote:
| Graduate college in mid 2008 and will mostly look like the
| economy has only even gone up for your entire 14 year career.
| If you were smart though you'd at least be familiar with the
| concept of cyclical downturns and maybe plan for it, though
| lots of people have a hard time tightening their belt when
| times are good.
| ryanSrich wrote:
| I'm 32. I graduated high school in 2008. I didn't know a
| recession happened at the time. My family was already
| relatively poor, living in a somewhat rural area, so it
| didn't really impact us. So I've technically lived through a
| recession, even as an "adult" (18), but a recession now would
| be entirely different for me.
| kache_ wrote:
| during the 2008 recession I was too busy playing Runescape
| ineedasername wrote:
| What was wrong with you? Weren't you aware that a D&D MMO
| was available? Shame on you. It's free now, so stop what
| you're doing, roll an Artificer & grab a rune arm, take
| some initiative and go find yourself a Beholder to kill.
|
| If you want to be traditional a then a fighter, thief or
| wizard is fine too, but roll something.
| ChrisMarshallNY wrote:
| As CEOs (also, the 2008 recession didn't hit the tech sector
| nearly as hard as this one. The 2000 bubble burst would be a
| better comparison). When you have that job, the priorities
| are _vastly_ different from as a W2 earner.
|
| But, to be fair, there's plenty that have.
|
| Which is why we're so puzzled at their behavior.
| eezurr wrote:
| >We realized that there's an entire generation of folks; many
| running companies, that have never seen a real bear market.
|
| This is true for every recession, so maybe rethink your friends
| logic.
| baxtr wrote:
| That's exactly what people said back in 2008. "It happened in
| part because most of these finance people weren't around to
| experience the dot-com crash in 2000".
| Natfan wrote:
| Not saying I disagree with you, but this comment feels like
| it's affected by survivorship bias[0]
|
| [0]: https://en.wikipedia.org/wiki/Survivorship_bias
| [deleted]
| CyanLite4 wrote:
| When there's blood in the streets...
| ptero wrote:
| Second half of 1940s and early 1950s are, IMO, a much better data
| point on how asset prices and economy would develop than 1970-80s
| than the author chooses.
|
| The situation in 1940s, with massive post-war government debt and
| high inflation is a much better match to today's state than 1970s
| with low debt and high inflation.
| user3939382 wrote:
| There are other huge differences though, right? In the second
| half of the 40s the US had a giant manufacturing economy
| whereas the rest of the world's manufacturing output was
| devastated by the war. I'm not an expert in this area but had
| the impression that it was this imbalance between the US and
| the rest of the world that played a huge part in our hegemonic
| success following that period, so I'm not sure what the purpose
| of comparing to that period would be, you wouldn't seem to be
| able to meaningfully extrapolate anything about the future out
| of it.
| ptero wrote:
| Certainly. There are big differences between now and 1940s in
| many things: manufacturing capacity, education levels,
| societal cohesion, easier acceptance of risk to life, etc.
| etc.
|
| I am just saying that purely from the economic perspective
| and its key characteristics of asset prices and inflation
| (that the author focuses on), today is much closer to the
| 1940s than to the 1970s. And I am personally investing on
| this assumption, as I think that the fiscal and monetary
| choices that US will be forced to make will drive the economy
| along a path with many similarities to the post-war decade.
| Just my 2c (and, obviously, not an investment advice).
| bendbro wrote:
| I don't know. Just my 2c. Not investment advice.
| PaulDavisThe1st wrote:
| I have a real problem with pieces like this that define
| "recession" in terms of abstract measurements of bits of the
| economy. Real recessions are about actual people and their lives,
| and although there's a definite correlation between the sorts of
| measures cited here and people's lives, it's much weaker than the
| article implies. We have very low unemployment right now, and
| most the features of a people-affecting recession are absent.
| Yes, the economic situation is really complicated and has some
| worrying signs, but calling it a recession based on the quoted
| numbers even when they are embedded in a not-seen-in-100-years
| context seems rash to me.
| pid-1 wrote:
| Employment and wages are lagging indicators, which is why folks
| are worried.
| FollowingTheDao wrote:
| "The NBER defines a recession as a significant decline in
| economic activity spread across the economy, lasting more than
| a few months, normally visible in real GDP, real income,
| employment, industrial production, and wholesale-retail sales."
|
| Like another comment said, recessions hit the ordinary folks
| last. But their stress is already evident. Employment numbers
| can turn on a dime. as can retail sales.
|
| But real personal income is down.
|
| https://fred.stlouisfed.org/series/RPI
|
| We are in uncharted territory here and anyone not acting so is
| foolish.
| PaulDavisThe1st wrote:
| RPI is down because of inflation though, not because of a
| decline in GDP, increase in unemployment etc. So yes,
| uncharted territory but not necessarily on the recession
| continent.
| FollowingTheDao wrote:
| RPI is adjusted for inflation, no?
| rsanek wrote:
| Exactly, so if inflation increases, RPI will go down all
| other things held constant.
| steveBK123 wrote:
| Long term demographics shifting older and growth shifting lower
| has driven interest rates down since as long as most of the
| posters here have been alive.
|
| We have hit an inflection point where interest rates are being
| raised as a tool to fight generational highs in inflation. This
| is the usual tool the central banks use in such a scenario. The
| resulting slowdown in markets and economy is the usual result.
| How smooth the slow down is to prevent overheating is always the
| risk they take.
|
| What is in question is how effective this will be if a lot of the
| inflation was simply pent up COVID demand, supply chain
| constraints (China shutdowns), car makers getting caught flat
| footed while transitioning to EVs but unable to secure
| battery&chip supplies, and war induced energy price spikes. Some
| of these things will be resolved by demand dropping due to
| interest rates rising, many will not. For some things this will
| cause double pain - cost of money is higher and energy prices
| remain high due to war.
|
| So we are probably in for 6-24 months of pain, with 12-18 months
| being the 90% scenario. Another question is if the clock started
| ticking in November when tech peaked or January when the broader
| market peaked.
|
| Another question is the amount Wall St vs Main St, is this just
| going to be a market drawdown or a wider economic recession. So
| far what we've seen is GDP/unemployment have not really reflected
| the same bearish picture (yet).
|
| GFC was more of a broader economic collapse story versus DotCom
| collapse which was more sector & market specific..
|
| So now would be a good time to hunker down, manage your
| personal&company burn rates, and maybe be an opportunistic buyer
| or investor if you see specific opportunities.
| CSMastermind wrote:
| > So far what we've seen is GDP/unemployment have not really
| reflected the same bearish picture (yet).
|
| This has been puzzling me so far. Tech hiring is hot as ever
| even with a few notable companies doing hiring freezes to
| various degrees. Can't help but feel like the market has to
| cool at some point.
| steveBK123 wrote:
| Is it lag and is the hiring real?
|
| re: Lag - someone joining a new job today was probably given
| an offer 3 months ago, and begun their recruiting process 6
| months ago.
|
| re: Realness 1) I've been through a number of interview
| rounds at a number of firms in the last 3 months where either
| the role itself or the comp previously discussed suddenly
| became in question, and the process delayed or went on hold.
| I have 2x as many irons in the fire as usual this job hunt as
| I find continual head fakes, ghosting and just general
| flakiness.
|
| 2) From the other end I can tell you my management has asked
| our team to do what-if scenarios for anything from -50% to
| +50% staffing recently. With scenarios of cutting some/most
| consultants with 0 backfills, or converting some, adding
| full-timers, etc.
|
| 3) Even some of the shops I interview have made mention of
| cutting consultants as of late, so some of the hiring could
| just be conversion.
|
| 4) Lot of tech headlines of hiring freezes or pauses or
| chills
| fny wrote:
| I'm going to explain what has happened so far. What happens next
| entirely depends on how inflation continues and the feds
| reaction.
|
| 1. We had zero percent interest rates. This causes the value of
| assets with cash flows out into the future (think speculative
| tech, Tesla) to accelerate.
|
| 2. We had massive herding in megacap tech. These valuations are
| high in part because for a decade you would not have beat the
| index without having these names in your portfolio.
|
| 3. These valuations blew up even further because of call squeezes
| during the 2020-2021 bull. Tesla even managed to get itself into
| the S&P.
|
| 5. Then in December, the megacaps we're squeezed further until
| the S&P 500 had a negative return relative to price!
|
| A lot of this occured because people remained under the
| impression that bond yields would never normalize. Now that they
| have, there is a risk free alternative to stocks.
|
| Now for the next complications: Ukraine + Russia, economic war
| with China, inflation, how the fed will respond, gas prices.
|
| If inflation continues and the fed becomes aggressive with
| hiking, all assets are dead. Bonds will be wrecked, stocks will
| be wrecked, cash is wrecked, even gold (depending on how
| aggressively they hike) will be dead because it's actually a
| really good deal to buy bonds when they yield north of 10% (if we
| get there).
|
| Say the fed decides not to hike as aggressively and inflation
| slows, then you'll be holding the S&P 500 likely for yield than
| growth. In the case of a recession or further inflation, that
| yield may be at risk depending on the sectors you're invested in.
|
| In this context the correction in names like Target make perfect
| sense. The dividend was near zero at it's price before the cut.
| Same thing happened in a company like Newmont mining.
| fddhjjj wrote:
| Very clearly explained recent history. Thank you.
|
| > Then in December, the megacaps we're squeezed further until
| the S&P 500 had a negative return relative to price!
|
| What does this mean? What is negative return _relative to
| price_?
| SnowHill9902 wrote:
| OP can clarify what they meant but I understand it as: sum
| return_i/yield_i - price < 0
| lamontcg wrote:
| This has all happened before.
|
| In 1998 Greenspan cut rates due to the Asian financial crisis
| and worries over Y2K which blew up the dot com bubble. Then
| they slashed rates down to nearly ZIRP and held them low which
| blew up the housing and finance bubbles that deflated in 2008.
|
| None of this started in 2008.
|
| What is different this time is the wage inflation and the
| unionization drives that we're seeing. The Fed is likely to
| hike rates much more aggressively in order to stop that from
| taking off.
|
| When you talk about inflation, though, asset prices and
| commodities don't matter anywhere near as much as wage
| inflation. And wage inflation is high due to the low number of
| job seekers, likely a result of other factors like death and
| disability due to the pandemic removing workers from the
| workforce and boomers retiring. As a result the rate hikes are
| likely to be more severe and the downturn is likely to more
| severe.
|
| I would be worried that this downturn looks more like a
| depression than a recession. Of course it may just unwind as
| before and as the economy pops they slash rates and do ZIRP and
| the rich people buy up even more of the economy and the cycle
| continues.
|
| I think there's a good chance the average Millennial gets
| pretty decimated by the next downturn and crypto should get
| tested and there's a pretty good chance that the Ponzi all
| unwinds and goes to zero (which will destroy all the
| Millennials using crypto as a 401k). I'm still not sure that
| crypto has gone up enough so that a few billionaires couldn't
| rescue it and keep the game running though.
|
| I still think we're going to see a relief rally short term
| though and that the downturn won't really take off until
| 2023/2024 when the yield curve inverts. We're not quite there
| yet.
|
| We've also had prices being out of whack with fundamentals for
| decades, that is also nothing new. Also don't go predicting
| hyperinflation or raising long rates. That has been predicted
| for decades as well, and it never happens. The Fed raising
| rates is designed to cause a recession and disinflation. Long
| rates won't rise and long-term inflation will remain contained.
| We're not in the 70s and we're not going back to the 70s.
|
| The thing to be MOST worried about is political. Since the 2008
| crisis there's been a rise of people who just seem to want the
| system burn and where they won't bailout the system in the
| event of a financial crisis. That increases the chances that
| the economy could really lock up and institutions could fail.
| There are a lot more crazies in power.
|
| At some point the cyclical game that we're in with engineered
| recessions, low rates, low risk premiums, cheap money, insane
| valuations, asset bubbles, etc has to break. I think its way
| too soon to call it as broken though. The commodities inflation
| that we're having right now is not that unprecedented (and a
| lot of it is ultimately transient and due to bullwhip effects)
| and the Fed is showing that they're going to take action to
| stop it. That means that we're likely to just have another
| recession then another long period of ZIRP and asset bubbles
| and crazy valuations continuing again.
| onlyrealcuzzo wrote:
| > I would be worried that this downturn looks more like a
| depression than a recession.
|
| Why? There's an easy way out of depressions / recessions.
|
| NIRP and QE Infinity part III.
| mellavora wrote:
| > There's an easy way out of depressions / recessions.
|
| NIRP sure sounds better than "war", which is another
| commonly used method.
| mister_tee wrote:
| Not a direct response to the parent post but it had the most
| keywords in common with my question:
|
| >The Fed is likely to hike rates much more aggressively [...]
|
| I agree, and they're about to start letting the balance sheet
| run off too, though at half the rate they accumulated.
|
| My question for the wonks here: will it be difficult or
| expensive to _hold_ rates above, even say, 5% for very long
| if needed? US national debt is over $30T. Assuming inflation
| persists and rates are raised to 5%, the approximate steady-
| state cost of servicing the debt is $1.5T /year, more than
| pre-pandemic US discretionary spending, and more than 33% of
| federal revenues. I asked a friend about this and they said
| not to worry, it takes a while for the national debt to roll
| over, but looking this up it seems most US debt is in
| instruments with a horizon of less than a few years.
|
| also, I imagine Debt:GDP is not the most appropriate stat
| here but in the 1970s it was 30-35% and now we're over 120%.
| Some other countries are over 200%. And in a recession, by
| definition the denominator gets bigger. Or maybe the broader
| question is at what point does national debt matter?
|
| I sort of feel the Fed is playing everyone's expectations,
| talking to cool things off and even name-dropping Volcker
| while hoping to keep interest rates more at 4% than his 20%.
| I'm not crying conspiracy or complaining -- if it works they
| could get their soft (now "soft-ish") landing.
| TekMol wrote:
| there is a risk free alternative to stocks
|
| How is holding a bond risk free? It is a promise to give you a
| certain amount of money at a certain time in the future.
|
| The value of that money depends on how scarce it is.
|
| The government constantly raises and lowers that scarcity at
| will.
|
| Sometimes the government decides to double the supply in just a
| few years:
|
| https://fred.stlouisfed.org/series/BOGMBASE
|
| So it seems highly risky to me.
| presto8 wrote:
| >> there is a risk free alternative to stocks
|
| > How is holding a bond risk free? It is a promise to give
| you a certain amount of money at a certain time in the
| future.
|
| I Bonds. They are guaranteed not to lose purchasing power and
| not to have a negative return. Unless the U.S. government
| defaults on its debt obligations. That is as close to risk
| free as one is going to get :-)
| kube-system wrote:
| "Risk" usually refers to default risk in financial terms.
| T-bills are generally considered to have zero default risk.
|
| The inflation for two different assets traded in the same
| currency are equal, so there's not much of a comparison to be
| made there.
| senthil_rajasek wrote:
| >How is holding a bond risk free?
|
| No asset is risk free. Bonds are a relatively less risky
| asset.
|
| >The government constantly raises and lowers that scarcity at
| will.
|
| Nope. Notes, Bills, Bonds are auctioned.
| TekMol wrote:
| The FED can buy bonds in an auction at will. Because it
| prints the money to do so. It's not like the FED goes "Uh
| oh, those bonds are too expensive for me".
| senthil_rajasek wrote:
| It's a recent phenomenon. During the covid crisis the fed
| became a buyer of last resort. It's not usual.
| TekMol wrote:
| Maybe it's the new normal?
|
| Just like doubling the money supply every couple of years
| seems to be the new normal since it started in 2008?
| senthil_rajasek wrote:
| Maybe, but it's not normal today.
| fny wrote:
| You get a guaranteed return depending on how long you lock up
| your cash. You may or may not beat inflation, but it still
| protects you on some level.
| bigdict wrote:
| You don't get a guaranteed return because the borrower can
| default.
| TekMol wrote:
| A guaranteed return of dollars. What those dollars are
| worth is not guaranteed.
|
| Imagine Tesla would hand out a certain type of share that
| after 10 years turns into 2 shares. Nobody would call that
| a risk free return. Because you don't know how much dollars
| you will get for those two shares.
|
| The same with dollars. You don't know how much Tesla shares
| you will get for those dollars.
| proteal wrote:
| Risk in this context means uncertainty - since the government
| can print money it is always able to pay its debts. You might
| not get a great return on your investment, but the government
| always has the capability to pay you back. There's little
| reward with no risk.
| TekMol wrote:
| I disagree.
|
| When I lend 2022 dollars to the government, I give away a
| certain amount of buying power.
|
| I don't know if I will get that buying power back when I
| get my 2032 dollars.
|
| The government does _not_ always have the capability to pay
| me back my buying power. It cannot create value at will. It
| can create money at will. But the more money it creates,
| the less value it has. So it cannot create value at will.
| sumofproducts wrote:
| "Risk" in this context generally refers to default risk,
| not the chances that the opportunity cost of your
| T-bill'd money exceeds the return.
| quintushoratius wrote:
| Governments are _not_ the only source of bonds. 10-year
| securities are _not_ the only denomination.
| polynomial wrote:
| > Bonds will be wrecked, stocks will be wrecked, cash is
| wrecked, even gold
|
| I'm sorry to be that person, but what sort of effect if any
| might that have on crypto markets?
| ryanSrich wrote:
| How does inflation slow if rates aren't hiked? Isn't the only
| means of combating inflation raising rates?
| drdec wrote:
| Just because raising rates is the tool of choice for central
| banks to fight inflation doesn't mean it is the only thing
| that affects inflation.
|
| E.g. if supply chains were restored and suddenly there was a
| lot more product to purchase that would cause prices to fall.
| OrvalWintermute wrote:
| Some rates are already rising.
|
| My HCOL region is seeing a big change in the RE market as
| Mortgage interest rates hit >5%
| tempsy wrote:
| Target shocked investors because not only did they suffer from
| rising costs due to inflation that they are currently
| subsidizing by not meaningfully raising prices but because they
| reported rising inventory in discretionary spending categories
| as consumers pull back likely due to higher prices they are
| facing nearly everywhere.
|
| This has more to due to impact of inflation and less so just a
| function of a dividend and rates.
| nemo44x wrote:
| Credit card debt is extremely high right now and subprime
| loan defaults are rising fast. In essence, a lot of people
| are tapped out.
| djbusby wrote:
| Credit Card report
| https://www.newyorkfed.org/microeconomics/hhdc
|
| New all time high
| heartbreak wrote:
| The relevancy of a report from February 2020 is...not
| great.
| djbusby wrote:
| My bad, wrong link, I've updated.
| Proven wrote:
| throwaway_1928 wrote:
| > Bonds will be wrecked, stocks will be wrecked, cash is
| wrecked, even gold
|
| What will happen to the housing market?
| don_neufeld wrote:
| Expect a _steep_ drop.
|
| Leverage is much more expensive (from sub 3% mortgages, we
| already have 5%+ rates), which means buyers can afford less,
| plus significant withdrawal of "cash" buyers from the market
| who were really just borrowing against their (now much
| smaller) equity positions.
|
| I wouldn't want to be in a forced sale position anytime soon.
| tempsy wrote:
| 5% for a 30 year mortgage is not really that high
| historically speaking.
|
| The problem is more that prices are very high and supply
| remains very low.
| zhdc1 wrote:
| Anything from nothing to a small correction.
|
| Mortgage payments set a ceiling on how high property prices
| can rise. However, people seem to be willing to spend more on
| mortgage payments than they probably should, so it's likely
| that this ceiling hadn't been reached yet.
|
| The other factor is simple supply and demand. A large factor
| in 2008 was a large inventory of housing that came on the
| market. As far as I'm aware, there is no current corollary in
| the US now.
| toomuchtodo wrote:
| I would like to qualify this. This is true in markets where
| labor is the majority purchasers. In markets like the
| sunbelt, where retirees are moving and buying properties
| with a combination of cash, previous real estate equity,
| and retirement assets, mortgage payments don't restrict
| home prices. This crowds out anyone who does need financing
| to buy their home, especially as interest rates rise and
| inventory remains low.
| nemo44x wrote:
| It's all a function of interest rates. We are seeing prices
| stabilize now after a couple years of meteoric rises. If
| interest rates really climb for an extended time then home
| values will fall.
| riku_iki wrote:
| People who bought houses will be fine, since they secured low
| interest loans, and will hesitate to sell because won't get
| good interest on next loan.
|
| This will cause low supply -> high prices -> people who
| didn't buy are very screwed: they will face high prices
| together with high interest.
| datalopers wrote:
| You're forgetting about the overpaid tech workers who are
| soon to be laid off, possibly underwater on their
| mortgages, and decide it's time to downsize.
| riku_iki wrote:
| There are amazon, google, msft and apple, with almost
| $1trln annual revenue combined, they will continue paying
| to a plenty of workers.
| unicornmama wrote:
| Those companies are not immune from cutting cash burn to
| protect their stock price.
| riku_iki wrote:
| They are all have very positive cash flow, so it is
| unlikely they will be cutting significant amount of fat.
| datalopers wrote:
| Cool, I'll let YC's entire portfolio know there's plenty
| of jobs at the big tech cos.
| riku_iki wrote:
| You are switching topics. The point is that there will be
| plenty of funds inflow to support housing market.
| datalopers wrote:
| Would you like to place a wager? I bet that the median
| home price in tech-centric metro areas (seattle, sf/bay,
| la, nyc) will decline by 10% or more in July 2023 versus
| July 2022.
| tjr225 wrote:
| For many in tech metros their homes could decrease in
| value by 25% or more from their current values and the
| home would still be worth more than they paid for.
|
| In any case they won't want to sell for a mortgage that
| effectively costs the same over a 30 year loan with a
| higher interest rate.
| __turbobrew__ wrote:
| My tech-centric metro area had price increases of over
| 30% in the past two years so a 10% correction just puts
| us back to prices 6 months ago.
| djbusby wrote:
| !remindme 2023-08-01
| riku_iki wrote:
| 10% is like small correction comparing to previous
| increase, and doesn't offset mortgage rate increase.
| pcbro141 wrote:
| Overpaid based on what?
| datalopers wrote:
| Overpaid in the same way publicly traded tech stocks and
| VC/PE valuations were grossly inflated. Salaries are
| going to come down just like valuations. As people
| generally won't accept paycuts, it'll come in the form of
| laying off 2 engineers and backfilling 1 of them at half
| the prior salary rate.
|
| VC backed companies will start dropping like flies and
| the market will flood and salary requirements will drop
| fast.
| rcpt wrote:
| Low interest rate doesn't mean low monthly payment
| riku_iki wrote:
| It means monthly payments are lower than if person would
| sell and buy with higher interest. It is very strong
| incentive to not sell.
| BolexNOLA wrote:
| Totally anecdotal, but I know a couple who are renting out
| their house they highly _and_ renting a place to live
| because the interest rate they secured (2.75%) means
| renters paid their mortgage and then some (about 40% on
| top), so they basically make like $200 /mo to live
| somewhere else as renters pay for their home.
| rhexs wrote:
| It depends on a recession and how bad it is. Even if you're
| locked into a low mortgage, if you lose your job, can't
| pay, and due to rising interest rates are now underwater
| 500K on a mortgage, nothing good happens.
|
| Like it or not there's a lot of chaff to cut in software
| engineering. How many of these SaaS businesses can survive,
| and how many engineers bought nice homes with massive
| salaries that might go poof?
| riku_iki wrote:
| > are now underwater 500K on a mortgage
|
| it will be very small fraction of homeowners: those who
| bought in in last 2-3 years. All others will be
| significantly over water, and may take equity loans
| instead of selling houses to preserve low mortgage
| interest rates.
| tsunamifury wrote:
| Eventually and all sellers and no buyers market will
| catch up with prices. Matter of how long it can be
| bridged. Every equity loan taken out against higher
| values will shorten that bridge.
| riku_iki wrote:
| And then homeowner will have strong incentive to move to
| smaller rental unit and rent his primary residence, or
| maybe he will be able to find job in this few years
| secured by equity loan.
|
| > Eventually
|
| Eventually maybe. FED gave 20T free money to current home
| owners in addition to existing tax incentives, how long
| it will take to chew through them? Maybe generation?
| ItsMonkk wrote:
| The value of the house goes up. The value of the land gets
| wrecked.
|
| If you are living in SF, this is bad. If you are living in
| the middle of nowhere, this is good for you.
| abirch wrote:
| 1. Zero Percent interest rates doesn't necessarily cause a
| bubble. It's the excess liquidity in the market that causes the
| bubble (too many financial assets chasing real assets).
| Spooky23 wrote:
| One drives the other.
| abirch wrote:
| I thought that the liquidity was driven by the money
| multiplier and the Fed's quantitative easing. If the fed
| set the interest rate at 10% but put in 20 trillion dollars
| into the economy there'd be bubbles everywhere.
| atq2119 wrote:
| Why would they be able to put 20T$ into the economy at a
| 10% interest rate? Who are the counterparties? In other
| words, who is taking those loans in your mind?
| abirch wrote:
| The Fed can buy mortgage backed securities like they have
| done since they've started quantitative easing. The Fed
| has purchased Apple bonds. This is in addition to US
| Treasuries.
|
| My original comment was a mechanics related comment in
| which liquidity (credit + cash) pushes up asset prices
| and not rates (although there's high correlation
| especially in the past 20 years in the US).
|
| This is based on my understanding of Ray Dalio.
| https://www.youtube.com/watch?v=PHe0bXAIuk0
| atq2119 wrote:
| The volume of mortgage backed securities is based on the
| volume of loans that people take. At higher interest
| rates, people take out fewer and smaller loans. The Fed
| buying up more MBS would put downwards pressure on
| interest rates, which would be diametrically opposed to
| their goal (in your scenario) of maintaining high
| interest rates.
|
| There _is_ a correlation between liquidity and rates, but
| it 's an _inverse_ correlation. That 's Open Market
| Operations 101.
|
| Besides, if your macroeconomic goal is to reduce
| inflation (which is the reason for raising interest rates
| in the first place), one subgoal should be to reduce the
| volume of loans that are being issued. After all, bank-
| issued loans are new money, which adds to demand, which
| helps prop up inflation. That's Monetarism 101.
| abirch wrote:
| Our disagreement appears to be this. You believe that
| zero interest rates lead to bubbles. I believe that
| excess liquidity is responsible for bubbles. They
| frequently both happen together because that's how the
| Fed tries to stimulate growth and spending.
|
| My example of the Fed with high interest rates and a lot
| of QE was a way to see where our disagreement would
| appear. It's similar to the great recession where there
| were interest rates lower than they are now, but because
| the private sector wasn't extending credit (less Cash +
| Credit); there didn't appear to be any asset bubbles.
|
| The volume of mortgage backed securities is based on who
| can and want to get loans. During the great recession it
| was hard to qualify for a mortgage even though many
| people wanted to do so.
| atq2119 wrote:
| I appreciate you trying to get to a shared understanding.
| I don't have too much time, so just the short version:
|
| > The volume of mortgage backed securities is based on
| who can and want to get loans. During the great recession
| it was hard to qualify for a mortgage even though many
| people wanted to do so.
|
| "Want" is a difficult word. I want a private island, but
| I can't afford one. So my contribution to _effective_
| demand for private islands is zero. In the same sense, I
| don 't think the effective demand for mortgages was
| particularly high during the great recession. But anyway,
| we agree on the observation that low interest rates and
| low mortgage volumes can go hand-in-hand.
|
| One point where I think we differ is the direction of
| causalities in central bank behavior. My point is that
| central bank QE causes low interest rates (but low
| interest rates don't necessarily cause QE). The upshot is
| that while "low interest rate policy, no QE policy" _is_
| possible, "high interest rate policy + QE policy" is
| _not_ possible. The two policies would be in logical
| conflict with each other.
| MikePlacid wrote:
| But Feds have _both_ put trillions of dollars into the
| economy _and_ kept the interest rate near zero. So I
| think it's useless to argue which exactly of these moves
| has caused bubbles.
| abirch wrote:
| You're right about now. If we desire to tease these
| issues apart we can look at history both the US and
| elsewhere.
| jbay808 wrote:
| Zero percent interest rates cause a bubble because valuations
| have to increase to the point where their forward-looking
| returns are a risk premium above bonds. When rates are zero
| for a long time, that means valuations go very very high.
| When rates come back up, valuations drop. Speculation can add
| further overshoot in both directions.
| shrimpx wrote:
| > When rates are zero for a long time, that means
| valuations go very very high. When rates come back up,
| valuations drop.
|
| And yet people keep saying that nobody can time the
| market...
| jbay808 wrote:
| I'm not saying that you can time the market. It's a lot
| more nuanced than that.
|
| * You don't know the long term path of interest rates.
| Even the Fed Chair doesn't, because they don't know what
| will happen with inflation. (They do know the short term
| timing though, which is why they're not supposed to
| trade.)
|
| * Even if you're expecting a correction, you don't know
| when the correction will occur or by how much. It could
| stay aloft like Wile-E-Coyote after the fundamentals drop
| out, or crash early in anticipation of the fundamentals
| changing.
|
| * And when it does fall, you don't know where it will
| land, nor how many times it will bounce along the way
| down.
| abirch wrote:
| Are their countries with negative nominal rates without
| asset bubbles?
|
| Have their been high interest rate countries with asset
| bubbles? E.g., dutch 1600s interest rates or 16% during
| Tulipmania.
| jbay808 wrote:
| > Are their countries with negative nominal rates without
| asset bubbles?
|
| That's very hard to know, but to be clear it's negative
| _real_ rates that drive the bubbles. There 's much more
| incentive to speculate when cash is a hot potato. For
| example Japan is much less bubbly these days than in the
| 1980s, even though nominal interest rates are lower now.
|
| > Have their been high interest rate countries with asset
| bubbles? E.g., dutch 1600s interest rates or 16% during
| Tulipmania.
|
| Presumably, that's why Tulipmania was confined to tulips,
| instead of spreading euphoria to absolutely every asset
| class. Even with high rates it's absolutely possible to
| have local bubbles in things like tulips, beanie babies,
| or Dogecoin. It only takes the promise of high real
| returns. When real interest rates are negative, even the
| promise of _zero_ real return becomes mouthwatering.
| abirch wrote:
| > That's very hard to know, but to be clear it's negative
| real rates that drive the bubbles.
|
| Real rates are usually negative. Real interest rates
| defined as the Nominal Rate - Inflation. Japan has a
| negative nominal rate right now.
| jbay808 wrote:
| > Real rates are usually negative.
|
| Let me put that a bit more precisely:
|
| https://www.longtermtrends.net/real-interest-rate/
| chmod600 wrote:
| I motice that you left out real estate from your analysis.
|
| RE is interesting because it's both an asset as well as
| something you can use. So if there's general inflation, it's
| got both upward pressure (because it's an alternative to rent
| from a consumer standpoint) and downward pressure (because
| bonds are an alternative to RE from an investment standpoint).
| fny wrote:
| Real estate is interesting. The issue is will you be able to
| make enough rent to actually get a return. I think at this
| point that's still the case over a 30 year period, but I'm
| not quite sure what that'll look like in time.
| tenpies wrote:
| Aside from the leverage issues other point out in RE, you
| have to consider the political risk.
|
| How safe do you feel that a piece of paper saying that plot
| of land is yours will hold up when there's a raging mob
| threatening politicians to do something about
| homelessness/housing prices/AirBnB/Asset managers holding all
| the properties?
|
| The political risk in the West is at Emerging Markets levels.
| We've seen G7 nations de-bank their citizens extra-
| judicially, seize assets and remove licenses, remove freedom
| of movement, create an entire second-class of citizenship,
| lock up people for committing no crimes. This is normal. No
| one is protesting. The media agrees as does Hollywood.
|
| If I had anything beyond my one property in which I reside
| I'd actually be pretty scared. This stuff happens in Emerging
| Markets all the time: the government tells anyone with more
| than one property to pick one to keep. All foreign property
| owners have their property forfeit or taxed to the point
| where they are forced to sell.
|
| These actions are not out of the realm of possibility in the
| West any more, especially with the current leaders. There
| will be no tears shed for the poor landlords and property
| owners who can only keep their principal residence.
| lupire wrote:
| Landlords have been protected by governments for as long as
| governments existed.
| jimmaswell wrote:
| There are exceptions like what Mao Ze Dung did.
| hnmullany wrote:
| https://www.nytimes.com/1976/04/12/archives/housing-
| abandonm...
| SantalBlush wrote:
| >there's a raging mob threatening politicians to do
| something about homelessness/housing prices/AirBnB/Asset
| managers holding all the properties
|
| It's not just a mob, it's a _raging_ mob.
| cellis wrote:
| Sounds like a lot of FUD, the politicians won't do anything
| like that because free stuff very easily causes divisive
| policies. What _will_ happen, and _is_ happening, is that
| more luxury housing is being built and less code (
| regulations ) implemented. So the result is more inventory,
| which puts pressure on housing. Also there's a LOT of
| vacant homes which have high carrying costs; eventually
| those owners will get margin called and have to either rent
| them out or sell them, which will put even more pressure.
| So I agree with the ends of your thesis, but not the means.
| ceeplusplus wrote:
| The entire reason that leveraging up real estate 5x is a
| widely accepted practice is that you can't get margin
| called as long as you keep making payments. Reg T margin
| will margin call you if you go under 25-50% equity, but
| mortgages will never margin call you.
| cellis wrote:
| I meant "margin called" figuratively, not literally.
| Essentially investors will start seeing negative cap
| rates and either demand redemptions or will start
| liquidating their RE portfolios, which isn't a real
| margin call, but "margin call" is a convenient term for
| what's happening.
|
| Also, carrying costs of vacant properties are high. I'm
| predicting large writedowns of RE, and _especially_
| commercial RE in the coming 5 years.
| FollowingTheDao wrote:
| I can't tell you how much I hope they crack down on people
| owning multiple houses. It's just criminal. Not only do
| they own two houses but instead of renting it at market
| rate they put it on Airbnb an inflated price three or four
| fold.
|
| The truth is under capitalism everyone cannot be a
| Capitalist. Please, I need you to think deeply about that
| last sentence. It's not as simplistic as it sounds.
|
| Until we treat housing as a cost and not an investment none
| of this will end.
| chillingeffect wrote:
| I look forward to this. Atm there are _benefits_ to
| owning multiple houses... [alef] [bet]
|
| [Alef] https://www.realtor.com/advice/finance/second-
| home-tax-benef...
|
| [Bet] https://homeguides.sfgate.com/tax-deduction-
| multiple-homes-m...
| electrondood wrote:
| Seriously? You think things are going to get so bad the
| government seizes real estate en masse? That's not going to
| fly in the U.S. for one second.
| xienze wrote:
| When the AOC wing of the left starts gaining real power
| in the coming decades, you bet.
| eropple wrote:
| This is absolute nonsense. Ocasio-Cortez is not far off
| of a bog-standard social democrat and she would be at
| best _boring_ almost anywhere else in the industrialized
| West. (Maybe not "making majority policy", but not
| controversial.)
| bennysomething wrote:
| What do you mean by create an entire second class of
| citizenship ? (Genuine question)
|
| Are you referring to things like "key workers" (I
| personally hate this idea)
| h2odragon wrote:
| I _really_ hope you 're wrong. I can't actually disagree
| with you.
| hackernewds wrote:
| RE is at massive peak levels already though that buyers
| cannot shell out those prices, esp as mortgage prices go up.
| architravesty wrote:
| Worst part is the utterly absurd shortage means RE is never
| going to meaningfully dip for any period of time without
| serious structural reforms. The focus on interest rates as
| the main RE driver is almost completely cope and I wish I
| could believe it.
|
| Low-rate mortgages certainly aren't helping, but they're
| "not helping" in the same way that hucking an armload of
| kindling into an already-raging house fire is "not
| helping".
|
| I'm cautiously optimistic that societal unrest from this
| will eventually forcibly neuter local zoning controls but
| short of that we're just going to keep subsidizing demand
| and kicking the can down the road as if people don't need
| places to live.
| lazide wrote:
| The only reason there is a shortage is because money has
| been so cheap.
|
| Just watch, in a few years things will have changed quite
| a bit.
|
| The more desirable areas will still have demand of
| course, but what counts as desirable is shifting.
| ethbr0 wrote:
| Local zoning codes change on the order of decades. That
| will take a _long_ time to play out.
| chmod600 wrote:
| I agree that local zoning is a problem, but I've seen a
| trend to try to turn it into the wild west. I'm not sure
| people building duplexes in R1 is really a solution. It
| seems like we need more medium density in commercial
| areas (e.g. four stories of apartments on top of one
| floor of commercial).
|
| That could bring down rents and improve quality of life,
| and improve the suburbs as well. If you drive by a
| poorly-maintained house in the suburbs, that's probably
| someone who would live in medium density if it were
| available.
| lumost wrote:
| The problem is that everyone has their own oppinion on
| the matter, and will block anyone from trying out any
| other opinion.
|
| At some point, you just need to build. If some ideas
| don't pan out... then people will move, investors will
| lose. At present, even in densely populated Boston, _any_
| type of housing will command a high rate.
| n8cpdx wrote:
| There's a housing emergency in most places people want to
| live. If society wanted to have moderate solutions, they
| should have tried these conservative solutions before
| crisis point.
|
| It's like saying pouring water on a house fire is too
| extreme, maybe try an ABC extinguisher instead. The time
| for half measures is long past. If NIMBY home owners
| don't like that there's an apartment in their
| neighborhood, they can choke.
| Nagyman wrote:
| I've heard the idea to zone for one level above the
| average in an area, to avoid the wild west situation.
| Doubtful that would fly with some very rich single family
| neighbourhoods near cities, but perhaps it's too late for
| the gradual re-zoning and a more blunt approach is
| necessary.
|
| Aside... where the heck is tech in building housing
| faster? Where's the prefab and automated assembly? Too
| many building regulations? Entrenched interests?
| Incredibly hard problem for large scale engineering?
| surfmike wrote:
| This sub stack has some great coverage of those
| questions:
|
| https://constructionphysics.substack.com/p/why-its-hard-
| to-i...
| rcpt wrote:
| Government is doing everything it can to prop up the assets
| of voters. MBS bailouts haven't stopped, Biden housing plan
| is all about subsidizing buyers, mortgage forbearance is as
| much as ever.
|
| Will it work idk but if there's one thing the state is
| scared of it's voting boomer homeowners.
| jbay808 wrote:
| RE is highly leveraged (people borrow money to buy it),
| meaning that it gets hit hard by rising interest rates.
| ethbr0 wrote:
| _New_ buying gets hit hard. In the US, fixed rate 30 year
| mortgages mean that a lot of existing owners are isolated
| from rates (albeit not from market price devaluations).
| jbay808 wrote:
| I mean that real estate _prices_ get hit hard. The
| consequences of that may vary depending on where you are,
| what you 've borrowed, and what you own.
| ethbr0 wrote:
| Granted!
|
| I just wanted to call out that must-sell (2008, falling
| market prices, unaffordable adjustable high-rate
| mortgages, low inflation) is different than can-hold
| (falling market prices, affordable recent low-rate
| mortgages, high inflation).
|
| If you've got a fixed-rate mortgage at 3%, there are
| worse forms of debt...
| BbzzbB wrote:
| It's outside the US too, but holy moly is it dirt cheap
| in the US, averages not even 4% [1]. When I looked last
| year RBC showed like 8% (now 9.75%[2]) for 25 years fixed
| in Canada; tougher choice against 5 year terms than down
| South.
|
| 1: https://policyadvice.net/insurance/insights/mortgage-
| statist...
|
| 2: https://www.ratehub.ca/best-mortgage-
| rates/25-year/fixed
| EGreg wrote:
| Why would bonds and cash be wrecked?
|
| You even say that bonds would be a good deal
| 55555 wrote:
| Cash would be wrecked due to inflation. However it should be
| less wrecked than other asset classes in the short term. I
| know nothing about bonds so I also hope they reply.
| chmod600 wrote:
| I think the idea is that bonds at higher rates are a better
| alternative ("better deal") compared to cashflow from an
| asset.
|
| But if you actually buy that bond, and the rates _keep going
| up_ , then new bonds will be an even better deal than the
| bond that you bought, and so to sell it you'd need to sell at
| a discount ("wrecked").
|
| I feel like this misses a sense of scale. Sure, everyone
| loses, but some choices must be superior to others in a
| rising-rates environment.
| ironSkillet wrote:
| Previously purchased bonds will decline in relative value.
| E.g. say you bought a 10 year corporate bond a couple years
| ago, say at 2% interest. Newer bonds will be issued at a much
| higher yield to be attractive in a higher fed rate/inflation
| environment, making all these old bonds lose value in
| comparison.
| vintagedave wrote:
| So for non-finance-experts, what should we be doing with our
| money? Investing in what? Keeping in the bank?
|
| It sounds from your comment like there is _nothing_ that won't
| be devalued, even gold. Is real estate worthwhile?
|
| (Note: I am in the EU not US.)
| spicyusername wrote:
| As others have said, portfolio diversification (i.e.
| spreading your money around between lots of different asset
| classes) is more important than playing the stock market
| well.
|
| Most people cannot play the stock market well, and even those
| who make it their day-job often don't end up playing it well.
| The reality is that the stock market is just too random to
| game reliably.
| Buttons840 wrote:
| If all assets are dead, you can spend your assets now to
| improve yourself or family. If you've been wanting some time
| to go to school or pursue some other self improvement, maybe
| spend some assets now to do so. Education and skills are an
| asset like any other, and can also be devalued though. I
| wonder how personal skills will fare in the coming years?
| [deleted]
| ptero wrote:
| If you think that there is some major economic turmoil ahead
| with dropping asset values across the board (and I personally
| this is fairly likely), the general advice is to aim for a
| positive alpha. That is, if you are moderately well off or
| better, invest to "go down less than your neighbors". Assets
| across the board lose value, but if at the end of the fall
| you preserved a higher fraction of your money to invest than
| your neighbors _and_ are willing to pick the best assets
| after the collapse you can reap huge benefits.
|
| The counter argument to this is that the above approach
| absolutely requires an iron discipline. And without
| experience non-professionals are prone to making very costly
| mistakes (e.g., invest on feelings, double down
| inappropriately, etc.). So, a _general audience_ advice is
| usually: do not invest money you need within 5-10 years and
| do not make rash decisions; it is better to ride this train
| down and then hopefully back up than jump randomly. And
| diversify (across countries, economies, asset classes, etc.).
|
| Just my 2c; not an investment advice!
| nradov wrote:
| The general advice is always to aim for a positive alpha.
| No investor aims for a negative alpha, regardless of the
| economic climate.
| ptero wrote:
| > The general advice is always to aim for a positive
| alpha.
|
| On the contrary, for the past 20+ years the general
| advice has been to specifically aim for the alpha of zero
| ("just use index funds"), not for a positive alpha
| ("don't try to beat the market", etc.).
|
| > No investor aims for a negative alpha, regardless of
| the economic climate.
|
| Factors other than alpha are _way_ more important for
| most people. Many retirees put a high value on low
| volatility or stability of dividends and are perfectly OK
| with getting a small negative alpha as part of the
| package.
|
| Original hedge funds (before they joined a cutthroat
| trading jungle) set up with a similar goal in mind: a
| small negative alpha, but protected against the loss of
| the principal. And had plenty of wealthy investors who
| were happy with this deal.
|
| Alpha becomes the critical parameter to optimize for when
| actively investing in times of turmoil (then a negative
| total return on a positive alpha on the down leg is a
| success). But few people actually do that, so few care
| about alpha.
| etrautmann wrote:
| Yes, but it's unclear how to intersect this with a
| reasonable tax strategy for many retail investors. i.e.
| do I sell everything and pay capital gains or sit?
| spicyusername wrote:
| I think this is probably the most useful wisdom for the
| average person:
|
| > do not invest money you need within 5-10 years and do not
| make rash decisions; it is better to ride this train down
| and then hopefully back up than jump randomly.
|
| Gaming the market successfully requires a ton of skill and
| knowledge, and even then you are not guaranteed success.
|
| Most people are better off focusing on asset-class
| diversification (i.e. spreading money across many different
| kinds of asset classes - i.e. physical assets, securities,
| commodities, cash, etc) than playing just the stock market.
|
| And even when playing the stock market, most people are
| better off focusing on "time-in-the-market" vs "timing the
| market".
| thechao wrote:
| Right; so my plan of having 60% of my wealth tied up in
| unvested stocks in a single company is really coming to
| fruition!
| snikeris wrote:
| There are ways to mitigate this risk. Talk to a
| professional.
| FollowingTheDao wrote:
| Oh man, so sorry.
| fny wrote:
| I actually don't have a good answer for this. Not financial
| advice. Talk to a fiduciary.
|
| The problem with inflation is that you need to protect
| yourself before the fact, and at this point, it's difficult
| to read to what extend the fed will respond with rate hikes
| and how much inflation we get going forward.
|
| In my personal view, it would be stupid to hike to 10% since
| that will also cut off the needed supply response: this will
| decapitate energy, farm, and housing expansion while at the
| same time decimating all forms of wealth. But there is a
| possibility depending on how trigger happy the fed becomes.
|
| More likely than not, they raise rates, but it stays below
| the rate of inflation (3-5%), so anything that yields above
| that range is a good investment. Anything below would be
| protective.
|
| As for stocks, I'm looking at individual companies that are
| cheap with high cash flow that have macro tailwinds, but I'm
| still waiting. There are always bull markets inside of bears,
| but you have to look for them. Mind you, bear markets have
| vicious rally from time to time which fool people into
| getting an all clear signal. A bear markets job is to bleed
| everyones money dry, which is why I'd recommend people stay
| away until no one is interested in stocks anymore.
|
| You need complete despair.
| BigBubbleButt wrote:
| > In my personal view, it would be stupid to hike to 10%
| since that will also cut off the needed supply response:
| this will decapitate energy, farm, and housing expansion
| while at the same time decimating all forms of wealth. But
| there is a possibility depending on how trigger happy the
| fed becomes.
|
| The only reason Volcker managed to bring down inflation is
| because he was willing to actually do what needed to be
| done. If borrowing money is cheaper than inflation, why
| would anybody not just continue to borrow money
| indefinitely? The Federal Reserve can fight inflation or it
| can fight a recession; it cannot do both simultaneously.
|
| You have to decide which is a bigger problem: a recession,
| or inflation. The notion that you can walk a tight rope
| between the two is disconnected from reality. And while you
| continue to make inflation worse, you only make the
| inevitable recession worse. Tick tock.
|
| > You need complete despair.
|
| I agree. We are fucked.
| soared wrote:
| Unless you're retiring in the next 10 years, or planning on
| purchasing a house in the next few years, then just make your
| emergency fund a little bigger and hold on to your job.
| Follow your normal financial planning.
|
| You're not going to outplay market trends, and if you're
| young/middle aged then it doesn't matter any way.
| fny wrote:
| Yes it does. If you invested near the dot com peak or the
| japan peak, you still haven't made your money back.
|
| This notion of passive investing that has been pounded into
| peoples heads for years is complete bullshit and has only
| worked because there was always someone else ready to pay
| more for the same asset and because rates were perpetually
| held low. Some points to consider:
|
| (1) You have fewer millennials than baby boomers, as the
| baby boomers cash out from their vanguard accounts, who
| makes up for the difference?
|
| (2) If the S&P 500 contains companies built for a certain
| macro regime (low inflation, low interest rates), and the
| macro regime is shifting, you can be penalized by owning a
| set of assets that do not provide adequate returns (Tesla
| is currently the 5th largest weighting in the S&P, they
| don't pay you squat.)
|
| Go look at charts of the S&P 500 beyond the last 40 years
| when rates were more variable, you'll see the market can at
| times be a shit investment vehicle that might not give you
| a return by the time you retire and on an inflation
| adjusted basis has a negative return!
|
| Buy low, sell high. Save cash and be patient.
| thematrixturtle wrote:
| The obvious issue with the obvious plan is that you can
| only tell what's "high" and what's "low" in retrospect,
| and if you time your lump sum investment wrong (dot com
| peak, Japan peak etc), you end up negative for a long,
| long time. Whereas DCA or equivalent guarantees that you
| capture the ups as well as the downs.
| baxtr wrote:
| I've invested through bull and bear markets in the last 15
| years.
|
| I've always put most of my money into ETFs, mainly S&P500. It
| has served me well so far.
|
| Just be prepared to be down with your portfolio for some
| time.
| walleeee wrote:
| instead of pursuing speculative gains consider investing it
| in yourself or in your immediate locale or region, in the
| economic and ecological transformation we all sorely need
|
| devaluation of everything is a consequence of unsustainable
| economics and the fix is not to find a convenient hidey-hole
| for your money but to invest time, money and attention
| building a future sans witless speculation, profligate
| consumption, public and corporate unaccountability, and
| consumer monoculture
| ketzo wrote:
| I appreciate this comment. I think the way that it's
| written might drive off, say, a more traditional
| conservative -- but I think if rephrased, they would agree.
|
| "Spend time at your church, and spend money to invest in a
| local private school" would line up perfectly w/ 75% of
| Republicans that I know, (and, if I may assume your views,
| probably does _not_ line up with them); and yet I think it
| is a very similar line of thinking.
|
| I am trying to orientate the way that I spend my money and
| my time more towards my local community. It's surprisingly
| difficult. Not everyone does it. And we would be better off
| if they did!
| deepsun wrote:
| I've lived through hyper-inflation -- spend your money on
| anything or take loans/mortgage.
| unicornmama wrote:
| I would be very scared to hold Euros. Either CHF or USD, or a
| mix. It is paradoxically better to hold cash than to invest
| in equity, bonds or real estate.
| racked wrote:
| This is interesting. Can you elaborate a bit: - What do you
| expect to happen with EUR? - Why do you think USD or CHF
| are safer to hold than say, gold?
| jimmaswell wrote:
| Same as always, keep investing in a well-diversified spread.
| The stock market as a whole will always bounce back. That or
| society collapses and your numbers in a computer are
| worthless anyway.
|
| This is the first big downturn I've been prepared to invest
| in, so personally I'm going to buy more than usual. I see it
| as stocks being on sale.
| acover wrote:
| Why does it need to be collapse or all time highs?
| Stagnation and decay seem entirely possible. Negative real
| returns seem entirely possible when bonds had negative
| nominal returns.
| danhak wrote:
| > The stock market as a whole will always bounce back
|
| Japan is the common counterexample. It is entirely possible
| the stock market will stagnate in the future as the era of
| American economic hegemony comes to an end.
| mrits wrote:
| There are more signs that the American economic power is
| just really ramping up.
| danhak wrote:
| Like what for example?
| mrits wrote:
| For example, the fastest growing economy in my lifetime
| last year.
| danhak wrote:
| It's true that 2021 saw the highest rate of GDP growth in
| 30 years, but that came immediately after the largest GDP
| _decline_ in 30 years during 2020. So that can be
| explained as an aberration due to the pandemic shutdowns
| and subsequent rebound:
|
| https://www.statista.com/statistics/188165/annual-gdp-
| growth...
|
| At any rate, GDP growth is currently negative for 2022
| and China's economy is still projected to overtake the
| U.S. in a matter of years.
| hereforphone wrote:
| How long is your lifetime? Does it start with a 2 by any
| chance?
| plonk wrote:
| Sounds like the right time to buy stocks? Assets likely won't
| stay dead for the next forty years.
| lazide wrote:
| Real estate is going to be gutted - increasing mortgage rates
| (already have been happening) will decimate qualified buyers.
| Decreasing prices will further decimate those willing to Hail
| Mary with cash offers hoping to get something after years of
| frustration.
| gitfan86 wrote:
| This sounds a bit like doom and gloom. While I don't disagree,
| it is important to look at AMZN after the dot com bubble burst.
| Traders fled, but people who believed in the company did very
| well.
| MikePlacid wrote:
| > Traders fled, but people who believed in the company did
| very well.
|
| Yep, I did well, and I loved to show people AMZN stock price
| graph, like "can you identify the dot-com crash here?". But I
| believed in the company _then_. Big question is: should I
| believe in the AMZN _now_?
|
| Personally, I've stopped using Amazon when they started to
| support censorship - I've grown up in a totalitarian country
| and things likes censorship are revolting to me. I never
| suffered after leaving Amazon using Walmart for goods
| delivery and B&N for books. So Amazon is not unique and
| irreplaceable anymore.
|
| So, let's ask people who continue to use Amazon - how the
| company is doing these days? Do you think it will go on
| growing?
| unethical_ban wrote:
| I believe Amazon's retail business will remain on top, or
| highly competitive, for the foreseeable future.
|
| AWS, in my not-quite-amateur opinion, will remain dominant
| in the industry. The best IAM of the big three, incredible
| availability and they aren't undercut on price by their
| kitchen sink adversaries.
|
| Azure has Office and AD integrations, GCP has some ML
| advantages. But AWS is strong long term. They're peak IBM.
| gitfan86 wrote:
| Good questions. Can they maintain the high performance
| culture without large stock compensation?
|
| The best option I see following a similar path is TSLA.
| They currently have 2% of us auto sales. The energy
| business is tiny, AI/FSD is controversial, but if it works
| it will be worth a lot.
| jbay808 wrote:
| If you bought in at the 2000 peak, it took about ten years to
| break even, and you'd have to have kept holding it through
| the 2008 crisis when you might have been losing your house.
|
| Also, there were a lot of other companies that people
| believed in that didn't fare so well.
| docandrew wrote:
| Most people don't save a bunch of cash and then dump it all
| in the market at once, though. Continue to invest in
| diverse assets throughout downturns and you'll be fine.
| letmeoknmmm wrote:
| Remember, people that believed in pets.com or Enron got 0.
|
| You are being very optimistic to assume your pick is the one
| to not only survive but thrive.
| ALittleLight wrote:
| The problem is that there are many companies where, if you
| believed in them then, you would've done very poorly.
| docandrew wrote:
| So don't do that. Diversify.
| tootie wrote:
| It seems to me that with the pandemic ebbing, that the only
| systemic shock going on right now is the war in Ukraine. Russia
| can't sustain either its offensive or its separation from
| global fuel markets for very long without collapsing. Developed
| economies aren't sitting on giant piles of toxic assets or
| collapsing consumer demand and employment is still sky high. I
| don't see how this goes much beyond an asset correction. We've
| only seen companies floating on untenable valuations get hurt
| thus far and it seems unlikely that will be a contagion to the
| rest of the economy.
| lvl102 wrote:
| Speaking as someone who experienced both the dot-com crash and
| the financial crisis from ground zero, this feels nothing like
| them. I did not see widespread risk taking across the board. A
| lot of Gen Xers, such as myself, almost instinctively
| recognized current bubbles and either steered away from them or
| played them as such. People are also a lot more financially
| savvy. Even if people made leveraged bets, they leveraged with
| options instead of loans which meant they didn't lose more than
| what they committed. Sure, some parts of crpyto is very fluffy
| but I still don't think it is all that widespread.
|
| I think a lot of people calling for a great crash will be
| disappointed this time around.
| plonk wrote:
| Cryptocurrencies have huge market caps though. If they crash
| (like the Luna disaster last week), that has to have some
| kind of impact, right?
| lvl102 wrote:
| I really think it's insulated especially compared to the
| housing market collapse. This is because most banks will
| not take your crypto as 1:1 collateral whereas housing was
| perceived to be nearly risk-free. A big difference. I am
| not saying we are not in an asset bubble. But it would be a
| mistake to draw simplistic comparisons.
| cyberge99 wrote:
| We also had a previous US administration handing out cash like
| candy in the form of stimulus checks.
| lupire wrote:
| The only problem with that was not taxing the wealthy to
| shrink the money supply.
| CyanLite4 wrote:
| That was "only" a few hundred billion.
|
| It pales in comparison to the $9 trillion in QE over the past
| decade given to the largest banks.
| Aunche wrote:
| First of all, the entire stimulus was $4.5 trillion, and
| most of it was allocated to handouts. A lot of the handouts
| were necessary, like expanded unemployment, but others were
| complete wastes of money, e.g. giving checks to families
| making 6 figures or forgiving loans for billion dollar
| "small businesses."
|
| Second of all, QE isn't money given to the banks. When we
| have a deficit, the government sells bonds to banks.
| "Naturally" this would drive up interest rates for
| businesses because unlike the government, they can't issue
| an infinite number of IOUs and have to compete for a
| limited amount of liquidity. If interest rates rise too
| much, businesses will be forced to shut down, especially
| when people spend less money during a pandemic.
| Quantitative easing is a tool that allows the Fed to lower
| interest rates purchasing by these bonds back from the
| banks. The more debt the government issues, the more debt
| the Federal Reserve needs to purchase in order to lower
| interest rates. Basically, the root of the problem is that
| Congress is incapable of balancing a budget.
| ModernMech wrote:
| > but others were complete wastes of money, e.g. giving
| checks to families making 6 figures
|
| Remember that the cutoff for stimulus was from prior
| year's taxes. This means you could have been making 6
| figures in 2019, and then be making significantly less
| due to covid job loss or reduction when stimulus was
| handed out. As a matter of fact, stimulus helped my
| family greatly even though we made 6 figures in 2019. So
| following through on your claim would have meant my
| family suffering. YMMV.
| hackernewds wrote:
| That doesnt add up. An inordinate amount of money was
| printed in the last 2 years (up to 25% of the supply[1]
|
| [1] https://www.cityam.com/almost-a-fifth-of-all-us-
| dollars-were...
| zamalek wrote:
| And that's the true danger.
|
| > it's a huge danger once a populace learns it can vote
| itself money. Charles Munger [1]
|
| (This follows him saying that "inflation is how democracies
| die" and is followed by several historical examples)
|
| I know several committed voters of the previous
| administration and an almost universal complaint of the
| current administration is how their _personal_ wealth is
| being affected. We don't [yet] have a positive sum economy:
| in order for someone to win, someone has to lose. In the case
| of the previous administration, it's future generations.
|
| [1]: https://youtu.be/GNTczyGLdhc 3:26
| unicornmama wrote:
| In the hike case cash would not be wrecked. It is paradoxically
| a good position to hold cash. Consider this. When they hike
| rates you can roll very short term treasuries, and you can buy
| assets on the cheap.
| Apocryphon wrote:
| > even gold
|
| And for now, even crypto?
| shrimpx wrote:
| > there is a risk free alternative to stocks
|
| Really? 2.5% bonds in a 7% inflation environment is an
| attractive bargain?
|
| This part didn't compute:
|
| > Bonds will be wrecked [...] because it's actually a really
| good deal to buy bonds when they yield north of 10% (if we get
| there).
| mellavora wrote:
| bonds aren't currently yielding north of 10%. If they are
| currently at 2.5% (using your number, not to pick on you, but
| it is what I have at hand), then move to a 10% yield, the
| people who bought at 2.5% get a haircut.
| shrimpx wrote:
| Got it, thanks!
| freediver wrote:
| > that bond yields would never normalize. Now that they have,
| there is a risk free alternative to stocks.
|
| Treasury bond yields are 3%, inflation is 8.5%, so in real
| terms you are guaranteed to lose 5.5% annually if you hold
| bonds.
|
| Or basically instead of risk-free gain you are holding gain-
| free risk.
| antishatter wrote:
| I don't think you understand the purpose of treasury bonds as
| an asset.
| FollowingTheDao wrote:
| This is the truth. What people do not understand is that
| interest rates will have to rise above inflation for in
| inflation to slow down. I assume the FED is trying to figure
| out how much inflation is caused by the money supply and how
| much is caused by supply chain issues. But too me this means
| even more trouble because they are waiting when there was
| obvious asset inflation well before the supply chain issues.
|
| IMHO, we will not see a recession, we already are in a
| recession. What we will see a depression.
| mym1990 wrote:
| Can you explain why interest rates will HAVE to rise above
| inflation for it to slow down? CPI is already slowing down,
| although we have some very limited data points currently. A
| lot of inflation is driven by expectation, and raising
| interest rates is a way to tame those expectations for
| consumers, but I don't think the rates have to arbitrarily
| go above inflation to tamper it.
| nostrademons wrote:
| The Taylor rule gives the math behind it, but the
| layman's explanation is that as long as rates are lower
| than inflation, you turn a profit by borrowing money and
| buying a basket of assets, since their price will rise
| alongside inflation. This incentivizes people to borrow
| more money, which increases the money supply, which
| further exacerbates inflation.
|
| This is the first term 'p' in the Taylor rule, which
| corrects the nominal interest rate that the Fed sets into
| a real interest rate that accounts for inflation.
| [deleted]
| FollowingTheDao wrote:
| The Taylor Rule explains it
|
| https://www.investopedia.com/terms/t/taylorsrule.asp
|
| r = p + 0.5y + 0.5(p - 2) + 2
|
| Where:
|
| r = nominal fed funds rate p = the rate of inflation y =
| the percent deviation between current real GDP and the
| long-term linear trend in GDP
|
| As I said, the FED is betting that inflation is being
| caused by supply chain issues alone. This is obviously
| not true. It will get worse, so much worse, because the
| FED is in fact acting too slowly.
|
| https://www.chicagobooth.edu/review/what-makes-it-hard-
| contr...
|
| "interest rates sharply, and keep them high for several
| years, even if that causes a painful recession, as it did
| in the early 1980s in the United States, United Kingdom,
| and much of Europe. How much pain, and how deep of a dip,
| does it take to stop inflation and to keep inflation in
| check? The well-respected Taylor rule (named after my
| Hoover Institution colleague John B. Taylor) recommends
| that interest rates rise one-and-a-half times as much as
| inflation. So if inflation rises from 2 percent to 5
| percent, interest rates should rise by 4.5 percentage
| points. Add a baseline of 2 percent for the inflation
| target and 1 percent for the long-run real rate of
| interest, and the rule recommends a central-bank rate of
| 7.5 percent. If inflation accelerates further before
| central banks act, reining it in could require the 15
| percent interest rates of the early 1980s."
| lupire wrote:
| r = p + 0.5y + 0.5(p - 2) + 2
|
| = 1.5p + 0.5y + 1
| nostrademons wrote:
| The "2" is actually a parameter of the rule, and is the
| desired inflation target. OP is just hardcoding it in
| because the Fed's stated inflation target is 2%. If you
| leave it parameterized you can't simplify the equation
| further, as the 0.5 distributes over the desired
| inflation target parameter as well.
|
| For that matter, the 0.5 is also a parameter, and is
| basically saying "Weight the goals of full employment and
| stable prices equally." If, say, you wanted to weight Fed
| policy 80% toward controlling inflation (to a target of
| 2%) and 20% toward maximizing employment, the equation
| would be r = p + 0.2y + 0.8(p - 2) + 2.
| mym1990 wrote:
| "During periods of stagnant economic growth and high
| inflation, such as stagflation, the Taylor rule provides
| little guidance to policy makers, since the terms of the
| equation then tend to cancel each other out"
|
| Although I wouldn't go as far as to say we are in
| stagflation, it seems like the current environment
| wouldn't be an optimal place to use the rule. Ultimately
| I think the Fed took a view and have stuck with that, for
| better or for worse, and they are valuing consistency
| over diverging economic models.
| abirch wrote:
| The good news is the US Government doesn't have to pay back
| 5.5% of its debt. Unfortunately the spending keeps
| increasing.
| hackernewds wrote:
| Yet the government keep spending like debt isn't high ($40B
| to Ukraine aid) and ignoring causes of inflation for
| political gain (Biden tweeted: it's time to for
| corporations to pay their share to bring down inflation)
| abirch wrote:
| I'm not a Bezos fan in general but his response to
| Biden's tweet was spot on.
|
| https://www.twitter.com/JeffBezos/status/1525309091970699
| 265
| thawaya3113 wrote:
| I disagree with Biden's tweet and Bezos's tweet.
|
| I personally believe that the vast majority of the
| inflation we are seeing today has nothing to do with
| government debt/deficits, so the government reducing its
| deficit will have minimal impact on inflation.
|
| However, a lot of people do believe, or at least claim to
| believe, that inflation is almost entirely being driven
| by government deficits, in which case corporations paying
| more in taxes would certainly have an impact on
| inflation, so tying the two together is certainly not
| misinformation, and if this view is correct, then it will
| reduce inflation.
| abirch wrote:
| What was wrong with Bezos's tweet? Biden's was just
| wrong.
| nradov wrote:
| The longer term TIPS have positive yield in real terms.
|
| https://home.treasury.gov/policy-issues/financing-the-
| govern...
| staticman2 wrote:
| You are comparing treasury rates a bond will pay out over the
| next 10 years with inflation over the last year. This is
| apples and oranges.
| shrimpx wrote:
| There isn't any scenario right now that makes it attractive
| to lock your money for 10+ years into 3% yields.
| freediver wrote:
| You are right, inflation may get worse ;)
| riku_iki wrote:
| there should be factors which drive it. For last year
| such factors are:
|
| - increased min wage
|
| - supply chain disruptions
|
| - China lockdowns: less goods on the market -> higher
| prices
|
| - increased price on commodities and energy
|
| All of this already included into current good prices, so
| there should be something more to push farther inflation.
| nostrademons wrote:
| The supply chain disruptions get worse as the China
| lockdowns and commodity prices make their way through the
| economy.
|
| When you have a supply shock on raw inputs, it takes time
| for that to make its way through the economy. Businesses
| along the way keep inventory, they've locked in forward
| contracts, they can eat the cost increases to avoid
| losing market share until they're sure the price
| increases are persistent. But eventually they realize
| that everyone else in the industry is facing similar
| price increases and they'll go out of business if they
| don't, so they raise their prices too. This eventually
| propagates down the supply chain as inventory runs out
| and new contracts are negotiated. The price increases of
| late 2021 were triggered by the initial shock of March
| 2020. The Ukraine war & China lockdown shocks of early
| 2022 aren't going to be seen until about 2024.
|
| By the time businesses have adapted to this round of
| shocks, we may be dealing with new shocks like a war in
| Europe or the retirement of baby boomers.
| riku_iki wrote:
| > The price increases of late 2021 were triggered by the
| initial shock of March 2020
|
| It was the biggest shock: panic lockdowns across the
| world, not just initial. Chances are that supply chains
| have been adapted, and current localized lockdowns in
| China will not make significant damage. But we will see.
| nostrademons wrote:
| Assuming you're expecting inflation to moderate over 10
| years.
|
| I think people who expect we're going to go back to pre-
| pandemic supply chains are vastly underestimating the
| difficulty of bringing a complex system like the economy up
| from a cold start. In my experience with complex systems
| that are _much_ less complex than the economy (merely a few
| hundred million lines of code), _it can 't be done_. You
| have to incrementally build a new system and then cut over
| parts of old system as their replacements start to function
| better than the old degraded experience.
|
| This'll likely take a decade or two. Expect it to be a good
| decade for startups as changing relative prices make new
| business models viable against soaring existing prices.
| It's going to be very bad for consumers and for incumbents,
| though.
| newaccount2021 wrote:
| jqgatsby wrote:
| your point cannot be overstated. my biggest fears around
| the pandemic shutdowns came from my own experience
| managing production systems, and I think our policymakers
| were frighteningly naive as to what it meant to shut down
| the economy. and here we are.
| staticman2 wrote:
| The 10 year breakeven inflation rate is less than 3
| percent.
|
| Is it a perfect estimate of inflation? No.
|
| But I would trust it more than hot takes from non
| experts.
| nostrademons wrote:
| Luckily, this is completely tradable, so if you believe
| that inflation is going to average 3% over the next 10
| years you can buy all those treasuries and I can short
| all those treasuries and one of us will be rich and the
| other broke. Events will tell who is who.
| staticman2 wrote:
| Nobody buys treasuries to get rich.
| [deleted]
| tenpies wrote:
| I don't think there's even going back to pre-pandemic
| supply chains solely because how the West's cancel
| culture effectively ended globalization when Russia
| invaded Ukraine.
|
| There will be no global supply chain any more. Any
| country with a brain now knows they have to be completely
| independent of the West in every aspect. Sovereign assets
| must be within their borders. Currency reserves? Held at
| domestic banks as much as possible. Even within the West
| there needs to be some level of distrust because history
| shows that there are no perpetual alliances.
|
| We are going to have several hundred supply chains that
| often don't interact, even if it would make economic
| sense for them to do so. This is tremendously
| inflationary and it's only just begun.
| idiotsecant wrote:
| I guess economic sanctions against belligerent aggressor
| nations is also 'cancel culture' now. Is that another one
| of those terms that is just slowly morphing to mean
| 'thing I don't like'?
| [deleted]
| bjt wrote:
| Let's save the term "cancel culture" for people getting
| fired over a tweet.
|
| Economic sanctions in response to invading another
| country is a very different thing, and not a new thing.
| nradov wrote:
| There will still be global supply chains outside of the
| pariah states. But purchasing will be diversified across
| more sources so as to mitigate the risks of disruption
| from politics, violence, natural disasters, pandemics,
| etc. This will be a more stable and resilient system, but
| it will be less efficient (Ricardo's Law of Comparative
| Advantage), and the average rate of economic growth will
| slow down.
| lupire wrote:
| Diversification doesn't happen, because even if it's
| globally optimal, not locally optimal for individual
| decision makers.
| nostrademons wrote:
| I'll go even further: de-globalization pits governments
| (who want to become independent of other nation-states)
| against their people (who have benefitted from cheap
| goods, and will have to deal with the inflation). The
| likely outcome is that at least some of those governments
| are going to fall, and the nation-state system is likely
| to collapse.
|
| Unfortunately this by itself isn't good for
| globalization, because it relies upon free trade, stable
| legal systems, and secure supply lines to work. So even
| if you get rid of the governments that seek to detach
| from the world economy, the goods can't get to consumers
| when they get intercepted by warlords.
|
| I think that eventually the world may converge upon city-
| states as a cultural unit and corporate feudalism as an
| economic one, but it's likely to be an exceptionally
| bloody transition.
| ethbr0 wrote:
| Standing in the way of corporate or city-state primacy is
| the hyper-efficiency of the modern global economy.
|
| Bearing the cost of ones own defense and foreign policy,
| instead of outsourcing it to your host government, is
| incredibly inefficient and leaves you open to price
| competition from your government-sheltered peers.
|
| That's the entire reason the global economy of politcal-
| economic alliances and trade policies was created: to
| benefit from global, lower-cost manufacturing while still
| retaining the benefit of government protection.
|
| It seems more likely we'll revert to a multi-polar late-
| Cold War state of affairs, with global supply chains much
| more influenced by current military alliances.
| politician wrote:
| Defense economics will prevent this transition to city-
| states from happening.
| nostrademons wrote:
| I would've agreed with you until about 5 years ago. The
| reason I disagree with you now is because technology and
| methods of war-fighting have changed.
|
| Emerging defense technologies like drones, lasers,
| robots, micro-scale manufacturing, and self-driving
| vehicles - along with the latest generation of existing
| weaponry like MANPADS and anti-tank missiles - all
| preference the defender. They allow a group of relatively
| untrained and loosely organized defenders who know the
| terrain well to deploy extremely effective resistance
| against an attacker, _as long as it 's at short range_. A
| drone swarm can quite literally destroy all hostile
| forces within an area without risking a single person,
| but it can't do this beyond say 100 miles out. These
| technologies are all for defense, not power-projection.
|
| This has a similar effect as the development of the
| musket in the 1500s. The musket allowed relatively
| untrained militias to enjoy superior firepower over the
| knights and longbowmen that had trained professionally
| their whole lives. As a result, smaller city-states and
| colonies could defend themselves against the large
| standing armies that kings and emperors could wield, and
| so the feudal system collapsed. This reversed with rifles
| (their greater accuracy benefitted from more professional
| training) and modern armor & explosives (which required
| an industrial base and supply chain greater than any city
| could muster), ushering in the era of nation-states.
| Military technology is changing again, and that's why I
| believe the nation-state system is again going to revert
| to smaller decentralized units.
| karpierz wrote:
| > Emerging defense technologies like drones, lasers,
| robots, micro-scale manufacturing, and self-driving
| vehicles - along with the latest generation of existing
| weaponry like MANPADS and anti-tank missiles - all
| preference the defender.
|
| > They allow a group of relatively untrained and loosely
| organized defenders who know the terrain well to deploy
| extremely effective resistance against an attacker, as
| long as it's at short range. A drone swarm can quite
| literally destroy all hostile forces within an area
| without risking a single person, but it can't do this
| beyond say 100 miles out.
|
| We already have this "drone swarm", we just call it a
| guided missile.
|
| The hard part in fighting a modern army isn't killing
| them, it's finding them. The defender is inherently at a
| disadvantage in this regard because they have things to
| defend, which necessitate that they're position in the
| vicinity. Russia is struggling at the moment not because
| defenders are inherently advantaged but because they're
| relying on conscripts and relatively untrained soldiers.
|
| > The musket allowed relatively untrained militias to
| enjoy superior firepower over the knights and longbowmen
| that had trained professionally their whole lives. As a
| result, smaller city-states and colonies could defend
| themselves against the large standing armies that kings
| and emperors could wield, and so the feudal system
| collapsed.
|
| The exact opposite of what you're describing happened
| with the wide utilization of gunpowder. Pre-gunpowder,
| city-states and small kingdoms enjoyed relative
| independence due to the sheer expense of penetrating
| walls. Post-gunpowder, artillery (not rifles) required a
| whole professional organization to be utilized
| effectively, and formed the backbone of the army, so
| small states could no longer field or effectively defend
| against larger states, leading to increased
| centralization of authority, well before the creation of
| nation-states. "Makers of Modern Strategy from
| Machiavelli to the Nuclear Age" covers this transition
| pretty extensively.
| gonzo wrote:
| > Russia is struggling at the moment not because
| defenders are inherently advantaged but because they're
| relying on conscripts and relatively untrained soldiers.
|
| Yes; this, and all of NATO is assisting Ukraine with G-2
| (intelligence) and G-4 (logistics).
| eruleman wrote:
| Great synopsis of the trends in military technology. Very
| much in line with The Sovereign Individual, which states
| that the logic of violence determines the structure of
| society.
| chrisco255 wrote:
| Risk-free loss? But maybe it's better than cash, the only
| other risk-free alternative? Perhaps you're paying for
| preservation of capital as the asset bubble deflates, and
| maybe that's not a bad deal?
| tempsy wrote:
| you can buy $10k in inflation protected bonds a year per
| person or $15k if you buy via a tax refund
| hackernewds wrote:
| The current returns is at 9.6%
| BolexNOLA wrote:
| If inflation somehow keeps rocking at 8.5% for a decade
| straight we have a much bigger problem on our hands than the
| relative yield of a treasury bond. Technically anything is
| possible...but I'm willing to risk saying that won't happen.
| nostrademons wrote:
| https://en.wikipedia.org/wiki/Appeal_to_consequences
|
| I'd say that yes, we have a much bigger problem on our
| hands than the relative yield of a treasury bond.
| BolexNOLA wrote:
| I get what you are saying but the point of my comment -
| and I see why it didn't come off this way - is that it
| won't be 8.5% for a decade, so no, buying a treasury bond
| is not -5.5%. To emphasize this point, I said we'd have a
| lot worse problems because for it to be true the US would
| be experiencing an unprecedented economic catastrophe.
| runeks wrote:
| > 1. We had zero percent interest rates. This causes the value
| of assets with cash flows out into the future (think
| speculative tech, Tesla) to accelerate.
|
| You're on to an important point, but your statement is
| inaccurate. Firstly, it's a _fall_ in the rate of interest that
| is equivalent to a _rise_ in the present value of a future cash
| flow. And vice versa. Notice this has nothing to do with "high"
| or "low" interest rates (whatever that means, exactly), but a
| _change_ in the rate of interest. Secondly, this is not related
| to speculative stocks. _All_ companies with an expected future
| income are affected by this, ie. almost all companies in
| existence.
| cup_of_joe wrote:
| "If inflation continues and the fed becomes aggressive with
| hiking, all assets are dead."
|
| This sounds incredibly short-term-oriented and alarmist. Dead
| is a word to describe the end of something's existence.
|
| Market turbulence is not a novel occurrence, nor are
| unsustainably inflated economies driven by cheap money and
| speculation.
| fny wrote:
| At 10% rates I think the fair value of the S&P becomes
| something like 2000 assuming the same earnings. High yield
| rates would moon and tons of bankruptcies would ensue.
| Consider how heavily pensions and retirement accounts are
| concentrated in stocks.
|
| The ramifications of reaching a point like that would be
| devastating, so yes, I think dead is not alarmist but
| appropriate.
| draw_down wrote:
| Vaslo wrote:
| While your points are very solid, the first point may be
| overweighted. I can see why some naive in stocks may weight
| lower on lower rates, i can tell you as someone in corp finance
| we never adjusted our risk rates (weighted average cost of
| capital) below 12% (which is what they have been 5-7 years ago.
| These types of downturns are modeled in. Yes there are some
| cowboys that aggressively drop these rates, but it's very
| risky. We are seeing some folks suffer now because of this and
| more soon for sure.
| zby wrote:
| If they hike the rates too much then debt servicing would be
| costly. This is different from 1980, because back then US gov
| debt was about 30% of GDP and now it is 120% of GDP
| (https://fred.stlouisfed.org/series/GFDEGDQ188S#0)
|
| What are the realistic values here? I have no clue, but a good
| analysis should cover this.
| credit_guy wrote:
| > If they hike the rates too much then debt servicing would
| be costly.
|
| The Fed doesn't care about the cost of servicing the debt.
| That's the US Treasury's job. By law, the Fed has the dual
| mandate to keep both inflation and unemployment low. That's
| it. Nothing to do with the cost of servicing the Government
| debt.
|
| If the interest on the Government debt becomes too high,
| nobody will point the finger at the Fed. If however inflation
| is high (like now) or unemployment high, you can start
| hearing people accusing the Fed of gross negligence. In the
| extreme, the Chairman of the Fed may be sacked, then brought
| in front of various Congressional investigations, and may
| even find himself in contempt, or some other very unpleasant
| situation.
|
| Bottom line: the Fed really cares about inflation, and
| doesn't give a damn about debt servicing.
| fny wrote:
| I don't buy this argument. There are good arguments to the
| contrary which Jerome can bring up and has at previous
| hearings.
|
| Say demand quiets but the price of inelastic goods (gas and
| food) continues to skyrocket due to greater demand from
| developing nations who demand more resources to have a
| better standard of living. How will hiking to 10% fix
| anything?
|
| Sure you'll kill demand, but you'll also kill financing
| supply which will only exacerbates the issue over the long
| run. We need more drilling, more refining, more farming now
| that Russia is out of the picture and the Saudis are
| playing games.
|
| Hiking too far is actually a horrible policy choice, and
| Powell can make a cogent argument about it: he already has
| mentioned this in hearings. You can't address supply
| related constraints with higher rates. At some point, they
| might justify capping rates to finance the needed supply,
| and that argument smells like the yield curve control of
| the 1940s. I suspect this argument will become more
| palatable if we have high unemployment and high inflation.
| [0]
|
| I have a feeling whatever policy rate they pick will aim to
| be slightly sub neutral (negative real rates) as they pray
| inflation resolves itself, while constantly pointing out
| they have no control over whether Brazil has a successful
| wheat harvest.
|
| [0]:
| https://libertystreeteconomics.newyorkfed.org/2020/04/how-
| th...
| xchaotic wrote:
| I actually agree that hiking too high is a very poor
| policy choice for a number of reasons but for your
| example of fuel, if you kill the demand for it, the price
| will not skyrocket. On the other hand, however this would
| also mean that the economy as a whole is dead so again
| not the best policy choice (but it is likely to rein in
| inflation)
| [deleted]
| kyrra wrote:
| This is one one of the ways to fix the economy in times like
| this requires congress to reign in spending. It's not just on
| the Fed to try to fix things, both sides of the equation need
| fixing.
| ddjsn111 wrote:
| Zzz
| Barrera wrote:
| > In the early 80s, the G7 economies tightened the money supply,
| raising interest rates dramatically, in an effort to bring
| inflation under control. You can see the effect in this image:
|
| It's fascinating how much attention the Federal Reserve gets when
| it comes to the business cycle. It's not clear what's being
| referenced above, but the reference to the Fed funds rate chart
| below suggests it's "the Fed" and company.
|
| It's possible, though, that the Fed is irrelevant.
|
| Have a look at a different interest rate chart: the 30-year
| Treasury yield (10-year chart looks similar). This is the risk-
| free price of money that comes due in 30 years [zoom out by
| clicking "max"]. Given the three-decade duration, this is about
| as close as one can get to answering the question: what is the
| economy likely to look like if the Fed didn't matter? This market
| is giving a peek into the relative level of growth and inflation
| expectation in the distant future.
|
| https://fred.stlouisfed.org/series/DGS30
|
| The chart peaks around 1981 and from there it's a fully-loaded
| train barreling down the hill without a brake and only hitting
| the occasional bump along the way. Through recession (grey bands)
| and recoveries (after the grey bands), through manias (1999-2000,
| 2006-2007, 2020-?) this long-term rate sets lower highs and lower
| lows, year after year.
|
| During all this time, the Fed is doing its thing, pumping up the
| idea that it controls "the money supply" and it alone can fight
| inflation or get the economy out of recession.
|
| That is, until this year. Depending on how you look at it, the
| top of the long-term trend line may have been broken this year,
| or just barely touched. In other words, this chart sits at a
| possible inflection point marking either the beginning of a new
| regeime (much higher interest rates) or reversion to the status
| quo (much lower and likely negative interest rates).
|
| The point of all of this is that if the Fed were indeed the
| center of the financial universe, is this the kind of chart you'd
| expect to see? What factor(s) in the real economy are capable of
| producing a chart like that, independent of the Fed? Finally,
| what happens when/if this chart crosses the x-axis, or breaks
| decisively above trend?
| andsoitis wrote:
| > Markets have already corrected and I think that public tech
| stocks have already seen most of the damage they are going to
| see.
|
| but then (and in the very next sentence no less):
|
| > I don't know if we have hit bottom
| autophagian wrote:
| I'm not seeing the contradiction there? "Most of the damage"
| suggests some still to come.
| [deleted]
| andsoitis wrote:
| "the markets have already corrected" is conventionally
| understood to mean it has bottomed.
| [deleted]
| herf wrote:
| I agree we are working through an asset bubble in tech and
| housing - P/E's went quite a ways above the historical line, as
| did housing prices.
|
| But think about the chip shortage (automotive, consumer
| electronics) - raising interest rates does not "fix" supply and
| make prices lower. Think about oil & gas markets. Think about
| labor shortages.
|
| When supply is broken, it's not only a monetary policy problem.
| Most of these things are "U-shaped" and not "V-shaped" - they
| will take longer to come back.
| jeffbee wrote:
| Housing is not a bubble, at least not in the U.S.A. The prices
| are supported by a fundamental shortage of the product. It is
| not driven by speculation but demographic pressure.
| jbay808 wrote:
| A bubble can still form on the back of strong fundamental
| growth trends. To the extent that people have convinced
| themselves that housing _can 't_ be a bubble because
| demographics are in its favour, they may also be willing to
| buy in at any price, and thereby _make_ a bubble.
| gedy wrote:
| I heard the same thing in the last housing bubble before 2008
| jeffbee wrote:
| Really? It was obviously not true back then and is
| obviously true now. Housing starts hit nearly an all-time
| record high in the U.S. in January 2006. But then housing
| starts almost hit zero in 2009, and have never recovered.
| kgwgk wrote:
| > housing starts almost hit zero in 2009, and have never
| recovered
|
| 'Have never recovered' can be misunderstood as if they
| were still 'almost zero' (which is also a bit of an
| exageration).
| mikebenfield wrote:
| The reason there's a housing shortage is that almost all US
| cities have insanely terrible urban planning and zoning
| policies. There's no guarantee this will continue forever. In
| fact, I see quite a bit of evidence that Americans are
| gradually waking up to the fact it's possible to have decent,
| livable cities if you don't do everything completely
| backwards.
|
| So, for instance, I think it's actually possible (not
| guaranteed) a substantial amount of housing will be built in
| the Bay Area in the next 10 years, which will decrease the
| willingness of people to pay $2M for a generic small house in
| a suburb.
| electrondood wrote:
| I think there's been quite a lot of speculation in RE,
| actually. With rates so stupidly low, people have been
| purchasing rental properties as the only other investment
| besides stocks that made any sense in the last 2 years.
| symlinkk wrote:
| The "chip shortage" was fake. The actual issue was inflation
| since the start.
| rowanajmarshall wrote:
| I can't speak for it's relation to inflation, but have you
| _tried_ getting a new mid-range mirrorless camera or other
| similar electronic consumer good? Chip shortage is real.
| klysm wrote:
| The shortage was very much not fake, or I'm misinterpreting
| your meaning.
| SV_BubbleTime wrote:
| >The "chip shortage" was fake. The actual issue was inflation
| since the start.
|
| Whew. Good new for me then! I guess I'm not 99 weeks out on a
| required part anymore.
| polynomial wrote:
| 99 weeks out?? :::jaw on floor:::
| idiotsecant wrote:
| Don't worry, it's just the default value in the ordering
| system for 'we have no idea, probably never'
| giaour wrote:
| Could you elaborate? I'd love to read some analysis on this,
| but just claiming the whole shortage was fake has some real
| "no trees on flat earth" energy.
| mhmmbt wrote:
| mym1990 wrote:
| My view is that capital and investment will dry up and companies
| that are operating at a loss(many in tech right now) will either
| have to downsize or close up completely. This will cause a domino
| effect. People will lose jobs, and some of those people will have
| bought a million dollar shack in the past 2 years and they might
| have to sell at a loss or foreclose. Generally I think we have
| yet to see any real macroeconomic fallout from the markets
| cooling. I see many people already comparing this to '08 and
| saying 'it's definitely not that bad this time' but the reality
| is we haven't even seen any fallout yet.
| ripper1138 wrote:
| That could be true but the impact would still be limited
| compared to 2008. Credit/bank failures are far worse for the
| general economy than some tech startups failing.
| sebmellen wrote:
| I'm not 100% sure of that. Think of how many services depend
| on tech, and how much of that tech is built by companies
| operating at a loss.
|
| For example, if Cloudflare were to do mass layoffs, and
| potentially fail/go bankrupt, what would the ripple effects
| be on enterprises throughout the US?
| cjbgkagh wrote:
| I wonder how many profit making companies are only making
| profits due to lost making customers. Things could spiral out
| of hand.
| thawaya3113 wrote:
| Nearly all of Alphabet and Meta's profits are not from
| customers paying them to use their product, but advertisers
| who are trying to convince FB/GOOG customers to use their
| products.
|
| If those companies start disappearing, or cutting back on ad
| budgets, FB/GOOG don't have a business model anymore.
| CaveTech wrote:
| Unless the recession is large enough to end the concept of
| commerce, advertising is not going anywhere.
|
| People will continue to buy things, it's just that what
| those things are may shift.
| razmooo wrote:
| People will only continue to buy things, if they have a
| job and some spendable income.
| golergka wrote:
| Most of these advertisers are not VC-backed unprofitable
| companies who are selling dollars for 99 cents, but the
| boring, ordinary companies who manufacture stuff, ship it
| from China and make boring, ordinary profit margins. They
| are not going to be hit harder than the rest of the
| economy; probably, less.
| kache_ wrote:
| what's the most expensive SaaS that other SaaS use out there?
| The first one to go? I'm thinking distributed tracing companies
| are going to get pwn'd
| moneywoes wrote:
| workflow management like Asana , Atalassian?
| kfarr wrote:
| AWS & Salesforce are among the most expensive for saas, those
| aren't going anywhere
| kache_ wrote:
| Yeah, I'm thinking "not mission critical" or "could save a
| few million by running some shitty OSS system that works
| well enough"
| chmod600 wrote:
| How does all this look to the federal government and deficit
| spending?
|
| What happens when they can't borrow money at near-zero any more,
| and need to borrow more money at 5-10%?
|
| Everyone always said the debt was nothing to worry about. It's
| been repeated for a long time as our debt keeps rising, but it
| was most apparent with the recent spending bills and virtually no
| pushback on trillions in unfunded spending.
| jazzythom wrote:
| flyinglizard wrote:
| What will VCs do with their mega funds raised during the recent
| boom? Sit out for 18 months?
| htrp wrote:
| usually it's saved to bail out their existing investments in
| down rounds....
| antishatter wrote:
| Tightening hasn't started yet so we are clear.
| tempsy wrote:
| The shock from the Target and Walmart earnings that caused the
| single largest drop since the 80s for both companies was not just
| the pain of inflation that is adding to their costs but also from
| rising inventories because consumers seem to be already
| sacrificing discretionary purchases.
|
| Will be interesting to see if discretionary spend continues to
| meaningfully drop and whether we will actually start seeing price
| cuts/discounts eg deflation as retailers look to reduce
| inventory.
| mdorazio wrote:
| From reading their investor statements it was more complicated
| than that. They overpurchased inventory of goods that saw
| lowering demand as people started going back to the office or
| spending money elsewhere as pandemic restrictions lifted. Ex.
| People shifted discretionary expenditures from TVs to
| vacations. Given how tight the labor market is I don't think
| we've really seen the impact of overall lower discretionary
| spending yet - that probably won't play out until this coming
| holiday season.
| 55555 wrote:
| I can't speak for Walmart and Target, but the COVID supply
| chain disruptions caused my business and likely many others to
| over-invest in inventory because it takes longer to restock,
| and the inventory will sell at slimmer margins because I paid
| 2X+ the normal shipping rate to get it to the destination
| country. Many businesses are sitting on large amounts of
| inventory that can barely be sold at a profit. Now
| discretionary income is dropping, meaning demand and price
| points will fall. We have too much landed inventory we paid too
| much for and less people spending less to buy it. It's not
| pretty.
| electrondood wrote:
| Exactly. Inventory is high because companies looked at the
| supply chain shutdown and thought "I'll load on up extra
| inventory, to hedge in case this happens again."
|
| Those prices are going to come down to entice the consumers
| scared off by inflation.
| Animats wrote:
| What if the COVID epidemic doesn't end in this decade? The US
| continues to have about half a million dead per year, and a lot
| of lost productivity due to long COVID. This is the most likely
| scenario.
|
| What if the war in Europe doesn't end in this decade? The
| optimistic scenario is that Russia bites off some of Ukraine and
| we go back to a cold war, with everybody in Europe building up
| serious military power to keep Russian expansion at bay. There
| are worse outcomes.
|
| What if global warming starts to produce mass starvation in many
| areas of the world? This is looking likely, and it's already
| started.
|
| What if supply chain problems don't go away? It's become clear
| that the incentives of the free market no longer insure abundance
| across the board. Americans could once deride the USSR's "short-
| blanket economy", where stores were always out of something. Now
| that's the norm in America.
|
| For the past half century, large scale trouble in the US has been
| mostly about the business cycle. But this time, the business
| cycle doesn't dominate the other problems.
| ajsnigrutin wrote:
| Covid is over, the excess deaths are low, or even zero. War in
| ukraine would be a nothingburger if americans were involved
| (like noone cares about yemen, syria, now somalia, and noone
| cared about afghanistan, iraq, and even serbia).
|
| Most of the current problems that we have are caused by the
| politicians directly, and not by covid/war/whatever, and sadly,
| they're the first that will have to go, if we want to return to
| somewhat normal future.
| wonderwonder wrote:
| Not sure you are correct here. Ukraine war is in Europe,
| America's sphere of influence and features America's
| traditional enemy. America was involved in Afghanistan and
| Iraq which you claimed no one cared about. Russia and Ukraine
| produce a significant portion of the worlds food, energy and
| fertilizer supply.
|
| The current situations are caused by politicians but
| politicians from dozens of countries. Politicians chose to
| invade Ukraine. Politicians financed the making of vaccines
| which provided enough confidence for economies to open up
| again. Politicians chose China's zero covid policy.
| Politicians flooded the market with money which led to
| inflation but also prevented a collapse during covid and
| allowed the poorest among us to survive. Politicians do both
| good and cause harm. They also provide representation,
| without them your other options are dictatorships or anarchy.
|
| "they're the first that will have to go, if we want to return
| to somewhat normal future." how are you suggesting they "go"?
|
| This is a normal future, there is very little going on right
| now that has not happened a dozen times before, its just
| people doing people things.
| ajsnigrutin wrote:
| > Ukraine war is in Europe
|
| so what... A country has a minority, minority wants to
| separate, the main country won't let them, and fights
| happen between the main country and the minority, a big
| player steps in and destroys the main country to "save the
| minority" (and gain whatever their geopolitical interest
| was). Kosovo, ukraine, same shit, different players.
|
| > The current situations are caused by politicians but
| politicians from dozens of countries. Politicians chose to
| invade Ukraine. Politicians financed the making of vaccines
| which provided enough confidence for economies to open up
| again. Politicians chose China's zero covid policy.
| Politicians flooded the market with money which led to
| inflation but also prevented a collapse during covid and
| allowed the poorest among us to survive. Politicians do
| both good and cause harm. They also provide representation,
| without them your other options are dictatorships or
| anarchy.
|
| Meh... you need just one large country to succeed in their
| "revolution" (or whatever it will be called), by pulling
| their politicians out from their high security buildings
| and removing them from power one way or another, a few more
| will follow, and the rest will get scared and start
| actually doing something good for the people. The hypocricy
| we've seen during the covid era should not ever be
| forgotten, and the human rights violations neither. Let's
| also not forget the people who fly to Brussles twice per
| week in private government planes and tell their people not
| to drive cars due to ecology.
|
| > "they're the first that will have to go, if we want to
| return to somewhat normal future." how are you suggesting
| they "go"?
|
| In serbia people stormed the government buildings until
| milosevic stepped down. In france, they used a bit
| stronger, headless approach. It all depends on what works.
|
| > This is a normal future, there is very little going on
| right now that has not happened a dozen times before, its
| just people doing people things.
|
| Not really... in the past, the politicians were "removed"
| one way or another many many times,... this current
| peaceful era is more of an anomaly.
| pm90 wrote:
| Literally nothing in this comment is true.
| shrimp_emoji wrote:
| Literally everything in this comment is true.
| anm89 wrote:
| This isn't a particularly insightful call to make in May 2022,
| we're already deep into this process.
|
| A year ago or even 6 months ago I would have said this was pretty
| insightful if you had called it while everything was still moving
| up
| cryptica wrote:
| Global economic problems were not caused by COVID19; it was just
| a convenient opportunity deflect blame away from more fundamental
| issues. One of the main real problems is that a decade of near 0%
| interest rates had led to money printing on such a scale that
| certain activities which would otherwise not have been profitable
| were able to be profitable (in nominal fiat terms)... But while
| these activities were reaping high nominal revenues and profits,
| they were destroying real value from the economy.
|
| Eventually, the situation became clear to some people at the top
| but by that point it was too late to prevent a catastrophic
| economic crash, so when they heard about COVID19, they pressured
| politicians to respond aggressively with lockdowns; that way the
| virus could serve as a convenient scapegoat for the crash and as
| a justification for massive fiscal stimulus to allow the elites
| to quickly cash out of their investments... The elites knew that
| after 2008, their reputations couldn't take another beating. They
| couldn't let themselves take the blame again.
|
| The unfortunate reality is that the COVID19 fiscal stimulus
| didn't solve any problem at all for the average person; it was
| purely a money-printing scheme to allow the elites to cash out by
| appropriating the wealth of regular citizens via the dilution of
| the value of their employment contracts and fiat-denominated
| savings.
|
| The inflation we are experiencing now is a direct result of the
| elites' appropriation of public funds from the money printers.
|
| Now we are facing some significant problems; after a decade of
| living in a parallel monetary universe in which irrationality,
| recklessness and negligence is rewarded, we have collectively
| lost our common sense. Our ideas about business, success,
| startups, finance, the economy, politics, everything is all
| wrong. For 10+ years, we trained ourselves to function in a
| totally dysfunctional environment and learned all kinds of
| lessons which only make sense in the context of that dysfunction.
|
| As we head into a more contractionary monetary environment, we
| have to unlearn everything and re-evaluate all business
| relationships; we have to disregard people's past financial track
| records (since they are meaningless in the context of a
| functioning system). In fact, it seems unlikely that someone who
| is particularly successful in the context of a dysfunctional
| system would also be successful in the context of a functional
| system... It's a totally different skillset.
| tome wrote:
| > it was purely a money-printing scheme to allow the elites to
| cash out
|
| What did the elites cash out to?
| ModernMech wrote:
| > For 10+ years, we trained ourselves to function in a totally
| dysfunctional environment and learned all kinds of lessons
| which only make sense in the context of that dysfunction.
|
| For me, cryptocurrencies and Web 3.0 are the culmination and
| perfect distillation of this whole era. Interested to see how
| they weather this storm. I heard a commercial the other day
| which stated along the lines "have you ever wished you could
| invest your retirement account in crypto? Well now you can!"
| That's when I knew the shark has officially been jumped.
| jokestir wrote:
| Do not forget the influencers.
|
| I know 16yr olds with zero coding skills earning 100k+
| annually. All they do is peddle web3 APIs on twitter.
|
| We live in a bizarre world.
| ModernMech wrote:
| tl;dr - just a rant. you're not missing anything.
|
| And it all comes back to the fact that has been true since
| 2003 that Google earns 90% of its revenue on ads, and
| despite decades of trying at this point they still can't
| figure out how to move past that.
|
| I mean, I think they've improved a bit, I've seen the
| number 70%, but still; a company as innovative as Google
| should be making money from innovations, not selling ads.
| Where's the disconnect?
|
| I read this the other day and it's really stuck with me:
| https://berthub.eu/articles/posts/how-tech-loses-out/
|
| It's about how we live in a world where companies are
| incentivized by short term quarterly growth expectations to
| outsource literally everything, including its core
| competency. What is left of a company like this? It's a
| legal structure and holder of IP, all of which is
| completely imaginary, yet every company aspires to be as
| such. Why? Because it's profitable, which is of course a
| made up concept.
|
| Yet what if every company aspires to do evolve this way?
| What happens to an entire country if the corporations
| therein are just empty shells that hold IP? What happens if
| everything important you do is done "somewhere else"?.
|
| So if every company is either just holding intellectual
| property (imaginary), moving around money (imaginary),
| producing advertising (imaginary), holding other companies
| (imaginary concepts), redirecting eyeballs, aggregating
| data (but never doing anything with it), and all the legal
| machinations therein... then what _actual_ work is anyone
| doing?! All of that is just imaginary made-up trifling
| nonsense.
|
| I once read that RedBull is really just an advertising
| firm. The whole company. They don't do a damn thing but
| make ads. Everything that goes into the actual drink itself
| is "done elsewhere".
|
| Even the _actual_ work that gets done, like building homes,
| is meaningless. Yes people do actual work to create the
| home and the materials, but to what end? To house a human
| being? No! Of course not! All that work was done to create
| an investment vehicle that will remain empty, but whose
| sole purpose is to inflate a number on a balance sheet
| (imaginary). All of the trees that were felled and
| processed into lumber, the iron that was extracted from the
| ground and turned into nails, the tools, the shipping of
| all the materials around the world, the equipment delivered
| to the job site, the innumerable man hours of all the
| humans involved in directing this supply chain to bring
| this house into existence... all of that work just to
| inflate an imaginary number that will be traded on an
| imaginary market.
|
| And so we see the consequence is the emergence of proto-
| trillionaires who use their ownership of assets (imaginary)
| to borrow money (imaginary) to buy companies (imaginary)
| that have a _real_ impact on public discourse. If you think
| I 'm talking about Musk here, I had Bezos in mind, but the
| point is that if you're a billionaire, you buy a media
| company to influence public discourse. It's part of your
| evolution. And you might say the assets are real but of
| course their values are not! Covid times revealed a
| complete disconnect between stock price and company
| valuation, revenue, or any other real metrics and proved
| once and for all that the stock market as a system is
| completely imaginary as well. It's measuring nothing of
| worth whatsoever.
|
| But that's not the worst of it. Circling back to Google,
| and let's throw Facebook into the mix as well, is that they
| have such an outsized impact on the industry that they and
| the rest of FAANG suck up so much talent that it creates a
| vortex. And what do they do with that talent but put them
| to work on maximizing metrics like "engagement" so that
| they can drive eyeballs to advertisements, and collect data
| for resell. Again, completely imaginary work. So then
| _everyone_ wants to do this kind of thing. And even if you
| don 't, you need to compete with everyone who does, because
| they're offering ridiculous salaries of $200k+, which of
| course are pegged to ridiculous stock prices that are
| completely disconnected from anything tangible Google
| produces. So Google and Facebook and all the rest of them
| are paying their employees imaginary wages pegged to
| imaginary valuations so they can do imaginary work.
|
| And it impacts absolutely everything! Universities can't
| hire professors because FAANG is sucking up all the CS
| PhDs. Research is funded by FAANG; conferences are funded
| by FAANG; grad students are therefore doing research
| aligned with FAANG interests; professors are writing grant
| proposals on those same lines and getting governments to
| fund them as well; undergrads dream of working for FAANG;
| professors are therefor asked to spend time teaching
| students to pass FAANG entrance exams... all for what? For
| what?! To drive eyeballs to ads and collect data. It's
| maddening.
|
| So anyway... seems like this should hold up in the long run
| yeah? A society of people devoted to doing imaginary work
| sounds durable and will certainly hold up well under a
| crisis like a global pandemic, or worse.
| legutierr wrote:
| > The unfortunate reality is that the COVID19 fiscal stimulus
| didn't solve any problem at all for the average person; it was
| purely a money-printing scheme to allow the elites to cash out
| by appropriating the wealth of regular citizens via the
| dilution of the value of their employment contracts and fiat-
| denominated savings.
|
| If the value of fiat-denomiated savings is being diluted, then
| how exactly are elites cashing out?
| [deleted]
| natly wrote:
| Getting really annoying to have to keep track of macro events
| affecting my life year after year instead of just being able to
| live a normal peaceful life.
| RockyMcNuts wrote:
| imagine being like 85 and having lived in China through WW2,
| revolution, famine, cultural revolution, and then the last 30
| years of growth and prosperity. a lot of places have to worry
| about global macro and history, anyone who doesn't is living a
| charmed life and maybe a fool's paradise.
| nostrademons wrote:
| My grandfather was born in 1909 in China. When he was 3 years
| old, the Emperor fell. When he was 7, the Warlord Period
| began. When he was 17, the country was unified under Chiang
| Kai-Shek; when he was 18, it fell apart again and the Chinese
| Civil War began. When he was 22, the Japanese invaded, and he
| emigrated to the Philippines. When he was 32 (and my dad was
| 2), the Japanese invaded the Philippines too. When he was 35
| (my dad was 5), the Americans invaded, and his house was
| bombed, and he had to move up to a camp in the mountains and
| shit in the river. A year later the Americans had won and he
| made a fortune off occupying G.I.s, opening the only
| restaurant with a slot machine in the city. When he was 40
| the Nationalist government that had been, well, "the
| government" when he grew up fell to the Communists, and he
| was left stateless. He ended up sending his kids to North
| America, one by one, and finally emigrated in the early 80s
| and lived out his last years in peace, but my dad's obsession
| with geopolitics is in retrospect pretty justified by world
| events.
| jacquesm wrote:
| This is worthy of a book or a movie. Your grandfather has
| made your life difficult: try filling those shoes ;)
| Seriously though, what a resilience.
| spicyusername wrote:
| The reality is that, regardless of time and place, there is
| always some shit going on. It will be as true 50 (or 1,000)
| years from now as it was 50 (or 1,000) years ago.
|
| > live a normal peaceful life.
|
| Being able to blindly live a normal peaceful life, if it really
| has even ever been possible for anyone, is the exception, not
| the rule.
|
| Most time periods for most people are fraught with risk and
| conflict. It is the nature of being.
| natly wrote:
| Certanily makes it really difficult to focus on skill
| development and improving as a coder. I get that some people
| can handle it and I'll probably be selected out from the
| field for my lack of ability to ignore the macro distractions
| if this keeps going though.
| coolspot wrote:
| > It will be as true 50 (or 1,000) years from now
|
| Ah! An optimist who believes humanity will exist 1,000 years
| from now!
| FooHentai wrote:
| Even if it's roaches fighting over twinkies, likely still
| true.
| rsanek wrote:
| How in particular are you affected? You should be able to
| ignore this if you live within your means and invest passively
| with a long-term horizon.
| [deleted]
| FollowingTheDao wrote:
| You can do both! Live needing little, be humble, spontaneous,
| help your friends and family! Let go!
| ChrisMarshallNY wrote:
| This.
| throwaway_1928 wrote:
| Monkeypox is just getting started. Hang in there.
|
| https://www.washingtonpost.com/politics/2022/05/22/biden-mon...
| shrimp_emoji wrote:
| No airborne spread.
|
| Transmitted through sex.
|
| We're safe as houses. :p
| throwaway_1928 wrote:
| In that case HNers are safe :-)
|
| But I am afraid it is is transmissible by 'respiratory
| droplets'.
|
| > "Monkeypox virus is transmitted from one person to
| another by close contact with lesions, body fluids,
| respiratory droplets and contaminated materials such as
| bedding."
|
| https://www.who.int/news-room/fact-sheets/detail/monkeypox
| SilasX wrote:
| Old crypto joke: "Major STD outbreak; bitcoin users
| unaffected."
| jopsen wrote:
| Reading Wikipedia on monkeypox, there have been multiple
| outbreaks before, outbreaks that we never heard about.
|
| Supposedly, we're better at tracing now, if it really blows
| up we're better prepared than ever before.
| shakezula wrote:
| This is fear-mongering. You cannot predict the future and the
| CDC tracks dozens of novel virus outbreaks each year that
| never go anywhere. It's less transmissible, and responds to
| vaccines that we already have.
| hn_throwaway_99 wrote:
| Do you really though? If you are a long term investor, just
| picking a couple of core asset classes and then rebalancing
| regularly (rebalancing is key because it is an automatic way of
| selling thing when prices are higher and buying when they are
| lower), and never paying attention to the news, it's a winning
| strategy.
| SilasX wrote:
| All asset classes are down though, both low and high-risk
| balances are seeing about the same contraction.
| 88913527 wrote:
| When you buy a home -- the largest single purchase one makes
| in the middle class -- you lock in the purchase price, but
| not the interest rate. Housing prices still haven't recovered
| in Japan to their 1990 highs. So if you don't pay attention
| to the macro environment, you could be costing yourself a
| great deal. Fortunately, other asset purchases like mutual
| funds in retirement accounts are DCA'ed in by the paycheck,
| and not done all at once.
| jbay808 wrote:
| (This situation might not be familiar to US commenters, who
| can lock in an interest rate for their entire mortgage).
| 88913527 wrote:
| US commenters hopefully know they can re-finance when
| rates go down. Locked in, with the option of re-fi'ing.
| Only possible when rates drop but we're yet to have a
| period of 30 years of continually rising rates.
| jbay808 wrote:
| Yes, I didn't mean to imply that wasn't the case. I meant
| that in the US, homebuyers can fully protect themselves
| from the downside risk, an option that doesn't exist in
| many other countries (like Canada).
| hn_throwaway_99 wrote:
| Thanks for the info. I was unaware fixed rate mortgages
| weren't available in other countries.
| zrail wrote:
| Personally I locked in 30 years at 3.125% in May 2020 and
| I will be shocked if I ever have the opportunity to
| refinance lower again.
| legulere wrote:
| At least here in Germany rates are usually fixed for 10 to
| 30 years.
| WalterBright wrote:
| The Federal Reserve Bank system was supposed to prevent busts.
| We've had some pretty big ones recently - 2000, 2008, 2022.
|
| Let's face it. The FRB cannot stop busts. The real reason for
| the FRB is so the federal government can inflate the currency.
| 300bps wrote:
| There are lots of people who have not paid much attention to
| these "macro events" you speak of and it has not impacted them
| in any meaningful way.
|
| Covid came closest to impacting my life. But I got the Pfizer
| shot as early as I was legally able, same thing with a booster
| and pretty much have just gone about my life as usual for most
| of the pandemic while never getting Covid.
|
| The rest of it going on - I just don't even pay attention to
| it.
| csomar wrote:
| Covid impacted most people around the world. Professionally
| and socially. The Ukraine war started as a local war, but now
| it's affecting Europe and third-world countries who depended
| on Ukraine for wheat.
|
| These last macro-events caught many people by surprised. This
| inflation cycle is also affecting most of the world (since
| import prices will factor in lots of goods).
| dkarp wrote:
| Presumably you don't live in an urban area then?
| Spooky23 wrote:
| Agreed. Unfortunately, we've inherited the mess that our
| parents and grandparents left for us.
| brink wrote:
| And we will create yet another mess for our children. Or at
| least what's left of them because we decided not to have any,
| which is a problem in itself.
| WalterBright wrote:
| The current government spending sprees are not your parents'
| and grandparents' fault.
| Spooky23 wrote:
| The projections for social security surpluses going away in
| 1983 were literally accurate within months.
|
| Not sure what any recent government had to do with that.
| lukeramsden wrote:
| Depends how old you are. Even the youngest member of the UK
| cabinet is old enough to be my father, but the real
| decision makers are old enough to be my grandfather. I
| don't keep close track of US politicians but as far as I
| can tell, its even worse there.
| WalterBright wrote:
| Think about who the current generation voted for. When
| politicians are voted in because of their fiscally
| irresponsible proposals, who is really to blame?
|
| People are voting themselves money out of the treasury.
| This is the result.
| thawaya3113 wrote:
| Except the previous government gave out a lot more money.
|
| Massive tax cuts, votes secured by giving over $40bn to
| farmers who were negatively impacted by a pointless and
| thoughtless trade war with China, and most of the COVID
| aid was given by the previous administration (although
| they did delay it because the previous President was
| insisting his name should be on a check that would be
| physically mailed to everyone).
| WalterBright wrote:
| Tax cuts are not handing out free money.
| mym1990 wrote:
| Pointing fingers isn't going to help with anything, whether
| its your parents or your next door neighbor. At some point we
| just need to take ownership and work towards a better future,
| but accountability seems to be pretty rare these days(whether
| its your issue or not).
| jwilber wrote:
| "Don't point fingers at us boomers!"
|
| One sentence later: "None of you young folks have
| accountability."
| mym1990 wrote:
| Yeah, I said "we", but I guess you'll twist it in
| whichever way you like /shrug
|
| Also: thanks for reinforcing my point hehe, appreciate
| that :)
| jacquesm wrote:
| Historically speaking that's the norm. The last 70 years are an
| anomaly.
| keeganpoppen wrote:
| welcome to earth?
| [deleted]
| andsoitis wrote:
| no man is an island
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