Ask HN: Are We in a Bubble?
205 comments
> yet we are in the middle of pandemic, millions get sick every day, inflation 30yr high
> is the economy is broken? should we be expecting a crash/crisis soon?
The question assumes that the real conditions on the ground are going to change the values we assign to stuff, but what if those are no longer meaningfully coupled?
Ford sold about 20% fewer vehicles at the end of 2021 than at the end of 2019, but its stock price is 2.5x what it was then. Ford is producing less actually useful stuff, but we pretend it's more valuable.
What if the economy is "broken" but not in a way which produces a "crash"? Prices are higher now, but many companies have improved margins; they're raising prices faster than their costs are increasing. Money is moving faster from the population at large to companies/investors. If the rich can keep getting richer by siphoning more out of everyone else, and the rich are the ones that own stock, real estate, invest in startups etc, then a lot of metrics can show those assets as increasing in value even if the median person's income or wealth are declining in real terms.
If the economies experienced by the rich and everyone else are decoupling, then I think the question is less "are we in a bubble" and more "will we enact reforms to decrease wealth and income inequality?" and at least in the US given structural political issues, I think the answer is "No."
> is the economy is broken? should we be expecting a crash/crisis soon?
The question assumes that the real conditions on the ground are going to change the values we assign to stuff, but what if those are no longer meaningfully coupled?
Ford sold about 20% fewer vehicles at the end of 2021 than at the end of 2019, but its stock price is 2.5x what it was then. Ford is producing less actually useful stuff, but we pretend it's more valuable.
What if the economy is "broken" but not in a way which produces a "crash"? Prices are higher now, but many companies have improved margins; they're raising prices faster than their costs are increasing. Money is moving faster from the population at large to companies/investors. If the rich can keep getting richer by siphoning more out of everyone else, and the rich are the ones that own stock, real estate, invest in startups etc, then a lot of metrics can show those assets as increasing in value even if the median person's income or wealth are declining in real terms.
If the economies experienced by the rich and everyone else are decoupling, then I think the question is less "are we in a bubble" and more "will we enact reforms to decrease wealth and income inequality?" and at least in the US given structural political issues, I think the answer is "No."
> What if the economy is "broken" but not in a way which produces a "crash"? Prices are higher now, but many companies have improved margins; they're raising prices faster than their costs are increasing.
There is a less charitable and more realistic explanation for that: quantitative easing injected a massive amount of cash into the economy, and low/negative interest rates are pushing said investors towards riskier investments to park all that cash. Consequently we see a massive volume of institutional investments in things like real estate, the stock market, and even crypto.
There is a less charitable and more realistic explanation for that: quantitative easing injected a massive amount of cash into the economy, and low/negative interest rates are pushing said investors towards riskier investments to park all that cash. Consequently we see a massive volume of institutional investments in things like real estate, the stock market, and even crypto.
I'm fine with the claim that a lot more money was pushed into the asset classes you listed, but I don't really see how that interacts with the quote you picked about companies with improving margins. A company's stock being over-valued doesn't seem obviously related to their price-setting power?
And anyway, the result of that rush of money into stocks and real estate still seems to have had the result that the rich got richer. Yes, the Fed will raise interest rates in coming months, and perhaps eventually that will slow inflation. But I have every expectation that many companies will continue raising prices and reporting record profits for some time after their costs decline. And as interest rates increase, banks will reflect those higher rates in their loan products, but not their savings accounts, etc.
And anyway, the result of that rush of money into stocks and real estate still seems to have had the result that the rich got richer. Yes, the Fed will raise interest rates in coming months, and perhaps eventually that will slow inflation. But I have every expectation that many companies will continue raising prices and reporting record profits for some time after their costs decline. And as interest rates increase, banks will reflect those higher rates in their loan products, but not their savings accounts, etc.
> I don't really see how that interacts with the quote you picked about companies with improving margins.
Companies are being valuated with total disregard about their results.
The whole stock market is currently in deep memestock territory. We are seeing a single low-output car maker being valued more than the whole car industry altogether even though they exclusively serve a car market niche that only amounts for a single-digit market share of the global auto market.
Real estate is suddenly seeing an influx of institutional investment that hiked the demand so much it priced out the vast majority of families.
In crypto, everything is unashamedly driven by a mix of speculation and capital flight to an asset that's believed to be resilient to inflation and crashes.
We're fooling ourselves if we believe that we saw such a massive hike in efficiency in the past few years, specially given the global context. What we're seeing is a massive influx of free cash into the hands of institutional investors who are now desperate to park it somewhere.
Companies are being valuated with total disregard about their results.
The whole stock market is currently in deep memestock territory. We are seeing a single low-output car maker being valued more than the whole car industry altogether even though they exclusively serve a car market niche that only amounts for a single-digit market share of the global auto market.
Real estate is suddenly seeing an influx of institutional investment that hiked the demand so much it priced out the vast majority of families.
In crypto, everything is unashamedly driven by a mix of speculation and capital flight to an asset that's believed to be resilient to inflation and crashes.
We're fooling ourselves if we believe that we saw such a massive hike in efficiency in the past few years, specially given the global context. What we're seeing is a massive influx of free cash into the hands of institutional investors who are now desperate to park it somewhere.
Dotcoms in the late nineties. Mortgage speculation in 2004-2008ish. QE started in 2009.
Blaming it all on QE seems a little disingenuous. There's been way too much money floating in the system for a long time now.
Blaming it all on QE seems a little disingenuous. There's been way too much money floating in the system for a long time now.
The tricky piece in the US is that it's unclear how long the current system can be sustained. As the wealthy become wealthier, debt loads must increase. Eventually, the debtors must curtail spending or fail to pay off the debt. In aggregate, this creates a financial crisis as debt is not paid back, and the creditor takes the loss.
What's happening today is that central banks are lowering interest rates to prevent the above reckoning from occurring. The wealthy get wealthier, debt loads increase, and interest rates fall. The orthodox economic belief would be that this will either create inflation and or a currency crisis as the economy structures itself around money printing. The surprise has been that inflation hasn't occurred outside of asset prices.
I suspect that this strictly leads to one of two outcomes.
- The economy rolls back all worker gains for the last century, with workers effectively forced to rent all assets and live paycheck to paycheck.
- Asset inflation eventually turns into real inflation via taxation, government spending, worker wage demands or changes in the spending habits of asset holders (Carnegie and Rockefeller eventually spent the majority of their fortunes). In this scenario, wages and prices are likely to catch-up with assets.
What's happening today is that central banks are lowering interest rates to prevent the above reckoning from occurring. The wealthy get wealthier, debt loads increase, and interest rates fall. The orthodox economic belief would be that this will either create inflation and or a currency crisis as the economy structures itself around money printing. The surprise has been that inflation hasn't occurred outside of asset prices.
I suspect that this strictly leads to one of two outcomes.
- The economy rolls back all worker gains for the last century, with workers effectively forced to rent all assets and live paycheck to paycheck.
- Asset inflation eventually turns into real inflation via taxation, government spending, worker wage demands or changes in the spending habits of asset holders (Carnegie and Rockefeller eventually spent the majority of their fortunes). In this scenario, wages and prices are likely to catch-up with assets.
> The surprise has been that inflation hasn't occurred outside of asset prices.
But it has occurred. People were originally calling it "short term" but its clear that the 6-7% inflation seen at the tail end of 2021 was very real.
As to your two outcomes:
I'd like to believe that the second one is what is sort of happening, with the "great resignation" of blue-collar and otherwise "unskilled" workers (its a term of art, I understand some of the jobs in this pool require a lot of finesse). Unfortunately, I also see lots of push from the top of the economic strata for the first outcome; most notably in the attempt to move from car ownership to ridesharing.
But it has occurred. People were originally calling it "short term" but its clear that the 6-7% inflation seen at the tail end of 2021 was very real.
As to your two outcomes:
I'd like to believe that the second one is what is sort of happening, with the "great resignation" of blue-collar and otherwise "unskilled" workers (its a term of art, I understand some of the jobs in this pool require a lot of finesse). Unfortunately, I also see lots of push from the top of the economic strata for the first outcome; most notably in the attempt to move from car ownership to ridesharing.
> But it has occurred. People were originally calling it "short term" but its clear that the 6-7% inflation seen at the tail end of 2021 was very real.
I'm not sure those are related. I bet that was just one of the unintended consequences of stimulus checks in the US economy.
Keep in mind that poverty in the US is increasing like wildfire. In 2019, about 69% of Americans reported having less than $1000 in a savings accounts.
https://www.yahoo.com/now/survey-69-americans-less-1-1719272...
That falls well within living paycheck-to-paycheck territory, if not even below. This means the vast majority of Americans cannot afford luxuries or even basic necessities. Things haven't got better for the average Joe since 2019, too.
Then all of a sudden the whole country received a comparatively huge check in the mail to freely spend however they feel like it.
Expectedly, this sudden increase in disposable income and purchasing power will reflect in a hike in demand for the things being tracked by inflation índices. Increases in consumer demand lead to higher consumer prices, and thus inflation indicators go up.
I'm not sure those are related. I bet that was just one of the unintended consequences of stimulus checks in the US economy.
Keep in mind that poverty in the US is increasing like wildfire. In 2019, about 69% of Americans reported having less than $1000 in a savings accounts.
https://www.yahoo.com/now/survey-69-americans-less-1-1719272...
That falls well within living paycheck-to-paycheck territory, if not even below. This means the vast majority of Americans cannot afford luxuries or even basic necessities. Things haven't got better for the average Joe since 2019, too.
Then all of a sudden the whole country received a comparatively huge check in the mail to freely spend however they feel like it.
Expectedly, this sudden increase in disposable income and purchasing power will reflect in a hike in demand for the things being tracked by inflation índices. Increases in consumer demand lead to higher consumer prices, and thus inflation indicators go up.
These could be more coupled than you would assume. When the government borrows freshly printed dollars and freely distributed the money, the velocity of money ticks up. When it’s borrowed for stock buybacks the velocity of money ticks down.
Effectively Covid stimulus may have forced the government to step in, releasing the inflation QEs been brewing.
Effectively Covid stimulus may have forced the government to step in, releasing the inflation QEs been brewing.
> Effectively Covid stimulus may have forced the government to step in, releasing the inflation QEs been brewing.
Not quite. QE created inflation in assets that are not a part of inflation indicators, at least directly, like stock and real estate. QE resulted in phenomena like Tesla's utterly absurd meteoric valuation during the past year.
There are some markets where QE and stimulus checks, such as rent prices, which mixes an increase in disposable income on the demand-side and a need to validate inflated investments in real estate on the supply-side.
Not quite. QE created inflation in assets that are not a part of inflation indicators, at least directly, like stock and real estate. QE resulted in phenomena like Tesla's utterly absurd meteoric valuation during the past year.
There are some markets where QE and stimulus checks, such as rent prices, which mixes an increase in disposable income on the demand-side and a need to validate inflated investments in real estate on the supply-side.
Ford sold about 20% fewer vehicles at the end of 2021 than at the end of 2019, but its stock price is 2.5x what it was then. Ford is producing less actually useful stuff, but we pretend it's more valuable.
I've always heard the argument that stock price is not based on the current value but on future earnings. If the market perception is that Ford is better placed now than 2 years ago to make money in the coming decade, it should be valued higher. Similarly companies that are laying the groundwork for massive earnings post-pandemic should see a corresponding value uptick in the stock market.
I've always heard the argument that stock price is not based on the current value but on future earnings. If the market perception is that Ford is better placed now than 2 years ago to make money in the coming decade, it should be valued higher. Similarly companies that are laying the groundwork for massive earnings post-pandemic should see a corresponding value uptick in the stock market.
The maxim I was told by my dad, who I think got it from someone like Warren Buffet, is that, "In the short term, the stock market is a voting machine; in the long term, it is a weighing machine"
So for the day-to-day, week-to-week, etc movement of an asset or market, its primarily driven by the immediate feelings of the sellers and buyers. Longer term, however, its historically been fluctuations on top of a lower-frequency trend based on fundamentals.
So for the day-to-day, week-to-week, etc movement of an asset or market, its primarily driven by the immediate feelings of the sellers and buyers. Longer term, however, its historically been fluctuations on top of a lower-frequency trend based on fundamentals.
There's a complex of people in Washington dedicated to defending the mechanisms which allow for the siphoning like FTD's (failure-to-deliver's), asset lending with no return dates, what is effectively asset lending by other legal names, and other things like exemptions for market makers being allowed to provide naked positions in the name of "liquidity."
This complex of people has a name (!) - "The Blob." It's the amorphous bureaucratic mass of people who will send vague and threatening letters to people actually attempting reform ("Dear Mr. Young Senator, we recommend you don't pursue your inquiry into naked shorting further, or it will be bad for your career.")
Then you have, diametrically opposed to the Blob, the $GME apes. Forget for a second about the mother of all short squeezes, "dying brick and mortar," "nfts," etc. The property worth paying attention to here is how antifragile and self-correcting the ape community is. Here you have tons of random, highly distributed and highly passionate people apprehending the real nature of our financial, media, and political institutions. You have a system where when the Blob pulls a fast one, a set of people who got in for a squeeze/quick profit are converted from a set of ambivalent retail traders into an intolerant minority whose focus has shifted from profit to "If we haven't achieved systemic change, we have failed."
The fight for reform is well underway. There's so much more to be said here but I'll end with this: even if you don't care or believe in $GME, believe in the apes. They're the individuals putting their skin in a the game and exposing themselves to harm for what they believe is right. Pay attention.
This complex of people has a name (!) - "The Blob." It's the amorphous bureaucratic mass of people who will send vague and threatening letters to people actually attempting reform ("Dear Mr. Young Senator, we recommend you don't pursue your inquiry into naked shorting further, or it will be bad for your career.")
Then you have, diametrically opposed to the Blob, the $GME apes. Forget for a second about the mother of all short squeezes, "dying brick and mortar," "nfts," etc. The property worth paying attention to here is how antifragile and self-correcting the ape community is. Here you have tons of random, highly distributed and highly passionate people apprehending the real nature of our financial, media, and political institutions. You have a system where when the Blob pulls a fast one, a set of people who got in for a squeeze/quick profit are converted from a set of ambivalent retail traders into an intolerant minority whose focus has shifted from profit to "If we haven't achieved systemic change, we have failed."
The fight for reform is well underway. There's so much more to be said here but I'll end with this: even if you don't care or believe in $GME, believe in the apes. They're the individuals putting their skin in a the game and exposing themselves to harm for what they believe is right. Pay attention.
> converted from a set of ambivalent retail traders into an intolerant minority whose focus has shifted from profit to "If we haven't achieved systemic change, we have failed."
> They're the individuals putting their skin in a the game and exposing themselves to harm for what they believe is right. Pay attention.
I'm not familiar with this part of the story. Can you point me to more info? What are the actual goals of the systemic change being pursued, and how is it being pursued?
> They're the individuals putting their skin in a the game and exposing themselves to harm for what they believe is right. Pay attention.
I'm not familiar with this part of the story. Can you point me to more info? What are the actual goals of the systemic change being pursued, and how is it being pursued?
I would save your time. The "apes" are bagholding on a pump and dump. The reason they want "systemic change" now is because the fortune they promised GME investors would make has never and will never materialize, and the only way to continue evangelizing is to sell the stock of a failing physical video game retailer as your ticket to some kind of brave new world.
I'm personally attracted to this investment not because of squeeze potential but because I believe they're going to corner the online used games market & open up new business models for smaller game devs. First mover in a major way.
https://gmedd.com/
If you truly believe what you're spouting here, then - have you shorted it?
https://gmedd.com/
If you truly believe what you're spouting here, then - have you shorted it?
I can't directly speak for the autonomous groups of people in loose orbit around https://old.reddit.com/r/Superstonk/ who can be labelled the apes (I know for sure there are other groups but this is an easily accessible one), but what I've observed:
Goals:
I'd say probably most valuable at this point in time is the mixture of identified and pseudonymous journalism increasing financial literacy/awareness of just how... pardon my french, fucking bad, the existing incentive structures are w/r/t regulators. Good example: https://upsidechronicles.com/2021/09/05/how-wall-street-shor...
Suspect most valuable long-term will be the mass direct registration of shares in individuals book names rather than beneficiary ownership through a broker. If/when the apes have directly registered all available shares, 1) any significant amount of continued trading volume in lit markets is fraudulent and you have a slam-dunk legal case. 2) GME could legally exit participating in the DTCC and move onto a crypto-run automated market maker which meets all of the above goals. Any synthetic GME positions floating around would have to be immediately and forcibly closed, and there's a lot of material research on how the real number of shares floating around might be on the order of magnitude of 1 billion. Big problems for the blob.
Goals:
Elimination of FTD's, period. Market participants who FTD regularly are ejected.
Information symmetry between blob & retail - true regular reporting on short positions, Swaps, other derivatives. Teeth for this.
Increase in reporting penalties to be less than a cost of doing business.
T+3 Settlement to T+0.
Widespread usage of implementations like IEX to eliminate profitability of low-latency arbitrage.
Routing orders through IEX
Exiting brokers who are simply bad for retail (Robinhood)
Withdrawing equities from the DTCC accounts and broker dealer system as a vote of no-confidence (GME recently stated 5m+ individual had directly registered their shares w/ transfer agent as of Oct 31... and put it on their 10-Q, making them only company I'm aware of to have done that in past year).
Suing brokers/applying regulation pressure to those who don't allow basic rights (direct share registration from europe)
Actual monitoring of which brokers are dipping their hands in their customer's cookie jars (see: Fidelity a couple months ago suddenly posting 10m+ shares available to borrow in a very illiquid stock. Where could those have come from? Customer's cash accounts? Oh, it's not *lending*, it's *posting as collateral*? etc)
Signal boosting for existing, honorable efforts: Dennis Kelleher @ https://bettermarkets.org/ / Susanne Trimbath
Awareness & localized support of legislation
Filing FINRA complaints, getting in touch with compliance officers, actually watching & asking.
I'd say probably most valuable at this point in time is the mixture of identified and pseudonymous journalism increasing financial literacy/awareness of just how... pardon my french, fucking bad, the existing incentive structures are w/r/t regulators. Good example: https://upsidechronicles.com/2021/09/05/how-wall-street-shor...
Suspect most valuable long-term will be the mass direct registration of shares in individuals book names rather than beneficiary ownership through a broker. If/when the apes have directly registered all available shares, 1) any significant amount of continued trading volume in lit markets is fraudulent and you have a slam-dunk legal case. 2) GME could legally exit participating in the DTCC and move onto a crypto-run automated market maker which meets all of the above goals. Any synthetic GME positions floating around would have to be immediately and forcibly closed, and there's a lot of material research on how the real number of shares floating around might be on the order of magnitude of 1 billion. Big problems for the blob.
> but what if those are no longer meaningfully coupled?
This is said in every bubble. The laws of economics cannot be repealed, but people keep imagining it's different this time.
In the dot-com bubble, people were saying that profits didn't matter anymore. You might think that's an exaggeration, but if you think such exaggerations are impossible, look around you.
This is said in every bubble. The laws of economics cannot be repealed, but people keep imagining it's different this time.
In the dot-com bubble, people were saying that profits didn't matter anymore. You might think that's an exaggeration, but if you think such exaggerations are impossible, look around you.
S&P 500 price-to-earnings about double historical average would indicate at least over valuation of stocks.
https://www.multpl.com/s-p-500-pe-ratio
https://www.multpl.com/s-p-500-pe-ratio
I think the cyclically adjusted version is even more telling: https://www.multpl.com/shiller-pe
Ford is the only legacy US auto with a convincing entrance into EVs. Has their market cap risen for no reason- or is the market predicting they will take share from their less agile competitors?
But now even the rich are pulling out. Musk, Bezos, Zuck have all upped their stock sales. Zillow also stopped ibuying. At least some non-permabear participants think that something is brewing now.
Isn't Musk's increased stock sale to facilitate the exercise of expiring options? That doesn't seem like "pulling out".
Zillow stopped ibuying, but a lot of post-hoc analysis seemed to explain that ibuying can do poorly even if real estate is doing well, because the owners most likely to sell to Zillow were ones with properties that were overvalued by Zillow's model, due to attributes that the model didn't consider.
Zillow stopped ibuying, but a lot of post-hoc analysis seemed to explain that ibuying can do poorly even if real estate is doing well, because the owners most likely to sell to Zillow were ones with properties that were overvalued by Zillow's model, due to attributes that the model didn't consider.
The narrative was that Musk is selling stocks to cover his taxes. But he's selling more than that: https://www.cnbc.com/2021/11/16/taxes-arent-the-only-reason-...
the 20% drop is highly likely anticipation for the lightning. why buy ice when you can buy a bev?
I’ve seen this question posted here or the others forums I visit - multiple times per year, and every year since at least 2012.
I don’t know if the market is in a bubble. I do know, if I pulled out of the market at any point since 2012, my net worth wouldn’t be anywhere close to what it is today.
2022 could very well have the mother of all crashes. On the other hand, every year since at least 2012 has brought new highs. I do believe that time in the market beats timing the market. Even Dr. Michael Burry had to hold credit default swaps for 2-3 years before the mortgage bonds and the underlying loans proved to be garbage.
I don’t know if the market is in a bubble. I do know, if I pulled out of the market at any point since 2012, my net worth wouldn’t be anywhere close to what it is today.
2022 could very well have the mother of all crashes. On the other hand, every year since at least 2012 has brought new highs. I do believe that time in the market beats timing the market. Even Dr. Michael Burry had to hold credit default swaps for 2-3 years before the mortgage bonds and the underlying loans proved to be garbage.
Well we've pretty much been on the verge of a new collapse for just as long but the central banks have been keeping the economy floating by lowering interest and buying bonds. And it's working great. The big question is how long this can go on. The longer we wait the bigger the crash, but what government will wanna be responsible for a crash at all? The thing is that the longer it goes the more apparent it is how fake the current economic system is. It can no longer be considered capitalism any more. A lot of western countries has defaulted into some form of planned economy.
I think that perhaps a helpful way to think about it is that we've shifted from an economy of reals to the sort of gold-based economy of MMORPGs where the value of the currency, the number of units of currency, and the policies for how the units can be exchanged are actively and continuously modified by policymakers exempt from democratic oversight. For the broader end-user population, myths and stories about how things work trade widely and actual information, though perhaps public, is "too technical" and not shared as widely.
In such a planned economy, is there a reason to think that the bubble is able to burst? The myth of a bursting bubble may be helpful to mitigate moral hazard, of course.
In such a planned economy, is there a reason to think that the bubble is able to burst? The myth of a bursting bubble may be helpful to mitigate moral hazard, of course.
>… are actively and continuously modified by policymakers exempt from democratic oversight
Are we certain this is a bad thing? Looking over the last couple decades of American politics, the politicians typically optimize for short term outcomes, and not necessarily optimal outcomes for their constituents but whatever it is that will best accommodate their own careers.
One could argue that you absolutely need specialists/technocrats running the Fed, if you’re going to have a Fed at all.
One data point - a key takeaway from Michael Lewis’s book The Premonition was a damning assessment of the CDC and the top leadership in California’s public health. And while Lewis isn’t a Trump fan, he didn’t spare Democrats.
As COVID spreading across America, California’s politically appointed top public health expert literally did nothing and squashed any attempt by her team from devising any policy. She downplayed the seriousness of the virus, and as Lewis calls out, she had no significant background in infectious disease or specific qualifications for the job other than being given that role by the California governor because of goals around non white women in leadership positions.
Meanwhile, the CDC provided zero leadership, simply because the head is appointed by the President, and was afraid of upsetting Trump.
You could argue that instead of political appointees, you want constituents to directly vote for these roles. Given the typical Americans apathy or general lack of knowledge around some of these complex topics, I’m not convinced that’s a great idea.
Are we certain this is a bad thing? Looking over the last couple decades of American politics, the politicians typically optimize for short term outcomes, and not necessarily optimal outcomes for their constituents but whatever it is that will best accommodate their own careers.
One could argue that you absolutely need specialists/technocrats running the Fed, if you’re going to have a Fed at all.
One data point - a key takeaway from Michael Lewis’s book The Premonition was a damning assessment of the CDC and the top leadership in California’s public health. And while Lewis isn’t a Trump fan, he didn’t spare Democrats.
As COVID spreading across America, California’s politically appointed top public health expert literally did nothing and squashed any attempt by her team from devising any policy. She downplayed the seriousness of the virus, and as Lewis calls out, she had no significant background in infectious disease or specific qualifications for the job other than being given that role by the California governor because of goals around non white women in leadership positions.
Meanwhile, the CDC provided zero leadership, simply because the head is appointed by the President, and was afraid of upsetting Trump.
You could argue that instead of political appointees, you want constituents to directly vote for these roles. Given the typical Americans apathy or general lack of knowledge around some of these complex topics, I’m not convinced that’s a great idea.
Or as Warren Buffet says, "The market can stay irrational longer than you can stay solvent"
Actually, it's Keynes.
buffet says "be fearful when others are greedy, and be greedy when others are fearful".
"others"
People seem to obsess over are we in a bubble but, if you do something like panic selling or something about it you are probably going to lose. The old adage to invest in index funds using your 401k before and after the bubble occurs means that you can take advantage of the fact that during the bubble you are getting the indices at a discount.
In 2020 I bought some tech and it went up pretty high but then 2021 I missed out on some of my hand picked investments but still had my 401k buying index funds.
No one can claim to predict a bubble because there are so many forces in play to predict it and people that can claim it you really shouldn't listen to.
In 2020 I bought some tech and it went up pretty high but then 2021 I missed out on some of my hand picked investments but still had my 401k buying index funds.
No one can claim to predict a bubble because there are so many forces in play to predict it and people that can claim it you really shouldn't listen to.
> People seem to obsess over are we in a bubble
I think this is going to be common for a generation or so. The 2008 crash was penalty the first total crash of the internet age. The previous big crash, the dot-com bubble, was big news, but not tied to everything yet. It took out a lot of tech-sector stuff while main-street people said “told you so…”
2008 was a crash where no one was safe. Everyone said housing was a bubble that couldn’t pop - home prices don’t drop. It’s a generational event that left people (economically) traumatized.
I think this is going to be common for a generation or so. The 2008 crash was penalty the first total crash of the internet age. The previous big crash, the dot-com bubble, was big news, but not tied to everything yet. It took out a lot of tech-sector stuff while main-street people said “told you so…”
2008 was a crash where no one was safe. Everyone said housing was a bubble that couldn’t pop - home prices don’t drop. It’s a generational event that left people (economically) traumatized.
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maybe we're in a bubble, but it's just not popping and therefor people acting like we're not in a bubble?
i can't see how this is sustainable at all
edit: why downvote an opinion?
i can't see how this is sustainable at all
edit: why downvote an opinion?
I've read some assertions that it would have popped already if not for the federal reserve buying assets and keeping borrowing cheap, suggesting that the fed's actions are ultimately inflating it bigger and bigger.
What could pop the bubble then would be a sharp reversal of this type of policy, like a return to 1980s-level interest rates. But they have zero incentive to go that route, as far as I can see.
> if I pulled out of the market at any point since 2012, my net worth wouldn’t be anywhere close to what it is today
True in every bubble, and many times also true in non-bubbles. But in bubbles, people are much more likely to see enormous gains.
True in every bubble, and many times also true in non-bubbles. But in bubbles, people are much more likely to see enormous gains.
“I do believe that time in the market beats timing the market”
my problem with this: what if stocks will not recover after crash in decades? I am not an expert, but isn’t Japanese exchange standing still for 30 years?
my problem with this: what if stocks will not recover after crash in decades? I am not an expert, but isn’t Japanese exchange standing still for 30 years?
Interestingly, the average Japanese citizen is doing pretty okay for themselves even in a stagnant market. Who cares about the market doing so great in the USA if the average person is doing shitty? I would prefer to be in Japan right now, personally.
based on two recent market corrections:
in the 2008 financial crisis, unless you were heavily into real estate related funds, if you panic sold a mixed portfolio of blue-chip stocks / mutual funds / varied ETFs at the low point in the market, you would have lost a significant amount of money. People who held their assets saw recovery to initial value and continued climb by 2012/2013 or so
in the spring 2020 big market drop at the start of covid19, same thing. I saw a bunch of mutual fund stuff in my 401k drop significantly in value. If I had sold it in a panic at that time, I'd now be screwed, because not only did it all recover to its pre-covid19 levels by late summer of 2020, but has significantly increased since then.
in the 2008 financial crisis, unless you were heavily into real estate related funds, if you panic sold a mixed portfolio of blue-chip stocks / mutual funds / varied ETFs at the low point in the market, you would have lost a significant amount of money. People who held their assets saw recovery to initial value and continued climb by 2012/2013 or so
in the spring 2020 big market drop at the start of covid19, same thing. I saw a bunch of mutual fund stuff in my 401k drop significantly in value. If I had sold it in a panic at that time, I'd now be screwed, because not only did it all recover to its pre-covid19 levels by late summer of 2020, but has significantly increased since then.
That could happen. A kind of long-term black swan event.
It is good practice to go shopping for groceries. But what if tomorrow is the day you get hit by a truck in the shop’s parking lot? Kind of negates the benefit, doesn’t it?
Point being, hypotheticals are not predictions. There’s no perfect heuristic here. That’s life.
It is good practice to go shopping for groceries. But what if tomorrow is the day you get hit by a truck in the shop’s parking lot? Kind of negates the benefit, doesn’t it?
Point being, hypotheticals are not predictions. There’s no perfect heuristic here. That’s life.
I believe that cryptocurrencies/web3 are in a bubble that's going to pop. So far the utility of these things is dominated by trading on speculative assets (read: ponzi shit) and that's gonna crash at some point with a lot of normal people holding the cards. Doesn't seem good.
Housing I don't know. At least in my area there's just no new constructions happening. Prices are absurd here because a lot of people have a lot of money and there isn't much supply going around.
I know nothing about the stock market and how it works, it's just a machine to bet on things, and lots of companies have had outsized benefits from the pandemic so I guess it makes sense? Who knows
Inflation? Who knows
Housing I don't know. At least in my area there's just no new constructions happening. Prices are absurd here because a lot of people have a lot of money and there isn't much supply going around.
I know nothing about the stock market and how it works, it's just a machine to bet on things, and lots of companies have had outsized benefits from the pandemic so I guess it makes sense? Who knows
Inflation? Who knows
Crypto is never in a bubble per se. It’s just market cycles. BTC returned to $3k after it hit $20k in 2017. Most coins from 2017 no longer exists. The same will happen this cycle. BTC and ETH will likely be around in 4 years, but DAOs, NFTs, Web3? All that shit will die. Its not even that these assets are artificially pumped. It’s real money, and it’s usually retail doing the pumping. Its just that crypto functions on attention. And when the public’s attention isn’t on crypto, everything dies. Probably because a lot of these projects have little to no actual value.
> Crypto is never in a bubble per se… Its just that crypto functions on attention. And when the public’s attention isn’t on crypto, everything dies. Probably because a lot of these projects have little to no actual value.
That sounds like a bubble "per se" to me.
That sounds like a bubble "per se" to me.
Using the broadest of definitions sure.
My point is that there’s nothing artificial about crypto. These are real people buying real assets from other real people. Not some banks hawking bullshit assets that are artificially rated by some corrupt pseudo government entities.
My point is that there’s nothing artificial about crypto. These are real people buying real assets from other real people. Not some banks hawking bullshit assets that are artificially rated by some corrupt pseudo government entities.
Want to buy some real tulips from real people?
That's not the 'broadest of definitions' at all. That's just what a bubble is: real people buying real assets from real people at hyperinflated prices.
As an aside, but not related to the matter at hand, what is the 'real asset' people are buying with crypto?
That's not the 'broadest of definitions' at all. That's just what a bubble is: real people buying real assets from real people at hyperinflated prices.
As an aside, but not related to the matter at hand, what is the 'real asset' people are buying with crypto?
I borrowed against my crypto for USD/USDC and used it to buy a MacBook and pay my tuition. The underlying coins appreciated and earned interest in addition to negative APR (this is all programmatic; the contract will give the best interest rate the market supports) on the loan itself, so I ended up paying back less than I put in.
Keep in mind: I am not in any way rich and paying out of pocket or taking a loan would have strained both me and my parents.
Keep in mind: I am not in any way rich and paying out of pocket or taking a loan would have strained both me and my parents.
Of course I'm happy that you were able to profit from it, but nothing you just said answers my question or refutes the fact that it is a bubble.
You could borrow against a house in '08 or against tulips in 1634. If it's the rising side of the market, you'll make a killing doing this. If it's the opposite side, then your collateral will vanish.
Whether vanishing collateral matters to you depends a great deal on the nature of the debt you took out and what you spent the loan on.
Whether vanishing collateral matters to you depends a great deal on the nature of the debt you took out and what you spent the loan on.
Housing is also very local. The past decade or two have seen something of a reversal of white flight (and company flight) from a relative handful of cities by a fairly specific college-educated young demographic.
And there's some evidence of a partial reversal of that trend during the pandemic. Of course, it's also quite normal in the US that as people marry, have kids, etc. that they move out to where they have more space and quiet. A question is whether young people will still want to move into cities or if we'll reach some new equilibrium where urban life is less valued again.
And there's some evidence of a partial reversal of that trend during the pandemic. Of course, it's also quite normal in the US that as people marry, have kids, etc. that they move out to where they have more space and quiet. A question is whether young people will still want to move into cities or if we'll reach some new equilibrium where urban life is less valued again.
Housing is indeed local, but there's zero doubt that we've massively under built housing over the past decade. Every major market in the US has seen 15%+ housing price increases since the (already high) 2019 baseline.
I've seen it said (on here) that crypto gives you a nice legal way to access the illegal drug market since much of the activity is from illegal activities. If this is true then crypto will probably keep going for some time.
> Are we in a bubble?
Yes, clearly, but no one knows when or if it will burst, or how much higher the market can go.
One of the key indicators is the Schiller PE ratio, which compares company stock prices to their profits. It is very high right now: https://www.multpl.com/shiller-pe
Other good indicators are that inexperienced investors are making a lot of money in meme stocks (AMC, GameStop), and cryptocurrencies or NFTs, classic indicators of a bubble.
Many people agree that the reason this is happening is the US federal reserve has kept interest rates too low for too long. This helps stock and home prices, but can also lead to a bubble. The Fed has indicated that they will raise interest rates soon.
To protect yourself first educate yourself on 2008 and the Dot com bubble, read Irrational Exuberance, All the Devils are Here, or watch Money Power and Wall Street, The Big Short, or Inside the Federal Reserve.
Hedging this bubble is extremely difficult but physical assets are nice to have. Cash is losing value more quickly than normal because of high inflation. As always diversifying is the best way to manage risk. This is not financial advice, just my personal opinion.
Yes, clearly, but no one knows when or if it will burst, or how much higher the market can go.
One of the key indicators is the Schiller PE ratio, which compares company stock prices to their profits. It is very high right now: https://www.multpl.com/shiller-pe
Other good indicators are that inexperienced investors are making a lot of money in meme stocks (AMC, GameStop), and cryptocurrencies or NFTs, classic indicators of a bubble.
Many people agree that the reason this is happening is the US federal reserve has kept interest rates too low for too long. This helps stock and home prices, but can also lead to a bubble. The Fed has indicated that they will raise interest rates soon.
To protect yourself first educate yourself on 2008 and the Dot com bubble, read Irrational Exuberance, All the Devils are Here, or watch Money Power and Wall Street, The Big Short, or Inside the Federal Reserve.
Hedging this bubble is extremely difficult but physical assets are nice to have. Cash is losing value more quickly than normal because of high inflation. As always diversifying is the best way to manage risk. This is not financial advice, just my personal opinion.
I think we are going back into a real estate bubble not very different than what preceded the 2008 financial crisis. I even see "high return" real estate funds that proudly advertise they're heavily into CDOs. For fuck's sake. Really, guys?
Do we now have a whole new generation of young finance bros creating debt instruments that were literally children in 2006-2009 and haven't learned the lessons from the very recent past?
Look at the absurd rise in single family home prices for a modest, detached home on a small lot in major cities. Look at the price of what would be the same location/street address of a $450,000 house in Seattle in 2014 vs now. It's absolutely a bubble.
Do we now have a whole new generation of young finance bros creating debt instruments that were literally children in 2006-2009 and haven't learned the lessons from the very recent past?
Look at the absurd rise in single family home prices for a modest, detached home on a small lot in major cities. Look at the price of what would be the same location/street address of a $450,000 house in Seattle in 2014 vs now. It's absolutely a bubble.
I think it's a lot worse than what you're saying. The price of gold was $45/oz in 1970. 52 years later it's $1,800/ounce. That's roughly 7.6% a year or 45x increase. If you use the inflation provided by the government, CPI, (1), they say inflation is only 3.6%/year or roughly 7x since 1970. Obviously we have a discrepancy. Is the dollar worth 45x less than 1970 or 7x times?
When we look at prices of things like education, housing, and healthcare, the 45x number makes a lot more sense. Education has 30x in price over the same time period (2). If you're comparing prices in dollars, it feels like education got really expensive compared to the basket of goods the BEA tracks but in reality, education requires less gold than it did in 1970. Our incredible supply chains and manufacturing automation have lowered most consumer prices such that we don't really notice inflation but when you look at things that can't get much cheaper like housing, healthcare, education, asset prices of all sorts, you can't miss the fact that they correlate more closely with gold than the USD.
Since we went off the gold standard, the US government has been inflating the currency which in effect, taxes holders of USD. The US gets away with it because of its military but how long can that last? The absurd rises in prices aren't crazy. They're catching up with reality. We can't just keep printing our currency and hope our military is strong enough to enforce this economic fantasy.
(1) https://www.in2013dollars.com/us/inflation/1970?amount=1
(2) https://www.yahoo.com/now/average-cost-college-jumped-incred...
When we look at prices of things like education, housing, and healthcare, the 45x number makes a lot more sense. Education has 30x in price over the same time period (2). If you're comparing prices in dollars, it feels like education got really expensive compared to the basket of goods the BEA tracks but in reality, education requires less gold than it did in 1970. Our incredible supply chains and manufacturing automation have lowered most consumer prices such that we don't really notice inflation but when you look at things that can't get much cheaper like housing, healthcare, education, asset prices of all sorts, you can't miss the fact that they correlate more closely with gold than the USD.
Since we went off the gold standard, the US government has been inflating the currency which in effect, taxes holders of USD. The US gets away with it because of its military but how long can that last? The absurd rises in prices aren't crazy. They're catching up with reality. We can't just keep printing our currency and hope our military is strong enough to enforce this economic fantasy.
(1) https://www.in2013dollars.com/us/inflation/1970?amount=1
(2) https://www.yahoo.com/now/average-cost-college-jumped-incred...
Education and health care are both subject to Baumol’s cost disease.
“Our incredible supply chains and manufacturing automation have lowered most consumer prices such that we don't really notice inflation…”
What’s your definition of “inflation”? It sounds like it’s something other than purchasing power, which is surprising to me.
“The US gets away with it because of its military”
So do countries with smaller militaries have…less inflation? More? More or less monetary growth? It’d be interesting to see if the data bear out your hypothesis.
“Our incredible supply chains and manufacturing automation have lowered most consumer prices such that we don't really notice inflation…”
What’s your definition of “inflation”? It sounds like it’s something other than purchasing power, which is surprising to me.
“The US gets away with it because of its military”
So do countries with smaller militaries have…less inflation? More? More or less monetary growth? It’d be interesting to see if the data bear out your hypothesis.
You really misunderstand the Baumol effect. It's about why jobs with no productivity gains have higher salaries over time (it's to keep up with places were wages did grow due to productivity gains). It's used to explain why jobs like musicians have increases salaries over long periods of time.
My definition of inflation is simple: dollars to gold. If you measure things in grams of gold, our current situation makes a lot of sense. A random basket of good subject to complicate macro trends makes no sense. Pretty much everything takes less gold to purchase these days. Assets like property, health care, and education actually require less gold to acquire than 50 years ago but not that much less. Products like consumer goods, require much much less gold now. This makes sense. We can develop property faster and cheaper but we can't make land so it's only a bit less gold. Mass produced goods are an order of magnitude cheaper due to automation.
Now let's go back to dollars. Every time the US prints dollars, it taxes the system. The total value of the system is the same but now the US government has some spending cash and everyone else holds a bit less. Why would any want to hold dollars?
Partly, no one does. The richer you are, the less of your net worth you hold in dollars. But the world is forced to use dollars. Originally, the US & England came together to create an international gold backed currency system to logistically enable transactions without shipping tons of gold. In 1970, President Nixon abandoned this system (1). Please really do look at this chart and it's impossible to ignore when it happened.
Our military & economic momentum are the only reason any uses dollars. It's complicated to describe all the ways but the biggest is that our navy guarantees safe global trade without piracy and fragmentation. If the US Navy disappeared, international shipping would quickly dissolve to squabbles on laws and borders. Small military conflicts would break out around the world. China's already hinted at as much in the South China sea. The Strait of Hormuz would become a war zone. We can argue about specifics but long story short, the world uses dollars heavily and doesn't want to. Every country would of course rather have everyone else use their currency. I think we can agree that the world uses dollars despite not wanting to.
Domestically, the move away from gold is killing the middle class. It's a disgusting trick the wealthy have pulled. Essentially by creating the dollar, forcing everyone to use it, and then printing more, the owner class has stolen gold. Cheaper consumer goods from automation & global supply chains has lessened the impact but this newest generation is finally realizing they never afford a house or education for their children. The fact that the average life expectancy has gone down in the US is the craziest thing ever and should be a source of deep shame.
To fix this, we only need two things: Fix the dollar to a specific amount of gold & Transfer a massive amount of wealth from the rich to the poor. It's obviously complicated and a bit fuzzy to describe but any denial of the general situation is like denying climate change. Gold was $40 and now it's $1800. The numbers are right there and pricing everything in gold makes it simpler to see.
(1) https://www.macrotrends.net/1333/historical-gold-prices-100-...
My definition of inflation is simple: dollars to gold. If you measure things in grams of gold, our current situation makes a lot of sense. A random basket of good subject to complicate macro trends makes no sense. Pretty much everything takes less gold to purchase these days. Assets like property, health care, and education actually require less gold to acquire than 50 years ago but not that much less. Products like consumer goods, require much much less gold now. This makes sense. We can develop property faster and cheaper but we can't make land so it's only a bit less gold. Mass produced goods are an order of magnitude cheaper due to automation.
Now let's go back to dollars. Every time the US prints dollars, it taxes the system. The total value of the system is the same but now the US government has some spending cash and everyone else holds a bit less. Why would any want to hold dollars?
Partly, no one does. The richer you are, the less of your net worth you hold in dollars. But the world is forced to use dollars. Originally, the US & England came together to create an international gold backed currency system to logistically enable transactions without shipping tons of gold. In 1970, President Nixon abandoned this system (1). Please really do look at this chart and it's impossible to ignore when it happened.
Our military & economic momentum are the only reason any uses dollars. It's complicated to describe all the ways but the biggest is that our navy guarantees safe global trade without piracy and fragmentation. If the US Navy disappeared, international shipping would quickly dissolve to squabbles on laws and borders. Small military conflicts would break out around the world. China's already hinted at as much in the South China sea. The Strait of Hormuz would become a war zone. We can argue about specifics but long story short, the world uses dollars heavily and doesn't want to. Every country would of course rather have everyone else use their currency. I think we can agree that the world uses dollars despite not wanting to.
Domestically, the move away from gold is killing the middle class. It's a disgusting trick the wealthy have pulled. Essentially by creating the dollar, forcing everyone to use it, and then printing more, the owner class has stolen gold. Cheaper consumer goods from automation & global supply chains has lessened the impact but this newest generation is finally realizing they never afford a house or education for their children. The fact that the average life expectancy has gone down in the US is the craziest thing ever and should be a source of deep shame.
To fix this, we only need two things: Fix the dollar to a specific amount of gold & Transfer a massive amount of wealth from the rich to the poor. It's obviously complicated and a bit fuzzy to describe but any denial of the general situation is like denying climate change. Gold was $40 and now it's $1800. The numbers are right there and pricing everything in gold makes it simpler to see.
(1) https://www.macrotrends.net/1333/historical-gold-prices-100-...
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In 2008, mortgages were being given out like free candy, without proof of ability to pay. Then the impending wave of defaults nearly destroyed the financial system. It was fundamentally a problem of unknown risk.
Since then, mortgage underwriting has tightened up quite a bit. The people who are buying houses right now can actually afford to do it, and they are qualified for the mortgages they are getting. In many cases they are also making cash offers.
In a lot of cases, they can afford to do it because their stock investments, options, RSUs etc. did very well over the past few years. If there is a bubble, that's where it is.
Unless we see a new wave of defaults on mortgages, which I think is pretty unlikely given the above, I don't expect to see a housing bubble burst.
On top of that, there is record low housing inventory, construction costs are high, and low interest rates enable buyers to pay more and still afford the monthly payments. Also, people have come to value having more space during the pandemic. Those factors aren't going to disappear overnight and burst a price bubble. Maybe we will see house prices decline gradually over the next few years as these issues clear up, but that's not a bubble bursting.
Since then, mortgage underwriting has tightened up quite a bit. The people who are buying houses right now can actually afford to do it, and they are qualified for the mortgages they are getting. In many cases they are also making cash offers.
In a lot of cases, they can afford to do it because their stock investments, options, RSUs etc. did very well over the past few years. If there is a bubble, that's where it is.
Unless we see a new wave of defaults on mortgages, which I think is pretty unlikely given the above, I don't expect to see a housing bubble burst.
On top of that, there is record low housing inventory, construction costs are high, and low interest rates enable buyers to pay more and still afford the monthly payments. Also, people have come to value having more space during the pandemic. Those factors aren't going to disappear overnight and burst a price bubble. Maybe we will see house prices decline gradually over the next few years as these issues clear up, but that's not a bubble bursting.
That is a very good point. I certainly hope we don't have entities like Countrywide running around handing out no-documentation mortgages like candy.
But I think the price bubble for homes is outpacing ordinary peoples' growth in income in many cities. Not everyone is a HN reader with a six figure salary and money in S&P 500 index funds, ETFs that have almost doubled since 2017.
Another important metric to look at is the percentage of people or dual-income couples whose salaries are more modest, who could have financially handled the burden of a mortgage for a home (or condo) at 2014 market rates and prices, and who have now been permanently priced out of the market into being a permanent renter. The home they might want to buy has now doubled in value but their salaries are not markedly different from 2014.
But I think the price bubble for homes is outpacing ordinary peoples' growth in income in many cities. Not everyone is a HN reader with a six figure salary and money in S&P 500 index funds, ETFs that have almost doubled since 2017.
Another important metric to look at is the percentage of people or dual-income couples whose salaries are more modest, who could have financially handled the burden of a mortgage for a home (or condo) at 2014 market rates and prices, and who have now been permanently priced out of the market into being a permanent renter. The home they might want to buy has now doubled in value but their salaries are not markedly different from 2014.
> Not everyone is a HN reader with a six figure salary and money in S&P 500 index funds, ETFs that have almost doubled since 2017.
But not everyone has to be, because the supply of housing is so limited. The number of new homes is still way below population growth, and it's increasingly becoming a trend for boomers to "age in place" instead of downsizing as they age. That means a large number of would be home buyers are competing for a tiny pool of available homes. In that kind of scenario the price of housing can become completely untethered from what the "average family" can afford, and totally driven the wealth of a small elite.
But not everyone has to be, because the supply of housing is so limited. The number of new homes is still way below population growth, and it's increasingly becoming a trend for boomers to "age in place" instead of downsizing as they age. That means a large number of would be home buyers are competing for a tiny pool of available homes. In that kind of scenario the price of housing can become completely untethered from what the "average family" can afford, and totally driven the wealth of a small elite.
Look at this link. The US built very few houses in the last decade.... we are in a supply crunch.
https://www.statista.com/statistics/1041889/construction-yea...
Going back to 05-07 people were bidding up houses in anticipation of them going up in value + there was high supply. People right now are bidding up houses to live in, because there aren't many and interest rates are very low, and they have money in the bank because they weren't spending much the past couple of years.
Going back to 05-07 people were bidding up houses in anticipation of them going up in value + there was high supply. People right now are bidding up houses to live in, because there aren't many and interest rates are very low, and they have money in the bank because they weren't spending much the past couple of years.
Houses in my culdesac in a suburb of Vancouver were selling for $450k in 2014. We bought here last April for $1.05m after seeing prices rise $200k in a month.
The neighbors just sold last week for $1.35m, and there's a house around the corner listed for $1.5m.
The neighbors just sold last week for $1.35m, and there's a house around the corner listed for $1.5m.
Vancouver is really its own special case because not only is it subject to the price rise/increase that is being seen in the top 20/25 largest North American cities, in general for the US/Canada sized market, but also a massive influx of foreign money looking for a place to park it in reliable solid real estate.
I am a participant in the Vancouver area housing market so I concur with your examples of what prices have risen to.
I know a person in Langley whose single family home on a lot in a very normal early 1980s era subdivision was probably $400k valued ten or twelve years ago, they're now receiving unsolicited offers for 1.5 million.
I am a participant in the Vancouver area housing market so I concur with your examples of what prices have risen to.
I know a person in Langley whose single family home on a lot in a very normal early 1980s era subdivision was probably $400k valued ten or twelve years ago, they're now receiving unsolicited offers for 1.5 million.
Is there a reason that those foreign investors like Vancouver specifically so much? People have been talking about the sharply increased prices in Vancouver for some time now -- so I'd think if you were looking for a safe place to park 1.5M you might prefer to buy 4 houses in Winnipeg or something?
Traditionally it’s been a landing zone for East Asian immigrants.
That said I’m very skeptical that foreign money is causing the bubble in Canada.
We’re bringing in 400,000 high skilled people per year and we allow people to raid their current home value and their pensions in order to buy a home.
Those two things overshadow the measly 6-8% of the market which is foreign buyers.
The proposed ban on foreign purchases will hopefully prove me out.
That said I’m very skeptical that foreign money is causing the bubble in Canada.
We’re bringing in 400,000 high skilled people per year and we allow people to raid their current home value and their pensions in order to buy a home.
Those two things overshadow the measly 6-8% of the market which is foreign buyers.
The proposed ban on foreign purchases will hopefully prove me out.
It's my understanding that it's primarily related to historical (past 40 years) immigration patterns to Vancouver. And the size of Mandarin and Cantonese speaking communities in the metro Vancouver area, which is of a similarly large amount of people as in Toronto.
Earlier immigration to the lower mainland of BC was mostly Cantonese speaking folks from the region of Hong Kong, since about 2000 it's been much more "new money" Mandarin and more northern regions of China.
Not just people looking for a safe place to park money but also enough members of their first language and ethnic community that there's a good selection of grocery stores, restaurants, retail shops, community events/entertainment.
That's my theory, at least.
https://en.wikipedia.org/wiki/Chinese_Canadians_in_Greater_V...
Earlier immigration to the lower mainland of BC was mostly Cantonese speaking folks from the region of Hong Kong, since about 2000 it's been much more "new money" Mandarin and more northern regions of China.
Not just people looking for a safe place to park money but also enough members of their first language and ethnic community that there's a good selection of grocery stores, restaurants, retail shops, community events/entertainment.
That's my theory, at least.
https://en.wikipedia.org/wiki/Chinese_Canadians_in_Greater_V...
Couple crazy points about Langley as I have lived here since the 80s
- my parents bought one of those homes back in 1980 for just under 25k!!
- in the 80s the busiest intersection (200 st and bypass) where the chapters, milestones, etc is now, was a giant field full of cows haha :)
- my parents bought one of those homes back in 1980 for just under 25k!!
- in the 80s the busiest intersection (200 st and bypass) where the chapters, milestones, etc is now, was a giant field full of cows haha :)
So theoretically if your parents are at retirement age and want to live somewhere warm, very rough calculation, if they sold that 25k house for 1.5 million today and put it into a mixed form of investments that return an average of 6% annually, that's $90k a year to live on.
Not counting at all whatever other money they have saved up and RRSPs.
Not counting at all whatever other money they have saved up and RRSPs.
Yeah they downsized a number of years ago but your comment is inline with their overall situation. :)
I got fairly lucky and got my start with a townhouse around 2000 just as everything really started to run up. A friend of mine bought his house on a third acre for 210k about four years before me
Pretty tough situation for young adults today with such high prices.
I got fairly lucky and got my start with a townhouse around 2000 just as everything really started to run up. A friend of mine bought his house on a third acre for 210k about four years before me
Pretty tough situation for young adults today with such high prices.
Eh, a lot might be explained by how offices have now become part of our houses. Single people/DINK couples now buy single family homes to have more work space. A couple that needed one bedroom now needs 3 if both work remotely.
could it be just inflation. I heard that there was a lot of moneys being printed.
> yet we are in the middle of pandemic, millions get sick every day
Pandemic is very big and very serious, but it is disproportionately overblown in our perceptions. Many people are completely untouched by the pandemic except for travel plans. The economy has taken a hit in many places like hospitality, travel, medium and small enterprises, but in other places it has grown.
E-commerce, gaming, pharmacy, electronics gadgets- all have seen a boom. And as these industries scale well, wealth transfer has happened and the gulf has been widened. But that does not mean that all of economy is hurt.
> Fed printing dollars recklessly in 2020
The USA is the only country on earth that can print money with little to no consequences.
I don't know whether we are in a bubble or whether there is going to be a big crash. I just added these points in relation to your post.
Pandemic is very big and very serious, but it is disproportionately overblown in our perceptions. Many people are completely untouched by the pandemic except for travel plans. The economy has taken a hit in many places like hospitality, travel, medium and small enterprises, but in other places it has grown.
E-commerce, gaming, pharmacy, electronics gadgets- all have seen a boom. And as these industries scale well, wealth transfer has happened and the gulf has been widened. But that does not mean that all of economy is hurt.
> Fed printing dollars recklessly in 2020
The USA is the only country on earth that can print money with little to no consequences.
I don't know whether we are in a bubble or whether there is going to be a big crash. I just added these points in relation to your post.
> The USA is the only country on earth that can print money with little to no consequences.
Not without any consequences. Foreigners are increasingly buying less UST and the debt is increasingly being monetized by the Fed.
Producer economies increasingly get USD in exchange for goods we consume and use the paper USD to buy hard assets such as stocks and real estate in US. OPEC has been playing with supply largely to match the oil price against devaluation of the dollar. The recent energy spike we are seeing is really a function of devaluation of USD.
Overall it’s a very bad deal for the citizens so not without any consequences.
Not without any consequences. Foreigners are increasingly buying less UST and the debt is increasingly being monetized by the Fed.
Producer economies increasingly get USD in exchange for goods we consume and use the paper USD to buy hard assets such as stocks and real estate in US. OPEC has been playing with supply largely to match the oil price against devaluation of the dollar. The recent energy spike we are seeing is really a function of devaluation of USD.
Overall it’s a very bad deal for the citizens so not without any consequences.
People have been asking this exact question since at least 2014. Some day, there will be a crash, but no one can really predict it. There will be a lot of people how have been "predicting" an imminent crash every year for the last 7+ years who will claim prescience when it finally happens.
The best advice you can get--keep investing at normal intervals in well diversified assets. You can't time the market and you can't predict the future. If there's a crash tomorrow, twenty years from now, it won't matter at all to you. The market will even itself out.
The best advice you can get--keep investing at normal intervals in well diversified assets. You can't time the market and you can't predict the future. If there's a crash tomorrow, twenty years from now, it won't matter at all to you. The market will even itself out.
I am also really confused. I'm a complete noob and have been trying to learn a bit more about markets and evaluating companies but it seems like so many companies have price to earning ratios of > 30. I mean even $NET (Cloudflare) literally do not make money right now so don't even have a P/E ratio?
If anyone has any light books to understand markets more please do share.
If anyone has any light books to understand markets more please do share.
Rivian has in $0 revenue, yet somehow manage to be worth $77,68B
Tesla same thing, extremely overpriced
i remember recommending my friends to buy Tesla stock at $50
today i wouldn't recommend anyone to touch it with a 10 foot pole
Tesla same thing, extremely overpriced
i remember recommending my friends to buy Tesla stock at $50
today i wouldn't recommend anyone to touch it with a 10 foot pole
Tesla shipped 900k cars in 2021. That’s extreme growth from 2020. If they grow they same this year, by the end of it, they’ll sell more than any other automaker, and if they continue into 2023, they might end up selling more than all other automakers combined.
Leaving this aside, there is also the idea that Tesla is a battery company that just happens to put them mostly on cars. So there could be massive growth beyond that.
Then you check Ford, and it sells less cars each year.
So Tesla valuation is huge, with the expectation of it taking over the whole automotive market by 2024…
The moment this expectation disappears, it’s price will correct itself.
Leaving this aside, there is also the idea that Tesla is a battery company that just happens to put them mostly on cars. So there could be massive growth beyond that.
Then you check Ford, and it sells less cars each year.
So Tesla valuation is huge, with the expectation of it taking over the whole automotive market by 2024…
The moment this expectation disappears, it’s price will correct itself.
A book that has guided my approach (just buy an index fund) is A Random Walk Down Wall Street by Burton Malkiel. It goes over the history of stock markets and stock picking giving evidence that very few people are going to beat the average, even those paid to do so.
Well, I also warned them about Cloudflare and indicated to them to sell after the AWS announcements. [0] At the time of my comment, it was >$210 a share.
Just look at the responses in [0], telling you to buy more and hold it at the time.
Now it is 50% down since then. I tried to help, but they did not listen.
[0] https://news.ycombinator.com/item?id=29355360
Just look at the responses in [0], telling you to buy more and hold it at the time.
Now it is 50% down since then. I tried to help, but they did not listen.
[0] https://news.ycombinator.com/item?id=29355360
It is a bubble only if there is an inevitable bursting to be had at a large scale. You see segments of the economy having micro crashes and correcting so I am not sure. Mass psychology has also changed since '08 smartphones and the internet have evolved a lot.
Look at evergrande in China, almost if not bigger than the lehman brothers' crash but China self regulated it. Same with COVID and stimulus. Retail investors are now more powerful too.
Look at evergrande in China, almost if not bigger than the lehman brothers' crash but China self regulated it. Same with COVID and stimulus. Retail investors are now more powerful too.
Evergrande and Lehman Brothers aren’t really comparable.
A real estate development company defaulting on its debt means losses for investors, most of which have diversified portfolios and can absorb the loss. $300bn in debt is a lot, so I don’t want to discount how serious that is, but they’re not a bank.
Lehman Brothers, on the other hand, was deeply interconnected with the U.S. banking system and touched tens of thousands of businesses. The $600bn they owed were not to “investors” but to businesses, insurance companies and other counter parties that were not prepared to absorb the loss. The prospect of unwinding Lehman’s positions was beginning a catastrophic domino effect on the global financial system. They were quite literally “too big to fail.”
Evergrande is just a big company.
A real estate development company defaulting on its debt means losses for investors, most of which have diversified portfolios and can absorb the loss. $300bn in debt is a lot, so I don’t want to discount how serious that is, but they’re not a bank.
Lehman Brothers, on the other hand, was deeply interconnected with the U.S. banking system and touched tens of thousands of businesses. The $600bn they owed were not to “investors” but to businesses, insurance companies and other counter parties that were not prepared to absorb the loss. The prospect of unwinding Lehman’s positions was beginning a catastrophic domino effect on the global financial system. They were quite literally “too big to fail.”
Evergrande is just a big company.
Even further - Lehman had a giant book of derivatives. The counterparts to all those trades woke up to a nightmare - you don't even know what your own book looks like if you don't know what % of your positions with a given counterparty are still valid. Imagine the panic.
One could argue stimulus inflates the bubble even more especially if it just goes to wealthy people. The worry there is that it seems to be the only way to prevent a crash; so if there’s another pandemic, war, series of natural disasters fueled by climate change, drought/famine they just print more money and inflate it even more. Just keep pulling the lever until it breaks.
Or maybe it never breaks and we should just pull the lever a bunch today and buy our way out of all the worlds problems.
Or maybe it never breaks and we should just pull the lever a bunch today and buy our way out of all the worlds problems.
If salary rises along with inflation there is no problem. There is a mass resignation crisis right now as part of that correction, employers who raise pay will do well and the rest won't. People are also finding income outside of traditional employment.
My opinion is, bubbles burst when people panic and people panic due to lack of communication. In the past, you wouldn't see places like /r/antiwork or /r/wallstreetbets grab wallstreet's attention for example. The rich keep getting richer but they are also now better informed so that they know just how much carrot to hang on the stick for the poor. inflation is normal, hence so are bubbles. Bubbles bursting means failure of the system to sustain itself.
My opinion is, bubbles burst when people panic and people panic due to lack of communication. In the past, you wouldn't see places like /r/antiwork or /r/wallstreetbets grab wallstreet's attention for example. The rich keep getting richer but they are also now better informed so that they know just how much carrot to hang on the stick for the poor. inflation is normal, hence so are bubbles. Bubbles bursting means failure of the system to sustain itself.
I’d disagree that the only reason people would panic is lack of communication. If you have enough of the events I listed happen I close each other such that the government can’t adequately respond to them, there would be a panic.
I guess my point is maybe that we’re in a fragile system rather then a bubble. It’s self sustainable in the steady state (to your point) but if it breaks it’s going to completely collapse and we just have to hope that we never reach the point where it could break. It’s a Similar line of thinking to controlled burns to manage forest fire before they get uncontrollably big. But in the USA at least, the safety net isn’t there to allow for controlled burns in the economy.
I guess my point is maybe that we’re in a fragile system rather then a bubble. It’s self sustainable in the steady state (to your point) but if it breaks it’s going to completely collapse and we just have to hope that we never reach the point where it could break. It’s a Similar line of thinking to controlled burns to manage forest fire before they get uncontrollably big. But in the USA at least, the safety net isn’t there to allow for controlled burns in the economy.
Sort of bubble... if we look at other countries like Zimbabwe that had hyperinflation, their stock market inflated along with the currency, more or less keeping the same values. At least until the government in Zimbabwe shut down the market. Here in the US, the Fed controls the money supply, and it's widely believed that the Fed won't choke the money growth any further if the market falls by 20% to 30%, depending on your pessimism. Of course, if the actual economy collapses due to Covid and supply chain problems, there is no bottom.
> s&p returning ~30% last year,
One big thing to remember is that the S&P isn’t the whole economy. The pandemic pushed a ton of money into bigger businesses which are listed on the S&P, cutting into small businesses which aren’t. Your neighborhood restaurants and stores started giving a much higher fraction of their income to companies like UberEats or GrubHub, lots of places stopped taking cash & got Square terminals, Amazon got a ton of orders which people might have picked up locally in years past, etc.
One big thing to remember is that the S&P isn’t the whole economy. The pandemic pushed a ton of money into bigger businesses which are listed on the S&P, cutting into small businesses which aren’t. Your neighborhood restaurants and stores started giving a much higher fraction of their income to companies like UberEats or GrubHub, lots of places stopped taking cash & got Square terminals, Amazon got a ton of orders which people might have picked up locally in years past, etc.
Real estate agent checking in here: one of the frequent oddities I see on HN is the number of people who see housing / real estate as one thing. It isn’t - it’s super localized. So just because houses are overpriced for your area or there are a lot of foreclosures in your area, or whatever else might be going on in your area doesn’t mean much about anywhere else. In my market, houses just two blocks from each other can vary significantly in value! So, sure - there probably are markets around the country and world that are in a bubble. There certainly are trends that affect large geographic areas too. But, at the moment there are few asset classes in which to put money and money is cheap. Even if those things change, real estate is historically a good investment depending on your market.
The economy can be broken for a long time. Between 2013-2016 I worked in a Mobile ad-tech startup, we spoke of valuations as 2x revenue and SaaS based analytics at 5x revenue.
We thought that there was a bubble at that time when firms started getting high valuation multiples without any cash flow/profit. Now 7 years later Uber trades at a 5.8x multiple to revenue, google at ~10x, and salesforce at ~10x. Companies like Hubspot trade at ~24x revenue, and Snowflake trades at ~100x revenue! Revenue multiples are a pretty awful metric, but the crazy thing in the above calculation is effectively inversely correlated with earnings while also being only loosely correlated with revenue growth.
While this doesn't look sustainable, it's quite possible that it lasts for long enough that a contrarian bet won't pan out.
We thought that there was a bubble at that time when firms started getting high valuation multiples without any cash flow/profit. Now 7 years later Uber trades at a 5.8x multiple to revenue, google at ~10x, and salesforce at ~10x. Companies like Hubspot trade at ~24x revenue, and Snowflake trades at ~100x revenue! Revenue multiples are a pretty awful metric, but the crazy thing in the above calculation is effectively inversely correlated with earnings while also being only loosely correlated with revenue growth.
While this doesn't look sustainable, it's quite possible that it lasts for long enough that a contrarian bet won't pan out.
I for one believe that the revenue multiple is too awful to even mention by itself. what about the profit margins growth market cap Etc?
stocks: No, prices are just going up. I'd call it inflation caused by rich people who can't spend their money due to Covid. But I expect the higher prices to stick.
crypto: Yes, for sure there are lots of ponzi schemes and BTC/ETH will eventually drop back to sane levels while NFTs/web3 go bust.
dotcom: No, software really is eating the world. Did you notice how much shit Facebook / Google / Apple / Amazon / Microsoft can get away with? They are behaving like the robber oil barons of the past and that's highly profitable, so their high stock prices are "justified". That is, until there's legal action to break them up. But in the current political climate, I predict that won't happen.
housing: No, there just weren't enough new houses built in the past 10 years. That's why prices skyrocketed. The same amount of people are competing for less available houses. This might be a bubble, but it can only burst when lots of new houses are built. So maybe it just won't burst due to NIMBYism.
is the economy is broken? Yes, we're shoving large amounts of money towards the ultra rich while some of our fellow citizens are starving or get financially wrecked by natural disasters like the texas ice / electricity thing.
counter reaction to the Fed printing dollars recklessly in 2020? Yes, that's why crypto and some stocks went up sky high. But as long as it's only rich people blowing their money into shady investments, us regular folks might get off pretty unscathed.
"Fed will go on a printing spree again" I consider that very unlikely. They wanted to kickstart the economic recovery and it worked. So their purpose for printing money has vanished.
crypto: Yes, for sure there are lots of ponzi schemes and BTC/ETH will eventually drop back to sane levels while NFTs/web3 go bust.
dotcom: No, software really is eating the world. Did you notice how much shit Facebook / Google / Apple / Amazon / Microsoft can get away with? They are behaving like the robber oil barons of the past and that's highly profitable, so their high stock prices are "justified". That is, until there's legal action to break them up. But in the current political climate, I predict that won't happen.
housing: No, there just weren't enough new houses built in the past 10 years. That's why prices skyrocketed. The same amount of people are competing for less available houses. This might be a bubble, but it can only burst when lots of new houses are built. So maybe it just won't burst due to NIMBYism.
is the economy is broken? Yes, we're shoving large amounts of money towards the ultra rich while some of our fellow citizens are starving or get financially wrecked by natural disasters like the texas ice / electricity thing.
counter reaction to the Fed printing dollars recklessly in 2020? Yes, that's why crypto and some stocks went up sky high. But as long as it's only rich people blowing their money into shady investments, us regular folks might get off pretty unscathed.
"Fed will go on a printing spree again" I consider that very unlikely. They wanted to kickstart the economic recovery and it worked. So their purpose for printing money has vanished.
Your 4th premise is all you need. We are in a pandemic with supply and labor shortages. Even if demand dropped, prices would still be increasing. But demand didn’t drop, increased.
Why do you frame the fed printing money as reckless. If the fed had not intervened, we would likely have had a collapse of demand with scattered inflation, so stagflation or possibly a depression, both of which are harder to deal with than inflation.
Bitcoin appreciation has nothing to do with any of this. It’s trajectory predates the pandemic and is part of a standard cycle for new technologies.
Be careful that you are not assuming a conclusion and then shaping the premises to support and justify.
Why do you frame the fed printing money as reckless. If the fed had not intervened, we would likely have had a collapse of demand with scattered inflation, so stagflation or possibly a depression, both of which are harder to deal with than inflation.
Bitcoin appreciation has nothing to do with any of this. It’s trajectory predates the pandemic and is part of a standard cycle for new technologies.
Be careful that you are not assuming a conclusion and then shaping the premises to support and justify.
"The cause of bubbles is disputed by economists; some economists even disagree that bubbles occur at all (on the basis that asset prices frequently deviate from their intrinsic value). However, bubbles are usually only identified and studied in retrospect, after a massive drop in prices occurs."
https://www.investopedia.com/terms/b/bubble.asp
https://www.investopedia.com/terms/b/bubble.asp
I'd say the bubble actually already popped in some places and is popping in other places. The major indices are largely holding up because of high-quality mega cap stocks with huge cash flows that are immune to inflation (or rather, they have pricing power to track inflation).
For example, XBI, the biotech sector ETF is down more than 50% since its Feb 2021 peak. MJ, the marijuana sector ETF is down 70% since Feb 2021.
For example, XBI, the biotech sector ETF is down more than 50% since its Feb 2021 peak. MJ, the marijuana sector ETF is down 70% since Feb 2021.
I think it is popping but signals are still kinda faint and does rule news cycle(yet) eg China had horrible week https://twitter.com/SofiaHCBBG/status/1479286798660825091?s=... .
> companies raising billions with zero revenue, s&p returning ~30% last year, bitcoin goes 10x, housing (in my area) up 2x
This does not automatically imply that there's a bubble. It could be the effect of the increasing inequality, where more and more money are moving towards wealthy companies.
> is the economy is broken?
Absolutely yes.
This does not automatically imply that there's a bubble. It could be the effect of the increasing inequality, where more and more money are moving towards wealthy companies.
> is the economy is broken?
Absolutely yes.
Yes, but it's not clear whether the bubble will get bigger. If you were really old you could also say the same about recessions: better days will come, but will worse days come first?
A thing to remember about financial things is they end up affecting the "real" world. It's not just a matter of things being overpriced, overpricing can actually inflate the fundamental value of things. Indeed this is probably why it happens in the first place: often things get better with investment, and those gains are visible to investors, who end up getting overexcited.
A thing to remember about financial things is they end up affecting the "real" world. It's not just a matter of things being overpriced, overpricing can actually inflate the fundamental value of things. Indeed this is probably why it happens in the first place: often things get better with investment, and those gains are visible to investors, who end up getting overexcited.
A monthly report I read[0] predicts a crash this year.
[0]: https://ethz.ch/content/dam/ethz/special-interest/mtec/chair...
[1]: https://er.ethz.ch/financial-crisis-observatory.html
[0]: https://ethz.ch/content/dam/ethz/special-interest/mtec/chair...
[1]: https://er.ethz.ch/financial-crisis-observatory.html
Do you know how people sometimes say "If everybody stopped believing the dollar had value, it would stop having value, and you could paper your walls with it"?
I don't know if people have stopped thinking the dollar has value, but I suspect people are beginning to realize it's all made up, and we're starting to feel the deep cynicism that comes from believing your world is a farce. I think postmodern thought has probably contributed to this, due to its deconstructive and subjective bent.
I don't know if people have stopped thinking the dollar has value, but I suspect people are beginning to realize it's all made up, and we're starting to feel the deep cynicism that comes from believing your world is a farce. I think postmodern thought has probably contributed to this, due to its deconstructive and subjective bent.
Yes, we're in a bubble, we've been in a bubble for at least the last 10 years.
But the reason why the bubble still hasn't popped is because reserve banks have been propping up the stock market by creating massive amounts of new currency. Stock prices are denominated in fiat currencies so when you talk about a 'crash' you mean relative to fiat currencies... If the value of fiat drops faster than the value of stocks, you won't notice that a crash is happening; it might look like it's all going up.
It's basically similar to what happens in countries which experience hyperinflation; the stocks all seem to be going up relative to the national fiat currency when in reality they are dropping relative to foreign fiat...
But the difference is that because the USD is the world's reserve currency, there is no other fiat against which to measure the loss of value of the USD... So the loss of value is hidden; it will only be revealed when people start selling their stocks and buying real assets with the money; this will drive up consumer prices. The crash will only be experienced as increases consumer prices and possibly also increases in the price of cryptocurrencies. It may also explain why inflation is strongest in the US.
It's basically similar to what happens in countries which experience hyperinflation; the stocks all seem to be going up relative to the national fiat currency when in reality they are dropping relative to foreign fiat...
But the difference is that because the USD is the world's reserve currency, there is no other fiat against which to measure the loss of value of the USD... So the loss of value is hidden; it will only be revealed when people start selling their stocks and buying real assets with the money; this will drive up consumer prices. The crash will only be experienced as increases consumer prices and possibly also increases in the price of cryptocurrencies. It may also explain why inflation is strongest in the US.
[deleted]
First, what do we mean by a “bubble?” Let’s define it as a steep rise in price of an asset, fueled by FOMO, without enough underlying value to justify the asset price inflation. You mention a lot of asset classes, and there are big differences, so let’s start with the most risky.
In my view, there was in 2021, and still in 2022, a bubble in high risk assets like crypto, meme stocks, unprofitable tech, and junk bonds. These prices have already come down considerably, but I do not believe they are done. You can look at the ETF charts of MEME, ARKK, and JNK to get a sense of the last three assets.
Home prices have skyrocketed, but because of rising incomes and exceptionally low 30Y mortgage rates, monthly payments are actually very low historically. https://fred.stlouisfed.org/graph/fredgraph.png?g=KFhj
Stocks are very mixed. There is a set of stocks that have been pummeled all 2021, but pay high dividends, and are now back in favor. Look at the last couple of weeks charts for T, DOW, and TSE. This is a rotation to more safe stocks that have cash flows and pay high dividends.
But ultimately, my view is that there is too much cash earning negative real interest rates in high income households for a 2001-2003 style drawdown. During the pandemic (through September 2021), the average household in the top 1% of income earners went from $2m cash savings to $3m. The top quintile of earners has, in aggregate, an extra $2.75 trillion in extra pandemic cash. I don’t see the case for a huge broad drawdown with that much cash sitting around earning negative real rates in savings and money market accounts.
As far as your last statement, you should be far more afraid the Fed tightens too rapidly.
In my view, there was in 2021, and still in 2022, a bubble in high risk assets like crypto, meme stocks, unprofitable tech, and junk bonds. These prices have already come down considerably, but I do not believe they are done. You can look at the ETF charts of MEME, ARKK, and JNK to get a sense of the last three assets.
Home prices have skyrocketed, but because of rising incomes and exceptionally low 30Y mortgage rates, monthly payments are actually very low historically. https://fred.stlouisfed.org/graph/fredgraph.png?g=KFhj
Stocks are very mixed. There is a set of stocks that have been pummeled all 2021, but pay high dividends, and are now back in favor. Look at the last couple of weeks charts for T, DOW, and TSE. This is a rotation to more safe stocks that have cash flows and pay high dividends.
But ultimately, my view is that there is too much cash earning negative real interest rates in high income households for a 2001-2003 style drawdown. During the pandemic (through September 2021), the average household in the top 1% of income earners went from $2m cash savings to $3m. The top quintile of earners has, in aggregate, an extra $2.75 trillion in extra pandemic cash. I don’t see the case for a huge broad drawdown with that much cash sitting around earning negative real rates in savings and money market accounts.
As far as your last statement, you should be far more afraid the Fed tightens too rapidly.
One of the arguments that I see against crypto being a Ponzi scheme is that the stock market is just people looking to sell stock to some other sucker for a higher price so its the same thing.
We seem to have become almost completely detached from the idea that investment valuations should be tied to present and future cash flows from an operating business that is providing value.
So yes, more and more the whole top-half of the economy is a bubble, while the bottom half is being overrun with flat-out scams (and crypto is sort of the best of both worlds).
The actual best outcome I think we can hope for is that the labor shortage is real and workers have much more negotiating power now which will lead to a wage-price spiral with high inflation for the next decade and resetting the game through dollar devaluation. This is the high employment solution where wages rise faster than e.g. housing prices and without falling prices there's just a slow corrosive effect on the real value of housing without a sharp drop. The real value of debts would also be erased by inflation.
The alternative would be a hard deflationary stop to the economy. Since everyone is terrified about inflation, though, this is what I expect will happen. This will be the high unemployment option but the value of the dollar will be retained, while asset prices will crash. Right now that seems impossible in the current climate, but if this happens we will suffer a sharp reversal (people will correctly blame the bubble on inflationary policies and then predictably apply harsh austerity during the crash).
That fact that I probably sound delusional to a lot of readers here is why I'm pretty sure the latter outcome is where we're heading. Everyone is now a believer in the quantity theory of money and that the Fed is irresponsible. When the wind suddenly does a 180 we're going to make it all worse.
We seem to have become almost completely detached from the idea that investment valuations should be tied to present and future cash flows from an operating business that is providing value.
So yes, more and more the whole top-half of the economy is a bubble, while the bottom half is being overrun with flat-out scams (and crypto is sort of the best of both worlds).
The actual best outcome I think we can hope for is that the labor shortage is real and workers have much more negotiating power now which will lead to a wage-price spiral with high inflation for the next decade and resetting the game through dollar devaluation. This is the high employment solution where wages rise faster than e.g. housing prices and without falling prices there's just a slow corrosive effect on the real value of housing without a sharp drop. The real value of debts would also be erased by inflation.
The alternative would be a hard deflationary stop to the economy. Since everyone is terrified about inflation, though, this is what I expect will happen. This will be the high unemployment option but the value of the dollar will be retained, while asset prices will crash. Right now that seems impossible in the current climate, but if this happens we will suffer a sharp reversal (people will correctly blame the bubble on inflationary policies and then predictably apply harsh austerity during the crash).
That fact that I probably sound delusional to a lot of readers here is why I'm pretty sure the latter outcome is where we're heading. Everyone is now a believer in the quantity theory of money and that the Fed is irresponsible. When the wind suddenly does a 180 we're going to make it all worse.
Depending on where you are in the world, you may be living during several bubbles.
I think the key is to not have any assets that you aren't willing to gamble in these bubbles.
Then there are macro economic forces (in the US at least) such as hyper inflation that are really hard to avoid. I wouldn't call inflation a bubble as it don't focus on an over-valued asset.
Anything that seems too good to be true, probably is. It can pay handsomely to put a small wager on these situations, but it is a terrible idea to leverage yourself in a bubble. In 2008 many people bought houses that they could not afford and then the bottom dropped out. It was a terrible situation, but no one was forced into this bubble. One can rent, move to a less expensive area and take on a longer commute, etc.
With exponential acceleration as a macro trend, we will probably live during one or more bubbles more often than not... as long as things do not boil over.
I think the key is to not have any assets that you aren't willing to gamble in these bubbles.
Then there are macro economic forces (in the US at least) such as hyper inflation that are really hard to avoid. I wouldn't call inflation a bubble as it don't focus on an over-valued asset.
Anything that seems too good to be true, probably is. It can pay handsomely to put a small wager on these situations, but it is a terrible idea to leverage yourself in a bubble. In 2008 many people bought houses that they could not afford and then the bottom dropped out. It was a terrible situation, but no one was forced into this bubble. One can rent, move to a less expensive area and take on a longer commute, etc.
With exponential acceleration as a macro trend, we will probably live during one or more bubbles more often than not... as long as things do not boil over.
> I think the key is to not have any assets that you aren't willing to gamble in these bubbles.
If you have any assets, you're taking risk either way. Park them in something too safe and you're losing to inflation and missing out market gains, park them into some other asset class and you're vulnerable to market crashes.
If you have any assets, you're taking risk either way. Park them in something too safe and you're losing to inflation and missing out market gains, park them into some other asset class and you're vulnerable to market crashes.
Counter-examples include anything that you actual want for its intrinsic value.
E.g., Housing for Living In. Buy a house that you can afford and that you want to live in for the rest of your life. Drops 100% in value? Who cares? Your best case scenario was passing away in the house in any case. Goes up in value? Actually... that could be a bad thing... might mean more taxes.
E.g., Housing for Living In. Buy a house that you can afford and that you want to live in for the rest of your life. Drops 100% in value? Who cares? Your best case scenario was passing away in the house in any case. Goes up in value? Actually... that could be a bad thing... might mean more taxes.
[deleted]
The price of stocks and other assets does not reflect the value of those. It reflects a ratio of the value of the asset relative to the dollar.
If more dollars are printed, the dollar is worth less. So the ratio of other assets to the dollar is higher.
That is not a bubble.
It would be a bubble if the asset prices multiplied and the amount of dollars stayed the same.
If more dollars are printed, the dollar is worth less. So the ratio of other assets to the dollar is higher.
That is not a bubble.
It would be a bubble if the asset prices multiplied and the amount of dollars stayed the same.
According to this, the valuation of stocks in a different currency like euro or chf would look differently than in dollars, since the dollar price with respect to these currencies would have deviated.
Is this the case for another more stable currency ?
Is this the case for another more stable currency ?
That is an interesting question I pondered every now and then but have not an answer to yet.
When the FED signals it will change interest rates, Asset prices change in every currency.
I guess there is some explanation to this. Maybe that other currencies are measured in how much Dollars their central banks have in reserve. So a Euro would just be a certain amount of Dollars. Similar to how it was a certain amount of Gold during the Gold standard. But I am not sure.
When the FED signals it will change interest rates, Asset prices change in every currency.
I guess there is some explanation to this. Maybe that other currencies are measured in how much Dollars their central banks have in reserve. So a Euro would just be a certain amount of Dollars. Similar to how it was a certain amount of Gold during the Gold standard. But I am not sure.
I think the answer is that when the FED prints more money, the "value" of 1 dollar doesn't change much, so the ratio of dollar to euros doesn't change.
Sure with more money, people in the US spend more, US inflation increase, as in stuff gets more expensive, but none of this directly impacts the ratio of the value of the dollar with respect to the EUR.
So the original claim, which is essentially that there is some company called "The US", of which dollars act like a stock, and the FED printing more money is like diluting the stock, is just not true. Dollars don't behave like stocks.
Sure with more money, people in the US spend more, US inflation increase, as in stuff gets more expensive, but none of this directly impacts the ratio of the value of the dollar with respect to the EUR.
So the original claim, which is essentially that there is some company called "The US", of which dollars act like a stock, and the FED printing more money is like diluting the stock, is just not true. Dollars don't behave like stocks.
Hard to say.
I think the effects of printing dollars are complex. In the short term (months and years) they are pretty chaotic. And in the long term (decades) they are simple: The more dollars, the less value a dollar has.
Over the last decade, dollars and euros have been printed like crazy. So it is not easy to compare.
I think the effects of printing dollars are complex. In the short term (months and years) they are pretty chaotic. And in the long term (decades) they are simple: The more dollars, the less value a dollar has.
Over the last decade, dollars and euros have been printed like crazy. So it is not easy to compare.
The way I understand it is:
Since 2008 central banks around the world lowered interest rates in order to stimulate investment. But for the first time ever, they set the interest rates to below the inflation rate. This below-inflation interest rates means that borrowing from central banks and putting the borrowed money into any asset is on average going to be a win, because the currency gets weaker faster than the interest accrues on the loan. This causes the institutions and individuals with good credit (usually backed by lots of held collateral) to borrow as much as they can and put it into stocks, real estate, crypto, or anything that is not cash and not subject to depreciation.
This borrow and buy feeding frenzy will continue as long as interest rates are lower than inflation, because it is free money for those who partake.
Since 2008 central banks around the world lowered interest rates in order to stimulate investment. But for the first time ever, they set the interest rates to below the inflation rate. This below-inflation interest rates means that borrowing from central banks and putting the borrowed money into any asset is on average going to be a win, because the currency gets weaker faster than the interest accrues on the loan. This causes the institutions and individuals with good credit (usually backed by lots of held collateral) to borrow as much as they can and put it into stocks, real estate, crypto, or anything that is not cash and not subject to depreciation.
This borrow and buy feeding frenzy will continue as long as interest rates are lower than inflation, because it is free money for those who partake.
You'd better believe it. Always look at the fundamentals of a stock. What is the P/E? Do you know what the definition of the P/E is and why it is important? Buying a stock with a P/E greater than about 20 is poor judgement (unless you're gambling on it going up further). A P/E of 20 means that there is only a mere 5% Return on Investment. If current inflation is greater than 5% (which it is), you're actually losing money on that stock every year.
Are you getting into stocks because the underlying business model of the company is good? Or is it because you expect the stock price to go up, at which time you might sell that stock? If it's the first, that's investment. If it's the second, that's just glorified gambling.
Are you getting into stocks because the underlying business model of the company is good? Or is it because you expect the stock price to go up, at which time you might sell that stock? If it's the first, that's investment. If it's the second, that's just glorified gambling.
FED printed huge amount of money, which resulted in huge asset price inflation and "little" regular inflation.
So in spite of fundamentals being worse due to pandemic, we price asset more generously.
Hard to predict exact future, but expect shocks along the way as massive influx of money makes bubbles and Ponzi schemes more likely.
Maybe dollar will go bust, maybe crypto will experience winter, maybe too many ETF on S&P makes it too high vs. wider index or maybe companies with no established business model, but high valuation will go bust.
Maybe high energy prices will lead to higher food prices which will cause unrest in poor countries. ...
Hard to be certain, but some things are more likely (e.g. crypto recession) vs. the others (e.g. companies with solid fundamentals and great products, but no profit going bust).
So in spite of fundamentals being worse due to pandemic, we price asset more generously.
Hard to predict exact future, but expect shocks along the way as massive influx of money makes bubbles and Ponzi schemes more likely.
Maybe dollar will go bust, maybe crypto will experience winter, maybe too many ETF on S&P makes it too high vs. wider index or maybe companies with no established business model, but high valuation will go bust.
Maybe high energy prices will lead to higher food prices which will cause unrest in poor countries. ...
Hard to be certain, but some things are more likely (e.g. crypto recession) vs. the others (e.g. companies with solid fundamentals and great products, but no profit going bust).
>> and "little" regular inflation.
My McDonalds breakfast has gone from $2.12 to $2.86 in one year. This is one of many thing that have gone through the roof.
Housing has also gone quite a bit beyond the 2006 bubble prices.
Employers at the low end are voluntarily raising wages 50 to 100 percent. From $8-10 to $15-18.
New policies are coming out to enroll employees in 401k plans automatically, which means blindly dumping more money into the market (broadly, through funds). Oh it's a bubble alright.
If the fed raises rates too quickly they'll pop it the same way they did in 2007. Hence the push for massive inflation which is needed prior to raising rates.
On top of normal bubble bust issues, the US faces another threat. If the market tanks, foreign interests stand to sell those bonds and buy our economy wholesale.
IMHO expect more inflation with rising interest rates for the next while, unless it pops.
My McDonalds breakfast has gone from $2.12 to $2.86 in one year. This is one of many thing that have gone through the roof.
Housing has also gone quite a bit beyond the 2006 bubble prices.
Employers at the low end are voluntarily raising wages 50 to 100 percent. From $8-10 to $15-18.
New policies are coming out to enroll employees in 401k plans automatically, which means blindly dumping more money into the market (broadly, through funds). Oh it's a bubble alright.
If the fed raises rates too quickly they'll pop it the same way they did in 2007. Hence the push for massive inflation which is needed prior to raising rates.
On top of normal bubble bust issues, the US faces another threat. If the market tanks, foreign interests stand to sell those bonds and buy our economy wholesale.
IMHO expect more inflation with rising interest rates for the next while, unless it pops.
[deleted]
Expect cashiers to be making 200k per year and software developers making 1.5M per year in 2030.
My ponderings: central bank economists are truly confused why the real world is not following text book examples, and they are still reluctant to admit mistakes.
(factoids I don't remember sources for:) Chinese export volume is higher now than in 2019, meanwhile there are fewer US jobs. If true, the actual cause of inflation is money printing; supply chain overload is an effect. Everyone knows the effect on asset prices.
The central banks can reverse these trends ("bursting the bubble"), but what will break if they don't? At some point social stability starts to break down, more riots, political movements gain momentum, and so on. Either that, or they have to take down the stock and housing markets.
(factoids I don't remember sources for:) Chinese export volume is higher now than in 2019, meanwhile there are fewer US jobs. If true, the actual cause of inflation is money printing; supply chain overload is an effect. Everyone knows the effect on asset prices.
The central banks can reverse these trends ("bursting the bubble"), but what will break if they don't? At some point social stability starts to break down, more riots, political movements gain momentum, and so on. Either that, or they have to take down the stock and housing markets.
I think people mistake bubble with inflation. When borrowing is this cheap, people spend it and invest it however they can. What is the alternative when the real inflation is this high?
I believe things will quickly change when the interest rates eventually increase.
I believe things will quickly change when the interest rates eventually increase.
Everything you're seeing is the result of massive QE and artificially low interest rates. 40% of all the USD in economy has been created in the last 2 years. In 2008 the FEDS balance sheet was 800 Billion, today it is almost 9 trillion. All that money they created out of nothing has to go somewhere and finds its way into the markets, housing, etc. Can you imagine what would happen if the FED tried to remove just a couple of those trillions? Imagine if the FED 0.25 Interest Rate was 5% + it was just 12 years ago.
Can the madness continue, yes and much longer than you can imagine. This will only end when the fed decides it ends, only they know the time and day.
Can the madness continue, yes and much longer than you can imagine. This will only end when the fed decides it ends, only they know the time and day.
Bitcoin is down ~40% from its all time high in October 2021. It may still be in a bit of a bubble, but there's also an argument to be made that gone down enough that it's now oversold (or nearing oversold territory). And when bitcoin goes down, it takes pretty much the rest of the crypto market with it, with very few exceptions. I personally don't think we're currently in a bubble for crypto.
The rest I do think are in a bubble and are probably overdue for a nice correction. I'm not sure what will trigger it, though. Maybe if/when the Fed raise the interest rates? I don't know if that'll be enough by itself, though.
The rest I do think are in a bubble and are probably overdue for a nice correction. I'm not sure what will trigger it, though. Maybe if/when the Fed raise the interest rates? I don't know if that'll be enough by itself, though.
Oversold implies there is some intrinsic value in the first place to set some baseline. This is just wishful thinking.
Hedging against government induced inflation. Easy money transfer across borders without a 3rd party. Those are two pretty strong values.
I found this 30 min summary by Ray Dalio really helpful. He breaks down how an economy works in a clear and concise way. Stupid simple like me. :)
https://youtu.be/PHe0bXAIuk0
I also found this recent interview with him had a number of interesting angles on the state of things in the US/world as a whole.
https://www.theinvestorspodcast.com/episodes/the-changing-wo...
Would definitely love to hear counter points to these to continue improving my thinking.
https://youtu.be/PHe0bXAIuk0
I also found this recent interview with him had a number of interesting angles on the state of things in the US/world as a whole.
https://www.theinvestorspodcast.com/episodes/the-changing-wo...
Would definitely love to hear counter points to these to continue improving my thinking.
Dalio's broad strokes thesis that US will decline and China will take over is right iff there is sufficient trust in the PRC's monetary, judicial, and fiscal infrastructures. USD took over from the pound sterling not just because the UK was exhausted post-WW2, but more that major global market participants trusted US institutions from US soft power projection, and were comfortable transacting in USD under Bretton Woods.
For Dalio's thesis to bear out, he needs the PRC to convince major global market participants and other nations that a PRC-chartered, RMB-led Bretton Woods 2 (or equivalent, because history rhymes) makes more sense to follow than the current status quo. The challenge is the PRC has a significant soft power projection PR image issue on its hands at the moment with a lot of perceived bellicosity by not just its regional neighbors, but increasingly around the world.
The US during its post-war ascent was significantly involved in many domestic political knife fights in other nations, outright regime changes, or military engagement that are interpreted as bellicose by some standards: Greece, Italy, Albania, Syria, Burma, Egypt, Iran, Guatemala, Indonesia, Korea, Vietnam, Cuba, Congo-Leopoldville, Laos, Dominican Republic, Brazil, Iraq, Cambodia, Chile, Bolivia, Ethiopia, Angola, East Timor, Argentina, Afghanistan, Poland, Chad, Nicaragua, Grenada, Panama, Haiti, Zaire, Yugoslavia, Palestine-Israel, Libya, Venezuela.
What is curious to me is the USSR was similarly involved, but everyone decided to trust the USD and not the RUB. I have my theories about why that happened, but to the current topic, for various reasons the PRC is not quite so extensively involved in other nations' affairs, yet their soft power image is not sufficiently strong enough to mount a credible replacement to the USD.
I think part of the discrepancy between currencies and nation state dominance is acknowledgement by market participants that China's debt-to-GDP ratio is more than twice as much as the US ratio. As an investor, I also have deep reservations over the long-term with how China organizes its public financing from land sales (I think they're vastly underpricing the sales).
Dalio makes a compelling case, but hand waves away the above issues with "China will grow out of these temporary nitpicks". I suspect Jiping's administration played China's hand too soon; if China had stuck to its mercantilist knitting for another 2-3 decades, I believe it would have made a compelling and persuasive nation state for others to follow at the end of that period with no bellicosity involved. As it stands, I suspect the hand was played too soon because their runways of demographics, energy-debt, and food production are colliding in undesirable ways they're trying to fix by externalizing the costs.
For Dalio's thesis to bear out, he needs the PRC to convince major global market participants and other nations that a PRC-chartered, RMB-led Bretton Woods 2 (or equivalent, because history rhymes) makes more sense to follow than the current status quo. The challenge is the PRC has a significant soft power projection PR image issue on its hands at the moment with a lot of perceived bellicosity by not just its regional neighbors, but increasingly around the world.
The US during its post-war ascent was significantly involved in many domestic political knife fights in other nations, outright regime changes, or military engagement that are interpreted as bellicose by some standards: Greece, Italy, Albania, Syria, Burma, Egypt, Iran, Guatemala, Indonesia, Korea, Vietnam, Cuba, Congo-Leopoldville, Laos, Dominican Republic, Brazil, Iraq, Cambodia, Chile, Bolivia, Ethiopia, Angola, East Timor, Argentina, Afghanistan, Poland, Chad, Nicaragua, Grenada, Panama, Haiti, Zaire, Yugoslavia, Palestine-Israel, Libya, Venezuela.
What is curious to me is the USSR was similarly involved, but everyone decided to trust the USD and not the RUB. I have my theories about why that happened, but to the current topic, for various reasons the PRC is not quite so extensively involved in other nations' affairs, yet their soft power image is not sufficiently strong enough to mount a credible replacement to the USD.
I think part of the discrepancy between currencies and nation state dominance is acknowledgement by market participants that China's debt-to-GDP ratio is more than twice as much as the US ratio. As an investor, I also have deep reservations over the long-term with how China organizes its public financing from land sales (I think they're vastly underpricing the sales).
Dalio makes a compelling case, but hand waves away the above issues with "China will grow out of these temporary nitpicks". I suspect Jiping's administration played China's hand too soon; if China had stuck to its mercantilist knitting for another 2-3 decades, I believe it would have made a compelling and persuasive nation state for others to follow at the end of that period with no bellicosity involved. As it stands, I suspect the hand was played too soon because their runways of demographics, energy-debt, and food production are colliding in undesirable ways they're trying to fix by externalizing the costs.
@yourapostasy thanks for such a detailed and thoughtful reply. Can you recommend any sources for further reading?
Read Ray Dalio’s just recently release 576 page book “ Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail” and you will get a far deeper understanding how he comes to that conclusion. I personally thought it is an incredible well researched book with lots of analysis including historical perspectives. Worth the read to understand the big cycles.
Rise to Globalism by Stephen Ambrose and Doug Brinkley is an adequate precis of US ascent to global power, which IMHO contains the seeds of its demise.
The Battle for the Soul of Capitalism, The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns by John Bogle is the economic/fiscal/investing perspective I align with at the "non-billionaire" level.
China analyses is fluid at this time as you can imagine. Stay in touch with the usual The Economist, Bloomberg, Foreign Affairs, Parameters, and similar sources. IMO China's ascent and America's decline are both to a large degree psychogenic at this juncture, and a catalyzing condition to commit a path hasn't been developed yet.
eande's suggestion is good. If you find Dalio's theses persuasive, then I recommend you read his other three books to understand the quant angle he is coming from. You have to understand that as a billionaire, he can afford to be as much as a generation or even two off of his projections, and he'd still shrug that off. We don't have such luxury, so you have to be more discerning on his projected timelines, the numbers behind them, and the global market context it all takes place within.
The Battle for the Soul of Capitalism, The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns by John Bogle is the economic/fiscal/investing perspective I align with at the "non-billionaire" level.
China analyses is fluid at this time as you can imagine. Stay in touch with the usual The Economist, Bloomberg, Foreign Affairs, Parameters, and similar sources. IMO China's ascent and America's decline are both to a large degree psychogenic at this juncture, and a catalyzing condition to commit a path hasn't been developed yet.
eande's suggestion is good. If you find Dalio's theses persuasive, then I recommend you read his other three books to understand the quant angle he is coming from. You have to understand that as a billionaire, he can afford to be as much as a generation or even two off of his projections, and he'd still shrug that off. We don't have such luxury, so you have to be more discerning on his projected timelines, the numbers behind them, and the global market context it all takes place within.
I personally believe this chart the explains housing prices single handedly:
https://fred.stlouisfed.org/series/ACTLISCOUUS
https://fred.stlouisfed.org/series/ACTLISCOUUS
Kind of yes, kind of no.
We've had historically low interest rates for a while, which allows for asset inflation proportional to the reduction in the historical cost to borrow money to purchase those assets, which is not really a bubble, but people associate with bubbles.
Some of these assets are likely valued more than they would be even with higher interest rates, and those are somewhat bubbly.
There are also intermediate examples between these two where things are a little bubbly, but that bubbliness is in part because of a combination of easy access to capital and particular financial instruments/behaviors.
We've had historically low interest rates for a while, which allows for asset inflation proportional to the reduction in the historical cost to borrow money to purchase those assets, which is not really a bubble, but people associate with bubbles.
Some of these assets are likely valued more than they would be even with higher interest rates, and those are somewhat bubbly.
There are also intermediate examples between these two where things are a little bubbly, but that bubbliness is in part because of a combination of easy access to capital and particular financial instruments/behaviors.
> yet we are in the middle of pandemic, millions get sick every day,
What does this have to do with a financial bubble? Millions of people get sick every day in a normal year, you just weren't paying attention to it.
What does this have to do with a financial bubble? Millions of people get sick every day in a normal year, you just weren't paying attention to it.
Crypto is sort of in it's own category because it's mostly traded by speculators, but housing feels like a bubble. Companies like Amazon Facebook and Google actually make a ton of profit and I think have led the stock market. I also think vc lending money to zero profit companies is not new. Low or no profit companies like the two boxes and Twitter also seems to be sustaining on new debt. On average it feels like we are holding steady but no worse for the pandemic. So not a new bubble in my opinion.
Yields on investment (the ratio of how much you pay vs. how much future cash flow you get) are as low as they have ever been. Bonds, Treasuries, Stocks, Mortgages, everything. So that makes people think we're in a bubble.
On the other hand - yields have been slowing going down for the last 40 years.
So we're at this weird spot where one of those two patterns has to reverse since yields are zero. Your guess is as good as mine but that's why things seem like they can't continue as they are (they can't).
On the other hand - yields have been slowing going down for the last 40 years.
So we're at this weird spot where one of those two patterns has to reverse since yields are zero. Your guess is as good as mine but that's why things seem like they can't continue as they are (they can't).
Perhaps that irrational rise in stock value is due to inflation. The actual value of the stock doesn’t change much, but the money you pay for it is worth less, therefore the nominal value increases.
Another possible reason could be that it’s currently still more difficult to spend money for things and leisure than in 2019. People therefore buy stocks, pushing the price up.
If this is the case then the best thing to do currently is to buy stock, and pull out once it is possible again to have parties in Ibiza on short notice.
Another possible reason could be that it’s currently still more difficult to spend money for things and leisure than in 2019. People therefore buy stocks, pushing the price up.
If this is the case then the best thing to do currently is to buy stock, and pull out once it is possible again to have parties in Ibiza on short notice.
Earlier I felt like we are in a bubble and I was expecting a pop and for things to come down. Now I’ve changed my outlook due to the mass printing of money and lowering of interest rates. I just think we have higher inflation than we are being told and it’s even worse in specific areas. Will the market “pop” if your dollar as significantly less buying power but the original asset has kept the same value? Maybe inflation speeds up and the market keeps growing double digits.
I'll answer simply: yes.
We're always either inflating or deflating. There's so many risk factors on the horizon for a bubble pop it's ridiculous and obvious. That said, am I pulling out my 401K? No. Why? Because it's easy to see and get out of a downslide. It's extremely difficult to buy back into a market, because the recoveries are usually very swift. You'll miss it.
And you can still win in any market. You just need to work harder at it sometimes.
We're always either inflating or deflating. There's so many risk factors on the horizon for a bubble pop it's ridiculous and obvious. That said, am I pulling out my 401K? No. Why? Because it's easy to see and get out of a downslide. It's extremely difficult to buy back into a market, because the recoveries are usually very swift. You'll miss it.
And you can still win in any market. You just need to work harder at it sometimes.
Yeah interest rates will rise and money printer may stop, but there's 7 trillion highly concentrated new monies already in the economy created by quantitative easing since 2008. That money is already there, is highly concentrated (S&P500), doesn't trickle down and is looking for work. Holding it in cash doesn't work, as that's a guaranteed -{inflation}% return on investment per year.
I’m not sure if we’re in a bubble, but the fed recklessly printing infinite money with no plan or capability to pay it back, not to mention the economy absolutely did not need the cash, should not be tolerated. These politicians are mortgaging your future to gain karma points with other politicians (“look how many jobs we created!”). Idk how people fall for this shit.
“Pay it back”? To whom? QE and national debt aren’t the same thing.
Honestly, if anyone actually knew these answers, then they would be billionaires. Even the professionals don't really know.
Zero interest rates create artificial events, the longer the rarest. This is uncharted land.
What can people do with their money if bonds are “worthless”? Keep it in the bank?
No: invest.
And now comes inflation.
When you play with fire (as the central banks have been doing for quite a while) you end up burning.
This (the Nasdaq especially) is not a “bubble”, it is a zeppelin. In some sense it is most scary but at the same time, it is auto-mobile.
What can people do with their money if bonds are “worthless”? Keep it in the bank?
No: invest.
And now comes inflation.
When you play with fire (as the central banks have been doing for quite a while) you end up burning.
This (the Nasdaq especially) is not a “bubble”, it is a zeppelin. In some sense it is most scary but at the same time, it is auto-mobile.
I don’t know if we’re in a bubble, that really is the trillion dollar question. I’ve personally thought we were in a bubble since ~2018. I think high asset valuations are just a reflection of the amount of capital out there looking for investments. I look at it as the market behaving as if it was going through it’s own inflation
I think we are in a bubble, but I don't see the bubble bursting like in the past. It'll take unrest or worse, since the bubble is inflating via inequality and wealth transfer. Once people are really fed up, then the music stops.
In theory, the bubble bursting should herald some social and economical reforms.
In theory, the bubble bursting should herald some social and economical reforms.
Interest rates are very low. This makes asset prices high. This is not quite the same thing as a bubble, though i'm sure when the Fed inevitably raises rates and prices crash, people will declare it to have been a bubble. That doesn't mean that specific sectors aren't in some sort of bubble (e.g. crypto). But high asset prices across the board can be explained most simply by the incredibly low interest rate environment, which values future cash flows nearly equally with present cash flows. Inflation pushes nominal asset prices up even further, too.
If you think inflation is going to continue due to supply chain pressure in China, and/or labor pressure in the US, then the Fed is going to have to raise rates. When they do that, one of two things will happen: Either they'll be sufficiently large to curb inflation, which means that asset prices will probably decline fairly significantly, or they won't, in which case inflation will continue, and asset prices will stay elevated, though perhaps not keeping up with inflation.
It's also possible that China will be less disrupted by Omicron than some people think, and that US businesses will re-allocate labor more efficiently and more quickly than some people expect (via some mix of increased automation and rationalization), and the supply side issues will resolve themselves. If that's the case, the Fed may be able to leave rates alone for now. And in that scenario, there's no major reason for a significant decline in asset prices, though that doesn't mean one can't happen for other reasons.
Ultimately, inflation is the ratio between money and stuff (including services). Asset prices are the risk adjusted present value of future cash flows. Both of these things are influenced simultaneously by interest rates, and the underlying real economy.
Another thing to note is that, to some extent, what we're seeing in the public stock market is the effect of increasing returns to scale. People mistakenly equate the public markets with the broader economy, and while that intuition isn't completely wrong, it's not completely right, either. The stock market is heavily biased towards large scale businesses, and nearly uniformly excludes small businesses. This isn't some nefarious plot, just the mathematics of the cost of listing and the utility of exogenous capital. But the bias that encodes is that at a time when small businesses are rapidly failing and large businesses are absorbing their market share, the stock market may be performing quite well, despite the underlying economy experiencing troubles. This isn't irrational in an economic sense, it's just that the stock market doesn't perfectly track the underlying economy for this, and other reasons.
If you think inflation is going to continue due to supply chain pressure in China, and/or labor pressure in the US, then the Fed is going to have to raise rates. When they do that, one of two things will happen: Either they'll be sufficiently large to curb inflation, which means that asset prices will probably decline fairly significantly, or they won't, in which case inflation will continue, and asset prices will stay elevated, though perhaps not keeping up with inflation.
It's also possible that China will be less disrupted by Omicron than some people think, and that US businesses will re-allocate labor more efficiently and more quickly than some people expect (via some mix of increased automation and rationalization), and the supply side issues will resolve themselves. If that's the case, the Fed may be able to leave rates alone for now. And in that scenario, there's no major reason for a significant decline in asset prices, though that doesn't mean one can't happen for other reasons.
Ultimately, inflation is the ratio between money and stuff (including services). Asset prices are the risk adjusted present value of future cash flows. Both of these things are influenced simultaneously by interest rates, and the underlying real economy.
Another thing to note is that, to some extent, what we're seeing in the public stock market is the effect of increasing returns to scale. People mistakenly equate the public markets with the broader economy, and while that intuition isn't completely wrong, it's not completely right, either. The stock market is heavily biased towards large scale businesses, and nearly uniformly excludes small businesses. This isn't some nefarious plot, just the mathematics of the cost of listing and the utility of exogenous capital. But the bias that encodes is that at a time when small businesses are rapidly failing and large businesses are absorbing their market share, the stock market may be performing quite well, despite the underlying economy experiencing troubles. This isn't irrational in an economic sense, it's just that the stock market doesn't perfectly track the underlying economy for this, and other reasons.
yes.
Oh well.
[0] https://news.ycombinator.com/item?id=29508194
Just read your comment - I am curious to know why you think Evergrande defaulting over all other things is the event that portends the crash? Not that I disagree about the market being in a bubble - I just thought it would have to be fed-related action that pops it, not Evergrande. Would love to learn more about the situation in China.
Your post was on December 10, the MSCI World Index closed at 3188 points that day. Yesterday it closed at 3177. Not even 1% difference.
This is not even a dip, let alone a "crash".
This is not even a dip, let alone a "crash".
You mean the S&P500 down 0.5% and the CRSP value index up 4%?
There's a saying: "Bulls make money. Bears make money. Pigs get slaughtered."
I wouldn't call it a bubble. This is just what human species always do – building a pyramid of classes (castes). With a chain of command. And with the only sense of life in it – climbing to the top. Everything else is secondary.
There's a difference between economics and finance. It is possible to have real economic problems while having sound financial flows. That's what's happening now. Inflation is the consequence: there's more money chasing the same (or fewer) goods. That's not to say that a crash can't happen... because it did in 2020. It can happen again. But under these conditions, we can expect an aggressive recovery (like we just had).
> yet we are in the middle of pandemic, millions get sick every day, inflation 30yr high, supply shortages
None of these things impact the aggregate profitability of the corporate sector. Please read "Where Profits Come From" [1]. The Kalecki-Levy profits equation says:
Profits before tax = + Investment – Nonbusiness saving + Dividends + Corporate profits taxes
Profits for the most part come from the "nonbusiness saving" term, which is the government budget deficit minus the trade deficit minus household savings. The numbers are looking very good. [2]
> edit: i can't help but think there will be a counter reaction to the Fed printing dollars recklessly in 2020
> and i'm even more scared Fed will go on a printing spree again to keep the current bubble from popping
It's fascinating to me that in times of outsize fiscal stimulus, people continue to blame monetary policy on all of our economic woes. If you think that monetary policy has a much larger impact than fiscal policy, you have it backwards. Monetary policy has far less impact than is commonly stated. The Fed does not really print money, it swaps one highly liquid US government asset for another. And the size of bank balance sheets do not change when this happens. And repeat after me: banks cannot and do not lend out reserves [3]
[1] https://www.levyforecast.com/assets/Profits.pdf
[2] https://seekingalpha.com/article/4475023-white-house-fed-inf...
[3] https://www.hks.harvard.edu/sites/default/files/centers/mrcb...
> yet we are in the middle of pandemic, millions get sick every day, inflation 30yr high, supply shortages
None of these things impact the aggregate profitability of the corporate sector. Please read "Where Profits Come From" [1]. The Kalecki-Levy profits equation says:
Profits before tax = + Investment – Nonbusiness saving + Dividends + Corporate profits taxes
Profits for the most part come from the "nonbusiness saving" term, which is the government budget deficit minus the trade deficit minus household savings. The numbers are looking very good. [2]
> edit: i can't help but think there will be a counter reaction to the Fed printing dollars recklessly in 2020
> and i'm even more scared Fed will go on a printing spree again to keep the current bubble from popping
It's fascinating to me that in times of outsize fiscal stimulus, people continue to blame monetary policy on all of our economic woes. If you think that monetary policy has a much larger impact than fiscal policy, you have it backwards. Monetary policy has far less impact than is commonly stated. The Fed does not really print money, it swaps one highly liquid US government asset for another. And the size of bank balance sheets do not change when this happens. And repeat after me: banks cannot and do not lend out reserves [3]
[1] https://www.levyforecast.com/assets/Profits.pdf
[2] https://seekingalpha.com/article/4475023-white-house-fed-inf...
[3] https://www.hks.harvard.edu/sites/default/files/centers/mrcb...
Every expansion comes to an end. The trick to declaring a bubble is specifying when it will burst, or betting on it. Likewise, there will be an earthquake that levels San Francisco, we just don't know when.
40% of all existing dollars have been printed in the last 18 months, what do you expect? Nobody wants to be left holding the paper bag, so they buy up any asset, no matter how silly it may look.
Rules and regulations essential to a well-functioning economy, enacted due to lessons learned after previous collapses, were rescinded during this past forty years. Yes, the economy is broken.
Not in bubble, but in saturation. So much money and not enough opportunities to invest. It is not going to "pop" bcos there are no other places where to store money.
Right, it's TINA. It's not going to pop until there's another place to invest.
> Are We in a Bubble?
Yes, absolutely.
> is the economy is broken?
Depends on who you ask. According to our leaders like Jerome Powell and leading economist Paul Krugman, no, its being perfectly controlled through a crisis. According to me, yes, the economic system is blatantly corrupted by power, which personally I think means is broken. Blatant and extremely obvious if you're willing to do a lot of reading.
> should we be expecting a crash/crisis soon?
No, absolutely not.
For what its worth I'm all-in betting that its not. The leaders have their steering wheel on the economy and god forbid they wont allow it to crash, its the worst thing that could happen. Make your plays against what they do.
Yes, absolutely.
> is the economy is broken?
Depends on who you ask. According to our leaders like Jerome Powell and leading economist Paul Krugman, no, its being perfectly controlled through a crisis. According to me, yes, the economic system is blatantly corrupted by power, which personally I think means is broken. Blatant and extremely obvious if you're willing to do a lot of reading.
> should we be expecting a crash/crisis soon?
No, absolutely not.
For what its worth I'm all-in betting that its not. The leaders have their steering wheel on the economy and god forbid they wont allow it to crash, its the worst thing that could happen. Make your plays against what they do.
Contrarian widsom: if everyone is talking about whether we're in a bubble, then we're not! *
whilst fully expecting the market to double bluff me and crash tomorrow
whilst fully expecting the market to double bluff me and crash tomorrow
Unnacountable oligarchs run the central bank system and engineer crashes as a means of buying up assets for pennies on the dollar, so yes, another is inevitable, its just a matter of when and what all they want with this one (forced SDR coins, national central bank coins, etc to create a more trackable/controllable society, et al)
If you have the means there are ways to ride the oligarchic coat-tails so to speak, usually buy buying the assets up right after the initial pops.
If you have the means there are ways to ride the oligarchic coat-tails so to speak, usually buy buying the assets up right after the initial pops.
How is it a bubble? The fundamentals seem strong:
- the state prints money and gives it to the rich
- the rich hire propaganda
- the poor believe it and work
- strong and stable
- the state prints money and gives it to the rich
- the rich hire propaganda
- the poor believe it and work
- strong and stable
No one will really know until it pops.
In the words of the great John Bogle (who created a great many millionaires):
"Nobody knows nothing."
"Nobody knows nothing."
Three answers already, one yes, one no and one maybe. So we don't know.
[deleted]
The trick with identifying bubble is not to realize there is one, but to identify what will make it pop. This latter problem is much harder, and the former, as we get deeper into the limits of our current system, becomes so obvious it's not worth talking about.
Of course our everyday world is disconnected from reality (this is what a bubble ultimately is after all). Talk to anyone in any field and they'll all tell you the same thing: everything is a house of cards! it's insane that things are still running!
Crypto is insane, ad tech is insane, the stock market is insane, our ability to reason about the pandemic has entirely gone off the rails, democracy (or the illusion of it) is on the verge of collapse around the globe, nothing about our very way of life is remotely sustainable yet we continue to push for faster and faster development. We are in a bubble of the grandest scale imaginable. Some people deny this, but there are plenty of people who realize that this is true.
But pointing out that bubble is not interesting, at least not to me. Depending on how much attention you pay things have been insane for a long time, they don't make sense and the keep on going. Even some post-marxists theorists at one point started to accept that maybe there is no reality in our neoliberal capitalist world.
Reality does exist, our big, big bubble will pop, eventually. If that happens in 1000 years it's not really interesting, if it happens in 1000 days it will be mind blowing. The real interesting question isn't to point out that things don't make sense (they don't) but to start looking at when does the shit hit the fan.
If you watch the Big Short you see that the crucial part of that narrative isn't realizing there is a bubble, but realizing precisely when and how it will pop. Right now I don't think anyone has a good answer to these questions for our current bubble or any subset of it. Take crypto, most of us here believe it to be to some degree a scam, but when and how does that scam come to an end? Pointing out a bubble is irrational doesn't make it pop.
Of course our everyday world is disconnected from reality (this is what a bubble ultimately is after all). Talk to anyone in any field and they'll all tell you the same thing: everything is a house of cards! it's insane that things are still running!
Crypto is insane, ad tech is insane, the stock market is insane, our ability to reason about the pandemic has entirely gone off the rails, democracy (or the illusion of it) is on the verge of collapse around the globe, nothing about our very way of life is remotely sustainable yet we continue to push for faster and faster development. We are in a bubble of the grandest scale imaginable. Some people deny this, but there are plenty of people who realize that this is true.
But pointing out that bubble is not interesting, at least not to me. Depending on how much attention you pay things have been insane for a long time, they don't make sense and the keep on going. Even some post-marxists theorists at one point started to accept that maybe there is no reality in our neoliberal capitalist world.
Reality does exist, our big, big bubble will pop, eventually. If that happens in 1000 years it's not really interesting, if it happens in 1000 days it will be mind blowing. The real interesting question isn't to point out that things don't make sense (they don't) but to start looking at when does the shit hit the fan.
If you watch the Big Short you see that the crucial part of that narrative isn't realizing there is a bubble, but realizing precisely when and how it will pop. Right now I don't think anyone has a good answer to these questions for our current bubble or any subset of it. Take crypto, most of us here believe it to be to some degree a scam, but when and how does that scam come to an end? Pointing out a bubble is irrational doesn't make it pop.
> democracy (or the illusion of it) is on the verge of collapse around the globe
I've seen this narrative being spun up lately and I'm unsure what's causing the alarmism.
I've seen this narrative being spun up lately and I'm unsure what's causing the alarmism.
One piece of evidence might be the invasion of various government buildings a year ago to try and overturn an election in a country that was considered to have one of the most stable societies, and nearly 50% of voters supporting it.
Another might be the fall of various democracies back into dictatorship such as Hungary and Turkey.
Another might be the fall of various democracies back into dictatorship such as Hungary and Turkey.
Perhaps I’m naive but these don’t necessarily dictate the fall of the liberal order.
I was used to the level of civility from the 1980s to mid 2010s (my lifespan), and I consider it to be a material change in atmosphere.
Perceived trajectory is perhaps even more important than one’s current position. So if you are used to a few decades of a rosy outlook, and then a few events start trending in the opposite direction one after another, I can see it being cause for one to think an inflection point has been passed.
Perceived trajectory is perhaps even more important than one’s current position. So if you are used to a few decades of a rosy outlook, and then a few events start trending in the opposite direction one after another, I can see it being cause for one to think an inflection point has been passed.
We aren't in a bubble because it turns out that you can't eat dollars, and that payment for something does not result in the goods or services actually being rendered.
I don't know. But I am still diligently putting part of my paycheck in the S&P 500 every single month. I don't believe you can accurately time the crash, and by cashing out, you are losing some significant returns [0].
In fact, I remember reading last year, a widely discussed article in HN about how we were in a "Late-Stage Major Bubble" [1], since then, then S&P 500 has gone up more than 20%. I'm glad I stayed invested.
Even if we are in a bubble, the maxim "The stock market can remain irrational longer than you can remain solvent." still applies.
Lastly, regardless of the FED balance sheet, I believe the US remains the best place on earth to start and run a business. America breeds a culture of risk-taking and entrepreneurship and most of the innovation in the world still comes from there.
When asked "What are America’s primary strengths?", Lee Kuan Yew, former Singapore's PM, had this to say:
[1] https://news.ycombinator.com/item?id=25713696
In fact, I remember reading last year, a widely discussed article in HN about how we were in a "Late-Stage Major Bubble" [1], since then, then S&P 500 has gone up more than 20%. I'm glad I stayed invested.
Even if we are in a bubble, the maxim "The stock market can remain irrational longer than you can remain solvent." still applies.
Lastly, regardless of the FED balance sheet, I believe the US remains the best place on earth to start and run a business. America breeds a culture of risk-taking and entrepreneurship and most of the innovation in the world still comes from there.
When asked "What are America’s primary strengths?", Lee Kuan Yew, former Singapore's PM, had this to say:
Americans have a can-do approach to life: everything can be broken up, analyzed, and redefined. Whether it can or it cannot, Americans believe it can be solved, given enough money, research, and effort. Over the years, I have watched the Americans revise and restructure their economy, after they were going down in the 1980s, when Japan and Germany looked like they were eclipsing America, taking over all the manufacturing. Americans came roaring back. They have the superior system. It is more competitive.
What has made the U.S. economy preeminent is its entrepreneurial culture… Entrepreneurs and investors alike see risk and failure as natural and necessary for success. When they fail, they pick themselves up and start afresh. The Europeans and the Japanese now have the task of adopting these practices to increase their efficiency and competitiveness. But many American practices go against the grain of the more comfortable and communitarian cultural systems of their own societies—the Japanese with life-long employment for their workers, the Germans with their unions having a say in management under co-determination, and the French with their government supporting the right of unions to pressure businesses from retrenching, by requiring large compensation to be paid to laid-off workers. The U.S. is a frontier society… There is a great urge to start new enterprises and create wealth. The U.S. has been the most dynamic society in innovating, in starting up companies to commercialize new discoveries or inventions, thus creating new wealth. American society is always on the move and changing… For every successful entrepreneur in America, many have tried and failed. Quite a few tried repeatedly until they succeeded. Quite a few who succeeded continued to create and start up new companies as serial entrepreneurs …This is the spirit that generates a dynamic economy.
The American culture … is that we start from scratch and beat you. That is why I have confidence that the American economy will recover. They were going down against Japan and Germany in manufacturing. But they came up with the Internet, Microsoft and Bill Gates, and Dell… What kind of mindset do you need for that? It is part of their history.
Allison, Graham; Blackwill, Robert D.; Wyne, Ali. Lee Kuan Yew (Belfer center studies in international security)
[1] https://news.ycombinator.com/item?id=25713696
Yes.
things aren't broken, their just now finally able to twist the metaphorical knife
Stocks are UNDERVALUED.
BUY BUY BUY.
Listen to the Saint himself John Bogle! Buy total index funds and call it a day.
Listen to the Saint himself John Bogle! Buy total index funds and call it a day.
Down-voters really have a miserable life.
At the end of the day -- looking historically at the S&P500 -- the stock trend is always upwards.
It is statistically more likely that the fund double if you buy at an ATH then not.
It is statistically more likely that the fund double if you buy at an ATH then not.
Yes we are in a bubble. The fed reserve does not allow bubbles to collapse circa 2008 anymore. There is too much income disparity between top earners and lowest earners. There is too much inflation and too low of interest rates. The healthcare system is beyond fucked, it’s become a mockery or symbol of fuck you to the lower middle class and lower. Housing prices are very high. The fed reserve needs to let the economy crash a bit so there is enough crisis to push legislation forward. We need to get rid of the federal reserve it is a cancer to American society. We also need to send a bill to China for reparations caused to our economy by covid. Having to pick between Sleepy Joe and Dumbo Trumpo can tell us all we need to know about the current state of politics. Too much infighting and polarization yet the discussion at hand is over vaccines instead of income disparity. Luckily I work in tech and have a somewhat privledged background so none or these issues even come close to effecting me so I don’t care as much. Optimistic as education increases I hope to see some good changes.
I doubt that any country could have prevented covid spreading through the world.
China screwed by allowing the research. Not having enough safeguards in place to stop something like this from happening. They also covered it up for months and know the severity of it. They are clearly at fault.
Just wait until you hear about how the US handled it!
Hence the dumbo trumpo. Everyone has responsibility
If you discount the recession due to the pandemic this is the longest we've gone without a major bust for 100 years... maybe the economy is fundamentally different now?
https://fred.stlouisfed.org/series/GDPC1 (shaded areas are recessions)
Though people (including experts) have been speculating about the next bubble burst for 10 years now so ¯\_(ツ)_/¯
I'm a layman, so I just occasionally worry about it. It seems no one really knows.
https://fred.stlouisfed.org/series/GDPC1 (shaded areas are recessions)
Though people (including experts) have been speculating about the next bubble burst for 10 years now so ¯\_(ツ)_/¯
I'm a layman, so I just occasionally worry about it. It seems no one really knows.
> If you discount the recession...
Well, yeah. If you discount the GFC and the dotcom bubble it's the longest we've gone without a major bust in even more than 100 years...
Well, yeah. If you discount the GFC and the dotcom bubble it's the longest we've gone without a major bust in even more than 100 years...
Hah yeah I get it but I’m not sure the pandemic is a “normal” recession? but yes i’m dumb, I’ve already covered this
companies with zero revenue raising billions, s&p returning ~30% last year, bitcoin going 10x, housing (in my area) up 2x
yet we are in the middle of pandemic, millions get sick every day, inflation 30yr high, supply shortages
is the economy is broken? should we be expecting a crash/crisis soon?
edit: i can't help but think there will be a counter reaction to the Fed printing dollars recklessly in 2020
and i'm even more scared Fed will go on a printing spree again to keep the current bubble from popping