We haven’t even felt the main wave of bankruptcies and disruption yet.
Credit is locking up (try getting an unsecured loan) and people aren’t paying bills. 50% of New York tenants didn’t pay rent. Every seasonal business is dead. Life looks ok for IT people working in their underwear right now, but we are heading into a very challenging time with fundamental changes in consumer behavior.
The next big thing will be underwater mortgages.
So are you making the argument that mortgage-centric stocks are going to go to zero?
It should be no surprise that Tech/NASDAQ is doing well since both individuals and companies are investing more in tech during this crisis, while industrial/travel/etc are all still down substantially.
Maybe the banks will take a larger hit, but the overall market has already priced in what you are saying.
In 2008 we thought that the problem was contained to the subprime housing market, and once the Fed started supporting that market people breathed a sigh of relief and there was a rally and recovery from March-May. It wasn't until first Bear Stearns and then Lehman Brothers failed that people realized we were in a crisis. These were centuries-old, multi-hundred-billion-dollars institutions. The idea that they could cease to exist was unthinkable to anyone not actively looking at their balance sheet and doing the math, which is why there was such a panic when they did cease to exist.
what possible justification is there to be worried about their FDIC-insured bank accounts? even sticking that in as an off-hand comment is spreading FUD.
As a result:
> The Emergency Economic Stabilization Act of 2008 is signed on Oct. 3, 2008. This temporarily raises the basic limit of federal deposit insurance coverage from $100,000 to $250,000 per depositor.
The limit was subsequently permanently raised. So with a limit of $250,000 there’s less reason to worry about bank accounts today. But the important point remains, what causes panic is when things that everyone assumes to be safe turn out to no longer be so safe after all.
And who cares if rich people take a haircut in a recession?
But this isn't really a risk to the broader market, because the government has already made it plain that it's going to backstop the liquidity to prevent any liquidity crisis, from buying commercial debt, to even buying equity. ...so if the gov't is the lender of last resort, then your argument doesn't make sense because.
Lehman Brothers going under is something the Fed has said it will not let happen again. Particularly in this scenario where bad debt is due to a pure externality.
...not to mention that people's bank accounts are protected by FDIC, and equity/retirement accounts are protected by a similar program.
Not that it really matters, because the banks are all much better capitalized than they were in 2008.
The real danger here is the potential for snap-back inflation (in a stagflation scenario), which I'd argue actually makes equities MORE attractive, not less - since stocks are inherently inflation protected.
Stocks tend to perform chaotically during major inflationary episodes. Over the long run corporate earnings are inflation-protected. The problem is that inflation hits unevenly, depending on where relative shortages are, and some businesses can raise prices much more than other businesses can. That can make some businesses non-competitive (= insolvent) during an episode of high inflation, while also pooling profits within a small number of survivors. You often see a big consolidation of winners, great companies of the next era born, and then a lot of bankruptcies. Mainstream investors are often not very good at predicting the winners, so you get panic and malaise in the short term.
Index investors don't care about that part.
To some extent, this is already happening: the S&P 500 is down about 15%, but stocks like Amazon, Zoom, and Beyond Meat are skyrocketing.
> then the index rebalance forces index fund investors to buy in
That's not really how it works for cap weighted whole market indices. They remain cap weighted as prices change, there's no need to "buy more" of a winning stock, you already had the stock, it won, now you have more of it (in USD terms).
Governments and central banks will certainly attempt to prevent contagion by buying assets and handing out bailout cash.
Does that fix the problem and then we go back to normal? Does it result in Weimar-style hyperinflation? Does it cause negative rates on long-term bonds?
I can only think of two historical precedents for guidance on how this might play out. First, Japan's "Lost Decade" (which was really more like 25 years). And second, the 2008 financial collapse.
Not sure either of these are directly comparable to the current predicament, though.
So it's not a useful comparison.
And don’t forget, property taxes are based on their value as of Jan. 1 - huge, unpayable tax bills are coming this year, too.
They’re already deep in the red financially, but there is some relief for the property owner.
This is important because people overbuild SFH not understanding the expenses, and people ruin their financial lives buying mobile or fake-mobile homes to put on rented land, not understanding that the land is where all the value is.
I told a friend about it and he looked at me like I was crazy. "The system is melting down! What makes you think the stock market is ever going to recover?"
Six years later I sold that stock for a pretty massive profit.
The stock market will always recover because people are always going to want to make money. Yes, some businesses will fall by the wayside, and yes, we don't know when it will get better, but people like making money and that fundamental truth will always keep the economy moving forward after things like this.
Maybe.
SPY closed at ~$145 in June 2000
SPY closed at ~$80 in October 2002
SPY closed at ~$145 in July 2007
SPY closed at ~$75 in March 2009
SPY closed at ~$145 in December 2012
Nothing but dividends for a decade or so unless you did some clever selling high and buying low.
It's been mostly up since 2012, but there is no guarantee it is up from here in 2030.
You have to do something with your savings. “Nothing but dividends” over 10 years still beats the heck out of holding cash over that period of time, for example.
The fed, however, is more interested in preventing deflation and/or complete economic collapse, than it is in rewarding prudent investers.
Ah ha! The MUI is being skewed by IT workers expanding their new office wardrobes: https://en.m.wikipedia.org/wiki/Men%27s_underwear_index
Now it all makes sense!
Yep. Wife works for one of the big banks. They stopped taking applications for personal lines of credit this week. Stopped taking HELOC applications a couple of weeks ago.
Literally. POTUS could wake up tomorrow and say anything and do almost anything. That rolling of the dice problem with a very serious economic disaster makes it exponentially more dangerous in this phase.
We’re probably closer to a depression that we have been since 1929, and that depression didn’t bottom out until 1932.
Also my assumption is that folks in a public forum are middle class people with retirement funds and some home equity. Gambling with your retirement or the kids college savings is dumb. If you’re sitting on a few million liquid bucks or are very young, your situation is different.
And even in the great depression GDP rebounded within 10 years and had grown substantially by 20 years.
In NYC at least, almost all restaurants, bars, and retail stores absolutely depend on very high volume.
That volume is simply not coming back.
The tourists are not coming back anytime soon.
And the office workers are not all coming back ever. Many will continue to work from home and many more will work only 2-3 days a week in the office rather than 5. And many of those will pack lunch or get lunch delivered rather than go out to restaurants.
And a lot of locals are going to be very reluctant to eat in crowded restaurants where tables are 3-4 feet apart and everyone is constantly bumping into each other.
I believe there are going to be a lot of vacant stores and shops in nyc once the immediate crisis is over.
https://www.propublica.org/article/whistleblower-wall-street...
To pull out just one of several frightening figures from that article, just one of the commercial backed securities they analyzed appeared to have over half its properties fudged to appear more profitable.
It's hard not to imagine some pretty frightening scenarios on how this might play out over the next 12-24 mos. The far-reaching unemployment this could cause (if/when lenders start calling these loans) has significant long term implications.
Two things are sure: (1) Things are gonna get weirder (2) Landlords aren't going to do as well.
I keep hearing versions of this. Such dire finality. Do you actually believe that in 1 or 2 years time bars in Times Square won't be as busy as ever? If yes I think you are radically underestimating New Yorkers.
More effective treatments, a vaccine, herd immunity, better testing and tracing, or some combination thereof could make people feel safe in crowds again.
But I do think there will be a large shift toward more "work from home" for office workers with fewer open office cube farms and more contained offices for individuals/small teams, so I would expect the lunch and afterwork crowds in Manhattan to thin out. It's not going to be fun going out to happy hour when you might get sick with a dangerous virus that could kill your parents if you visit them that weekend.
And 1-2 years is more than enough time for all of those bars in Times Square to go out of business. Someone will open new ones when a vaccine comes out, of course, but that could be a long time.
And if the schools do not reopen in the fall in the city but they do in the suburbs, a lot of families will leave. I might :(. Remote schooling has been a disaster.
And they’re taxed accordingly. Governments are going to be facing huge revenue shortfalls, too, and they’re going to be coming after already squeezed taxpayers to make up for it.
i don't see any issue here as long as everybody wears their rabbies ... err .. coronavirus vaccination and immunity certifying tags/armbands/bracelets. Those can even be automatically read upon entering businesses, offices, subway, etc.
The crisis in many respects is incorrectly blamed on the virus whereis it is mostly self-inflicted by lack of coherent response and is self-prolonged and made much more severe by the failure so far to launch any real counter-pandemic measures like for example massive testing and contact tracing.
Wrt. the stocks - the government has already made it pretty clear that they are propping those pure numbers up, real economy and people be damned, at least until the elections.
Supply and demand. If people are moving out of Manhattan (and they are), then demand went down and the house is less valuable. If people have lost their job and can't afford mortgage and sell their home and move into a rental apartment, supply for homes increased and the house is less valuable.
"Supply and demand" is a nice platitude and economic theory but it doesn't reflect reality.
How are people who can't afford three morgage payments going to afford a triple payment at the end?
Though to be clear, there are some lenders that implementing it as "at the end of shelter-in-place", but they're in for a hard lesson.
There is also the corner case where the mortgage matures ~now, which is unfortunate, but that's not the case for most of them.
My understanding is that the traditional reading was that the mortgages would be extended for N months, so there is no balloon payment ever; just the loan lasting a bit longer than expected.
I am not a financial planner, but just a few thoughts. First, folks who try to invest in crashes or divest on peaks tend to do it too early. Most of such events give you more than one opportunity to buy/sell and not being first in/out can give big advantages.
Second, we did not (yet?) see a big drop. A rise of 20% would put S&P at or near all-time highs. For comparison, during the 2008 crash, S&P dropped by over 50%, so the rise back would give you ~120% return. Thus the reward for "catching the knife" today is much, much smaller than in 2008.
Finally, a lot of stocks are now indexed and held in retirement accounts. Many folks there hold more than they should in stocks because they have been going up and seem to be the only game in town beating inflation. And all advisors say "leave your retirement accounts as is, long term view, yada yada". If a significant number of people start moving retirement money out of index funds, which they might do in uncertainty, there may be a lot of pain for stocks. For example, many smaller stocks just do not have the trading volumes to withstand even a moderate sales increase driven by index funds. My 2c.
A significant number of people do not also control a significant portion of total stock ownership. Droves of retail investors could sell, but their ownership is rather inconsequential: the top 10% of Americans own 84% of stock. https://money.com/stock-ownership-10-percent-richest/
And personally I'd say that the 90th-99th percentile investor (if not 99.9th percentile) would still qualify as "retail" - what proportion of stocks do the top 1% (or 0.1%) of holders own?
If a significant number of people start moving money out of index funds, causing a decrease in the price of index funds, then that is just an opportunity for profit-making from other investors, which will stabilize the price.
This is not a problem for actively managed funds, which have caveats that allow managers a lot of freedom. If there are no buyers for stock X, they do not have to sell it. Index funds do not get any such flexibility. The impact is amplified as the amounts invested in indices ballooned in recent years.
I do not think anyone knows if this scenario will happen and, if so, how bad the fallout will be, but there are systemic risks that go beyond sales uniformly depressing a price for a basket of stocks.
Selling doesn't automatically trigger more selling, that's just a media narrative.
This might be true for very illiquid assets, but that is not publicly traded stocks.
I'm with you on this one, but it also feels like there's no other choice. Where else can you get high liquidity, with good returns, and a government ready to spring into action if the market goes down too much? European and Japanese markets generally have lower returns. Emerging markets are iffy. Bonds don't yield as much as equities.
It's like "I'm gonna take a bet that I'm going to keep working a 9-5 job". Most people have no other real choice.
You have no choice but to invest in a mix of US equities and bonds to be able to retire in a sane timeline.
This is an important aspect to the current craze not mentioned in the article.
There are people - retail & institutional players - literally banking large sums of money on this dynamic of socializing losses. So long as this continues, we'll see an artificially inflated market.
1) The government trying to preserve businesses and jobs (both capital and employment) in a crisis through general Keynesian stimulus and industry-specific bailouts (a sort of corporate clientelism, whatever the justification may be).
2) The government having to pay to shore up losses of business where the business should have known better. This is the general populace taking the hit for particular bets gone wrong by private actors. I don't see that as much in this crisis. The closest I can tell is companies spending so much on dividends and buy-backs in the past few years without keeping any sort of cushion. The companies that are most distressed are the squeaky nails that get the hammer. This is a moral hazard. Of course, you must seem sympathetic to the present administration and, to a lesser extent, the public too. That's why airlines have been bailed out but not cruise companies.
Stock market vs. cryptocurrency vs. cash vs. guns in a bunker is all a bet on what the future looks like. When you say "There's no other choice - where else can you get high liquidity with good returns and a government backstopping the risk?", that's an implicit bet that a.) people will continue to demand stocks b.) for more money than they pay now and c.) under the government as it exists currently. That has been a good bet for the last 80 years.
But there's a saying in financial markets: "past performance is no indicator of future results". If you believe that the future will be worse than the present for the vast majority of people, your priority shouldn't be to make more money in the future - it should be to preserve what you have and make sure you're not the one left without a chair when the music stops.
And the way in which the music stops determines which asset class you might want to hold. If you believe that investors en masse will have a loss of confidence in the future earning power of American business, but without a monetary or political collapse, you should move to cash. If you believe that the government's support of the stock market will hyperinflate the currency, you might want to look into one of the many cryptocurrencies that promise quick transactions. If you believe we're headed for widespread social collapse, you should get some guns and plant a garden in a small non-descript home (or bunker) in the middle of nowhere.
Plant trees in the tropics, then your money has roots and grows fast.
Different types of hardwoods give you a 5, 10, 20 year time to harvests.
Plus the monkeys, parrots etc like it (if you do it right). Many of my 5 yr old trees are already 10" dbh and 15m tall. Straight timber, some with cacao below.
~75 acres can increase your net worth by about $3k/day, indefinitely.
This year we'll have planted another 7 hectares of Guazuma ulmifolia at a density of 2mx3m or ~1700 trees/hectare using the Inga alley cropping method. They should have an average trunk section at least one foot square and 26' tall in 10 years. (ie 1x1x26x12= 312 board ft) so if you do the math at just $1/board ft then it's about $150/day/hectare. (ie 1700x312x1/10/365= ~$145). So 7 hectares makes your net worth increase by about $1000/day. The nice thing about these type of trees is that they re-sprout after harvest so no need to replant, ie continuous harvest indefinitely by cutting blocks only 1/10th of your trees per year, so the first cut trees are ready to cut again when the last, much bigger, are harvested.
(I've got some teak & mahogany planted too but not a big fan, too slow. I'm not a fan of non-native pines nor eucalyptus either.)
Those numbers go way up if you process the lumber and make furniture, flooring etc.
Also many trees are valuable medicinals. For example a water extract (ie tea) from the bark of the G. Ulmifolia tree (bolaina negra, not blanca) kills virus, lowers fever and reduces pain. See https://www.rain-tree.com/mutamba.htm
Along with bark from uña de gato with lemon (immune system stimulus), chanca piedra (other antivirus & more), tumeric with black pepper (anti-inflammatory), ginger, moringa and matico leaves (antibacterial). Is our anti-virus go-to, much better than what is available in pharmacies.
it's like the US government has been bluffing about capitalism being the answer the whole time and that bluff just got called.
Plus, you don't really retire, your job is now investing. If you really love that particular job (like Buffett does), then this works out well.
But if your innate talents and interests lie elsewhere, you'd be happier doing that... and the need for money can help motivate you, during those times you don't feel like it.
It doesn't seem like extra motivation should be important, but is was for me personally. Maybe I'm lacking somehow, as I note that many independently wealthy people do keep working without that motivation. e.g. YC itself. (Though pg now does seem to have really retired, or maybe is a fulltime career parent - there is no more important job!)
Thoughts on motivation?
I live off grid in the middle of nowhere, and I am busy and engaged, all day, every day, doing and learning. I’ve become an infrastructure engineer, a construction engineer and labourer, a farmer, an arboriculturist, and at night I’m an astronomer, an author, and an automation coder. Right now I’m putting together a multi-stage solar and hydro dump heating setup. All sorts of interesting challenges, and I’m experimenting with welding and (safely) testing large pressure vessels, which is a first for me.
Am I contributing to society? Not really - but I’m not taking anything from it either, other than passive income. My portfolio just sits there and grows for my dotage, the rental properties provide an income, and I do a tiny bit of tech consulting, both paid and pro bono, because it’s fun.
So, motivation? Do something you enjoy. That’s pretty much all there is to it. I like screwing around with matter and information and learning and making things, so I do that.
(Just to be really really clear, I'm being sincere. I'm glad that somebody out there is okay in a deep and meaningful way, as contrasted with the horror show that nearly everybody has had to put up with since... 40,000 A.D.? 1,000,000 A.D.? Fuck yeah dude!)
Bonus if you pick a bad accent and use a lot of nonsense swear words.
My business started out as trying to solve precisely this - we wanted to democratise ecommerce, and make it accessible for anyone, even with no capital, to become bourgeoisie.
Unfortunately, I learned the hard way that the lure of lucre is too strong for most to resist, and my partner, and our investors, dragged me kicking and screaming down the road of helping the rich get richer. There’s a reason (well, among many) that I cashed in my chips and left.
This way, I’m at least not actively making the world worse, and don’t feel the crushing guilt that came to characterise my existence.
And it's not like the right will continue indefinitely - if they fail in their skill they will start losing returns and losing that right (capital).
There are plenty of examples of highly paid execs making poor choices, and getting rewarded well for it. Even more reason spent capital is poor evidence of quality.
Your adventure sounds like trememdous fun too. I think you retired with much more money than me (I stopped at the absolute minimum, when it was really taking off).
Learning etc is creating value, and could well be valuable to society long-term - just lacking that immediate feedback. Your consulting gives that. (I did some consulting too, but can quit if non-tech issues make it unpleasant. That's the point of wealth, isn't it?... but it also meant I didn't have work to out how to solve/overcome/deal with it).
Maybe, maybe not - I know many, many people far wealthier than me who are still deep in the rat race, and can’t see a way out. I had enough to blow a chunk on travel (highlight was a month in Antarctica, and I’m toying with applying to do a season or two with the BAS once things are a bit more settled on the homestead), to buy two apartments (well, unused basements with scope for conversion in a world heritage city), and two rural houses (one with half a roof, one with no roof), and to renovate them, which we did on a shoestring by doing everything we could do ourselves. My wife has become an accomplished conservation mason in the process, and I learned how to roof, plaster (lime, never worked with gypsum), pour concrete, plumb, wire, and all the rest - got offered jobs by the people I asked to come inspect and sign off on my work, which was really flattering.
The remaining cash I stuck in stocks I believed in, and continue to believe in.
I’m 36 now - it took three more years of hard graft (but enjoyable graft) to turn a lump of cash (oh, screw it - £400k) into earning assets that we can comfortably live off in a country with a low cost of living. Going off grid was part of the formula, as after the capital outlay for power and water, our cost here comprises food, and diesel for the truck - although I plan to do a TEC this summer and dispense with fossil fuels entirely, and their cost, and I’m hopeful that we’ll have two decent harvests this year. Good thing I like beans and potatoes and fruit.
I’ve got mortgages on the rentals, so do have exposure on interest rates, but this is why I went for mid term furnished rentals - allows me flexibility with rents, and means my tenants are usually businesspeople deployed elsewhere, with a corporation paying their rent, so I can command a premium, and not feel like I’m exploiting workers who can’t get out of the rent trap.
I’m toying with the idea of starting a YouTube channel to share the adventure, but I’m held back by the prospect of haters - I dealt with enough venom in the business to just not want to expose myself to it again, and I don’t want to accidentally turn my “quiet” life into a business.
Re youtube channel: I think you're right on both counts, people will love it, people will hate it. Ironically, charging for it would be one filter. FWIW I think you're right to not risk it! (maybe a book would be safer?)
In a country with a low cost of living, one can live like a king for £1k a month. With £400k that's yearly withdrawal rate of 3%, which seems safe enough.
If the world doesn't go to hell, I will keep farming the excess back into working assets - most likely property, following the same formula of buying shitholes in nice areas and turning them into miniature palaces and renting them to banks and tech firms.
If the world does fall apart, we have everything we need here to be entirely self-sufficient. Land to grow food on, a river for power and water.
We're actually spending less than €500/mo on living expenses - more on hardware, tools, materials - which we do in Spain (as does everyone else in this neck of the woods), as it's a lot cheaper than Portugal for that kind of stuff, and the border is only 10km away. For the really esoteric stuff, there's Alibaba, if you don't mind waiting for the slow boat from China.
It sounds like your first business was particularly soul-crushing, but do you view this as an inevitable quality in any for-profit activity? Or is it more that with any business there will always be lots of annoying tasks to do that you'd rather not spend time on, whereas your retirement is characterized by total freedom in what you learn and make?
- Moreover, is it stolen labor if you provide goods (land) in exchange of money (rent)?
But then so is making money from index funds so I suppose we're all going to hell!
Hence, I wrote:
> You are taking from society through rentier activity
There is nothing personal about this, I'm not talking about the guy's hair or his dress sense. There are no insults there, which is what "flame war" implies. Only the use of an economic term which has been in active use for over 100 years. It's an economic term.
I can make this point no more succinctly than I did.
Your problem is the fact, not the delivery.
https://www.prosper.org.au/geoists-in-history/adam-smith-on-...
“Ground rents are a species of revenue which the owner, in many cases, enjoys without any care or attention of his own. Ground rents are, therefore, perhaps a species of revenue which best bear to have a particular tax imposed upon them.”
“As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed and demand a rent even for its natural produce.”
---
my reply to the above as hacker news censors all rentier debate with their fake "you're submitting too fast", which they only do for anti landlord comments:
Wrong. The majority of the rent is ground rent. Try renting a facsimile of an apartment in the middle of nowhere and in a city. Did he create the value? No.
We should increase supply. Oh, and wealth tax for rising inequality too.
For what it’s worth, I took abandoned or ruined houses in desirable areas, bought them cheap, and spent my own (and my wife’s) time and labour renovating and furnishing them. I created housing stock from mouldy rubble.
Also, please note, I did not invent capitalism. I would much rather everybody could live like this.
"Stop restricting the housing supply, and don't prop up house prices by buying mortgage bonds" I shout to noone in particular.
Lose yourself in the service of others (Ghandi). Find a problem that speaks to your skills and curiosity, something that feeds your soul by doing.
This has helped me find my path, I hope it helps you find yours.
This can be as easy or lazy as you like. Don't want to do anything? Get a target date/balanced fund and eat the slightly larger expense ratio and realised income. Ok with rebalancing maybe once a year or so? Put X% into a stock index fund, Y% into a bond index fund, reinvestment on and look on your birthday/whatever day once a year to see if you need to rebalance.
You can of course spend more time, but if you don't like it, you don't have to.
And over decades, things change, e.g. GFC and now covid19, world wars etc. I'm not sure, does a bond index protect you? You'll at least need sufficient buffer to ride it out, perhaps several years worth.
House rentals have issues too, long-term maintenance, council issues, vacancies in a depressed economy.
The "expertise" you need is to buy & hold and try to avoid selling when it is low.
I do think “things are different” in many ways, in the sense that it’s impossible to ignore the interventions the Fed has taken to blow up their balance sheet to $7T and will likely reach $10T by end of year. The speed and size is unprecedented.
Unfortunately I think Millennials will be the ones that have to deal with the massive debt we are in as a country and unwinding of the Fed’s massive balance sheet, which will play out 10-20 years from now.
This market is highly manipulated and disconnected from reality on many levels - that's overtly obvious and intentional maneuvering via fed and pres. Only this pump and dump scheme isn't perpetuated by some shady OTC penny stock hype stunt.
When the equity bubble does burst (not if, but when) it will be very painful and unfortunately not just for those who are directly exposed but the collateral damage of all the free money will adversely affect those who are not day trading on the golf course, instead sold their clubs just to put food on the plate.
I feel like this presumes some "baseline" market that never really existed. The Fed has a dual mandate - they will and should engage in whatever sort of outlandish monetary policy is necessary to achieve that mandate.
> When the equity bubble does burst (not if, but when)
Absurd that so many people think they can make predictions like these.
This is spot on. There are a lot of regulatory forces which help to prop up the stock market artificially. It's hard to imagine that pro-corporation regulations can go much further without severely damaging the underlying economy on which the stock market depends.
Fed tried to raise rates and let bonds purchased mature naturally and roll off the balance sheet. The market immediately tanked hard.
However, I offer up two counter thoughts to consider:
1) You say you don't need the money, but how do you know? There could be a better investment opportunity that comes up or we could go into a prolonged depression. Leaving some money not invested gives you more flexibility to allocate your capital down the road. You'll have lower highs but higher lows, which in the long run is good.
2) I actually do know a lot of people who are investing toady in hopes that there is a V-shaped recovery. This is particularly worrying to me and I can't tell you how many times I've overheard amateur investors at work say things like "the market is at a bottom so now is a good time to invest". These are people who have never invested before and only look at the stock price as the determining factor. Like Howard Marks says, market bottoms don't occur until all hope is lost. I'm not sure we've felt that yet.
What would that look like for a regular, middle class person? We've been educated to stay away from individual stocks; there is too little money and connections to suddenly be part of some lucrative real estate development plan or invest in some rocket ship ML startup. Most "normal" people incrementally a few grant here or there and what's available in the Vanguard or Fidelity account is what's on the menu. Maybe I am too narrow minded?
For the USA, business is affected, the question is if it's long term: Will closed businesses reopen? Will unemployed find work? Will the US lose its centrality to China? But however bad it is, the market overreacts.
Not to mention most americans' retirement is tied to their homes\ equity and their 401k/stocks. So it is political suicide for the government to let either drop in value for an extended period of time. Therefore, over the long term, house prices and stock prices will likely go up because politicians want to be reelected.
The only caveat is that eventually, we will reach out "limit" ( demographically, economically, etc ) and then housing/stock prices will drop and stay down for decades/maybe forever. Japan hit their limit in the early 90s and their housing prices and the nikkei today is a fraction of what it was back then.
https://tradingeconomics.com/japan/stock-market
If the check the 50Y chart, you'll see that the nikkei was at 37000 in the early 90s and is now at 20000. 30 years in and still nearly 50% down.
Don’t get me wrong, I’m a Brit and, though generally conservative, believe we have a batter balance between social support and economic flexibility. The US health care system appals me for example. That doesn’t blind me to the advantages of the US system.
That's why the unemployment rate (which measures the dynamics of job losses) has been so low.
Politicians have different time horizons than the cities, provinces and nations that they govern.
It's not political suicide if the politician enriched himself at the expense of the public and is out of office when the consequences are realized.
Pretty sure the Fed has been spending trillions to keep asset bubbles from bursting.
So far it's been working, but also exacerbating social tensions and wealth inequality.
For example, Bush Jr left the economy in a mess but he was a 2 term president with no political future. So Bush Jr is fine, but Obama who was elected and who wants to be re-elected has to re-inflate housing and stock prices. That's why the housing prices and stock prices won't stay low for extended periods of time. That is until we arrive at the limit of our growth/expansion when no political or economic measure will do any good.
The obituary for Capitalism will point to this factor. The politicians killed it.
Everyone forgets about Climate Change...
It's not just climate change either. There's a whole host of interconnected ecological crises brewing, and most people with a stake in the global financial system either don't recognize or believe this, choose to ignore it, or have much more pressing problems (e.g., providing for themselves and their families).
https://taylorpearson.me/thedragon/
The basic idea is that you create a balanced portfolio of assets that are negatively correlated with each other so that, over a very long time horizon , your wealth retains its value even in the face of uncertainty, black swan events, and volatility. An example would be owning an equal proportion of stock, cash, bitcoin, gold, fixed income, commodities, and volatility. (Harder for the average person to get exposure to commodities and volatility - but I think bitcoin checks those boxes).
Edit: include original paper that describes the portfolio by Christopher Cole: https://docsend.com/view/taygkbn
It seems like one of the selling points must be "set and forget," which makes me wonder if the target audience is just people who don't want to actively learn about a thing, but would rather take someone else's word.
Christopher Cole is wicked smart, deserves attribution.
Palantir is privately held and thus not super relevant to this discussion.
I did not invest heavily during the 2008 financial crisis, and looking back, I have regrets about that. I invested more aggressively this time around on the downturn.
And my younger siblings and colleagues all seem to be taking the same long-term approach. They all read /r/personalfinance and some are trying to “FIRE”—again, on a 10-20 year plan.
The article seems to take an implied short-term view by talking about how the recovery might or might not be V-shaped. Honestly that seems like the crazy approach. I don’t know anyone, personally, who is investing today with hopes of pulling that money back out in a few months. That is what a symmetrical “V” would be at this time. Obviously that is not going to happen.