I mean it isn't that people actually think "stocks only go up", it's that the donor class own stocks and that then means political landscape is designed to always bail them out.

I'm closer to your age and experienced those recessions but my take away isn't that stocks go down, it's that the government will pull every tool it has to keep the wealthy wealthy.

This. I don't doubt that there's going to be a crisis and a reckoning, but I changed my mind in 2020 on what that crisis will look like. The Fed & government's actions (both during the pandemic and, in retrospect, in 2018) show that they're not going to let a financial crisis happen. Instead, we're going to get a currency crisis, since whenever asset values go down the Fed prints to restore them.

The fact that a currency crisis and hyperinflation seems unthinkable to many people pours fuel on this. A number of people are pushing the idea that we can and should print as much money as we can to get back to full employment (and even beyond that - "living wage" is the bar now), and they're being taken seriously in government. This has somewhat predictable results - other governments have believed it throughout history, and (like with many things market-related) the point at which people believe it is the point at which it's no longer true.

My prediction is that thanks to the stimulus checks the USA will start growing much faster and leave the EU in the dust. Meanwhile the Euro zone is unable to engage even in the tiniest bit of fiscal stimulus.

>"living wage" is the bar now

Heaven forbid we demand an economic system built upon the notion that everyone who works should have the ability to live a decent life with secure food and housing.

It's telling that many see spending and regulating toward this goal as "printing money" unscrupulously, yet when similar orders of magnitude spends are casually allocated toward the Department of Defense on an annual basis not a word is uttered about their utility.

You can "demand" it all you want. If supply doesn't meet that demand, you get inflation.

Ultimately living conditions are set by real goods & services, not by the amount of money flowing into a sector. If more money flows in and the supply of real goods remains fixed, it just makes everything cost more. I'd agree that most military spending is a waste of money - why does an F-22 cost $334M? But directing that spending into housing, education, and health care without addressing the supply bottlenecks in those industries will just make housing, health care, and college cost more. We should be building more housing (and particularly, streamlining zoning/permitting requirements so that more developers can enter the market), breaking up big health insurers so that there's more competition in the market and you don't need to put up with Anthem's bullshit, and developing lower-cost alternatives to a 4-year college degree.

On a societal level "more money" is never the answer - "more goods and services" is. You fix shortages by fixing shortages, not by letting everybody pay more for the same musical chairs.

It is the answer when the shortage is an abrupt, acute disruption in the money supply. A massive number of people were made unemployed by the pandemic. We had lines at food pantries stretching miles long.

If you recall, at the beginning of the pandemic we we had farms ploughing under crops for lack of demand. Potatoes stacking up to high heavens, farmers offering them free to anyone who'd arrive with a bag to transport them.

The author actually mentions the traditional knobs of monetary policy don't impact the distribution of money at the bottom of the economy where it is needed. That's why the direct stimulus and now family UBI is so different, and should be looked at as imperfect but necessary for addressing the need at hand.

We didn't have an abrupt, acute disruption in the money supply, though - at least not a negative one. The quantity of money available went up by 40% in March 2020, and velocity went down correspondingly. We had an abrupt, acute disruption in the labor supply: people were unable to work. We also had large disruptions in trade and in demand.

This is not 2009, when there were plenty of people available to work, there was plenty of consumer demand, but there was no money to pay them because the banks gambled it all away. The primary feature of the COVID recession was a massive supply shock and demand shift. We had potatoes piling up not because there were too many potatoes, but because there were no truck drivers and warehouse workers needed to move them from farm to table. We also had record hunger and record food assistance during that time period.

The money supply at the bottom of the economy was disrupted. Mass unemployment disrupts the velocity of money at the bottom of the economy. The labor supply is there, the jobs that allow laborers to be paid for doing work are not. As these laborers are no longer able to buy goods from retailers that serve them, the demand evaporates. So you agree, there's not a disruption in the "supply of real goods" so we shouldn't see inflation as stimulus checks and family UBI relieve money supply issues exactly where that supply issue exists.

The quantity of money might have gone up for large companies, banks and those positioned correctly, but that's inaccessible to the majority of the American population. The majority of 2020 stimulus was delivered to private banks that prioritized their largest strictly for-profit customers. 2021 stimulus, in contrast, shifts the balance toward direct aid and city/state aid.

>We didn't have an abrupt, acute disruption in the money supply, though - at least not a negative one. The quantity of money available went up by 40% in March 2020, and velocity went down correspondingly.

I will abuse this opportunity to talk about why inflation is necessary and why the current way of merely increasing the money supply did not cause inflation.

Dollars are like flour. Just another commodity that can be bought. Instead of benchmarking assets against the dollar we start benchmarking the dollar against a theoretical benchmark currency that always retains its value perfectly and never changes. I will call this benchmark "Effort".

For simplicity we will assume that on day one the value of the dollar is exactly 1 effort until the value of the dollar changes (either through a reduction or increase in money supply).

If the dollar is deflationary and the supply goes down over time then it will become worth more than 1 Effort. As I said earlier the dollar is a commodity just like anything else. This means that if the supply of the dollar shrinks then there is a shortage of dollars, exactly the same way there could be a shortage of houses or a shortage of food. We must create more dollars until the dollar is worth around 1 Effort again.

The question is, where is that supposed shortage of dollars? Who exactly is desperate for liquid cash? Definitively not publicly traded companies and their owners. Holders of cryptocurrencies? Maybe but we are reaching deep into trickle down economics because of the small portion of retail traders. There is a case to be made for infrastructure investments and maybe unemployment benefits/stimulus checks but even then the amount of money that is truly needed isn't enough to explain why the quantity should be increased by 40%.

The only thing that is certain is that the wealth transfer effect is not considered undesirable by the Fed and that they would do it again, even if it doesn't solve any real problems.

House construction is such a lucrative industry in the US, too bad they banned it. Imagine banning farms that produce more than a set amount of wheat or corn per acre. Absolutely ridiculous.

What are you talking about? In what way was it banned? Who is "they"?

> We seem to have an entire generation of people who think "stonks can only go up"

I'm not denying the existence of bubbles, busts, and crashes, but historically and on average, the stock market does only go up.

This market is overvalued and will likely correct, but that doesn't mean it won't continue to rise on the aggregate.

As a counterpoint the Nikkei has not since surpassed its peak value in 1989.

It's a good counterpoint. Every developed country will end up as Japan eventually [1], and timing won't help you; where else would you put your investment assets to get exposure to similar risk adjusted returns (developing country returns expose you to greater risk)? Waiting for values to decline will be ineffective, as central banks will acquire assets to prop them up (Bank of Japan is the largest owner of the Nikkei [2]). Returns will decline, and the cost to obtain those declining returns will rapidly increase as trillions of fiat worth of capital chases it.

Over a long enough period, stonks only go up because that is what we've collectively agreed on, and government will backstop at all costs [2] while population and productivity extracted from that population declines over time [3].

I recommend "Shrinking-population Economics: Lessons From Japan" [3] on this topic.

[1] https://ourworldindata.org/uploads/2014/02/World-population-...

[2] https://www.bloomberg.com/news/articles/2020-12-06/boj-becom...

[3] https://smile.amazon.com/gp/product/4924971189/

I'm curious how dividend yield and DCA factors into that, though. Would a series of investments since 1989 still have underperformed bonds?

And even if DCA weren't factored in, how would the returns compare?

True. But in a period 1969-1989 it had a return of, IIRC, 5700%.

Markets do seem to only go up, but the stocks on the market today are very different from 10, 20, 30+ years ago. I know that poorly performing stocks are eventually removed from indices and exchanges and they are replaced with new ones. Is it the case the market always going up in the long run is actually due to survivorship bias?

Probably has more to do with the fact that society on the whole tends to build more than it destroys.

More value is created over time than lost.

More _economic_ value, sure. But at what cost to the environment, biodiversity, our dwindling resources, societal health, our psyches?

When does this become unsustainable?

None of that has a stock exchange listing.

It's not even close to being unsustainable now and it may ultimately remain sustainable for timescales that are difficult for us to relate to.

That's an extreme claim.

That's not survivorship bias, it's just churn. And, broadly speaking, growth -- there are more companies operating now than there were in 1950.

Say you confidently bought the roaring Eurostox 600 in March 2000. You saw it coming back to its value in July 2007. Then reach 1% gain in March 2015. And a 7% gain in Feb 2020.

Buying S&P, or the Apple, Amazon and Tesla ones is another story. Looking at the average can be misleading.

You’re not counting dividends here.

Thanks for the note. This change indeed the result. https://www.justetf.com/en/etf-profile.html?isin=DE000263530...

This is why I dollar cost average. Timing purchases is impossible for me since I’m not a finance genius, so I just buy stock each time I get paid.

FYI that's just closer to periodically investing. Dollar Cost averaging is more along the lines of "I already have $100 in my account and will invest $10/month for 10 months."

Planning to DCA from future cashflows is still DCA.

According to Investopedia: "A perfect example of dollar cost averaging is its use in 401(k) plans...an employee can select a pre-determined amount of their salary..."

Exactly. Look at the stock market from 1970 to today. 2001 and 2008 are a blip on the radar.

What this is missing is the amount of time investors are investing in. Day traders don’t care about tomorrow, they care about the difference between 9 am and 4 pm. Options traders might care about the next few weeks. If you are investing for 20+ years in a retirement account, you don’t care about the bubble. It will self correct over a year and by the time you withdraw, stocks are significantly up.

Bonds make sense if you are investing for 1 month to say 3 years.

The SP500 was around $950 in Sept of 1997. It was also around $950 in July of 2009. I would say the stock market went no where for 20 years.

I don't think it is fair to call 2001 and 2008 "blips". Their combined effect was we lost 20 years worth of potential growth.

It certainly didn't go nowhere. Obviously, if someone bought and sold their entire portfolio on those (VERY cherry-picked - just look at the graph, lol) days, they would have made 0 dollars.

But look on either side of that blip and there is plenty of profit.

We still live in a generation where people think "real estate only goes up." I have so many people bragging about how they've nearly doubled the equity in their home around here in Nashville. 2007 didn't change anything, it was just a blip. People are still flipping houses and leveraging their existing homes to buy new ones. In the long run though, the saying hasn't really been proven false, asset prices tend to always increase.

Real estate is a bit different because the government actively restricts the supply of developable land and legally-buildable housing units on that land.

The crash will come once average suburbanites stop protesting everything denser than a half-acre single-family home and city councils realize that mixed-zoning is far more sustainable.

This is true in many areas (California), but not in others. There are ghost residential areas in many countries. In 2004 in Spain 675.000 house starts - more than UK, Germany and France combined (45 millions citizens in Spain vs 80+65+65).

There were not unsurmountable government restrictions (obviously). There was no real demand for it. The housing demand was largely speculative, people investing in houses because "prices never go down". Often, they didn't even get rented - why bother, if the valuation of your "investment" grows faster than what you can get from rent?

In markets like these, huge increases in supply don't drive the prices down. Hoarding, speculation and housing flipping absorb everything that gets built. We still have insanely high housing prices today.

>The crash will come once average suburbanites stop protesting everything denser than a half-acre single-family home and city councils realize that mixed-zoning is far more sustainable.

So conversely, the crash will never come as long as average suburbanites continue to protest everything denser than a half-acre single-family home? Because I wouldn't bet on human nature changing any time soon.

I think geography also restricts the supply of developable land. Real estate is a finite commodity, while the human population doubles every 33 years. Even if you build up and with a higher density, there is a fixed limit to habitable space on earth. With a fixed supply and increasing demand, you will see increasing prices over time.

In a world where WeWork can be valued at 47B USD by professional capitalists, there's something to be said for acknowledging that the stock market and stock valuations can be untethered to reality. I think the sentiment you mentioned is a combination of that and a bit of a humorous/nihilistic attitude towards the same.

Valuations simply don't matter right now, Tesla is bigger than every car company combined and makes less than virtually all of them. I don't get it, but that's how it is. There is no end in sight, if there were a moment to burst any bubble it would have been last March...and it didn't.

That’s because it’s about future earning potential for “growth stocks”, not current reality. The other car makers have reached a kind of equilibrium, while Tesla keeps putting out new products in a class they essentially invented.

That said, I also don’t own Tesla because I think it’s crazy overvalued.

That's why F/PE exists, even on that basis the current market doesn't make sense and valuation doesn't matter. Frankly, I think when/if SpaceX goes public, Tesla will start going down and people will plow into SpaceX (which IMO has more of a strong future and also what people investing in Tesla now are kind of thinking they have a part of)

The way I view it is this. Given inflationary currency, if the overall world market is actually going downwards for a prolonged period of time, say a few decades, the events having lead to this are of such magnitude that the return of my investments is very likely the least of my concerns.

Not that you are necessarily wrong, but I am not sure your examples really show that. The Dow Jones is at an all time high, even adjusting for inflation, and not by a little. Yes, there are dips, but over the long term it seems to hold. As far as I can tell, the following holds true, ∀ t ∈ [1930, now], V(t) > V(t - 30) where V is the inflation-adjusted value of Dow Jones that year.

>over the long term it seems to hold

Certainly, but as Keynes said, "in the long term we're all dead". Less dramatically, average annual returns over long periods of time depend dramatically on when you start and stop the calculation. At some point, people want to retire and live off their savings and "wait another 10 years and you'll recover your principal loss" isn't a comforting message.

You're misunderstanding.

Taking a haircut after 30years of gains is OK.

That's why one keeps 10 years of cash (or equivalent) as a cache to weather those downturns. I'd recommend 6 years, but something that you could draw from while markets recover. It seems as if the cadence of market downturns and recoveries is increasing.

It's not a binary choice.

I would love to know who really keeps 10 years of expenses in cash on-hand. I bet you could write the list of non-billionaires on a napkin.

You could likely write the list, billionaire or not, on a Post-It(tm). I mean maybe billionaires keep 10 years of billionaire lifestyle in cold hard, but that would seem to be a poor use of such a huge chunk of cash.

I have 10 years in cash/short term bonds, and 40 years of expenses in stocks. It’s basically roughly a 80/20 portfolio, nothing unheard of, especially for retirees (though I’m still working).

I have 10 years in cash/short term bonds, and 40 years of expenses in stocks. It’s basically roughly a 80/20 portfolio, nothing unheard of, especially for retirees (though I’m still working).

I have never met anyone who does this. Have you?

I have 10 years in cash/short term bonds, and 40 years of expenses in stocks. It’s basically roughly a 80/20 portfolio, nothing unheard of, especially for retirees (though I’m still working).

Good for you. That's puts you in the top few % for retirement planning.

Is that notation really easier to parse than "Since 1930, the Dow Jones has always held greater inflation-adjusted value than it did 30 years ago"? Seems like obscurantism.

Even older and studied investment a bit. I'd say most people don't think "stonks can only go up" but do think the markets are a random walk with an expected return of 7% or so pretty much regardless of when you buy. But that's not true - markets swing between expensive (say 25 PE) and cheap (say 7 PE) and they mean revert. As a result if you buy expensive your expected 10 year return is not much (say 0%) and if you buy cheap it's a lot (say 12%). Jeremy Grantham / GMO are good on that stuff.

You were like 25 during the dotcom crash and 35 during the housing crash. It’s possible these events were timed in a way that inflicted maximum psychological damage for you. I know at 25 I had just started my first “good” job and my first child was born at 35.

Quite possibly you’re being too pessimistic.

Or the 1950s-1990s were particularly abnormal period of innovation and financial prosperity, and we’re now simply reverting to the mean.

Only time will tell I suppose.

I almost thought I heard myself talking

The 401k concept has created a demand/supply imbalance and will continue to do so until as many people start cashing out as putting in. Massive government spending and, low interest rates, and other incentives have also dumped a lot of money in the market. Once these demand-increasing trends end, it will be all over. I'm amazed at how long the fiction has been sustained.

You are saying the market will go south when 401Ks as a trend stop?

Since the beginning of 401ks, the yearly amount being locked away exceeded the amount being cashed out. Thanks to baby boomers retiring, a couple of years ago that reversed, and will stay reversed for the rest of our lives.

The first condition creates a natural headwind to increase stock values. The current condition will reverse that.

But generational wealth is increasing, as boomers die their kids get the money...which they then reinvest. The money doesn't just disappear.

That's why they invented cocaine.

I'm definitely far younger than you; however, I agree. The problem is that there's no timing it. So positioning yourself such that you leverage other factors to make money in a market (e.g. delta-neutral positions that are long/short time/volatility) are all you can do if you want to play the game without having high directional risk.

So, I actually have an MS in Quant Finance despite having worked in tech my whole career. There's an old saying, "during a time of crisis all correlations go to 1". People found this out the hard way in 2008. There are all sorts of risks that you can't hedge for or that negate hedges you have in place for other risks, counterparty risk being one of the better known ones.

This hit home for me during the mini-crash a year ago. I was convinced assets like bitcoin or gold or bonds would hold value when the stock market tanked but instead saw everything fall at the same time.

I understand the concept of undiversifiable risk, but seeing it play out in practice was eye opening.

Long term US Govt. Bonds like VGLT did very well, increasing in value, in both 08 and Mar '20 covid crash.

This is good to know. I think most of the modelling I looked at in the past used medium duration bonds as a proxy for the bond market as a whole.

I wonder what TIPS did during the same timeframe actually.

EDIT: I looked at VGLT and the mean annual return is extremely low, roughly 0.75%. I like the seemingly negative correlation with equities but I'll need to do some modelling to see if it's worth the massive hit in average expected return.

The best estimated guess for a bond ETF’s returns going forward are it’s SEC yield, not past returns. This is because efficient market hypothesis postulates that the aggregate of bond buyers and sellers has reached equilibrium at its current interest rate. So it’s our best guess at the average of interest rate increases and decreases and their likelihood of happening. Given that, we assume the return going forward is what it’s currently yielding, and in VGLT’s case, it’s 2.15%. When cash is yielding 0.5% max, these can be a useful way of further protecting against equity downturns (assuming VGLT increases in downturns, negatively correlated to equities, true the past 30 years, mixed truth over 70 years), while still providing much better yield than cash.

Found this out last year after waiting patiently since 2008. Volatility ruined the prospect of large quick gains. I now have no specific strategy to trade the next crash except buy and hold the fundamentally sound stocks (same strategy as normal investing heh)

I don’t buy the “you can’t time it” argument. For short time periods yes, but we are at monumental levels of overextended. Longer trades like these people do time.

https://www.bloomberg.com/news/articles/2021-02-12/warren-bu...

I keep seeing that graph when I even entertain the idea of being in the stock market right now.

> Similar views were expressed about houses/real estate in 2007.

Don't they always go up on average though? Even the much hyped 'housing crash' of 2008 only last for all of 3 yrs till 2011 after which they went zooming past the previous highs.

Though real estate has gone up on average for the last several decades, this has not always been true as you can see from historical data. [1] [2] [3]

[1]: https://www.forbes.com/sites/johnwake/2019/03/30/new-study-o... "Old Real Estate Bubbles (1582-1810)"

[2]: https://globalfinancialdata.com/seven-centuries-of-real-esta... "Seven Centuries of Real Estate Prices"

[3]: https://observationsandnotes.blogspot.com/2011/07/housing-pr... "100 Years of Inflation-Adjusted Housing Price History"

([3] is inflation-adjusted. For [2] see the second chart for inflation-adjusted prices. [1] is not inflation-adjusted but there wasn’t much inflation in Amsterdam back then.)

On average they always go up. However, with their upswing comes the occasional big downswings.

This is why having a good asset mix is important. You shouldn't have no stocks, because they have really good returns on average. But on the flip side, having only stocks is somewhat risky because it's impossible to tell if you are buying on the topside or bottom side of a bubble.

> Don't they always go up on average though?

It's not too far off to say that, in the long term, their real value does not go up, they just track inflation. Of course in recent years we live in Weird Times financially.

https://www.multpl.com/case-shiller-home-price-index-inflati...

All markets stop eventually. There's no natural law saying they need to go up forever.

Maybe you think they should keep going up, for whatever reason, and you might be right. But that's different than the fact that they increased on average in the past.

That was with a large injection of money though. Maybe they will do the same thing next time, maybe not. Maybe it will have the same effect, maybe not. No one really knows.

When the crash comes though what do you want to own? Other than real estate and equities I can't think of anything else.

I guess Crypto..

https://twitter.com/SellFiat/status/1347958257642569730/phot...

Above graph is only about Bitcoin, people have made a shit ton more on Alt..

Your point is anecdotal. I actually ran the analysis and found that if you are long term investor - stocks beat bonds hands down. See it here: https://www.investingrus.com/blog/safest-bet/

"Even if you had to sell your stocks at the bottom of the Great Depression, but held them for more than 20 years before that, you would not suffer a loss in value of your portfolio"

With Quantitative Easing to numb the pain of a downturn stocks, real estate, and other assets can literally only go up. The Fed will directly purchase other asset classes to ensure that this remains true.

Now every stock market jitter leads to the Fed announcing an asset purchase program.

Replace ‘stocks only go up’ with ‘fiat only goes down’.

The thing is, in general stocks do go up. If you are young, your money should be in stocks, letting the risk average out over time. However, unless you really enjoy investing for its own sake, your time is better spent elsewhere while some sort of index or autotrading fund manages it for you. As time goes on you should switch more and more over into lower and lower risk investments.

Isn't this exactly why your investment portfolio needs to change with age?

STONKS can only go up if you're 30 and don't plan to touch the money for 35 years, this is basically a fact(I'm just a SWE not a financial advisor).

If you're 55 and looking to retire in the next decade you normally shift a larger portion of your assets into more stable investments.

The roaring 20's are typically left out of evaluations because it was ten years of boom to bust cycles. look it up, it'll look familiar. The market can remain irrational and that was before all the stimulus and QE and now what ever interest rate shenanigans we're about to model off of Japan.

> SWE, BSCS, 4 YOE, $800K TC

What is this supposed to mean to mere mortals?

Software Engineer, Bachelor of Science in Computer Science, 4 Years of Experience, $800,000 Total Compensation.

Guessing: Bachelor of Science (degree) in Computer Science, 4 years of experience...

The other 2, no idea.

As a counterpoint, I have a BSCS, and closer to 35 YOE, and I have never, nor will ever in my lifetime see $800K/year. To date, not even a quarter that.

Download the Blind app and read some of the posts, you'll get a kick out of it. I'm honestly not sure what to make of all the 25 year olds claiming >$500K TC. Near as I can tell 1) it's largely a FAANG/SV echo chamber 2) 80% of the TC claimed consists of an initial grant of RSUs divided over a 4 year vesting period with an assumption that "refreshers" are coming and 3) people include price appreciation in unvested stock as part of the TC. Either that or I'm seriously underpaid with 25 YOE despite being well within the top decile of US income earners.

> I'm honestly not sure what to make of all the 25 year olds claiming >$500K TC

I have browsed the app and don't recall many 25 year olds claiming >$500K TC (except those who were part of particularly lucky IPOs). 30+ year olds, definitely.

Crash or inflation ?

Not mutually exclusive. Inflation could tick up to 5-6% per annum, forcing the Fed to get back to positive real rates, and in the process bring about an economic crash. I actually think that's the most likely sequence of events.

A bond price crash and inflation are almost the same thing as in inflation would lead to higher bond yields and hence lower prices for a given yield.

Whether that would crash stocks or the economy is more questionable. Probably stocks.

Stagflation.

I too have lived through many crashes (87-08). In those days it seemed like we took our medicine no matter how bad it tasted and lived with the outcome. Today it seems different, there is no limit to what the Gov and the FED will do to keep the wheels on the wagon. Although it seems like a clown world economy, it is nothing compared to what is happening in Canada/Toronto. I just got off the phone with family in Toronto and they were telling me their house is going up $3000 - $4000 a week in value (on the low end). They bought it in 2005 for $440k and now can expect at least 2.2 -2.5 million without any improvements. What I find interesting is the experts talk like this is all normal and the market is fine. What do I know.....