> The post author frequently compares flow variables (eg earnings, GDP) to stock variables (eg market cap). That’s not necessarily terrible, but the ratio is always sensitive to interest rates (because the stock variable discounts future values of the flow variable, and when rates are low the discounting has less of an effect).

This was an incredibly clear way to put it. I can't believe I haven't thought of it that way before! Thanks.

> over that 10-20 year cycle the market is always net up

This is simply not true especially if you take inflation into account.

And even more so if you look outside the US (one of the top 1% of market performers over the last 100 years - hindsight bias).

For example Japan total return index had a 30 year drawdown post 1989 even in nominal terms. The US market from 1966-1992 total inflation adjusted return (26 years) was zero. http://www.simplestockinvesting.com/SP500-historical-real-to...

You may be right, but I don't think we should compare ourselves to Japan, or cite them as an example in discussions about economics. Japan's priorities are totally different to most countries. They prefer to work hard at preserving the status quo, than chasing growth and change. Japan has many businesses that are hundreds, even thousands of years old, and still selling the same stuff. Many of these businesses have the same goal; to survive the next 50 years with 2% growth p.a.

Japan is one of the older civilisations with a recorded history, but "thousands of years old" businesses is stretching it more than a little.

Japan (population 125 million) is third in the world in GDP, with China (population over 1 billion) and the US (population 330 million) ahead of it. More remarkably this is from a tectonically unstable, volcanic island chain with limited natural resources, which is in stark contrast to either the US or China. This is probably an underestimate as they have a considerable secondary investment/production effort going on across Asia.

Japan's priorities are the same as everybody else's, they're just rather good at disguising that.

From the years living in Japan I think the previous poster is right on a cultural level.

I mean if you think about it, 6 of the top 10 oldest companies are Japanese [1]. That says something about the value of continuity and stability in Japan's mindset. I don't see that changing any time soon tbh. (And yes, some of them are a "thousand" year old, though of course not thousand"s")

[1] : https://en.m.wikipedia.org/wiki/List_of_oldest_companies

Construction company founded 1443 years ago: https://en.wikipedia.org/wiki/Kong%C5%8D_Gumi

>The US market from 1966-1992 total inflation adjusted return (26 years) was zero.

This was during a period when high dividend stocks were in fashion. I'm willing to bet that during that period stocks probably beat almost every other form of investment with regards to profits.

> I'm willing to bet that during that period stocks probably beat almost every other form of investment with regards to profits.

This illustrate why makes me uneasy of current times, that blind faith in the stock market as the ultimate investment. From FIRE communities to r/wallstreetbets to regular retirement to professional fund manager, don't ask question and join the dance, it always was and always will be 6-8% per year, it's a law of nature.

You might want to look at interest rates during that period... especially after 1973.

You are replying with a fixed period that confirms your claim while comment OP was talking about total returns which you can be sure are not zero. If you are handpicking periods you can find a month in the last 2 years that was negative and make a claim that the stock market didn't go up but it did, > 100%.

Real Total return (inflation adjusted, dividends included) of SP500 has been negative in two decades. 1970s and 2000s.

The original claim is 10-20 years. That's a valid ballpark estimate. There can be lost decades, but when you get closer to 20 years, it has been all good.

ps. If you spread the entry into market into 5-10 years there has never been a decade of zero or negative returns (total, inflation adjusted).

While I mostly agree with and everything you say is factual, the danger always lurks where you are not looking. As we know from the past, systemic risk grows somewhere without good statistics.

FINRA Margin Debt shows $940 Billon. There is an additional shadow margin of unknown size. Margin debt, shadow margin, taking loans against properties and buying stocks, ... the size of leverage may surprise us.

There may be even larger systemic risk in the corporate debt market. The liquidity of high-yield is questionable and rating agencies (again) seem to be again part of the problem in rating junk as BBB. Bond market is not as boring as it used to be.

I do not mean to be critical, but when you take some view points together that converge on a specific crash with actual factual fundamentals of how it will happen and why it really does not matter that any of that group only predicted it once.

Your conflating it with one data point, as those differing viewpoints that predicted 2008 is in a group is than one data point as they all covered a different mechanism of a set of systems as it was not just one system that crashed but several.

We have the same problem in medicine, ritalin is based on one system solution of ADHD...however if you foloow a multiple system approach you can take Phenyanalinine and Darek chocolate, L-glutamine, etc and actually have a better solution of managing adhd without having to do drug holidays.

Crashes are convergence of several data points of crashes in multiple systems that converge together to produce abig crash.

Is the Log4j vun one tiny crash of one system or a crash of several?

This. More people should realize that the accuracy = hits / shots, and Michael Burry keeps shooting out predictions on a regular basis now.

His "proven track record" would be less than 10%, I'd imagine.

I wonder why is there no "market insurance" products/services...

Could be a simple monthly subscription which buys managed basket of options (call on VIX, puts on SP500, Nasdaq, etc)

Or should the average retail investor get into the Black Swan ETF (https://www.amplifyetfs.com/swan.html) or similar to protect against these events?

Of course there are. You can just buy put options, and if the market goes down, you can exercise or sell them, which limits your downside risk.

Because you would expect to lose money on it? That is, you should expect that in the long run the insurance would cost a little more than the amount it pays out and it sounds like you’d want insurance against losing money in a crash so buying insurance is just losing that money early.

Obviously that’s only true in the long term. There were some times when buying insurance may have been a good idea (eg early 2020) but that’s easier to say in hindsight. If you’re managing savings for a pension then this kind of thing could make sense as you get old because you mightn’t live long enough for the costs to average out. But the normal way to deal with that is adjusting the balance between equities and bonds.

The Black Swan ETF already does it

It's 90% of treasure bonds and some small percent of options

On a bulish market, you loose some performance (insurance costs) for renewing the options

On a bearish market (crash) your bonds loose market value, but the options will go up N amount of times. which will give you overall positive performance.

If the market stagnates, you'll loose money as the options continue to be renewed while the bonds are stable.

And you don't need to allocate all your portfolio to this ETF, can simply combine it with everything else you have. ----

Anyway

I've done this before, I believed the market could become wild

I bought VIX options and got lucky with a 20x score

Obviously this is not that easy or accessible to retail investors (and it's gonna cost at least 100$ monthly)

But if one's to believe we're near the peak, and the crash could be coming any time soon (next couple of months), buying this kind of insurance would make sense (I think about it as Insurance as a Service, because I just want a simple monthly subscription for the work behind the scenes)

Wow Vix options trades… that’s pretty bold that’s a super complex instrument with some odd rules.

i got the tip from zerohedge lol

in the end it's just another market traded instrument, and you can sell it before expiration for a possibly better price

People wanna get rich quickly. Dont want to buy products that underperform SPY because of edging and managing expenses

SPY can crash 50% or more just as likely, therefore why I suggest some sort of "insurance".

Even if SPY would be better than any less diverse or hand picked options from retail under the same crash market conditions

You can buy "market insurance", but the cost is high.

More complex the product, higher the counterparty risk.

>I wonder why is there no "market insurance" products/services...

Paper currency, FDIC insured bank accounts, CDs, TIPS, Treasuries, VCSH…

Biggest of all, having a network of people that can and will help you (such spouse, kids, grandkids, cousins friends, political allies, etc)

Certainly,

my idea is that if you have a stock portfolio, you could get "insurance" on it

Big banks and investment funds certainty do it, one way or another

I'was simply thinking of a more accessible approach to retail investors

"insurance as a service", pay 50$ per month for protection against stock crashes

Technically, I'm guessing this would not be called "insurance" but a financial instrument or investment which buyers/investors would get benefits under certain conditions.

> Big banks and investment funds certainty do it, one way or another

I do not know what you mean by this, but hedge funds hedging their positions is not “insurance”.

You cannot earn a return with no risk. If you want to de risk, the counter party is going to want commensurate payment to take on the risk plus a profit premium.

Just like you cannot profit off of auto insurance (unless you have inside knowledge of their premium pricing and can game it), you would not be able to profit off of “insuring” your investments, which would defeat the whole point of investing. At that point, just invest in less risky things, like bonds or cash.

Note that risk has a time component, so risk for an equity index fund for year 0 to 3 will be higher than a bond fund, but for years 20 to 30 it might be basically the same. So insuring yourself against risks for an investment in an equity index fund you do not need for 2+ decades is pointless.

good point hedging != insurance

this goes to my last point

> Technically, I'm guessing this would not be called "insurance" but a financial instrument or investment which buyers/investors would get benefits under certain conditions.

I would not expect to have this insurance for long periods of time

But could be interesting when it feels like we hit the peak of the market

If you are not going to have the insurance for long, then just skip the middleman and buy a bond index fund or treasuries yourself. There is no need for this type of insurance product to exist…since it already exists for cheaper.

They wont' go up in value to make up for your losses in the stock market?

I am not sure which securities you are referring to with “they”.

You only have a loss when you sell a security. So if you are interested in needing to be able to sell securities in the next 3 years, then invest it in a security that will not lose value in the next 3 years, such as bonds or FDIC insured accounts or cash. If you are not selling in the next 3 or 5 or 10 years, then historically, equities do not lose money that far in the future. The further out into the future, the lower the probability of loss.

So you “insure” yourself by making appropriate investments for the appropriate time horizon.

with the "official" inflation at 7% that may not be an option

and I'd be interested to compare performance of both approaches (probably you're right, anything else is too difficult or expensive for retail investors and doesn't give extra return)

thank you for the exchange so far

There is: annuities.

> ... if you sit out the cycle because of worries about an upcoming crash you could easily miss out on 5-10 years of great returns.

Returns? Or prices?

Unless you actually cash out you are still supporting the collective delusion. That is true even over booms and busts.

I think the point was if you are worried about a hypothetical 50% crash (or whatever number), sitting in cash investments with near zero return isn't necessarily the best strategy. You're much better positioned for a large loss if you are up hundreds of % first (the SP500 is up 300% or so in the past decade).

I know people that have been waiting for a crash for so long that it would take something like a 75% drop in markets to now vindicate their strategy of waiting on the sidelines.

> You're much better positioned for a large loss if you are up hundreds of % first (the SP500 is up 300% or so in the past decade).

And to add to this, dollar cost averaging means if you drop from 300% gains to 200% gains (let's say the market drops 100% for a laugh), you're not only still up 200%, but as your (automated) investment strategy continues to buy stocks you're now buying them at a massive discount. When they climb again, you won't be up 300% again, you'll be up closer to 1,000% (a lot, anyway.)

The key is not to predict a black swan, but to keep reasoning and awake, trying to figure out where the focus is needed.

I don't value the outcome (you call it luck), but the reasoning behind.

Thanks for the interesting points, one quick question I don't quite get, you state interest rates are high now but then reference them being 0.25%?

Typo, I meant to say they are low now.

Ok, I've replaced "interest rates are high" with "interest rates are low" in your GP comment. I hope that's what you meant!

Ah, cheers

Thank you for your service. I will be staying the course as always. HODL.

articles like this almost always point to high asset prices as a reason for a coming crash. And also high inflation as a reason for coming deflation. Then throw in some cherry picked data to support their take.

BTW, Michael Burry seems completely unhinged and I can't help but wonder if he just had pure luck.

Any real reasons, like 2008 where people started to realize security products were built on fraud at a massive scale? I mean crypto is a ponzi scheme but when that implodes 1 to 100 years from now, that's not going to make a big denty in the economic

> interest rates are high

Did you mean to say low, or are you talking about nominal rates?

I meant to say low.

I fixed it (see https://news.ycombinator.com/item?id=29617675). I hope that's ok.