The current reality, today, is nowhere near either one -- speculative bubble tech has crashed, but the rest of the market is around February 2021 prices. The S&P500 is only just now entering "correction" territory.
The only thing similar is that we have a ton of drama from people claiming that the end is near. But in 2008, the financial system really was close to systemic collapse. Banks were having runs and being rescued by the FDIC. Money market accounts were dropping below a dollar. That was crazy. Seeing Terra break the buck is...not the same.
Yes, inflation is high and that's concerning, but what's fundamentally driving a lot of the panic are the "high" interest rates (i.e. rates that haven't been "this high" since...spring of 2020). This too shall pass. Parts of the market that were wildly irrational will gain sanity, or they will go away. Fake wealth will be lost. It will be painful for the few who dove head-first into the froth, but to me, right now, this doesn't look like a moment for panic. For contrast, I was genuinely freaked out by what was happening in 2008.
To compare it to COVID - 2006 was like January 2020, 2007 was like February, 2008 was like March.
So I agree with you that I don't _think_ we're anywhere close to the 2008 collapse. But catastrophes like that usually don't seem that way until you're at the point of no return.
This is not the same mechanism at all. Rates have gone up and we're seeing a nearly instant reaction in the bond and stock markets. Speculation about a crash started essentially immediately after rates went up. There will certainly be overhang due to debt and VC and whatnot, but this is not the same as 2008. I think there's a better comparison to the dot-com crash, but even that analogy fails.
Again, I'm not saying that I think this is what we're facing at the moment. The point is that it can be hard to know when a big crash is happening, because there are often a lot of problems people are only aware of in hindsight.
A lot of crazy stuff that wouldn't pencil out without 0% (or near) rates went on for the last couple of years - and to some extent even prior to 2019. When you take away the punchbowl, as Buffett likes to say "we'll find out who's been swimming naked".
> Yes, inflation is high and that's concerning... This too shall pass.
We'll see how long this lasts. The stagflation that took hold in the 70s was difficult to get out of - it lasted for several years and was only finally killed with extremely high interest rates. I think the markets are afraid of this kind of scenario and it's a bit self fulfilling as companies pull back.
Yes, this is a different kind of beast than we faced in '08, but some of it is because we kicked the can down the road back then. Add in the Ukraine war and the effects that will have on global food and energy prices as well as current political instability in many parts of the world - this isn't something we faced in '08. It has some hallmarks of the 70s stagflation (middle east oil embargos kind of analogous to some of what we're seeing now) as well as the .com crash (tech companies were on a tear during the pandemic) and some aspects of '08 (housing bubble). It all seems to add up to a nasty recession. Probably not as bad as the '08 recession, but probably worse than the .com crash recession which wasn't much felt outside of tech - tech is a bigger part of the economy now so tech companies pulling back will be more widely felt.
A lot of people forget that, because the recovery turned on so quickly in 2009. But nobody knew things would be so easy in the thick of November 2008.
2008 was genuinely terrifying for anyone who had a cursory understanding of the banking system. The whole thing felt like it was going to crash.
Right now stocks are down a little, and what were wildly overvalued software companies are coming down to reasonable valuations.
Amazon perhaps, though they have successfully penetrated enterprises.
I suspect Sun was walking dead long before the crash, and wouldn't have survived without an existential shift that it's not clear they were capable of making.
The silly money in the dot-com run up just dragged the process out a bit by masking/hiding the crisis, but I don't think it's correct to say the crash is what killed them.
A smaller domino can topple a much bigger one, which can topple a bigger one and so on.
I'm more concerned for startups that are early-phase watching their market evaporate, or are selling shovels to the now non-existant gold rush.
Growth has been stellar, but what the numbers don't tell you is that the growth is simply achieved by subsidizing users. Delivery is completely free, prices are discounted, and they'll deliver any amount. I know people who will order half a dozen times a day for something as small as a pack of potato chips and a coke (order value: $1). Because why not if you're getting it for free?
What happens to these startups if funding dries up and free delivery is off the table is anyone's guess.
"Survival of startups", plural, is not the metric of relevance. The strong will survive. The ones who were/are running on fumes are gonna have a bad time.
If however they do resume QE, expect markets to fly to new heights.
Hindsight changes a lot of things. For one the market recovered from all previous crashes, with one major exception.
I traded through 2008. It felt apocalyptic. I got a text message from a guy at Lehman on the Monday, surprised he was now out of a job. There was a queue of people at Northern Rock.
We knew that a lot of bad things were about to come out, basically things that had been papered over to fix dotcom. The whole subprime thing was predictable, I went to a lunch at Goldman's where they basically just said it out loud, the subprime market is gonna explode and maybe take some other things with it.
But what we have now feels like it's sweeping even that under the rug. Growth didn't bounce back hugely afterwards, it's been mild. But interest rates have hit a low nobody that imagined. The whole period since 2008 has been exceptional. A lot of things that seemed like frothy excess went on for a long time. A lot of stuff that should have died in 2008 got to live.
So yeah it feels really big, but no climax thus far. No Lehman yet, and no Madoff. A couple of things sort of felt like maybe they would cascade, but didn't, eg Bill Huang's fund going down. For the GFC we had the two Bear Stearns funds going down as a preshock. Not sure if Luna really qualifies, given the amount of crazy things that happen in crypto.
The modern world needs it. We've created ridiculous systems that - wrongly - believe they're beyond specific forces of both human nature and market economics, and I can't wait for the shit to hit the fan and the music to stop. A sharp, harsh, painful, miserable, unbearable correction needs to happen to remind wealthy, middle-class, and poor people that fundamental economics cannot be ignored.
The more painful it is for every group, the better. Trauma is the best teacher.
At a very basic level if people get up in the morning and go to work, and continue to want cars and tvs and houses and vacations, it's hard to see the economy really going to hell. We've had many scares over the last 100 years and we keep chugging along with a bump here and there, because people keep going to work and keep buying cars and tvs and houses and vacations. We just went through a global pandemic and are basically fine.
It feels pretty resilient.... unless we make a hard turn into communism, which appears to be a sure fire way to destroy an economy.
However I doubt it will be like the 30s. Back then it was really slow to transmit the information of who needs what stuff, and which firm is looking for people. With modern communications the shock should be less.
This is sociopathic.
> needs to happen to remind wealthy, middle-class, and poor people that fundamental economics cannot be ignored.
Really? Real lives need to be sacrificed to a god of spreadsheets? Do you wish this suffering on your own family as well?
In 2008 I was working at a start-up that had plenty of cash, but pretty crappy investors who panicked and decided they want their money back, and through the board forced the company to basically shut down, didn't even pay us our last paycheck or the severance required by law in my country. So I found myself unemployed (with a baby BTW), my wife was also laid off, we pretty quickly had to withdraw money from our not-that-big savings, my company was car gone and I needed a new car, and no company around even thinking of hiring. It was extremely scary. I did some freelance work for a couple of months, then found a job at a pre-seed start-up that managed to scrape a couple hundred K somehow, and got by for a bit. After a year things started to turn around and things went great up until now. But it was really traumatic.
I obviously don’t know where the bottom is but I do see multiple simultaneous contributing problems (war -> food problems; supply and transport problems exacerbated by Covid; artificially (“profiteering”) high prices; a tardy (but firm) response from the fed — though it is the nature of such responses is that they have to be tardy).
Ironically the multiple causes is a positive sign: they can start to turn upwards independently. While the 2008 crash was a secular failure of a singular asset class, or perhaps more correctly two coupled asset classes (mortgages and CDOs). That was hard to work it’s way out of the system, though unorthodox actual by the fed and other central banks helped cushion the shock…at a cost.
So for example the crypto collapse is high profile but minor, even trivial, in the scheme of things.
2022 could be this downturn's 2006. In other words, maybe, you ain't seen nothin' yet.
I'm talking to every Boomer and gray beard I can - and even they can only go far so back. We have elements of every great financial, social, and demographic downfall in our midst right now, and a political class that seems desperate to start WW3. I cannot help but remember how a Japanese Boomer once described the situation leading to WW2 in Japan: "it was like everybody lost their mind for a very long time".
The very scary part is how utterly incapable current Western leaders are. Sure, occasionally a good law or policy sneaks through, but by and large the best way to emulate their actions is by asking "what would a saboteur do?". It has been flawless and continues to be as seen by this morning's US bill about making price increases in fuel illegal.
Then there's how utterly over-financialized our system has become and it's everywhere, from housing to sovereign debt. If anything, it's scarier because while the consumer balance sheet is not-that-awful, the sovereign ones that matter are catastrophic. That confluence of incompetent decision makers + desperation + big stages usually ends in catastrophe.
If we're exceedingly lucky this would be a 2008, but I suspect we're still years away from any sort of "bottom" in either finance, demographics, or societal well-being.
Nobody is an expert so I am not replying to try to change your mind, just give you my perspective.
In particular this comment stuck out: “political class that seems desperate to start WW3.” They seem desperate to try and thread the needle to avoid two possible paths to WW3. The aggressor is a very weak and poverty-stricken country and the calculus is that it is better stopped now before it can grow stronger. You can of course disagree (there are plenty of good arguments against that position) but it draw upon perhaps a century of learning.
Ignore the popular press; the biggest political analogy for the US is 1930s France, not Germany, and people are actively defending against that.
I think you are correct to fear the large amount of disinformation and gratuitous (not principled) dissent, but the US and the West has recently faced far worse (USA: 1930s, 1950s), Europe (1870s, 1910s) and come out stronger; and when I look at some of the worst revanchist efforts they seem be a counter response to the “good guys” winning, often noisily and destructively slamming the barn door (gay rights, interracial marriage). I know what it’s like to be a child of an interracial marriage when it was explicitly against the law and believe me it was far worse than today.
Things were far worse in the 1950s under a veneer of gentility. There is no prelapsarian past when the people in government were any better than the folks today.
So yes, worry and work for a better world, but don’t despair. Which are the two things you should be doing anyway, even when things are going swimmingly.
Well, Putin is the one desperate to start WW3 by replaying the Anschluss and occupation of the Sudetenland in Ukraine.
Our political class are doing everything in their power to frustrate him while not turning it into WW3. It’s hardly the appeasement of Chamberlain, more like a mobilization of soft power, the civil society and the arms industry.
The appetite for boots on the ground action is nowhere, except for from the Ukrainians which is understandable. But they got this, and I’ll be happy to help them rebuild their free, peaceful country with my investments, hopefully soon. They will need Western expertise in medical tech (prostheses) and mental healthcare in the aftermath of the war for sure. Possibly a jolt to their agricultural sector too.
Point of information: "boomer" usually refers to people born in the US postwar baby boom, so by definition boomers will not remember that era directly.
But yes, nationalism can drive people to insane extremes. It was a huge mistake for Japan to attack the US and bring them into WW2, and it was a huge mistake for Russia to attempt to take Kyiv and bring Europe into its war with Ukraine.
Speaking as a farmer, it seems strange to credit the war. The price of the food products I sell started going sky high in 2020. And by fall of 2021 we were already growing quite concerned about fertilizer availability, which pushed prices even higher. The war wasn't on anyone's minds during those times.
The war hasn't helped, but we already had big food problems long before that.
And of course, it took years to find a bottom: the bust went so deep that EVERY significant tech company in ~2000 went through layoff after layoff after layoff over the first half of the next decade, as documented by the HN of the day, fuckedcompany.com[0]. Yes, the housing bubble started to form mid-decade, but tech itself hadn't really meaningfully recovered when 2008 arrived (and this famous Sequoia memo!) -- and it was only from the embers of THAT bust (broadly deeper but much less acute in tech) that the next bubble began to form.
So in terms of now: it's hard to know where this thing is going, but there are more parallels (to me) to the Dot Com Bust than to the 2008 Recession. I expect this thing to run pretty deep in tech, and I think some sectors (ahem, web3) may well face extinction. If it does run that deep, you will only know that it's over in hindsight: it will take years to recover, and it's only when everyone stops thinking about it that the seeds of a true recovery will be planted. So, get comfortable: it may be a while.
One final note. Back in the depths of the bust (maybe 2003?), I saw a bumper sticker on the 101 that stuck with me: "Please God, Just One More Bubble." I remember thinking at that time that there would be no more bubbles forthcoming -- that nothing could possibly be as frothy as what I had lived through. I was wrong, of course, and I really hope the driver of that car cashed out on their NFT marketplace or whatever!
something something "monthly active users"...
While I think we're headed for a whole new kind of disaster (albeit one I can't predict—unlike 2008, there's nothing fundamentally wrong with financing of housing, but I can't see how these prices are sustainable), I'm not sure it'll be 2008-level doom. The frustration, I think, comes from a real sense of the toll of inflation coupled with annoyance, sometimes unarticulated, that we could have put the breaks on by raising interest rates more aggressively long ago, circa 2015-2016, when the stock market started going crazy.
Its easy to see there is a problem now, but I don't believe anyone knows what amount was caused by the pandemic. Despite gripes everywhere, I actually think Fed policy has been very reasonable given the circumstances. If not for the pandemic, steady rate hikes were already happening and set to continue.
However, this 'rescue' became the norm and they decided to continue easy money policy for the next 14-years. Now, here we are! This has been a concern for a long time now.
I lived through the Japan crash, which is the biggest crash in my lifetime, as well as the early 80s government layoffs (where my dad really thought he would be unemployed), 1992 (when I thought I would lose my job), the dotcom (where I knew good people who were out of work for a year or more), and 2008.
So far this is exceptionally mild. There are not mass layoffs - there are layoffs and hiring freezes, but nothing like 2001 - and there are not people taking pay cuts or worried that if they have to leave their job they will need to take one. We are far, far from 2008 and even farther from 2001.
I have tried to explain what the dotcom was like to young people and the usual response has been: "What is the big deal? I would just find a new job and probably get a pay bump as well."
I am not saying this to pick on young people in technology but rather to help illustrate how far from reality they are when they talk about how unfortunate they've been graduating into tech in the aftermath of 2008. 2008 was barely a blip on the tech scene. A real down market is something most of them have never experienced and not one that they are internalizing. There has been a ton of "we graduated into the worst job market ever!" propaganda pointed at millennials who have internalized it. It isn't true unless you were in finance or real estate.
It was true for a lot of us who weren’t in tech at the time. I graduated in December 2008. I was unemployed for a year, eventually finding a job as a bank teller. I applied for literally hundreds of jobs from waiting tables to retail to grant writing to substitute teaching.
I was either “too qualified” because I had a degree or I was “too inexperienced” because a lot of folks who had recently retired were going back to work because they just became upside down on their house.
When you’re freshly graduated and broke, a year is a long time. Worst ever of all time? Nah. But it was pretty traumatizing.
Other than that I tend to agree.
What saved tech? It was mobile. 2008 was the first year when you could write apps for the iPhone, and they were a hit. Same with Android later in 2008 early 2009. It started a boom of new companies, and then competition for talent. Also Google and Facebook got into a bidding war for engineers, which started driving up salaries.
Also, a lot of the large tech companies today, were started or took off around that area (AirBnb, DropBox, Uber, Lyft, etc).
Is this going to be another small bump 2008 for tech (a correction, hiring freeze, and then upwards), or a long drawn 2001 style bust?
My bet it is going to be a 2008-2009 style of correction for tech (job market at least), with the 2001 style of correction for stocks. Why?
1. Stock were way overhauled, and coming back to pre-pandemic levels (almost half off for many companies).
2. Most large companies are still very profitable right now and have healthy margins.
3. Some will try to rein in costs, and have minor layoffs or hiring freezes, but no near 2001 style of busts
4. Tech is in a long term upswing trend that will last at least another 50 years.
This was a major factor in the tech story. Rather than valuation being focused on current profits, as is the case for most industrial stocks, valuation for tech is based on expectations of future profits, i.e. growth. When long term interest rates are very low, these future cash flows are not discounted very much. Therefore, good growth numbers for tech in a low interest rate environment resulted in face-melting performance as all of that expected future profit is basically just assigned to the current value of the equity.
That era is clearly ending. Long term interest rates hit the all time low and are rebounding in a way that is very distinct from 2009. I would not be surprised if tech stocks fundamentally reprice and never completely recover.
Zoom out here:
The Fed for sure wants it at 2%, not 2.5% , not 1.7%...
The Fed will be raising rates. The question is how far they have to go before inflation subsides, but it is monumentally obvious that long-term interest rates have to lift off. The days of zero-interest overnight rates are over.
https://en.wikipedia.org/wiki/Taylor_rule
Problem is that it's very likely that the Fed can't raise rates to 13% without very serious negative consequences like the government defaulting and the people revolting. My prediction is that they get to 3-4%, the economy breaks, and then they flinch and drop to 0 again. Meanwhile, inflation will continue to accelerate, as real interest rates remain negative.
When the currency has depreciated by a factor of 5 or so, total debt levels will become manageable again, and then we might see the Fed persistently raise rates to 20-25% and choke off the inflation. At 20% inflation, it'll take about 9 years to get there, at 8% more than 20 years. If inflation gets to 20% it's very likely to get past 20%, though.
All we have today are optimizations on these earlier models. Nothing new that truly leverages any unique feature of the smartphone.
We still don't know the full extend of the current problems. The housing market, the crypto, the bad loans, the unicorns without profits.
We are currently in a correction (at least officially).
Whatever pain folks are feeling right now will feel trivial to what the pain will be like when an actual crash comes.
I remember the 2008 crash and it was panic. Banks collapsing, large layoffs, hiring freezes, and a quick downturn.
Hell the pandemic downturn in spring 2020 felt worse than this. Unemployment went way up, banks were pulling back, people were being laid off. That was an artificial crash with a fairly defined end time. A normal crash does not have that.
Whatever this is, not a crash. Or at least yet.
Things could certainly get a lot worse. 2008 was brutal, though.
In 2008, SPX eventually crashed to 700ish - a level it had last seen in 1997. A whole decade of investor wealth was wiped out
Right now, we haven’t even seen the pandemic era wealth wiped out. This is honestly a paper cut compared to a proper 2008-like crash
>When the Federal Reserve propped up A.I.G. in September 2008, unlike its approach with most of the big banks, it threw out the company’s chief executive and took control of 79.9 percent of the company, nearly wiping out many of its shareholders. Taxpayers got all of their money back, and then some, receiving a profit of more than $20 billion.
(https://www.nytimes.com/2015/06/16/business/dealbook/surpris...)
Enacted since then, Title II of the Dodd-Frank Act sets up bailouts to be “forcing shareholders and creditors to bear the losses of the failed financial company, removing management that was responsible for the financial condition of the company (…)”.
Storing wealth for later is one of the hardest things to do. It is an unsolved problem, even after thousands of years. Capitalism has a strong claim to hint at a workable solution: it formulates a process in which savings can be converted into capital, capital being the lever to increase productivity, thus increasing wealth. Funnily enough, the accountants responded by starting to depreciate the capital assets, bringing it back full circle. It also necessitates capital being deployed productively. And that too is apparently not that easy either, as the current meltdown is showing.
One way to play it is to buy long-term bonds at about the peak of the interest rates. Bond prices are inversely correlated with interest rates; as rates drop, bond prices rise. The longer term gives you a longer lever for the interest rate move to raise the price.
Then, when rates bottom, sell the bonds and buy stocks. [Edit: Because that's the top for the bonds, and usually somewhere around the bottom for the stocks.]
The observant will note that this requires you to know when the interest rates are peaking, and when they are at bottom. There are some technical markers that can give you hints, but the reality is that there is no absolute way of determining these things. They turn out to be informed judgment calls.
This is the most manipulated, trash asset imaginable. The price of gold hasn't changed since 2011. It was $1900, still $1900.
Worst investment of my life. Maybe 2024 - 2030 will see some returns in gold like we saw from 2001 - 2011.
I'll keep investing in miners, because it's what I know and spend a lot of time reading drill results, balance sheets, etc.
But diversifying my portfolio. Oil has done particularly well in the past two years. There are many other interesting commodities.
Most of the former crashes hit the financial sector first and than hit the real economy. This one hit the financial sector and will stay there. This is why you see wallstreet / vc panic, but the real economy cannot find employees.
Agree with a lot of sentiment - glad to see some of the hot air escape - there's some terrible companies and shady businesses out there right now. Hope we don't go into some global recession though - thats my concern (if all central banks work in lockstep).
Now if we can stop this drumbeat for WWIII that would be nice. I feel bad for Ukraine and all that, but it's not worth starting a world war over. Assuming we come to our senses on that front, this is nothing.