The bubble caused by a decade of easy money started to burst last year.
Go look at a stock chart from the last 1Y and you’ll see that the sky has started to fall, and had been falling from just after 1Y and has a long long way to go.
Until inflation is under control and fed tightening stops, housing, equities, and bonds will continue to fall in price. This week almost saw a catastrophic run on the pound and UK gilts and US bonds are flashing warning signs.
The crash started last year and continues with mathematical certainty until the fed pivots.
The stock market's price level is well above where it was pre-pandemic, it's trading at earnings multiples in-line with 30+ year averages [1] (what was the 10Y yield in 1990, might I ask?) because earnings have gone up.
I know being doom and gloom makes you sound smart (to some), but don't fall into the trap of 'everything is shit now because inflation has been high for 20 months'
And what about all the companies that still have billion dollar market caps but have NEGATIVE earnings? (Atlassian, Snowflake, Uber, Crowdstrike, Shopify.... the list goes on)
Folks we are in a tightening cycle in order to fight inflation. It's feels important to remind everyone that economic conditions like this have not happened in decades. This site (hackernews) has pretty much entirely existed in the era of cheap money and low interest rates.
Keep your head in the sand at your own peril.
Companies are tightening their belts and you should too.
I think they are an extremely small part of the $100tn global stock market that people here love talking about because they work there.
>Folks we are in a tightening cycle in order to fight inflation.
My point was that we are at multiples in-line with 1990, ya know when we had 8% 10Y yields.
Folks, call the end of the world at your own peril.
Is any part of you worried the S&P is headed 3600 -> 3500 -> 3200 -> 3000 -> 2800 given the current climate? I'm worried that the current P/E ratio (from EPS TTM, past 4 quarters) might be a bit "rosy", and the next 4 quarters of earnings are over-optimistically priced (not enough pain has been factored in/the effects of corporations having to try to grow for 18 months in a 4% interest rate environment hasn't been priced in yet).
If you check https://www.spglobal.com/spdji/en/documents/additional-mater... and https://www.yardeni.com/pub/yriearningsforecast.pdf, analysts are forecasting 8-9% earnings growth 2022 -> 2023.
That means if we don't hit those numbers, the market will have to reprice itself, no?
Additionally, if the entire world stock market is $100tn, the US is sitting pretty, because at $49tn the US stock markets represent HALF of the entire world stock market.
Where do you propose to store wealth if it is all coming down?
Or are there specific bond funds for this unique time?
https://fred.stlouisfed.org/series/T10YIE
Good muck to anyone placing their trust in internet forum hot takes.
What type of loans are we supposed to be getting?
Here's someone else who called it over a year ago with some charts with counterpoint those you link:
https://www.hussmanfunds.com/comment/mc220925/
OR CAPE: https://www.multpl.com/shiller-pe
Note he's in good company, with Jeremy Grantham for example also warning of the same thing:
https://www.livewiremarkets.com/wires/grantham-this-is-a-bub...
Just to be clear, the argument is not 'everything is shit now because inflation', it is that the era of easy money has ended, significant inflation and war means a regime change in central bank intervention, and central banks will now tighten till things break. They haven't even managed to unwind QE yet and stop buying their own debt, will they ever? If they do, watch out.
This isn't doom and gloom, it's simple realism about the regime change in interest rates - the era of 0% money is gone, in its place we have a normalisation, which means a normalisation of frothy asset prices and a reversion to the mean of earnings and prices in many domains. Usually these things take a year or two to work out, it won't be a fast process.
When that changes, I think you’ll see earnings rise as chasing growth now carries a higher cost.
Citation needed. Maybe we are enter a local minimum, but what, you think off-stock-market value is not going to be brought onto the stock market?
I think you should try to raise a private capital fund and roll-up as many mom and pop retailers as you can, then.
Usually, they cite things like artificially low input costs (hard to argue that today), unsustainable demand from customers due to 'cheap money' (haven't seen evidence of that yet, the opposite actually), and a general disdain for advertising and retail business models (despite their long-term durability).
1) 'Inflation adjust' asset prices (if you think the average stock-holder has anywhere near the spend patterns of the CPI basket, boy howdy do I have something to tell you about home ownership and income inequality: rent is 33% of the CPI bucket and that's an 'imputed cost' for the vast majority of stock-holders who own their homes)
2) Think 7.5% in 2 years is a 'bad return'
EDIT: Let's actually play a fun game, what's the real return of the SPY from the perspective of someone planning on taking a trip to Europe/The UK/Japan?
Nope. Only a few percent above and trending sharply downward:
Only one of the reasons it's foolish to 'inflation-adjust' asset prices.
EDIT: Also one nit
> and trending sharply downward
If only the stock market's past performance were indicative of future trends!
What a needlessly condescending reply
I just think P/E by itself is way too oversimplified and a pretty garbage metric when used in aggregate + historically due to things like interest rates, sector/business model skew, relative maturity of companies, etc also fluctuating over time. It’s like Week1 of value investing 101, not an actual metric by which you’d want to engage in value investing or historical analysis.
https://news.ycombinator.com/item?id=33031466
Basically, fu Main Street, got mine. I wonder if they believe the meta-awareness the internet has provided will just go away if they crash tech/social media? That’s where all the progressive undesirables work, after all.
Past pols convinced people “trickle down” was sincere economics, not a bawdy joke. That Reaganomic funneling of wealth to the top was for their own good, and the public now blames modern progressives. A pols dedication to double speak is commendable.
https://www.weforum.org/agenda/2015/06/can-free-trade-bring-... https://www.weforum.org/agenda/2019/03/poverty-reduction-res... https://www.flexport.com/blog/does-trade-reduce-poverty-an-a... https://www.piie.com/bookstore/trade-policy-and-global-pover...
The economy and where possible, the outcomes, are intentional. Cushion “the right people” with free money so they can ride the long hard dip. Gamble with everyone else. It’s all part of the spoken traditions so we readily accept it. The lords of finance demand sacrifice!
I'm not a tankie or Stalin apologist but it shows what is possible within a planned economy.
Which is true almost anywhere in the world. Obviously Russia was several decades behind western Europe in 1917. But I’d be very surprised in if the gap between Western Europe and Russia in this regard was considerably higher in 1915 than it was in 1985.
> Soviet jobs were much more stable and so much more desirable even at the same level of pay.
What is this even supposed to mean? It was illegal to not have a job and most people couldn’t freely choose their workplace. Obviously certain positions which provided access to state resources were highly coveted despite only a moderate increase in pay (I don’t think I need to explain why). How is that in anyway something positive, though?
It’s not particularly surprising that if you literally work a few million to death and distribute the surplus they created amongst the rest of the population (the one innovation I’ll grant USSR) you can have some impressive growth figures. In fact the more people starve to death or die in the gulags the more per capita productivity increases.
> who had in living memory been serfs, into an industrialized powerhouse with a quite high standard of living.
Right. You can probably say the same about many states in Germany. Russia was just 40 or so years late. It not unreasonable to believe that it’s industrial output would had reached similar levels without the revolution in comparable timeframe (probably with considerably higher inequality but with a magnitude or two less murder, however higher inequality would probably meant that more people would have died from preventable diseases which would potentially offset a million or two who were executed).
Maybe we just have a different definition of these terms?
It starts as hiring freezes and funding drying up, it ends in mass layoffs.
In a year or two the crash will be obvious, everyone will be certain investing is a terrible idea, and it’ll be a great time to invest/start a company.
It's still a great time to found a company now, if you have the right idea and network ;)
I predicted it, too. I saw it coming the exact minute the government starting giving out stimulus and unemployment checks when the pandemic started. Shouldn't I be getting all the credit for realizing this was going to happen a few months into the pandemic.
It doesn't take a genius to figure this whole thing plays out. Burry is just stating the obvious, there's no great amazing calculations made to figure it out.
That one is a mixed bag. There are clearly areas where it is falling - SF, Austin, Boise, a few regions like W Florida... but there are regions where it simply is not (the northeast in particular).
I'd love for that to fall. And let's not talk about rents.
> Through his analysis of mortgage lending practices in 2003 and 2004, he correctly predicted that the real estate bubble would collapse as early as 2007. His research on the values of residential real estate convinced him that subprime mortgages, especially those with "teaser" rates, and the bonds based on these mortgages, would begin losing value when the original rates were replaced by much higher rates, often in as little as two years after initiation. This conclusion led him to short the market by persuading Goldman Sachs and other investment firms to sell him credit default swaps against subprime deals he saw as vulnerable.[14][15][16]
That's the challenge with predictions. If you're off by a day, you'd still be perceived as being right. If the predicted magnitude was 5% off you'd still be perceived as being right. There's no hard and fast rule as far as I can tell about how off you can be and still be considered "right".
The prediction is based on really simple macro too. Nothing is certain except death and timing a bubble pop/price correction is notoriously hard, especially when it’s based on discrete decisions by the Fed to raise interest rates/stop expanding the balance sheet. But it’s been clear for quite some time that the Fed would have to stop that eventually as stopping inflation became more important than stimulating the economy.
I’d much sooner call the people who thought the loose monetary and fiscal policy of the 2010s (and especially during COVID) was a permanent fixture the fools.
Printer is coming, heh.
We should come to terms with the fact that central banks simply can’t raise us out of inflation in short order. It disrupts too much and will cascade. Not to mention politicians implementing policy that directly hinders their efforts.
Decades of YCC in japan did fuck all for the Yen this year...
Most our code bases look like this too. Why wouldn’t our financial systems become hairballs too?
He was right once a long time ago. Now he's just a charlatan continually desperately trying to capitalize on that one dusty old win.
It's been a little longer than that:
2010: UH OH: Michael Burry Agrees With John Paulson Again https://www.businessinsider.com/michael-burry-john-paulson-f... "Michael Burry, one of the first to predict the subprime crisis and bet against it, is now betting on a weak recovery by investing in gold and farmland, two hedges against inflation."
Howso? We're back in a more historically normal interest rate environment. The last 12 years of zero-interest rates were the "uncharted" territory IMO.
At this point, the entire globe has fallen in uncharted economic territory. Anyone projecting certainty about what the future holds is a fool, liar, or both.