“A Mild Recession”(thereformedbroker.com)
thereformedbroker.com
“A Mild Recession”
https://thereformedbroker.com/2022/07/13/a-mild-recession/
9 comments
Honestly I don't think the issue is that another recession is coming. It's going to be the fourth or fifth serious economic crisis I've experienced in my lifetime. What worries me is that the quality of our political leadership and in general our ability to diagnose and address complex issues is, in my view, at an all-time low.
The quality of the political leadership is a direct consequence of what average people want from their leadership.
For the past decade or so the modus operandi has been:
1. Print more money, give it to bureaucrats and corporations
2. Toss in some non-monetary issue that will piss of ~50% of the population, while making the other ~50% feel entitled.
3. Promise one half to serve their interests by punishing the other half.
4. Print more money, give more to bureaucrats and corporations.
5. Rinse and repeat.
It seemed to work for over a decade: people gave up dreams of retirement, property ownership, having children, we were headed straight for normalizing living with parents while eating factory-produced bug proteins. Thankfully, the black-swan COVID-19 happened, the money printer got too cocky and people finally started to notice a problem.
The quality of life will decrease in the short term. But once enough people admit it's a bigger problem than being offended by what somebody on the Internet said, there will be finally demand for competent politicians offering viable solutions.
For the past decade or so the modus operandi has been:
1. Print more money, give it to bureaucrats and corporations
2. Toss in some non-monetary issue that will piss of ~50% of the population, while making the other ~50% feel entitled.
3. Promise one half to serve their interests by punishing the other half.
4. Print more money, give more to bureaucrats and corporations.
5. Rinse and repeat.
It seemed to work for over a decade: people gave up dreams of retirement, property ownership, having children, we were headed straight for normalizing living with parents while eating factory-produced bug proteins. Thankfully, the black-swan COVID-19 happened, the money printer got too cocky and people finally started to notice a problem.
The quality of life will decrease in the short term. But once enough people admit it's a bigger problem than being offended by what somebody on the Internet said, there will be finally demand for competent politicians offering viable solutions.
Yes!
Notice the Andrew Yang fans are oddly silent lately. Nobody cares to dig too deeply into the 'student loan forgiveness' issue, either.
Free money isn't really free.
Notice the Andrew Yang fans are oddly silent lately. Nobody cares to dig too deeply into the 'student loan forgiveness' issue, either.
Free money isn't really free.
That or the complexity of our problems is at an all time high.
Same result either way though.
Same result either way though.
They are downplaying this whole thing heading into the midterm elections. Inflation is transitory, it's the supply chain, it's Putin, it's gas station owners and oil companies, we're doing a soft landing. These are all cover stories for doing nothing. Low interest rates + $5T in bond purchases fueled remarkable growth and all time high employment. Raising interest rates and selling those bonds will do the opposite. This reality is uncomfortable heading into midterm elections, which is why the Fed has largely done nothing to curb. And yes, 1.5% is nothing.
From what I can understand (which I will freely admit is somewhat limited, and biased), it seems to me that the root of the problem is that we let the very wealthy soak up all the economic gains due to productivity over the course of a few decades, while also letting those with more money have more influence over our politics (thus meaning that they had the means to ensure their gains would be locked in, rather than redistributed for the benefit of those who actually created them—ie, the workers).
Until we can collectively recognize this and address the staggering socioeconomic inequality in our society, we're going to keep seeing the economy limp and sputter frequently. A healthy economy needs its working class—the vast majority of people in it—to overall have healthy economic situations, enough for at least some disposable income on a regular basis on top of being able to comfortably pay for basic necessities and save a bit for the future. Ideally, it needs that to be the minimum condition, so that everyone in the economy has some genuine discretionary spending capability.
Until we can collectively recognize this and address the staggering socioeconomic inequality in our society, we're going to keep seeing the economy limp and sputter frequently. A healthy economy needs its working class—the vast majority of people in it—to overall have healthy economic situations, enough for at least some disposable income on a regular basis on top of being able to comfortably pay for basic necessities and save a bit for the future. Ideally, it needs that to be the minimum condition, so that everyone in the economy has some genuine discretionary spending capability.
>the root of the problem is that we let the very wealthy soak up all the economic gains
Not that I like it, but my understanding is the exact opposite.
Inflation is going up because workers are finally getting some of the economic gains. The wealthy can gain tremendous amounts of money on paper, but it doesn't impact inflation because they aren't spending it. For example, a trillionaire isn't buying a trillion dollars worth of of steak.
However, minor employment Improvement and salary means that there are tens of Millions of more people competing to buy steak in the supermarket, hence price inflation
Not that I like it, but my understanding is the exact opposite.
Inflation is going up because workers are finally getting some of the economic gains. The wealthy can gain tremendous amounts of money on paper, but it doesn't impact inflation because they aren't spending it. For example, a trillionaire isn't buying a trillion dollars worth of of steak.
However, minor employment Improvement and salary means that there are tens of Millions of more people competing to buy steak in the supermarket, hence price inflation
The reasons for current inflation seem to be complex.
I'm willing to believe part of the reason is higher wages, as it does seem that there have been some (fairly minor) real gains over the past several months.
But it's also quite clear that the increased oil prices are affecting the prices of goods and services across the board.
And I've seen a number of reports of companies posting record profits and raising prices—which indicates that they're not raising prices because they have to, but because "oh, it's inflation, we have no choice" is a convenient cover for them to increase their margins.
More importantly, the concern at hand is recessions, not inflation, and the comment I replied to was specifically noting the fact that there had been several significant recessions in recent years. It was the apparent fragility of our economy recently that I was attributing to the drastically increased income inequality, not inflation specifically.
I'm willing to believe part of the reason is higher wages, as it does seem that there have been some (fairly minor) real gains over the past several months.
But it's also quite clear that the increased oil prices are affecting the prices of goods and services across the board.
And I've seen a number of reports of companies posting record profits and raising prices—which indicates that they're not raising prices because they have to, but because "oh, it's inflation, we have no choice" is a convenient cover for them to increase their margins.
More importantly, the concern at hand is recessions, not inflation, and the comment I replied to was specifically noting the fact that there had been several significant recessions in recent years. It was the apparent fragility of our economy recently that I was attributing to the drastically increased income inequality, not inflation specifically.
>I've seen a number of reports of companies posting record profits and raising prices—which indicates that they're not raising prices because they have to
You are thinking about this only from the profit side. The entire reason this can happen is because customers are willing and capable to pay more. Cost were never limiting the price because companies were making a profit before too!
If you are selling steak, you raise your prices until customers stop buying. You don't stop at X profit margin. Prices go up because customers are willing and able to spend more.
If you're saying they're using inflation as a cover and lying, I totally agree. But waiting for an excuse isn't what was stopping them before.
>More importantly, the concern at hand is recessions, not inflation
You can't separate the two. Recession is GDP loss after adjusting for inflation. The U.S. GDP without inflation is still increasing. Without inflation there would be no recession
https://fred.stlouisfed.org/series/GDP
You are thinking about this only from the profit side. The entire reason this can happen is because customers are willing and capable to pay more. Cost were never limiting the price because companies were making a profit before too!
If you are selling steak, you raise your prices until customers stop buying. You don't stop at X profit margin. Prices go up because customers are willing and able to spend more.
If you're saying they're using inflation as a cover and lying, I totally agree. But waiting for an excuse isn't what was stopping them before.
>More importantly, the concern at hand is recessions, not inflation
You can't separate the two. Recession is GDP loss after adjusting for inflation. The U.S. GDP without inflation is still increasing. Without inflation there would be no recession
https://fred.stlouisfed.org/series/GDP
The logical extrapolation from what you are saying is command economy / forced mass redistribution to wealth.
It's a great exercise to research the effects of this type thing historically.
It's a great exercise to research the effects of this type thing historically.
Labor unions and taxes on the wealthy? Works out well. Cutting taxes to wealth inequality reduction is a fool's errand.
https://www.cnbc.com/2017/08/09/the-happiest-countries-in-th...
https://www.cnbc.com/2017/08/09/the-happiest-countries-in-th...
Wage inflation could accomplish this without forced redistribution. I’m hoping we get out if this with more wage inflation than price inflation, but monetary authorities don’t have the control to get a good outcome here (regarding inflation), and business is against it.
No, it is not. In fact, this trope of pigeonholing any criticism as if it is advocating for a "command economy" is itself a large part of how we've gotten to the present condition.
The federal reserve has kept interest rates artificially low for the past few decades, to sell broken unpopular policies to the public (eg Iraq war), to enrich the financial industry, and to simulate growth.
The vibrance of capitalism relies on capital being distributed, so that it competes rather than acting uniformly. By flooding the market with newly created capital from a central source, the federal reserve has completely undermined capitalism and substituted it with the politics of who gets newly created money. One of the biggest recipients of new money has been the financial industry, which has even been whitewashed as some kind of neutral actor but is anything but. This is why more and more of people's every day lives have been financialized - made legible to the financial system and parceled out into monthly payments.
The federal reserve has kept interest rates artificially low for the past few decades, to sell broken unpopular policies to the public (eg Iraq war), to enrich the financial industry, and to simulate growth.
The vibrance of capitalism relies on capital being distributed, so that it competes rather than acting uniformly. By flooding the market with newly created capital from a central source, the federal reserve has completely undermined capitalism and substituted it with the politics of who gets newly created money. One of the biggest recipients of new money has been the financial industry, which has even been whitewashed as some kind of neutral actor but is anything but. This is why more and more of people's every day lives have been financialized - made legible to the financial system and parceled out into monthly payments.
Has this happened often in free democracies? Would be interested in seeing what the outcomes there would be.
> fueled remarkable growth
Much of which was growth in name only and will prove to be investments in unproductive assets that never would have made it out of the brainstorming session if there was an actual opportunity cost of capital.
Much of which was growth in name only and will prove to be investments in unproductive assets that never would have made it out of the brainstorming session if there was an actual opportunity cost of capital.
Right; it's "growth" instead of growth.
They really don’t have much of a choice. None of those issues can be solved in the near term, and many of them were setup 10-15 years ago. Both parties have been irresponsible when it comes to spending, interest rates, and inflation. We should have been tightening up on interest rates and taxes during boom times so we could loosen during bust times, but it’s just been loosen loosen loosen since 2001 or so. No one is interested in evening out the economic cycle.
And the parties have been irresponsible because we the voters wanted that.
And the parties have been irresponsible because we the voters wanted that.
Gas prices are from day 1 decisions of the current president.
The real fun will be when strategic reserve runs out.
https://www.washingtonpost.com/business/energy/the-us-is-dep...
https://www.washingtonpost.com/business/energy/the-us-is-dep...
> Gas prices are from day 1 decisions of the current president. The real fun will be when strategic reserve runs out.
That simply isn't true at all. The only thing of consequence that Biden did was prevent Albertan oil from more easily being exported to Latin America and Europe by cancelling the keystone pipeline expansion. At the same time, oil producing states were complaining that oil prices were so low that it didn't make sense to invest in production. Now that demand has picked up and Russian oil is off the table, prices are going up worldwide, not just in the USA. The USA's production hasn't changed much since the Trump administration, which hardly changed much since the Obama administration (which has been going down because oil-shale extraction costs couldn't be covered by the price of oil for much of the time).
Democrats are blamed when oil is too cheap (because red states depend on oil production jobs), they are also blamed when the price of oil is too high. I'm just going to buy an EV and ignore the whole issue, it isn't worth my time to worry about the price of gas when we don't really have to anymore.
That simply isn't true at all. The only thing of consequence that Biden did was prevent Albertan oil from more easily being exported to Latin America and Europe by cancelling the keystone pipeline expansion. At the same time, oil producing states were complaining that oil prices were so low that it didn't make sense to invest in production. Now that demand has picked up and Russian oil is off the table, prices are going up worldwide, not just in the USA. The USA's production hasn't changed much since the Trump administration, which hardly changed much since the Obama administration (which has been going down because oil-shale extraction costs couldn't be covered by the price of oil for much of the time).
Democrats are blamed when oil is too cheap (because red states depend on oil production jobs), they are also blamed when the price of oil is too high. I'm just going to buy an EV and ignore the whole issue, it isn't worth my time to worry about the price of gas when we don't really have to anymore.
> I'm just going to buy an EV and ignore the whole issue
But you can't get away from it because everything that you use that gets transported by someone is getting more expensive.
But you can't get away from it because everything that you use that gets transported by someone is getting more expensive.
Yep. But it is about time we revamped that infrastructure as well. There are huge opportunities in the next couple of decades with respect to transportation (toward electric from trucks and let's get those overhead wires in for our rails already) and labor (automation, productivity increases are our best way out of inflation).
However, the expected but worst thing that could happen now is oil crashes down because of a recession (demand playing most of the role in oil's price) and labor becomes cheap again.
However, the expected but worst thing that could happen now is oil crashes down because of a recession (demand playing most of the role in oil's price) and labor becomes cheap again.
I acknowledge that this data isn't perfect, but here is one measure of market based expectations of inflation: https://twitter.com/conorsen/status/1546855290913660928.
The market generally factors in a lot of things, it's not looking at 1.5% rates, it's looking at what the fed has effectively committed itself to doing. It's looking at 3% rates by the end of the year.
The market generally factors in a lot of things, it's not looking at 1.5% rates, it's looking at what the fed has effectively committed itself to doing. It's looking at 3% rates by the end of the year.
I mean, gas is a huge part of it. Take away fuel costs and you're left with housing costs and that's really it.
I actually feel really prepared for this one. 2007 made me nervous, but not this one. I feel secure in my employment and I finally have a real emergency fund even if I lose my job. I'm not optimistic about long term though. The infinite growth delusion seems like it will break in my lifetime, retirement is scary
Too young to understand what happened in the 2008 GFC but I doubt the 'feeling prepared' part works like this. First of all, the recessions tend to last longer than most people expect/plan for. Statistically, it will turn out their 'secure' jobs will be less 'secure' than expected. Meanwhile their emergency funds will start shrinking (slowly at first, then all at once) due to loss of purchasing power & eventual job loss.
However, I'm optimistic on the long term because I think only recessions can correct the (massive) mis-allocation of capital that we experienced the past decade due to ultra-low interest rates.
However, I'm optimistic on the long term because I think only recessions can correct the (massive) mis-allocation of capital that we experienced the past decade due to ultra-low interest rates.
This seems too pessimistic without knowing specifics about the original commenter’s situation.
I have no debt, a fully paid off house, and plenty of cash which has left me feeling confident about any upcoming recession.
Could I get fired from my well-paying job tomorrow, the recession lasts for 5 years, and the food supply runs out so we all starve to death? Sure, but it’s probably not worth calling out.
I was in college during the 2008 recession and fully supporting myself. I was able to get by with less than I have now because I didn’t have a ton of debt.
I have no debt, a fully paid off house, and plenty of cash which has left me feeling confident about any upcoming recession.
Could I get fired from my well-paying job tomorrow, the recession lasts for 5 years, and the food supply runs out so we all starve to death? Sure, but it’s probably not worth calling out.
I was in college during the 2008 recession and fully supporting myself. I was able to get by with less than I have now because I didn’t have a ton of debt.
I used the word ‘statistically’ to underline the fact that it will not happen to everyone, and specially not to the commenter in particular.
But you just responded point by point with non-sequiturs.
I made a comparison between 2007 and now, while you just stated ignorance of the past and made pessimistic assertions of my ability to estimate relative security.
Meanwhile you hold a belief like, "the future will be good because capital will be allocated better"
I made a comparison between 2007 and now, while you just stated ignorance of the past and made pessimistic assertions of my ability to estimate relative security.
Meanwhile you hold a belief like, "the future will be good because capital will be allocated better"
I made pessimistic assertions of the people's ability in general to estimate relative security.
I hold the belief that the LONG term future will be good because capital will be allocated better.
Do not see the conflict between these 2 statements. Also I was 17 in 2007, not sure if it's called ignorance but I didn't understand much of the economic environment at the time.
I hold the belief that the LONG term future will be good because capital will be allocated better.
Do not see the conflict between these 2 statements. Also I was 17 in 2007, not sure if it's called ignorance but I didn't understand much of the economic environment at the time.
I used the word ‘statistically’ to underline the fact that it will not happen to everyone, and specially not to you in particular.
> Meanwhile you hold a belief like, "the future will be good because capital will be allocated better"
Yes
> Meanwhile you hold a belief like, "the future will be good because capital will be allocated better"
Yes
Do you have any actual statistics or are you just saying you do to borrow an air of authority?
That sounds a bit rude, but I'll try to answer anyway. No, I don't have the statistics at hand but I think we can agree that a lot of people go through financial hardship during a recession - basically what a recession means.
What part of my comment do you disagree with exactly? That people, in general, overestimate their financial security and capacity to overcome recessions?
What part of my comment do you disagree with exactly? That people, in general, overestimate their financial security and capacity to overcome recessions?
I disagree with this:
> First of all, the recessions tend to last longer than most people expect/plan for. Statistically, it will turn out their 'secure' jobs will be less 'secure' than expected. Meanwhile their emergency funds will start shrinking (slowly at first, then all at once) due to loss of purchasing power & eventual job loss.
Those predictions are not supported by the data, and are distinct from your description of them. I disagree with your implied statistics and sloppy use of words. I am skeptical that you can forecast the length of the recession, job loss, or changes in consumer behavior.
> First of all, the recessions tend to last longer than most people expect/plan for. Statistically, it will turn out their 'secure' jobs will be less 'secure' than expected. Meanwhile their emergency funds will start shrinking (slowly at first, then all at once) due to loss of purchasing power & eventual job loss.
Those predictions are not supported by the data, and are distinct from your description of them. I disagree with your implied statistics and sloppy use of words. I am skeptical that you can forecast the length of the recession, job loss, or changes in consumer behavior.
Yes, my 'statistics' were implied. I've always seen HN as a place where people can write their opinions even if they're not backed by official statistics.
This is not the St. Louis FED website. My opinion is that recessions are worse than people expect because if they weren't people would see right through them and keep the money flowing (spending/investing).
> I disagree with your implied statistics and sloppy use of words.
No problem if you disagree, it would be nice if you elaborate your point though. What exactly do you expect from a recession? What does your data say?
I'd also like to point out that Economics is not really an exact science, even with a ton of data at hand the predictions that economists make are wrong quite often. Specially during the past 2-3 years predictions have been quite bad - fiscal/monetary stimulus doesn't add much to inflation, if it does it will be transitory etc. That's one of the reasons we're in this mess.
> I disagree with your implied statistics and sloppy use of words.
No problem if you disagree, it would be nice if you elaborate your point though. What exactly do you expect from a recession? What does your data say?
I'd also like to point out that Economics is not really an exact science, even with a ton of data at hand the predictions that economists make are wrong quite often. Specially during the past 2-3 years predictions have been quite bad - fiscal/monetary stimulus doesn't add much to inflation, if it does it will be transitory etc. That's one of the reasons we're in this mess.
OP:
>Too young to understand what happened in the 2008 GFC
so no statistics or experience
so no statistics or experience
I'm old enough to remember 2008 and several other recessions as well, and "feeling prepared" works exactly like that. Not all jobs are secure during a recession, but job security is relative--and often knowable. Emergency savings are something few people actually have, and can make a world of difference when times are hard.
On the other hand, there is no guarantee whatsoever that capital will be better allocated after a downturn. After all, 2008 came post-2001, and here we are post-2008, with capital as misallocated as ever!
On the other hand, there is no guarantee whatsoever that capital will be better allocated after a downturn. After all, 2008 came post-2001, and here we are post-2008, with capital as misallocated as ever!
I'm at a VC-funded, private company (too mature and big to be a "startup" anymore). I hear my coworkers talk about how we're all safe because the company won't go away and is profitable, but that's not always how it works.
Very few jobs are truly secure ever. Your company can avoid being impacted by the macroeconomic situation of a particular recession or financial crisis, but that doesn't mean you won't be fired or laid off or need to quit your job, then find a new one in a less than great job market.
I've been through layoffs at more economically sound companies where the leadership decided something had to be done to mollify shareholder anxiety about the larger economic situation. I've been through layoffs at companies where the writing was on the wall (especially in retrospect).
I worked with somebody who developed a major health problem during our time as coworkers. He had to quit because he couldn't do the work until that was squared away. It took him years to be well enough to work again, and by then he needed to live near family in a lower wage/higher cost of living area that still scrambled his financial plans.
Most of us have worked at a company where a new boss came in, and some people just didn't get along with them or didn't see eye-to-eye on whatever or otherwise couldn't work there anymore. Or where there's a reorg and suddenly the work isn't a match anymore.
Everyone should be prepared at any time. If fear of recession gets folks thinking about that, great. But they should do it regardless.
Very few jobs are truly secure ever. Your company can avoid being impacted by the macroeconomic situation of a particular recession or financial crisis, but that doesn't mean you won't be fired or laid off or need to quit your job, then find a new one in a less than great job market.
I've been through layoffs at more economically sound companies where the leadership decided something had to be done to mollify shareholder anxiety about the larger economic situation. I've been through layoffs at companies where the writing was on the wall (especially in retrospect).
I worked with somebody who developed a major health problem during our time as coworkers. He had to quit because he couldn't do the work until that was squared away. It took him years to be well enough to work again, and by then he needed to live near family in a lower wage/higher cost of living area that still scrambled his financial plans.
Most of us have worked at a company where a new boss came in, and some people just didn't get along with them or didn't see eye-to-eye on whatever or otherwise couldn't work there anymore. Or where there's a reorg and suddenly the work isn't a match anymore.
Everyone should be prepared at any time. If fear of recession gets folks thinking about that, great. But they should do it regardless.
> On the other hand, there is no guarantee whatsoever that capital will be better allocated after a downturn. After all, 2008 came post-2001, and here we are post-2008, with capital as misallocated as ever!
I think the mis-allocation is due to rates not rising fast enough after the crisis is over. Terrifyingly fast to drop and equally terrifying (in retrospect) how slow they rise.
I think the mis-allocation is due to rates not rising fast enough after the crisis is over. Terrifyingly fast to drop and equally terrifying (in retrospect) how slow they rise.
Unfortunately, recessions tend to shift wealth up even more these days, partially because of government bailouts, but also because of stock puts and shorting
IMO at some point these sorts of disaster scenario thought experiments wind up in a place where if it happens, we're all pretty screwed anyways.
Do I have sufficient funds to survive for a while in a typical recessionary environment? Yes. If the shit really hits the fan, markets crash to next to nothing, real estate craters, etc and this lasts for multiple years well yeah. I'm in trouble. But that'll be true of just about everyone and we're probably looking at general societal collapse at that point.
Do I have sufficient funds to survive for a while in a typical recessionary environment? Yes. If the shit really hits the fan, markets crash to next to nothing, real estate craters, etc and this lasts for multiple years well yeah. I'm in trouble. But that'll be true of just about everyone and we're probably looking at general societal collapse at that point.
I didn't paint it as a disaster scenario. Having no emergency funds doesn't mean one will starve.
Just to give some examples of a recession being worse that one expects:
Just to give some examples of a recession being worse that one expects:
- I might need to sell my 4-bedroom house and move into a smaller house because I can't afford mortgage;
- I might need to skip vacations this year because I got a pay cut;
- I have to sell my car and use public transport because I need money and gas is too expensive anyway;
What does "statistically" mean here? Even if unemployment jumps to double digits, which hasn't happened in the US since 1982, that means 93.6% of working people (0.9 / 0.961 to not inadvertently count people who are already unemployed) will continue being able to work. That's a near worst-case scenario that seems pretty damn statistically secure to me.
If you're the 1 in 10 or 12 without a job, it's obviously personally impactful and stressful to you.
It's also worth bearing in mind that when unemployment is high, there are many companies that stop or slow hiring, sticking with current staff. Many fewer are hiring at all. If there is 10% unemployment, you'd expect the number of available jobs to shrink by much more than 10% vs full employment. Losing your job compounds because finding a new one at all or at least a new one that pays the same can be harder.
It's also worth bearing in mind that when unemployment is high, there are many companies that stop or slow hiring, sticking with current staff. Many fewer are hiring at all. If there is 10% unemployment, you'd expect the number of available jobs to shrink by much more than 10% vs full employment. Losing your job compounds because finding a new one at all or at least a new one that pays the same can be harder.
Recessions are largely unequal in impact. Those who are prepared and/or who don't lose their jobs generally come out OK. Those who get laid off with no backup options are the ones who get screwed.
Predicting the future is always challenging. But preparing for a range of unknown outcomes is often doable.
Predicting the future is always challenging. But preparing for a range of unknown outcomes is often doable.
It's a cycle. We are reliving what happened under Carter now. A pro growth (low taxes, low regulation) president will come into power in 2 years.
We will have a decade or two of amazing growth.
People will forget basic economic principles again, raise taxes and regulations over spend like crazy and then it will fall apart again.
We will have a decade or two of amazing growth.
People will forget basic economic principles again, raise taxes and regulations over spend like crazy and then it will fall apart again.
Hopefully the next prez has a mind for more spending controls and wiser investment than the last few.
You don't need austerity, but you need to make sure there are returns on investment opposed to just throwing money at problems and seeing what sticks. Because unfortunately, money always sticks
You don't need austerity, but you need to make sure there are returns on investment opposed to just throwing money at problems and seeing what sticks. Because unfortunately, money always sticks
> The infinite growth delusion seems like it will break in my lifetime, retirement is scary
I don't think the illusion of growth is a problem per se. Growth, or at least stability, could be achieved relatively straightforwardly, if only the underlying social dependency ratio weren't growing. It grows though, at least in developed countries, and to any moderately longtermist person this feels like an obvious bomb slowly ticking away, until no time is left anymore.
If no systemic fix is going to be implemented, some generations will end up holding the proverbial bag, and for now it seems that this burden will fall upon the millenials and zoomers when they hit retirement age. Especially the childless.
I don't think the illusion of growth is a problem per se. Growth, or at least stability, could be achieved relatively straightforwardly, if only the underlying social dependency ratio weren't growing. It grows though, at least in developed countries, and to any moderately longtermist person this feels like an obvious bomb slowly ticking away, until no time is left anymore.
If no systemic fix is going to be implemented, some generations will end up holding the proverbial bag, and for now it seems that this burden will fall upon the millenials and zoomers when they hit retirement age. Especially the childless.
Perhaps but I'm willing to bet for the majority of those living in rich/developed countries it'll initially just be a slight (but noticeable) drop in living standards - we'll find ways of pushing the costs of our current lifestyles on to future generations (and to those in less-developed parts of the world) for a while yet. And it's not actually impossible that the right sort of technological innovations will end up cancelling out most of those costs - but at some point even the cost of those innovations may well be more than we're able/willing to pay.
Infinite growth forever is a truism that isn't very useful.
Growth can continue indefinitely, but we will hit limiting factors relating to how we structured our economy.
Growth can continue indefinitely, but we will hit limiting factors relating to how we structured our economy.
Growth should approximate population growth over time. It doesn’t have to match it step for step every single year. It bothers me that the central banks use inflation targets as an excuse to not raise rates - inflation is lumpy and not linear, as we see today. They should have raised rates much earlier and allowed for zero inflation, so that today we wouldn’t be in such a precarious situation needing dramatic rate increases to counter dramatic inflation.
Growth rates needn’t correlate only to population change. Productivity can also be a source of growth.
Why do people believe this? The earth has limited resources
why do you believe wealth or value is limited by natural resources? That hasn't been the case for a very long time.
I'd say the limiting factor on wealth is smart, productive people's time (given we are in the information age, and the bottleneck for value creation is specialized humans, not raw resources).
So you think smart, productive people's time is infinite? People require resources to live
The earth having limited resources is just the inverse of the market can stay irrational longer than you can remain solvent.
Eventually we'll hit that limit [1] but the idea that its going to happen soon is undefended. The issue right now for growth is that we can't mine the earth's resources fast enough right not that we've used it up.
[1]: https://en.wikipedia.org/wiki/Heat_death_of_the_universe
Eventually we'll hit that limit [1] but the idea that its going to happen soon is undefended. The issue right now for growth is that we can't mine the earth's resources fast enough right not that we've used it up.
[1]: https://en.wikipedia.org/wiki/Heat_death_of_the_universe
Its hilarious how often people who bring up "the market can stay irrational longer than you can remain solvent" also believe in the free market being capable of solving any- and everything. Claiming breathlessly that the efficient market hypothesis is true while also stating the market can be irrationally/inefficiently allocated longer than someone who knows better can remain solvent. Efficiency is not usually tied to irrational behavior.
In this context, I'm strictly arguing there isn't a problem that needs to be solved. While there is a limit on resources, we haven't reached that limit nor will we in the short term. So, even if the market is using our current resources inefficiently it doesn't matter because there's an excess of supply (in a raw materials aspect, sure there's a chip shortage but the earth didn't run out of sand).
"Can" is the key word in that quote. It's possible, but not necessarily likely. There's no contradiction.
Efficiency of markets is like the Law of Large Numbers. But it's possible to get n consecutive coin flips that come up heads.
Efficiency of markets is like the Law of Large Numbers. But it's possible to get n consecutive coin flips that come up heads.
Constant growth is not the same as infinite growth. Constant growth is the state of the economy now, believing in infinite growth is believing it can continue this way forever
One explanation is technological progress. You can imagine if we were to figure out a good way to make space travel cheaper, for example, we'd no longer be limited to earth's limited resources. Of course, in the _long long_ term, entropy increase and indeed we do run out of the ability to grow or even maintain.
What do you consider to be a real emergency fund?
1 year cash, 1 more year tied up in stock i could sell. before i was at like 3 months of cash
thats why if you have reserve funds they need to not be in us banks, they can close down and go out of business in a recession.
Take physical wealth and move somewhere else if a really bad one happens.
Take physical wealth and move somewhere else if a really bad one happens.
That is not true, though? Or rather, banks can indeed shut down, but that's what the Federal Deposit Insurance Corporation is for. The FDIC insures up to $250,000 per customer, per bank. So there is not much safer place to keep emergency funds than a US bank.
That doesn't help much if the cost of bread is more than $250,000
actually banks are one of the worst ways to store money for real emergencies. In the event of a bad recession you will quickly find the banks are more fragile than you thought.
Multiple times in history people who thought the banks couldn't fail saw they crashed hard.
Furthermore as other posters said, inflation can make you money worthless quickly.
If you want an emergency fund, and I mean societal collapse proof funds, get physical wealth and store it.
Silver and gold have been useful in times of war, people who lived through the bosnian genocide said they used physical wealth that was still useful to get necessities.
I am not trying to be a prepper nut, but its good to prepare somewhat for a bad recession or a problem with violence that could happen.
just get a little, a few bars, and you are set incase anything goes wrong.
It'll never go bad in value, it'll never be irretrievable due to financial problems, it'll never be destroyed by rot.
Multiple times in history people who thought the banks couldn't fail saw they crashed hard.
Furthermore as other posters said, inflation can make you money worthless quickly.
If you want an emergency fund, and I mean societal collapse proof funds, get physical wealth and store it.
Silver and gold have been useful in times of war, people who lived through the bosnian genocide said they used physical wealth that was still useful to get necessities.
I am not trying to be a prepper nut, but its good to prepare somewhat for a bad recession or a problem with violence that could happen.
just get a little, a few bars, and you are set incase anything goes wrong.
It'll never go bad in value, it'll never be irretrievable due to financial problems, it'll never be destroyed by rot.
Owning a house with a reasonable monthly expenditure, having a nest egg to withstand a year of unemployment all make for great downturn protection.
One concern with this recession is that there is a risk that low interest rates distorted prices in irrational ways. Historic examples from the communist block do not look kindly on rapid price reallocation. Nest eggs don’t last long in a market losing 25% YoY with 10% inflation.
Housing has become a dragon which either requires high inflation, government policy intervention, or a severe crash to correct.
One concern with this recession is that there is a risk that low interest rates distorted prices in irrational ways. Historic examples from the communist block do not look kindly on rapid price reallocation. Nest eggs don’t last long in a market losing 25% YoY with 10% inflation.
Housing has become a dragon which either requires high inflation, government policy intervention, or a severe crash to correct.
nit: "This morning the Bank of Canada announced a 100 basis point interest rate hike. The market was expecting 50 basis points."
The market was expecting 75 basis points. That was the consensus.
When I see this kind of thing it does make me question the rest of the information points on the article that I am not as well informed on.
The market was expecting 75 basis points. That was the consensus.
When I see this kind of thing it does make me question the rest of the information points on the article that I am not as well informed on.
The rest of the article is not on point either.. This is not a normal recession. Don't buy the dip now because we are never going back to these heights in a very very long time.
Also the war mongering of US is finally coming home to roost. Picking up fight with Russia and China while India doesn't care is the final slide for the American empire
Also the war mongering of US is finally coming home to roost. Picking up fight with Russia and China while India doesn't care is the final slide for the American empire
“ That’s 33 consecutive weeks of more stocks making new lows than making new highs. As you can see, this is historically as bad as it gets with the lone exception of the Great Financial Crisis in 2008-2009. Again, this is not the future, this is the present. We have already been living through it.”.
This is a classic mistake people make when predicting the future: using historical prices.
This is a classic mistake people make when predicting the future: using historical prices.
We enjoyed 12+ years of cheap capital. Our stock market were largely bubble of tech companies that used this cheap capital to achieve insane market cap.
Those days are over and will not come back for a loooong time. ex) Japan has not reached its 1989 peak and its nearly going into 40 years no sign of stopping.
Globalization is also come to an end and our economy built around cheap capital and Chinese labor is over.
This is the end of cheap goods, cheap travels, and the middle class. I do not want to be here when it gets bad. Just head over to r/vancouver to see people casually blaming their situation on immigration.
Those days are over and will not come back for a loooong time. ex) Japan has not reached its 1989 peak and its nearly going into 40 years no sign of stopping.
Globalization is also come to an end and our economy built around cheap capital and Chinese labor is over.
This is the end of cheap goods, cheap travels, and the middle class. I do not want to be here when it gets bad. Just head over to r/vancouver to see people casually blaming their situation on immigration.
what tech companies were using cheap capital to achieve insane market cap? Very few tech companies borrow money. Unless you meant people were buying tech stocks with leverage, which I agree with...
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Japan also has no population growth
This piece is basically telling people just because historically things “doesn’t really happen” a certain way, it assigns it a probability based on it
Oh, this is just the beginning. Ten years of “oh, just buy index funds” strategy will unwind with a huge snap.
Please show on the S&P 500 graph where buying to sell now hasn’t been a great opportunity in the last 100 years minus the last twelve months.
Main difference is that the past 10 years everyone and their mom parroted the mantra "buy index funds, it is the best place to put all your savings". That wasn't the case before, today index funds makes up a larger share of investors than ever before in history so we have never seen what an economic crash looks like when everyone invests in index funds. Maybe it wont be bad, but maybe this will be the biggest crash ever, it is unknown territory.
"How could index funds crash, they correlate with the entire market!"
Well, then they crash by crashing the entire market. And once the market starts crashing and people gets worried about their investments and wants to cash out their index funds, it will continue to crash.
"How could index funds crash, they correlate with the entire market!"
Well, then they crash by crashing the entire market. And once the market starts crashing and people gets worried about their investments and wants to cash out their index funds, it will continue to crash.
Why would index fund investors be any more likely to cash out on falling equity values than investors in actively managed funds or single equities?
If anything it seems quite the opposite? Index fund investors know the market always goes back up on long enough time frame. Investors in actively managed funds have to continuously question whether their manager is incompetent.
If anything it seems quite the opposite? Index fund investors know the market always goes back up on long enough time frame. Investors in actively managed funds have to continuously question whether their manager is incompetent.
Index funds invests in the whole economy, so when they are overhyped people will over invest in the whole economy, that is the main danger. But yes, the invest/cash out cycle is probably longer than other kinds of investments, so wee see a longer bull run than normal but likely we will also see a longer/deeper recession than normal for the same reason.
Not every index fund invests in the whole economy. Lots of ETFs and mutual funds out there targeting specific indexes that represent only parts of the market. Even relatively broad ones like the NASDAQ, or specific ones for ultra short treasuries.
Index funds just automated prior portfolio advice. Are you suggesting that the previous portfolio advice was bad, the efficiency of the automation will cause more correlated crashing or something else?
Crashes typically happens because some part of the market was overhyped and people invested too much money in it. But what happens when the market as a whole is hyped, and people invest lots of money in that? Well, then the market as a whole becomes overvalued, and the market as a whole will crash in the next recession. You can see this being the case with the buffet indicator, stock valuations are higher relative to gdp than ever before. So instead of people pumping up some specific segment of the market that then crashes, this time people pumped up the entire market.
Given that index funds track the most popular funds is it actually the case that money is distributed differently than before? As an index fund investor I have no illusions that the index funds are immune to dips, but I know that I'm saved from the extremes that individual stocks provide - the odds are excellent I'll never wake up ruined overnight, but by also I'll never get spontaneously rich either.
Just for context, while they have grown index funds only make up 10% of the market according to vanguard[1].
[1] https://www.vanguard.ca/documents/truth-about-indexing-en.pd...
Just for context, while they have grown index funds only make up 10% of the market according to vanguard[1].
[1] https://www.vanguard.ca/documents/truth-about-indexing-en.pd...
The passive vs active investor numbers I see tend to put them roughly equal or passive investors being more. Not sure exactly how index funds and passive investments are different, but since vanguard are selling index funds they probably define it as strictly as possible to make it look like it is a smaller part of the market.
That may be the case, doing a bit of research here I see some numbers where if you slice only the America market passive investors are near parity of even a minor majority - but the question still remains, has that fundamentally changed the market composition?
I wonder if it'll make it more stable because the passive investors aren't as inclined to randomly shift money around or pull it out. Even if they are inclined to pull it out, does the behaviour of the money being pulled out look much different when looking at the market in aggregate? It stands to reason even active investors would be heavily invested in those exact same companies and would be deliberately pulling money out as well? It seems to me that all the investors investing in the average just means the market will continue to be average.
I wonder if it'll make it more stable because the passive investors aren't as inclined to randomly shift money around or pull it out. Even if they are inclined to pull it out, does the behaviour of the money being pulled out look much different when looking at the market in aggregate? It stands to reason even active investors would be heavily invested in those exact same companies and would be deliberately pulling money out as well? It seems to me that all the investors investing in the average just means the market will continue to be average.
If all investment activity was passive investment, there would be no pricing mechanism left in the market. If everyone just equally invested in everything, there'd be no discrepancy between stocks. Complete scam businesses would given value equally to businesses which actually do create value.
So, yes, passive investing helps stabilize the entire market to trade in tandem, but too much is a danger to the health & stability of our market and economy as it enables misallocation of capital.
So, yes, passive investing helps stabilize the entire market to trade in tandem, but too much is a danger to the health & stability of our market and economy as it enables misallocation of capital.
But that's not how the passive investing works - it's predicated off of curated indexes, so people are still making decisions. And there's not equal weighting in everything. What you're worried about isn't the current situation and it makes no sense that it ever would be.
Unless weighting is done by business fundamentals, it still enables misallocation of capital. Many curated indexes and decisions are based on market cap, liquidity, public float, sector classification - all hardly fundamental.
> Unless weighting is done by business fundamentals, it still enables misallocation of capital.
Is it your assertion that without index funds this would be occurring? We just saw deliberate decisions to buy companies like TSLA and GME that stronly argue against that.
Is it your assertion that without index funds this would be occurring? We just saw deliberate decisions to buy companies like TSLA and GME that stronly argue against that.
Surely you believe there is some P/E where a company is a bad investment?
Depends on discount rates. The value of a company is the net present value (NPV) of its discounted cash flow (DCF). P/E is just a kludge to simplify the much more complex DCF analysis.
And it's pretty clear that interest rates have been steadily falling for 40 years[1]. Arguably 500 years[2]. Is there temporary variation around the business cycle? Sure. But in the long-term it's extremely unlikely we return to the There's strong macro evidence that interest rates are heavily influenced by demographics[3]. And despite what happens this recession, the population isn't going to stop aging.
All of this to say that historical appeals to "normal" P/E ratios is extremely misguiding. We're probably never going back to a world where single digit P/E ratios are the long-term norm, because we're probably never going back to a world with 5% real interest rates are the norm.
[1]https://fred.stlouisfed.org/series/REAINTRATREARAT10Y [2]https://www.visualcapitalist.com/700-year-decline-of-interes... [3]https://www.frbsf.org/wp-content/uploads/sites/4/4-Thwaites-...
And it's pretty clear that interest rates have been steadily falling for 40 years[1]. Arguably 500 years[2]. Is there temporary variation around the business cycle? Sure. But in the long-term it's extremely unlikely we return to the There's strong macro evidence that interest rates are heavily influenced by demographics[3]. And despite what happens this recession, the population isn't going to stop aging.
All of this to say that historical appeals to "normal" P/E ratios is extremely misguiding. We're probably never going back to a world where single digit P/E ratios are the long-term norm, because we're probably never going back to a world with 5% real interest rates are the norm.
[1]https://fred.stlouisfed.org/series/REAINTRATREARAT10Y [2]https://www.visualcapitalist.com/700-year-decline-of-interes... [3]https://www.frbsf.org/wp-content/uploads/sites/4/4-Thwaites-...
In the big picture interest rates have been falling since 800 years (p. 13 [1]).
[1] - https://www.bankofengland.co.uk/-/media/boe/files/working-pa...
[1] - https://www.bankofengland.co.uk/-/media/boe/files/working-pa...
Not in isolation no. How would that make sense?
You are correct, but that doesn't mean this will hold true forever.
The index fund approach doesn't suggest that index funds will always do really well, it suggest that it will always do better over a long period of time than individually-selected stock. Any conditions that cause index funds to do poorly seems to also cause most individual stocks to do poorly. Index funds are a risk-mitigation strategy.
Of course it is possible after the fact to find collections of individual stocks that have outperformed the index fund. Trillions of dollars have been staked on trying to do so ahead of time, with little to no success.
Is it possible in the future that groups of funds will somehow perform worse than the individual stocks making up those groups? It's very hard to see how that could happen over any extended period of time.
Of course it is possible after the fact to find collections of individual stocks that have outperformed the index fund. Trillions of dollars have been staked on trying to do so ahead of time, with little to no success.
Is it possible in the future that groups of funds will somehow perform worse than the individual stocks making up those groups? It's very hard to see how that could happen over any extended period of time.
Given no reliable alternatives, I don't see an option other than to bet my long term goals on long running trends.
You cherry picked the companies though. Take the index for the top companies in some other country than USA and that investment no longer looks as secure. USA did great the past 100 years, many other countries didn't.
Buy VT instead. If thirty years from now the value of every meaningful company on Earth is inflation adjusted worth less than it is now, bullets and farm land would have been the only viable investment.
Usually those indexes are not as diversified as the US index is. Take German DAX for example. It's mostly made up by chemical, car and industrial companies. The post-war German economy did really great as well, but many leading German companies are private. Furthermore, the USA is one of the biggest economies in the world, way bigger than most single countries on their own.
OK, so I didn't make the original S&P market argument, I think they should go bigger and focus on globally diversified broad market funds, but, to get back to my original point, what's the alternative here?
There isn't one. People love to spread doom and gloom without any real solutions. Real estate, gold, crypto, bonds, etc... are all either affected or soon to be affected by these economic conditions. Panic sellers will lose big and folks that don't have the means to weather the storm will suffer. Personally, I still believe in a well diversified portfolio being the best option (as do many), but the truth is, nobody really knows.
this fairytale may help you sleep at night. But 100 years is almost no history at all, i hope you can appreciate that.
I don't know if expanding our understanding beyond that is useful. If we looked at historical trends we'd all be looking at ways to hoard tea and salt.
I love that this comment lines up with your username. Yarrrr!!!
True only for US stocks—possibly cherry-picking.
‘09 college grad here…can the economy just level out and be stable for folks for a while in my lifetime? Guess not
You do realize we've had an unprecedented growth in the economy during your lifetime? Granted you (and me both) are in the wrong generation to take advantage of it (Statistically at least) but saying that the economy hasn't been stable in the last 30 years is just plain wrong.
Yes, as opposed to any other strategy which will unwind even harder.
What is the alternative?
Well, not if I am buying inverse/short index funds. :)
I'm pretty sure I remember hearing my dad tell me to buy sp500 index funds much longer than 10 years ago.
a wee apocalypse