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Experts from a world that no longer exists

collaborativefund.com

221–230 of 267 posts

Re: Experts from a world that no longer exists

#221

Earlier quoted context omitted.

A lot of people think this - but most of Europe has been like this for a while. Why will it be so interesting when it happens in the US?

It's already that way in the US, the percentage of paid off home owners is ~29%. I don't know why some people consider themselves "owners" of assets the bank actually owns, but it's normal in the USA.

With interest rates at their current level, it makes a lot of sense to not pay down your mortage, to refinance, or even to take out a heloc.

Again what matters is net worth, not whether you house is paid off.

Re: Experts from a world that no longer exists

#222

This line is what I think of whenever the cryptocurrency vitriol comes out here: """ Pets.com was mocked, but Chewy is now a $30 billion business. Webvan failed, but Instacart and UberEats are now thriving. eToys was a joke, but now look at Amazon. Some of the biggest businesses of the last 10 years are all in industries that were the starkest examples of stupidity 20 years ago. """

If Bitcoin is the new Pets.com, what's the new Chewy? How long will it be until we find out?

IMHO Federal reserve backed crypto.

Re: Experts from a world that no longer exists

#223

Earlier quoted context omitted.

A lot of people think this - but most of Europe has been like this for a while. Why will it be so interesting when it happens in the US?

Yeah middle class homeownership is bullshit. Middle class stock ownership is less obviously good or bad, because the 0-sum nature of land is not present. When one gets right down to it, ownership is a too strong stuff. Total Control for eternity which is then sold in finite time in practice? Woah there, why so many infinities? "Rent" has a bad rep, but the problems of rent have to do with it being backstopped by owns…

There really isn't such thing as ownership. Stop paying your property tax and see what happens.

Re: Experts from a world that no longer exists

#224
post #223

Earlier quoted context omitted.

Yeah middle class homeownership is bullshit. Middle class stock ownership is less obviously good or bad, because the 0-sum nature of land is not present. When one gets right down to it, ownership is a too strong stuff. Total Control for eternity which is then sold in finite time in practice? Woah there, why so many infinities? "Rent" has a bad rep, but the problems of rent have to do with it being backstopped by owns…

There really isn't such thing as ownership. Stop paying your property tax and see what happens.

Certainly, but we dole out an awful lot of privileges in return for that measly obligation!

Prop 13 merely puts the silliness in sharper relief.

Re: Experts from a world that no longer exists

#225
post #223

Earlier quoted context omitted.

Yeah middle class homeownership is bullshit. Middle class stock ownership is less obviously good or bad, because the 0-sum nature of land is not present. When one gets right down to it, ownership is a too strong stuff. Total Control for eternity which is then sold in finite time in practice? Woah there, why so many infinities? "Rent" has a bad rep, but the problems of rent have to do with it being backstopped by owns…

There really isn't such thing as ownership. Stop paying your property tax and see what happens.

There is with bitcoin.

Re: Experts from a world that no longer exists

#226
post #123

Earlier quoted context omitted.

The problem is we're all now dependent on stock market performance to make retirement feasible. Employer guaranteed defined-benefit pension schemes are dead. My uncles pension scheme was structured to pay out 1.5% of his final salary, inflation adjusted for the rest of his life, for each year he'd worked. He worked at one company his whole career, from age 18 to age 55, when he retired. Factoring in his mortgage, whi…

Adding on to your first paragraph about dependency on stock market performance for retirement. 401ks that my generation is used to are a concept only ~36years old, even at that most companies didn't start offering them until the 90s. It's a very young tool that we're only just now seeing play out for people reaching retirement age that missed the ubiquitous pension era. And roth IRA was introduced in 1997. No comment…

I'll admit that one of the things that makes me nervous about the Roth, and not taking your tax advantage now instead of later, is that in an extreme situation, the government could renege on the promise of tax free gains and distributions.

They can't renege on the tax advantage they already gave you with a traditional.

Re: Experts from a world that no longer exists

#227

> “Don’t buy stocks when the P/E ratio is over 20” was a good lesson to learn from the 1970s when interest rates were 7%, the Fed hadn’t yet learned what it’s capable of, and most businesses were cyclical manufacturing companies vs. asset-light digital services. Is it relevant today? At a broad, philosophical level, yes. In practical terms, probably not. In the same sense, buying stocks at all seemed like nothing but…

Absolutely. Here's a recent quote from John Hussman that really changed my perspective:

> "There's this notion that low interest rates justify high valuations. You have to understand what people are saying there. So let's say that I've got a security that is going to pay $100 a decade from now. And I want to get, let's say, a 6% annual return. I can say well, for that return, I would pay $55.80 for that.

> Now if I'm willing to get a return of only 2% annually, I'll be willing to pay more than $55.80; I'll be willing to pay $82. If I'm willing to get a zero return, I'll be willing to pay $100 for that security today. If I'm willing to accept a negative return, I'll pay a price over $100. That's the way valuations work. The higher the rate of return you're going to bargain for, the lower the price you have to pay.

> So when people say low interest rates justify higher prices, what they're really saying is that low interest rates justify low returns on stocks.

> So to say that interest rates are at record lows, therefore these record high valuations are OK, is identical to saying that interest rates are at record lows therefore the expected returns on stocks should also be at record lows.

> But that's not what people actually are thinking. They're thinking, no, justify means I'm going to be OK, that I'm going to earn normal returns. Oh no you're not."

Re: Experts from a world that no longer exists

#228

Earlier quoted context omitted.

>> What happens when interest rates are unable to fall further? We are there. QE is the next thing. I think they understand now that raising interest rate quickly will kill the housing market like in 2007. So they need inflation while slowly raising rates.

Why is it that property / houses seem to end up so overvalued and then interest rates become such a crisis? It's weird to me that as a society, it's such a priority to borrow huge amount of money to buy property we cannot afford, then end up in this situation where the worst thing ever would be to put up the interest rates and force everyone to lose their shirt.

The main reason for this is very simple. It's because housing is considered a "safe asset", and this means that lenders are willing to lend at low rates for housing purchases; they think that if you fail to pay, at least they'll get the house, and it's very unlikely to go down. This is why you can borrow money with a mortgage for 2~3%, while borrowing money to buy, say, food, costs 20%.

It shouldn't be surprising that when the cost of debt is very low for a particular asset class, that asset class will end up more highly leveraged than others, and will be more sensitive than others to changes in the cost of borrowing.

To make matters worse, the more that banks are willing to lend for house purchases, the more money they effectively add into the system, driving up the price of housing further, which also adds to the illusion that real estate only goes up...

And, the perceived safety of this asset makes homebuyers more willing to spend a ton of money on a housing purchase. It's how the middle class is expected to save for their retirement, after all...

Housing is also the main asset class that couples the financial world of the "asset economy" into the consumer world of the middle working class. While most people don't worry too much about the price of Amazon shares -- and if they want them, they'd be about as happy buying $1000 worth of shares whether that gets them one share or ten -- there's no ignoring the effect of real estate prices on families, peoples' lives, and savings. Governments care a lot about this and are unwilling to let the bubble pop.

Finally, and perhaps most importantly, when central banks are worried about deflation and a slowdown in the economy, they react by reducing interest rates. The hope is that this increases consumer spending, by increasing confidence in borrowing (which increases real estate prices). One of the mechanisms for this is the "wealth effect"; if people feel richer (because their house is worth more on paper), they are willing to spend more, and this consumption drives the economy. It seems that since the mid '90s, western countries have been terrified of ending up in a deflationary spiral like Japan, and are pulling that lever again and again to try to stoke consumer confidence. However, it's quite possible that it's ineffective, and at any rate, it's going to be hard to push it further than it's at now.

Re: Experts from a world that no longer exists

#229
post #183

Earlier quoted context omitted.

The 2000 and 2008 blowups were pretty bad but back then there were still things that could be done like running deficits or lowering interest rates. We now have huge deficits and almost zero interest already during the boom. What can the Fed or government do during the next downturn? I don’t see them having any tools left to reinflate the bubble.

UBI Really. Just give people money. It generates more benefit than it costs. Look how well billionaires did when unemployment benefits were buffed up. Now imagine if they were taxed reasonably to capture some of that toward covering the cost. People still looked for work, but they could afford to hold out for better jobs.

I agree, and when governments are worried about deflation, UBI / helicopter money, which goes to people who need it and will rapidly spend it, seems much better than lowering interest rates, which mainly inflates asset prices and benefits the top 1%. I'm not sure why it's not more commonly employed.

Of course, we're in an inflation scenario right now, but part of the reason for that appears to be that central banks are so terrified of deflation that they're way more comfortable erring in the other direction.

Re: Experts from a world that no longer exists

#230
post #123

> “Don’t buy stocks when the P/E ratio is over 20” was a good lesson to learn from the 1970s when interest rates were 7%, the Fed hadn’t yet learned what it’s capable of, and most businesses were cyclical manufacturing companies vs. asset-light digital services. Is it relevant today? At a broad, philosophical level, yes. In practical terms, probably not. In the same sense, buying stocks at all seemed like nothing but…

The problem is we're all now dependent on stock market performance to make retirement feasible. Employer guaranteed defined-benefit pension schemes are dead. My uncles pension scheme was structured to pay out 1.5% of his final salary, inflation adjusted for the rest of his life, for each year he'd worked. He worked at one company his whole career, from age 18 to age 55, when he retired. Factoring in his mortgage, whi…

> Employer guaranteed defined-benefit pension schemes are dead

What do you think those funds invest(ed) in? If stocks and bonds don't perform well, how do those funds continue to make their payments? The shift to individual plans shifted responsibility, hurt some efficiencies pensions could get because they can plan for the mean, not the p95, and decoupled retirement from employers, improving the labor market. All in all, it's somewhat mixed, but what hasn't changed is where the money comes from.

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