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How This Ends

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Re: How This Ends

#281

Post by lupire »

nradov wrote: post #264
tenpies wrote: post #233

Earlier quoted context omitted.

I don't think there's even going back to pre-pandemic supply chains solely because how the West's cancel culture effectively ended globalization when Russia invaded Ukraine. There will be no global supply chain any more. Any country with a brain now knows they have to be completely independent of the West in every aspect. Sovereign assets must be within their borders. Currency reserves? Held at domestic banks as much…

There will still be global supply chains outside of the pariah states. But purchasing will be diversified across more sources so as to mitigate the risks of disruption from politics, violence, natural disasters, pandemics, etc. This will be a more stable and resilient system, but it will be less efficient (Ricardo's Law of Comparative Advantage), and the average rate of economic growth will slow down.

Diversification doesn't happen, because even if it's globally optimal, not locally optimal for individual decision makers.

Re: How This Ends

#282

Post by presto8 »

TekMol wrote: post #191
fny wrote: post #24

I'm going to explain what has happened so far. What happens next entirely depends on how inflation continues and the feds reaction. 1. We had zero percent interest rates. This causes the value of assets with cash flows out into the future (think speculative tech, Tesla) to accelerate. 2. We had massive herding in megacap tech. These valuations are high in part because for a decade you would not have beat the index wi…

there is a risk free alternative to stocks How is holding a bond risk free? It is a promise to give you a certain amount of money at a certain time in the future. The value of that money depends on how scarce it is. The government constantly raises and lowers that scarcity at will. Sometimes the government decides to double the supply in just a few years: https://fred.stlouisfed.org/series/BOGMBASE So it seems highly…

>> there is a risk free alternative to stocks

> How is holding a bond risk free? It is a promise to give you a certain amount of money at a certain time in the future.

I Bonds. They are guaranteed not to lose purchasing power and not to have a negative return. Unless the U.S. government defaults on its debt obligations. That is as close to risk free as one is going to get :-)

Re: How This Ends

#283

Post by architravesty »

hackernewds wrote: post #174
chmod600 wrote: post #126

Earlier quoted context omitted.

I motice that you left out real estate from your analysis. RE is interesting because it's both an asset as well as something you can use. So if there's general inflation, it's got both upward pressure (because it's an alternative to rent from a consumer standpoint) and downward pressure (because bonds are an alternative to RE from an investment standpoint).

RE is at massive peak levels already though that buyers cannot shell out those prices, esp as mortgage prices go up.

Worst part is the utterly absurd shortage means RE is never going to meaningfully dip for any period of time without serious structural reforms. The focus on interest rates as the main RE driver is almost completely cope and I wish I could believe it.

Low-rate mortgages certainly aren't helping, but they're "not helping" in the same way that hucking an armload of kindling into an already-raging house fire is "not helping".

I'm cautiously optimistic that societal unrest from this will eventually forcibly neuter local zoning controls but short of that we're just going to keep subsidizing demand and kicking the can down the road as if people don't need places to live.

Re: How This Ends

#284

Post by FooBarBizBazz »

SV_BubbleTime wrote: post #57
jfengel wrote: post #40

Earlier quoted context omitted.

Yes, they did sit down and think that through. That's their job. This is not the first epidemic. Public health departments, unlike people on the Internet, actually study the topic. You might consider sitting down and thinking about who is making these decisions and what their backgrounds are before you pronounce that they didn't take something into account. On what basis are you making that accusation? Do you have an…

>Yes, they did sit down and think that through. That's their job. This is not the first epidemic. So was “Two weeks to flatten a the curve” the plan that just happened to extended into a year or an always an intended lie?

I don't think it was a big conspiracy; it was just people, in positions of responsibility, muddling through as best they could.

Re: How This Ends

#285

Post by bjornsing »

yung_steezy wrote: post #271
bjornsing wrote: post #249

Are Americans this certain that the Fed will put an end to inflation? The economic incentives to let it rip are extraordinary… In Sweden there’s a lot of political debate around this, and many are arguing that it would be better to let inflation eat the debt burden.

Inflation is the most destablising thing in an economy. It would be wise to keep raising interest rates until inflation gets back to 2/3% even if that causes a recession.

I agree. But many Swedes are heavily indebted (with mortgages), and their parents made a fortune from negative real interest rates in the 70-ties + the asset bubble of the 2000s. Now they want the same. Understandable.

The Swedish Riksbank (actually the oldest central bank in the world) is formally independent, but everything is politics in Sweden. I would not be surprised if the indebted middle class come out on top here.

Re: How This Ends

#286

Post by coolspot »

spicyusername wrote: post #250
natly wrote: post #71

Getting really annoying to have to keep track of macro events affecting my life year after year instead of just being able to live a normal peaceful life.

The reality is that, regardless of time and place, there is always some shit going on. It will be as true 50 (or 1,000) years from now as it was 50 (or 1,000) years ago. > live a normal peaceful life. Being able to blindly live a normal peaceful life, if it really has even ever been possible for anyone, is the exception, not the rule. Most time periods for most people are fraught with risk and conflict. It is the nat…

> It will be as true 50 (or 1,000) years from now

Ah! An optimist who believes humanity will exist 1,000 years from now!

Re: How This Ends

#287

Post by sumofproducts »

TekMol wrote: post #235
proteal wrote: post #229

Earlier quoted context omitted.

Risk in this context means uncertainty - since the government can print money it is always able to pay its debts. You might not get a great return on your investment, but the government always has the capability to pay you back. There’s little reward with no risk.

I disagree. When I lend 2022 dollars to the government, I give away a certain amount of buying power. I don't know if I will get that buying power back when I get my 2032 dollars. The government does not always have the capability to pay me back my buying power. It cannot create value at will. It can create money at will. But the more money it creates, the less value it has. So it cannot create value at will.

"Risk" in this context generally refers to default risk, not the chances that the opportunity cost of your T-bill'd money exceeds the return.

Re: How This Ends

#288

Post by cellis »

tenpies wrote: post #214
chmod600 wrote: post #126

Earlier quoted context omitted.

I motice that you left out real estate from your analysis. RE is interesting because it's both an asset as well as something you can use. So if there's general inflation, it's got both upward pressure (because it's an alternative to rent from a consumer standpoint) and downward pressure (because bonds are an alternative to RE from an investment standpoint).

Aside from the leverage issues other point out in RE, you have to consider the political risk. How safe do you feel that a piece of paper saying that plot of land is yours will hold up when there's a raging mob threatening politicians to do something about homelessness/housing prices/AirBnB/Asset managers holding all the properties? The political risk in the West is at Emerging Markets levels. We've seen G7 nations d…

Sounds like a lot of FUD, the politicians won’t do anything like that because free stuff very easily causes divisive policies. What will happen, and is happening, is that more luxury housing is being built and less code ( regulations ) implemented. So the result is more inventory, which puts pressure on housing. Also there’s a LOT of vacant homes which have high carrying costs; eventually those owners will get margin called and have to either rent them out or sell them, which will put even more pressure. So I agree with the ends of your thesis, but not the means.

Re: How This Ends

#289

Post by atq2119 »

abirch wrote: post #251
atq2119 wrote: post #188

Earlier quoted context omitted.

Why would they be able to put 20T$ into the economy at a 10% interest rate? Who are the counterparties? In other words, who is taking those loans in your mind?

The Fed can buy mortgage backed securities like they have done since they've started quantitative easing. The Fed has purchased Apple bonds. This is in addition to US Treasuries. My original comment was a mechanics related comment in which liquidity (credit + cash) pushes up asset prices and not rates (although there's high correlation especially in the past 20 years in the US). This is based on my understanding of R…

The volume of mortgage backed securities is based on the volume of loans that people take. At higher interest rates, people take out fewer and smaller loans. The Fed buying up more MBS would put downwards pressure on interest rates, which would be diametrically opposed to their goal (in your scenario) of maintaining high interest rates.

There is a correlation between liquidity and rates, but it's an inverse correlation. That's Open Market Operations 101.

Besides, if your macroeconomic goal is to reduce inflation (which is the reason for raising interest rates in the first place), one subgoal should be to reduce the volume of loans that are being issued. After all, bank-issued loans are new money, which adds to demand, which helps prop up inflation. That's Monetarism 101.

Re: How This Ends

#290

Post by fny »

vintagedave wrote: post #171
fny wrote: post #24

I'm going to explain what has happened so far. What happens next entirely depends on how inflation continues and the feds reaction. 1. We had zero percent interest rates. This causes the value of assets with cash flows out into the future (think speculative tech, Tesla) to accelerate. 2. We had massive herding in megacap tech. These valuations are high in part because for a decade you would not have beat the index wi…

So for non-finance-experts, what should we be doing with our money? Investing in what? Keeping in the bank? It sounds from your comment like there is _nothing_ that won't be devalued, even gold. Is real estate worthwhile? (Note: I am in the EU not US.)

I actually don't have a good answer for this. Not financial advice. Talk to a fiduciary.

The problem with inflation is that you need to protect yourself before the fact, and at this point, it's difficult to read to what extend the fed will respond with rate hikes and how much inflation we get going forward.

In my personal view, it would be stupid to hike to 10% since that will also cut off the needed supply response: this will decapitate energy, farm, and housing expansion while at the same time decimating all forms of wealth. But there is a possibility depending on how trigger happy the fed becomes.

More likely than not, they raise rates, but it stays below the rate of inflation (3-5%), so anything that yields above that range is a good investment. Anything below would be protective.

As for stocks, I'm looking at individual companies that are cheap with high cash flow that have macro tailwinds, but I'm still waiting. There are always bull markets inside of bears, but you have to look for them. Mind you, bear markets have vicious rally from time to time which fool people into getting an all clear signal. A bear markets job is to bleed everyones money dry, which is why I'd recommend people stay away until no one is interested in stocks anymore.

You need complete despair.

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