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How This Ends
421–430 of 698 posts
Re: How This Ends
#422> I would be planning to ride this thing out for at least eighteen months or more. I'm betting more like three to five years. I was talking to a friend (another old guy, like me, but really rich, unlike me). We've both been through at least two recessions (big, nasty ones, with teeth and claws). We realized that there's an entire generation of folks; many running companies, that have never seen a real bear market. It…
Not saying I disagree with you, but this comment feels like it's affected by survivorship bias[0]
Re: How This Ends
#423Earlier quoted context omitted.
RE is highly leveraged (people borrow money to buy it), meaning that it gets hit hard by rising interest rates.
New buying gets hit hard. In the US, fixed rate 30 year mortgages mean that a lot of existing owners are isolated from rates (albeit not from market price devaluations).
It's outside the US too, but holy moly is it dirt cheap in the US, averages not even 4% [1]. When I looked last year RBC showed like 8% (now 9.75%[2]) for 25 years fixed in Canada; tougher choice against 5 year terms than down South.
1: https://policyadvice.net/insurance/insights/mortgage-statist...
Re: How This Ends
#424What if the COVID epidemic doesn't end in this decade? The US continues to have about half a million dead per year, and a lot of lost productivity due to long COVID. This is the most likely scenario.
What if the war in Europe doesn't end in this decade? The optimistic scenario is that Russia bites off some of Ukraine and we go back to a cold war, with everybody in Europe building up serious military power to keep Russian expansion at bay. There are worse outcomes.
What if global warming starts to produce mass starvation in many areas of the world? This is looking likely, and it's already started.
What if supply chain problems don't go away? It's become clear that the incentives of the free market no longer insure abundance across the board. Americans could once deride the USSR's "short-blanket economy", where stores were always out of something. Now that's the norm in America.
For the past half century, large scale trouble in the US has been mostly about the business cycle. But this time, the business cycle doesn't dominate the other problems.
Re: How This Ends
#425Earlier quoted context omitted.
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…
The entire reason that leveraging up real estate 5x is a widely accepted practice is that you can't get margin called as long as you keep making payments. Reg T margin will margin call you if you go under 25-50% equity, but mortgages will never margin call you.
Re: How This Ends
#426Earlier quoted context omitted.
> so the calculus for russia is losing on all fronts Look at EURRUB at 7 years high... with forecast of going much higher.. Rouble is best performing currency (after short drop) this year (YTD)... Looks like Russia is wining the war big time... [] Ruble Hits 5-Year High as Gas Buyers Bend to Putin’s Will - https://www.bloomberg.com/news/articles/2022-05-20/ruble-sur...
Without entering on who is winning and things like that. With the capital controls in place today idk how much the price of the ruble means.
You can google "Credit Suisse strategist Zoltan Pozsar - Bretton Woods 3"... His thesis is that we are going from dollar based monetary order to commodities based order. Not everyone agrees with Pozsar (I don't) but this is making waves.
Russia forcing Europe to pay for gas in roubles is significant step, no matter the outcome on the battlefields... And financial markets reflect that fact through EURRUB and USDRUB...
Re: How This Ends
#427What if the COVID epidemic doesn't end in this decade? The US continues to have about half a million dead per year, and a lot of lost productivity due to long COVID. This is the most likely scenario. What if the war in Europe doesn't end in this decade? The optimistic scenario is that Russia bites off some of Ukraine and we go back to a cold war, with everybody in Europe building up serious military power to keep Rus…
Covid is over, the excess deaths are low, or even zero. War in ukraine would be a nothingburger if americans were involved (like noone cares about yemen, syria, now somalia, and noone cared about afghanistan, iraq, and even serbia).
Most of the current problems that we have are caused by the politicians directly, and not by covid/war/whatever, and sadly, they're the first that will have to go, if we want to return to somewhat normal future.
Re: How This Ends
#428Earlier quoted context omitted.
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…
The entire reason that leveraging up real estate 5x is a widely accepted practice is that you can't get margin called as long as you keep making payments. Reg T margin will margin call you if you go under 25-50% equity, but mortgages will never margin call you.
I meant "margin called" figuratively, not literally. Essentially investors will start seeing negative cap rates and either demand redemptions or will start liquidating their RE portfolios, which isn't a real margin call, but "margin call" is a convenient term for what's happening.
Also, carrying costs of vacant properties are high. I'm predicting large writedowns of RE, and especially commercial RE in the coming 5 years.
Re: How This Ends
#429Re: How This Ends
#430I'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've invested through bull and bear markets in the last 15 years.
I’ve always put most of my money into ETFs, mainly S&P500. It has served me well so far.
Just be prepared to be down with your portfolio for some time.