I’m curious about a related question for people who have been around a bit (or are just generally knowledgeable). How should your average retirement investor react when reading about the market like this? I’ve been well-educated on staying the course, markets will dip etc. But I entered the market with some force at the depths of the last recession so it’s been very easy to take this advice. Now it feels like sitting on a railroad track waiting to get smooshed by an oncoming train because it’s “the right thing to do”.
‘A Powerful Signal of Recessions’ Has Wall Street’s Attention
191–200 of 289 posts
Re: ‘A Powerful Signal of Recessions’ Has Wall Street’s Attention
#192Earlier quoted context omitted.
"Japan would like to have a word with you." Indeed. But more prosaically, many of these HODL types are discounting how much they'll actually freak out at a market correction. They've never seen a 30% drop, or lived through a five-year correction (let alone an extreme situation, like Japan). Even if you have the stomach to handle the drop, things happen on a five-year horizon that people don't consider: extended unemp…
It's worrying indeed how most people just take growth for granted and don't want to at least consider alternatives. Btw, here's a talk I found interesting regarding growth and the future of the economy: https://www.youtube.com/watch?v=KKLDevYyE9I&index=13&t=0s&li... One part I liked regarding the Madoff scandal: Obviously, you were like how could these people be so stupid to give this person all this money? Didn't th…
But it's not wrong, in expectation given long term past trends. It's just leveraged investment using a vehicle for leverage that has some tax and refinancing advantages that favor the borrower, not to mention the liquidity advantages. There are very rational reasons to do this.
For any investor, there is a point in the mortgage interest rate vs risk-adjusted returns space at which investing is better. That point may differ, of course.
Re: ‘A Powerful Signal of Recessions’ Has Wall Street’s Attention
#193People often note, like another comment here notes: > since 1960 there has been a US economic recession once every 5 to 10 years. The last one ended in 2009, 9 years ago This is an interesting line of thinking, but I think it's a mistake. We can use this fact itself and circumscribe some meta-thinking around it. Put the same fact another way, this is arguing that the 1960's started a brand new paradigm that was mater…
This is a very good point. It's worth comparing to history, but it's also worth keeping an eye on when the old paradigm breaks. The lasting booms starting post WWII surprised economists of the time. Stagflation was so out-of-model that the 1970s caused a major shift in economic theory. The list goes on. And, of course, we already know that traditionally aligned indicators have been out of sync since ~2007. Productivi…
> Productivity and wages broke lockstep in the 70s, wage growth has lagged employment growth to an unprecedented degree since 2009
I certainly believe this on a national scale, but I've never seen these stats properly adjusted for globalization. A billion people were lifted out of poverty in the time period mentioned. It doesn't seem to me that these traditional indicators are wrong, they've just been corrected for a global marketplace.
Re: ‘A Powerful Signal of Recessions’ Has Wall Street’s Attention
#194Earlier quoted context omitted.
Same, I remember how much the last one stressed out my Dad. I was in high school and didn't fully appreciate the significance of what was going on. I'm a bit anxious anticipating the next one, but it's part of the game!
It's not a game. Suicide rates will go up. People in their late 40s are going to get laid off and have a hard time finding equivalent work ever again. There are a lot of people straining themselves to buy a home at this exact moment. Kids graduating with record student debt, thinking they did everything they were supposed to do, will find themselves in an even softer economy. And all of this will happen during a 4 ye…
I am most concerned about your last point. I do not believe that student loan debt will be the cause of the next recession but it will definitely be a massive compounding factor after it begins. A bunch of people in there 20s defaulting on loans is going to create one hell of a mess.
Re: ‘A Powerful Signal of Recessions’ Has Wall Street’s Attention
#195Earlier quoted context omitted.
DOW 2005: ~10,000 DOW 2007: ~13,000 DOW 2009: ~8,000 DOW 2009 (later): ~10,000 DOW 2011: ~12,500 A 2 year window of precision is completely useless
The DOW is a very poor indicator of the economy, it's just 30 "chosen" companies that somehow represent the whole US market. You're talking about precision and you use one of the most derided economic metrics.
You're not wrong about that, but I don't think it disproves my point at all. What value exactly are you going to get from predicting recessions within a two year window?
Re: ‘A Powerful Signal of Recessions’ Has Wall Street’s Attention
#196Earlier quoted context omitted.
DOW 2005: ~10,000 DOW 2007: ~13,000 DOW 2009: ~8,000 DOW 2009 (later): ~10,000 DOW 2011: ~12,500 A 2 year window of precision is completely useless
The stock market is not the economy.
I didn't say it was. I'm just searching for any kind of value from predicting a recession with such a coarse grained level of precision. I think it's a ridiculous claim.
Re: ‘A Powerful Signal of Recessions’ Has Wall Street’s Attention
#197Earlier quoted context omitted.
"Japan would like to have a word with you." Indeed. But more prosaically, many of these HODL types are discounting how much they'll actually freak out at a market correction. They've never seen a 30% drop, or lived through a five-year correction (let alone an extreme situation, like Japan). Even if you have the stomach to handle the drop, things happen on a five-year horizon that people don't consider: extended unemp…
It's worrying indeed how most people just take growth for granted and don't want to at least consider alternatives. Btw, here's a talk I found interesting regarding growth and the future of the economy: https://www.youtube.com/watch?v=KKLDevYyE9I&index=13&t=0s&li... One part I liked regarding the Madoff scandal: Obviously, you were like how could these people be so stupid to give this person all this money? Didn't th…
@dgacmu Cannot reply to your comment so I will here.
> For any investor, there is a point in the mortgage interest rate vs risk-adjusted returns space at which investing is better. That point may differ, of course.
I agree there always is a point, what I think is that the risk-adjusted return should be much bigger to be worth taking. The spread between the mortgage rate and the stock market return usually is not that big.
There will always be missed investing opportunities but leveraging the house you live in to squeeze an extra 1-2 percentage point at the risk of going bust doesn't look optimal to me.
Re: ‘A Powerful Signal of Recessions’ Has Wall Street’s Attention
#198Earlier quoted context omitted.
"Japan would like to have a word with you." Indeed. But more prosaically, many of these HODL types are discounting how much they'll actually freak out at a market correction. They've never seen a 30% drop, or lived through a five-year correction (let alone an extreme situation, like Japan). Even if you have the stomach to handle the drop, things happen on a five-year horizon that people don't consider: extended unemp…
It's worrying indeed how most people just take growth for granted and don't want to at least consider alternatives. Btw, here's a talk I found interesting regarding growth and the future of the economy: https://www.youtube.com/watch?v=KKLDevYyE9I&index=13&t=0s&li... One part I liked regarding the Madoff scandal: Obviously, you were like how could these people be so stupid to give this person all this money? Didn't th…
There are other reasons to not pay off you mortgage, especially in the US. The two most prominent being:
1. Usually a certain amount of equity in the house is protected by state law (varies from state to state). So if someone sues you and/or you go bankrupt, no one can touch your principal residence provided your equity in the home is below the state's threshold. That is assuming you stayed current on your repayments and the bank is still good with lending to you.
2. No recourse loans. If you pay off more earlier, you are just opening yourself up to further risk. I'd much rather lose a bit on super low interest rates (and maybe a little in lender's insurance, too), than lose out if the housing market crashes.
Re: ‘A Powerful Signal of Recessions’ Has Wall Street’s Attention
#199Earlier quoted context omitted.
Yep. "We're due" is my perspective on bear markets. We've had a bull for a long time now, and there's adequate macro factors that a tipoff into a bear is a fairly reasonable expectation. In other words, it's quite time to make sure your holdings are prepared for a recession.
> make sure your holdings are prepared for a recession How do you do that? If you're market-invested, there's very little chance of actually predicting the timing of the downturn. Perhaps sell while confidence is high and then buy like mad when prices have gone way down? Sounds risky...
Yeah trying to "time the market" is generally higher risk. I am not offering any sort of advice, but personally I am just making sure my emergency fund is healthy (>=6 months of expenses) and looking at lower risk investment options like CDs.
Re: ‘A Powerful Signal of Recessions’ Has Wall Street’s Attention
#200As someone who (I'm guessing like a lot of others who post here) didn't really have any financial responsibilities during the .com bust and the real estate bust, it will be interesting to have a neck in the game this go around!
This, in a nutshell, is why the human condition is so tragic. This won't be "interesting", believe me. Watch what happens when the body of startups funded by global pools of capital (which are the underlying source of capital for VCs) sees the NPV of software startups vanish as lower expected investment returns smack up against higher risk-free rates. The current software economy is incredibly leveraged and intertwin…
> Watch what happens when the body of startups funded by global pools of capital ... sees the NPV of software startups vanish as lower expected investment returns smack up against higher risk-free rates.
I don't know exactly what that means, but if it means what I think it does, I've been there. I was at a startup in 2001 and we were getting interest from VCs, to move out of angel funding. The economy was already slowing but then 9/11 happened and there wasn't a VC that was shopping for at least 6 months, all the investment money dried up literally overnight. We barely survived on salary austerity and a RIF.