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How This Ends

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Re: How This Ends

#591

Post by ac29 »

seanp2k2 wrote: post #569
ethbr0 wrote: post #322

Earlier quoted context omitted.

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).

Don't forget CA Prop 13 [1] Boomers all over Silicon Valley are still paying 1976 tax rates on their properties worth $2m+ now. Disneyland is a huge beneficiary[2], but ANY efforts to reform Prop 13, even just for commercial, are met with "slippery slope" arguments from the same boomer homeowners (and PR campaigns funded by real estate groups that benefit from it). 1: https://en.wikipedia.org/wiki/1978_California_Pro…

> Boomers all over Silicon Valley are still paying 1976 tax rates on their properties worth $2m+ now

Prop 13 limited tax increases to 2% a year, not zero. No one is paying 1976 rates.

Re: How This Ends

#592

Post by noduerme »

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…

I wonder to what degree generational culture plays a part. My father, for example (born pre-WWII), would never buy growth stocks. Not even when he was young. He bought only dividend yielding stocks, reinvested 100% of the dividends and never sold anything until his retirement. My generation (X) has a more balanced approach, with a mix of growth and value stocks dependent on risk tolerance, trending toward value stocks the older we get. Moreover, a lot of us learned some hard lessons from the first internet bubble.

Granted that they're still younger and should be in a more risk-tolerant phase of life, but what I see in Millennials, and Gen Z especially, is a culture of growth-only, with no interest in boring old investments that are intended to earn and build value over long timescales. I think at least some of this has to do with the gamification of investing; in my Dad's time, a normal person couldn't just sit at a brokerage and watch a stock ticker all day. Free trading has intensified it by removing the barriers to full-time gambling. Remember that Millennials are a much larger generation and we're just still early in the period when they're growing wealth; I wonder if what we're seeing isn't the beginning of what it will take to change the culture... or if we'll continue to see endless bubbles because the steady-as-she-goes, long term investment mentality is just disappearing in the face of permanent FOMO. Sure, it's not glamorous, it won't make you a millionaire overnight, but that's really not what investing your savings should be about.

Re: How This Ends

#593

Post by ac29 »

nostrademons wrote: post #196
mym1990 wrote: post #121

Earlier quoted context omitted.

Can you explain why interest rates will HAVE to rise above inflation for it to slow down? CPI is already slowing down, although we have some very limited data points currently. A lot of inflation is driven by expectation, and raising interest rates is a way to tame those expectations for consumers, but I don't think the rates have to arbitrarily go above inflation to tamper it.

The Taylor rule gives the math behind it, but the layman's explanation is that as long as rates are lower than inflation, you turn a profit by borrowing money and buying a basket of assets, since their price will rise alongside inflation. This incentivizes people to borrow more money, which increases the money supply, which further exacerbates inflation. This is the first term 'p' in the Taylor rule, which corrects t…

> you turn a profit by borrowing money and buying a basket of assets, since their price will rise alongside inflation

That explanation doesnt make sense when the basket of assets has a expiration date and/or significant storage or maintenance costs.

Re: How This Ends

#594

Post by neilparikh »

danhak wrote: post #347
jimmaswell wrote: post #228

Earlier quoted context omitted.

Same as always, keep investing in a well-diversified spread. The stock market as a whole will always bounce back. That or society collapses and your numbers in a computer are worthless anyway. This is the first big downturn I've been prepared to invest in, so personally I'm going to buy more than usual. I see it as stocks being on sale.

> The stock market as a whole will always bounce back Japan is the common counterexample. It is entirely possible the stock market will stagnate in the future as the era of American economic hegemony comes to an end.

> Japan is the common counterexample.

That only provides a counter example to investing all your money into a single country. Unless you think every stock market in the world is going to do poorly, that's a reason to buy a globally diversified index fund (like VT), so even if American economic hegemony ends, you can pick up on growth of other countries.

Re: How This Ends

#596

Post by neilparikh »

PaulDavisThe1st wrote: post #487
lazide wrote: post #458

Earlier quoted context omitted.

Real estate is going to be gutted - increasing mortgage rates (already have been happening) will decimate qualified buyers. Decreasing prices will further decimate those willing to Hail Mary with cash offers hoping to get something after years of frustration.

But the effective, on-the-ground housing shortage is going to continue to keep demand for housing extremely high in almost all areas with reasonable economic options or amenity migration destinations.

Wouldn't this demand be priced into existing housing prices though (and thus not be worth acting on)?

Re: How This Ends

#597

Post by YZF »

comex wrote: post #575
YZF wrote: post #566

Earlier quoted context omitted.

Long term your best bet is still stocks. Stocks naturally resist inflation- when inflation goes up earnings will go up with them. The current P/E is high but it's not insanely high. Sure, stocks can still go down 10% or 20% (or 30% or 40% though less likely) but your cash is also going to get eroded by that much over the next few years and at least you have a productive investment. Whether real estate is worthwhile d…

> Sure, stocks can still go down 10% or 20% (or 30% or 40% though less likely) but your cash is also going to get eroded by that much over the next few years and at least you have a productive investment. The current trend is that stocks are going down in dollar value, not just in real value after adjusting for inflation. Are you saying you expect that to reverse?

Ofcourse it will reverse. Sure, the P/E is on the high side and so the expected returns won't be as good as they can be but hey, you're already 20% down (or more in real terms). If we we're going to see 8% inflation over the next few years then sitting in cash is going to see your money get erased. Bond rates are still way too low. Housing is somewhat inflation resistant but it has also been terribly inflated. So stocks look like the best option right now, if we go more down they'll be even better ;)

EDIT: Just to be more specific, I'm pretty sure that in ~5 years you'll at least maintain your real value and in 10 years you'll have a decent real return. Pretty decent probability anyways. In 10 years you'll beat the 10 year bond and the housing market (or gold, or cash or bitcoin). I'm sure some sectors will over-perform and some will under.

Re: How This Ends

#598

Post by neilparikh »

ac29 wrote: post #591
seanp2k2 wrote: post #569

Earlier quoted context omitted.

Don't forget CA Prop 13 [1] Boomers all over Silicon Valley are still paying 1976 tax rates on their properties worth $2m+ now. Disneyland is a huge beneficiary[2], but ANY efforts to reform Prop 13, even just for commercial, are met with "slippery slope" arguments from the same boomer homeowners (and PR campaigns funded by real estate groups that benefit from it). 1: https://en.wikipedia.org/wiki/1978_California_Pro…

> Boomers all over Silicon Valley are still paying 1976 tax rates on their properties worth $2m+ now Prop 13 limited tax increases to 2% a year, not zero. No one is paying 1976 rates.

They're paying (at most) 2.5x what they paid in 1976 (1.02 ^ (2022-1976)). In the grand scheme of things, that's not far off from 1976 rates, given that many properties have appreciated 10-20x.

Re: How This Ends

#599

Post by tempestn »

credit_guy wrote: post #446
zby wrote: post #409

Earlier quoted context omitted.

If they hike the rates too much then debt servicing would be costly. This is different from 1980, because back then US gov debt was about 30% of GDP and now it is 120% of GDP ( https://fred.stlouisfed.org/series/GFDEGDQ188S#0 ) What are the realistic values here? I have no clue, but a good analysis should cover this.

> If they hike the rates too much then debt servicing would be costly. The Fed doesn't care about the cost of servicing the debt. That's the US Treasury's job. By law, the Fed has the dual mandate to keep both inflation and unemployment low. That's it. Nothing to do with the cost of servicing the Government debt. If the interest on the Government debt becomes too high, nobody will point the finger at the Fed. If howe…

That's true in theory, but in practice I don't think it works that way. The executive and popular opinion can put pressure on the fed, and even absent that the fed does in fact care about the stability of the nation more broadly than that mandate suggests. I agree with the parent that the fed is very unlikely to raise rates to double digit levels given the high level of government debt. More likely we'll have an extended period of high-but-manageable inflation, and inflate away some of that debt (and some of everyone's savings).

Re: How This Ends

#600

Post by noduerme »

lumost wrote: post #543
pas wrote: post #539

Earlier quoted context omitted.

OP probably meant corporate bonds? (otherwise I also think it's just wildly unrealistic)

OP may have speculated on outlook for the next decade, it’s possible that interest rates rise and inflation remains. This would be the case if inflation is not a domestic phenomena land is instead driven by war, china, and tariffs.

You forget very expensive crop failures caused by environmental degradation and global warming, too. India just went from promising wheat to fill the supply gap left by Ukraine to banning the export of wheat within the span of a month. Queensland's drought and now flooding is a separate disaster. It's not just too much money chasing too few microchips or cars because of logistical issues or covid shutdowns; it's too much money chasing shortages of highly inelastic basic requirements for survival, like bread and milk. This is the sort of thing that contracting the money supply can't fix, because it's not excess consumption that can be discouraged away. Considering inflation in the UK just hit 9%, EU 7.8%, even Japan going from deflation to 2.5% inflation, it seems probable this is a long haul global problem. It's a really lousy environment when the dollar is inflating and strengthening against other currencies at the same time. Higher interest rates will tamp down spending on discretionary goods, but much less so the inelastic ones we're seeing shortages of; nor will they drive investment to create more of what can be created.
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