[HN Gopher] How this Ends
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How this Ends
Author : simonebrunozzi
Score : 59 points
Date : 2021-02-17 20:09 UTC (53 minutes ago)
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| umvi wrote:
| Assuming there is a large bubble, what is the best course of
| action for your average middle class software developer? Stay the
| course for retirement accounts that are decades from maturity and
| diversify personal investments a bit to be less stock-heavy?
| bluedevil2k wrote:
| I'd you're young, keep buying at regular intervals. No one can
| time the market, and in 20 years this asset bubble pop will be
| a minor price correction.
| david927 wrote:
| I would recommend reading The Limits To Growth:
|
| https://www.clubofrome.org/publication/the-limits-to-growth
| bluedevil2k wrote:
| I appreciate the sentiment, but the books is from 1970. Not
| sure how relevant it is anymore. Malthus said essentially
| the same thing hundreds of years ago and was wrong because
| he couldn't predict the technological changes that change
| the supply curve.
| david927 wrote:
| It's not related to Malthus' argument and it's been
| updated and shown to be utterly prescient:
|
| https://www.theguardian.com/commentisfree/2014/sep/02/lim
| its...
|
| Our technologies have made extraction of resources more
| efficient but hasn't really fixed the limit of resources.
| randmeerkat wrote:
| You'll never predict how, when, why, or even if a "bubble" will
| pop.
|
| Realistically there's trillions of dollars tied up by the 1% in
| the market and I'm sure they'll do everything in their power to
| keep it from crashing down.
|
| I would say hold the course, if you have enough extra money and
| you don't know what to do with it, ask a financial advisor what
| they think you should do.
| [deleted]
| encoderer wrote:
| Here's how I'm handling it:
|
| - Keep most of IRA in super-broad funds like VTI.
|
| - For personal brokerage accounts, understand that the risk
| profile now is more like a portfolio of in the money call
| options than it is equities. With much higher volatility, you
| can keep a portion of your account in cash, and that is the dry
| powder you can use when the market takes a dive.
|
| I used this strategy before Covid, had money to buy stocks last
| march, and it's worked beautifully. I moved some positions back
| into cash over the summer. Portfolio up over 100% in 2020, even
| with the cash.
| [deleted]
| itsoktocry wrote:
| > _I used this strategy before Covid, had money to buy stocks
| last march, and it 's worked beautifully. I moved some
| positions back into cash over the summer. Portfolio up over
| 100% in 2020, even with the cash._
|
| "Everyone has a plan until they get punched in the mouth."
|
| It's great your strategy has worked for you, but we've been
| in a market that has done nothing but climb for over 10
| years, and the last couple of years have been absolutely
| insane. "Buy buy buy" won't work forever.
| jdmoreira wrote:
| I'm sure you know the old saying... "anyone can make money in
| a bull market." And here is the proof https://www.bloomberg.c
| om/news/articles/2021-01-19/robinhood...
|
| I'm sorry I don't want to sound rude but those 100% don't
| sound that impressive to me right now.
| encoderer wrote:
| Not meant to impress, and not financial advice. Share what
| works for you!
| breck wrote:
| > best course of action for your average middle class software
| developer?
|
| I'd say get into active investing, not passive index funds.
| Active investing could mean angel investing, or it could be
| public equity investing, but what it means is put your money
| into things you want to learn and help grow. That way, you
| greatly protect your downside. If your investment goes to zero,
| at least you learned stuff you are interested in along the way,
| made friends in the industries you like (could lead to job opps
| down the road), and helped nudge the world in a direction you
| want it to go. You'll probably make plenty of mistakes in the
| first 10 years, but by the second decade you'll be better at it
| and then if your second decade performance is good you can beat
| the passive markets and get all those benefits at the same
| time.
|
| It's a real shame the USA has made it hard for individuals to
| invest in stuff they know.
| vinger wrote:
| Your average middle class developer is not an angel investor
| and the opportunies in an average person network would be too
| risky.
|
| Lose everything but make a friend and some knowledge is a win
| for you but not your average developer.
|
| Staying with index funds. They give the safest upside with
| the safest downside.
| breck wrote:
| Statistically speaking we're all going to die and all your
| investments will go to zero then in the long run. The only
| thing that will then be left is the experience you had and
| in what direction you nudged the world.
|
| Fall. Get back up. Fall. Get back up. That is life.
| lackbeard wrote:
| The only advice I have to offer (which may be terrible advice!)
| is to keep a big chunk of your investment portfolio in cash
| (10-25%.) If you maintain your target weights in how you
| allocate your contributions and also by rebalancing a couple of
| times per year, you'll effectively be automatically buying low
| & selling high.
| unstatusthequo wrote:
| Inflation means holding cash actually devalues it. Assets are
| better protection mechanisms. Real estate, precious metals,
| crypto maybe, fine art, etc .
| omginternets wrote:
| I am by no means a reference for financial matters, so I tend
| to think about big-picture macro-optimisations. In other words:
| what is fundamentally true, and must therefore always remain
| true?
|
| One fundamental truth is that tangible, material assets will
| always outlast virtual assets. In an extreme financial crisis,
| owning a house is better than owning cash, for example. If you
| follow this reasoning to its logical conclusion, buying is
| better than investing (in the financial sense of the word). Or,
| if you prefer: invest in material assets that are of real use.
| Optimize these purchases to reduce your tax burden. Put
| yourself in a position to "hold out".
|
| How far along this reasoning you go depends on your threat
| model.
| zwieback wrote:
| Most of our savings are in 401K and bonds but we diversified a
| bit and bought a condo in a stable neighborhood for our own
| weekend use and now contemplating rental property. I'm about 10
| yrs from retirement so not really looking for high-growth
| investments at this point.
|
| On the other end of the risk scale I buy a couple Powerball
| tickets each time it goes over 500M$
| kinghajj wrote:
| > On the other end of the risk scale I buy a couple Powerball
| tickets each time it goes over 500M$
|
| Buying cheap OTM calls every once in a while would probably
| have a higher chance of profit.
| mattmaroon wrote:
| Well if you knew stocks were way overvalued you would of course
| sell stocks. If you knew the bubble was going to burst you'd go
| short, buy puts, etc.
|
| Of course we don't know anything. We could be at the beginning
| of a record breaking bull market brought on my technological
| advances. Or we could be in a bubble that doesn't burst but
| just goes sideways for a decade.
|
| But if you thought there was a good chance of a pop, but not
| 100%, you could diversify some of your holdings. Put some %
| into puts, some into cash, etc.
| breck wrote:
| Historically he's right and these great liquidity windows move in
| a sin wave.
|
| But it's also true that sometimes the new normal is 10x+ the
| previous normal, after seismic breakthroughs in technology.
|
| Are we about to see a crash or are we in the early innings of one
| of the greatest bull markets in history? I'm not sure. I can see
| arguments for both (the arguments for the latter being this:
| https://twitter.com/breckyunits/status/1360283046147067907/p...,
| as well as new digital currencies, and the booming space, self
| driving, green power, tunnel boring and wearable industries). If
| you believe someday humans will be an intergalactic species then
| we're still a lot closer to 0.1% than we are to 100%.
| lifeisstillgood wrote:
| As someone who has called 9 of the last 2 recessions I do t know
| where to go with this sort of prediction- even if (I do) I agree
| with it.
|
| There is "too much easy money". Well not in my pocket, and
| despite my privileged position both professionally and as an HNer
| I cannot easily see how to raise a series A to grab some.
|
| And when we do see Treasury bills reach 2%, then what will I do -
| close down my startup ? resign my job?
|
| Winter is coming. Keep farming, build a grain store perhaps, but
| we will keep farming.
| icedchai wrote:
| I'm guessing we won't see 2% for at least 6 to 8 years. Look
| how long it took for rates to get to 2% after the Great
| Recession.
| david927 wrote:
| That's a pretty sanguine take. I'm not so sure that it will end
| well at all. I think we're still in the winter of the 2008 crisis
| but now we've burned all of our firewood.
|
| But it's worse than that, actually, because we've exacerbated the
| situation. The low rates have ballooned debt and any correction
| means defaults start to cascade, creating a domino effect of
| credit defaults. If that happens it will be quickly followed by a
| liquidity crunch; no one will have cash/precious metals.
|
| I'm a little bit furious that the central banks have been
| experimenting like a doctor from the 19th century with our
| collective economic health. We're being "bled out" to save us
| from the common cold with potentially disastrous consequences.
| omginternets wrote:
| >We're being "bled out" to save us from the common cold with
| potentially disastrous consequences.
|
| I'm convinced this is a direct consequence of the "management
| politics" that have become the norm. The winning strategy in
| politics is not to present meaningful socio-political projects,
| which carry risk and can cost elections, but instead to let the
| invisible hand set the course, and content oneself with
| avoiding immediate obstacles. A consequence of this is that
| politicians actively _reduce_ their authority, when it suits
| them. In the case of a global pandemic, this takes the form of
| deferring to science or medicine; the lockdown wasn 't "their
| idea", it was the medical profession's!
|
| The _telos_ of the politician is -- in the strictest sense of
| the term -- _tragic_. It is his job to make hard judgement
| calls between equally important, but opposing values. In war,
| politicians send thousands of young men to their deaths, and in
| the best possible case, this is done in service of another
| ideal, such as the survival of the nation. Yet with respect to
| the pandemic, the political class has abandoned its duty to to
| grapple with these moral issues, and has instead left the
| decision to the _medical_ class, whose _telos_ makes the
| resulting policy a foregone conclusion; The medical profession
| 's function is to reduce risk (at all costs!), not arbitrate
| values. The result is that we are now maximizing "life" in the
| lowest biological sense, even if it means sacrificing the basis
| for _thriving_.
|
| History will look at this as one of the biggest blind-spots of
| 21st century society. I am convinced of it.
| ivalm wrote:
| But why would there be liquidity crunch? March 2020 showed us
| QE to fund a credit backstop works wonders. Maybe inflation is
| the way things go south but definitely not a credit crunch.
| viburnum wrote:
| Nobody tell the author about Japan.
| bluedevil2k wrote:
| Aren't Americans too "spendy" to have that happen here? The
| main driver of the stagflation in Japan is that they're too
| thrifty - their stimulus are literally expiring credit cards,
| forcing people to spend money.
| georgeecollins wrote:
| It's important to think about the "spendy" / "thrifty" thing
| as being partly-- maybe mostly-- demographics. Young people
| are spendy, borrowing against future earnings, old people are
| thrifty, counting on assets to support them.
|
| Japan is in demographic decline. The US keeps growing
| demographically, but it does because of immigration. If the
| US has less immigration the chances improve that it will
| stagnate economically like Japan.
|
| I don't know if any of the things I am describing are good or
| bad. But a lot of our assumptions about how the US economy
| "always" is are based on 300 years of population growth.
| omginternets wrote:
| Could you elaborate on your point? It sounds like you have
| something interesting to add to the discussion, but it's
| getting lost in snark. I for one would like to know what Japan
| can teach us about this question.
| bluedevil2k wrote:
| They're facing a unique economic situation where their
| economy isn't growing and prices are decreasing. When prices
| decrease, people hold on to their money (after all, it will
| have more buying power in the future). When people don't
| spend, the economy slows down. They tried lowering interest
| rates to $0 to _try_ to motivate spending...hasn't worked.
| They give stimulus a lot and have expirations on the debit
| cards they give to force spending...doesn't really work.
| They're running out of tools to get the economy growing
| again. This is the reason central banks aim for 1-2%
| inflation - it encourages spending which is good for the GDP.
| redis_mlc wrote:
| Japan:
|
| - rapidly aging population (senior citizens don't buy
| anything, don't participate in labor force)
|
| - women with a job have zero incentive to get married or
| have kids because of many cultural restrictions on married
| women (historically they lose their job, and husbands are
| home very late.) They buy their own condos now and stay
| single.
|
| - consumer companies missed the Internet boom (Apple stole
| Sony's lunch)
|
| - Japanese are legendary savers, not spenders. (It's
| considered shameful to not have $100k in the bank at all
| times.)
|
| - govt is holding trillions in corporate stock and bonds to
| prop up their capital markets.
| omginternets wrote:
| How much of this is cultural (e.g. valuing long-term
| planning / saving) versus mechanical?
|
| EDIT: this thread has some insight.
| https://news.ycombinator.com/item?id=26171294
| jansan wrote:
| Japan dropped interest rates to zero about 20 years ago. They
| still do not know how to get out of this.
| david927 wrote:
| There's this optimistic notion that we'll just bounce back
| from any setback and continue economic growth.
|
| Japan had the same thing happen that we're seeing now in the
| 1980's -- and never recovered.
| swyx wrote:
| to be honest, i'm slightly concerned that we are basically re-
| enacting the 20th century almost-beat-for-beat. pandemic, roaring
| twenties. Then the not-fun parts arrive: a Great Depression and
| then a World War.
| diggernet wrote:
| Well, on the bright side, we've already skipped the pre-
| pandemic World War...
| swyx wrote:
| arguably that was iraq/afghanistan, but yeah much smaller
| scale than ww1
| adamcstephens wrote:
| The low interest rates fueling a market bubble seem to align
| for sure.
| david927 wrote:
| That's what Ray Dalio says in "Principles". It's terrifying.
| kridsdale1 wrote:
| Solid book.
| rgifford wrote:
| If this were a typical end of market cycle, I'd say spot on.
| However, the Fed owns 30% of US mortgage backed securities. The
| last time they tried to reverse QE was 2019 when we had that
| liquidity crunch and markets crashed.
|
| I think this will be the end of many market cycles. This type of
| ending is much more uncertain. It happens every 80 years or so.
| War, a new economic structure, or a new currency are all on the
| table. I don't think deflation is possible without completely
| imploding the global financial system.
|
| I'm really just parroting Lyn Alden. Check her out if you're
| interested. She writes great stuff.
|
| https://www.lynalden.com/fiscal-and-monetary-policy/
| useful wrote:
| the risk in being in cash is much greater than anywhere else
|
| Technology is deflationary, growth in tech looks to be the least
| risky. Technology has prevented inflation and will for a while. I
| think the only lever the US has for inflation is largely in
| housing as it makes up something like 50% of the CPI.
|
| Fixed assets are very inflated but I would like to think the
| commercial market will take a hit before the residential market.
| Some factories, plants, and office space is worthless in a world
| with zoom, solar, and electric cars.
|
| Buy a house, money is cheap. At least you'll have a roof over
| your head and it will be easier to pay off the loan if there is
| any kind of inflation that the government has said they want.
| diob wrote:
| Your last sentence is why I refuse to pay more than the minimum
| on my house payment. It's very likely we're going to experience
| inflation, might as well pay it back with cheaper dollars.
| toomuchtodo wrote:
| What if you're unable to earn dollars due to structural
| employment changes [1]? That's my concern about not paying
| off a mortgage. If everything is inflated, paying off debt is
| a guaranteed return, versus possibly getting into an asset
| class at it's plateau (see Japan lost decades).
|
| [1] https://www.bloomberg.com/news/features/2021-02-17/gig-
| econo... ("The Gig Economy Is Coming for Millions of American
| Jobs")
| diob wrote:
| My thoughts are that I'd be in a lot bigger trouble if that
| happened. If I can't earn dollars, civilization is likely
| at the point where owning my house wouldn't even matter.
| thinkingkong wrote:
| It doesn't end at all. Governments won't be able to raise
| interest rates without putting a significant portion of their
| populations under water, or flooding the market with people who
| can suddenly no longer afford their homes. Banks don't _actually_
| want a big pile of real estate laying around.
|
| In my city I'm more interested in the effects of the cheap
| capital + the building boom. There are close to 80 brand new
| buildings with 100,000's of floorspace across multiple floor
| plates ALL of it is zoned for offices and ALL of it is totally
| empty. You'd think normally market dynamics would make some of
| them affordable, but nope; they'll just sit empty instead.
| creaghpatr wrote:
| Happens in China too.
| david927 wrote:
| Even 0% interest rate loans need to be paid back at some point.
| With real estate being over-built, it's going to sit empty.
| Eventually the payments can't be made. Then you get credit
| defaults. Then people need cash and you get a liquidity crisis.
| And then it all falls down.
| thinkingkong wrote:
| The loans are being repaid but they're being repaid tax-free
| from other sources. If you own multiple properties and one of
| them sits vacant, you can count the 'missed out on income' as
| a loss against your company. The amount of income you write
| off as losses is based on the rent you were _previously
| charging_. IOW I have no incentive to rent my unit at a lower
| cost if it's basically acting as a tax shelter for my other
| properties. If the combination of those two things goes
| negative then yeah, the world gets interesting.
| jay_kyburz wrote:
| Woah, is that the US? I'm not an accountant, but I'm pretty
| sure that's not how it works here is Australia.
| PragmaticPulp wrote:
| > or flooding the market with people who can suddenly no longer
| afford their homes.
|
| Most mortgages don't have an adjustable rate. They're fixed for
| the duration.
|
| Regardless, small interest rate increases wouldn't suddenly
| make variable rate mortgage owners homeless. Gradual rate
| increases would provide more pressure for overextended
| individuals to move to housing they can actually afford,
| though.
| jansan wrote:
| _But at some point, economies will recover, central banks will
| tighten the money supply, and interest rates will rise._
|
| Japan was the first country to introduced near zero interest
| rates and they still haven't found a way out, yet. This indicates
| that it may take quite a few years until interest rates will rise
| again.
| omginternets wrote:
| There's not much substance to this article. The author declares a
| few opinions, but doesn't take us through his reasoning (let
| alone evidence).
|
| I'm even tempted to call this FUD, but that usually implies some
| sort of agenda. I don't even see that, here.
| leprechaun1066 wrote:
| He basically said, "Everything that has a beginning has an
| end." But with way too many words.
| nostrademons wrote:
| The longer interest rates stay at zero, the longer this
| assumption gets baked into the structure of the economy and the
| more chaos that'll be unleashed when and if they finally go up.
| There were no interest rate hikes between 2006 and 2015, and
| interest rates have been at zero for 8 out of the last 13 years.
|
| It's easy to blame COVID for the latest rate cut, but interest
| rates were already dropping in late 2019. The Fed slashed rates 3
| times from July-December, and then went straight to zero in
| March. I've heard (from finance industry professionals) that the
| reason was that corporate debt loads rapidly become unsustainable
| when interest rates go up. They need to roll their debt when it
| comes due, but debt levels are now such that they rapidly become
| insolvent when borrowing costs rise.
|
| I'm seeing more people reach the obvious conclusion that interest
| rates are simply not going to rise. The Fed has an incentive to
| keep them low - they'll get mass bankruptcy and mass unemployment
| otherwise, contrary to their full-employment mandate. The
| government has an incentive to keep them low, since it keeps
| borrowing costs on the rapidly-ballooning federal debt low.
| Retirees have an incentive to keep them low, feeding 401K bubbles
| that they need to live on. Young adults have an incentive to keep
| them low: it keeps student loan and car payments manageable, and
| inflation reduces the real value of their debt. Homeowners have
| an incentive to keep them low: the value of their home will drop
| if mortgage rates go up. The only people with an incentive to see
| them go up are vulture funds & shorts, who nobody likes anyway,
| and prospective homeowners, who are largely the same people with
| loads of student loan debt that they'd like to see inflated away.
|
| If everybody has an incentive for rates to stay low, they will
| stay low. This ends in hyperinflation.
| adamcstephens wrote:
| Or it ends in a market crash. When interest rates are zero,
| savers have no choice to build on wealth except the market.
| This is why the market continues to hit higher and higher
| records, and at some point people will lose trust in the market
| and flee.
|
| Hyperinflation can always come after the bubble bursts.
| thinkingkong wrote:
| Flee to where?
| adamcstephens wrote:
| Why not cash? It doesn't matter where they flee to. Once
| everyone distrusts the market, a positive feedback loop
| begins and prices crater.
| the-dude wrote:
| Crypto?
| toomuchtodo wrote:
| Central banks will outlaw it because they can't control
| it and devalue it (either through negative interest rates
| or helicopter money).
|
| Remember when the US outlawed holding gold? [1]
|
| [1] https://en.wikipedia.org/wiki/Executive_Order_6102
| kinghajj wrote:
| 1. Central banks (at least, the US Fed) doesn't have the
| authority to declare crypto tokens illegal unilaterally.
|
| 2. EO 6102 made sense with the gold standard. It wasn't
| just an "FU" to gold hoarders, but a way to raise revenue
| to counter the depression. It's not clear to me that it
| would make sense for such a confiscation of crypto,
| especially if the legislature were to try option #1.
| david927 wrote:
| Precious metals, commodities
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