The Stock/Investment Thread

[GGT]

If you like graphs about home prices and inflation: https://dqydj.com/historical-home-prices/

I haven't found a source that compiles all the data in a comprehensive and contextual way (costs of living, average wages, median home prices, healthcare or education costs, plus tax liabilities, etc.)

I was just remembering the time when parking money in a savings account could accrue compounded interest, and that was just as good as "investing" in stocks, bonds, mutual funds, or flipping real estate...but without the associated risks. Now we value spending and borrowing more than saving, and I think that's a bad new normal. /ok boomer

[RandBlade]

https://www.usinflationcalculator.co...flation-rates/

That's not so meaningful when you aren't saying when the account had a 6% yield. If you're talking eg 1990 when inflation was 6% then that doesn't mean very much.

[GGT]

I was remembering the 70's and 80's. Yes we had high inflation during that time, and a home mortgage could have an interest rate as high as 18%, depending on the location and RE market. But the credit market was totally different then: *before debt was securitized and monetized with "newly created financial tools": college students weren't going broke paying their student loans, and sick people weren't filing medical bankruptcy claims *and home foreclosures weren't routinely destroying entire communities*. Savers could still stash cash in the bank and not feel like they were "losing" money.

Also, new monetary policy (going off the gold standard) and Volcker as fed chair, raising interest rates to curb inflation. Granted, I didn't follow it then like I do now, because I was still in HS and college. But it's still true that SAVERS are the biggest losers in the new economy. Whether it's from monetary or fiscal policy, or both.

[GGT]

This might look like a tangent, but if we're talking about wealth and asset allocation....I think a big, structural mistake was made when we decided "home ownership" was a cornerstone of American prosperity, and put more emphasis on that before Education, Healthcare, or even wages.

It's crazy that we continue to let lobbyists and corporate bankers dictate policy to legislators (the political class that relies on lobbyists and bankers). It puts the cart before the horse AND lets the fox guard the hen house. WTF will it take to break this vicious cycle?

[Hazir]

First and foremost; it takes the chicken to admit they are poultry.

[RandBlade]

I was remembering the 70's and 80's. Yes we had high inflation during that time, and a home mortgage could have an interest rate as high as 18%, depending on the location and RE market. But the credit market was totally different then: *before debt was securitized and monetized with "newly created financial tools": college students weren't going broke paying their student loans, and sick people weren't filing medical bankruptcy claims *and home foreclosures weren't routinely destroying entire communities*. Savers could still stash cash in the bank and not feel like they were "losing" money.

Also, new monetary policy (going off the gold standard) and Volcker as fed chair, raising interest rates to curb inflation. Granted, I didn't follow it then like I do now, because I was still in HS and college. But it's still true that SAVERS are the biggest losers in the new economy. Whether it's from monetary or fiscal policy, or both.

6% savings rate and 10% inflation rate is not a good way to make money.

[Loki]

Testing a short-term strategy: if the US markets start a day down for coronavirus-related reasons, I look at Asian markets. There's no reason why the US markets should fall more. Working today at least.

Edit: well so much for that.

Edit2: worked out in the end.

[GGT]

6% savings rate and 10% inflation rate is not a good way to make money.

Doesn't that depend on what you mean by "inflation" and how it's calculated? Here's an example:

We have low inflation now...but my (PA) property taxes more than doubled b/w 2002 and 2017; in some areas that rate was even higher because "value assessments" hadn't been done in decades/generations, and/or the new tax rate algorithms changed to higher RE market valuations (not the price paid when the property last changed hands). That was a real problem during the housing bubble and bust.

Most of our funding for public schools comes from local property taxes, so the quality of a K-12 education depends on home values, aka Education by Zip Code.

PA in-state tuition at a state college runs around $22,000/yr. Median PA household income was just shy of $60,000/yr in 2018. As a percentage of income that's too expensive for most families to "save for", and since grants and scholarships have also been cut, they get student loans. Loans they struggle to pay, with fines and penalties that compound over time, with eventual defaults that ruin their credit score. Now they're considered and "employment risk", and might even have a hard time renting an apartment, because Credit Scores are used for everything now.

That's just education, don't forget about the "inflation" in US healthcare and prescription drug costs that eat up another 25-30% of average wages/income....and lead to medical bankruptcies.

[RandBlade]

Market's suspended in America as soon as they opened so dramatic was the fall.

[GGT]

[GGT]

Single biggest drop in the Dow in history.

"Fundamentals" are shit. This isn't like the financial crisis of '08, but it's still shitty. The irony is that institutional investors and day traders are selling stock and moving to cash because it's "safe".

[Aimless]

Which index funds to buy, and when?

[wiggin]

The stock market loves to overreact, and this looks like a panic. While I'm expecting a bounce, there's a good chance this an early indicator of a shift in trends - I won't be surprised if we start seeing a gradual contraction even after this blows over. Whatever happens, now's probably a good time to start to DCA - make small buys regularly until you have reason to either pause it or accelerate it.

The more I think about this, the more I figure people are going to drive prices down more for a while. The reality is that there's going to be bad covid-19 news for a very long time, and it's going to be awhile before markets learn to shrug it off. Coupled with other secular headwinds I'm not sure I see a sustained recovery for a while, except for the occasional 'buying the dip' rally. I'm going to wait a bit but might do a bit of DCA as Wraithy suggested. In reality, my timeframe for this money isn't all that long - probably only 2-3 years - so I'm less concerned about cyclical factors than I am about idiosyncratic ones. We'll have to see.

I've gotten a lot more bearish since two weeks ago. I think the panic over covid-19 is probably a bit exaggerated, but I'm starting to agree with Loki's contention in the other thread that this is going to tip the economy into a recession. I've been looking at my own industry and I'm starting to see real strain on supply chains and timelines are completely going out the window with various semi-mandatory shutdowns. My specific company is relatively insulated from things because we're still in R&D stage, but even we are probably going to lose a few months of productivity out of this. A big company is going to lose a hell of a lot more.

It's also very clear from more 'soft' metrics that economic activity is plummeting. Traffic in Boston has suddenly become bearable, and ridership is down on various forms of public transit. Retail and entertainment demand has more or less disappeared overnight except for purchases of staples (not sure yet what's going to happen with online shopping but I'm not convinced it will compensate for bricks and mortar losses). Intercity travel has ground to a halt; pretty much everyone I know has put off travel plans in the next quarter, with all of the attendant knock-on effects.

And we're just getting started with community spread in the US.

The reality is that a lot of people are going to be unpaid/unemployed soon, school/etc. closings are going to have knock on effects for workers even if they can WFH, and a whole bunch of consumer spending is essentially being put on hold. I think a recession is now quite likely (though perhaps a smallish one if spring/summer slows the disease spread) and a period of sustained weakness given other issues with fundamentals that were already causing strain.

I might still toss a couple of bucks into the market but I'm not convinced we've found anything like a bottom. Even with all of the recent drops, it's still only trading around a level that was last seen a bit over 2 years ago. With next to no earnings growth forecast for this year, I would be surprised if the valuations look all that good right now.

[Dreadnaught]

I find the bond market liquidity issues sorta concerning. Almost like there's been a multi-year a bubble in bond prices, which could collapse as people realize government finances are impacted by this stuff and funds are forced to sell to make cash.

Overall, my intention is to stick with the automatic investing plan and thank Allah for my emergency fund. But I do have a renovation that I'm questioning; though I could potentially finance it at very low rates if needed.

[Wraith]

I was buying for a little while, but I sold off on the bounce at the end of last week. With several states now doing state-wide bans of a bunch of businesses, the economic damage of this virus is likely to be pretty severe, especially as it continues to spread (we doubled the number of US cases over the weekend) and it's likely that more states will follow suit. I'm not optimistic about the economy at this point, and we're going to be dealing with the repercussions of this for a while. On the plus side, Trumps re-election just got less likely.

[Aimless]

Keep cash on hand for investments, spend 90% on index funds by the end of the year or before next spring if you still have the money and things look to be stabilizing.

[RandBlade]

I think people are being unrealistic on the economics. Seen people talking about the "possibility" of a recession, or "slow growth", with forecasts of perhaps a 2% recession.

Are you f***ing kidding me? There is no possibility of a recession, there is a possibility of a severe depression or severe recession. I'd estimate at least a 10%+ decline in the economy this year. Entire industries are shutting down.

[Aimless]

They're being lulled into a false sense of security by eg. that very reassuring report from GS explaining how this is more like 9/11 than like the start of the last financial crisis.

[RandBlade]

This isn't like the last financial crisis. This is worse.

This is more like 1929 than the last financial crisis.

[Khendraja'aro]

On the plus side, you can now see the fishes in the water of Venice again.

[GGT]

Global recession, a depression in many places. It will hit the poor, working poor, and middle income the hardest -- as usual.

It's disturbing that people treat this like an opportunity to make money, but that's pretty typical of Boom & Bust cycles and "crisis economics".

[wiggin]

This isn't like the last financial crisis. This is worse.

This is more like 1929 than the last financial crisis.

I think the current economic crisis is distinct in kind and degree from either the Great Depression or the 2008 financial crisis. First, those were primarily financial crises - undercapitalized banks teetering on the edge of calamity. This is a complex crisis that started as a supply shock (due to factories in Asia going dark) but has transformed into a multifaceted demand and productivity shock due to a worldwide slowdown in economic activity stemming from isolation policies.

My company is a pretty good microcosm. Our work is slowing down because of several factors: (a) suppliers are delaying delivery of items because they are short of workers and the logistics are strained, (b) we have implemented WFH and visitor policies (as applicable) that are reducing our own productivity (not to mention the drag from childcare), and (c) our demand for everything from food to transportation to high tech items is reduced because work is slowing. We're creating value slower and less efficiently, and the demand we generate (both as individuals and as a company) has cratered. It's obviously a complex interplay.

If what I describe above was the only issue, it's a relatively easy fix - recognize we'll see reduced aggregate demand for a few quarters, prime the pump with some fiscal and monetary stimulus, and things should snap back pretty quickly given the underlying strength of the US economy. However, the knock-on effects are what are really going to be the problem. Whole swathes of the economy (which, after all, is mostly consumer spending) have been shuttered - most retail, all entertainment, many services, travel, etc. - and people are losing income (at best) and jobs (at worst). Businesses, especially smaller businesses that work in a lot of these sectors, are either going to have to dock pay, fire people, or go bankrupt. I have a friend who runs a medium size dental practice; she can only keep up payroll with no patients for a month or two. Smaller margin businesses like restaurants are in even worse shape.

The underlying covid-19 driver is likely to be an issue for at least another 2 months, which may cause irreparable damage to the economy. Only thoughtful, concerted, and targeted efforts by the government can minimize the impact of these isolation policies. Lots of people will need paid sick leave, lots of people will need supplemental income, and lots of businesses will need a helping hand. It won't be cheap, but it would be necessary to escape an unemployment/demand side downward spiral. I am less than convinced that the US government (let alone global governments) has the political will and foresight to address this successfully.

And I'm not even taking into the account the very real possibility of ~1 million American deaths from the virus.

That being said, the important point is that these are foreseeable and addressable issues. The financial system is broadly stable, even if some corporate debt markets are in trouble. The amount of pain can be addressed without an extended economic slump, something that wasn't even close to feasible in either 1929 or 2008.

[GGT]

Then why aren't we *addressing* these foreseeable and addressable issues surrounding Healthcare (and Education)? See the billionaire thread. You talked about thoughtful and targeted efforts there, too.

wiggin, your posts always sound professional and academic, but don't do much to expose -- let alone admit -- the Tale of Two Economies.

[GGT]

And the destruction continues. It's Groundhog's Day: the financial class is once again destroying the working and middle class, with all their derivatives and CDOs, hedge funds and high frequency day traders and short sellers de-leveraging. "Market makers" my ass, this is predatory opportunism, making money from money by manipulating capital markets. Big Corporate industries (like airlines) used profits for stock buy-backs to enrich their shareholders. Now they need/want/expect a federal bailout.

And the political class is just as bad, especially the GOP that claims to be all about Freee Trade and Freee Markets or that Capitalism = De-regulation. Senators on important committees selling stock after confidential briefings. Insider trading on Capitol Hill. Gee, what a surprise.

[Being]

I went all cash when Trump won the election. Stayed with short term CDs for the most part. I'm thinking the right time to get back into the markets is when they reach the level I exited at. That'd be S&P at around 2200. Looking for a dip to 1800 then buy when it climbs to 2200.

[GGT]

But what are you "buying" if the fundamental/structural flaws haven't changed?

[Being]

But what are you "buying" if the fundamental/structural flaws haven't changed?

S&P index fund. Much of the Trump bump was hype (tax cuts that couldn't pay for themselves, promise to reduce spending, etc...). And now that Trump bump is pretty much erased. I'll gamble that after this crisis winds down there will be a more realistic slow long rise in the index over 10 years. If I can get just 3% over that time it will be 3x as much as I'm getting on CDs right now.

[GGT]

But the S&P or DJI doesn't reflect the "real" economy, let alone the "real" value of money. I think we should expect more than just 3% on savings deposits or CDs all the time, not just during crises.

[Being]

... I think we should expect more than just 3% on savings deposits or CDs all the time, not just during crises.

Yeah, well I'm not going to try and figure out how the Federal Reserve works so I'm just going with my gut.

[Dreadnaught]

Agreed with Wiggin. This is going to be BAD but not systematically bad. The number of deaths will likely be far less than things like the 1918 pandemic or Polio or the late 1950s "Asian Flu". Economies can and do bounce from these things once there is clarity. Which doesn't mean it's not awful.