It's the Economy Stupid

Someone said we should have an econ thread. I agree.

Here’s Ray Dalio on our current economic situation. When Ray Dalio is saying ‘maybe buy gold’ shit is about to get real.

I’m at that stage of my life where I should be buying a house (according to conventional wisdom aka the olds) but can’t bring myself to take the plunge after seeing how things are going and what happened in 2007-8. It doesn’t help that I live in one of the priciest cities in America not named San Fran–I make decent money, but can still only afford a tiny condo or something way out in the burbs that comes with an hour+ commute through traffic hell.

I’m also young enough that my highest earning years are ahead of me. Long story short, bring on the fucking crash. Let’s just hope the country makes it out the other side.

The only thing keeping me from being fully on team bring on the crash is the ugly situation with the alt-right. The rise of right wing extremists is already reminiscent of the 1930s, I’d like to avoid a full repeat.

I guess things will be worse if the crash happens after Trump so it’s “better” if it just happens ASAP but…ugh. It’s not going to be pretty either way.


I genuinely think this is going to be the rich people’s recession. They are going to get absolutely smashed in. They’ve borrowed an incredible amount of money against a bunch of stuff that isn’t going to be worth anything close to what they paid for it… for a long time.

This economic collapse probably timing pretty closely before the 2020 election could really deliver a huge blue wave… which will of course be spent on fixing the shit that the GOP stopped the country from fixing for 20 years. Rinse and repeat lol.

Hmm, the consumer debt to GDP ratio has been falling since the last crash, as people have been saving Personal Saving Rate (PSAVERT) | FRED | St. Louis Fed and paying down debt: Household Debt to GDP for United States (HDTGPDUSQ163N) | FRED | St. Louis Fed . As we always said in my house growing up, the rich get richer, and the poor get screwed. Why would this time be any different? The rich have bonds, cash, stocks, gold, bitcoin, whatever in their portfolios. They just got another shot of cash to feather the nest with the Trump tax cut.

There’s nothing wrong with not buying a house. If you tried to come up with a worse investment from a theoretical standpoint I’m not sure how you’d do it. A house has it all baby: difficult to sell, huge transaction costs, unpredictable and potentially large maintenance costs, and a generally lackluster return that is directly tied to the health of the local job market. So if the job market in your city takes a turn for the worse, you’re potentially getting a double whammy in that the value of your massive investment could take a big hit right when you’re at a higher risk of losing your job. Kind of like buying your company’s stock in your 401k.

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What will be the biggest sign to let us know the economy is about to crash?

The yield curve inverting and Ray Dalio (in case anybody doesn’t know who he is, he’s a macro guy who runs the largest hedge fund in the world… his hedge fund has 160B under management, 1500 employees, and is the actual thing that the rest of the hedge fund industry is frantically pretending to be) saying one is inbound is a pretty good sign.

At this point it’s not a question of if one is coming. Timing is all that’s left to discuss. Before or after the 2020 election is the major question. My money is already on before.

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There’s a couple, none of which are particularly reliable. Yield curve inversion is the classic one and then there’s other stuff like the CFO recession survey question. All signs point to recession though pretty soon. But even if they’re right it doesn’t speak to its severity or duration.

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I have cash to invest but I fear the bubble bursting once I jump in. I’m waiting for the economy to bottom out before I invest.

It’s coming. It’s a matter of when and how bad.

Agree that it’s going to happen eventually but who knows when exactly. Sometimes the yield curve inverts and there isn’t a recession for two years. And sometimes it’s a little baby recession and sometimes it’s a yuge one. I’m still 100% equities even though I know a recession is probably incoming because it’s actually less stressful for me to just decide I’m going to be 100% equities no matter what and I don’t have to stress about trying to market time this or that or whatever.

My portfolio has been mostly cash and some BRK.B for quite a while at this point. I can’t shake my value investing roots enough to own stocks at the valuations we’ve had for the last 3-4 years. Prices pop like this and my reaction is to insta sell before they change their minds lol.

There’s no way these valuations hold long term imo. They make no sense in any way other than ‘bonds yield x% so stocks should yield x+y%’ which is a terrible take. I’m also not in a position where I can afford to lose a meaningful amount of my net worth when I’m operating a business that could theoretically need that money (and generate a much better risk adjusted return than financial products).

My situation is super different because I’m self employed. This means I don’t have a 40 year runway, and in fact could be forced to liquidate my financial products to get cash for business/living expenses. Bad market timing would be a MUCH bigger problem for me than the typical person saving for retirement. This is extra true in my case because the risk that I’m forced to liquidate financial products in a recession is much higher than when things are going great. I’d literally be forced out close to the bottom if I took the risk of holding it at the peak.

In fairness though a sizable chunk of my net worth these days is the liquidation value of my business, which has definitely increased much faster than the S&P 500… so I see all of this as a more than acceptable trade off.

That makes sense and I’m not saying that anyone else should do any specific thing with their money – just what I was doing with my own money. I do generally think that people who have a traditional job and are saving for retirement should just pick an asset allocation and stick with it through thick and thin. It seems pretty clear that far more mistakes are made by folks through market timing than disciplined and consistent investing. I’ve tried backtesting different market timing asset allocation schemes based on stuff like the yield curve inverting or the CFO survey and there’s just not a lot of advantage to be gained there imo. So for me it’s just not worth the emotional bandwidth to try and jump in and out of stocks.

But if you are running a business that is or has the potential to grow and/or require a big fraction of your net worth in a downturn to either invest in the business or for living expenses then that’s a whole different ballgame. Although it might just come down to needing a much larger than average emergency fund. You might need an “emergency fund” of a quarter of a million dollars or something to feel comfortable, then you can invest any savings above that level.

Yeah that’s basically it. I absolutely plan to spend what I have to spend in the next downturn and invest the difference somewhere near the bottom. Those positions I’ll probably hold indefinitely.

You’re forgetting the major positive, it’s a generally appreciating asset which doubles as a necessary expense and most importantly, regular consumers can buy in highly leveraged. Most homeowners will build more net worth in home equity in 5-10 years than they would in a lifetime of investing as a renter. Assuming you don’t buy in to an overinflated market at the peak of course.

Not all stocks are overvalued. Cash is a reasonable choice right now though. Lots of major investors have increased their cash positions, to include BRK.

I know this article got a lot of love last time it was posted here but the methodology is ridiculous. It assumes the worst possible timing for every trade. If it’s a cautionary tale against buying high and selling low, OK, but that seems to imply that highs and lows can in fact be predicted and it’s like some kind of psychological bias that gets people making the exact wrong decision every time. A better comparison would be if someone reallocated large portions of their investment at random times, which would be an inferior strategy to remaining committed to high growth investments for as long as you can weather the variance, but not nearly as bad as the hypothetical investor in the article.

In general I think it’s a myth that timing markets is impossible. Efficient market theory was a similar tenet that was simply accepted as a universal law but all recent evidence points to that as simply untrue. The theory that it’s impossible to predict trends in the market shares a lot of the same underlying assumptions and should be treated with the same skepticism. I’m not saying anyone can predict the exact timing of a crash but it should be noted that investing in the market in general is accepted as a good idea because absent any other information, the market trends upward as the economy grows. When there are enough indicators that the economy is facing headwinds, at the very least it becomes a less significant mistake to exit the market. If your analysis is correct turning to cash or other stable investments becomes the +EV play. I firmly believe that there is enough information out there to identify +EV vs -EV market conditions accurately enough to make acting on that information a better play than accepting the overall long term +EV of the market.

I’m not saying that buying a house is bad or anything. I’m just saying that people far too often overlook the substantial downsides of buying a house. And that certainly no one should buy a house or condo simply because they think that it is “that time” in their life, as bware seemed to be saying. And sure, even if you assume the house doesn’t appreciate in real terms it can make sense to buy a house compared to renting if you’re going to stay in the house for a certain number of years.

That’s obviously what the article is? It’s saying why you shouldn’t worry about market timing, just stay the course.

I’m sure it’s possible too. But if Wall Street brain geniuses aren’t able to consistently do it (and they aren’t, look at average hedge fund performance around the time of the crash), then what chance does a regular dude with a full time job have? Far better to just commit to an asset allocation and just stick with it. Because then you remove the possibility of regretting any one decision on market timing – you’re not making any decisions. Which is actually a lot easier emotionally than relying on your superior market timing skillz to generate some more return. Because then you leave yourself open to making a bonehead decision that screws you over when if you had just done nothing and tracked the index benchmark then you’re going to realize the return of the index benchmark.

The point it’s making is just the basic “time in the market beats timing the market” with an example showing that even if your timing is the worst it can be at every opportunity you’ll come out ahead. SUB said he was waiting for the market to bottom out before investing, I posted it to encourage him to start now but probably should have like…typed words explaining that instead of just dropping in the link.

For one, to come up with a worse investment you’d simply have the investment not be a replacement for paying rent, which is a necessary part of life.

Also the investment would be one in which you pay full price up front so you get no leverage.

Houses are great investments if done right and even if they don’t appreciate much, you lock in your payment at something you can afford today and then you never have it rise, unlike rent, which just goes up and up.

Maintenance is a thing and it does cost too much in fees to sell them, but if you live in a decent area and don’t buy an overpriced house then making a profit in only a few years isn’t too difficult.

It’s also an asset that you could offload the cost of by renting out if you need to, which a terrible theoretical investment can’t do.

So yeah, if you only look at the negatives and ignore the positives then it can be a theoretically bad investment.