A generation is 30 years.
The stock market is roughly 20% off its highs.
It went down 25% at the start of covid, just two years ago.
In 2008 it went down 57%
In 2000 it went down 42%
The stock market is doing alright. Some investors are getting destroyed. And some new investors are receiving a very useful, very painful lesson.
(Full disclosure: I’m mainly a buy and hold index investor)
Still waiting for the first month of negative employment numbers.
That is when things are likely to start getting interesting. Right now we're still in the warm-up act.
oil was over $100/bbl from roughly 2010 through 2014 but the economy kept on going just fine.
if people have jobs and have some discretionary income they can ride out the pain of higher prices through deferring spending. the middle class certainly can do this. its the people who are quite literally paycheck to paycheck who fall behind and wind up making poor choices like payday loans who are really going to be feeling substantial pain right now.
and i don't want to sound like i'm entirely discounting that, but crank unemployment up to 10% and it is going to be those people who wind up even worse off and possibly unemployed and homeless. it can get a whole lot worse for everyone right now.
and yeah, the already comfortable people still feel pretty comfortable at this point and aren't feeling a lot of pain, other than maybe the family has to stick with old iphones this year or something. the economy is objectively much worse when those people are losing their jobs and houses than when they're not. which does not deny the existence of people at the margins of the current economy that are being more severely hurt by prices.
Depending on what stat you look at, the % of people living paycheck to paycheck is actually pretty large, and only getting larger as prices go up, especially in rent/homeownership space.
But...the labor market is showing some great resiliency, so if that initial domino never falls, we might be able to skirt through with minimal damage by keeping confidence high.
The third sentence I think is wildly optimistic. The whole problem is the overhang of jobs and the labor market. What they're really worried about is baristas being able to job hop to find better wages just like SWEs have been able to. The Fed have openly talked about this, the business pages talk about it openly and Musk and Zuckerberg are both almost cheerleading the effort to start punishing workers that they think have had it too good lately.
And that is just going to take economic pain and negative employment numbers. And all the talk of a soft landing for the past few weeks is the same language that was used in 2007. They don't actually have any kind of surgical ways to cool off the economy, what winds up is that they crash it. When they do the proverbial "tides goes out and we see who has been swimming naked" -- which means that structural issues in residential and commercial real estate will be exposed. We never really regulated the banks with any teeth in 2008, so we can assume that people out there are making stupid bets on the economy again which are going to go against them (the 2008 crisis actually proves that the people making those stupid bets will not suffer any personal consequences, so it's reasonable to assume that will happen again).
The Fed will have to continue to raise rates until the labor market fails. At that point shit should get very interesting.
I don't see any areas of the economy where there will be wide spread layoffs besides crypto markets and even then, those people will be swallowed up elsehwere.
I remember a time in the late 90s when “bad news was good news” - which is to say, bad economic news portends looser monetary policy… which has been the driver of higher equity prices.
Not saying it will work that way but …
Loans will default and we (taxpayers) will need to bail out the banks.
It’s not obvious yet because commercial leases are long and take time to wind down… and building owners are still making payments.
We are in the phase where the coyote has run off the cliff and is still hanging in mid air … soon it will plummet.
There were a few % points drop at times - but most of that was supply dynamics and supply pricing.
so much demand for commercial real estate that prices are up 24%
It's probably a good thing for the market to cool
2006 was nothing but four quarters of constant decline in housing.
We haven't seen quarter after quarter decline yet and leading up to 2008 it was ~3 years of quarter after quarter declines.
What we have seen is huge market corrections and we're now seeing healthy price corrections in real estate and a slowdown in home buying/selling. Job market still showed growth, retirement savings are down over peak, but still largely doing well over trend.
I'd be fine with consumer confidence shrinking to force pricing back down. I see gas is < $4.00 a gallon here in Austin now (yay).
Corrections are great...
The only way we'll see another 2008 is if it turns out the market was fake to begin with. The only fake market i've seen is crypto. If people back out of that, that won't hurt USD much (it could help) and if people re-invest in crypto well then they re-invest in USD for everything necessary to support crypto (markets, electricity, GPUs/ASICs so on and so forth)
They're not worried about high gas prices because they're economists and they understand that commodities prices are cyclical and act as their own brake on the economy.
They're worried about the wages.
Those aren't going to come down without significant pain.
I'm voting against any of my Congresspeople who vote for the bailouts. Let them fail.
We're still only just starting to pop the popcorn here.
Zoom is still 80% higher than it was at the start of 2020.
The entire stock market may only be down 20%, but the investors who piled into hot tech stocks like Peloton and Zoom went from thinking the stock market was easy money to thinking that the stock market is a great way to lose most of your money. Even Robinhood went from a trendy young person trading platform to a perceived villain in the span of a couple years.
The stock market that you see as a seasoned passive investor is completely different than the boom and bust meme stock market that many young people were introduced to recently. I don’t know what the long term effects will be on those who were burned in the exuberance and ensuing crash.
I have the feeling that we are not done yet ...
And other debt instruments price off of these. Not sure the economic fallout has been fully felt yet.
To compare to other periods, gov debt instruments increased in value during 2000, 2008 and 2020.
When rates go up, bonds become more useful as an investment.
When the 1-year US Treasury was yielding 0.2% earlier this year, it was a bad idea to buy 1Y treasuries (and most other treasuries). Today, the 1Y is 2.87%, and suddenly a whole slew of investors just won't want to invest into shady high-risk companies anymore (Hey look, US Treasuries are yielding good values again. Lets buy those instead).
The people who did buy 0.2% 1Y treasuries earlier this year (or worse, 10Y or 30Y treasuries) have lost a lot of value due to these higher interest rates.
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Case in point: the 1Y US Bond is literally a better rate than my 15Y mortgage. It makes more sense to buy 1Y bonds than for me to pay off my mortgage right now (ignoring tax issues of course)
2022 is unique in that both stocks and bonds have simultaneously nosedived in a synchronized a fall. We've had worse equity selloffs. We've had worse treasury selloffs. But together, this year has been historically unprecedented bad performance for the 60/40 portfolio.
Keep in mind Russia is only starting to cut off Western Europe (which is only starting to cut off itself), so oil and gas prices still have lots of room to go up if Putin doesn't relent (which he won't). Also we've yet to price in impacts to food from the global fertilizer shortage.
And those are just the obvious 1st order effects in the pipeline. The last time wheat prices went through the roof in North Africa it kicked off the Arab Spring and subsequent Syrian Civil War as side effects. There's going to be all sorts of fun coming out of this year, and I imagine a lot of stocks reliant on global supply chains are going to be ground down by hit after hit after hit.
That's not even touching on domestic demand destruction and interest rates.
It's like how on the cryptocurrency subs everyone's always debating whether we're in crypto-winter yet. Having been through 3 crypto boom/bust cycles, we aren't in crypto-winter, because people stop posting on r/cryptocurrency when it's real crypto-winter. It's the same with other markets: it's not about sentiment, it's about abandonment. When we're in a real bear market, everybody forgets about their stock portfolios and gets a real job because they need the money to survive.
i expect a secular change as rates increase and all sorts of things that worked in a declining interest rate environment stop working, coupled with increasing global trade issues
i do not have a crystal ball
The long term effect is enormous investments in energy and defense spending. E.g. Germany just announced enormous public spending on both. That's after decades of not doing much public spending at all. Other countries are likewise accelerating investments on both fronts. That is a lot of money that is flowing into the economy in the next years. And also a classical recipe for boosting economic growth. We're only a few months into this crisis and it has already unlocked hundreds of billions of funding in Germany alone. Normally, spending that big is going to have an impact on economies. There are companies that will benefit from this. And there are effects on employment, etc.
Investors of course are a mixed bag of headless chickens, snake oil sellers, amateurs and the occasional level headed person with a bit longer view on things. I'd offer advice, but I don't qualify as anything more than an absolute amateur. But the one thing I know is that the short term behavior of stock markets is perplexing and irrational. I wouldn't read too much into it other than that "there's a thing going on and it's impacting the stock market". I would not expect anything less given the thing that is going on. What matters is what happens when that thing is in the past.
IMHO, this situation is a blessing in disguise. It got world + dog moving a lot more aggressively on cutting their dependence on fossil fuels. I think that's a good thing. Going cold turkey on Russian gas is going to suck for a lot of countries short term but the current situation simply leaves no other choice. High prices are a great incentive for moving quickly. The good news is that there are companies itching to step in the void with solutions and they now have the full attention of investors and governments with very deep pockets.
So while the market might only be down 25% which isn't the biggest drop ever, 10-20% inflation on top that makes the actual drop larger. It also might mean the bottom in closer than it would normally be.
> Also we've yet to price in impacts to food from the global fertilizer shortage.
The US at least can protect itself from rising prices by prohibiting oil and food exports and thus increase domestic supply - they are a net exporter for both. The European Union however is completely dependent on either Russia or the OPEC oil sheiks, we will be hit real hard (but that shouldn't bother US stocks all too much).
> The last time wheat prices went through the roof in North Africa it kicked off the Arab Spring and subsequent Syrian Civil War as side effects.
That one will be the real interesting part, but again, it's mostly us Europeans who will feel the impact the most - the US can simply send off a bunch of soldiers to the Mexican border and continue treating people fleeing from utter poverty even worse than us Europeans manage to do. The US doesn't care all too much about Africa, Arabia and most of Asia except China and Russia any more, no matter what goes down there they won't involve themselves.
The problem for us Europeans is that our leaders are ineffective and the crises are accumulating:
- the UK government is outright collapsing at the moment and its society fracturing up, not to mention the economic consequences of Brexit or the potential split-offs of Scotland and Northern Ireland. I don't even want to speculate when they will have a stable-ish government with sane policies again.
- France is headed for difficult times, similar to Obama's last six years Macron will have to live without a parliamentary majority
- The Dutch government is still unstable and it's highly unlikely Rutte will survive his term
- Germany... well, Olaf Scholz is no leader, doesn't want to be a leader and frankly he should resign. The coalition itself is beginning to tear apart, particularly because of the financially extremist FDP.
- Europe still doesn't have any sort of common concept on how to deal with immigrants and refugees, partially because Viktor Orban and the Polish PiS keep blocking anything that would require them to house their fair share of migrants or even pay in solidarity. Meanwhile at the borders, horrible crimes against humanity are reported regularly (beatings and illegal pushbacks at the Poland-Belarus border, refugees being extorted by Greek border police to aid in illegal pushbacks at the Turkish sea border, refugees dying at the Spain-Maroccan border in Melilla, people drowning at sea because aid ships are regularly seized by Italian police, ...). The Turkish dictator Erdogan keeps using refugees or the threat of sending them as a political way of extortion.
- Germany has long undermined any sort of independency from Russian gas and oil, and now we're doing dirty deals with Qatar instead of forcefully modernizing industry and housing or doing anything to meaningfully conserve energy.
- Prices in the EU are exploding: rent, energy, food. And our politicians don't have the will or the financial power to assist those in poverty.
Europe is getting fucked hard, the US may escape that same fate if Biden and especially his Democrat Senators get their shit together.
I'd be incredibly surprised if anything of note changes in the next few years. The population is way too fractured already. The elderly vote to keep what they currently have, the home owners vote to keep things as is, the people vested in assets will vote to keep things as is, not enough young people to vote against the status quo, and no party ever seems to get enough votes to truly have a significant say in the matter. This situation seems to be present in most countries, too.
>Europe still doesn't have any sort of common concept on how to deal with immigrants and refugees
Because actually dealing with this requires rethinking things from the ground up, and rethinking those things requires governments to do the very things they've been postponing for decades now. Taking immigrants in as-is will hurt the middle class first and foremost, which has been the class to bear the brunt of the burden for every other crisis.
That same middle class includes millions of young adults struggling to find a place in life, get things going, facing a job market which continues to get more brutal regardless of a 'sellers market', and continues to face higher prices and a future where the social benefits they were taxed for won't be available to them. Safe to say, that middle class is slowly getting fed up and done with this.
Meanwhile, we continuously have to feel guilty for even considering the 'haves' would have to start sacrificing something for the sake of society, despite the fact not doing so inevitably means the 'have-nots' are sacrificing things anyway. I wish I was kidding when I say I've heard my fair share of 'think of the poor retired landlords retiring by 50 and living off of your rent money', said without sarcasm.
my point is only that there is a lack of perspective on how bad things currently are
That 20% market drop from high just seems to be a correction and it was needed because that market high was based on crazy stuff anyway. But that 20% didn't do jack to 99% of the country. We didn't win when it went up, but inversely, we haven't really lost on its way down.
Sure, inflation sucks but if you ask me - stalling our insatiable appetite to consume is probably a good thing.
https://en.wikipedia.org/wiki/Generation
even by the 20 year definition, all of the events listed fall within that window: the .com crash bottomed in 2002/2003