Sequoia Capital on startups and the economic downturn (2008)

Isn't the lesson the opposite though? When easy funding is available, take on more funding than you need and then don't spend it, so that you have plenty of reserve when things get tight.

I remember having read that at one moment in late September 2008 the US Secretary of Treasury Hank Paulson had kneeled in front of a room of big-bank CEOs begging them to do I don’t remember exactly what (I’m on mobile, too lazy to look for the exact reference). Also, the money market rates had dropped bellow 0% for the first time in recorded modern capitalist memory, an event that lots of economists had said that it wouldn’t ever happen. These are the two main apocalyptic-like events that I remember back from those days, there were many others, and I’d say that we were pretty damn close to a very deep and ugly financial black hole. As such I don’t blame those people who took the safe way out back in those days, I mean, I’m sure there were also people who hang on to their investments back in 1930 or 1931 thinking that the worse was over but we don’t read any happy stories about them because most probably there were none.

What is reasonably big? Any artist with half a brain would put that entire cheque into other investments.

* Tax brackets haven't been adjusted in decades, so when people begin making modest amounts of money, say $50-100,000 per year, their taxes increase too fast and they don't feel wealthier. I would suggest keeping the bracket shapes but shifting them to the right by at least 2x to account for inflation. This amounts to a tax cut for the poor and keeping taxes roughly the same for the rich (the opposite of what's been done since 1980). Then we should (obviously) gradually raise taxes over 5-10 years to match the deficit.

* Interest rates are too low because politicians don't want to put the brakes on the economy. The flip side is that they have no way to press the accelerator when the economy tanks. The end result being exaggerated booms and busts, exactly as we have seen in 2000/2001 and 2008 (which means that we're overdue for a bust with current Fed interest rate policy).

* Corporations can be based in the US but act as foreign multinationals by hiding their taxes. Fixing this is trivial but depends on getting money out of politics. See: Citizens United, campaign finance reform and publicly funded elections.

The above are econ 101. My personal thoughts on this are that rents, houses and cars cost an order of magnitude too much for what they provide. We spend an order of magnitude too much on the military. We don't build enough or reward makers enough because the financial sector of the economy is twice as big as it used to be and we're obsessed with 40 hour weeks instead of progress or quality of life. I'm 41 and have never seen any of these things change in my lifetime, so am expecting a major downturn in the economy sometime in the next 2-5 years, followed by a series of knee-jerk populist reactions that ensure a repeat 10 years later (downturns are where the wealthy make more money, as they have the capital to buy up assets).

3Q08, peak housing debt: $10 trillion.

2Q18, housing debt: $9.5 trillion.

That's with ten years of inflation, and housing being worth a lot more today than it was at the real estate bubble peak. Which is another way of saying, the US housing stock has dramatically more equity today than it did ten years ago.

In 3Q08 the median sale price of a house was $226,000. Today it's $309,000. People aren't very interested in selling or flipping, there's a dearth of inventory in most of the country, and people continue to build equity and pay down their mortgage debts.

Next, let's examine household debt service payments as a percentage of disposable income. An important sustainability metric for any normal household.

4Q07: 13.2%, the highest level on record. It was typically around 11% in the 1995-2000 economic boom. In the 1980s it peaked at 12% in 1987.

2Q18: 9.8%, the lowest level in the last 40 years. That is, the percentage of household disposable income going to debt service payments, is at a ~40 year low. By comparison, the lowest level in the 1990s, was right after the early 90s recession in 1993, at 10.3%. So US household debt service costs are hitting record lows, during a boom phase, which is extremely unusual (consumers are still quite skittish about debt thanks to the great recession).

Household debt to disposable income levels are at 16 year lows. Back to where it was in 2003. That rate has been relatively stable for the last four years, showing no signs of consumer household stress. The consumer comfort index by Bloomberg is indicating that consumers are as comfortable as they've been in two decades (several other consumer comfort surveys say the same thing).

Next let's look at mortgage delinquencies, a critical metric for housing sustainability and a key indicator of the last housing crash. From the Fed's 2Q18 report:

"Mortgage delinquencies continued to improve, with 1.1% of mortgage balances 90 or more days delinquent in 2018Q2."

That peaked at 5% in early 2010, roughly. That rate has been improving basically non-stop since 2010. It's not back to the 1990s lows, however it's back to the mid 1980s and early 2000s normal levels. Another year or two of improvement and it'll be back to properly healthy levels matching the mid 1990s.

Balances on home equity lines of credit (HELOC) have been declining for a decade. Consumers typically tap into that when they're in desperate condition, and the very low rates of the last ~8 years were a prime opportunity to do so.

Next let's look at credit cards, given how common they are among consumers and that they're one of the first things consumers begin defaulting on.

The percent of credit card balances 90+ days late, peaked in 2Q10, at around 13.7%. That's now at 7.9%. That has remained low and stable for the last four years, and is comparable to the rates seen 15-20 years ago before the housing bubble years (and is below the 2002-2005 years). Consumers are showing no sign of stress when it comes to credit cards.

Student loans are the worst debt stress point among consumers (those with student loans that is). The percentage of student loans 90+ days late, is at 10.9% today, it peaked at 11.7% and 11.8% in 2012/2013. That compares to ~6.5% to ~7.5% in the 2003-2006 years before the great recession. The rate has remained unchanged for six years, indicating it's still elevated and remains a serious problem, and isn't worsening.

This is an honest question, I’m not tying to be critical.

I couldn’t figure it out from the amazon description.

The question is, is GDP growth always going to trend upward, or will it trend downward at some point in the future. If the former, the bull market (with some crashes) can continue. If the latter, then nope. The stock market isn't the economy, but it certainly is a distorted reflection of the economy.

Look at the factors of production:

* land: not building any more of it (except the Chinese in the South China Sea :) ). Unless space travel becomes economical, then there's a ton of "land" available in terms of satellite habitats, the moon, etc.

* labor: human population looking to peak in 2050 last I checked. Not sure how climate change will affect this (could be a strong negative in 100 years).

* capital: lots and lots of capital and more efficient ways for it to move around the world.

* energy: fracking + renewables have changed the game and the west is far more able to control their energy supply than in the past (see "The Absent Superpower")

* intangibles (ideas, patents, etc). Lots of room to run here. The internet + youtube + google has made the cost of distribution close to zero. This means that new ideas (both inane, like dance fads, and useful, like new ways to organize teams) can spread far more quickly than in the past. (see "Capitalism without Capital")

I'm voting yes, the bull market will continue indefinitely. I'm long the human race :) .