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Comment by hitpointdrew | Hacker News Reader

> “I’m not sure what will trigger a sustained sell-off in stocks, but surging [virus] infections and another round of more business closures will be difficult for investors to ignore much longer.”

An alternative place to put investments will trigger it. When your options are savings accounts paying 0.25% interest, and treasury notes paying nothing, and CD's being garbage, what are your alternatives for investing? If interest rates were 5%+ on savings/CDS's/Treasury notes then you would see a bunch of money move from stocks to these other safer more stable investments. But the safety/stability doesn't mean shit if the return is near 0.

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I think you are absolutely correct and the reason that the stock market is being so weird is quite simply "what else are we doing to do with that money?"

The solution for individuals: cash, gold, options, etc, aren't viable solutions for institutional investors.

Imagine that you're in charge of a $1 billion fund, what are you going to do? You can't put that into gold, cash or treasury notes. But all sectors are affected by this so you can't simply rebalance your portfolio. You can't go out and buy an obscene amount of call options because those would still way too risky at the institutional level.

For me this is why the stock market right now is deeply troubling. Not because "the elite's are out of touch", I know quite a few people in finance, people managing these billion dollar portfolios and they also have no clue what's going on. None of these people are delusional about what's going on, they just don't know what to do.

What's troubling is that this detachment from reality seems to be based on the fact that the entire financial system is effected and there's no way for it to react in a sane way anymore.

I don't claim to have any clue as to how this will play out, but when this reality bubble bursts it's going to be a very extreme event.

Today was one of the few times I saw "social unrest" mentioned in this context. I suspect that will happen a lot more over the next few years.

The markets are a wobbling shitpile of unpayable debt just waiting to collapse. That was already true before Covid, but Covid has nailed the coffin shut while the corpse is still alive.

I wouldn't be surprised if the Fed is knowingly goosing the twitching body because the alternative is one of the biggest financial explosions in history. More free speculation vouchers at least buy a little time before the music stops, the bomb goes off, and we all run out of metaphors.

Totally serious- this is one of my favorite comments on HN ever. I don't completely agree but I love the way you said what you said.

Fed will continue printing until Boomers die off... there is a lot of wealth locked up in 401k that needs to be disbursed.

This block votes and they vote often and if their little pennies are threatened, they will vote people out.

Edit: If you think these market rises are anything other than a way for the rich to rinse their money before the market bombs, I have a bridge to sell you, it's very pretty.

Imagine referring to an entire generations' life savings as "their little pennies."

Only half of those over 55 have any retirement savings [1], the other half have no retirement pennies to speak of.

While not great for online discussion, I can understand where the sentiment comes (the evidence is clear older generations strip mined the country economically [and continue to do so], pulled the ladder up behind them, and then are shocked when younger citizens are resentful).

[1] https://www.gao.gov/assets/680/670153.pdf

I don't know, maybe I am out of touch but almost all boomers I know are extremely well off, they started as scientists or other typical professional occupations and now own assets in the millions, basically housing in California and other areas. Prop 13 has helped them(their prop. taxes do not go up) as well as dirt cheap college costs when they went to college. Housing was rather cheap as well considering salaries, I remember my Dad looking at houses in Palo Alto in the mid 90's and they were in the 300's(they are now 3-4M). I feel like gen X and Millennials are really getting the short end of the stick when it comes to alot of essential life costs. Sure economists say inflation is not happening but I think the formula to look into inflation is incorrect as Housing/Medical/College has skyrocketed where a gallon of milk and bread has not jumped in cost.

The boomers you know (white collar professionals in the Bay Area apparently) are not a representative sample of the entire population. The group you mentioned has done well in every generation in modern times.

Some are, some are not. They are all friends parents and some family, a few others are blue collar business owners or workers. One striking example is a friend who's Dad(in the construction business) owns multiple properties and his son(late 30's) rents. They are doing the exact same job and it shows how skewed things are based on 30-40 years ago(his Dad owned a house at his age).

A "blue collar" business owner with multiple properties isn't really a great example either. I'm not arguing against your thesis that the boomer generation overall basically extracted resources from future generations (and their parents who lived through the depression and at least 1 world war), I'm just saying that there are lots of individual boomers who didn't have lucrative careers or happen to own property in the right places, and you don't seem to know any of those people (which is fine of course).

I expect housing to get a lot cheaper when the boomers actually need to wring some liquidity out of the real estate they've been holding (hoarding) to pay for elder care.

Even if they do something like barter free housing for live-in care instead of selling, you expect a big effect on the rental market and a corresponding effect on the value of investment properties.

I think this’ll be governed by how quickly their health declines, how easy it is to borrow against their equity (and the bank liquidating the property after they’ve passed), and how aggressive local jurisdictions are with clawing at assets to pay for long term care (Medicaid, five year look back). The can keeps getting kicked.

> I expect housing to get a lot cheaper when the boomers actually need to wring some liquidity out of the real estate they've been holding (hoarding) to pay for elder care.

Boomers are between 56 and 74, a lot of them already have either liquidated real estate holdings by downsizing even if not explicitly for care, or passed it on, whether inter vivos or by inheritance (because quite a lot of them have died, and you can't take it with you.)

Edit: Disregard the below because I can't do math. But leaving it for context given the response.

Boomers by definition are going to be in their late 70's at the absolute youngest.

You're talking about their children, who have comparatively little (and is coincidentally why a lot of people hate the Boomer generation).

Baby boomers were born between 1946 and 1964. They're currently between 56-76 years old (roughly 76 million in U.S.). Anything older than that is the “silent generation“ (born 1928 to 1945).

https://en.wikipedia.org/wiki/Baby_boomers

https://en.wikipedia.org/wiki/Silent_Generation

sigh

Apparently date math is hard. You're 100% right.

Please accept my reply as it was intended: informative, not snarky or combative.

When the 1% own the majority of the market and use it to control the other 99% into making them richer, what would you call that?

> That was already true before Covid

I think there's a lot of people who don't remember or realize this. And it bothers me that having conversations now takes so much effort to address that particular part of the context: "they were having econ troubles before covid was on the radar"

An alternative to a meltdown is what's been happening since 2008- the poor start killing themselves and maybe they vote for the wrong guy, but the trend doesn't stop. Given that the market says 30% of the workers don't really matter (and remember, that's people participating in the labor market, which is at a historic low IIRC), maybe they just ignored. They can cause some level of social unrest, but the rich are mobile, and the factories are pretty automated. What we'll see soon is more private security and automated security.

Don't forget that the FED works closely with the WH, so it's in everyone's interest in that administration to keep the music going until the election.

Some sectors are hard-hit by Covid but others are not. Furniture sales, Grocery, Tech, Entertainment are all doing quite well.

Debt is also not necessarily the time-bomb that everyone thinks it is. Debt is tied closely to the overall money supply, and world productivity has been increasing as has population. World debt is about 69 trillion with a population of 7.8 billion. That's under $9k USD per person.

I've been saying this for a while. There is simply a surplus of "forced buyers" for investments, so the price and yield has gone down and down, and there's no real reason why it can't be negative. The only next point is warehousing physical cash, which itself isn't cheap or liquid.

Individuals presented with this crisis could realise the problem, the disastrous future it implies, and turn to philanthropy. Institutions largely can't, and foreign oligarchs won't.

The US model of funding retirements is subsidizing (via tax breaks/structures) the middle class to buy into inflation beating assets (only stocks meet this really) or underfunding pensions that need to also beat inflation by buying into equities. There truly is “no alternative” to stocks and, to a lesser extent, real estate. These are the only two major asset classes which can provide sufficient returns to support a middle class or above lifestyle for a very large class of people who do not work or intend to not work in the near future.

Is part of the issue that there is just too much money has been printed and hoarded and its creating some weird effects?

The government has been printing money for a long time, to stimulate the economy, provide spending money, etc. Due to 80/20 rule, rich get richer effects, etc, a large portion of money the government prints ends up in the hands of a relatively small group who doesn't spend it but rather tries to invest it to get more money. Government prints money again trying to stimulate the economy and again most of it ends up in a few hands. At some point don't you have what we have today? A 1% that owns lots of wealth and doesn't know where to put it while the majority of the economy is still relatively broke? How does it play out? Do the 1% just buy all the assets at some point?

I am not trying to make a statement about inequality but rather curious about the result of printing money for 70 years and having that money end up with relatively few parties each round. Perhaps someone with more knowledge can speak to this.

It's not just "rich get richer". It's also that everybody bought into the "just buy the market" idea hook line and sinker. Pension funds, individual investors, everybody.

How retirement works on paper: you save the money by buying the market and get 20% more when you retire in 40 years. How retirement works in reality: younger people work to supply the old with food and medical care. The real transfer is happening now, while the financial transfer is happening over decades. I don't think this creates a healthy, sustainable dynamic.

> 20% more

Where did this number come from? At 4% compounding over 40 years, you will have at least 130% again over what you put in.

The issue is two-fold - assuming that all the money comes at beginning, and forgetting about inflation, and not taking into account the shift in risk towards the later ten years, and assuming that your income stays the same. When taking into account the increase in income both absolute and in real terms after necessary expenses, you realize that a lot more than the majority of the money is invested in the latter 25 years.

But yes, it would be more than 20%, though a lot less than 130%.

"The average annual total return and compound annual growth rate of the S&P 500 index, including dividends, since inception in 1926 has been approximately 9.8%, or 6% after inflation" [0]. If you have a 40 year career, money you put in at the start would approximately be worth 10 times what you put in adjusting for inflation, and even money you put in midway would approximately be worth triple.

[0]: https://en.wikipedia.org/wiki/S%26P_500_Index

No, I came to my conclusion by putting away $100 every month for 40 years. $48000 is put in, $114000 is present at the end with a (historically unprecedented low) 4% overall return. Exactly the same amount of money is put away in the last 25 years as in the first 25 years.

The shift in risk should be accompanied by changes to the portfolio mix, of course.

But it's not how people save. The average person has too many expenses and not enough income at age 22 to save up as at age 45. And in those later years, the returns diminish.

Sure, if you have sufficient income to be able to save up enough for retirement just as soon as you get a job, that works. But that's not the reality for the average person. Most people don't get a high-paying job straight out of school.

I am not sure what you are arguing. Someone said that retirement works “on paper”, and you get 20% more. I pointed out that “on paper” you get more than double what you put in.

All of these other issues you raise have nothing to do with the financial illiteracy leading to the idea that you save for retirement just to get an incremental return rather than a multiple (or two, really, depending on timing) of what you put in. Perhaps if this were more well known, people would invest more at age 22.

tl;dr we’re talking about “on paper” here, investment works as advertised (In fact, much much better than the original poster believes it advertised). All of the things you bring up here are about scenarios that aren’t “on paper” any more.

The Conservative Party in Great Britain has been trying to make home ownership a reliable method of saving for the last century. They pretty much succeeded: house prices have been going up almost constantly since the war, and owning a house all but guarantees you'll be able to built generational wealth.

This came at high costs: once a large enough part of the population buys houses at inflated prices with the expectation of their price further increasing, the government needs to protect them from housing crashes and depreciation to inflate the bubble further and further.

Now that pretty much everyone has their money invested in the stock market, I see the same thing happening in the US. The Fed needs to keep the interest rate artificially low and guarantee policies to keep the stock market up so that people don't lose money, but also making sociery overall worse.

Central banks keep interest rate low not because of the stock market.

People focus too much on stocks. The real question is about the real economy, about price stability and unemployment. Especially in case of the Fed ( https://www.chicagofed.org/research/dual-mandate/dual-mandat... , but of course other central banks are also tracking labor markets too, even if de jure it's not their target - https://ideas.repec.org/p/fip/fedbsp/70.html ).

And we can say whatever we like about how the rich get richer, our current economic system do responds to what central banks do. Cheap money (an oversupply of low and even lower interest rate debt) helps persuade people to buy/invest/order things. It helps finance stimulus bills, and so on.

The savings are "just" an indicator. Sure, when the savings crash, the economy crashes too, but the causality is backwards. If/when the economy crashes (when industries stop, when people stop buying, when businesses let people go) savings will also become "worthless", because after all they represent future income, and if the economy tanks its productivity (income) tanks too.

Is there any serious idea about how a fair pension scheme could/should work without just buying the market? (So in some countries the pension system is just mandated by law, managed by the government. And might be even "guaranteed by law" to track inflation. But in this case it's again exactly the same, your purchasing power of your pension income depends on the strength of the country's economy - which depends on the global market.)

Well, as I expand in the second paragraph above - the ONLY real pension scheme is having kids, and more kids. Everything else is just an obfuscation and/or securitization of this basic fact. If you don't want to work, someone else has to. And if we (jointly as a society) decide that "old" people are more deserving to not work, then, well, we need to make & have enough non-old people.

That's why to some degree I think asset-hoarding (S&P, real estate, cashflow-positive businesses etc.) is a good idea and actually my preferred plan, because I fundamentally don't trust the governments (they're all delusional with their long-term plans re: pension obligations, education, family planning & birth rates, immigration, ...), but at the same time I'm aware of the fact that while this strategy works individually (i.e. if I own more property, I'm better off than the next retiree), it doesn't quite work for the whole society. Pension as a social transfer really is the only way to go.

Printing money has recently shown to have little impact on inflation. This is likely due in part to lack of consumer spending (can't inflate prices if nobody is buying it anyway) as well as spreading the USD across billions of people in dozens of interconnected economies that base off the dollar.

The recent $5 trillion injection from the Fed (buying bad debt/assets) and Treasury (stimulus/PPP) may simply show that we could afford universal healthcare and a bunch of other programs that cost $$$. Now is the time to spend that money and, at least it appears, avoid some long term costs. I'd argue the benefits of things like expanding education, investing in mental and physical health, and doing more to support our youth will have a much greater return than potential long term inflation or other issues from the $5 trillion.

I commented more on this last week here: https://news.ycombinator.com/item?id=23778819

Printing money has not had much impact on consumer prices. But it seems very plausible that it is causing inflation of asset prices, including equities, and that that is a distortion of the market that could have negative long-run repercussions.

People are chasing gains. TSLA has at a chance of succeeding at either autonomy or cheap energy storage. If that plays out it could be a 500B company in 8 years. Why not get in now with a hope of a 6% annual return?

If you're looking at which company is most likely to achieve a breakthrough in battery tech, Tesla isn't where you should be looking.

This seems likely to me, lots and lots of money injected and consumer prices are stable yet art, real estate in desirable urban locations, equities, and some categories of luxury goods/experiences are soaring. Am I wrong?

Yes and no. You're right about what happened in the aftermath of 2008, though it took a while to get there. You're wrong (so far) about what's happening in 2020. Currently, the market (or at least the Dow) is down about 10% from its high.

This is the most important and often under-looked thing in this whole thread. This will further lead to wealth gaps and difficulty for working people to "get ahead".

I think we're long past the days when working people were trying to "get ahead" and they are now just trying not to fall too far behind.

And that is on top of the mismanagement of PPP funds after the IG over that was fired and replaced with a loyalist. We are only starting to see where billion of tax dollars went including a large chunk to churches and millions to Kanye West and campaign donors/supporters. If one has an issue with looting by protestors, they really need to look at the looting by the wealthy. Not just PPP loan abuse but also historically low tax rates and a pass for environmental abuse too.

This is an inherent problem with need-based things -- they are ripe for abuse. If you have universal things, the abuse is part of the design ;) IOW: if instead of PPP being only for certain kinds of companies or institutions it were all of them then a) there is far less to administer b) they get more support and c) you dont have moralistic temptations or arguments. UBI vs SSI, universal healthcare vs medicare, etc etc.

Yes, this means wealthy people will get the same checks as the poor -- but that is a feature, not a bug. Sorry for the soapbox.

There was oversight for PPP, but the president fired the IG over the program and replaced them with a loyalist right before the fund went live. The administration then refused to provide data on who got loans until sued. Now we know that the Sec of Transportation and husband Mitch McConnell, the new USPS head who appears to be trying to crush mail in voting internally, and many other government officials received loans for millions. If one was to condemn protesting due to looting, imaging the response to misappropriating billions in tax dollars to corporations, supporters, and corrupt officials.

Exactly this. The FED and the ECB have been printing money like crazy for years, however this money did not go to the man in the street but to banks and indirectly to other financial institutions. And those don't spend their money in the grocery store but in the stock market.

The classic economical laws are not broken, they are still in full effect and we see their effect in the inflated share prices.

Meh, most of what they are buying is just our own governments debt [0]. Now, you can certainly argue investors are buying more equities now that there aren't as many treasury securities to buy, but equity returns aren't even abnormal from historical returns. Inflation adjusted Annualized S&P 500 Returns with Dividends Reinvested for the past 15 years are 6.738% versus 7.690% for the 15 years before that [1].

[0]: https://www.federalreserve.gov/releases/h41/current/h41.htm

[1]: https://dqydj.com/sp-500-return-calculator/

You're comparing one of the strongest economic expansions in US history (1991-2001, brief, small recession, then 2001-2007, stopping at 2005 of course) to a period bookended by two of the worst recessions in US history (2007, 2020). It should be concerning that equity returns don't differ very much. That means they aren't correlated with the underlying economy.

The great recessions was definitely one of the worst, but it was followed by the longest bull run in the history of the united states and it is way to early to claim this crisis as being one of the worst recessions in US history.

It doesn't "go" to financial institutions, it goes through them. (Of course they make a "healthy" profit. Though it's arguably too much, if this many banks can survive: https://www.statista.com/statistics/184536/number-of-fdic-in... )

So who is buying equity (so stocks)? And one argument is, that "retail investors" are driving this. (So end users, the folks on the WallStreetBets subreddit, and whoever uses RobinHood, or anyone that puts money into a passive index fund: https://www.reddit.com/r/econmonitor/comments/hnohi6/us_equi... )

Also savings increased a lot, since people were not spending (they were staying at home), so where to put the money? They put it into index funds.

This. For years now everyone has been saying "where is the (consumer price) inflation"? Meanwhile real estate prices are rising fast (in desirable parts of the country) and the stock market has been on an epic bull run. It's obvious that the inflation is in the asset prices.

This is a dangerous trend. The rich (who tend to own those assets) get richer and and the poor (who rent/live paycheck to paycheck) get more and more desperate. If we don't find a way to reduce the inequality, this is going to mean serious trouble down the line.

> Meanwhile real estate prices are rising fast (in desirable parts of the country)

Mainly just the west coast and that's because their cities are built in valleys with a fixed amount of land, restrictive zoning on said land causing a fixed amount of housing and thus the bidding up housing prices.

For the rest of the country, inflation adjusted price per square foot hasn't really changed [0].

> the stock market has been on an epic bull run. It's obvious that the inflation is in the asset prices.

Inflation adjusted Annualized S&P 500 Returns with Dividends Reinvested for the past 15 years are 6.738% versus 7.690% for the 15 years before that [1]. Albeit, if you just started in 2009, it has been quite epic considering it was the longest bull run in US history.

[0]: https://www.supermoney.com/inflation-adjusted-home-prices/

[1]: https://dqydj.com/sp-500-return-calculator/

> inflation is in the asset prices. The rich… get richer

Numbers rising don’t equal values rising, the definition of inflation. It benefits borrowers as well.

Piketty tried to analyze this, and the idea is to have a minimal wealth tax. (I have no idea what's the current best evaluation/assessment of his work and this idea, but Land Value Tax is something many economists already favor, and it'd help decouple the pain of growing cities from housing as an investment.)

So similarly there is probably some sense in trying to counteract low-interest-rate inflated asset bubbles via some kind of tax or other financial structure. (A progressive capital gains tax might help, but that might just make markets less efficient by introducing a chilling effect on the high end.)

In the end this is a purely political question, because obviously the problem is not that it's unfair that some very "desirable" assets price inflates, but that the majority of the population did not have the means to buy into it before the inflation happened to reap the capital gains.

There's already serious trouble due to inequality. (The recent protests about police brutality follow a long series of other symptoms that highlight how socioeconomic inequality manifests and persists on an ethnic level.)

For the record, I support this view. CPI inflation does not track with individual financial assets/tools or specific costs like education.

Printing money to get through a recession vs printing money as the primary way of funding government programs are wildly different things. The mere suggestion that U.S. officials were serious about running a deficit of a large percentage of GDP could send people fleeing U.S. dollar denominated assets, and thanks to the exchange rate effects cause a spike in inflation before the programs even started.

The thing that makes a green piece of cloth valuable is the powerful government and the massive reserve bank behind it. If a dollar bill starts to look like an IOU from an entity that has no capacity to pay, it will be valued as such.

We haven't even rolled back the quantitive easing from the last recession. These financial rescues are now becoming permanent fixtures on our balance sheets. At least with health care, we would have something to show for these massive injections of money. Instead we just get inflated asset prices and growing wealth inequality.

Why is it a problem that they are still on the balance sheets? The instruments that have maturity will eventually vanish on their own, and the Fed can sell off the rest later.

It's better to do QE than "wait out" a recession, or wait for Congress. (Plus QE keeps the national debt service costs down too.)

The asset bubbles are not the real signs of inequality. After all, if every US citizen would have some savings and some of that in passive index funds, no one would complain about this. The problem is that people have no money, no disposable income, no savings, no job security, etc.

I think the comment above is suggesting that, either instead of or alongside, current Fed cash injections and distributions by the Treasury we need to push for and implement programs that leverage us out of the QE cycle. A universal healthcare system, student loan forgiveness and free or reduced cost education, a basic income over complex safety net benefits, that sort of thing. As it stands, QE is preventing a massive crash but it's not a long term solution.

I'm all for universal and single-payer healthcare, education reform, basic income (negative income tax is the best version of UBI), and so on.

But still, QE might be here to stay. It's hard to stay, I know very-very little about these things. (Even compared to - let's say - healthcare costs [see https://randomcriticalanalysis.com/ ].)

Have they been printing money? Has more USD been created, physically or virtually? This is something I don't understand, I'm hoping someone here can explain it.

I was under the impression the last 40 years of US deficit spending has been mostly financed by selling US bonds to China, Japan, etc., while counting on growth and inflation to take the edge off when they come due. And selling more bonds instead of defaulting, so the debt just keeps growing. Printing money causes inflation but not deficits or lingering debt.

I don't know though, I'm not an expert. I would appreciate any corrections or clarifications from anyone.

At a large scale, the question "what is money" actually gets pretty complicated. This may help:

https://www.khanacademy.org/economics-finance-domain/ap-macr...

Look up Quantitative Easing, since 2008

Yes--see https://www.investopedia.com/ask/answers/082515/who-decides-... under "How the Fed Creates Money With QE":

"The Fed can indeed create money "out of thin air." To be more precise, it does so with keystrokes on a computer. This was illustrated with its QE program, also known as open market operations. That's when the Fed buys an asset from a financial institution and pays for it with money it simply creates."

and i know this is technically fully legal. but conceptually, it seems like fraud. I mean, they're just creating money at will and buying up assets. if anyone else did that, they'd be in jail.

The Fed is playing off the same dynamics as fractional reserve banking. This has been the standard form of banking for ~2-3k years, and allows a bank operating in its own currency (Bank Notes) to create arbitrary amounts of money. This is the same process by which loans are generated.

https://en.wikipedia.org/wiki/Fractional-reserve_banking

It is wealth transfer from the people to the government; the Romans did it, until their economy collapsed from the strain of perpetual warfare and government spending [1]

[1] https://en.wikipedia.org/wiki/Roman_currency#Debasement

Most of those assets they are buying are just our own government's debt and the profits they make from it (100 billion dollars in 2015 for example) go right back to our government reducing our budget deficit. I don't understand why people get so upset about this especially considering basically every country is doing this.

but it's not anyone else, it's the central bank of the USA, as mandated by Congress.

they provide price stability (by keeping the money supply corresponding to the demand) and they try to maximize employment (by helping the economy through providing liquidity, every central bank is the "lender of last resort" but that's for emergencies, usually they operate simply by providing forward guidance and conducting open market operations to keep the interbank interest rate close to the target rate).

don't think of them like just a bank, it's more like the Mint, combined with an expert panel that tries to smooth out the fluctuations of the economy ( https://en.wikipedia.org/wiki/Real_business-cycle_theory )

Also, as long as they don't try to get clever - like the Bank of Japan did with strategic loans ("window guidance" back in the 80s).

Generally lowering the interest rate causes inflation only if the economy is already at capacity.

Printing money to keep up with economic growth is also an important function of central banks.

Deficit spending is ultimately simply financed by paying off the debt in the future via taxes. (And the growing economy and the stable but low inflation helps with this.)

> "what else are we doing to do with that money?"

TINA

Care to define TINA?

There Is No Alternative

Real Estate

Not a great choice in the era of COVID -- no one is renting or getting AirBnBs.

And who knows what will happen to that market once stimulus checks run out and lots of jobless people start getting evicted.

And then you need to worry about taxes, maintenance, and, if you want to be a landlord, all of those rule & regs.

Or you just drop it in QQQ and try not to think about it too much.

Expensive apts are still filling in our expensive neighborhood in LA. From $2500-4000 a month.

You might look back on this 5 years from now as the ideal time to buy real estate.

"There is no alternative", as noted. Associated with Mad Mags:

https://en.wikipedia.org/wiki/There_is_no_alternative

I think you are massively incorrect. Equities right now are at a pretty massive discount to future value. If anything I think the coronavirus effect on the economy has just demonstrated that economic growth is fundamentally not impacted much by around 1/3 of all jobs. The labor product and consumption activity of that 33.3% just doesn’t matter.

The implications of this seem mostly sociological to me. Is that a good state of affairs for the world? Could we use those people more productively?

The implications are not about the current stock market.

Amazon and Microsoft are pretty damn likely to keep growing in value for 10+ more years regardless of any coronavirus situation. That’s an amazing / dumbfounding situation. But it still would imply a rational longterm investors sees those stocks as being attractively priced right now.

> Equities right now are at a pretty massive discount to future value.

Using what metric?

Production is changing the state of the matter, by transforming, aggregating or displacing said matter.

I can tell you that if you shut down 1/3 of the machine, you will see a 1/3 drop GDP.

> the coronavirus effect on the economy has just demonstrated that economic growth is fundamentally not impacted much by around 1/3 of all jobs. The labor product and consumption activity of that 33.3% just doesn’t matter.

If you're right about that we're into revolution territory. If COVID reveals that we've built an economy that not only doesn't care, but doesn't even register the existence of 1/3 of the population, the body politic may have had a poison dose.

This trope gets repeated over and over but it just makes no sense. Volatility is risk. What rational investor says "interest rates are too low, I MUST deploy my capital into a market that is seeing wild 30% gyrations from month to month instead of parking it safely while this global crisis plays out."

An investor who fears missing out on 30% gains.

Kendall found that prices followed a random walk model, i.e., past stock prices have no bearing on future prices.

I wonder if a BTFD strategy would still work

Then you concur that the market is being driven by FOMO and not low interest rates?

If you have a mandate to generate returns (institutional, pension funds), you have no choice but to participate. You can't sit in cash forever as returns race towards zero [1]. You may flail and fail looking for that Alpha (perhaps even making wild private equity bets), but that's what you're getting paid to suss out as an investment manager. “As long as the music is playing, you’ve got to get up and dance.”

For equities heavy strategies, there is even an acronym to describe this: TINA ("There Is No Alternative") [2]

[1] https://www.visualcapitalist.com/700-year-decline-of-interes...

[2] https://www.investopedia.com/terms/t/tina-there-no-alternati... ("On the other hand, if bonds offer low yields. and illiquid assets such as private equity or real estate are also unattractive, investors may hold stocks despite their concerns rather than revert to cash. If enough participants are of the same mind, the market can experience a "Tina Effect," rising gradually despite an apparent lack of drivers since there are no other options for capital increase.")

A very large percentage of the market is required to achieve a certain return. Think insurance companies. Giant pension plans. Etc. They have all been forced further and further out the risk curve over the past decade due to low interest rates.

I wonder how long those pension plans may make their obligations if they start paying short term obligations with their long term principals. I could see something from them triggering a correction.

The current model of having a very large fund that needs to show to an actuary that it's "fully funded" is relatively new. Defined benefit pensions existed for quite a while before "fully funded" pension funds, using a pay-as-you-go system, and could probably survive indefinitely that way if designed right.

> Defined benefit pensions existed for quite a while before "fully funded" pension funds, using a pay-as-you-go system, and could probably survive indefinitely that way if designed right.

The PBGC was created because this isn't the case. The issues with Social Security are another example of how pay as you go isn't completely sustainable.

The PBGC is an insurance system. Of course, pension plans haven't always been able to pay out, but the fact that an insurance system exists for them doesn't make them any more of a failure than a savings account backed by FDIC.

And what issues with social security do you mean? The program has taken in more than it's paid out since '83.

Yes, and the PBGC exists because so many of the pay as you go pensions went under.

Also, social security has required many changes that decrease benefits over the years to remain solvent, such as increasing the expected retirement age.

Everything is being forced further out on the risk curve. Everything.

This also explains wacky basketcase unicorns like WeWork, perpetually unprofitable companies raising round after round, the continued existence of the cryptocurrency world in spite of it being like 90%+ scams, real estate going up in cities where >25% of people are behind on their mortgages, etc. There's no "alpha" anywhere. Money is chasing its tail.

All this QE is just going to give us is more asset bubbles. The financial economy is completely detaching from the real economy and becoming a pure fantasy LARP for the rich and of course governments.

My guess is when the financial economy goes bust and those dollars start chasing real economy assets all the inflation we were assured wouldn't happen due to all the money printing will happen all at once.

People act like the big short guys were geniuses to see this trend come out of nowhere. I was a teenager asking questions like "How can housing prices rise nationally at a multiple of wage increases for any sustained period of time?" and was short down by the "smart money" on forums not unlike this one.

Once you allow for the fall in interest rates over the past decades, the house price rise looks less surprising. However, there's a weird corollary: what happens when rates go negative?

US will not allow interest rates to go negative.

Will we have a choice? The Fed has tremendous influence over the economy in the short-medium term, but over long time horizons they are actually at the mercy of it.

Is that enshrined in law or something?

Relevant read: How Zero-Interest-Rate Policy explains the world

https://themargins.substack.com/p/zirp-explains-the-world

Pension funds aren't required to achieve a certain return. If returns over a long period are below the assumed rate, then the employer simply needs to increase contributions. This is less than ideal but not a requirement in any reasonable sense.

>If returns over a long period are below the assumed rate, then the employer simply needs to increase contributions.

It's seductive to type out the word "simply" to describe a proposed solution but that doesn't mean it's simple in reality. (My previous comment about supposedly "simple" fixes: https://news.ycombinator.com/item?id=16698821)

E.g. The employer (the state government) that pays into pension funds for teachers won't simply pay more. The taxpayers aren't sympathetic to raising taxes on themselves to pay for fully funded pensions (even if the pension is underfunded) when they perceive the teachers already getting better benefits than they do. A lot of citizen taxpayers who are not teachers also suffer from underfunded pensions themselves!

This doesn't at all address the core point I'm making: that pension funds are not required to achieve a given rate of return in any meaningful sense.

But sure, I agree that there are other ways to handle the situation if the fund doesn't achieve its assumed rate of return. There are other options than increasing employer contributions.

>This doesn't at all address the core point I'm making: that pension funds are not required to achieve a given rate of return in any meaningful sense.

You're being uncharitable in reading gp's (erentz) word "required". No, there isn't a statute or law that says the pension fund must get 8% returns or the pension administrators go to jail. Nobody is saying that.

Here's how to interpret the word "required" in a more reasonable manner...

Using Illinois Teachers Pension as an example: the pension fund manages ~$50 billion but they still have a ~$70 billion shortfall.[1] The CIO (Chief Investment Officer) is currently Stan Rupnik. His salary is ~$400k per year and he's responsible for investing the pension fund in a way that balances max returns with safety. If he just sits back and folds his arms in a defiant manner exclaiming, "hey, the pension fund is not _required_ to achieve a given rate of return so I'm just going to invest all $50 billion in T-Bills which returns a negligible 0.19% yada yada yada" ... he's not going to keep his job.

That's what a meaningful interpretation of "required" is for the context of this discussion.

[1] https://www.chicagobusiness.com/finance-banking/teachers-pen...

You’re right. As jascode suggests I think you took a stricter definition of “required” than I intended. We have pension plans buying private equity which should never happen. We have had them selling volatility because they’re desperate to find yield, which should never happen. Etc. When I say required I mean that for whatever management reasons they decide they must continue to target the same returns, and due to the artificially low interest rates they’ve been required to go into riskier assets to find them.

Pension managers, and probably all fund managers, make stupid decisions all the time. I suspect especially so in cases where they have to be seen to be actively managing things to justify their salaries.

I don't think it has anything to do with the fact that there's an assumed long-term 8% return. Fund managers in situations where no such assumed returns exist make the same bad decisions all the time too.

And the people making those decisions get paid on commission, so of course they want returns, not "safe parking".

> instead of parking it safely while this global crisis plays out

Because interest rates will never go back up, or if they do, they will be counterbalanced by inflation. This is the view of Ray Dalio at Bridgewater and (presumably) many other very smart people. I'm not that smart, but I agree.

Thus, cash and cash obligations are no longer stores of wealth. Equities are, unfortunately. High volatility is just the price you pay. Equity prices are honestly not that high if this scenario plays out.

Forgive me if I say this sounds awfully like the "new paradigm" / "this time it's different!" phase of a bubble.

But it is different this time. Productivity growth is slowing [1], people are aging rapidly (in the US, baby boomers are retiring at a pace of 10,000 people per day, 5,000 of them die per day) [2], and secular stagnation is taking hold in most first world countries [3]. Sort of strange to expect today or the next 50 years to look like the last 50 years.

[1] https://scholar.princeton.edu/sites/default/files/ernestliu/...

[2] https://research.stlouisfed.org/publications/economic-synops...

[3] https://web.archive.org/web/20200629061702/https://larrysumm...

Yeesh, sounds like Japan in the 90's!

Japan is a time machine, showing us the future of all developed countries as their population ages. No country is immune once their total fertility rate drops below replacement rate for a sustained period of time.

Your comment is the equivalent of a defendant in a criminal trial saying, "I'm not guilty," and then prosecutor saying, "Forgive me, but this sounds awfully like what the last guy said, and he murdered his wife!"

In other words, we have to actually look at the evidence.

Dalio's point is specifically "this time looks just like all the others" but unfortunately his "this time" is referring to something much bigger and scarier than yours.

https://www.linkedin.com/pulse/big-cycles-over-last-500-year...

It's a well established economic term: financial repression.

Understate inflation so real rates are negative, then your savings either dwindle or you give in to the pressure to take more risk.

If the expected NPV of the riskier investment is much larger than the non-risky one, a "rational investor" would of course take it. That's literally what the words mean.

In a high volatility market, the NPV might range from -10% to +20%.

Month over month volatility is a poor reason to put money there. Long term average growth is a good reason. Over the 10-20 year periods in the last century, what widely available asset classes perform better?

If you invested into the German stock market in 1914, it would have taken over 100 years to get your money back.

The America of the past 100 years has been quite exceptional. Using its history to predict the future is not a good idea, IMO.

Let that be a lesson: do not spend all your money at once. Buy chunks of stocks (etfs) periodically.

Im sure the result would be much better then.

Are you sure about the German stock market? I've googled and found this https://commons.m.wikimedia.org/wiki/File:CDAX-Kursindex.png

You've always got to consider inflation over the long term, and in this case there is a well known hyperinflation period during the Weimar days. (I don't know about the GP statistic but this graph is clearly not meaningful)

If your currency is going to undergo hyperinflation, aren't equity or physical goods exactly where you want to keep your money?

I suspect the parent's statement might be accurate if you invested with another currency.

The problem (or uncertainty) is that both the US and Germany left the gold-backed systems during those years and the exchange rate between our currencies changed quite a bit during the 1914-1924 period (which is probably why your parent chose that year).

If you notice your image's description, it is denominated in 3 different currencies, depending on the years you are looking at.

You're thinking about your personal investments, not someone managing a large investment firm or hedge fund. This simple fixes for your personal investments would be seen as absolutely insane in the professional investment world. You can't just tell your clients "oh I put $100 Billion into some nearly 0% interest investments because I think the market is crazy", especially if the DJIA is having record months. Even the people managing your 401k are expected have a steady read of return and react slowly and calmly.

Isn't some form of this what the Taleb-advised Universa fund is doing?

https://www.bloomberg.com/news/articles/2020-04-08/taleb-adv...

Holy shit. 41x! I'm in the wrong world. Even though I'm in the overpaid-programmer-industrial-complex, in an expensive west coast town with an expensive million dollar house and expensive taxes, I can't imagine what it would take to get into evil and profitable investment vehicles like these hedge funds. I just have no exposure to that world.

I'm curious - why do you call the hedge fund world evil? I hear this quite often but where does it come from?

I've worked in both a hedge fund and in tech, and I found the former to be less evil and pretentious. People in finance think and say "I want to make a ton of money" while people in tech say "I want to save the world" while thinking "I want to make a ton of money" - resulting in misaligned incentives and imposter syndrome everywhere.

today i learned that (for some people) 'impostor syndrome` is a heuristic for cognitive dissonance.

> I hear this quite often but where does it come from?

A part of it might be stereotypes and depictions in pop-culture. The drama Billions shows hedge funds getting their consistent edge from insider info. Not sure how true that is but for people outside the industry that doesn't come off as a good look.

> while people in tech say "I want to save the world" while thinking "I want to make a ton of money"

Citation needed. The number of people in "tech" who say that is remarkably low -- in my experience in Silicon Valley: zero.

Far more often, I hear employees who are driven by "the mission" of the company/product. I work on a newer generation cybersecurity product because the ones that exist in the space have terrible usability and probably aren't very accurate/comprehensive/ergonomic. I'm not "saving the world", but I am making marginal improvements in a high impact space.

Personally I haven't the foggiest idea of what a Hedge Fund actually is. I've seen The Big Short, Margin Call, Barbarians at the Gate and I don't find myself sympathetic with any of those characters (except the Ben Rickert[1] in The Big Short, but only because he saw how terrible the industry was and got out years before the story takes place).

[1] https://www.bustle.com/articles/128208-what-does-the-real-be...

Whereas a monetary system is an essential aspect of modern civilization many people see major players in our specific system obviously working against the interests of the rest of civilization instead of simply enabling it. It's obvious that not everyone is equally bad or equally culpable but its obvious that there is also an institutional lack of what most people think of as ethics.

Take for example the creation of a market to manipulate the price of commodities most notably wheat.

https://foreignpolicy.com/2011/04/27/how-goldman-sachs-creat...

Sachs is most likely mostly responsible for millions perhaps hundreds of millions of people going hungry and yet a response to outlawing this kind of manipulation provokes this response.

>I asked a handful of wheat brokers what would happen if the U.S. government simply outlawed long–only trading in food commodities for investment banks. Their reaction: laughter. One phone call to a bona-fide hedger like Cargill or Archer Daniels Midland and one secret swap of assets, and a bank’s stake in the futures market is indistinguishable from that of an international wheat buyer. What if the government outlawed all long-only derivative products, I asked? Once again, laughter. Problem solved with another phone call, this time to a trading office in London or Hong Kong; the new food derivative markets have reached supranational proportions, beyond the reach of sovereign law.

This is Bond villain proportions of villainy. We could of course continue in the same vein touching on Banks laundering money for cartels, the housing market collapse, and on and on and on.

Other people answered you well, but I could sum it up as financialization doesn't help society. It puts up barriers to free trade, monopolizes businesses, adds rentier like barriers to society. A great financial system also makes it easier to get a loan, invest in things, get credit. For wealthy or fortunate people like most programmers this is all great. For poorer people it adds to the tax or drudgery and difficulty of having a good life and affording it.

Then way are institutions buying negative rate bonds?

Which institutions? Some institutions are forced to keep a certain amount of money in bonds, not their fault the yields are negative.

"As long as the music is playing, you’ve got to get up and dance."

--Charles Prince, Citigroup CEO, 2007

Have you talked to the people who use Robinhood? This is exactly how many of them think but in less sophisticated terms.

/r/wallstreetbets for anyone looking

> instead of parking it safely while this global crisis plays out.

parking isn't safe. Parking is guaranteed to lose 20-30% because of the newly printed money and the resulting asset prices rise across the board. Yes, some assets may experience the swings during that money tsunami, yet on average across the board the assets would still rise 20-30% - ie. the amount of the newly printed money.

Economy and market didn't part ways. The stock market is just like speedometer that got "upgraded" from mph to kmh - the number is higher while the car and the speed are still the same.

The problem is that cash is also quite risky right now. The money supply expanded by about 80% in the past few months. Stocks are more sensitive to economic conditions but less sensitive to inflation.

> But the safety/stability doesn't mean shit if the return is near 0.

Hmmm.... One of the things you mentioned though could drop in an instant.

A return of negative is worse than 0.

I suspect many are sitting on cash, waiting for the other shoe to drop (or, you know, the market).

> I suspect many are sitting on cash, waiting for the other shoe to drop (or, you know, the market).

Well, MOST people can't afford an unexpected $500 bill, so most people aren't sitting on cash. Nevertheless, I don't agree that most of the people who can afford an unexpected $500 bill are sitting on large cash sum either either. Personally I have 2/3 in the market, and 1/3 cash (for liquid assets, I also have equity in my home but I am not counting that).

I'm out of the stock market waiting for the other shoe to drop. I've been all-cash since early Feb just watching this FOMO rally from the sidelines.

I'm not average for an American (consumer or investor), but people like me exist.

Good luck to you... I have always heeded the advice of just holding through any downturns, so far that advice has served me well.

Given the retail drive of this rally, bills coming due could have a similar effect.

This is the most sane thing anyone can say.

At some point there is going to be a critical mass of people not paying their mortgage, not paying rent, not paying loans, not paying credit cards...and simply no money and unemployment.

I think this week we will begin to see some acknowledgement of the realities because July 15 is the new tax return date, and I think there will be millions and millions of American's who just say F it, I am not filing/paying taxes.

Then again it also wouldn't surprise me if 10s of millions end up homeless before the end of the year while politicians keep parading around unemployment numbers and the stock market record highs, while these people get swept under the rug and never actually acknowledged.

$600 federal unemployment top up ends July 31st. PPP and other paycheck guarantee program layoff moratoriums end at the end of September. I expect carnage in October. United Airlines has already stated they are targeting ~36k job cuts in October when they're permitted to [1] [2], I presume other airlines and businesses will follow.

[1] https://www.usatoday.com/story/travel/airline-news/2020/07/0...

[2] https://www.flightglobal.com/strategy/layoffs-expected-when-...

Short of a massive coordinated effort to shut down COVID spread and a herculean effort by Congress, I agree with your assessment.

About 20% of renters and homeowners in the USA are worried about evictions/foreclosures in the next 6 months[1] and that number only goes down if the economy makes massive improvements or if Congress stops playing brinksmanship.

[1] https://www.apartmentlist.com/research/july-housing-payments

I would bet they all will be renewed at least till the election.

What prevents government from paying their bills, rent and loans forever? Warren Buffett said that US gov can never go bankrupt because it owns the printing press.

The USD is the reserve currency of the world. The US maintains this status quo through a combination of soft and hard power: stir the pot a little and ambassadors tut-tut. Stir a bit more and your politicians have their US bank accounts frozen. Stir too hard and the USS Gerald R. Ford sails up off your coast and asks you to reconsider democracy. I'd be surprised if this status quo is challenged by another country for years.

What I think is far more interesting is what happens internally: the US is a powder keg of economic and racial inequality and our leaders are either throwing lit matches at it or gently disapproving of those doing the throwing. If COVID cases and deaths keep increasing I can't see how we continue without structural changes.

Doesn't work against China and Russia ... doesn't really work even against Venezuela.

Oh, don't get me wrong: long term the petroeuro is coming – unless it gets upstaged by the petroyuan. With luck it doesn't come with too many bodies.

> Warren Buffett said that US gov can never go bankrupt because it owns the printing press.

Hyperinflation is one way to throw more fuel on the dire that is American society right now. And Trump said the quiet part out loud during his campaign[1] that we don't have to repay the whole debt (normally something that the most powerful people in a country don't say in public).

Neither of these ideas works in practice without significant tradeoffs. The US dollar only keeps its value because people around the world have faith it is worth something. A spike in inflation or a debt default would have investors scramble to move their assets elsewhere.

[1] https://www.npr.org/2016/05/09/477350889/donald-trumps-messy...

The printers have already gone brrrr:

https://www.federalreserve.gov/monetarypolicy/bst_recenttren...

The only reason store-brand sliced white bread isn't $10 right now is that money only went to investors and businesses.

Without a doubt, the coming wave of evictions and foreclosures is going to pop the bubble. Once the tent cities (maybe we should call them "Trump hotels") start springing up in every metro area around the US, I think the market will finally lose this steam. The US is headed for a dire economic situation. At that point, the only thing that can save us is an effective vaccine that confers long lasting immunity. Anything less means total economic annihilation.

> ... start springing up ...

What do you mean 'start'?

The homeless camp right next to the new Apple spaceship just got a bathroom installed:

https://www.mercurynews.com/2020/06/03/after-months-of-compl...

This stuff has been going on for a few years now.

I mean, large scale tent encampments. Right now, you have relatively small encampments in some metro areas. I expect to see tens of thousands of people living in tent cities in every major metro area by October.

Why? Eviction processes in most cities take months, and if the 2008 crisis is any indication, even _then_ they'll be slow to leave. Just logistically, how do you physically evict tens of thousands of people in every major metro area in that short a period of time?

I'm not downplaying the seriousness of what's happening, as the economic impact will be catastrophic. But physically evicting large percentages of a population with no sudden increase in demand for those properties, seems like an unlikely outcome.

Lawful evictions take time, yes, but as the system becomes overwhelmed desperate landlords are going to take matters into their own hands. Cops, strained by lots of other problems just wont have the time or resources to respond to all the calls of people who had the locks changed on them illegally.

Sure, but who is renting the property after that? In your scenario, the answer is, noone, which significantly incentivizes at least _some_ of the landlords to negotiate with tenants, instead of mass eviction. Some income is better in the short-run than no-income, particularly for small property owners.

They might well turn to speculators willing to buy out the property even at less than current price. If you own a 250k property and haven't been paid the rent you expect for months 50%-75% on the dollar so you can pay your own expenses might look attractive.

Interesting question. In theory everyone could drag it into court but most states don't provide much protection from being evicted if you can't pay your rent so such moves are merely delaying actions. The property owning class loves to share horror stories about tenants that took months to get out but renters have remarkably few protections in reality due to an imbalance of money.

Homeowners will probably find a way to catch up before losing their rear but renters could trivially find themselves in very quick perfunctory hearings where they are quickly told to put up or get out. Many with relatives with a spare couch or even a spare floor to sleep on might see the writing on the wall and get out before they are humiliated by being put out. If most evictions are carried out without a trial or hearing of any variety simply with a note on the door the courts will be able to keep up with the few that contest.

We're definitely there already.

At least on the west coast, in each major city, we have thousands of people living in tents, if not tens of thousands. Seattle has over 10k now officially (and speaking with food bank workers 20 years ago, they said it was that number then, when times were less shit). Los Angeles per their recent count has over 40k.

https://www.lahsa.org/news?article=726-2020-greater-los-ange...

So what, out of fear to earn too little interest (0.25%), risk to lose 50% of your investment? +0.25% looks better than -50% to me. Don't see a rational logic here. Though humans have been shown to be irrational, especially in a group.

But then why did the stock market perform so badly for so long during 2008?

My guess: the economic problem had an uncertain path to resolution. A pandemic is different. We are waiting for a vaccine; once that is available, it’s game on. I’m not saying this is the truth; however, it is a plausible way to think that investors are viewing the future.

Herd immunity may not work either. Today there's this article about people getting it twice and other viruses have already been known to let you get infected twice. https://www.vox.com/2020/7/12/21321653/getting-covid-19-twic...

> He was unable to get an antibody test after his first infection

It is entirely possible the first infection was a false positive.

There's more than one example of possible reinfection linked in the article.

>Ditchek said he encountered a second reinfected patient on Wednesday from the same family. This patient had accumulated so many antibodies from his previous COVID-19 infection that he was able to donate plasma to other coronavirus patients two times.

"He'd been negative for seven weeks and sure enough was re-exposed," Ditchek said, and diagnosed positive for COVID-19 this week.

https://dailyvoice.com/new-jersey/monmouth/news/central-jers...

While it is clear that some patients have had a positive test after an initial negative test - and even a recurrence of symptoms months after the initial symptoms - it is unclear whether the positive test and/or recurrence of symptoms is from the same virus recrudescing or from a new infection.

On This Week in Virology recently, they said that it would be invaluable to sequence the virus the first time around and the second time around (in patients who recrudesce) to see whether the two infections were caused by the same virus (in genetic terms), or from a new infection by a genetically different virus.

Either way, it's bad if immunity only lasts a few months, for obvious reasons.

For a while after 2008, people weren't sure there could ever be a full recovery. To pick one issue, Lehman Brothers went from healthy to dead in basically a few months, and nobody had a good reason why this couldn't happen to any large financial institution. Maybe the risk was unavoidable, and everyone will just have to make investment decisions knowing that the financial system is at constant risk of falling over.

Confidence in this area was restored when the Federal Reserve started doing what are called "stress tests" under the Dodd-Frank Act, where large financial institutions have to prove that even if things turn bad they won't collapse.

Wall Street is looking where everyone should - at the deaths. And deaths have been going down since mid-April. It's just that recently (about a month ago) we've massively ramped up testing throughput. We're on track to become the most tested large country in the world in a few weeks. And the "lagging deaths" have so far failed to materialize.

Interesting - in the barrage of recent pessimism about the US's covid response, I was unaware of its high testing numbers. Nice to have a little good news.

https://coronavirus.jhu.edu/testing/international-comparison

We're just seeing the death curve go up. If its not > 1000 a day in a week then the fatality rate is much much lower than expected

Death counts are important, but only part of the story.

Hospitalizations are still extremely problematic because there is permanent health harm. There is also a massive cost to being in the hospital for an American. COVID hospitalizations seem to take between 1-3+ weeks, which costs more than the net worth of the average American.

Also, the economic impact is severe and has yet to fully show itself. Lots of employees are still "employed" but indefinitely furloughed. They will show up as unemployed when their company finally falls into bankruptcy or takes decisive headcount steps. In September, the PPP strings for employment expire and there will be an employment rate cliff unless Congress acts. 20% of Americans are behind on their rent/mortgage and are worried about an eviction/foreclosure in the next 6 months. This is both bad for the obvious reason and because a consumer-driven economy shrinks quickly when consumers are more judicious about spending.

We still don't understand why deaths per case are dropping yet. Until we know the variables (perhaps the weakest already died off, perhaps the colder weather amplified the worst symptoms, etc) I don't think it's safe to assume the death rate will be monotonically decreasing.

The market is reacting to the fact that half of people in the country don't bother wearing masks in the grocery store anymore, and that disneyworld is open. The market thinks everything will turn out okay.

My bet is we see deaths and disabilities skyrocket through the end of the year.

> My bet is we see deaths and disabilities skyrocket through the end of the year

That'd be a pretty bad bet as far as bets go. Look at the trends that are _not_ affected by increased testing.

Will know within a week. It’s absolutely true that more testing means more mild cases, but hospitalization rates are going up and up and up - also not at a catastrophic rate, yet.

The deaths coming back up in the last 2 weeks, so far consistent with 1 month lag.

If you are right and that’s what Wall Streets is looking up to, they are in for the big surprise in the next two weeks.

100%, this is also driving capital into the private equity markets (of which VC is a subset that is very relevant to Hacker News readers). Startup funding has remained exceptionally robust, especially for companies with traction at the later stages. All of that capital lost at sea, looking for a port in the storm.

For individual investors, bonds are looking good right now, though.

* US TIPS are up about 7.5% YTD

* Aggregate bond funds (BND, SCHZ, etc.) are up 6-7%

* Intermediate-term bond funds (IEF, etc.) up > 11%

Meanwhile, the S&P 500 is at 6% YTD.

Bonds are sensitive to interest rates, but it seems nobody is expecting those to change this year.

Noob here, but doesn't this comment assume stock markets and investments outside the US do not exist?

Surely large investment funds aren't entirely in on US stocks alone and are diversified. So isn't one option to just move some money elsewhere? i.e out of the US market - to a place(s) deemed more stable or with better upside.

You can, but that exposes you to currency risk because if you live in the US, you will almost certainly want your money converted back into USD when you want sell your investment to spend it but currency exchange rates changes over time.

Which place is that?

and when you take into account the enormous potential for inflation the "saftey" of bank accounts is completely undermined.

The market is acting rationally. You have no choice but to go all in on the market or inflation protected assets or risk loosing everything to inflation in the coming decade.

I'm no gold bug, but turn some of your cash into gold.

I go back and forth on gold a lot. I keep a very small amount of my money in gold, but I’m literally thinking “if things really get down to it, I can trade this for food”

But that type of mental exercise does not work well for many people. Especially imagining a system where our fiat currency is effectively useless.

Expecting that you'll be able to trade gold for food is assuming that the state after the collapse will fall into a very narrow band of "collapsed enough that the financial system is gone" and "not so collapsed that the food supply is gone." You might even call it... the Goldilocks zone. ;)

And for that matter, assumes you will be able to find safe places to trade gold for anything. Unless we go back to a gold-rush style economy where there are scales all over the place you can trade gold by the gram, the smallest tradeable gold will be coins which are worth $1600+ each. Try taking that to the local grocery store.

Half Sovereigns are ~$300

https://www.atsbullion.com/gold-half-sovereign-coins/

Also many people who "invest" in physical bullion also invest in things like silver. A 1 oz silver eagle is basically a $20 bill. Gold can be traded down to silver if the economy is in that state.

There's also 1/10 ounce coins and other things.

>the smallest tradeable gold will be coins which are worth $1600+ each

Not really accurate, you can get rounds down to 1/10 oz which are worth ~$200. In any case the USD value of a gold coin in a collapse situation is obviously irrelevant. If fiat really does collapse barter is obviously going to be the default way to trade goods and gold could easily be used as it was in the past.

I guess total collapse is something I don’t particularly worry about, since I won’t be here to worry.

I think partial collapse is more likely scenario (of the two).

I would assume a Venezuela-like collapse would be what you're thinking? Would gold help much in that case? (Honestly don't know, probably depends if the person you're trying to trade the gold to believes it will be easy for them to trade the gold to someone else when the time comes)

Can't really speak for Venezuela but lets say if currently 1 oz of gold is as valuable as a Macbook worth ~$1800 and in a hyperinflation event a Macbook costs $200,000,000 perhaps 1 oz of gold could be worth a Macbook? You would then just trade your coin for $200,000,000 and buy the Macbook. Obviously a massively simplified scenario. Perhaps there are sources out there on how people have dealt with hyperinflation?

Why wouldn't you plan for that? The only plan you'd need for the total collapse situation is to have a revolver to eat a lead sandwich with.

You don’t need a complete meltdown to profit off of gold. You just need a little pandemic and some inflation to see a spike. The trick with gold is to rebalance it when it spikes. It’s not a very good “buy and hold forever” asset class.

In a meltdown you're not looking for a profit. At least, not traditionally. You're looking to have more-than-zero.

If things have gone to shit so badly that people are trading food for gold, I hope you bought guns too because very unfair people are going to be coming for your gold.

I honestly don’t know of anyone who owns physical gold who doesn’t also own a firearm for personal defense.

I mean, in world where you’re trying to trade gold for food gold is a “fiat” currency as well. It has no intrinsic value and if we’re struggling to get food and water I’m not going to want to accept anything for my food except strict bartering.

If you’re buying gold for the end of the world you’d be better off buying cigarettes and tiny bottles of booze.

Shotgun shells and cans of beans

Not sure that makes sense? Gold's value was typically based on scarcity and it's multi-millennial status as a thing of value? Why else would much of the world have based their currency on gold itself?

Gold isn't a "fiat" currency. It's a commodity that acts as a store of value. A fiat is paper which is asserted to have a specific value (likely unenforceable in a post-apocalyptic world). A commodity has a value because that's what the market will bear.

Gold does have intrinsic value. It's used for electronics plating and for jewelry. Other precious metals can augment gold as commodities, each having different intrinsic values. An example of a metal which might have no intrinsic value in a post-apocalyptic world is platinum or palladium, which are primarily used as catalysts for emissions equipment on cars (no refined petrol => no driving => no need for platinum/palladium).

I think the statement about cigarettes and booze is correct (as well as toilet paper and ammo), except they have different lifespans and durabilities. Also, consumables will get more rare as time goes on (like dollar bills that erode, tear, burn, or are lost), whereas precious metals may keep in-tact.

Would a post-apocalyptic world really care about electrical conductors and crafting new jewelry, though? It feels like everyone is making assumptions about what people would want in such a world.

I'll be the first to admit that it's a contrived model because 95% of people would perish quickly if we lost all energy and food supply chain. But if anyone survives, soon after hoarding the immediate needs (air, water, food, security, shelter) will eventually convert to specialized jobs, which is when bartering is less useful than a standardized currency.

But the idea that gold doesn't have some sort of special status is strange to me. People don't talk about doorknobs or topaz when they diversify from financial products (stocks, bonds, cash, etc). Cryptocurrency fails to be useful if there is no reliable electrical grid or network. Gold has for long recent history (until about WW1) backed almost all currencies, so it has significant precedence.

And jewelry is useless to me, but most people carry some form of jewelry and some cultures even store lots of gold in jewelry in case they need to run/escape. It's not useless to have a store of value shaped to fit your body.

Even the tiniest gold coin costs over $200. For bartering, silver, Mountain House, and ammunition make much more sense to hoard.

Probably a mistake to assume the USD value of something is relevant in a collapse situation. As you said ammo could end up being far more valuable that it currently is. Similarly Gold's utility as a way to transfer value could make it much more "valuable" in that situation.

$80 for a 1 gram coin

https://www.apmex.com/product/201564/2020-1-gram-gold-maple-...

Do you have an idea just how tiny 1 gram of gold is? It really isn't practical for bartering.

Yep, tiny, diameter is 8mm

It has a diameter of 8mm and a thickness of "yes". It's incredibly fragile, too. Doesn't make for a good bartering coin.

In the Argentinian collapse, many preppers found their gold coins useless to trade. No one would give them anything close to fair value for it because no black market seller was able to assay it to verify that it's real gold. Junk gold like jewelry is what really moved, and preppers switched to hoarding rings and necklaces and whatnot.

Interesting insight. I always thought gold/silver coins would be more useful than jewelry.

I mean, how can you verify if a ring or necklace is actual gold, but not be able to verify a coin?

I guess using the age-old method of density perhaps? do you know what did process to exchange jewelry looked like?

I think it's more that a ring or necklace is more easily scratch tested for hardness, harder to counterfeit, and less valuable individually. If I show up with a gold krugerrand (1oz, approx. $1,800 at today's prices), expecting to get that value or even half, you're not going to give me that value without somehow testing it. A basic density test involves both scales and beaker with water for volume--who's going to carry that around in the black market where others are trading things at DVD scale prices? If I have a bunch of gold and silver wedding bands in a ziploc, though, they're the equivalent of loose change and the risk calculation is different, especially since gold jewelry is almost as common pre-collapse cash.

The lesson I took is that a pure gold economy depends upon a level of infrastructure that just isn't present in economic collapse conditions. At best you're holding something that will retain value after things become normal again.

Makes sense.

I guess this is one of those things that sound good 'on paper' , but after deeper analysis it's not so straight forward.

Like others said, it's probably easier to trade toilet paper, cans of food or cigarettes than ounces of gold.

The main prepper whose account I read had a great post-mortem on his first prep effort, that basically went "lots of chocolate and DVDs and other small luxury items". Gold jewelry wasn't even the thing he was investing in to exploit the black market: a massive DVD collection was. Accessible luxuries like a movie you haven't seen are gold in those conditions. People can sock away 100 kilos of rice, but after six month's eating only that, they'll kill their own children for a bit of chocolate.

One of the threads I read maybe a decade ago about Argentina’s financial collapse at the time, was that in hind sight they’d wished they’d bought gold and made adulterated rings out of it. There was a lot of bartering, and most gold jewelry was trading under the assuption it was the most common karet (14?) by weight, and having some rings at a slightly lesser amount (or even the same) would have been way easier than trying to trade pure gold.

I don’t have a sense for how bad things need to get before making your own rings becomes a viable hedge, but I don’t think the US is quite there yet.

If things really get that bad (and I don't think they will) you could probably trade ammunition for food as well. It also lasts a very long time (when stored properly) and arguably has more of an intrinsic use than gold.

There's a significant resale overhead to gold. Who's to say it's not tungsten somewhere in the middle? Are you going to microprobe the whole thing in the post-apocalyptic hellscape?

It is actually very hard to get real gold (especially in a form that you can convert back to cash in the future). Just try to get delivery of a gold bullion. And if you succeed, try selling it into the system again, without losing 30%.

Paper gold is a bet no different than a stock; it is a bet that the system and your counterparty will both be solvent when you need them.

And that seems to imply that it is a valid alternative, maybe not for large hedge funds but individual investors.

(Assuming you refer to paper gold) It’s a viable investment, just as stocks are. But not a financial-system-crash proof store of value, which is what the GGP meant, I think, when he recommended getting gold.

I own physical gold, not a lot. Here are some reasons I bought it:

a) It's a store of wealth. I don't expect to be able to go buy groceries with it, however I do expect to be able to cash it in for fiat post-depression if I need to.

b) I can move it abroad easily enough if I need to. I have immediate access to it.

c) It's cool.

It has also doubled in value since I bought it.

I am old enough to remeber the chaos in the silver market a few years ago, where it went to $50 per ounce and then crashed in two or three days. I'm not one of those morons.

Not that I'm advising anyone to get them, but what would be the counterparty risk with gold ETFs? You don't believe their guarantees that they are backed up with actual gold? eg: https://etf.invesco.com/gb/private/en/product/invesco-physic...

Personally, I don’t. The audits are few and far between, and I haven’t followed it closely, but there were several instances in time where the (gold ETF + physical future commitments + whatever else they counted) required more gold than was known to have been mined and not used in industry.

What this means is that, at moment in time, if the music stopped, someone would be left without gold - though with the distributed nature of everything, it’s hard to say who.

Fake bars are routinely discovered in storage, collateral, etc, see e.g. https://www.nasdaq.com/articles/chinas-kingold-shares-tank-o... for the most recent high profile (but by no means unique) example.

Even if they have the actual gold, they have the actual gold. If they decide not to give it to you, there needs to be enough of a functioning court system to remedy that; and even then it may take time - just because you have a legitimate claim to that gold doesn't mean a court can easily decide that you're the only one with a legitimate claim to that gold.

Even with a functional court system you can lose it with the stroke of a pen[0]. Physical gold however would require more effort to take from you.

[0]https://en.wikipedia.org/wiki/Executive_Order_6102

That's true, and it's a risk. I am unclear on whether it should be technically considered "counterparty risk", although it plays out similarly.

>Just try to get delivery of a gold bullion

It's fairly trivial to get lots of gold just above spot price. https://www.apmex.com/product/75/10-oz-gold-bar-brand-name

>And if you succeed, try selling it into the system again, without losing 30%.

In the scenario where the markets are collapsing and you need to sell gold for cash it's possible or even likely that it could be worth more than what you bought it for and even if not the discount rate you accept for selling it back may be worth it either way. If the market dropped 50-80% and you are only taking a 30% loss on gold that's clearly worth taking.

It's incredibly easy to buy gold. I just started dabbling in that area but it's dead simple.

I doubt this will change though while governments are on their spending spree. AT this point you might even lose money putting money into government bonds.

With inflation, the return is not near 0, it's negative.

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