Hacker News Reader

Comment by ryanSrich | Hacker News Reader

To me there's nothing really surprising here. Prices in SF are down just 5%. The pandemic is a massive negative economic event. You would think it would impact markets like SF much stronger (50%+ drops in value considering the insanely high prices), but that just goes to show how in demand living there is. I also don't see any companies leaving, so why would residents leave? Just because of remote work? I don't buy it.

Additionally, it seems there's some underlying mechanism sustaining the economy from completely collapsing. Whether it's just a factor of time, or something else I don't understand. But the stock market is sustaining, and the housing market seems to be even improving in certain areas.

The bottom has to fall out from under this thing at some point, but who knows when. Impossible to tell.

View on HN

Right now assets valuations are sustained at least partly because the wealthy still have wealth to inveset and There Is No Alternative(TINA).

If you don't buy stocks, bonds or real-estate, the only other option is to hold cash. Holding very large amounts of cash can be inconvenient for various reasons. Gold is often proposed as an alternative, but it's value is already quite high, and it's an inflation hedge, while recessions tend to be deflationary.

The fact that the majority of US taxpayers got a big check, and are expected to get a second one soon is also a boost to the economy. However, mortgage delinquencies more than doubled this past quarter, so we are getting close to the point where foreclosures will happen, which will lower the prices of real-estate.

Gold investors (like myself) assume that The Fed can only stimulate further in order to stave off deflation...but (crucially) with no hope of raising rates later, even in the face of the inevitable resulting inflation.

A rise in rates would simply crater everyone who has come along with The Fed so far - virtually all consumers and corporations holding high levels of debt. In such an environment of obvious inflation and Fed paralysis, gold could go much, much higher.

The Fed is paralyzed in both directions though. They can't really lower the rates much either. Obviously the fact that you hold a lot of gold and I hold little gold tells a lot about which direction we think is going to matter, at least in the medium term.

How do you invest in gold?

I don't know how GP does, but if you don't trust certificates:

https://www.jmbullion.com/kilo-pamp-suisse-gold-cast-bar/

It's still sort of hard for me to believe after all the growing inequality how much things have truly bifurcated in the past 6 months. A huge chunk of the country is broke, and their extra unemployment money and govt bonus checks are going to those that already own lots of assets (e.g. landlords, mortgage holders, Amazon, etc.) while people with stable jobs that hold assets are essentially getting richer.

I just don't see how this ends well, for the economy or society.

I really fear we're getting close to a breaking point. The absurdity of a market hitting all-time highs while unemployment figures are in the tens of millions isn't lost on the broke and the unemployed.

The value of hard assets like real estate has to be tied to the money supply to some extent.

I can understand that CPI inflation is not directly tied to money printing, partly because both the velocity of money and the demand for consumption items are dropping right now, but simple accounting would dictate that this money still end up somewhere. I can only see it bidding up hard assets, again because TINA, and because money tends to flow upward rather than trickle down if left to itself.

The Fed is working quite hard to make sure this isn't deflationary.

It's hard for many people to leave. They already built a life and probably like it in SF. But that's not the key factor. The key factor is how many new people will move in to SF in the next few years. That's a number that would be highly impacted by remote work. I don't know anything about SF but I assume it's a nice place to live. The weather is not bad, there are great universities in the area, etc. Hence it's likely that we won't see any huge drop in demand. But we're likely to see some drop in the next few years. In all major tech hubs.

I think it's worth acknowledging the mental lag involved in falling home prices. If you are selling a house in SF, you're not going to sell for 50% below what the market was in Feb, six months into this crisis. Ever. It doesn't matter what the buyer thinks the fair price is -- that house is going to stay on the market for a while.

Even a 5% drop is 50k or 100k at current prices. That HURTS to admit. Expecting someone to sell a house at -30% is crazy, if they have any hope of a market recovery. It will drop 5% at a time, as inventory piles up, and sellers a year into selling realize -- maybe they're not actually going to sell that house at the price they expect.

Or hey, maybe none of this will happen, and the market will rebound by January. Who knows.

This is assuming the seller can maintain the carrying costs of the house, an assumption that is currently holding true.

Which is a reason for downward-sticky moments to end in a capitulation: psychological denial prevents early sale, liquidity crunch and insolvancy necessitates a later one. Even non-distressed asset classes can be swept up in the quest for liquidity, an observation of J.K. Galbraith's in The Great Crash: 1929.

The few who can't are those who sell for 5%, supply and demand, price drops make the supply drop. Those who can afford carrying costs seems to be selling but in practice are not because they won't accept any offers.

Reply on news.ycombinator.com