What’s Driving the Stock, Bond and Housing Markets?
awealthofcommonsense.com
awealthofcommonsense.com
Low and negative interest rates make stocks and real estate more attractive than bonds and housing loans cheaper increasing demand for homes.
This new phenomenon with FAANG and tech stocks that don’t require capital to grow, so their high (albeit reasonable) valuations weigh on the market and market sentiment.
Now add in pandemic stimulus. Remember moral hazard from the Great Recession? Now firms are doubly confident of bailouts when things go south.
It’s wishful thinking to think it’s permanent or even long term. Jerome Powell is already talking about raising rates. We’ve had low rates for the past decade. I’m a bull, but who knows when rates will rise. the market is dynamic and to think anything is permanent or predictable is wrong-headed.
It’s always good to have some cash if and when there’s a major correction.
Facebook lobbied intensely for TikTok to be banned, which went nowhere, and its discounted threat price was $55b, which went nowhere, and also, Facebook could not afford to buy them at their real price. Attention is zero sum, and the big tech cos will eventually need capital, maybe even next year, to make the acquisitions they have been putting off.
That’s not an option either.
And, perhaps more immediately, without paying abhorrent interests on public debt?
In practice rates will be raised but but carefully enough that we still end up with 0% real interest.
The article is very good at explaining the basic fact. Prices depend on demand. It does not matter how bad the product is, or how useless it is. If demand increases, price increases accordingly.
The stock market is a "market" and behaves as such. Something that should be obvious, but we miss some times in our arguments.
> But if you’ve been yelling at people for years and years about fundamentals you’ve missed the fact that a tidal wave of money and demand for assets has trumped every historical metric in the book.
Of course, this makes sense and I already knew this. But what I'm looking for are articles or blog posts or reports on where we're headed in the next few years. I know that nobody can predict the future, and I know that there will be a time of reckoning for the excesses of the present. But some hints on what exactly to watch out for as triggers to some sort of snowballing crash would be useful...even if the unwinding takes a long time. I'd be grateful for any reading recommendations.
https://tradingeconomics.com/united-states/households-debt-t...
But I wonder if it is still a good measure as much of that new GDP is flowing to the 1%.
You'll have to factor in interest rates for that comparison. 60% of household debt at 5% interest is much worse than 80% of household debt at 2% interest.
I am very far away from any kind of expert in this matter, but it seems to me people would be better off long term by investing their money into their own business. The lure of not doing anything and watching your pile in stocks grow is strong, but it can't really work long term for everyone. Eventually people need to produce something of value.
Nothing is like land. You can just let it sit and make money borrowing against it. You can work on it yourself to improve (this has an extremely high $/hr rate.) Everyone has to go somewhere and zoning means "somewhere" is usually not clumped together which means demand for land.
Long term we definitely need to figure something out. Maybe better zoning, maybe LVT. Short term you want real estate if you can afford it.
Land, specifically individual land ownership on a non REIT scale, is a notable asset class for a variety of reasons, but diversifying investments is still a good idea in my opinion. It is not impossible or even very unlikely that the specific piece of land one owns to stagnate or even decline in price for a long period of time.
You might as well use a magic 8 ball.
Money is a unit of account and therefore costless to produce, which means it has no intrinsic value. The value comes when you attach it to something. So in a competitive market the cost of a mortgage is the amortised cost of evaluating the quality of the borrower and their income stream, and is the price of preparing the mortgage, which is a financial derivative asset of a house giving the right to stop the owner selling it without permission.
Every interest rate cycle ends with the interest rate peak lower than the previous one, because it rapidly sends the economy into recession when you try to raise interest rates. This is because the belief about how interest rates work doesn't match the reality of how interest rates work.
People aren't spending all they earn, which means all asset classes rise in price relative to the indifference level of holding money vs paying off loans and paying taxes.
Japan is the canary in the mine and everybody seems to want to believe Japan is somehow 'special'. It isn't.
It's a natural result of the reality of banking. Loans create deposits. The cheaper the loan, the more loans are created, the more people downstream from the borrower earn and the more they can save. But those people that earn and save aren't the ones with the loans. And since those who are saving are not spending, the ones with the loans can't earn more to pay off their loans.
The result is a long slow credit expansion that interest rate changes cannot halt. And up goes the indifference price of incoming paying assets.
this is good, because this means productivity is growing, and is outpacing the person's consumption. This allows investments in future productivity to be made - aka, progress.
Asset prices reflect this progress.
It means others cannot earn an income, therefore they cannot demand output, therefore it is not produced therefore there is no job for them.
Aggregate demand = Aggregate Supply, and there is no such thing as a 'market for loanable funds' because saving is just the accounting record of investment. A historic record, nothing more.
Once you start at loans as the starting point and follow the geometric progression of spending and earning you find that saving reduces transaction numbers.
Emphasis on allows. If nobody is consuming the output of your investments then those investments won't happen. We expect people to provide their time to society through work. Consumerism is just the realization that for every person that provides their time, there must be someone who wants that time. The answer is to create meaningful ways for humans to spend/provide time for money.
surely people will still need to consume. But all future improvements require that one doesn't consume all production today.
Investment can drive the economy, creating more efficient production, or more production (of different things), and therefore, grow the pie size.
There is a lot to disagree with in this article, but is the above factual? My understanding is that although equities, real estate, real assets, etc are up, bonds have fallen significantly out of favor due to low rates and rate risk (bond prices will fall if interest rates go up, as new issues will be more attractive to buyers).
> So they keep buying houses."
What, until they find the right one or something? Picky! I'll just take one please.