Ask HN: How likely are we to see a financial crash this year? | Hacker News Reader

Ask HN: How likely are we to see a financial crash this year?

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Inflation out of control, cost of living crisis, energy crisis, house prices are in a bubble(?), war in Europe that shows no signs of ending anytime soon.

I read an article* that speaks of a Bretton Woods 3 like event, and Biden himself mentioned the beginning of a "new world order" (again).

I feel like the stock market has stopped reacting to real world fundamentals in any sense and just seems to continue its upwards march forever. Every correction being instantly bought up by all the free money washing around.

What is your opinion?

*https://plus2.credit-suisse.com/content/dam/credit-suisse-research/SearchPDF?DocumentID=1191091&DocumentType=NR%20Publication&documentClick=true&AuthRequired=true&tagFormat=PDF

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> What is your opinion?

My opinion? Read less financial "news". Focus on what you can control and don't try to time the market. Build an emergency fund if you don't have one, then invest in broad market funds and focus on earning money.

If you knew for certain there was a crash coming, you would still have to time the market a second time to get back in before the recovery, which will also come.

This is the answer. You can read all of the pontification and prognostication you like, but ultimately you’re gambling if you’re trying to time the market. You have incomplete information and you will not be able to respond appropriately, you’ll instead be rolling the dice. You can do that if you like, but you’ll be better served by regularly investing in broad market index funds and not thinking too hard about it.

Your emergency fund doesn't mean much if things keep inflating like they are right now.

You're better off to stay fully invested and keep a line of credit in place of an emergency fund.

I'm having trouble finding a bank that still offers lines of credit. Do you have a particular recommendation that you are comfortable sharing? Thanks

Home equity line of credit (HELOCs) are pretty easy to get, assuming you have some equity built up in a home. Works like a credit card. The rising interest rates will make using it pretty painful though.

It might be difficult to get a loan without a job.

You get a HELOC when you have a job. It's good for X number of years at X rate for loaning up to X amount of money.

Darn, I rent (in NYC). I'm still not sure if buying an apartment here is a good bet long term, but I do wish I had gotten in on something when prices weren't going so crazy. I would only consider it right now if I found an amazing deal. Either that or wait for something to change with the housing market. From what I can tell, though, things are just going to get harder for individuals who want to own a home in major cities.

Talk to your politicians about banning or severely taxing non-primary resident single family homes. Affordable housing should be a right.

Banning or severely taxing homes which aren't occupied by the owner means banning or severely taxing homes which are occupied by someone other than the owner... aka. rentals.

Sure, you can make rental accommodation illegal if you want your community to consist solely of homeowners -- some HOAs do exactly this -- but it's the most vulnerable who will suffer under such a policy.

I don't agree. We're in a supply crunch right now, more houses == lower prices, and low income folks can always get government subsidized housing (or should demand more of it if none is available).

There's a supply crunch, sure. And if you reallocate from rental to owner-occupied, you reduce the crunch somewhat on that side... but you make the supply crunch even worse for renters.

It's a popular policy decision for many politicians, since owners vote at much higher rates than renters; but I wouldn't call it good policy.

The 'most vulnerable' rarely are living in single family homes. They are living in either public housing, a trailer, or crammed into illegally over-occupied studios.

That said putting more restriction on housing (even more taxes!) isn't going to improve the situation. Housing needs deregulation, not more regulation to distort the market even more.

> Works like a credit card.

The difference is that the metaphorical credit card of a HELOC has the house as collateral. A normal credit card has no collateral. If you go bankrupt, the HELOC takes the house, but the credit card doesn't.

Similar boat. I wanted a line of credit just to have it. With considerable equity in the house and savings and stock that exceeded the credit amount and with a high paying job and with excellent credit, the bank rejected my application. Apparently because I said I might use it for repairs at some point. Ffs.

I'm doing what the parent comment suggested. The line of credit should be margin - you borrow against your stocks. If you use Fidelity, you can call them and ask them to lower your interest rate, and it can actually get really low.

So if the stocks really crash your LOC is eviscerated when you most need it.

It does sound risky but that might be my best chance at this point, thank you. I'll see what kind of of rate I can get.

This is terrible advice, and it seems you never went through a massive crash.

Imagine, market crashes 50%, you lose your job, and what? Are you going max out your cards with 20%+ APR? Are you going to realize your losses?

Emergency fund is there to help ride out bad times, so you don't have to take shitty jobs, realize losses in your investments, sell your home or not undergo medical treatment due to financial stress.

> and what are you going max out your cards?

No, that's what the line of credit is for.

Maximizing your savings/investments isn't a bad approach when your young as every $ made ads cumulative value over time. I wouldn't recommend it when you have a family.

Emergency fund should always be first but adjusted for your age and obviously cost of living. No kids and living with parents? Sure, invest anything you make.

I feel that having a certain amount of physical and liquid cash assets is almost mandatory for basic financial survival. I use credit cards for most purchases('selling' my data to the card companies for reward points, too), but cushioning matters.

If life were 100% predictable, and I never had to worry about a sudden expense, or a bill being higher than expected, or gas/grocery prices rising, then I'd totally be down to invest my entire net worth and live off of a portion of my paycheck, maintaining minimum balance in my checking account, and sweating bullets whenever the market dips.

I went through several weeks of unemployment last year while I was between jobs. I was fortunate enough to receive the covid+standard unemployment payments, but still had to supplement that with cash from my savings to skim by. The alternative would have been to break my lease to live with my parents, incur bad credit, potentially have my car repo'd, etc. It would have set me back several years, and wrecked my self image.

I've never had an emergency fund because I purchased my first home as soon as I could with all my salary going into my savings account which also served as an offset account with the full amount offset against my mortgage to keep the interest down, so I had access to my savings whenever I needed it & when I didn't, the full amount would be used to reduce the interest on my mortgage repayments - in effect maximizing the full amount of my savings.

Since the demand for programmers has always been good wherever I've lived I've always opted for higher paying contracting gigs since I was never concerned about job security, i.e. before kids, I'd most likely be more risk averse and look for permanent roles after starting a family.

After I paid off my mortgage my expenses came down and after saving ~6 months of living expenses (easy w/o rent/mortgage) was able to take the leap to quit my FT job and go off on my own to create a commercial product which I worked on tirelessly until achieving my financial independence goals.

can you explain more about what an offset account is?

Sure, found an explanation at https://www.mortgagechoice.com.au/home-loans/home-loan-featu...

thanks!

The closest I'll get to that for a while is when my car payments finish, in about 18 months. I should have 2 complete months of my gross salary saved and liquid by then, so I can justify putting an extra $200/mo to investing, and use the remaining $100/mo for spending, to account for cost inflation and such. Naturally, that first month of no-payment will be used for wasteful celebration.

I still have some student loans, but am quickly approaching/may have already reached Zero Net Worth(hooray!) when everything is totaled up. Buying a house would be a smart move, but I'd rather hold off on that to let the market cool down, and try to find a partner who would share it with me.

The problem is the line of credit may be inaccessible when you need it most.

What happens when the crash occurs and your bank nixes your line of credit? They are well within their right to, at least it says so in the fine print.

Then you’re broke, and left holding a very baggy looking portfolio.

Yes, people seem to forget that HELOCs are usually callable too.

If you have a $500k HELOC and have used $200k of it for something, the bank usually has the right to force you to start making principal repayments (not just interest), to change the interest rate, and/or even in extreme circumstances to “call” the loan and ask you to repay everything ASAP. Read your fine print.

That said (and this goes counter to my previous comment) I think HELOCs are probably the safest credit source, purely because if the banks started calling them there would be an economic meltdown. Obviously if you’re going to overleverage yourself, a HELOC makes the most sense because of low rates, so I’d assume anyone who is overleveraged is doing it through a HELOC.

However, if you can get a HELOC, you own property and are therefore much better off and less precarious than people who don’t. Ceteris paribus, I’d rather lose my shirt in a house I own rather than a rental.

In general, you pay enormous interest on unsecured credit.

House? Mortgages have single-digit interest.

Car financing? More complicated, but often free, or even negative (I bought my car for less with financing that it would cost me outright).

Credit card? Tens of %.

I guess a "line of credit" is essentially the same as a credit card. A bank can in principle recover your credit card debt off your house, but it's difficult.

Even if inflation spikes to 10% per year, if you have an emergency fund covering (say) three months of expenses right now you'd still have a fund for 2.7 months in a year. And, of course, there aren't any rules saying you can't top it up to keep it sufficient for whatever time period you set it up for.

It's infinitely better to have a buffer and not need it than to not keep any buffer at all and suddenly find yourself with an income and bills to pay.

So? Make sure you add at least inflation_rate to your emergency fund per year.

Sort of assumes people are somehow making `inflation_rate` more money then, no?

Only if one is living at or above their means.

You can place your emergency fund in I-Bonds over several years. You can buy $10k max a year, and withdraw with a 3 month interest penalty after a year. Right now the rate is 7.6% I believe for the first 6 months. It should protect that money from inflation.

You will pay taxes on the interest, so the purchasing power will still diminish.

Disclaimer: I still happily purchase 20k of I bonds and EE bonds a year for diversification purposes, in addition to my index funds.

They are at least exempt from state and local taxes, which is nice.

I'd rather have fund available than not have funds available going into a financial crisis.

Many fairly safe investments make approximately what we are dealing with in terms of inflation right now. Your emergency fund might not be MAKING money but you won't be losing it either.

Of course this is a slightly different type of emergency fund (your money will not be able to be withdrawn that same day) but a balanced approach between multiple investments can work well. And of course it probably would not hurt to own some gold and silver safely secured as well if you are really worried about inflation and needing to quickly physically move your assets.

Buy 1 Dec 16, 2022 SPX $3,625 Put

Sell 1 Dec 16, 2022 SPX $3,600 Put

Midpoint price is $3.60 for $25 max gain if SPX is under $3,600, which implies something like a 14.4% chance that SPX is down by 20% more on Dec 16, 2022.

Perhaps not the best answer to facilitate discussion, but certainly the most "accurate" one if you want a sense of what the crowd thinks about the chance of a crash.

theta will eat away any profit for such long dated options

That doesn't change what the quoted pricing predicts. Theta means it's not free to make the bet. Also, with spreads like this, usually your short theta mostly cancels out your long theta, so it's not as expensive as you might think.

Even if that happened, it would only erase the gains of 2 years.

I'd be incredibly grateful if someone could break this down for me.

They're suggesting you enter 2 financial derivatives contracts. Specifically options on the level of the S&P 500 index as it will be in Dec 22.

The first transaction is to buy a, so-called, put option struck at $3625. This means that if the level of the S&P is below the strike price ($3625) on the 16th Dec, you will make the difference between the level then and the strike price. Buying this contract will cost you some money, called the premium.

They're also suggesting selling a similar contract struck at a lower price ($3600). It will have a similar payoff to the first one but for the buyer of the contract. For you, you'll lose the difference between the S&P level and the strike price if the S&P level is below $3600 in Dec. You will receive a premium from the buyer for this trade. The premium will be a little less than the cost of the option you bought because the strike price is further from the current market level.

The reason for the 2 together is that, for most future levels of the S&P, gains and losses will largely net out. You'll lose a bit of money (the differences between the premia) if the level doesn't go below $3625. But you'll gain a bit more if it does ($25 - the diff between the premia if I recall correctly).

The current level is about $4470, so the premia for both should be quite low as the strike price is a long way from the current level. We call that an out-of-the-money option. As such, the differences between the premia will also be very small.

In summary, they're suggesting a pretty cheap way to make money if the S&P tanks by Xmas. And you would lose (relatively) little if it didn't tank.

Do not consider this to be investment advice. I reserve the right to have completely forgotten options 101 which I did 20 odd years ago.

I don't think they're suggesting to actually make those trades, but trying to show what the market thinks the probability of a sizeable crash is.

That’s correct. It’s pretty infrequent that I assume I know better than the market is pricing.

One risk that I have not seen mentioned yet in this thread is crypto. I'm convinced that the sector is awash in fraud.

And what worries me about this is that I'm not certain how deep the contagion goes. In 2008, I did everything I could to stay out of the US real estate market, and some genius investment advisor at my bank managed to sell me bonds issued by a hedge fund that turned out to be backed entirely by real estate derivatives.

Crypto is of course extremely volatile but Monero is one of the much more stabler ones (and also one that you are not going to see crazy gains in). And it is also the most private/anonymous of the bunch. Probably not a bad idea to have a small piece of an emergency fund invested securely in it.

I feel the need to point out the silliness of pushing one's preferred crypto in response to a comment about how crypto is full of fraud and is a risk to the entire economy.

No, it's not a good idea to invest part of your emergency fund into a highly speculative asset like cryptocurrency. Money put into crypto should come from a fund much less essential to one's livelihood.

If you are highly worried about the US market / currency crashing or devaluing then I think it does have some value to talk about. I don't have any benefit at all from anyone investing in Monero. Personally I think gold/silver are a more reliable "alternative" investment if you want to keep assets out of the US banking system (or stocks) since they are fairly universally valued and you can physically transport as needed.

I share your concern, although I'm more generally worried about volatility. Crypto is awash in fraud, but there are also thousands of porto-projects that are close to gaining product market fit. Eventually, one of these use cases will explode and give crypto a better footing. My main worry is whether this happens before a "crypto winter" induced by fraud concerns.

Why would it specifically crash though? These things are already factored in and the S&P500 is down 6.3% since the start of the year. Why would it quickly crash way lower instead of going down slowly or trading sideways?

Cascading defaults of corporate bonds and loans? I think there is a lot of folks swimming naked and the rising interest rates are going to hurt or kill companies that aren't able to pay their bills.

Well, there's a risk of a Russian default now. The fed is planning to raise interest rates even more now and shrink their balance sheet by 1t per year. All that pump that came during the pandemic so share prices didn't go down has to dump at some point.

Either that or we'll continue to see >5% inflation for a while, and that's a scary thought. Especially since wages aren't going up nearly as fast

Wages were up 5%+ for almost all of the Pandemic: https://www.ssa.gov/oact/cola/awidevelop.html

> Well, there's a risk of a Russian default now.

I think that risk is 100% as in it's a certainty that Russia will default. Defaulting means not making loan repayments. The ruble is basically worthless so they don't have much to repay their debt with and they can't sell assets to raise the money due to sanctions. Another aspect to consider is that they probably are eager to default at this point as doing so could cause financial damage in the West.

> eager to default at this point as doing so could cause financial damage in the West.

What about Russian banks and Russian bond holders? External debt is generally only a fraction of the total debt

I'm sure they'll prioritize internal debt-holders of debt denominated in rubles. It's the debt owed to external entities that's denominated in other currencies that will be defaulted on.

Ruble trades now at something like 25% discount compared to pre invasion. Huge hit, to be sure, but I’d hardly call it “worthless”.

my take as an amateur that tries to follow this stuff .. the fed seems caught between inflation and QE. The fed has tried to raise rates in the past, and every time the market has gone down significantly. The fed has recently admitted that inflation is raging and out of control. raising rates seems to be the only tool in the box to combat inflation. so it's a catch-22.

Raise rates > No more cheap debt > market goes down

Inflation runs wild > recession > market goes down

Catch-33 if that’s a thing: the fed cannot raise rates too far or else the interest payments due on the US national debt would raise so far as to cause the US to default.

The stock market is not the economy is the short answer. What is causing our current predicament has been the monetization of debt through quantitative easing programs since 2008 which was then compounded by increasing the money supply in the spring of 2020 drastically. And now the fed has to reverse course with quantitative tightening in order to beat back inflation. The easing and near 0 interest rates have gotten businesses addicted to cheap money and has kicked the can down the road in terms of how we end the easing programs. But now the Fed has no choice but to raise rates and tighten. In rational markets, you are correct, this should be priced in. But our markets have been highly irrational and algorithm driven for a while now and quite frankly, are delusional about our state of affairs. They think recession will equal more easing but that is not in the cards and there is going to be a rude awakening.

My pet theory why stocks have stopped reacting to real world fundamentals is simply because the main sector changed.

Currently that's technology, which happens mostly on the internet globally. I can't really imagine a real world event big enough that would shake up Google, Amazon, Apple, etc. all at once. Sure, individually they can be threatened by innovation, but generally everything on the internet feels very "detached" from real world events.

If possible even russia would still use those services today.

I mean if Facebook losing %0.01 (or whatever it was) of it's users is enough to drop it's share price by 40%

I think that anything could pop this bubble at this point, people investing in these companies are expecting growth that isn't realistic imo

All these companies have hit their saturation point and are just fighting over the same shrinking pie at this point. Just look at how many social media sites have implemented tik tok functionality. That alone to me screams "too much capital and not enough growth"

It didn't matter that they missed user estimates for 1 quarter. It mattered that their growth forecast went from close to 30% to 3% (over a medium term horizon).

Your P/E drops precipitously when your future growth drops precipitously.

A report showing negligible effectiveness of online advertising via social media could be enough to shake the input if the market is shaky.

That is because facebook ‘sells’ stuff people can easily live without… its not the same for the other companies

https://www.swpc.noaa.gov/phenomena/geomagnetic-storms

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

https://www.ready.gov/space-weather#:~:text=To%20begin%20pre....

> I can't really imagine a real world event big enough that would shake up Google, Amazon, Apple, etc. all at once

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

Now you can

Or because the fed is still printing money like there is no tomorrow. It is kind of puzzling to read Powell claiming he is worried about inflation while still printing huge amounts of QE at the same time.

> Or because the fed is still printing money like there is no tomorrow.

It’s not.

> It is kind of puzzling to read Powell claiming he is worried about inflation while still printing huge amounts of QE at the same time.

QE stopped around the same time as the rate hike, and quantitative tightening (going from stop to reverse on QE) has been announced as upcoming.

as far has I can tell the size of the Fed balance sheet is still growing every week. So yes they are still printing massive amount of money right now, at a similar pace than QE2 and QE3, and they have done for most of 2021, when inflation was already picking up significantly.

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

Easier than that. Classical stock valuation methods only make sense when the market is composed of financially educated, rational investors who use similar valuation methods. That is an outdated model of the markets though. When you add in algorithm driven trading and a sea of retail investors who are anything but rational, we can see how stock market valuation actually plays out: simple supply and demand. I mean just look at GameStop. Apes wanted bad stock, drove price up and then caught the shorts with their pants down. That was simply supply and demand mechanics. The same can be said for Tesla or a litany of other “overpriced” stocks.

Financial regulators have done their homework on the 2008 financial crash.

In many, many ways, Covid was a much worse economic disaster than the credit crunch. In the latter, it was "only" banks affected by bad credit (lots of it). In Covid, it was... everything. State and company revenues grinding to a halt. You'd expect financial markets going haywire, and yet they haven't.

The world is in an ugly place, but I don't think a significant financial crisis is coming. Much more likely, if anything, is some kind of prolonged stagnation as the world realigns itself to some kind of new Cold War, with global trade diminishing. Real interest rates may dwindle etc. There will no doubt be many personal strifes and tragedies, but no global meltdown.

My recommendation is that your first investment should be a home, i.e. a property in which you live in, with the focus of paying it off as soon as possible. Obviously if you have higher interest debts (e.g. Credit Cards) you should pay that off first before making any investments.

Properties lets you leverage debt, i.e. you'll only need to put down a 10-20% deposit and borrow the rest, ideally the mortgage repayments should be lower than rent of an equivalent property. The benefit of leveraged debt is that if your property increases in value, the whole amount of the property increases (i.e. not just your debt), so with rising property value and inflation (i.e. your salary) your debt should become more smaller & manageable over time.

If you can, go for an offset account (common in Australia) so your entire savings works to keep the interest down and you don't need to divide your savings across multiple accounts, as your savings is also your emergency fund whose balance is offset against the mortgage to keep the interest down.

Once you pay off your house you'll have much lower expenses at which point you'll have more freedom to make more risker decisions like quitting your salaried job to start your own consultancy or startup, where the reward is much higher income, but can also mean your without income at the start of your venture so you'll want to have minimal expenses when making the leap.

After you've paid off your home I personally would invest in shares for future investments which in my experience provide greater ROI over property, lower holding costs & less hassles requiring time & resources to resolve.

IMO your focus is should primarily be on making more money, i.e. instead of trying to save as much as possible. So even if you have a salary capped job with no career prospects, I'd be putting my efforts into a side-hustle that has the potential to earn enough to replace your job & work on it full-time where you'll have greater earning potential than working for someone else.

Buying a house is tying up money in an asset with a negative dividend (that is, you pay to own it): taxes + repairs. You don't really have any access to that money, unless you sell and move to a cheaper location. In expensive locations this could be problematic: tying up $1 million, which could earn 3% in dividends (say KO or something) and instead pay 1% tax + repairs, I'm not sure that's a great investment. The $30k of dividends would pretty much pay rent on an apartment. Now if you have a family, this calculation might change.

You don’t have that 1M to collect dividends on and if you had to borrow it, it would be more than the interest of a capital backed mortgage and that income would be taxable on the top tax bracket on top of your salary whilst your non-taxable rent comes out of after tax income.

Property is also the only asset class in which I’ll leverage debt to purchase in order to enter the housing market at a fixed price at my current affordability. I’d only recommend purchasing a home where the mortgage payments + holding expenses is =~ rent (which means lower cost properties), which will improve over time when mortgage gets paid down and rent goes up.

You do have access to that capital from paid down mortgage or increased valuation by redrawing it if you need to. So reducing the mortgage would be my highest priority which I’d do with an offset account, so the funds are readily available when needed which otherwise is reducing the interest amount.

You're only tying up 10-20% of the price of the home, and doing so at a lower rate than you could ever get for any other purpose.

Also you need to factor in the rent trade off, which makes it an easy decision in some markets if you have the cash. I just bought a house last year and my mortgage+instance is 300$ less a month than the cheapest apartment I could find in the same city. 1200$ less than a comparably sized apartment.

What is with this kind of low-quality forum fodder making it to the front page? Just asking a general question about something that can't possibly be known? Who is this of interest to?

Hey everyone, what's your opinion about how this years crop season will go in northern Texas?

My opinion is that the market may crash or the market may go up. I am going to keep indexing anyway and buying I-Bonds. I already own real estate.

Housing is unlikely to drop to 2008 levels. Building materials are more expensive, and pay is also up.

Also for real estate the debt landscape is different- larger down payments and DTI ratios. Increasing interest rates/mortgage rates are going to drive prices down IMO, but I don’t see a collapse like 2008 because people won’t be forced to sell their homes due to foreclosure/ARM resets and mortgage backed securities are unlikely to collapse. Plus inflation is driving up nominal income, so buyers will increasingly be able to catch up with house prices even if they don’t drop that much.

The one wild card I don’t know about is the increased institutional/investor based investing in residential real estate. I’ve got no idea how those deals are structured overall and what a price drop combined with a mortgage rate shock would do to them and what size the overall market exposure is.

Yes the cost of replacing houses has jumped stupendously. Building new ones likewise.

I don't know about the likelihood of a crash, but the prospect of a "new Bretton Woods" would not be hyperbolic. The Western world is overdue for significant deleveraging event and they will be seeking the tools to manage it.

If there were a new "Bretton Woods," what would countries tie their currencies to, this time around? Are the people who have ridiculed "gold bugs" going to readopt specie and pretend like nothing happened? I find that hard to believe.

digital currency

https://www.natlawreview.com/article/federal-reserve-system-...

Low, with just how low depending on how you're defining "financial crash". While the war changes things incrementally, odds aren't significantly worse than 2 months ago. It also makes US equities and assets more attractive, with Europe bearing most of the war related impact and China having their own issues this year. With rate hikes and 2021 tailwinds fading, a slowdown is obviously on the horizon, but nobody can tell you whether it'll qualify as a recession, whether it's this year, or whether things will break to a degree you could call it a crash.

The powers that be are working as hard as they can to prevent a crash, so I would guess that this year may have worse odds than previous years but I think it will be forestalled for a while yet.

It’s possible but these things tend to develop slower than you expect. The crash in 08 took a good year from when it was obvious to bear sterns and then another 3-6 months to unravel.

Crashes come when you least expect otherwise it wouldn't be a crash. The market knows about everything you just listed, the market is baking that into its calculations.

The correlation between the stock market and real world fundamentals has always been qualified. A lot of investors don't care about today, only tomorrow. You can have big companies with popular products, but if the market doesn't think it's going to grow then the market isn't going to pay much attention.

The market knew about everything in 2007...

Stock market reacts more to the psychology of investors, than to fundamentals. In a bull market, if existing stock holders don't sell, and some doctor in TN will offer 10 cents more for a stock, then the valuation goes up by .10 times multiplied by all existing shares. In such a market, marginal buyers can pump the market, as long as the existing holders don't sell--this is psychology.

I think it is as follows until abou 2026

Central banks has stimulated the economy by lowering interest rate below is natural market price. Central banks try to keep target inflation rate at 2%. Central banks tried to control wage inflation in a globalized market that does not work. We can import lower wages by buying goods from other countries globalization.

We have prize inflation in food oil prize and fertilizer.

Central banks will increase interest rate to target higher inflation.

Some High loan mortage borrowers will not be able to pay higher mortage rate and will be forced to sell. Selling of homes will cause housing prizes to decrease since buyers will look at how much monthly interest rate they can pay at higher interest rate.

No, inflation also means inflation of stock prices.

Yep, exactly. It’s surprising how many people don’t realize stocks are an inflation hedge.

I think most of these answers of market timing and emergency funds are missing the point. If this happens, we aren’t talking the normal recession. At the very least, we are talking stagflationary recession with all sorts of other geopolitical and economic complications. And at the worst, we are talking unfathomable chaos in the foundations of civilization including food shortages and starvation of the poorest in wealthy countries. It’s not just economic issues here, fertilizer supply has crashed and prices have skyrocketed.

Are you all going to eat your emergency fund? What good will that do if there are bread lines? How will timing the market or not, help your family make it through what could be a long stretch of rough times? And if there is a financial collapse, why are you so sure that there will even be a market left to recover? And if there is no financial system, why are you worried about paying your mortgage?

Interest rates can only be raised so high before the US can’t pay the interest on its debt and defaults, then what? And if they can’t raise interest rates beyond a certain point, how does inflation end? This is not just a “recession”, it’s an existential threat to world order.

> I feel like the stock market has stopped reacting to real world fundamentals in any sense and just seems to continue its upwards march forever.

Not to take any merit from your overall argument but I assume you're talking about the US equities and DJIA is a good proxy signal for that category and it's down ~5% YTD.

When has the stock market been rational!

Already prices of essential commodities have gone up so much! For first time in several years fed has increased interest rates. The indicators are suggesting that financial stress is likely to stay for some time to come.

Just a little humour - I saw a sign in small Jerusalem shop today that said "End of the World Sale" - I guess some small people are also trying to cash in/out.

I think we should consider the wise words of John Bogle:

"Nobody knows nothing!"

This means nobody can predict what the future will bring. It's a fool's errand. Don't try to guess.

Household balance sheets are in the best shape ever, even adjusted for inflation. It is very hard to have a recession when that is happening.

Economic destabilisation is perfect excuse for implementing universal basic income, digital bank currency and overall surveillance over citizens and whole global economy.

But we should be more resistant against alarming agenda of news that are constant for few years now. Global warming, plagues, financial crisis, war, etc. It makes people scared. And scared people are easily manipulated to accepting new rules and orders.

Worry about the war, not inflation. The war is already growing.[1]

[1] https://www.cnn.com/2022/03/22/europe/belarus-ukraine/index....

In US ? Asia ? Won't happen.

Those continents don't use "human rights" as an ideology like EU .

In Europe ? Almost guaranteed.

Russia announced today it will stop accepting currency from "hostile" nations. One of currency is used by myself in my country its the "EURO"

It's sound simple yet what Putin is pushing toward is "Bretton Woods" Reset.

European have been living with overly high standard compared to their geo-political power, this was made possible because their currency enable them to buy everything for "cheap". ( Energy ,Commodities, Goods etc... )

Russia just broke the European economic machine by determining their currency is worthless.

If European refuse to "pay in ruble" it doesn't matter , it'll be gold , and the result will be 10 time worst. The Euro System was rigged from the start, it's impossible to repair it and get a currency as solid a Swiss Franc. Or at least not with causing a massive recession similar to Greece.

Probably time for me to leave EU and get somewhere with better perspective...

But where? USA is just as woke as Europe, and Asia is a place where work is extremely hard, with tendencies of being kleptocratic, at least if you intend to retire over there as a foreigner. So, where?

There's already been a pretty significant correction this year. Short of an escalation of the war or an unexpectedly aggressive interest rate hike, I find it hard to imagine that stocks might hit a lower low this year than the botttom we saw a week or two ago.

> I feel like the stock market has stopped reacting to real world fundamentals in any sense and just seems to continue its upwards march forever.

It'll continue its upward march until the factors causing the upward march change. What else are people going to do with their wealth? As long as the stock market remains one of the best places for investors to put their wealth, they'll keep buying equities and the prices will keep going up. Perhaps we'll see some stagnation or decline as the baby boomers retire and begin liquidating their retirement accounts.

Doubt it.

The Fed isn't going to act very quickly at all.

This feels more like we're at around 2002/2003 right now (which had the stock market collapse in 2000, the 9/11 attacks in 2001 and the Iraq War started in 2003) and the Fed was slowly increasing interest rates.

We also had the pandemic and we've got massive supply shocks, and there's huge amounts of pent-up demand for everything, including workers.

We're more likely to boom in the short term over the next 1-3 years than to bust.

(I do think the bust-to-come will be miserable, but its 2+ years out).

Most of you are also way too worried about what is clearly a negative supply shock causing an increase of prices, which will necessarily be volatile and transitory. The Russian war in Ukraine is clearly not sustainable long-term. They aren't going to be in there for the next 20 years. Putin will probably be removed from power one way or another and then relations with Russia will normalize and we'll start buying their oil so they can pay Ukraine reparations. Then commodity prices will start to fall again, just like they fell after the 2011 commodities peak.

And really in 2003 we had gone through the dot-com collapse, the trauma of 9/11, invaded Afghanistan, invaded Iraq, nothing looked remotely sustainable, the Fed was raising interest rates, housing was going through the roof and was an obvious bubble (and we'd just been through the dot com bubble so the way that people were throwing loans at anyone with a pulse to buy up housing looked clearly insane if you were on the outside of it all). Gold bugs blogs online were talking about Zimbabwe-style hyperinflation, that everyone should buy gold (crypto these days) and that interest rates were going to soar to double digits. Everyone who was yelling about the Greenspan Fed printing money was convinced that a Kondratieff Winter wave was imminent. Well it didn't start rolling over until 2006 and it wasn't until 2008 that we really impacted with reality.

My opinion is that I'm screwed no matter what

Very high if Putin attacks Poland.

A market crash would be at like #10 on my list of worries if he does that. Securing some potassium iodide pills would be higher.

Given how much trouble they're having in Ukraine, I can't imagine Putin or his immediate subordinates doing that. If he's lost his mind that much then I think there would be an immediate coup in Russia.

> Given how much trouble they're having in Ukraine, I can't imagine Putin or his immediate subordinates doing that

Yeah, Putin attacking Poland where much of the supply for Ukraine from the West runs would be insane given how bogged down he is; that would be like the US getting bogged down fighting in Vietnam and deciding to institute a massive bombing campaign in Cambodia, because supply lines supporting enemies in Vietnam ran through Cambodia.

This year? Im not sure. So many highly dynamic realities in play. Lets look at them individually.

>Inflation out of control

40% is locked in over the next several years. It's virtually impossible for the fed to stop this reality. This means the current ~7% for the next several years. This is very bad but people lived through the 80s with 20%. The problem is that far more inflation is lined up but not locked in. The problem is that the fed just revealed their plan to reduce but the rate in which they plan to do it means far more than 40% will be getting locked in.

>cost of living crisis, energy crisis

This is just inflation. It's complicated but debt = money. If nobody had any debt, nobody would have any money. These things are only problematic because of inflation.

>house prices are in a bubble(?)

Similarly there's lots at play. Housing prices arent in a bubble. Go move to detroit and there's a 6000 sqft 12 bed 4 bath for $79,000. https://www.realtor.com/realestateandhomes-detail/1631-Glend...

This is not a bubble. What you are seeing is housing that is normal in a normal state. Sure there are problems in housing. Your problem is that the $ that housing is measured in has collapsed. It's not the current inflation numbers but rather more real inflation that hasn't been put on paper yet. This is probably around 200% or more inflation coming.

> war in Europe that shows no signs of ending anytime soon.

A putin speech at the world economic forum from years ago about the war of all against all. Has everything to do with economics. The war in Ukraine is economics. https://www.cnbc.com/2021/01/27/russias-putin-warns-of-a-fig...

What's not in the news is far more important. Russia's military seems to be pathetic. However, it's not Russia vs Ukraine. Ukraine isn't what matters in this.

>I read an article* that speaks of a Bretton Woods 3 like event, and Biden himself mentioned the beginning of a "new world order" (again).

What's most important isn't the new world order. Sure, China and their capitalist zones with tremendously low taxes are going to put them into power. Eventually they'll finish migrating their country away from communism. This 'new world order' isn't so much a problem for anyone except the USA. Soon the American people will actually feel their tremendous national debt.

>I feel like the stock market has stopped reacting to real world fundamentals in any sense and just seems to continue its upwards march forever. Every correction being instantly bought up by all the free money washing around.

Lets say everything is normal, nothing exciting going on in the world. Inflation is 2%. All stocks will be constantly at peaks. It's just the nature of how it works. Not being at market peaks is news worthy. Inflation being >7% and stock market not hitting new all time highs is extreme news worthy. That plus extremely cheap debt for years now? The stock market should be struggling to breath for how high it should be.

This actually has significantly more to do with Gamestop and crypto than it does with inflation.

What the USA has done is unique in the world it seems. They made an absolutely crazy rule that you can naked short a stock and you have 2 days to deliver the stock later on.

That's not how a short works. A short requires someone at your broker or similar to have a stock and you 'borrow' it to sell it and later have to buy to give it back.

The big thing about gamestop during covid said they were closing tons of stores. They were going to lose a ton of business. On top of that, they had just expanded and bought thinkgeek. They were going to take a big hit during covid. Shorting them made sense but they got shorted a little too much. There were more shorts on record than total stocks. It means you can buy the stock and short squeeze them. They would be utterly forced by law to buy at any price and lose bigtime. And they didnt... they basically said SEC come at me bro. The SEC didn't seemingly do anything.

It broke the stock market. On paper the gamestop stock should basically be at infinity price. Right now, the stock market is in limbo. The SEC can't move on it. Eventually it will break. Largely speaking the banks went around the exchanges and are completely screwed.

So what these large american banks are doing right now is robbing retirement funds. This is much larger than the reality of inflation being way over the bond rates. Which largely speaking means most retirement funds are not solvent right now in the USA.

That's the point of gamestop. Gamestop the store doesn't matter in the least. This could be happening to any stock.

https://www.computershare.com/us/news/computershare-acquires...

This was announced today. Wells fargo's dark pool basically just died to gamestop. But worse... computershare just got handed far far more than gamestop. People who think they are about to retire are in reality decades away from retiring.

This is not that unlike the bear sterns situation.

Here's the thing. The people who are holding gamestop directly. They could sell. They could let the stock drop back to near $10. That would let these US banks off the hook, but they don't care and don't need to sell. Their stocks are currently worth infinity money. They dont have to sit on it forever. When the Federal reserves starts selling their 'assets' and more people are drawing from those retirement funds. These banks will have their hands forced. This goes down within the next few years for sure.

This is a gamble for sure. I dont own a single stock in any of these meme stocks.

So where are we at here? Will there be a financial crisis again? 100% certain within a few years. Will it be this year? No idea.

I think a lot of the inflation is a symptom of new money being printed. The difference between past events where a lot of new money has been created in the US and this time is the access to financial assets to a large percent of the population. So when we saw this money being created and flooding the system in early pandemic, all that money went to pump up asset prices (stocks at first, then commodities and real estate, now consumer goods).

So we could have economic stagnation (job losses, increasing inflation, etc) without necessarily a drop in the stock market. In fact, stock market might be the only thing that could hedge inflation.

I don't have any better idea of where to park your money, so I continue to hold large equity positions and pray for the best

Job losses? Unemployment has been consistently decreasing: https://www.bls.gov/news.release/empsit.nr0.htm

Edit: american jobs

> access to financial assets to a large percent of the population.

how so ? what changed in terms of access this time around.

The popularization of retail trading has brought in a ton of dumb money to prop up the real players. This is the real reason Robinhood et al have been so successful, it's like the fish paying you to swim into the trap.

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