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Comment by dvt | Hacker News Reader

I am seeing so much doom and gloom, I don't think we're in for a "correction" any time soon. Everyone thinks they're Michael Burry these days. If all of Wall Street and their mom says it's going to crash, it's probably not crashing. My prediction is choppy seas until the midterms, and then back to all-time-highs.

Housing will take a 30% haircut, and we'll probably see some of the over-extended corporate debt come to roost as well. But tech is going to be fine, and crypto will bounce back by EOY.

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> I don't think we're in for a "correction"

> Housing will take a 30% haircut, and we'll probably see some of the over-extended corporate debt come to roost as well

What, then, is a correction?

I suppose in this case a "correction" is a crash of some form. A fundamental shift, and Agreed there's no basis for a fundamental problem.

Valuations are too high so a "30% hair cut" is warranted, but something like "ninja" loans or IPO'ed tech companies with 0 revenue isn't a thing right now.

There were market wide fundamental issues that cause huge shifts. This simply missing this time. The VC space isn't wallstreet and it definitely isn't mainstreet. Even if a crypto+vc crash happened, we'd only be in "haircut" not full on crash as a general populous.

That's possible, but also dismisses the role of the Fed in the current expansion. The "Fed put" has been replaced by a Fed dedicated to lowering demand until inflation comes down. If inflation doesn't come down this summer it could get ugly.

I think that the biggest blocker to the market hitting ATHs that soon is rising interest rates, given the predictable valuation haircut that high-growth unprofitable companies take when interest rates rise. Rising interest rates increase the discounting rate on their future cash flows.

Interest rates have already been priced in for a while. Hence the S&P 500 going up 3% when the Fed announced they were hiking by 50 bp for the foreseeable future. The only way another crash happens is if the Fed is forced to hike by 75bp.

If interest rates have been priced in for a while why has the market gone down so much in May?

Also the Fed has already said that they are going to raise rates much higher than 75bp. And in fact they have to to control inflation. Interest rates should be above eight or 9% right now and it’s not.

Well, the May thing is just "sell in May and go away". And old broker friend told me that "rule"/"wisdom".

Sell to get some cash after the April tax bill and then take a vacation in June/July after the kids are out of school.

Because the Fed previously announced they were only hiking by 25bp/meeting and they were forced to go to 50bp. Plus there were several big earnings misses.

> Interest rates should be above eight or 9% right now and it’s not.

Where do people get ideas like this from?

It just seems so completely disconnected from any kind of conventional economic policy that it is hard to understand why someone would say it.

I don’t know about anyone else but I have a degree in economics.

https://en.m.wikipedia.org/wiki/Taylor_rule#The_Taylor_princ...

If the fed did that, we'd be in a complete collapse. Worse than the depression. That's infinitely worse than 8% inflation.

Volcker drastically raised rates and we’re still here.

I believe my parents had a 17% interest rate on their mortgage back then.

I lived though that. It was not pleasant.

Long-term, high levels of unemployment are a nightmare.

I take it you weren’t alive in the 1980s?

I wonder if you actually think there’s a way out of the mess that’s been created over the last 14 years?

>I take it you weren’t alive in the 1980s?

Depends on which side of the life begins at conception/birth debate you're on ;)

I took your suggestion as suggesting the fed should bump the rate up to nearly 10% in one go, with no warning, which isn't what they did back then.

I also think the artificially induced recession wasn't even necessary. It's more likely that Regulation Q reform is what actually ended that inflationary period.

Not quite. The market is pricing in a certain trajectory of rate hikes - basically another four 50bp increases with terminal rates around 2.5-3%. If inflation doesn’t start coming down that trajectory will change and the market will adjust accordingly.

Most American households are owners and housing is the vast majority of middle class wealth. A 30% haircut there is pretty doom and gloom.

If you're not selling, it's unimportant. Unless you're a "real estate" investor, you're not gonna feel it at all.

Nearly everyone either bought a new home or refinanced within the last 12-18 months due to historically low rates. This also means that almost all mortgages are pretty much capped out in terms of loan to value.

If houses lose 30% of their value, a substantial amount of people would be underwater and would likely be better off walking away. Could be very bad.

> would likely be better off walking away

Most people will not go underwater (not that many people, proportionally speaking, bought in the last 2 years), but either way, there's zero chance anyone's walking away if it's their primary residence. What are they going to do, live in a van down by the river?

> What are they going to do, live in a van down by the river?

Rent?

Rentals in the near-future will be of higher cost until re-adjusted or if the demand goes much lower. Also, renting with a bankruptcy on the record could be challenging.

Not trying to patronize, but going underwater does not mean bankruptcy. The only way people are going bankrupt is if they can't afford their mortgage (e.g. they lose their jobs). The job market is extremely hot right now, so it's unlikely we'll have bankruptcies. Worst case scenario, homeowners contribute more to their loan than to house equity every month. Yeah, that kind of sucks, but still way better than renting or being homeless.

Pretty sure after a pandemic and (potential) crash nobody is going to care if you have a bankruptcy in the last several years.

This is what I remembered from Econ 101--inflation is good for debtors and bad for lenders because the real value of what you have to repay on a loan decreases, vice versa for deflation. I'm not sure why everyone is following the media into a fear of inflation when deflation would be far worse for anyone with house/car/card debt.

I wasn't trying to say that anything is coming or not, just that homes losing 30% of their value would be bad for people even if you don't intend to sell immediately.

All the folks that are pretty much capped out on their debt with their new mortgages should be a great position going forward because they're locked in with their 2-3% mortgages and interest rates (and/or market returns) should surpass that.

Because wages don’t usually go up in lockstep with inflation so you have reduced spending power in the short term which a long term debt doesn’t help out with.

When the choice is pay for gas to get to work or feed the kids nobody cares they are benefiting on their 30 year mortgage because of inflation.

> would be underwater and would likely be better off walking away.

What if you just want to... you know... live in a house? In that case you just live in it, service the mortgage, and wait.

Defaulting on a mortgage isn't that easy, and could have negative consequences beyond just getting your house foreclosed on. You could end up having no house, and having to pay the remainder of the difference.

You could go bankrupt, but then you'd have a hard time finding a rental place for the same amount that'll accept people with very low credits scores.

>if houses lose 30% of their value, a substantial amount of people would be underwater and would likely be better off walking away. Could be very bad.

That would only be true for people who did cash out refis, not for someone who just wanted a lower interest rate. All they did was re-amortize their current existing loan (on a house that they already had equity in) and get a lower rate.

Source on the nearly everyone part of this? Seems hard to believe.

Nearly everyone should have been qualified- many folks couldn't take advantage or had a low enough balance that it didn't make sense.

I don't have the raw numbers, they're almost all paywalled off, but you can see the recent volume of refi has been a multiple of each quarter from 2013 through 2019.

https://www.attomdata.com/news/market-trends/mortgage-origin...

The total outstanding residential mortgages today are roughly $12T. Since 2020 onward, over $5T in volume has been refinanced. That's a large portion of the population with a mortgage that is very early in its lifespan.

https://www.statista.com/statistics/205946/us-refinance-mort...

Yes but it also means most people have locked in low interest rates which they wouldn’t want to give up even if prices decline.

> Nearly everyone either bought a new home or refinanced within the last 12-18 months due to historically low rates. This also means that almost all mortgages are pretty much capped out in terms of loan to value.

How do you figure? Refinancing does not, in most cases, mean taking additional equity out, thus LTV should not change for the majority of refis.

Admittedly, the raw numbers are difficult to find in an article I can link. However, there has been a significantly higher volume of cash out refis than we've seen in the last 15ish years.

https://www.housingwire.com/articles/cash-out-refis-reach-1-...

Cash out refis accounted for ~25% of all refinances in 2021 (roughly similar numbers in 2020). Remember at the start of the pandemic many people tapped their equity because of uncertainty and extremely low rates.

Well, that or if you just recently bought at the top and are now completely underwater

I'm more thinking of factoids like "the top X% have Y% of the wealth." People find these to be profoundly illustrative about the state of the world, justice, and policy, and aren't normally placated by the information that this is paper money or that the inequality in actual consumption is much lower. If for example housing collapses relative to stocks, the world will seem a much darker place, at least to the extent that you think these stats indicate the kind of place the world is.

+100% in two years is "normal", but -30% is doom and gloom.

there was a lot of doom and gloom in 2001/2 and 2008/9 too

sometimes the crowd is right

we'll see

HN predicted 12 out of the last 2 recessions.

My favorite comment of the week. Soooo good haha.

Let's call it 13 out of the last 3 recessions, eh?

>I don't think we're in for a "correction"

Even if that's the case, it will only change the ROI of big VCs from like 4,000x to "just" 1,000x. Boo hoo. (Edit #1: Ok, this is hyperbolic but you get the idea).

Similar to BTC, if you bought at 0.01USD you're still making a killing, even with the recent dip.

If you bought at the top though ...

Edit #2: Turns out I was spot on w/ the 4,000x figure, https://brandondonnelly.com/2019/05/10/5599/

BTW, YC's ROI is on the order of 50x-100x by my guesstimate (0.5B invested in ~3,000 companies, ~10% stake on a market valued at 400B before the dip); open to discuss it.

Source on that VC "ROI". For context, a16z is no-where near those rates. https://www.theinformation.com/articles/andreessen-horowitz-...

No VC funds are making 1000x or 4000x.

They might make that on a single investment, sometimes. But that covers the ones they lose money on.

I hate crypto but I have heard the “if you bought at the top” line about 7 times now and it always ended up coming back much stronger a year or two later.

EOY there might be a bounce-back, which may be starting already. But it is somewhat unlikely that the rate hikes the fed are planning will really get inflation in check. We're seeing sticky wage inflation due to fewer people in the workforce and the fed is going to have to invert the yield curve to get that under control. They are going to have to hit the brakes in a way that hasn't been seen since Volker and will cause significant amounts of pain.

By the end of 2023 things should have gotten very exciting.

But Michael Burry is predicting a correction?

His claim to fame is the 2008 housing market crash, so it's definitely on-brand. Survivorship bias in its purest form.

When is he not?

From 2010 through 2020

Except in 2015: https://nymag.com/intelligencer/2015/12/big-short-genius-say...

And in 2019: https://www.bnnbloomberg.ca/the-big-short-s-michael-burry-ex...

He's called 20 of the last 2 recessions.

QT starts tomorrow.

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