10 ms·

The article fails to articulate a specific reason for a market failure besides: 1) The market is really good right now and has had a long run so we must be at

by rbliss 8y ago

The article fails to articulate a specific reason for a market failure besides: 1) The market is really good right now and has had a long run so we must be at the top. 2) An appeal to their own authority for having "trained myself to recognize the top". This comes across as a scare clickbait piece devoid of substance. That's not to say we won't have a market failure in the near future, but without a clear rational, this specific article is junk. It's good to run a cash flow positive company, it's good to have 6 months of savings and low debt, but please post something more substantive.

jsonne 8y ago
Agreed. Seems almost like a reverse gambler's fallacy in a way. That said the advice in the article is just generally good. Not have debt, have an emergency fund, etc.
rubicon33 8y ago
How does one have "low debt" and buy a home?
- drchiu 8y ago
  Only two ways that I can think of: * Have a lot of capital to begin with (or saved up or inherited) * Move to an area where homes are cheaper
  - rubicon33 8y ago
    Having capital saved up is tough. I've tried to save as much as possible but, year after year, it's amazing that I haven't managed to save more. As for moving to a cheaper area... We all know what that means. I'm certainly looking in the "cheaper" neighborhood, but it's not the "cheapest". We all have our limits to what we consider a safe and healthy neighborhood, I suppose.
- wutbrodo 8y ago
  The obvious (and often unrealistic) answer is to buy a much, much cheaper home and save much more. Other than that, "low debt" isn't well-defined and all debt isn't created equal. If you get a mortgage whose payments give you a lot of wiggle room based on your income and expected future income, most people wouldn't have trouble including that situation among "low debt".
  - rubicon33 8y ago
    Gotcha. That's the boat I've been in. I want to avoid debt as much as possible, but unless I'm willing to live in a really rough neighborhood, I will need to buy a home that is roughly 3.5x my gross yearly pay (before taxes). That's a lot of debt. The payments however, are manageable. So I suppose it is helpful to frame "low debt" in that way.
    - wutbrodo 8y ago
      At some level, it's a pretty reasonable definition: having all your liquidity tied up in a single asset doesn't make a lot of sense, so having a house with a mortgage secured on it is just a way of getting somewhere between renting and buying outright without having to swing to the other extreme. The main risk you're faced with is a drastic drop in value right after you buy it, but that shouldn't affect your day-to-day if your payments were affordable in the first place.
      - mark-r 8y ago
        That was the point of the article though, payments that are affordable today may not be tomorrow if your income takes a hit.
        wutbrodo 8y ago
        Right of course, which is why some estimate of future expected income is important, including a buffer for lowered income in the future.
    - 8y ago
- ohiovr 8y ago
  Buy the home in cash is how. Might seem ridiculous and impossible where you are at the moment. But if tech crashes, where will you be? In my home town in the land of unimportance you can own a home for just $26K. And it isn't bad. Compared to homelessness and unpredictable future rent costs.
  - outworlder 8y ago
    What, where the heck is this? Is it in the US? I don't doubt it, I have seen crazy low home prices in some backwater locations, but never as low as 26k.
    - ohiovr 8y ago
      Marion Ohio, USA. My brother even knew an dying fellow that wanted to sell his house for 10 grand. The house is kind of a relic from the 50s. When soliders came home many of them bought these little 800 sq foot homes. Marion Ohio is more than 45% senior. No tech in the town besides the broadcasters, and ordinary sys admin type stuff. But there is a little bit of tech (tiny) in Delaware Ohio, Lewis Center, and all of Columbus has tech jobs that pay anywhere from $60-100k. If you can put up with a 50 minute commute you could save up a nice pile of cash in no time. Thrift!
    - selimthegrim 8y ago
      There are parts of New Orleans where this is a thing - of course you will need to put some work into the house.
    - deleted 8y ago
      [deleted]
timr 8y ago
You're both predicting the future, but at least the OP has offered solid advice based on her prediction. You're just criticizing. Also, predicting that the status quo will continue indefinitely is an extraordinary claim. Clearly, market cycles are real. Maybe you're right. Maybe she's right. We'll find out when it happens. But by your own admission her article has solid life advice that people should be following. So clearly it has value.
NeedMoreTea 8y ago
Agreed, to a point. Having been through several more recessions, since the mid 70s, all have been different. Different symptoms, different causes, different sectors. + 1970s - Oil crisis & OPEC + 1980s - Deliberate govt policies and adoption of monetarism + 1990s - ERM, Black Monday, US S&L + 2002 - dot Com bust, post y2k contraction + 2008 - Global banking crisis The nearest I've seen to being able to "recognise the top" is some young person, usually looking too young to drive, turning up on national TV financial news explaining why "this time it's different", why the boom will continue, or why the property market isn't overheated. This is usually a clear sign that the economy is now having a Loony Tunes moment, in mid-air and not yet noticing there's no ground any more.
- nostrademons 8y ago
  Interestingly, I haven't seen that irrational exuberance about the economy as a whole in a long time. Perhaps for specific sectors, like mobile in 2013 or Bitcoin last December (both of which turned out to be market tops). But in general people seem incredibly pessimistic today, with none of the optimism about everything that characterized the late 90s or even the Web 2.0 boomlet from 2005-2007. People have been predicting a (further) financial crash since the bottom of the market in 2009. I wonder if that's a sign that the current boom still has a while to go.
  - NeedMoreTea 8y ago
    Post 2008 has been very odd. The post recession growth phase was more like becoming bored of too long a bust than actual growth as seen previously. Some areas and sectors barely seem out of recession even now. Especially with the added pressure brought by austerity. In a lot of ways we don't yet seem done with the causes of 2008. The top could be much harder to find without hindsight. :)
- judgardner 8y ago
  Another term for a Loony Tunes Moment is a Minsky Moment[0] [0] https://en.wikipedia.org/wiki/Minsky_moment https://en.wikipedia.org/wiki/Minsky_moment
Theodores 8y ago
It is okay to make your own call on the general economic outlook and to share your reasons why. You don't have to wait for the crash to modify your behaviour. Closely tied with the general economy is how the climate is doing. We kind of know that soon there is going to be some crash in this with people having to modify many aspects of their lives. The rest of the world might still be going about spending ridiculous amount of time in aeroplanes and eating food dredged from the furthest ocean but that does not mean that you have to be enjoying these 'good times' too. We have been at 'peak planet trashing' for a long time, 'peak oil' came and went during this time, proven wrong. The economy, your decisions to borrow and the type of work that you do can be informed by your own internal thought process, there is no need to go along with the herd. From this lady's niche she sees it as a time to tone down the irrational exuberance. There are other people who may have the same thinking, for different reasons not visible to you. For instance, in the UK, if you are going to lose with whatever is decided regarding Brexit then you just might be thinking along the lines of the article. In your part of Little Britain you might not be able to sell your house, that is a very powerful indicator that something is up and no amount of stock market or unemployment figures are going to change your personal perspective based on the realities you know. That said, you might think that others should see the writing is on the wall. Others may scoff at you and point to the solid government statistics published in the newspapers as a bit more definitive than your personal hearsay. Nobody imagined a few rubbish mortgages sliced and diced into investment products could bring down the whole of global capitalism, but that was pretty much the situation in 2008. Right now, sitting by your pool in sunny LA, it could be hard to imagine that a 'bad Brexit' a continent away could mean you having to foreclose your home next year and put the shutters down at your business, with all cars in the garage having to be sold. It could happen. It probably won't but still it could be prudent to downsize to a house that is only as big as you need, put some savings by and get a more sensible vehicle.
- joejerryronnie 8y ago
  This feels like you're using the specter of an economic downturn to push your views on sustainable lifestyles. You should just say, "Everyone should have a smaller house and electric vehicle, which would also help during an economic downturn."
rcdmd 8y ago
I'll also point out the author is conflating the economy with the market.
- AstralStorm 8y ago
  What is one without the other? Economy is the sum total of markets. (some free other controlled)
perl4ever 8y ago
There are some specific reasons: 1. The US Fed has started a tightening cycle, and we've seen them repeatedly overshoot in the past, causing a correction or recession. Simply based on recent patterns, one might expect something to happen once short term rates get to, say, 4-5%. 2. The US President is demanding mutually exclusive things from the economy, fomenting trade wars, and attacking the independence of the Fed, which may have negative consequences. 3. The US stock market is valued more highly relative to normalized earnings than it is usually, or the rest of the world is now. 4. US Federal budget deficits are dramatically worsening. Republicans are only deficit hawks when there is a Democratic president. It's been so long since we've had real inflation that it could really shock people, and per point (2) the President appears to want low rates at the expense of inflation (at least today - who knows tomorrow).
ericabiz 8y ago
Hey rbliss, article author here. I've been out of pocket all day. I was getting ready for bed when I saw my article on the front page of Hacker News! Your comment is fair. It's late here, so I don't have the mental energy right now to write the 1000+ words I would like to on this matter. It's totally worth writing another followup blog post explaining in more detail, which I'll aim for next week. But, in brief: -- Flattening yield curve -- Ridiculously low unemployment ("full employment" is the term that's floating around) -- Record high housing prices -- Public corporations sinking profits into stock buybacks instead of acquisitions or capital investment (I find this a highly dangerous trend for the economy) -- Consumer debt levels now higher than they were in 2008 -- Subprime auto loans being "tranched" and sold to investors much like subprime housing was in 2005-7 (and this is even worse, since cars are depreciating assets): https://www.bloomberg.com/news/articles/2018-07-16/riskiest-subprime-auto-bonds-shrug-off-consumer-lending-worries https://www.bloomberg.com/news/articles/2018-07-16/riskiest-... And I saw this one yesterday: https://www.feld.com/archives/2018/07/early-stage-vcs-be-careful-out-there.html https://www.feld.com/archives/2018/07/early-stage-vcs-be-car... -- specific to the startup/tech field. If anyone has any more questions, please feel free to ask me here, and as I said above, I'll aim to write a more detailed followup next week.
- rbliss 8y ago
  Thanks ericabiz for the follow up. These are definitely the interesting points I was searching for in the article given the headline. It certainly seems there are indicators that the market and economy could turn south. On my personal list, I also have the structural instability created by the current tariffs and escalating trade war, geopolitical weirdness, and the long term increase of inequality. I look forward to reading your next article on this.
  - ianai 8y ago
    Ever increasing personal debt and decades long stagnant wages are themselves a warning sign. It doesn’t take long for debt payments to outgrow stagnant wages - and a new round of large scale bankruptcy. There’s also the bit of wisdom I got from a professor: “The peak has come when the last hold out buys into the notion of permanent growth.” Tariffs threaten to ignite a sequence of events leading to the dethronment of the US. If the worlds base currency changes from USD be ready for the US to quickly look like Greece or worse. Lighting a fire under a hot market through continued low interest rates, increased government spending (even in the form of lowered taxes), and removing market stabilizing regulations (ala the consumer protection bureau or allowing large business mergers, and undoing net neutrality) leverage the market up to almost assure a breaking point. The last I checked, the underlying issues that contributed to the 2008 recession were also still intact - ARM mortgages, seemingly inexplicable real estate price growths, lack of bank regulation, mortgage backed securities, etc. Wellsfargo even created millions of fraudulent accounts to prop up their valuation. Just stagnant wages and increasing prices can pop a market. Here’s hoping this time the US takes on New Deal style projects to right itself. We need healthcare corrections, consumer protection, trust busting, and infrastructure. Fiber to the people. Even the opioid crisis contributes to this. Heroin addicts don’t easily keep work and their spending gets pretty ... singular. It’s having a destabilizing affect on whole populations.

by rbliss 8y ago

jsonne 8y ago

Agreed. Seems almost like a reverse gambler's fallacy in a way. That said the advice in the article is just generally good. Not have debt, have an emergency fund, etc.

rubicon33 8y ago

How does one have "low debt" and buy a home?

drchiu 8y ago
Only two ways that I can think of: * Have a lot of capital to begin with (or saved up or inherited) * Move to an area where homes are cheaper
- rubicon33 8y ago
  Having capital saved up is tough. I've tried to save as much as possible but, year after year, it's amazing that I haven't managed to save more. As for moving to a cheaper area... We all know what that means. I'm certainly looking in the "cheaper" neighborhood, but it's not the "cheapest". We all have our limits to what we consider a safe and healthy neighborhood, I suppose.
wutbrodo 8y ago
The obvious (and often unrealistic) answer is to buy a much, much cheaper home and save much more. Other than that, "low debt" isn't well-defined and all debt isn't created equal. If you get a mortgage whose payments give you a lot of wiggle room based on your income and expected future income, most people wouldn't have trouble including that situation among "low debt".
- rubicon33 8y ago
  Gotcha. That's the boat I've been in. I want to avoid debt as much as possible, but unless I'm willing to live in a really rough neighborhood, I will need to buy a home that is roughly 3.5x my gross yearly pay (before taxes). That's a lot of debt. The payments however, are manageable. So I suppose it is helpful to frame "low debt" in that way.
  - wutbrodo 8y ago
    At some level, it's a pretty reasonable definition: having all your liquidity tied up in a single asset doesn't make a lot of sense, so having a house with a mortgage secured on it is just a way of getting somewhere between renting and buying outright without having to swing to the other extreme. The main risk you're faced with is a drastic drop in value right after you buy it, but that shouldn't affect your day-to-day if your payments were affordable in the first place.
    - mark-r 8y ago
      That was the point of the article though, payments that are affordable today may not be tomorrow if your income takes a hit.
      - wutbrodo 8y ago
        Right of course, which is why some estimate of future expected income is important, including a buffer for lowered income in the future.
  - 8y ago
ohiovr 8y ago
Buy the home in cash is how. Might seem ridiculous and impossible where you are at the moment. But if tech crashes, where will you be? In my home town in the land of unimportance you can own a home for just $26K. And it isn't bad. Compared to homelessness and unpredictable future rent costs.
- outworlder 8y ago
  What, where the heck is this? Is it in the US? I don't doubt it, I have seen crazy low home prices in some backwater locations, but never as low as 26k.
  - ohiovr 8y ago
    Marion Ohio, USA. My brother even knew an dying fellow that wanted to sell his house for 10 grand. The house is kind of a relic from the 50s. When soliders came home many of them bought these little 800 sq foot homes. Marion Ohio is more than 45% senior. No tech in the town besides the broadcasters, and ordinary sys admin type stuff. But there is a little bit of tech (tiny) in Delaware Ohio, Lewis Center, and all of Columbus has tech jobs that pay anywhere from $60-100k. If you can put up with a 50 minute commute you could save up a nice pile of cash in no time. Thrift!
  - selimthegrim 8y ago
    There are parts of New Orleans where this is a thing - of course you will need to put some work into the house.
  - deleted 8y ago
    [deleted]

timr 8y ago

You're both predicting the future, but at least the OP has offered solid advice based on her prediction. You're just criticizing. Also, predicting that the status quo will continue indefinitely is an extraordinary claim. Clearly, market cycles are real. Maybe you're right. Maybe she's right. We'll find out when it happens. But by your own admission her article has solid life advice that people should be following. So clearly it has value.

NeedMoreTea 8y ago

Agreed, to a point. Having been through several more recessions, since the mid 70s, all have been different. Different symptoms, different causes, different sectors. + 1970s - Oil crisis & OPEC + 1980s - Deliberate govt policies and adoption of monetarism + 1990s - ERM, Black Monday, US S&L + 2002 - dot Com bust, post y2k contraction + 2008 - Global banking crisis The nearest I've seen to being able to "recognise the top" is some young person, usually looking too young to drive, turning up on national TV financial news explaining why "this time it's different", why the boom will continue, or why the property market isn't overheated. This is usually a clear sign that the economy is now having a Loony Tunes moment, in mid-air and not yet noticing there's no ground any more.

nostrademons 8y ago
Interestingly, I haven't seen that irrational exuberance about the economy as a whole in a long time. Perhaps for specific sectors, like mobile in 2013 or Bitcoin last December (both of which turned out to be market tops). But in general people seem incredibly pessimistic today, with none of the optimism about everything that characterized the late 90s or even the Web 2.0 boomlet from 2005-2007. People have been predicting a (further) financial crash since the bottom of the market in 2009. I wonder if that's a sign that the current boom still has a while to go.
- NeedMoreTea 8y ago
  Post 2008 has been very odd. The post recession growth phase was more like becoming bored of too long a bust than actual growth as seen previously. Some areas and sectors barely seem out of recession even now. Especially with the added pressure brought by austerity. In a lot of ways we don't yet seem done with the causes of 2008. The top could be much harder to find without hindsight. :)
judgardner 8y ago
Another term for a Loony Tunes Moment is a Minsky Moment[0] [0] https://en.wikipedia.org/wiki/Minsky_moment https://en.wikipedia.org/wiki/Minsky_moment

Theodores 8y ago

It is okay to make your own call on the general economic outlook and to share your reasons why. You don't have to wait for the crash to modify your behaviour. Closely tied with the general economy is how the climate is doing. We kind of know that soon there is going to be some crash in this with people having to modify many aspects of their lives. The rest of the world might still be going about spending ridiculous amount of time in aeroplanes and eating food dredged from the furthest ocean but that does not mean that you have to be enjoying these 'good times' too. We have been at 'peak planet trashing' for a long time, 'peak oil' came and went during this time, proven wrong. The economy, your decisions to borrow and the type of work that you do can be informed by your own internal thought process, there is no need to go along with the herd. From this lady's niche she sees it as a time to tone down the irrational exuberance. There are other people who may have the same thinking, for different reasons not visible to you. For instance, in the UK, if you are going to lose with whatever is decided regarding Brexit then you just might be thinking along the lines of the article. In your part of Little Britain you might not be able to sell your house, that is a very powerful indicator that something is up and no amount of stock market or unemployment figures are going to change your personal perspective based on the realities you know. That said, you might think that others should see the writing is on the wall. Others may scoff at you and point to the solid government statistics published in the newspapers as a bit more definitive than your personal hearsay. Nobody imagined a few rubbish mortgages sliced and diced into investment products could bring down the whole of global capitalism, but that was pretty much the situation in 2008. Right now, sitting by your pool in sunny LA, it could be hard to imagine that a 'bad Brexit' a continent away could mean you having to foreclose your home next year and put the shutters down at your business, with all cars in the garage having to be sold. It could happen. It probably won't but still it could be prudent to downsize to a house that is only as big as you need, put some savings by and get a more sensible vehicle.

joejerryronnie 8y ago
This feels like you're using the specter of an economic downturn to push your views on sustainable lifestyles. You should just say, "Everyone should have a smaller house and electric vehicle, which would also help during an economic downturn."

rcdmd 8y ago

I'll also point out the author is conflating the economy with the market.

AstralStorm 8y ago
What is one without the other? Economy is the sum total of markets. (some free other controlled)

perl4ever 8y ago

There are some specific reasons: 1. The US Fed has started a tightening cycle, and we've seen them repeatedly overshoot in the past, causing a correction or recession. Simply based on recent patterns, one might expect something to happen once short term rates get to, say, 4-5%. 2. The US President is demanding mutually exclusive things from the economy, fomenting trade wars, and attacking the independence of the Fed, which may have negative consequences. 3. The US stock market is valued more highly relative to normalized earnings than it is usually, or the rest of the world is now. 4. US Federal budget deficits are dramatically worsening. Republicans are only deficit hawks when there is a Democratic president. It's been so long since we've had real inflation that it could really shock people, and per point (2) the President appears to want low rates at the expense of inflation (at least today - who knows tomorrow).

ericabiz 8y ago

Hey rbliss, article author here. I've been out of pocket all day. I was getting ready for bed when I saw my article on the front page of Hacker News! Your comment is fair. It's late here, so I don't have the mental energy right now to write the 1000+ words I would like to on this matter. It's totally worth writing another followup blog post explaining in more detail, which I'll aim for next week. But, in brief: -- Flattening yield curve -- Ridiculously low unemployment ("full employment" is the term that's floating around) -- Record high housing prices -- Public corporations sinking profits into stock buybacks instead of acquisitions or capital investment (I find this a highly dangerous trend for the economy) -- Consumer debt levels now higher than they were in 2008 -- Subprime auto loans being "tranched" and sold to investors much like subprime housing was in 2005-7 (and this is even worse, since cars are depreciating assets): https://www.bloomberg.com/news/articles/2018-07-16/riskiest-subprime-auto-bonds-shrug-off-consumer-lending-worries https://www.bloomberg.com/news/articles/2018-07-16/riskiest-... And I saw this one yesterday: https://www.feld.com/archives/2018/07/early-stage-vcs-be-careful-out-there.html https://www.feld.com/archives/2018/07/early-stage-vcs-be-car... -- specific to the startup/tech field. If anyone has any more questions, please feel free to ask me here, and as I said above, I'll aim to write a more detailed followup next week.

rbliss 8y ago
Thanks ericabiz for the follow up. These are definitely the interesting points I was searching for in the article given the headline. It certainly seems there are indicators that the market and economy could turn south. On my personal list, I also have the structural instability created by the current tariffs and escalating trade war, geopolitical weirdness, and the long term increase of inequality. I look forward to reading your next article on this.
- ianai 8y ago
  Ever increasing personal debt and decades long stagnant wages are themselves a warning sign. It doesn’t take long for debt payments to outgrow stagnant wages - and a new round of large scale bankruptcy. There’s also the bit of wisdom I got from a professor: “The peak has come when the last hold out buys into the notion of permanent growth.” Tariffs threaten to ignite a sequence of events leading to the dethronment of the US. If the worlds base currency changes from USD be ready for the US to quickly look like Greece or worse. Lighting a fire under a hot market through continued low interest rates, increased government spending (even in the form of lowered taxes), and removing market stabilizing regulations (ala the consumer protection bureau or allowing large business mergers, and undoing net neutrality) leverage the market up to almost assure a breaking point. The last I checked, the underlying issues that contributed to the 2008 recession were also still intact - ARM mortgages, seemingly inexplicable real estate price growths, lack of bank regulation, mortgage backed securities, etc. Wellsfargo even created millions of fraudulent accounts to prop up their valuation. Just stagnant wages and increasing prices can pop a market. Here’s hoping this time the US takes on New Deal style projects to right itself. We need healthcare corrections, consumer protection, trust busting, and infrastructure. Fiber to the people. Even the opioid crisis contributes to this. Heroin addicts don’t easily keep work and their spending gets pretty ... singular. It’s having a destabilizing affect on whole populations.