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You can connect the SV housing bubble fairly directly to pension funds piling money into tech stocks and venture capital after the late-00s global financial cri

by adw 7y ago

You can connect the SV housing bubble fairly directly to pension funds piling money into tech stocks and venture capital after the late-00s global financial crisis (because bond yields were in the gutter and they're more or less obliged to seek returns somewhere, and they weren't available in less risky instruments). Same kind of problem Berkshire Hathaway has; once you're big enough, available returns are limited by how much you yourself distort the market. Pension funds used to be able to buy almost limitless bonds in order to lock in annuity returns, but a) a bunch of them are a long way underwater and b) the effective rate of interest on bonds was below zero so they were forced to seek riskier assets, bidding up the price on those, which... etc etc etc. Capital concentration – huge pension schemes, enormous corporations, big university endowments – has weird effects and it happens in all kinds of places.

pm90 7y ago
I wonder what would be a good way to deploy that concentrated capital. Essentially, it’s the combined labor of a large pool of people, hoping that their capital will be deployed in places where it will earn great returns. What happens when these pockets of wealth don’t have anywhere to go? Related: pensions are out of fashion in the US. Where is the wealth of young Americans going nowadays?
- ummonk 7y ago
  >Where is the wealth of young Americans going nowadays? 401k / ira though more commonly paying down student debt.
- pianoben 7y ago
  Rent, healthcare, etc. Some have 401k accounts, if they are lucky, otherwise you have IRAs which have an annual contribution limit of $6000, IIRC (am not an expert and am likely wrong on that point). Pensions are unavailable and housing is out of reach for most.
- neom 7y ago
  Most Americans don't have student debt to pay down (44million), nor a 401k (55million). Most young Americans are just trying to get by, I'd imagine "wealth" isn't a reality for most, outside of maybe emotional wealth.
- toomuchtodo 7y ago
  There are few, if any, productive ways to deploy those huge swaths of capital that can command the risk adjusted returns those funds seek. See: negative yields on bonds across the world, and VC gambles.
- hermitdev 7y ago
  I'm 38 and have a pretty good salary. About 50% after tax goes to rent, 25% goes to paying down debt inherited from getting married and medical bills (previous employer had shit insurance). The last 25% is what we live on for essentials (insurance, gas and tolls to go to work, utilities, food, etc). My wife and I have long ago paid off out student loan debt. We have 10s of thousands in high interest, unsecured debt. Debt, that in theory we could pay off tomorrow from savings. However, since most of my savings (my wife has none) is spread across 2 401ks, a Roth IRA, a traditional IRA and a taxed investment account, and I work for an investment fund, I'm subject to all sorts of lockups, retention requirements and blacklists on trades on securities held by my employer. Tl;Dr; I have savings to cover my debts, but cant legally access most of it. I'm not unhappy that I got married, but I didn't consider the financial repercussions before I went through with it.
  - prawn 7y ago
    With debt from marriage, are you talking about the costs of a wedding, or taking on debt from your wife or something else?
    - hermitdev 7y ago
      Taking on debt from my wife, cost of the rings, wedding was cheap, we just did a justice of the peace wedding. Also, furniture for our new place (needed more than my 1-bedroom + den apartment). Lots of little things that just kept adding on.
  - openureye1s28 7y ago
    50% for rent? You are either living way beyond your means, or not earning your true market value in your area.
- lotsofpulp 7y ago
  If they have wealth, it’s typically going into broad stock market index funds or ETFs such as VTI, or target date retirement funds which are the same mixed with some bonds. Probably the right thing to do given that money is concentrating in a few large companies, and the government will bail them out no matter what. $9 out of $10 goes to Vanguard, as of 2017: https://www.nytimes.com/2017/04/14/business/mutfund/vanguard-mutual-index-funds-growth.html https://www.nytimes.com/2017/04/14/business/mutfund/vanguard... And their total stock market index fund sends 25% of that money into the top 10 companies: https://investor.vanguard.com/etf/profile/overview/VTI https://investor.vanguard.com/etf/profile/overview/VTI The money is going to the equity value of all of these companies, with the biggest getting the most, hence the high pay due to stock options at FAANG: Microsoft Corp. Apple Inc. Amazon.com Inc. Facebook Inc. Class A Berkshire Hathaway Inc. Class B Alphabet Inc. Class A Alphabet Inc. Class C JPMorgan Chase & Co. Johnson & Johnson Exxon Mobil Corp. Visa Inc. Class A Procter & Gamble Co. Bank of America Corp. Walt Disney Co. AT&T Inc. Mastercard Inc. Class A
  - viraptor 7y ago
    That's quite a lot of internet/finance exposure. Let's hope it doesn't suddenly crash again...
    - lotsofpulp 7y ago
      That’s where all the profit margins are in publicly traded companies due to low marginal costs, infinite scalability, low liability, and huge barriers to entry. Even if it crashes, since so many voters are invested in it, they’ll just get a bail out at the cost of reducing value of USD. Which isn’t a problem as long as the US stays relatively powerful in the world.
johnvanommen 7y ago
> Capital concentration – huge pension schemes, enormous corporations, big university endowments – has weird effects and it happens in all kinds of places. That reminds me of the market for exotic cars. Twenty years ago, the market had completely collapsed. The dot com bubble had popped. You could get used Ferraris for under $100K. Fast forward to 2019, and Bugatti is offering new cars for four million and up. Something's gotta give.
lotsofpulp 7y ago
>so they were forced to seek riskier assets By using erroneous assumptions about future investment gains, corrupt investments causing losses, and governments choosing not to invest any money into the pension fund in the first place. All self afflicted, all avoidable if people would acknowledge that they don’t have the ability to predict investment returns 20+ years into the future.

by adw 7y ago

pm90 7y ago

I wonder what would be a good way to deploy that concentrated capital. Essentially, it’s the combined labor of a large pool of people, hoping that their capital will be deployed in places where it will earn great returns. What happens when these pockets of wealth don’t have anywhere to go? Related: pensions are out of fashion in the US. Where is the wealth of young Americans going nowadays?

ummonk 7y ago
>Where is the wealth of young Americans going nowadays? 401k / ira though more commonly paying down student debt.
pianoben 7y ago
Rent, healthcare, etc. Some have 401k accounts, if they are lucky, otherwise you have IRAs which have an annual contribution limit of $6000, IIRC (am not an expert and am likely wrong on that point). Pensions are unavailable and housing is out of reach for most.
neom 7y ago
Most Americans don't have student debt to pay down (44million), nor a 401k (55million). Most young Americans are just trying to get by, I'd imagine "wealth" isn't a reality for most, outside of maybe emotional wealth.
toomuchtodo 7y ago
There are few, if any, productive ways to deploy those huge swaths of capital that can command the risk adjusted returns those funds seek. See: negative yields on bonds across the world, and VC gambles.
hermitdev 7y ago
I'm 38 and have a pretty good salary. About 50% after tax goes to rent, 25% goes to paying down debt inherited from getting married and medical bills (previous employer had shit insurance). The last 25% is what we live on for essentials (insurance, gas and tolls to go to work, utilities, food, etc). My wife and I have long ago paid off out student loan debt. We have 10s of thousands in high interest, unsecured debt. Debt, that in theory we could pay off tomorrow from savings. However, since most of my savings (my wife has none) is spread across 2 401ks, a Roth IRA, a traditional IRA and a taxed investment account, and I work for an investment fund, I'm subject to all sorts of lockups, retention requirements and blacklists on trades on securities held by my employer. Tl;Dr; I have savings to cover my debts, but cant legally access most of it. I'm not unhappy that I got married, but I didn't consider the financial repercussions before I went through with it.
- prawn 7y ago
  With debt from marriage, are you talking about the costs of a wedding, or taking on debt from your wife or something else?
  - hermitdev 7y ago
    Taking on debt from my wife, cost of the rings, wedding was cheap, we just did a justice of the peace wedding. Also, furniture for our new place (needed more than my 1-bedroom + den apartment). Lots of little things that just kept adding on.
- openureye1s28 7y ago
  50% for rent? You are either living way beyond your means, or not earning your true market value in your area.
lotsofpulp 7y ago
If they have wealth, it’s typically going into broad stock market index funds or ETFs such as VTI, or target date retirement funds which are the same mixed with some bonds. Probably the right thing to do given that money is concentrating in a few large companies, and the government will bail them out no matter what. $9 out of $10 goes to Vanguard, as of 2017: https://www.nytimes.com/2017/04/14/business/mutfund/vanguard-mutual-index-funds-growth.html https://www.nytimes.com/2017/04/14/business/mutfund/vanguard... And their total stock market index fund sends 25% of that money into the top 10 companies: https://investor.vanguard.com/etf/profile/overview/VTI https://investor.vanguard.com/etf/profile/overview/VTI The money is going to the equity value of all of these companies, with the biggest getting the most, hence the high pay due to stock options at FAANG: Microsoft Corp. Apple Inc. Amazon.com Inc. Facebook Inc. Class A Berkshire Hathaway Inc. Class B Alphabet Inc. Class A Alphabet Inc. Class C JPMorgan Chase & Co. Johnson & Johnson Exxon Mobil Corp. Visa Inc. Class A Procter & Gamble Co. Bank of America Corp. Walt Disney Co. AT&T Inc. Mastercard Inc. Class A
- viraptor 7y ago
  That's quite a lot of internet/finance exposure. Let's hope it doesn't suddenly crash again...
  - lotsofpulp 7y ago
    That’s where all the profit margins are in publicly traded companies due to low marginal costs, infinite scalability, low liability, and huge barriers to entry. Even if it crashes, since so many voters are invested in it, they’ll just get a bail out at the cost of reducing value of USD. Which isn’t a problem as long as the US stays relatively powerful in the world.

johnvanommen 7y ago

> Capital concentration – huge pension schemes, enormous corporations, big university endowments – has weird effects and it happens in all kinds of places. That reminds me of the market for exotic cars. Twenty years ago, the market had completely collapsed. The dot com bubble had popped. You could get used Ferraris for under $100K. Fast forward to 2019, and Bugatti is offering new cars for four million and up. Something's gotta give.

lotsofpulp 7y ago

>so they were forced to seek riskier assets By using erroneous assumptions about future investment gains, corrupt investments causing losses, and governments choosing not to invest any money into the pension fund in the first place. All self afflicted, all avoidable if people would acknowledge that they don’t have the ability to predict investment returns 20+ years into the future.