5 ms·

This crisis was not caused by the Corona virus. It is only the pin that burst a bubble that was already there, and if no virus would have happened, something el

by oDot 7y ago

This crisis was not caused by the Corona virus. It is only the pin that burst a bubble that was already there, and if no virus would have happened, something else would have burst it. Austrians see the depression as a necessary correction, and the bubble as a problem. I actually sat down for a few hours to calculate what would have happened if this pandemic happened in the 50s, and no one could work (especially true since there was no internet). Seems like people saved enough for a year at home, on average. Today people are so levered up not only do they not have savings, they have to pay back debt.

postingawayonhn 7y ago
This pandemic is more like a cruise missile than a pin. I've been saying for a few years that a recession is coming but I'm not going to pretend I thought it would be started by an event like this. Recessions are simply a natural part of the business cycle and after such a long 'boom' period there was certain to be one eventually.
IAmGraydon 7y ago
We are de facto not in a bubble. Market growth over the last decade has been steady and healthy. A long term bull market does not define a bubble.
- nickysielicki 7y ago
  > A long term bull market does not define a bubble. No, but inverted yield curves do.
  - rjtavares 7y ago
    The only thing that defines a bubble is the post fact realization that it burst.
    - oDot 7y ago
      A P/E ratio of 94.33 for Amazon is surely a bubble.
      - lazyjones 7y ago
        Why? Has Amazon stopped growing, does it have 100% market share, are competitors closing up?
      - jandrewrogers 7y ago
        P/E ratio is only meaningful for companies with little or no revenue growth. For companies with very strong revenue growth, like Amazon, revenue growth is financed with earnings, which creates a misleadingly high P/E ratio. Investors know this. For these companies, it is more useful to look at metrics like market cap/revenue to determine if they are overpriced, which at 3-4x for Amazon is in a very healthy range. Simple metrics like P/E ratio tell you little about the health of a company when taken out of context; a low P/E ratio is often a sign of a failing company. As more of the largest companies in the market exhibit strong revenue growth, it drives the P/E ratio of the broader market higher without implying anything about the underlying equities.
- fbonetti 7y ago
  The Fed artificially lowered the interbank rate to zero percent for ~7 years after 2008, bought other treasuries across the yield curve, and bought trillions in mortgage backed securities. This created an environment that disincentivized saving and encouraged borrowing for both individuals and businesses alike. The market growth over the past 10 years was completely fueled by this artificially cheap credit. The economy was already extremely fragile before the coronavirus hit due to how over leveraged everyone was.
alecmg 7y ago
Less a pin to a bubble, more a wrecking ball to a house made of sticks Effectively shutting down more than half of all business is slightly more than bursting a bubble. It is world war II scale event, with exception that there is no war that could take all the unemployed hands to the front and to producing weapons.
- lazyjones 7y ago
  > Effectively shutting down more than half of all business is slightly more than bursting a bubble. It is world war II scale event, But let's not forget that this wasn't caused by the virus itelf, it was consciously decided by politicians to trade an (unknown in magnitude) risk for a huge recession.
  - Nasrudith 7y ago
    That seems a bit semantic given that even cartel run Favellas quarantined and they are money over life. It is a bit "I didn't murder the person I kidnapped, they committed suicide." Technically true but the responsibility is the same as if they had.
    - lazyjones 7y ago
      Are you seriously using (some) Favellas as a benchmark for reasonable assessment of a pandemic? Some people are scared. It won't affect the inherent risk associated with the virus.
dangus 7y ago
There’s no way we can assume that the coronavirus was a pin to a bubble. Look at the unemployment claims chart. This has never happened before in the entire 20th century. That’s not a pin. That’s a collapse in employment. It doesn’t really matter whether or not people have savings. Economic recessions don’t mean “people don’t have their savings anymore.” They’re a reduction in economic activity. That doesn’t have to happen because people are literally out of money, it can happen because people are unwilling to spend as much as they used to. Take the best-off person right now as an example. They still have a job, working from home. They have 6-12 months of emergency fund. Despite all this, are they going to buy anything but essentials right now? Plus, in many cases, they don’t have a choice. They’re not allowed to pay for their gym membership. They’re not allowed to take dance classes. They’re not allowed to go on vacation. They’re sitting at home buying groceries and nothing else just like the person with no savings.
take_a_breath 7y ago
==Seems like people saved enough for a year at home, on average. Today people are so levered up not only do they not have savings, they have to pay back debt.== Odd that you don’t mention wages. Seems like middle-income wages are stagnant while housing, healthcare and education get more and more expensive. Not hard to see how that would cut into household budgets and encourage debt.

by oDot 7y ago

postingawayonhn 7y ago

This pandemic is more like a cruise missile than a pin. I've been saying for a few years that a recession is coming but I'm not going to pretend I thought it would be started by an event like this. Recessions are simply a natural part of the business cycle and after such a long 'boom' period there was certain to be one eventually.

IAmGraydon 7y ago

We are de facto not in a bubble. Market growth over the last decade has been steady and healthy. A long term bull market does not define a bubble.

nickysielicki 7y ago
> A long term bull market does not define a bubble. No, but inverted yield curves do.
- rjtavares 7y ago
  The only thing that defines a bubble is the post fact realization that it burst.
  - oDot 7y ago
    A P/E ratio of 94.33 for Amazon is surely a bubble.
    - lazyjones 7y ago
      Why? Has Amazon stopped growing, does it have 100% market share, are competitors closing up?
    - jandrewrogers 7y ago
      P/E ratio is only meaningful for companies with little or no revenue growth. For companies with very strong revenue growth, like Amazon, revenue growth is financed with earnings, which creates a misleadingly high P/E ratio. Investors know this. For these companies, it is more useful to look at metrics like market cap/revenue to determine if they are overpriced, which at 3-4x for Amazon is in a very healthy range. Simple metrics like P/E ratio tell you little about the health of a company when taken out of context; a low P/E ratio is often a sign of a failing company. As more of the largest companies in the market exhibit strong revenue growth, it drives the P/E ratio of the broader market higher without implying anything about the underlying equities.
fbonetti 7y ago
The Fed artificially lowered the interbank rate to zero percent for ~7 years after 2008, bought other treasuries across the yield curve, and bought trillions in mortgage backed securities. This created an environment that disincentivized saving and encouraged borrowing for both individuals and businesses alike. The market growth over the past 10 years was completely fueled by this artificially cheap credit. The economy was already extremely fragile before the coronavirus hit due to how over leveraged everyone was.

alecmg 7y ago

Less a pin to a bubble, more a wrecking ball to a house made of sticks Effectively shutting down more than half of all business is slightly more than bursting a bubble. It is world war II scale event, with exception that there is no war that could take all the unemployed hands to the front and to producing weapons.

lazyjones 7y ago
> Effectively shutting down more than half of all business is slightly more than bursting a bubble. It is world war II scale event, But let's not forget that this wasn't caused by the virus itelf, it was consciously decided by politicians to trade an (unknown in magnitude) risk for a huge recession.
- Nasrudith 7y ago
  That seems a bit semantic given that even cartel run Favellas quarantined and they are money over life. It is a bit "I didn't murder the person I kidnapped, they committed suicide." Technically true but the responsibility is the same as if they had.
  - lazyjones 7y ago
    Are you seriously using (some) Favellas as a benchmark for reasonable assessment of a pandemic? Some people are scared. It won't affect the inherent risk associated with the virus.

dangus 7y ago

There’s no way we can assume that the coronavirus was a pin to a bubble. Look at the unemployment claims chart. This has never happened before in the entire 20th century. That’s not a pin. That’s a collapse in employment. It doesn’t really matter whether or not people have savings. Economic recessions don’t mean “people don’t have their savings anymore.” They’re a reduction in economic activity. That doesn’t have to happen because people are literally out of money, it can happen because people are unwilling to spend as much as they used to. Take the best-off person right now as an example. They still have a job, working from home. They have 6-12 months of emergency fund. Despite all this, are they going to buy anything but essentials right now? Plus, in many cases, they don’t have a choice. They’re not allowed to pay for their gym membership. They’re not allowed to take dance classes. They’re not allowed to go on vacation. They’re sitting at home buying groceries and nothing else just like the person with no savings.

take_a_breath 7y ago

==Seems like people saved enough for a year at home, on average. Today people are so levered up not only do they not have savings, they have to pay back debt.== Odd that you don’t mention wages. Seems like middle-income wages are stagnant while housing, healthcare and education get more and more expensive. Not hard to see how that would cut into household budgets and encourage debt.