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> And as has often been the case in recent years, investors find themselves faced with few attractive alternatives if they opt out of betting on stocks. The pro
by magicsmoke 6y ago
> And as has often been the case in recent years, investors find themselves faced with few attractive alternatives if they opt out of betting on stocks. The problem is so familiar it has its own acronym: TINA, or There Is No Alternative to stocks.
Cash: Gets eaten away by inflation. Although the CPI doesn't indicate high inflation it only measures consumer goods. Inflation is there in the price of investments. If you don't invest now, it'll cost you much more in the future to own assets with positive rates of return.
Bonds: Near 0% interest rate, practically no better than holding cash.
Real Estate: Not nearly as liquid as stocks, but the price of real estate is propped up by similar logic.
International Investments: Now this could be interesting if capital flight from the US begins occurring. However, every other economy is hurting like the US's or has significant problems with transparency and whether investors can get their money back out again.
Stocks are more than just their market price. They represent ownership in a piece of the American economy and its future dividends. As of 2016, the richest 10% of America owns 86% of its stocks / future economic output. With the economy plunging while stock prices remain high, this means the fence between being a renter and a owner just got even higher.
- bb2018 6y agoI agree. Also, I know it is hip to say that Wall Street is short-sighted, but in reality it is one of the the few fields where people routinely think decades at a time. If you run a large pension fund or investment account you were already risk-weighted and if the cash isn't needed for 10+ years you'd much rather own a slice of the world's largest companies ten years from now instead of gold or cash under a mattress.
- chiefalchemist 6y agoIt's all about risk vs return. Furthermore, in the current environment of high adversity, and increased scarcity there will eventually be innovations. Some of those will translate into products and profits.
- TAForObvReasons 6y agoThe problem is perception. Stocks are increasingly seen as a risk-free play, backstopped by a Fed that will take drastic action if prices fall. In that world, why bother innovating? Why bother investing in innovation when the risk-free play has a huge positive expected return?
- chiefalchemist 6y agoBecause the Fed isn't there all the time. Under normal circumstances, you can't just sit there. Aside from competition, you won't retain quality employees.
- hannasanarion 6y agoBut they are now, and that's what matters. When prices fell the first time, it didn't even take a week before the government passed the largest stimulus ever, 80% of which went to corporations. Investors know that the government will do anything to underwrite their risk.
- chiefalchemist 6y agoNah. That doesn't guarantee a return. It might mitigate the downside but there's still risk. No one takes on risk to break even. You invest for a return. Stopping a slide yesterday has little to do with getting a return tomorrow. The future. New products. New ideas. Etc. That's where a return comes from. Not the Fed.
- deleted 6y ago[deleted]
- dharma1 6y agoThe mandate of the fed is to have maximum employment and price stability. With the impact of social distancing to businesses there was no other alternative to protect employment rather than fed buying securities so the govt has funds for fiscal stimulus to prop up employers that might otherwise go bust (and may still). The stimulus is intended to protect jobs and livelihoods, not to react to movements in the stock market (even if the current president seems to think so)
- JKCalhoun 6y agoI feel like there is a decade of guillotines in the future that they are either not seeing or are looking way past. But then I've always been cynical about the growing divide between the uber-wealthy and the other 99% of this country.
- lotsofpulp 6y agoGuillotines might have worked well in the past, but with modern weapons and technology, you can use a much smaller portion of the population to suppress a much larger portion of the population. You can pay 10% of the population well enough that they support the top 0.01%, and the top 10% can pay the next 20% to 30% well enough or provide a sufficient probability to move up (or illusion) that they are incentivized to help suppress the remaining 60%.
- hnarn 6y agoAlso known as the "Tyranny of the Majority". https://en.m.wikipedia.org/wiki/Tyranny_of_the_majority https://en.m.wikipedia.org/wiki/Tyranny_of_the_majority
- chrisco255 6y agoUh, you can't just pay massive numbers of the population without the wealth creation in the first place. We do not have some centralized salary authority that pays people based on loyalty to some arbitrary payment distribution scheme. This is completely contrived.
- lotsofpulp 6y agoIt doesn't need to be centrally managed, the situation can emerge organically just based on how people are incentivized. Especially with the impact computers and scaling at low marginal costs has and how much more one person's labor can be worth compared to another person's labor.
- DSingularity 6y agoOh how splendid.
- myth_drannon 6y agoAustralian, South Korean and New Zealand's currencies jumped in value because they handled the pandemic very well and are now very attractive investments.
- quag 6y agoAs a counter point, the AUD, KRW, and NZD all buy fewer USD today than they did on 2020-01-01. The three currencies have risen from the big drops on 2020-03-18, but are still worth less than earlier in the year.
- chii 6y agoThe currencies have little to do with the wellness of how the gov't handled the crisis. It has more to do with demand, and theres' just a lot of demand for USD, simply because it is considered a reserve currency, and a lot of people would rather hold it than their own native country's currency.
- xuki 6y agoI think that's because during a crisis people flock to USD for safety, now that it seems to be under control, people are selling those USD again.
- gjs278 6y agoaustralian dollars have been shedding value for years
- dataminer 6y agoWhat about high yield bonds, are they worse than investing in stocks right now?
- kelnos 6y agoDepends on the issuer. As I mention upthread, I think US major airline bonds are probably ok, more or less regardless of rating, since the gov't will always bail them out in the end. The largest hotel/hospitality chains may befine as well (though I haven't looked into their financial situation). But businesses will still continue to disappear over the next year from this, so I would tread with care.
- chii 6y ago> I think US major airline bonds are probably ok, more or less regardless of rating, since the gov't will always bail them out in the end tbh, i think the US gov't really shouldn't be doing bailouts. Equity and bonds _should_ come with appropriate risks, and these risks should be discovered (via pricing of the interest rate for bonds, and for the expected risk-premium in equity). The distortions happening right now is that the Feds backstopping bankruptcies is causing money to be lent out much more freely than it would've been. This means more worth businesses do not get their chance. It's like the analogy of bushfires. Big firestorms will clean out the undergrowth, kill the weaker trees, and let the new seedlings grow afterwards. The pain is short term. If the gov't wants to ease the pain, they need to make unemployment benefits greater, rather than bailout existing businesses. I say this, even tho i own shares, because to not do so means to entrench the moral hazard of socializing losses and privatizing gains.
- vadym909 6y agoI'm surprised the average Americans (the 90%) don't get that they are providing insurance to the 86% wealth of the top 10%, but get almost none of the gains.
- deleted 6y ago[deleted]
- sharemywin 6y agoagain it comes down to options. name something that: 1. the government eats the loses. 2. liquid 3. better returns.
- jl2718 6y agoThis is not at all the situation. Reality is the 1% (wealth) making the 10% (income) pay for the 90% (both) to support their investments with consumption and debt.
- telaelit 6y agoTrickle down economics doesn’t work. If it did then wages would have increased in the past 40 years, but they’ve remained stagnant while the rich get richer and cost of living skyrockets. But if you prefer to lick the boots of our plutocratic overlords, feel free
- tryptophan 6y agoBut...wages have increased over the past 40 years...and at a greater rate than in Europe/Aus/other developed.
- TaylorAlexander 6y agoWell it seems like “real wages” have not increased in decades? https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/ https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...
- Hydraulix989 6y agoWhy are stocks inaccessible to so many Americans? There are fractional shares, and you do not have to be an accredited investor.
- bb2018 6y agoWhile a modest fraction of people trade individual stocks, a lot of Americans have some type of 401k, pension, or retirement account that is tied to the stock market. This pegs it at 50% of private sector workers and 80% of public sector workers. https://www.pensionrights.org/publications/statistic/how-many-american-workers-participate-workplace-retirement-plans https://www.pensionrights.org/publications/statistic/how-man... Additionally, in many cases, couples may just have one person with access or contributions to the market - but this still leaves them exposed (for good and bad) to the market.
- anthony_doan 6y agoPension are 403b which is 401k equivalent just fyi. I'm on it current shift toward tbill/bonds.
- kitotik 6y agoBecause many Americans can’t even pay their current bills or save literally a single dollar. So fractional shares are irrelevant unless they are free.
- mobilefriendly 6y agoThere's a gap between those folks, though, and the median household which earns $63,000 a year but has almost no savings or stock holdings. The median household wealth is $100,000 and that's almost all housing.
- elros 6y agoWell, you can't live inside stock certificates :-)
- 6y ago
- jhallenworld 6y agoFaith in humanity: buy stocks. No faith in humanity: buy gold. Large cap stocks are to some degree an international investment. REITs: well they are down, maybe more of an opportunity if only because the good stocks are so high.
- xtiansimon 6y ago> Faith in humanity: buy stocks. No faith in humanity: buy gold. Speaking to a friend who bought stocks recently, they said, "I'm bullish on America." I might say if you are the opposite of bullish, then buy gold. And if you have no faith in humanity, buy a survivalist bunker.
- cgb223 6y ago> And if you have no faith in humanity, buy a survivalist bunker. What’s the rent on a bunker these days? If it’s cheaper than an apartment in SF I might go in on it
- filoleg 6y agoI bet you can build your own luxury bunker somewhere in midwest for way less than a dinky studio condo would cost ya in SF. The real issue is the cost of land and zoning laws, not the actual entity built on that land (obvious exceptions apply, e.g., we are talking about buildings that fit a few families tops, obviously not something like a highrise with over a hundred of units).
- catalogia 6y agoUnless you think the bombs are going to fall, you'd be better off getting some sort of cabin than a bunker. Living underground has a lot of challenges; it's expensive to build down there and you'll constantly be fighting moisture and mold.
- jjoonathan 6y agoI think the threat model is packs of desperate people looking to take your stuff, not bombs.
- 6gvONxR4sf7o 6y agoIs that 86% figure a portion of the public market, or of the entire market?
- lumost 6y agoHow much of the TINA phenomenon could be due to lack of capital formation throughout the economy? e.g. if 90% of America is too capital poor to form businesses or dream up new economic needs, then wouldn't it follow that printing money into existing asset classes would simply raise their price with no viable places to invest the money?
- jjoonathan 6y agoYes. I'm sure plenty of Theranos / WeWork style opportunities will emerge to pick up the slack. It's a fundamental problem of capitalism: the market's notion of "value" is weighted by wealth, without growth to stir things up wealth concentrates, and those looking to create value are increasingly forced to search for marginal "rich people problems" rather than tackle obvious "poor people problems." You wind up in a paradoxical situation where there are lots of obvious problems that could be fixed by obvious application of labor (e.g. crumbling infrastructure) yet nobody can find a job. This is why inequality is bad. Equality is bad because then you can't incentivize people, but that point generally gets enough air time already. To optimize this system, we should identify which extreme is currently posing a larger threat and back away from it.
- xondono 6y agoExactly, you get rich by doing what the rich want, not what most people want, that’s why Lamborghini owns Volkswagen! Wait..
- deleted 6y ago[deleted]
- jjoonathan 6y agoServing the middle class is an excellent strategy precisely to the extent that the middle class has money. Serving the middle class was an excellent strategy precisely to the extent that the middle class had money. Serving the middle class will be an excellent strategy precisely to the extent that the middle class will have money.
- dasudasu 6y agoI don't think it's unreasonable to not want to be holding cash (if one doesn't need it) in the face of so many monetary injections. 2008 showed us that all this stimulus money eventually ends up in assets, aka trickle-down economics, but in reverse. If have been buying since the lows, you're just front-running the FED. The worse is over in that it is now very unlikely that the stock market will retest the lows in nominal terms.
- deleted 6y ago[deleted]
- thaumasiotes 6y ago> The problem is so familiar it has its own acronym: TINA, or There Is No Alternative to stocks. > the price of real estate is propped up by similar logic. This is where the idea falls apart. They can't both be propped up by the fact that there's nothing else around. They're two different things.
- namenotrequired 6y ago"No alternative" means "no better alternative". They can both be equally mediocre.
- kazen44 6y agoBut is that true though? also, isn't "no better alternative" in the eye of the beholder?
- shostack 6y agoSo what would you say are liquid, relatively low risk alternatives to holding cash? Worth diversifying into other currencies?
- chrisco255 6y agoNo, every other currency is going to inflate faster than the dollar. Gold is a good hedge, whether physical or ETF or gold mining stocks.
- kelnos 6y agoCorporate bonds are... interesting... now. I've been looking at airline bonds that mature in the next 6 to 18 months. Quite a few of them have yields-to-maturity north of 7%. I figure airline bonds aren't super risky (at least for the majors in the US), since the US gov't will prop them up until the end of time. Some of these aren't rated investment-grade anymore, but I don't particularly trust the ratings to be all that useful at this time. Airline stocks probably have a bigger upside, but they're quite a bit riskier. Bondholders do get priority in a bankruptcy, if it comes to that (though I'd doubt it).
- bobbyi_settv 6y agoJust because you believe the government won't let the airlines go away doesn't ensure that the bonds are safe. Sometimes keeping a company in business involves a restructuring such that those bonds won't pay out as you're expecting.
- cm2187 6y agoLike United Airlines.
- quietbritishjim 6y agoGenuine question: if a company didn't pay out on its bond, that's a default; how can it default without going bankrupt?
- empath75 6y agoGoing bankrupt means lenders and shareholders are wiped out but the company can be restructured and continue operating.
- peteretep 6y agoI believe what you’re missing here is a “Chapter 11 Bankruptcy”, as opposed to a “Chapter 7 Bankruptcy”. Chapter 11 means the business keeps running, but the owners lose their money, Chapter 7 is what most of the world considers to be a bankruptcy / going bust / liquidation. Uncle Sam probably doesn’t care if Delta does a Chapter 11, as long as the planes keep flying.
- masnao 6y ago> cash: eaten by inflation. americans haven't had real inflation since the military backed greenback. it will be very interesting to see how much that outdated system can hold after being stretched so much by the feds (fed and federal govt).
- glofish 6y agonot true at all. The inflation has been gigantic, when expressed in as the price of owning a home or getting educated. the traditional measures of inflation expressed in the price of other goods are not capturing the real story. Those good are much cheaper today and mask the actual decrease in purchasing power.
- christophilus 6y agoAgreed: home, college, basic surgery... Some of our costs are through the roof. Others have been kept low due to technology, hyper optimization, or leveraging slave wages in a developing country.
- sudosysgen 6y agoIndeed. Pegging inflation to the cost of labour-intensive goods is a thinly veiled lie.
- ravenstine 6y agoI can't find it at the moment, but I remember a graph that showed the price of goods over a period of something like 30 years. Things like clothes, food, gadgets, cars, etc., we're shown to have decreased in price. Things we actually need like education, medical care, and housing had risen astronomically. So even if the dollar itself doesn't inflate much, it still can have significantly less buying power, as you say. What's worse is the cheapness and ubiquity of gadgets serves to mask the problem by making everyone think they have more wealth than they really do.
- masnao 6y agoeven if you account the unofficial inflation, name one single country that had similar (or even close) to the US ratio of printed money to total economy, since the the 1970s. after 2008 was just the cherry on top.
- odiroot 6y ago> Bonds: Near 0% interest rate, practically no better than holding cash. You can still buy bonds of a bit less-developed nations. E.g. "new" EU nations. They usually offer better RoI than Western EU bonds.
- nipponese 6y agoWhen calculating in risk of default, I think finding a better treasury note deal than U.S. TIPS will be hard.
- agilebyte 6y agoThat introduces the risk of currency exchange, unless you find bonds that are hedged to your local currency.
- chii 6y agoThe risk premium is always quite fair with bonds imho. These less developed nations will have a higher default risk. Buying them can make the bond act more like equity than bonds!
- cm2187 6y agoAt the end of the day, stock prices have to be justified by earnings. A massive over valuation isn’t sustainable for very long.
- christophilus 6y agoI wonder. Investing is all about relative yield. If stocks return 0.5% and treasuries return -4%, stocks will sustain higher ratios than the historical mean. But I’m putting my money where your mouth is and betting on a correction.
- cm2187 6y agoTrue but you are taking say a -30% loss risk for only 0.5% expected return. I don’t think any risk manager is going to be very comfortable with that risk/reward.
- HPsquared 6y agoCash might have a similar risk (inflation).
- xvilka 6y agoJust use dynamic hedging, risks will be smaller.
- chii 6y ago> -30% loss risk for only 0.5% expected return. vs the alternative - a guaranteed loss of 4%? And the expectation of only 0.5% return is only going to be short term. Long term recovery is a good bet imho.
- bo1024 6y agoWhy? A lot of the value of a stock is ability to resell at a high price later. If everyone (including U.S. Fed and gov) agrees to continue to push prices high for the forseeable future, then it seems like prices can lose connection to e.g. ownership in a company.
- WalterBright 6y ago> the richest 10% of America owns 86% of its stocks I don't buy that, as a much larger percentage of stock ownership is pension plans, where ordinary people indirectly own stock.
- aeturnum 6y agoThe 86% number was (more or less - the article says 84%) supported by the times in 2018. Their analysis includes pension plans. https://www.nytimes.com/2018/02/08/business/economy/stocks-economy.html https://www.nytimes.com/2018/02/08/business/economy/stocks-e...
- WalterBright 6y agoThe article shows 45% of American households have a pension plan that's invested in stocks.
- anamexis 6y agoRight, but: > A whopping 84 percent of all stocks owned by Americans belong to the wealthiest 10 percent of households. And that includes everyone’s stakes in pension plans, 401(k)’s and individual retirement accounts, as well as trust funds, mutual funds and college savings programs like 529 plans.
- ComputerGuru 6y agoThat’s entirely orthogonal though, isn’t it?
- WalterBright 6y agoThe point is they are participating in the stock market and benefiting from its gains.
- ComputerGuru 6y agoThat’s true. I suppose there’s not much else they/we can do and the 86% represents the status quo even after their efforts.
- WalterBright 6y agoBuying stocks has never been more democratic. Anyone with $100 can buy stocks. No brokerage fees, and fractional shares are now common. We also just passed what in hindsight will likely be seen as a historic buying opportunity.
- amiga_500 6y agoInequality is huge, just because you can buy 0.0000001% of IBM doesn't make that fair/democratic.
- WalterBright 6y agoIf you buy stocks, you'll have the same proportionate gains/losses as everyone else who buys the same stocks. Sounds fair to me.
- amiga_500 6y agoNo, because workers are underpaid to get stocks to rise. Capitalists get to have their cake and eat it.
- loco5niner 6y agoSo, become a Capitalist. You can start with $100
- durnygbur 6y agoI'm pretty sure the top executives and management don't pay 30% dividend tax, if they pay any at all.
- WalterBright 6y agoIf they receive dividends, they pay income tax on it. Note that poor people pay 0% income taxes on capital gains and dividends.
- 6y ago
- throwquestion24 6y agoBut why buying stocks of companies that will be bankrupt in the coming months?
- Galanwe 6y agoIf you allow me to complement your breakdown: - bonds: Definitely not 0% interest rate, definitely better than cash. You can expect around 1.5% in the US for IG bonds. This is all relative to the default risk of course, the stronger your central bank, the less risky are the bonds, the less interests you earn. - Real estate: you don't have to own it directly. This exposes yourself to a huge idiosyncratic risk. You can easily get real estate exposure while maintaining diversification and liquidity through REITs, which are trendy since at least 10 years. There's a whole lot of other investments if you dare to look into it. You can play with currencies (FX, IRS) if you have macroeconomic views. You can play with debts (CLO, CDS) if you have views on the corporate debt market, etc.
- evandijk70 6y agoMost bonds in the EU are below 0% interest rate.
- Galanwe 6y agoHu... No. Only short term notes are negative.
- arcticbull 6y ago> You can expect around 1.5% in the US for IG bonds. Sure, but the fed's target inflation rate is around 2%. That means you're in fact losing 0.5% of your purchasing power per annum. That's just losing money slower. There is in fact, no alternative.
- mixmastamyk 6y agoAlso the interest will be taxed.
- Galanwe 6y agoNot sure how taxes work in the US exactly. Here in Hong Kong we have withholding tax but no capital gain tax, so you can effectively buy zero coupon 3 month govy notes tax free.
- addHocker 6y agoPeak physical reality has been reached 2005 - after that is virtual values as gambling money, while the environment is constricting ever since.