7 ms·

The author says the stock market rallies are "Not suprising when you take into consideration the amount of liquidity being injected into markets by the BOJ, ECB

The author says the stock market rallies are "Not suprising when you take into consideration the amount of liquidity being injected into markets by the BOJ, ECB, FED and PBOC." Have we ever seen this happen before - either in the US or another country in a similar circumstance? What are the medium- and long-term consequences of this amount of liquidity being artificially introduced? I'm finding the longer-term market behavior basically impossible to predict & understand; I expect I'm not the only one but would love it if anyone can shed some light on what to expect in the next few years.

deleted 6y ago
[deleted]
anthony_r 6y ago
Every single metric points to low returns, probably even negative over the next 5-10 years: CAPE, average investor allocation to stocks vs bonds, bond yields themselves, market cap / GDP, basic demographics. That is all without even considering covid and the response to covid.
credit_guy 6y ago
Cheap money is addictive. Japan has had cheap money (basically zero interest rates) for decades. It appears very difficult for them to get out of that place. Cheap money (very low interest rates) means cheap mortgages, and in turn this means high real estate prices. So high that you produce a trap. Housing becomes an investment vehicle, and increasing rates means you are destroying savings for millions and millions of people. Millions of people who are politically active. Whatever measures someone tries to enact that result in their real estate depreciation, they'll make sure to oppose. Raising interest rates then requires fortitude. Generally, a developed country's central bank is independent of the other branches of the government (executive, legislative, judiciary). It has so much power, that it should be recognized as the fourth branch - monetary. Being led by technocrats who, in principle, should not care about voting arithmetics, the central bank should not hesitate to raise rates when the economic stimulus is not needed anymore. But theory is theory, and practice is practice. In real life, you may have a president who threatens the central bank governor via twitter, and the governor all of a sudden decides to cut rates instead of increasing them. And that was before Covid19. Prediction (and not only mine): we'll be stuck with these close-to-zero or negative rates for decades to come. That means real estate will continue to be sky-high. That kills mobility, that makes it hard for the young generation to get jobs in the main metropolitan areas. Maybe working from home will be an antidote to that.
- magneticnorth 6y ago
  Interesting the tie-in to real estate & mortgages - makes a lot of sense, thanks for elaborating.
- qppo 6y ago
  > Raising interest rates then requires fortitude Like Paul Volcker, who did an immensely unpopular thing (soaring interest rates that caused unemployment in the short term) but ultimately created a much stronger economy.
- davidw 6y ago
  Japan has very much not treated homes as an investment vehicle though. https://www.vox.com/2016/8/8/12390048/san-francisco-housing-costs-tokyo https://www.vox.com/2016/8/8/12390048/san-francisco-housing-... I do have some recollection of commercial real estate being bonkers there for a while, so maybe they've managed to treat one as an investment and the other as something necessary for people to live in.
  - credit_guy 6y ago
    Japan has not treated homes as investments lately. This was not always the case. https://en.wikipedia.org/wiki/Japanese_asset_price_bubble#Asset_prices https://en.wikipedia.org/wiki/Japanese_asset_price_bubble#As... In the '80s until about '91 there was a huge real estate bubble in Japan; house prices tripled or quadrupled over less than one decade. Could it be a coincidence that the short-term rate set by Bank of Japan went from a 9% in 1981 to 2.5% in 1991? Your link shows that real estate prices remained nearly flat in Tokyo since 1995, but at that point Japan was already in the trap of zero rates and sky-high house prices. Prices simply couldn't go any higher. People were already taking 100-year mortgages in Japan in 1995 [1]. Salaries were not going up. Nikkei was going sometime up, more often down; and kept doing that for 2 decades. On a comparative basis, real estate in NYC and London were much cheaper in 1995. But they steadily went up, and up, and up. Now they exceed Tokyo. Rates are about zero too. We are where Japan was in 1995. Except for the 100-year mortgages. Don't be surprised if they'll make an appearance though. [1] https://homeguides.sfgate.com/longest-mortgage-7677.html https://homeguides.sfgate.com/longest-mortgage-7677.html
davidw 6y ago
Here's a chart: https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren... Many predicted doom and gloom and massive inflation when this started during the last recession, but that never came to pass. I have no idea what will happen, and am kind of wary of everyone trying to sell a story. There are a lot of doom & gloomers who predicted 8 of the last 3 recessions, as well as "this is fine" optimists too.
- magneticnorth 6y ago
  Agree on being wary of everyone trying to sell a story. This is one of the things I love most about HN, though - people will often share very different thoughtful perspectives, with the sources & data to back it up. Thanks for sharing your thoughtful perspective with the sources to back it up :)
  - davidw 6y ago
    There aren't too many experts in macroeconomics on HN, but lots of people with a story or viewpoint they want to push. I'd take most of what gets posted here with a grain of salt.
    - deleted 6y ago
      [deleted]
freewilly1040 6y ago
My impression is that this response is basically a replay of the response to the 2008 crisis, perhaps on a bigger scale. My prediction is that market behavior is going to be driven by politics. Wealth inequality was already intolerable and the consequences of this crisis are almost entirely falling on the working class. It is obscene that equity holders are doing as well as they are doing with the amount of unemployment we have at the bottom. The other shoe will drop.
marcosdumay 6y ago
As long as financial instruments absorb the extra money, you won't see much happening on the real economy. Only the shadow of a huge finance tower with the involved people getting crazy (and always crazier) amounts of money that aren't available at the real side of things. If people suddenly decide to cash-out, all hell breaks loose. But on a more realistic scenario, it only does so slowly, so make sure you are long on luxury goods.

deleted 6y ago

[deleted]

anthony_r 6y ago

Every single metric points to low returns, probably even negative over the next 5-10 years: CAPE, average investor allocation to stocks vs bonds, bond yields themselves, market cap / GDP, basic demographics. That is all without even considering covid and the response to covid.

credit_guy 6y ago

Cheap money is addictive. Japan has had cheap money (basically zero interest rates) for decades. It appears very difficult for them to get out of that place. Cheap money (very low interest rates) means cheap mortgages, and in turn this means high real estate prices. So high that you produce a trap. Housing becomes an investment vehicle, and increasing rates means you are destroying savings for millions and millions of people. Millions of people who are politically active. Whatever measures someone tries to enact that result in their real estate depreciation, they'll make sure to oppose. Raising interest rates then requires fortitude. Generally, a developed country's central bank is independent of the other branches of the government (executive, legislative, judiciary). It has so much power, that it should be recognized as the fourth branch - monetary. Being led by technocrats who, in principle, should not care about voting arithmetics, the central bank should not hesitate to raise rates when the economic stimulus is not needed anymore. But theory is theory, and practice is practice. In real life, you may have a president who threatens the central bank governor via twitter, and the governor all of a sudden decides to cut rates instead of increasing them. And that was before Covid19. Prediction (and not only mine): we'll be stuck with these close-to-zero or negative rates for decades to come. That means real estate will continue to be sky-high. That kills mobility, that makes it hard for the young generation to get jobs in the main metropolitan areas. Maybe working from home will be an antidote to that.

magneticnorth 6y ago
Interesting the tie-in to real estate & mortgages - makes a lot of sense, thanks for elaborating.
qppo 6y ago
> Raising interest rates then requires fortitude Like Paul Volcker, who did an immensely unpopular thing (soaring interest rates that caused unemployment in the short term) but ultimately created a much stronger economy.
davidw 6y ago
Japan has very much not treated homes as an investment vehicle though. https://www.vox.com/2016/8/8/12390048/san-francisco-housing-costs-tokyo https://www.vox.com/2016/8/8/12390048/san-francisco-housing-... I do have some recollection of commercial real estate being bonkers there for a while, so maybe they've managed to treat one as an investment and the other as something necessary for people to live in.
- credit_guy 6y ago
  Japan has not treated homes as investments lately. This was not always the case. https://en.wikipedia.org/wiki/Japanese_asset_price_bubble#Asset_prices https://en.wikipedia.org/wiki/Japanese_asset_price_bubble#As... In the '80s until about '91 there was a huge real estate bubble in Japan; house prices tripled or quadrupled over less than one decade. Could it be a coincidence that the short-term rate set by Bank of Japan went from a 9% in 1981 to 2.5% in 1991? Your link shows that real estate prices remained nearly flat in Tokyo since 1995, but at that point Japan was already in the trap of zero rates and sky-high house prices. Prices simply couldn't go any higher. People were already taking 100-year mortgages in Japan in 1995 [1]. Salaries were not going up. Nikkei was going sometime up, more often down; and kept doing that for 2 decades. On a comparative basis, real estate in NYC and London were much cheaper in 1995. But they steadily went up, and up, and up. Now they exceed Tokyo. Rates are about zero too. We are where Japan was in 1995. Except for the 100-year mortgages. Don't be surprised if they'll make an appearance though. [1] https://homeguides.sfgate.com/longest-mortgage-7677.html https://homeguides.sfgate.com/longest-mortgage-7677.html

davidw 6y ago

Here's a chart: https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren... Many predicted doom and gloom and massive inflation when this started during the last recession, but that never came to pass. I have no idea what will happen, and am kind of wary of everyone trying to sell a story. There are a lot of doom & gloomers who predicted 8 of the last 3 recessions, as well as "this is fine" optimists too.

magneticnorth 6y ago
Agree on being wary of everyone trying to sell a story. This is one of the things I love most about HN, though - people will often share very different thoughtful perspectives, with the sources & data to back it up. Thanks for sharing your thoughtful perspective with the sources to back it up :)
- davidw 6y ago
  There aren't too many experts in macroeconomics on HN, but lots of people with a story or viewpoint they want to push. I'd take most of what gets posted here with a grain of salt.
  - deleted 6y ago
    [deleted]

freewilly1040 6y ago

My impression is that this response is basically a replay of the response to the 2008 crisis, perhaps on a bigger scale. My prediction is that market behavior is going to be driven by politics. Wealth inequality was already intolerable and the consequences of this crisis are almost entirely falling on the working class. It is obscene that equity holders are doing as well as they are doing with the amount of unemployment we have at the bottom. The other shoe will drop.

marcosdumay 6y ago

As long as financial instruments absorb the extra money, you won't see much happening on the real economy. Only the shadow of a huge finance tower with the involved people getting crazy (and always crazier) amounts of money that aren't available at the real side of things. If people suddenly decide to cash-out, all hell breaks loose. But on a more realistic scenario, it only does so slowly, so make sure you are long on luxury goods.