6 ms·

It's interesting that they're comparing against the 10 year bond yield to basically prove what the market knew 4 years ago when Europe started flirting with neg

by cbanek 6y ago

It's interesting that they're comparing against the 10 year bond yield to basically prove what the market knew 4 years ago when Europe started flirting with negative interest rates - TINA - There Is No Alternative, you can't put your money in a CD, savings account, or bonds, and expect to get a decent yield / return on your money. So people put their money into the stocks of dividend aristocrats (companies that have increased and maintained dividends over long periods of time) to be "bond-proxies." This pushed up those prices a lot. But no matter where you are, it seems there's not much easy money, unless you're a private VC investor. I think the real lesson here is everyone is getting squeezed out. I feel like the other shoe is going to drop some day, but who knows when. The weaker hands (poorer people) will inevitably fold first, increasing wealth inequality, as it usually does.

marvin 6y ago
Famous last words, but: I wouldn't be entirely surprised if, in 10 years' time, we'll hear the same lamentations about the stock market as we do about housing. "The older generation climbed up there and pulled up the ladder". Only slim returns, and you can't expect to make much from it unless you happened to be invested before the great re-pricing hit.
- cbanek 6y ago
  I think what might change things (at least in the US) is the demographic shifts. Housing demand (and so, related, prices) is obviously related to the number of people and what they can pay. If anything, the lowering of the 10 year yield, which is used to determine mortgage rates, allows people to spend more for a house due to the low interest rate. If interest rates go up, then the prices should go down to keep steady with what people are able to pay for a monthly mortgage. Same thing about all the retirees eventually dying off and liquidating or handing down all this money, stock, and housing (honestly, I feel the same about political leanings, but that seems fairly steady unfortunately). Seems like if history has shown us anything, while one person might be good with money, the same can't always be said for their children (3rd generation rule - by the 3rd generation, 90% of wealthy families lose it).
  - ryandrake 6y ago
    I wouldn't bet on some major wealth-transfer from the boomers to their kids. I think a lot of them subscribe to that whole "die broke" philosophy and are using things like reverse mortgages to live it up on their inflated home equity, hoping to die just as the bank owns their home.
    - TristanBall 6y ago
      I can't find the link now, but at least in Australia this doesnt appear to true. We have a reverse mortgage system here, and the take up is extremely low ( I think it was <10,000 for the whole country). Particularly with house prices here being completely insane, parents very much want to leave houses to their children. I've also read multiple articles around how to get, or encouraging, retirees to be comfortable actually spending their retirement savings, rather than the interest/earnings from those savings, given its so hard to get a living income that way. I think the 'die broke' crowd will be limited to a very small sliver of any generation... those poor enough that they have a chance to actually spend all their money, but well off enough that their children own their own houses ( possibly debt free )
    - imtringued 6y ago
      I honestly don't see how it would work out. The vast majority of boomers are not rich. They were doing fine because they lived in an era where job training was easily available but if they lost their job before retirement they end up just as poor as their kids. They might own a nice house but it's not always where you want to live. You sell it and then go somewhere where that money is probably only enough for the down payment.
  - cat199 6y ago
    > If interest rates go up, then the prices should go down to keep steady with what people are able to pay for a monthly mortgage. ... this is ignoring the 10000-unit gorilla that is appreciation of the underlying based on speculative investment and not based on actual supply/demand for housing itself ...
    - 6y ago
- yomly 6y ago
  But with housing that argument only works because there is a scarcity to housing and a fixed entry point. People want to live near London/SF/NYC for work and maybe because they like cities but the minimum for a place there is like 5-10x salary (or worse...) How would that apply to the stock market? I suppose BRK.A has never split and now AMZN is getting a little large if you can't buy fractional shares a la RobinHood so then I guess the only parallel would be if we saw some huge stepwise increase followed by a market wide plateau (but no drop). This would cement people's positions of the invested before/after pandemic I suppose
  - SpaceRaccoon 6y ago
    The theory is that returns approach 0%.
- cannabis_sam 6y ago
  That’s what happens when people believe that “the market” is some kind of weird hybrid of a cornucopia and a perpetual motion machine.. Hopefully we’ll remember that we actually have the remedy for this in the form of redistributive tax policies (as opposed to the current inefficient tax policies that drives wealth concentration and stagnation)
  - imtringued 6y ago
    Well, if you want a redistributive tax policy then the biggest change would be to make sure dividend taxes are lower than capital gains taxes. The problem with capital gains is that they can be driven by bubbles. During bubbles investors buy a stock because the stock went up instead of looking at how the company is performing. It's a self reinforcing feedback loop because foolish investors attract even more foolish investors. A lot of those foolish investors are retail investors who are often behind when it comes to information and they often just follow the news. Think of shoeshine boys giving stock tips. They are not only late to buy but also late to sell so they buy during the peak and sell after the crash. The easy fix is to increase capital gains taxes because it significantly decreases the gains from bubbles. At the same time dividend taxes should be decreased because you cannot "fake" dividend payments. Paying out a dividend reduces the market cap of the stock by the total dividend payments because it is merely distributing its income to investors. Even if the company borrows money to pay dividends its balance sheet will show X million debt and thereby reduce the value of the company by the value of the total dividend payment. This is equivalent to not borrowing money in the first place. It also encourages companies to actually invest into improving their income rather than playing stock market games with short sighted policies to boost their value. This is something central banks are currently struggling with because they hand out money like crazy but don't see anyone do anything with the money.
    - cannabis_sam 6y ago
      Thanks for the response! (I’m trying to avoid rushing into heated arguments over the internet atm, so I’m gonna give myself some time to digest your response. I would like to say that my main point was more about political rhetoric than economic arguments.)
randomopining 6y ago
What I'm thinking is that monetary and fiscal policy will do whatever it takes to make the masses minimally happy. Whatever the side effects (growing wealth gap, rich making out like bandits), they don't care. As long as the masses have their minimal existence, Netflix, cheap food, etc.
- dnautics 6y ago
  this is not a bad model for understanding what has happened. Several phenomena have led to this: 1 - fetishization of quantitation in politics. Bias for policy endpoints that can be measured with "objective" numbers. 2 - Selection of employment as a policy endpoint that both the economic left and the right can agree on. 3 - Selection of monetary and fiscal policy as the means to keep employment levels high. 4 - https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-higher-inflation/ https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi... "even in the long run, it’s really, really hard to cut nominal wages. Yet when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts. So having a somewhat higher inflation rate would lead to lower unemployment..." 5 - Goodhart's law Result: Stealthily cheat the labor class out of their wages to keep employment high over the course of generations (see productivity gap, http://country.eiu.com/asset_images/773319461.gif http://country.eiu.com/asset_images/773319461.gif) Keynes: "Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some." Keynes should have been more specific: Inflation selectively impoverishes the poor and, and enriches the politically connected, who are usually already wealthy.
  - ethbr0 6y ago
    Inflation most strongly acts on those who have no alternative, and only save in currency. Broadly speaking, this means the financially unsophisticated. It doesn't necessarily mean the poor, as (a) they have debt > savings, (b) modern inflation primarily accrues in assets rather than staples, & (c) competition for employees inflates base wages (if low unemployment).
treis 6y ago
This seems like an obvious result of demographic changes. Assets like a farm, as an example, become more valuable as the number of people that need to eat grow. If you need to feed fewer people your farms are less valuable.
nradov 6y ago
VC investments are hardly easy money for the limited partners. On average those investments underperform stock market indexes on a risk adjusted basis, especially outside the top tier firms who consistently get the best deal flow. Investments into VC funds are driven more by portfolio allocation policies that target uncorrelated returns.
maerF0x0 6y ago
> I think the real lesson here is everyone is getting squeezed out. To me the lesson is if you have any idea how to create a good (> 5%) return on investment, then it's your time to shine! The world is awash in capital looking for a home, and it could be your project. I would propose the real issue is more of the berkshire hathaway problem, in that there are plenty of opportunities to make good returns, just few of them billion dollar sized (in terms of position size). Consider something like putting solar on one's home. It can have an ROI of 10-30% (quick google), but organizing a multi-million dollar investment on others' homes is administratively tough. So the "little guy" (home owner in this case) can have an opportunity to place ~$50k at a high ROI... Now, if you're talking about really poor (like hand to mouth) then their best investments are likely in education and skills training. A sort of intangible capital that (afaik) no market keeps track of.
- orange_tee 6y ago
  There are a lot of small time opportunities that would be well suited for the middle class. But most come with these problems: 1. hard to diversify, very few opportunities allow you to split your $300k into $50k investments 2. because of 1. and for other reasons the risk is often quite high 3. very illiquid as for example with PV panels 4. huge time and administration costs as for example with running a corner shop or a kebab stand
  - maerF0x0 6y ago
    I guess in general to me those summarize the Middle Class choice. Being middle class means 1. Trading marginal time for additional income/wealth. An example would be renovating your own home on after coming home from work, or being a single unit landlord and having to fix the toilet. You're trading netflix time for additional wealth generation 2. Locked in choices, choosing to own a home is a choice to accept whatever circumstances come in the next 10-25 yrs. You. lock in the the choice and the outcome (home ownership at a certain future date). Any returns beyond that are "luck" but smart middle class people make choices with high likelihood of good outcomes Convenience is a luxury of the upper class.

by cbanek 6y ago

marvin 6y ago

Famous last words, but: I wouldn't be entirely surprised if, in 10 years' time, we'll hear the same lamentations about the stock market as we do about housing. "The older generation climbed up there and pulled up the ladder". Only slim returns, and you can't expect to make much from it unless you happened to be invested before the great re-pricing hit.

cbanek 6y ago
I think what might change things (at least in the US) is the demographic shifts. Housing demand (and so, related, prices) is obviously related to the number of people and what they can pay. If anything, the lowering of the 10 year yield, which is used to determine mortgage rates, allows people to spend more for a house due to the low interest rate. If interest rates go up, then the prices should go down to keep steady with what people are able to pay for a monthly mortgage. Same thing about all the retirees eventually dying off and liquidating or handing down all this money, stock, and housing (honestly, I feel the same about political leanings, but that seems fairly steady unfortunately). Seems like if history has shown us anything, while one person might be good with money, the same can't always be said for their children (3rd generation rule - by the 3rd generation, 90% of wealthy families lose it).
- ryandrake 6y ago
  I wouldn't bet on some major wealth-transfer from the boomers to their kids. I think a lot of them subscribe to that whole "die broke" philosophy and are using things like reverse mortgages to live it up on their inflated home equity, hoping to die just as the bank owns their home.
  - TristanBall 6y ago
    I can't find the link now, but at least in Australia this doesnt appear to true. We have a reverse mortgage system here, and the take up is extremely low ( I think it was <10,000 for the whole country). Particularly with house prices here being completely insane, parents very much want to leave houses to their children. I've also read multiple articles around how to get, or encouraging, retirees to be comfortable actually spending their retirement savings, rather than the interest/earnings from those savings, given its so hard to get a living income that way. I think the 'die broke' crowd will be limited to a very small sliver of any generation... those poor enough that they have a chance to actually spend all their money, but well off enough that their children own their own houses ( possibly debt free )
  - imtringued 6y ago
    I honestly don't see how it would work out. The vast majority of boomers are not rich. They were doing fine because they lived in an era where job training was easily available but if they lost their job before retirement they end up just as poor as their kids. They might own a nice house but it's not always where you want to live. You sell it and then go somewhere where that money is probably only enough for the down payment.
- cat199 6y ago
  > If interest rates go up, then the prices should go down to keep steady with what people are able to pay for a monthly mortgage. ... this is ignoring the 10000-unit gorilla that is appreciation of the underlying based on speculative investment and not based on actual supply/demand for housing itself ...
  - 6y ago
yomly 6y ago
But with housing that argument only works because there is a scarcity to housing and a fixed entry point. People want to live near London/SF/NYC for work and maybe because they like cities but the minimum for a place there is like 5-10x salary (or worse...) How would that apply to the stock market? I suppose BRK.A has never split and now AMZN is getting a little large if you can't buy fractional shares a la RobinHood so then I guess the only parallel would be if we saw some huge stepwise increase followed by a market wide plateau (but no drop). This would cement people's positions of the invested before/after pandemic I suppose
- SpaceRaccoon 6y ago
  The theory is that returns approach 0%.
cannabis_sam 6y ago
That’s what happens when people believe that “the market” is some kind of weird hybrid of a cornucopia and a perpetual motion machine.. Hopefully we’ll remember that we actually have the remedy for this in the form of redistributive tax policies (as opposed to the current inefficient tax policies that drives wealth concentration and stagnation)
- imtringued 6y ago
  Well, if you want a redistributive tax policy then the biggest change would be to make sure dividend taxes are lower than capital gains taxes. The problem with capital gains is that they can be driven by bubbles. During bubbles investors buy a stock because the stock went up instead of looking at how the company is performing. It's a self reinforcing feedback loop because foolish investors attract even more foolish investors. A lot of those foolish investors are retail investors who are often behind when it comes to information and they often just follow the news. Think of shoeshine boys giving stock tips. They are not only late to buy but also late to sell so they buy during the peak and sell after the crash. The easy fix is to increase capital gains taxes because it significantly decreases the gains from bubbles. At the same time dividend taxes should be decreased because you cannot "fake" dividend payments. Paying out a dividend reduces the market cap of the stock by the total dividend payments because it is merely distributing its income to investors. Even if the company borrows money to pay dividends its balance sheet will show X million debt and thereby reduce the value of the company by the value of the total dividend payment. This is equivalent to not borrowing money in the first place. It also encourages companies to actually invest into improving their income rather than playing stock market games with short sighted policies to boost their value. This is something central banks are currently struggling with because they hand out money like crazy but don't see anyone do anything with the money.
  - cannabis_sam 6y ago
    Thanks for the response! (I’m trying to avoid rushing into heated arguments over the internet atm, so I’m gonna give myself some time to digest your response. I would like to say that my main point was more about political rhetoric than economic arguments.)

randomopining 6y ago

What I'm thinking is that monetary and fiscal policy will do whatever it takes to make the masses minimally happy. Whatever the side effects (growing wealth gap, rich making out like bandits), they don't care. As long as the masses have their minimal existence, Netflix, cheap food, etc.

dnautics 6y ago
this is not a bad model for understanding what has happened. Several phenomena have led to this: 1 - fetishization of quantitation in politics. Bias for policy endpoints that can be measured with "objective" numbers. 2 - Selection of employment as a policy endpoint that both the economic left and the right can agree on. 3 - Selection of monetary and fiscal policy as the means to keep employment levels high. 4 - https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-higher-inflation/ https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi... "even in the long run, it’s really, really hard to cut nominal wages. Yet when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts. So having a somewhat higher inflation rate would lead to lower unemployment..." 5 - Goodhart's law Result: Stealthily cheat the labor class out of their wages to keep employment high over the course of generations (see productivity gap, http://country.eiu.com/asset_images/773319461.gif http://country.eiu.com/asset_images/773319461.gif) Keynes: "Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some." Keynes should have been more specific: Inflation selectively impoverishes the poor and, and enriches the politically connected, who are usually already wealthy.
- ethbr0 6y ago
  Inflation most strongly acts on those who have no alternative, and only save in currency. Broadly speaking, this means the financially unsophisticated. It doesn't necessarily mean the poor, as (a) they have debt > savings, (b) modern inflation primarily accrues in assets rather than staples, & (c) competition for employees inflates base wages (if low unemployment).

treis 6y ago

This seems like an obvious result of demographic changes. Assets like a farm, as an example, become more valuable as the number of people that need to eat grow. If you need to feed fewer people your farms are less valuable.

nradov 6y ago

VC investments are hardly easy money for the limited partners. On average those investments underperform stock market indexes on a risk adjusted basis, especially outside the top tier firms who consistently get the best deal flow. Investments into VC funds are driven more by portfolio allocation policies that target uncorrelated returns.

maerF0x0 6y ago

> I think the real lesson here is everyone is getting squeezed out. To me the lesson is if you have any idea how to create a good (> 5%) return on investment, then it's your time to shine! The world is awash in capital looking for a home, and it could be your project. I would propose the real issue is more of the berkshire hathaway problem, in that there are plenty of opportunities to make good returns, just few of them billion dollar sized (in terms of position size). Consider something like putting solar on one's home. It can have an ROI of 10-30% (quick google), but organizing a multi-million dollar investment on others' homes is administratively tough. So the "little guy" (home owner in this case) can have an opportunity to place ~$50k at a high ROI... Now, if you're talking about really poor (like hand to mouth) then their best investments are likely in education and skills training. A sort of intangible capital that (afaik) no market keeps track of.

orange_tee 6y ago
There are a lot of small time opportunities that would be well suited for the middle class. But most come with these problems: 1. hard to diversify, very few opportunities allow you to split your $300k into $50k investments 2. because of 1. and for other reasons the risk is often quite high 3. very illiquid as for example with PV panels 4. huge time and administration costs as for example with running a corner shop or a kebab stand
- maerF0x0 6y ago
  I guess in general to me those summarize the Middle Class choice. Being middle class means 1. Trading marginal time for additional income/wealth. An example would be renovating your own home on after coming home from work, or being a single unit landlord and having to fix the toilet. You're trading netflix time for additional wealth generation 2. Locked in choices, choosing to own a home is a choice to accept whatever circumstances come in the next 10-25 yrs. You. lock in the the choice and the outcome (home ownership at a certain future date). Any returns beyond that are "luck" but smart middle class people make choices with high likelihood of good outcomes Convenience is a luxury of the upper class.