4 ms·

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.

by 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 ...
  - imtringued 6y ago
    Having expensive housing should be a benefit in principle. It's easier to justify building large apartment blocks and thereby provide lots of housing. Unfortunately nobody is building large apartment blocks.
- satellite2 6y ago
  I never heard about the 3rd generation rule before. But searching it seems to lead only to anecdotal reports, hearsay and a Chinese saying / belief. The current litterature seems to suggest that on the contrary wealth easily pass down generations. The recent book Capital in the 21 century by Piketti is one of the largest analysis of wealth distribution based on tax data in most western countries for the last century. Two economists from the bank of Italy went even further and analysed tax data up to 1427 in Florence. They found that "The top earners among the current taxpayers were found to have already been at the top of the socioeconomic ladder six centuries ago." So it seems that the data suggest that the third generation rule might only be a way for rich people to teach their kid to be careful with their wealth don't you think? If you have more data I would gladly read about it.
  - imtringued 6y ago
    There is a problem with passing down wealth. If you split the wealth among all children it will become insignificant by the third generation. This is generally why the first born son received the entire inheritance in the past.
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.)

by marvin 6y ago

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 ...
- imtringued 6y ago
  Having expensive housing should be a benefit in principle. It's easier to justify building large apartment blocks and thereby provide lots of housing. Unfortunately nobody is building large apartment blocks.
satellite2 6y ago
I never heard about the 3rd generation rule before. But searching it seems to lead only to anecdotal reports, hearsay and a Chinese saying / belief. The current litterature seems to suggest that on the contrary wealth easily pass down generations. The recent book Capital in the 21 century by Piketti is one of the largest analysis of wealth distribution based on tax data in most western countries for the last century. Two economists from the bank of Italy went even further and analysed tax data up to 1427 in Florence. They found that "The top earners among the current taxpayers were found to have already been at the top of the socioeconomic ladder six centuries ago." So it seems that the data suggest that the third generation rule might only be a way for rich people to teach their kid to be careful with their wealth don't you think? If you have more data I would gladly read about it.
- imtringued 6y ago
  There is a problem with passing down wealth. If you split the wealth among all children it will become insignificant by the third generation. This is generally why the first born son received the entire inheritance in the past.

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.)