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Why would it specifically crash though? These things are already factored in and the S&P500 is down 6.3% since the start of the year. Why would it quickly crash

by jstx1 5y ago

Why would it specifically crash though? These things are already factored in and the S&P500 is down 6.3% since the start of the year. Why would it quickly crash way lower instead of going down slowly or trading sideways?

candiddevmike 5y ago
Cascading defaults of corporate bonds and loans? I think there is a lot of folks swimming naked and the rising interest rates are going to hurt or kill companies that aren't able to pay their bills.
shimmy568 5y ago
Well, there's a risk of a Russian default now. The fed is planning to raise interest rates even more now and shrink their balance sheet by 1t per year. All that pump that came during the pandemic so share prices didn't go down has to dump at some point. Either that or we'll continue to see >5% inflation for a while, and that's a scary thought. Especially since wages aren't going up nearly as fast
- onlyrealcuzzo 5y ago
  Wages were up 5%+ for almost all of the Pandemic: https://www.ssa.gov/oact/cola/awidevelop.html https://www.ssa.gov/oact/cola/awidevelop.html
- UncleOxidant 5y ago
  > Well, there's a risk of a Russian default now. I think that risk is 100% as in it's a certainty that Russia will default. Defaulting means not making loan repayments. The ruble is basically worthless so they don't have much to repay their debt with and they can't sell assets to raise the money due to sanctions. Another aspect to consider is that they probably are eager to default at this point as doing so could cause financial damage in the West.
  - mohanmcgeek 5y ago
    > eager to default at this point as doing so could cause financial damage in the West. What about Russian banks and Russian bond holders? External debt is generally only a fraction of the total debt
    - UncleOxidant 5y ago
      I'm sure they'll prioritize internal debt-holders of debt denominated in rubles. It's the debt owed to external entities that's denominated in other currencies that will be defaulted on.
  - xyzzyz 5y ago
    Ruble trades now at something like 25% discount compared to pre invasion. Huge hit, to be sure, but I’d hardly call it “worthless”.
disambiguation 5y ago
my take as an amateur that tries to follow this stuff .. the fed seems caught between inflation and QE. The fed has tried to raise rates in the past, and every time the market has gone down significantly. The fed has recently admitted that inflation is raging and out of control. raising rates seems to be the only tool in the box to combat inflation. so it's a catch-22. Raise rates > No more cheap debt > market goes down Inflation runs wild > recession > market goes down
- sudden_dystopia 5y ago
  Catch-33 if that’s a thing: the fed cannot raise rates too far or else the interest payments due on the US national debt would raise so far as to cause the US to default.
sudden_dystopia 5y ago
The stock market is not the economy is the short answer. What is causing our current predicament has been the monetization of debt through quantitative easing programs since 2008 which was then compounded by increasing the money supply in the spring of 2020 drastically. And now the fed has to reverse course with quantitative tightening in order to beat back inflation. The easing and near 0 interest rates have gotten businesses addicted to cheap money and has kicked the can down the road in terms of how we end the easing programs. But now the Fed has no choice but to raise rates and tighten. In rational markets, you are correct, this should be priced in. But our markets have been highly irrational and algorithm driven for a while now and quite frankly, are delusional about our state of affairs. They think recession will equal more easing but that is not in the cards and there is going to be a rude awakening.

by jstx1 5y ago

candiddevmike 5y ago

Cascading defaults of corporate bonds and loans? I think there is a lot of folks swimming naked and the rising interest rates are going to hurt or kill companies that aren't able to pay their bills.

shimmy568 5y ago

Well, there's a risk of a Russian default now. The fed is planning to raise interest rates even more now and shrink their balance sheet by 1t per year. All that pump that came during the pandemic so share prices didn't go down has to dump at some point. Either that or we'll continue to see >5% inflation for a while, and that's a scary thought. Especially since wages aren't going up nearly as fast

onlyrealcuzzo 5y ago
Wages were up 5%+ for almost all of the Pandemic: https://www.ssa.gov/oact/cola/awidevelop.html https://www.ssa.gov/oact/cola/awidevelop.html
UncleOxidant 5y ago
> Well, there's a risk of a Russian default now. I think that risk is 100% as in it's a certainty that Russia will default. Defaulting means not making loan repayments. The ruble is basically worthless so they don't have much to repay their debt with and they can't sell assets to raise the money due to sanctions. Another aspect to consider is that they probably are eager to default at this point as doing so could cause financial damage in the West.
- mohanmcgeek 5y ago
  > eager to default at this point as doing so could cause financial damage in the West. What about Russian banks and Russian bond holders? External debt is generally only a fraction of the total debt
  - UncleOxidant 5y ago
    I'm sure they'll prioritize internal debt-holders of debt denominated in rubles. It's the debt owed to external entities that's denominated in other currencies that will be defaulted on.
- xyzzyz 5y ago
  Ruble trades now at something like 25% discount compared to pre invasion. Huge hit, to be sure, but I’d hardly call it “worthless”.

disambiguation 5y ago

my take as an amateur that tries to follow this stuff .. the fed seems caught between inflation and QE. The fed has tried to raise rates in the past, and every time the market has gone down significantly. The fed has recently admitted that inflation is raging and out of control. raising rates seems to be the only tool in the box to combat inflation. so it's a catch-22. Raise rates > No more cheap debt > market goes down Inflation runs wild > recession > market goes down

sudden_dystopia 5y ago
Catch-33 if that’s a thing: the fed cannot raise rates too far or else the interest payments due on the US national debt would raise so far as to cause the US to default.

sudden_dystopia 5y ago

The stock market is not the economy is the short answer. What is causing our current predicament has been the monetization of debt through quantitative easing programs since 2008 which was then compounded by increasing the money supply in the spring of 2020 drastically. And now the fed has to reverse course with quantitative tightening in order to beat back inflation. The easing and near 0 interest rates have gotten businesses addicted to cheap money and has kicked the can down the road in terms of how we end the easing programs. But now the Fed has no choice but to raise rates and tighten. In rational markets, you are correct, this should be priced in. But our markets have been highly irrational and algorithm driven for a while now and quite frankly, are delusional about our state of affairs. They think recession will equal more easing but that is not in the cards and there is going to be a rude awakening.