5 ms·

So if a VC can predict 1/10 companies that are going to be successful, does that mean they can pick 1/10 recessions/market crashes? All kidding aside, I agree

So if a VC can predict 1/10 companies that are going to be successful, does that mean they can pick 1/10 recessions/market crashes? All kidding aside, I agree with others here that the overreaction of doom and gloom really needs to be put in a wider context. The S&P has gone bonkers, RE has skyrocketed, and tech valuations are utter insanity. If the S&P falls another 10%, if RE crashes 35%, and tech valuations go to a third of what they were getting in the last two years....so what? That's what things were in ~2019? I bought a house 18 months ago and if it lost 35% of what it's valued now, I'd still be up from when I bought it. Sky high valuations will definitely kill some companies that were funded in the last two years, but will it affect most of them much? If Databricks and Discord and Stripe lose a few billion from their valuations, other than some grumpy employees does that kill the company? I don't see how it's cause for a crash...

FollowingTheDao 4y ago
Duplicate comment deleted.
- deleted 4y ago
  [deleted]
- VirusNewbie 4y ago
  I had people telling me nonsense back when I bought in 2009 as well, that houses would be had for pennies on the dollar. I put my money where my mouth was and they're poor and still renting. In the real estate crash of 2008, how much do you think houses went down? And you think house prices will crash more this time than in 2008?
  - hadtocreateacct 4y ago
    Anecdotal data point here. During the 2008 crash, I purchased a 2 bedroom / 1 bath home for $68k in foreclosure. It previously had a mortgage for $239k. Its current “Zestimate” is $286k.
  - UncleEntity 4y ago
    Probably depends on the market. My sister bought a McMansion in ‘02, before things got crazy, and it took years for it to regain enough value post- recession to be able to sell it at a profit. At the peak houses in the neighborhood were going for over half a million and they got theirs for ~200k. A lot of of the problem was the government didn’t let house prices fall and bought up tons of mortgages to keep them off the market for years for political reasons. Really depends on how the government decides to prop up the housing market this time, probably not as much since the whole bubble isn’t based upon it. Looking back two recessions you have tech stocks going to the moon and basically no bailouts for the people playing the stock market slot machine. IIRC only really Chrysler got bailed out and that was on shaky political ground. So you have a crash and the government’s response to speculators was “meh” or a crash where the majority of people were bound to lose a whole bunch of money out of their biggest asset and they turned on the money spout to save their jobs. You have to decide on your own which one the current environment more closely resembles to have an idea what the government’s response might be.
    - gedy 4y ago
      A sibling bought a tract home in Sacramento right before bubble popped in 2006, and it did not get back over purchase price until 2020 or 2021.
      - anotherhue 4y ago
        What was the break even point when you factor in the rent they were no longer paying?
        UncleEntity 4y ago
        Ironically[0], my sister’s house was rented out for less than the mortgage payment for a few years after sitting empty for a couple years before that because she’s a slacker. Paying rent (because they moved out of the state for school/job) and a mortgage for a house you can’t sell had to suck pretty bad methinks. [0] perhaps according to Alanis Morissette‘s definition of irony.
  - filoeleven 4y ago
    It’s unclear to me what you mean here. Are “people” and “they” the same group?
  - wesleywt 4y ago
    The bail out tools available during the 2008 crisis is not available today. The 2008 can was kicked down the road with few safe guards to prevent what happened, happening again. You are in for a rough time. I recommend EconTalk Podcast to find out what I am talking about.
    - VirusNewbie 4y ago
      oh man, another one who thinks this crash will be worse than last time. Just articulate why you think cascading failure will happen in the real estate market at this point. You predict that people who are underwater are going to be forced to sell because...why? And you don't think the people who are renting will want to buy houses?
    - dcolkitt 4y ago
      Literally all of the bailout tools from 2008, plus many more are available today. In fact the Fed is much more willing to quickly deploy QE because it has experience and has seen it work. This isn’t hypothetical, because it’s exactly what happened in March 2020, and why the Covid recession was a V-shaped recovery.
      - throwawaylinux 4y ago
        You think the Fed is more inclined to print money when inflation is running above 8% than when it was 2.something? What's the reasoning there?
        dcolkitt 4y ago
        Inflation is a function of an overheated economy running with a tight labor and commodity market. If you're positing a 2008-like crisis followed by a deep recession, it's virtually certain that the economy will become deflationary, as people hoard cash. You don't have to take my word for it. From 2007 to 2008 inflation crashed from nearly 5% to 0.1%.
        throwawaylinux 4y ago
  - FollowingTheDao 4y ago
    Honestly, that’s not something I would’ve said in 2009. I would’ve said it in 2007 but definitely not in 2009 after the market crash. I’m not saying they will crash more, they will crash the same amount, back to the price before the boom began.
Spooky23 4y ago
Crashes are about leverage and derivatives. Once those trades start unwinding, you end up with panics and other issues. We live in an era where regulators are toothless and guys like Elon flaunt criminal behaviors. If they get away with that in the open, lord knows what’s happening out of sight.
- soheil 4y ago
  > guys like Elon flaunt criminal behaviors So you’re just gonna throw that in there just like that, where do you get that from?
  - greesil 4y ago
    The first paragraph was good, no?
  - toomuchtodo 4y ago
    https://www.sec.gov/news/press-release/2018-226 https://www.sec.gov/news/press-release/2018-226 https://www.theguardian.com/technology/2022/may/27/elon-musk-sec-letter-late-twitter-stake-filing-takeover https://www.theguardian.com/technology/2022/may/27/elon-musk... https://www.sec.gov/Archives/edgar/data/1418091/000000000022003713/filename1.pdf https://www.sec.gov/Archives/edgar/data/1418091/000000000022... (this ignores the legal yet malicious actions of Musk attempting to have the Cooley LLP law firm employing an ex-SEC attorney previously engaged in matters with Musk fire the attorney through coercion: https://www.cnbc.com/2022/01/15/tesla-asked-cooley-to-fire-lawyer-who-worked-on-sec-elon-musk-probe.html https://www.cnbc.com/2022/01/15/tesla-asked-cooley-to-fire-l...)
    - soheil 4y ago
      This is a case where words used are inflammatory on purpose to paint a damning picture of someone. The context in which that phrase is used is much much more nefarious than shunning the SEC over some dumb tweet or hiring a legal firm, which someone on HN doesn't approve of because they don't like one of their lawyers. Please look up the context in which the phrase "criminal behavior" is typically applied.
FollowingTheDao 4y ago
Your take on where housing prices can go is not realistic. If you take a look at this chart you’ll see that corrections bring housing prices back to before the boom. Housing prices will fall way more than 35% in the coming recession and your house will be worth much less than it was 18 months ago. https://www.researchgate.net/figure/A-HISTORY-OF-HOME-VALUES_fig1_265409427 https://www.researchgate.net/figure/A-HISTORY-OF-HOME-VALUES...
- xeromal 4y ago
  Maybe I don't understand how things work, but if you plan on enjoying and living in the house, does the house value matter except for property taxes? I bought a house to have stable "rent"
  - tablespoon 4y ago
    > Maybe I don't understand how things work, but if you plan on enjoying and living in the house, does the house value matter except for property taxes? I bought a house to have stable "rent" You could end up being underwater on your mortgage, which could be a bad thing if other aspects of your financial situation deteriorate.
    - cavisne 4y ago
      In California & Washington mortgages are non-recourse, ie they are secured by the property itself and nothing else. So if your financial situation deteriorates to the point where you are forced to foreclose, you lose the equity in the home, but your other assets are protected.
      - leereeves 4y ago
        But even a non-recourse foreclosure tanks your credit rating and makes it difficult to rent or buy another home, right?
        4y ago
reactspa 4y ago
Agree with your points. The people panicking are the ones who bought the house 3 months ago.
- VirusNewbie 4y ago
  Yeah, or the people who got big RSU packages at the aforementioned unicorns 3 months ago. Which sucks, but... not the end of the world either.
  - deathanatos 4y ago
    Boy I'm having a "Larry, I'm on Duck Tales" moment here, trying to imagine an RSU "sucking".
    - conro1108 4y ago
      Getting RSUs doesn’t ever “suck”, but getting 70%+ less (denominated in $usd) money in your quarterly vesting than before is unpleasant - even if you knew it was coming at some point and don’t critically depend on that income.
    - Jakob 4y ago
      Depends on the local tax laws. You pay income tax on vesting of RSU. In the US and Europe, RSUs are difficult to get wrong because of share withholding. In other countries, they are risky if you don’t watch out: 1. RSU vest at $10 2. You have to pay additional income tax eventually of let’s say $2 because of that valuation. (the US and Europe would only hand out shares worth of $8 and withhold the $2 taxes for you. Other countries make this your responsibility and give you the full $10). 3. Stock crashes, your shares are only worth $1 if you would sell them now. How do you pay the $2 tax from 2., once tax is due, if your shares are only worth $1? Multiply that by 1,000 to 100,000 RSU that vested and you get into difficult decision territory quickly. Obviously, you can hedge against that by selling the appropriate amount of RSU on vesting day.
      - deleted 4y ago
        [deleted]
deleted 4y ago
[deleted]
jltsiren 4y ago
If you want a wider context, take your favorite index, switch to log scale, and adjust for inflation. Then you'll have a pretty useful visualization of real returns. If you take S&P 500, you'll see a period of sustained growth from the late 1940s until the mid-1960s, followed by a period of poor returns until the early 1980s. At least according to one interpretation. Then there is a period of growth until 2000, followed by poor returns in the 2000s. We are currently in another period of growth that started in 2009. The risk people are afraid of is not a simple crash (like in 2008 or 2020) but a lost decade or 15 years. It's a plausible scenario, as such things do happen. On the other hand, the current period of growth is the shortest of the three, so maybe the growth is still sustainable and there are many good years ahead of us. And for an even wider context: The US has been stable and prosperous for over 150 years. That's a long time by the standards of historical empires. Maybe Pax Americana is over, and we are now starting the decline towards our version of the Crisis of the Third Century. If you are working age, there is a nontrivial chance of that happening in your lifetime.
- VirusNewbie 4y ago
  I'm not even arguing that growth will continue. I'm arguing that a correction is happening, it's probably a good thing some capital is being wiped out, but we aren't in a scenario where we'll likely see cascading failures across the entire financial system. If by the end of the year things are 'reset' to ~2019... that sucks for some investors, it sucks for people who got options grants in the last couple years, it might negatively affect the job market some, but it's not doom and gloom. Four years ago was a perfectly workable amount of capital, reasonable valuations, decent salaries, etc.
- 7speter 4y ago
  Plenty of working age people who have already been experiencing a lost decade
- markvdb 4y ago
  Two Pax Americana timescale elements: - Technological progress has increased worldwide interdependence, to the point of destroying resilience. The world is one vulnerable system now to a much larger extent than any time in the past. Think Ukrainian grain exports to the North Africa. Hundreds of millions have grown to rely on that. Hardly even technologically possible 100 years ago. - Physical limitations to economic growth. Technological progress has made humans increasingly expert at exploiting natural resources on an ever larger scale. The same cannot be said of management of negative externalities. In other words, we can probably manage peak oil. Peak water? Less so. Global warming? Do you see a way out of that?
dcolkitt 4y ago
Real estate will not crash anywhere near 35%. Even before Covid, housing economists have been warning for a decade that we’ve spent the entirety of the 2010s underbuilding housing[1]. Against that we have huge demographic demand from Gen Z reaching prime home buying years. People who aren’t familiar with the underlying fundamentals of the housing market assume the Covid boom was a RE bubble. In reality it was just demand getting pulled forward. A generation of new entrants played musical chairs to grab a house before the supply ran out. 28-year olds who were waiting until they were 35, moved out of city apartments to grab suburban SFHs because they were afraid of being priced out of the market forever. Those same people, sitting on cheap mortgages, aren’t going to sell their house to move back to the city, just to buy a house again at a much higher price in a few years. Covid compressed 7 years of price appreciation into 2, but these prices are the new normal. [1] https://www.freddiemac.com/perspectives/sam-khater/20210415-single-family-shortage https://www.freddiemac.com/perspectives/sam-khater/20210415-...
- dQw4w9WgXcQ 4y ago
  > these prices are the new normal Massively annoying to hop on Zillow and see how many homes sold for $N in '20/21 get re-listed for $2*N a year later. But you're likely right though. It'd take a depression to reset anything back to '19/20 pricing now that everyone got addicted to listing their homes for 2x the $/sqft and being rewarded with people throwing cash offers in their face with no inspections. And it really isn't going to get better. You've also got cash flush boomers making their economic exit to retirement-land who will continue this problem.
gnicholas 4y ago
> I'd still be up from when I bought it. I’ve had similar thoughts, but then I realized there’s substantial inflation that seems to be sticking around for the foreseeable future. So even though certain assets I have are where they used to be 2-3 years ago, that’s in nominal dollars, not real dollars.

FollowingTheDao 4y ago

Duplicate comment deleted.

deleted 4y ago
[deleted]
VirusNewbie 4y ago
I had people telling me nonsense back when I bought in 2009 as well, that houses would be had for pennies on the dollar. I put my money where my mouth was and they're poor and still renting. In the real estate crash of 2008, how much do you think houses went down? And you think house prices will crash more this time than in 2008?
- hadtocreateacct 4y ago
  Anecdotal data point here. During the 2008 crash, I purchased a 2 bedroom / 1 bath home for $68k in foreclosure. It previously had a mortgage for $239k. Its current “Zestimate” is $286k.
- UncleEntity 4y ago
  Probably depends on the market. My sister bought a McMansion in ‘02, before things got crazy, and it took years for it to regain enough value post- recession to be able to sell it at a profit. At the peak houses in the neighborhood were going for over half a million and they got theirs for ~200k. A lot of of the problem was the government didn’t let house prices fall and bought up tons of mortgages to keep them off the market for years for political reasons. Really depends on how the government decides to prop up the housing market this time, probably not as much since the whole bubble isn’t based upon it. Looking back two recessions you have tech stocks going to the moon and basically no bailouts for the people playing the stock market slot machine. IIRC only really Chrysler got bailed out and that was on shaky political ground. So you have a crash and the government’s response to speculators was “meh” or a crash where the majority of people were bound to lose a whole bunch of money out of their biggest asset and they turned on the money spout to save their jobs. You have to decide on your own which one the current environment more closely resembles to have an idea what the government’s response might be.
  - gedy 4y ago
    A sibling bought a tract home in Sacramento right before bubble popped in 2006, and it did not get back over purchase price until 2020 or 2021.
    - anotherhue 4y ago
      What was the break even point when you factor in the rent they were no longer paying?
      - UncleEntity 4y ago
        Ironically[0], my sister’s house was rented out for less than the mortgage payment for a few years after sitting empty for a couple years before that because she’s a slacker. Paying rent (because they moved out of the state for school/job) and a mortgage for a house you can’t sell had to suck pretty bad methinks. [0] perhaps according to Alanis Morissette‘s definition of irony.
- filoeleven 4y ago
  It’s unclear to me what you mean here. Are “people” and “they” the same group?
- wesleywt 4y ago
  The bail out tools available during the 2008 crisis is not available today. The 2008 can was kicked down the road with few safe guards to prevent what happened, happening again. You are in for a rough time. I recommend EconTalk Podcast to find out what I am talking about.
  - VirusNewbie 4y ago
    oh man, another one who thinks this crash will be worse than last time. Just articulate why you think cascading failure will happen in the real estate market at this point. You predict that people who are underwater are going to be forced to sell because...why? And you don't think the people who are renting will want to buy houses?
  - dcolkitt 4y ago
    Literally all of the bailout tools from 2008, plus many more are available today. In fact the Fed is much more willing to quickly deploy QE because it has experience and has seen it work. This isn’t hypothetical, because it’s exactly what happened in March 2020, and why the Covid recession was a V-shaped recovery.
    - throwawaylinux 4y ago
      You think the Fed is more inclined to print money when inflation is running above 8% than when it was 2.something? What's the reasoning there?
      - dcolkitt 4y ago
        Inflation is a function of an overheated economy running with a tight labor and commodity market. If you're positing a 2008-like crisis followed by a deep recession, it's virtually certain that the economy will become deflationary, as people hoard cash. You don't have to take my word for it. From 2007 to 2008 inflation crashed from nearly 5% to 0.1%.
        throwawaylinux 4y ago
- FollowingTheDao 4y ago
  Honestly, that’s not something I would’ve said in 2009. I would’ve said it in 2007 but definitely not in 2009 after the market crash. I’m not saying they will crash more, they will crash the same amount, back to the price before the boom began.

Spooky23 4y ago

Crashes are about leverage and derivatives. Once those trades start unwinding, you end up with panics and other issues. We live in an era where regulators are toothless and guys like Elon flaunt criminal behaviors. If they get away with that in the open, lord knows what’s happening out of sight.

soheil 4y ago
> guys like Elon flaunt criminal behaviors So you’re just gonna throw that in there just like that, where do you get that from?
- greesil 4y ago
  The first paragraph was good, no?
- toomuchtodo 4y ago
  https://www.sec.gov/news/press-release/2018-226 https://www.sec.gov/news/press-release/2018-226 https://www.theguardian.com/technology/2022/may/27/elon-musk-sec-letter-late-twitter-stake-filing-takeover https://www.theguardian.com/technology/2022/may/27/elon-musk... https://www.sec.gov/Archives/edgar/data/1418091/000000000022003713/filename1.pdf https://www.sec.gov/Archives/edgar/data/1418091/000000000022... (this ignores the legal yet malicious actions of Musk attempting to have the Cooley LLP law firm employing an ex-SEC attorney previously engaged in matters with Musk fire the attorney through coercion: https://www.cnbc.com/2022/01/15/tesla-asked-cooley-to-fire-lawyer-who-worked-on-sec-elon-musk-probe.html https://www.cnbc.com/2022/01/15/tesla-asked-cooley-to-fire-l...)
  - soheil 4y ago
    This is a case where words used are inflammatory on purpose to paint a damning picture of someone. The context in which that phrase is used is much much more nefarious than shunning the SEC over some dumb tweet or hiring a legal firm, which someone on HN doesn't approve of because they don't like one of their lawyers. Please look up the context in which the phrase "criminal behavior" is typically applied.

FollowingTheDao 4y ago

Your take on where housing prices can go is not realistic. If you take a look at this chart you’ll see that corrections bring housing prices back to before the boom. Housing prices will fall way more than 35% in the coming recession and your house will be worth much less than it was 18 months ago. https://www.researchgate.net/figure/A-HISTORY-OF-HOME-VALUES_fig1_265409427 https://www.researchgate.net/figure/A-HISTORY-OF-HOME-VALUES...

xeromal 4y ago
Maybe I don't understand how things work, but if you plan on enjoying and living in the house, does the house value matter except for property taxes? I bought a house to have stable "rent"
- tablespoon 4y ago
  > Maybe I don't understand how things work, but if you plan on enjoying and living in the house, does the house value matter except for property taxes? I bought a house to have stable "rent" You could end up being underwater on your mortgage, which could be a bad thing if other aspects of your financial situation deteriorate.
  - cavisne 4y ago
    In California & Washington mortgages are non-recourse, ie they are secured by the property itself and nothing else. So if your financial situation deteriorates to the point where you are forced to foreclose, you lose the equity in the home, but your other assets are protected.
    - leereeves 4y ago
      But even a non-recourse foreclosure tanks your credit rating and makes it difficult to rent or buy another home, right?
      - 4y ago

reactspa 4y ago

Agree with your points. The people panicking are the ones who bought the house 3 months ago.

VirusNewbie 4y ago
Yeah, or the people who got big RSU packages at the aforementioned unicorns 3 months ago. Which sucks, but... not the end of the world either.
- deathanatos 4y ago
  Boy I'm having a "Larry, I'm on Duck Tales" moment here, trying to imagine an RSU "sucking".
  - conro1108 4y ago
    Getting RSUs doesn’t ever “suck”, but getting 70%+ less (denominated in $usd) money in your quarterly vesting than before is unpleasant - even if you knew it was coming at some point and don’t critically depend on that income.
  - Jakob 4y ago
    Depends on the local tax laws. You pay income tax on vesting of RSU. In the US and Europe, RSUs are difficult to get wrong because of share withholding. In other countries, they are risky if you don’t watch out: 1. RSU vest at $10 2. You have to pay additional income tax eventually of let’s say $2 because of that valuation. (the US and Europe would only hand out shares worth of $8 and withhold the $2 taxes for you. Other countries make this your responsibility and give you the full $10). 3. Stock crashes, your shares are only worth $1 if you would sell them now. How do you pay the $2 tax from 2., once tax is due, if your shares are only worth $1? Multiply that by 1,000 to 100,000 RSU that vested and you get into difficult decision territory quickly. Obviously, you can hedge against that by selling the appropriate amount of RSU on vesting day.
    - deleted 4y ago
      [deleted]

deleted 4y ago

[deleted]

jltsiren 4y ago

If you want a wider context, take your favorite index, switch to log scale, and adjust for inflation. Then you'll have a pretty useful visualization of real returns. If you take S&P 500, you'll see a period of sustained growth from the late 1940s until the mid-1960s, followed by a period of poor returns until the early 1980s. At least according to one interpretation. Then there is a period of growth until 2000, followed by poor returns in the 2000s. We are currently in another period of growth that started in 2009. The risk people are afraid of is not a simple crash (like in 2008 or 2020) but a lost decade or 15 years. It's a plausible scenario, as such things do happen. On the other hand, the current period of growth is the shortest of the three, so maybe the growth is still sustainable and there are many good years ahead of us. And for an even wider context: The US has been stable and prosperous for over 150 years. That's a long time by the standards of historical empires. Maybe Pax Americana is over, and we are now starting the decline towards our version of the Crisis of the Third Century. If you are working age, there is a nontrivial chance of that happening in your lifetime.

VirusNewbie 4y ago
I'm not even arguing that growth will continue. I'm arguing that a correction is happening, it's probably a good thing some capital is being wiped out, but we aren't in a scenario where we'll likely see cascading failures across the entire financial system. If by the end of the year things are 'reset' to ~2019... that sucks for some investors, it sucks for people who got options grants in the last couple years, it might negatively affect the job market some, but it's not doom and gloom. Four years ago was a perfectly workable amount of capital, reasonable valuations, decent salaries, etc.
7speter 4y ago
Plenty of working age people who have already been experiencing a lost decade
markvdb 4y ago
Two Pax Americana timescale elements: - Technological progress has increased worldwide interdependence, to the point of destroying resilience. The world is one vulnerable system now to a much larger extent than any time in the past. Think Ukrainian grain exports to the North Africa. Hundreds of millions have grown to rely on that. Hardly even technologically possible 100 years ago. - Physical limitations to economic growth. Technological progress has made humans increasingly expert at exploiting natural resources on an ever larger scale. The same cannot be said of management of negative externalities. In other words, we can probably manage peak oil. Peak water? Less so. Global warming? Do you see a way out of that?

dcolkitt 4y ago

Real estate will not crash anywhere near 35%. Even before Covid, housing economists have been warning for a decade that we’ve spent the entirety of the 2010s underbuilding housing[1]. Against that we have huge demographic demand from Gen Z reaching prime home buying years. People who aren’t familiar with the underlying fundamentals of the housing market assume the Covid boom was a RE bubble. In reality it was just demand getting pulled forward. A generation of new entrants played musical chairs to grab a house before the supply ran out. 28-year olds who were waiting until they were 35, moved out of city apartments to grab suburban SFHs because they were afraid of being priced out of the market forever. Those same people, sitting on cheap mortgages, aren’t going to sell their house to move back to the city, just to buy a house again at a much higher price in a few years. Covid compressed 7 years of price appreciation into 2, but these prices are the new normal. [1] https://www.freddiemac.com/perspectives/sam-khater/20210415-single-family-shortage https://www.freddiemac.com/perspectives/sam-khater/20210415-...

dQw4w9WgXcQ 4y ago
> these prices are the new normal Massively annoying to hop on Zillow and see how many homes sold for $N in '20/21 get re-listed for $2*N a year later. But you're likely right though. It'd take a depression to reset anything back to '19/20 pricing now that everyone got addicted to listing their homes for 2x the $/sqft and being rewarded with people throwing cash offers in their face with no inspections. And it really isn't going to get better. You've also got cash flush boomers making their economic exit to retirement-land who will continue this problem.

gnicholas 4y ago

> I'd still be up from when I bought it. I’ve had similar thoughts, but then I realized there’s substantial inflation that seems to be sticking around for the foreseeable future. So even though certain assets I have are where they used to be 2-3 years ago, that’s in nominal dollars, not real dollars.