This may require extracting additional rents from consumers, from workers, from renters, from debtors (including the government) but whatever changes have to be made to protect asset holders will be made regardless of the cost. An example of this in action was the collapse of SV Bank where the rules of our federal deposit insurance program were rewritten on the fly to protect the depositors. Imagine having an insurance policy, incurring an uncovered loss, and then compelling the insurance company to retroactively rewrite your policy to cover the loss!
It's clear we're living in an illusion, but I'm pretty sure there are enough people invested in that illusion that it won't stop until it is no longer physically possible to maintain. I'm increasing convinced that when whatever dream we're living in ends, it will end catastrophically, but I'm not even certain I'll live to see that happen.
Retail investors, as usual, will be worst hit (I say this as a European with no stake in US stocks).
Still - nobody make any sudden moves and we'll ride out what remaining value we can squeeze.
> War in Ukraine will tank the stock market - Market did go down by -30% between Jan-Oct 2022 and went nowhere for sometime after that.
> High interest rates will tank the stock market - Impact for this remains to be seen. Even during 2008 the high interest rates risk persisted for couple of years before the crash. So, I'd give it more time.
> Tariffs will tank the stock market - Did we not see a 20% drop before tariffs were put on hold for 90 days?
> IA will tank the stock market - I don't have much conviction on this one.
It is true that no one knows when a prolonged market crash like 2008 will happen. Maybe never. Government has figured out that Fed intervention can help the market stay afloat. So, maybe unless Fed doesn't step in for a long time these predictions will come true.
The flip side of this is that investment returns of a diversified portfolio (net of inflation) is slowly going down. The choices are to either concentrate or find alternative investing vehicles. That is one of reasons private equity is out looking for alternate income sources like buying up houses and hiking up the rents etc.
I’m too young to remember the naysayers, just the hype.
And how many people before him incorrectly predicted the top? For how long?
Tesla has a P/E ratio something like 26 times what other well-run automotive companies have. Boeing has a price like Airbus, despite no profits, etc.
Commercial real estate prices have gone down, and that's reasonable, but you've had both the interest rate increases and this WFH+hybrid remote thing becoming common, and since the interest rates have gone up from such a low level I think this is still overvalued, because 1% -> 2% should in theory mean halving the value if the rent is constant, and it went <1% to 4.5%.
I think it's a miracle that there hasn't been a crash. I wonder what weird things have been going on that have ensured that there hasn't been one yet. So I think your perspective is strange. The situation is absolutely crazy, and has been for years, but that doesn't make it not crazy.
This is why Trump is replacing people doing the statistics with people who very publicly say that they will print what Trump wants. He really wants to cut rates, and I think he will eventually get his way.
Even though he wants lower rates, rather than saying 'the Fed is prioritizing price stability over employment and that's wrong-- we can't waste American lives, they need to have jobs' he's denying the numbers despite that they could in principle allow him to do something he wants.
Maybe other things are signs of knowing these problems, maybe this demand for investments from Japan and the EU are motivated by concerns that stock market and to some degree commercial housing valuations are unreasonable, but it's not certain that Trump or anybody else is fully aware. This isn't complicated stuff, and I've even seen newspapers detail ideas like this, maybe toned down a bit, but it's hard to know who understands what.
Also in 1999 MSFT was $57 a share. In 2009 it was $16 a share. It cracked $57 again in 2016. 17 years to go sideways.
Cisco never reached its 2000 peak again. Of course companies like Pets.com just went out of business.
It's actually pretty easy to lose money. Everybody is happy to help you part with yours.
Aside from lottery winners whose assets start liquid, are there examples of people in the last 5 years with over $100 million in assets that permanently lost most of their wealth without doing something really stupid?
By what mechanism / who exactly? Or referring explicitly to the ultra wealthy? When I think of the normal wealthy, the 1-20 million camp, can't they just stuff all of their money into index funds for the last 20 years and everyone grows 10%+ a year (most years)? That's what the few multi millionaires I personally know have done -> step 1 put money in e.g. Vanguard, step 2 maintain job and spend based on income, not accumulated wealth, step 3 do nothing as wealth builds itself. Once they get past 2 million, I think they are making 80-200k per year at capital gains rates and maybe don't even need to put more in, just ignore it. I don't personally have that situation though so maybe I'm glossing over details or have it wrong.
You lay out basically the situation I found myself in. But I set aside some for a future house down payment (less risk for that chunk), future wedding (less risk for that chunk), and even ignoring that, most advice wouldn't say to stuff the remaining 100% into markets.
So maybe 60% went into markets. With hindsight it oftentimes sounds like a good idea to just drop it all in the market. But life is uncertain and crystal balls are in short supply... you would feel stupid if you made $1mil, put it all in stocks, and life came out of nowhere and took a dump all over you when the markets tanked.
Not saying I'm in a bad position, but its nowhere near "1mil at 10% per year (which is in itself kinda a wild base assumption)".
TLDR: people have a rosy unrealistic view of how this works out.
Indeed, but even with something like SPY, there’s quite the concentration in tech:
Top 10 Holdings (37.99% of Total Assets)
NVDA 8.07%
MSFT 7.37%
AAPL 5.77%
AMZN 4.11%
META 3.12%
AVGO 2.57%
GOOGL 2.08%
GOOG 1.68%
BRK-B 1.61%
TSLA 1.61%
AMZN does tech stuff, but also retailing, grocery, logistics, media and more.
META and GOOG are advertising businesses.
BRK is a basically a holding company, its businesses are in a wide variety of markets, mostly non-tech (and it owns public equity too).
TSLA is a car manufacturer.
With an MSCI world, those companies would drop to ~22% exposure. Throw a bit of real estate, more exposure to your home country if you are not in the US some real estate, some bonds and you can make it drop to <10%.
All those events don't tank the stock market because they were based primarily on fear.
What will tank it are lies based on greed.
> Dot-com: overvalued companies with no revenue
> Mortgage: banks lying/lending about credit scores
> Covid: continuing online & EV trend, meme stocks, SPACs
> AI: continuing scaling laws, high ROI?
It’s not hard to predict that events will happen. It’s hard to do so with more precision than the next guy.
Something I learned in H2 of 2021, when I nearly went broke betting on a correction. Wasn’t wrong, one did occur. Just failed to realize I couldn’t figure out exactly when.
They are however not examples of long depressions. Which I think is reasonable to expect we'll see less of, given that more and more regular people feel the need to put their money in the stock market. There is simply no alternative. And every time we reach new heights. This is also expected.
Will this go on forever? Probably not. But it won't look like the 1930s. The stock market is a crowd, not a science.
The term "Fed put" is decades old.
> The global pandemic will tank the stock market
It actually did screw up the economies of a lot of countries and companies and it messed with stock markets as well. It increased debt worldwide, it increased unemployment that took years to recover.
> High interest rates will tank the stock market
There is a well established relationship between lower stock market returns when there is high interest rates.
> War in Ukraine will tank the stock market
It significantly hurt the Russian stock market, at least the sanctions did. But war tends to be a stimulus for the economy as long as it isn't too large of a war.
I'm not sure what else needs to happen to show the economy has been doing poorly for all but the richest segments. The return of a blatant and severe caste system and mass starvation?
All of the events you listed have had significant economic effects and required massive intervention from the state to buoy asset prices. The longer this continues the more our economy becomes geared to producing "value" for this small, and shrinking, group of owners at the expense of everyone else.
I think there's an incorrect valuation by looking at where things are today. I mean Black Monday, the 2009 housing crash, DotCom Bubble, and others were times the market did tank yet we've since recovered.
So how are we measuring the accuracy of those predictions? From Jan to April the Trump admin was announcing tariffs. VOO's (S&P500) lowest price this year was on April 8th at $456.74 and on Feb 19th it was $563.67. We see similar patterns with covid and invasion of Ukraine. Do we consider a 25% reduction "tanking"?
I agree that with enough time that everything will work itself out. But I do not think that this means we should ignore or downplay damage done in the short term.
Diversifying does not stop the tanking. It will reduce the risk related to poor choices all at once
- we're going into the next Great Depression (a once in a lifetime occurrence)
- a small subset of stocks (that happens to make up a huge portion of the entire equity market in the US) has extreme PE and PEG ratios and will pop (which happens every few years)
I think your point largely stands for both cases, but it's important to delineate them.
If you're preparing for a Great Depression - you're likely only going to be right by coincidence. If you're preparing for a stock bubble to pop, at the very least, you've got better odds.
where ? i don't see it.
> War in Ukraine will tank the stock market
> High interest rates will tank the stock market
> Tariffs will tank the stock market
> IA will tank the stock market <- We are here
All those statements made sense to me at the time. And I have no doubt that one of these days, someone will make a correct prediction. But who the hell know what and when.
Diversify, be reasonable and be prepared for it to happen someday. But freaking out with any new prediction of doom is not the winning strategy.