Ask HN: How likely are we to see a financial crash this year?
Inflation out of control, cost of living crisis, energy crisis, house prices are in a bubble(?), war in Europe that shows no signs of ending anytime soon.
I read an article* that speaks of a Bretton Woods 3 like event, and Biden himself mentioned the beginning of a "new world order" (again).
I feel like the stock market has stopped reacting to real world fundamentals in any sense and just seems to continue its upwards march forever. Every correction being instantly bought up by all the free money washing around.
What is your opinion?
*https://plus2.credit-suisse.com/content/dam/credit-suisse-research/SearchPDF?DocumentID=1191091&DocumentType=NR%20Publication&documentClick=true&AuthRequired=true&tagFormat=PDF
127 comments
[ 1.7 ms ] story [ 124 ms ] threadEither 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
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.
What about Russian banks and Russian bond holders? External debt is generally only a fraction of the total debt
Raise rates > No more cheap debt > market goes down
Inflation runs wild > recession > market goes down
https://www.natlawreview.com/article/federal-reserve-system-...
My opinion? Read less financial "news". Focus on what you can control and don't try to time the market. Build an emergency fund if you don't have one, then invest in broad market funds and focus on earning money.
If you knew for certain there was a crash coming, you would still have to time the market a second time to get back in before the recovery, which will also come.
Sure, you can make rental accommodation illegal if you want your community to consist solely of homeowners -- some HOAs do exactly this -- but it's the most vulnerable who will suffer under such a policy.
It's a popular policy decision for many politicians, since owners vote at much higher rates than renters; but I wouldn't call it good policy.
That said putting more restriction on housing (even more taxes!) isn't going to improve the situation. Housing needs deregulation, not more regulation to distort the market even more.
The difference is that the metaphorical credit card of a HELOC has the house as collateral. A normal credit card has no collateral. If you go bankrupt, the HELOC takes the house, but the credit card doesn't.
Imagine, market crashes 50%, you lose your job, and what? Are you going max out your cards with 20%+ APR? Are you going to realize your losses?
Emergency fund is there to help ride out bad times, so you don't have to take shitty jobs, realize losses in your investments, sell your home or not undergo medical treatment due to financial stress.
No, that's what the line of credit is for.
Maximizing your savings/investments isn't a bad approach when your young as every $ made ads cumulative value over time. I wouldn't recommend it when you have a family.
If life were 100% predictable, and I never had to worry about a sudden expense, or a bill being higher than expected, or gas/grocery prices rising, then I'd totally be down to invest my entire net worth and live off of a portion of my paycheck, maintaining minimum balance in my checking account, and sweating bullets whenever the market dips.
I went through several weeks of unemployment last year while I was between jobs. I was fortunate enough to receive the covid+standard unemployment payments, but still had to supplement that with cash from my savings to skim by. The alternative would have been to break my lease to live with my parents, incur bad credit, potentially have my car repo'd, etc. It would have set me back several years, and wrecked my self image.
Since the demand for programmers has always been good wherever I've lived I've always opted for higher paying contracting gigs since I was never concerned about job security, i.e. before kids, I'd most likely be more risk averse and look for permanent roles after starting a family.
After I paid off my mortgage my expenses came down and after saving ~6 months of living expenses (easy w/o rent/mortgage) was able to take the leap to quit my FT job and go off on my own to create a commercial product which I worked on tirelessly until achieving my financial independence goals.
I still have some student loans, but am quickly approaching/may have already reached Zero Net Worth(hooray!) when everything is totaled up. Buying a house would be a smart move, but I'd rather hold off on that to let the market cool down, and try to find a partner who would share it with me.
Then you’re broke, and left holding a very baggy looking portfolio.
If you have a $500k HELOC and have used $200k of it for something, the bank usually has the right to force you to start making principal repayments (not just interest), to change the interest rate, and/or even in extreme circumstances to “call” the loan and ask you to repay everything ASAP. Read your fine print.
However, if you can get a HELOC, you own property and are therefore much better off and less precarious than people who don’t. Ceteris paribus, I’d rather lose my shirt in a house I own rather than a rental.
House? Mortgages have single-digit interest.
Car financing? More complicated, but often free, or even negative (I bought my car for less with financing that it would cost me outright).
Credit card? Tens of %.
I guess a "line of credit" is essentially the same as a credit card. A bank can in principle recover your credit card debt off your house, but it's difficult.
It's infinitely better to have a buffer and not need it than to not keep any buffer at all and suddenly find yourself with an income and bills to pay.
Disclaimer: I still happily purchase 20k of I bonds and EE bonds a year for diversification purposes, in addition to my index funds.
Of course this is a slightly different type of emergency fund (your money will not be able to be withdrawn that same day) but a balanced approach between multiple investments can work well. And of course it probably would not hurt to own some gold and silver safely secured as well if you are really worried about inflation and needing to quickly physically move your assets.
Housing is unlikely to drop to 2008 levels. Building materials are more expensive, and pay is also up.
The one wild card I don’t know about is the increased institutional/investor based investing in residential real estate. I’ve got no idea how those deals are structured overall and what a price drop combined with a mortgage rate shock would do to them and what size the overall market exposure is.
Currently that's technology, which happens mostly on the internet globally. I can't really imagine a real world event big enough that would shake up Google, Amazon, Apple, etc. all at once. Sure, individually they can be threatened by innovation, but generally everything on the internet feels very "detached" from real world events.
If possible even russia would still use those services today.
I think that anything could pop this bubble at this point, people investing in these companies are expecting growth that isn't realistic imo
All these companies have hit their saturation point and are just fighting over the same shrinking pie at this point. Just look at how many social media sites have implemented tik tok functionality. That alone to me screams "too much capital and not enough growth"
Your P/E drops precipitously when your future growth drops precipitously.
https://en.wikipedia.org/wiki/Geomagnetic_storm
https://www.ready.gov/space-weather#:~:text=To%20begin%20pre....
https://en.wikipedia.org/wiki/Carrington_Event
Now you can
It’s not.
> It is kind of puzzling to read Powell claiming he is worried about inflation while still printing huge amounts of QE at the same time.
QE stopped around the same time as the rate hike, and quantitative tightening (going from stop to reverse on QE) has been announced as upcoming.
https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
So we could have economic stagnation (job losses, increasing inflation, etc) without necessarily a drop in the stock market. In fact, stock market might be the only thing that could hedge inflation.
I don't have any better idea of where to park your money, so I continue to hold large equity positions and pray for the best
Edit: american jobs
how so ? what changed in terms of access this time around.
Yeah, Putin attacking Poland where much of the supply for Ukraine from the West runs would be insane given how bogged down he is; that would be like the US getting bogged down fighting in Vietnam and deciding to institute a massive bombing campaign in Cambodia, because supply lines supporting enemies in Vietnam ran through Cambodia.
The correlation between the stock market and real world fundamentals has always been qualified. A lot of investors don't care about today, only tomorrow. You can have big companies with popular products, but if the market doesn't think it's going to grow then the market isn't going to pay much attention.
Sell 1 Dec 16, 2022 SPX $3,600 Put
Midpoint price is $3.60 for $25 max gain if SPX is under $3,600, which implies something like a 14.4% chance that SPX is down by 20% more on Dec 16, 2022.
The first transaction is to buy a, so-called, put option struck at $3625. This means that if the level of the S&P is below the strike price ($3625) on the 16th Dec, you will make the difference between the level then and the strike price. Buying this contract will cost you some money, called the premium.
They're also suggesting selling a similar contract struck at a lower price ($3600). It will have a similar payoff to the first one but for the buyer of the contract. For you, you'll lose the difference between the S&P level and the strike price if the S&P level is below $3600 in Dec. You will receive a premium from the buyer for this trade. The premium will be a little less than the cost of the option you bought because the strike price is further from the current market level.
The reason for the 2 together is that, for most future levels of the S&P, gains and losses will largely net out. You'll lose a bit of money (the differences between the premia) if the level doesn't go below $3625. But you'll gain a bit more if it does ($25 - the diff between the premia if I recall correctly).
The current level is about $4470, so the premia for both should be quite low as the strike price is a long way from the current level. We call that an out-of-the-money option. As such, the differences between the premia will also be very small.
In summary, they're suggesting a pretty cheap way to make money if the S&P tanks by Xmas. And you would lose (relatively) little if it didn't tank.
Do not consider this to be investment advice. I reserve the right to have completely forgotten options 101 which I did 20 odd years ago.
And what worries me about this is that I'm not certain how deep the contagion goes. In 2008, I did everything I could to stay out of the US real estate market, and some genius investment advisor at my bank managed to sell me bonds issued by a hedge fund that turned out to be backed entirely by real estate derivatives.
No, it's not a good idea to invest part of your emergency fund into a highly speculative asset like cryptocurrency. Money put into crypto should come from a fund much less essential to one's livelihood.
Central banks has stimulated the economy by lowering interest rate below is natural market price. Central banks try to keep target inflation rate at 2%. Central banks tried to control wage inflation in a globalized market that does not work. We can import lower wages by buying goods from other countries globalization.
We have prize inflation in food oil prize and fertilizer.
Central banks will increase interest rate to target higher inflation.
Some High loan mortage borrowers will not be able to pay higher mortage rate and will be forced to sell. Selling of homes will cause housing prizes to decrease since buyers will look at how much monthly interest rate they can pay at higher interest rate.
> I feel like the stock market has stopped reacting to real world fundamentals in any sense and just seems to continue its upwards march forever.
It'll continue its upward march until the factors causing the upward march change. What else are people going to do with their wealth? As long as the stock market remains one of the best places for investors to put their wealth, they'll keep buying equities and the prices will keep going up. Perhaps we'll see some stagnation or decline as the baby boomers retire and begin liquidating their retirement accounts.
[1] https://www.cnn.com/2022/03/22/europe/belarus-ukraine/index....
Hey everyone, what's your opinion about how this years crop season will go in northern Texas?
Those continents don't use "human rights" as an ideology like EU .
In Europe ? Almost guaranteed.
Russia announced today it will stop accepting currency from "hostile" nations. One of currency is used by myself in my country its the "EURO"
It's sound simple yet what Putin is pushing toward is "Bretton Woods" Reset.
European have been living with overly high standard compared to their geo-political power, this was made possible because their currency enable them to buy everything for "cheap". ( Energy ,Commodities, Goods etc... )
Russia just broke the European economic machine by determining their currency is worthless.
If European refuse to "pay in ruble" it doesn't matter , it'll be gold , and the result will be 10 time worst. The Euro System was rigged from the start, it's impossible to repair it and get a currency as solid a Swiss Franc. Or at least not with causing a massive recession similar to Greece.
Probably time for me to leave EU and get somewhere with better perspective...
Are you all going to eat your emergency fund? What good will that do if there are bread lines? How will timing the market or not, help your family make it through what could be a long stretch of rough times? And if there is a financial collapse, why are you so sure that there will even be a market left to recover? And if there is no financial system, why are you worried about paying your mortgage?
Interest rates can only be raised so high before the US can’t pay the interest on its debt and defaults, then what? And if they can’t raise interest rates beyond a certain point, how does inflation end? This is not just a “recession”, it’s an existential threat to world order.
In many, many ways, Covid was a much worse economic disaster than the credit crunch. In the latter, it was "only" banks affected by bad credit (lots of it). In Covid, it was... everything. State and company revenues grinding to a halt. You'd expect financial markets going haywire, and yet they haven't.
The world is in an ugly place, but I don't think a significant financial crisis is coming. Much more likely, if anything, is some kind of prolonged stagnation as the world realigns itself to some kind of new Cold War, with global trade diminishing. Real interest rates may dwindle etc. There will no doubt be many personal strifes and tragedies, but no global meltdown.