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HOT TOPIC Where the Economy is Heading (Follow-Up on "The Coming Recession")

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Rivoli

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There were so many things in what you posted that were wrong, I'm not even going to start peeling that onion and arguing with you. Even if I could teach you economics over a few forum posts, you're not interested in learning.

It's quite clear that you simply Google terms, then cut and paste without even reading or understanding the things you're posting.

Well, I do understand this stuff. And you're wrong.

Again, that's why people CALL YOU MR. FAKE NEWS on this forum.
@JScott

Can you just admit that you were wrong about China’s debt to GDP ratio? Or is the Federal Reserve bank of San Francisco wrong? LOL.

I’m actually right on every single one of those points. You’re more than welcome to give sources on ones you think I’m wrong on. The truth is I’m just parroting people much smarter than me on the subject.
 

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JScott

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I agree with you. I just don't think real estate is going to have a higher return than gold because real estate prices are still very high. I do like that low fixed interest rate though. If you could refinance to buy gold that would be a 2 punch KO when inflation comes swinging imo.
It doesn't have to have a higher return -- in real dollars -- than gold.

With leverage, you're buying just as much initial value at a much lower cost.

In other words, if I buy $100K worth of gold and a $100K worth of real estate, I have to shell out $100K for that gold, but only have to shell out $20-30K for that real estate.

If the value of real estate simply tracks inflation (doesn't beat it), I'm still going to make out better when I pay off that loan with inflation dollars because I purchased for a small fraction of the price.
 

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It doesn't have to have a higher return -- in real dollars -- than gold.

With leverage, you're buying just as much initial value at a much lower cost.

In other words, if I buy $100K worth of gold and a $100K worth of real estate, I have to shell out $100K for that gold, but only have to shell out $20-30K for that real estate.

If the value of real estate simply tracks inflation (doesn't beat it), I'm still going to make out better when I pay off that loan with inflation dollars because I purchased for a small fraction of the price.
Oh I see what you are saying. Yea if you are buying that makes sense. It is more risky than gold though. And if the Fed does a 180 on their policies to fight inflation you can sell your gold quicker than real estate.
 
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JScott

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Can you just admit that you were wrong about China’s debt to GDP ratio? Or is the Federal Reserve bank of San Francisco wrong? LOL.
This is how I know you didn't even read the article!

This isn't the Federal Reserve Bank of San Francisco data or analysis. This is the analysis of a private company called Fitch Ratings -- not a government organization or even a think tank. This is a private business that is making these claims.

Secondly, the article doesn't talk about debt-to-GDP, it talks about credit-to-GDP, which is not the same thing. If you understand how central banks work, you'd know the difference.

Again, you are wrong. YOU SIMPLY DID A GOOGLE SEARCH THEN CUT-AND-PASTE WITHOUT READING.

And again, it's the reason people call you MR. FAKE NEWS.

Go take an econ 101 class, and then we can discuss. Until then, stick with candle making.

I'm starting to understand why you weren't able to keep your business afloat and had to lay off 20 people. Perhaps you should focus more time on your business and less time on this forum.


Now, you're derailing my thread, and I'm putting you on Ignore.
 

Rivoli

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This is how I know you didn't even read the article!

This isn't the Federal Reserve Bank of San Francisco data or analysis. This is the analysis of a private company called Fitch Ratings -- not a government organization or even a think tank. This is a private business that is making these claims.

Secondly, the article doesn't talk about debt-to-GDP, it talks about credit-to-GDP, which is not the same thing. If you understand how central banks work, you'd know the difference.

Again, you are wrong. YOU SIMPLY DID A GOOGLE SEARCH THEN CUT-AND-PASTE WITHOUT READING.

And again, it's the reason people call you MR. FAKE NEWS.

Go take an econ 101 class, and then we can discuss. Until then, stick with candle making.
Holy cow.


It’s the Federal Reserve SF website lol. You really dont want to admit you’re wrong huh?

What’s the US Credit to GDP ratio?
 

Rivoli

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Is this comparable to the 300% Debt to gdp ratio of China?

When you look at corporate, household and public debt, isn’t the ratio us vs china less?
 
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JScott

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It’s the Federal Reserve SF website lol. You really dont want to admit you’re wrong huh?
Holy shit, you're an idiot. It's their podcast!

From that episode:

"In today’s episode, we sat down with Charlene Chu, Senior Partner at Autonomous Research Asia, where she conducts China Macrofinancial Research and asked her to share her insights on this topic."

Do you really not understand the difference between first-hand source and interview?

Please tell me you're not that stupid? Now I understand why your business failed.

What’s the US Credit to GDP ratio?
Exactly. You have no idea. Take an Econ course and then we can discuss.

Or perhaps start another business. Maybe make wicker baskets this time. Candles didn't seem to be your thing.
 

Rivoli

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Holy shit, you're an idiot. It's their podcast!

From that episode:

"In today’s episode, we sat down with Charlene Chu, Senior Partner at Autonomous Research Asia, where she conducts China Macrofinancial Research and asked her to share her insights on this topic."

Do you really not understand the difference between first-hand source and interview?

Please tell me you're not that stupid? Now I understand why your business failed.



Exactly. You have no idea. Take an Econ course and then we can discuss.

Or perhaps start another business. Maybe make wicker baskets this time. Candles didn't seem to be your thing.
LOL

Is that not the federal reserves website?

You really can’t admit you’re wrong huh?
 

tpuffer

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Jesus dude China’s debt is 40 trillion. All the gold in the world is like 8 trillion. Fact checked
$40 Trillion, $8 Trillion, $50 Gazillion - It won't matter as those are numbers created out of thin air. If there is a currency re-set to a new currency then the "nominal" price on something would change as well. It's not impossible for any given country to say F-You to everyone else and decide to go on a gold standard again. Is that likely, probably not, but the possibility is there and then the numbers don't matter much.

This is my first interaction with you on here Ravioli, but I have read a lot of threads with you posting. You're coming across with too much sauce my man. If all you're on here to do is say that you "fact checked" everyone - then I think you're in the wrong spot. All you need to do is explain your position and how I might be wrong - and I'm good with that. Or ask if I considered another data point. Simple.
 

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I tend not to trust experts a lot of the time.

Best thing to do is trust yourself and use information to make good decisions.
No. I completely disgree. I trust my doctor way more than I trust my own judgment.

It would be nice to be able to get a PhD in every field, but it's simply not realistic.
 
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NewManRising

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No. I completely disgree. I trust my doctor way more than I trust my own judgment.

It would be nice to be able to get a PhD in every field, but it's simply not realistic.
We're talking about money and the stock market. Your example isn't even comparable.
 

WJK

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I believe that the changes we can expect in our lives will be fundamental. The longer these stay-at-home orders in place -- the more changes we'll see. It goes from the micro to the greater parts and traditions of our society.

For example, I friend of mine has eaten out at every lunchtime for all of the thirty-five years that I have known him. He's cooking at home for himself. And now, when he goes for take-out, he complains that the meals are dismal. He's starting to like his own cooking. He's talking about the money he's saved by eating at home. At 83 years old, he's learning to cook for himself. Will he really care when the restaurants reopen? I don't think so.

I have other friends who swore by their personal trainers and gyms. They're now working out at home. They've bought equipment. They've joined digital gyms that they access through the net. Are they losing ground by doing it for themselves? I going to hide and watch to see if they return to their gyms and personal trainers.

When will people return to their businesses? Or will they? Several people around me had marginal businesses that probably won't reopen. They haven't had the heart to shut them down. Now that life has hit the pause button, they must rethink their positions and past decisions. There's going to be a lot of wailing and screaming for a while. But, it's like a forest fire. It will clear out a bunch of non-productive fluff. What grows back will be stronger and quick growing.

No one has asked me... yet... Here's what I would do if they put me in charge of the US.

1. I would let companies write off their costs within our US tax system to bring back our manufacturing and train our workforce. This manufacturing will be different from our last manufacturing era. This time it will be based on robots rather than human assembly lines. It will look and feel differently.

2. I'd open businesses and put people back to work. This virus is not as bad as they thought it would be. I'd let the concept of herd immunity do its magic. The elderly and very sick could stay home and protect themselves. We could contain "hot spots" through testing and following up with contacts.

3. I'd put the federal, state & local governments on "beans & rice" budgets. No pork. No cute projects. No saving anyone from anything. It would first mandate that each balances their budgets and then pay off, pay off, pay off... No printing more money. Yes, it would be painful in the short term -- but, be the most powerful step that we've taken in years.

I think that this situation will change people and their lives. Therefore, it will change our social order.
 

tpuffer

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3. I'd put the federal, state & local governments on "beans & rice" budgets. No pork. No cute projects. No saving anyone from anything. It would first mandate that each balances their budgets and then pay off, pay off, pay off... No printing more money. Yes, it would be painful in the short term -- but, be the most powerful step that we've taken in years.

I think that this situation will change people and their lives. Therefore, it will change our social order.
Dude I love your optimism! It would be awesome for this to happen. I think it would be very difficult, maybe impossible given the current structure of our currency supply. Currently there has to be debt for there to be currency.

Here's how our currency supply works -

The idiots in Money Washington issue Treasury Bills. Banks then "purchase" said T-Bills. How do the banks acquire the currency to do this? They sell the T-Bills to the Federal Reserve (It's not Federal, and there's no reserve). How does the Fed get the currency? They create it - out of nothing. Word on the street is that they use a bit of cinnamon and brown sugar to make it extra tantalizing for everyone.

So until that system stops, we won't ever have a balanced budget. Those two words aren't even in those clowns vocabulary.

Below is an awesome video - one of many - that really explains our currency well.

 

c4n

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For the record, I love reading your posts, @JScott and greatly appreciate the time and energy you put into them. I know many others do too.

I hope recent derailments don't discourage you from continuing to share your insights. Just press the damn "Ignore" button already :)
 

WJK

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Dude I love your optimism! It would be awesome for this to happen. I think it would be very difficult, maybe impossible given the current structure of our currency supply. Currently there has to be debt for there to be currency.

Here's how our currency supply works -

The idiots in Money Washington issue Treasury Bills. Banks then "purchase" said T-Bills. How do the banks acquire the currency to do this? They sell the T-Bills to the Federal Reserve (It's not Federal, and there's no reserve). How does the Fed get the currency? They create it - out of nothing. Word on the street is that they use a bit of cinnamon and brown sugar to make it extra tantalizing for everyone.

So until that system stops, we won't ever have a balanced budget. Those two words aren't even in those clowns vocabulary.

Below is an awesome video - one of many - that really explains our currency well.

It pays to live a long life. Yes, we can currency without debt. I remember when we did.
 

savman

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In May 2018, this thread kicked off:


Towards the end of this thread, I suggested that instead of continuing to argue about the current state of economic events (and who was right or wrong in their predictions), it was time to start focusing on what's to come, so that those of us who are trying to profit off future economic shifts can "lock in our bets."

I'm starting to lock in some bets based on my opinions of where things are headed. And I figured that I might as well start a new thread so that we can discuss and perhaps help all of us make good (or at least, better) bets moving forward...

Let me start with this disclaimer:

This is just my opinion! Basically, a guess. Opinions are meaningless, and I can't currently support anything I've written below with any reliable historic case study or economic data. In fact, I’m probably wrong about everything I'm about to say. So, you're not going to hurt my feelings if you disagree and call me an idiot (you're probably wrong too :) ).

That's my disclaimer. But, since a lot of people are asking me my opinion these days, here it is...

I currently imagine our economy as falling off a cliff. That’s not an exaggeration – what our economy is experiencing and is about to experience is completely unprecedented in our history. The government will likely be throwing everything they have at maintaining liquidity (the ability to money to flow to the markets where it’s needed) and maintaining social order. Not to mention that the administration will no doubt do whatever it takes to prop up the economy at least until the election (that’s not a political opinion, that’s simply common sense).

But, nonetheless, we’re about to hit the highest level of unemployment in history, the worst GDP contraction in history, the largest amount of QE/stimulus in history and the worst of pretty much every other economic indicator there is.

So, the metaphor of falling off a cliff isn’t unreasonable.

That said, I think we can all agree that what’s going on now is not a systemic economic issue. It wasn’t bad fundamentals that drove our economy off a cliff. From an economic standpoint, this is an artificial or unnatural event that has been thrust on our society, and by the nature of disrupting society, has disrupted the economy in it’s wake. But, regardless of whether it was a systemic issue or an artificial event that has caused this free-fall, the fact remains that our economy is still dropping like a rock over a cliff.

That’s the bad news.

On the brighter side, while the economy is most definitely in a free-fall, to continue this metaphor, there is almost certainly the equivalent of a huge trampoline at the bottom of that cliff. At some point, this lock-down is going to end, people will start getting back to work, people will start spending money again, and the economy will bounce off that big trampoline at the bottom and head back up.

But, just like a regular trampoline (and the laws of physics), we’re going to lose some energy during that bounce at the bottom, and we’re not going to make it all the way back up to the top of the cliff where we started. We could seemingly get pretty close, but, there’s just no way we get all the way back to the top.

In my opinion, on that first bounce, we’ll get far enough back to the top that most people don’t freak out that the world is ending. From a consumer sentiment standpoint, things will probably feel better than they actually are. In fact, compared to what we’ve been going through, everything will seem great to a large percentage of the people in this country. Many people will go back to their jobs, we’ll probably see a nice little stock market rebound, we may see the real estate market hang in, and people will get back to spending money.

That said, I don’t think things will be as good as they initially seem. I think economically, we’ll settle in at typical recessionary numbers – 6-10% employment, flat or very low GDP growth, wage contraction, etc. I think that’s inevitable, as there will still be a large part of the population that doesn’t just recover like nothing happened.

A lot of businesses are going to fail. Many of these will be businesses that were going to fail soon anyway, but this event was enough to convince the business owner to give up now as opposed to try to stick it out. Other businesses might have been on a good trajectory before this event, but the economic hit coupled with the psychological hit will encourage a lot of business owners to just throw in the towel. Finally, there will be a lot of business owners who were close to retirement, had planned to sell their businesses, but now find themselves in a situation where there is an over-supply of businesses for sale and an under-supply in demand, so they close shop instead of passing the torch.

Most of these business that won’t make it have employees. Those employees are now out of jobs, and due to reduced economic demand, in general, those employees aren’t going to find jobs easily. Especially unskilled employees going back to work in businesses that have figured out how to survive on fewer employees and run a leaner ship. It could take months or years for the economy to reabsorb all those jobs and get back to full employment.

*** In the short-term (through the end of 2021), I foresee recessionary economic numbers, but with more optimism than we necessarily see during a downturn. ***

Now, longer-term (1-2 years), the recovery scenarios start to branch.

The best case scenario (again, my opinion) is that we see a regular recession. Unemployment remains high for 12-24 months, GDP is sluggish for a year or so, housing likely sees at least a modest downturn, lending tightens, yada, yada, yada. Typical recession stuff, but not as bad as 2008...and within a year or so, the next expansion starts.

The more likely scenario (again, my opinion) is that this whole crisis kicks off some series of events that cascade downwards, the domino effect starts to get out of control, and we see an economic snowball that starts a chain of unintended and unexpected outcomes.

There are three reasons for this:

1. Leading up to this crisis, I don’t believe our economy was as strong as many of the economic indicators (or consumer sentiment) made it seem. Systemic issues from years past could catch up with us in the near-term;

2. There are likely to be a lot of things our government, the Federal Reserve, and the Treasury are likely to do during the next several months that will change the entire equation. Things that right now we can’t predict or foresee, but that will come apparent between now and the election. Trying to kick this can further down the road and not letting whatever is about to happen play out in a natural way will likely exacerbate what's to come;

3. Finally, there’s the big wildcard of whether this lock-down is a one-and-done, or whether this is the first of many lock-downs. Perhaps we get past the first wave, get back to work, and then in September or December or whenever, we find ourselves in round 2 of lockdown mode? In fact, it’s possible that we could find ourselves repeating this cycle several times between now and when a vaccine is available.

Between the foundational issues that we were facing a few months ago, the new issues created while trying to save the economy during this crisis, and the potential for further lock-down events, I think we could see a downward economic spiral that is as bad as 2008, if not worse.

*** Now, I’m not typically a doom-and-gloomer (I’m more of an optimistic pessimist), but if I was forced to put money down on this, I’d say that over the next 1-3 years, we’re in for at least a severe downturn, if not worse. ***

Now, I still have a lot more to say about all of those risks I mention above and how they could play out – the foundational concerns we were facing earlier as well as the new risks introduced during this crisis by trying to help us survive economically.

I'll post more about my thoughts on that in the next couple days...
In general I agree with the sentiment that the most likely near term outcome (<6 months) is things get back going and the mainstream view will be that we are on the way back to normal. We have the tail winds of supplemental UI, forbearances, deferments, stimulus 2.0 3.0? 4.0? etc.

As far as medium term (1-2 yrs), again I think your basically correct and if I were to handicap it I would kneejerk 75-25 with 25% being your best case scenario branch. If I had more courage in my convictions I would give it 80-20 because I think the real probability of a 'normal' recession is less than 10% but I've learned this: a belief that people will take the opportunity during a unexpected shock to examine their priors and 'learn to eat their vegetables' so to speak, is aspirational at best and delusional at worst. What's more likely is we (fed, public, politicians, etc.) double down on everything and try and keep the party going. Doomed to fail ultimately imo, but let's just say 25% chance they succeed and we have a normal recession and just kick the can down the road. Again.

The real problem is the probability distribution on the 80%. To use your words....cascading downards, domino effect, snowball, unintended consequences.... Yes. Yes and Yes. And Yes.

All I see are landmines. What if the MMT'rs take the wheel soon? The demographic shift in the US (and West in general) is still real and is definitely going to change the landscape of federal spending (massively upward) for the next decade. Reserve status of the dollar. Social unrest due to all of the above. How are already comically underfunded pensions going to achieve benchmark returns in a ZIRP world, and many more.

The only think I would discount (not wholly eliminate) from your list is 3.) rolling lockdowns.

a.) Once we have the data I think we'll see that outside of the NY/NJ metro, and some other dense urban areas, the lock downs were unnecessary.

b.) even if they were: the political will for further lockdowns on the scale, or even nearing the scale, of this one, won't exist.

c.) human ingenuity: I think through quantum leaps in testing capacity, times, learn more about transmission etc., maybe even a vaccine, we bring the disease largely to heel by late fall and lock downs outside of the worst hit areas will not be needed.
 

PizzaOnTheRoof

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China’s GDP is greater than 45% exports, of which a huge portion is going to US.
US is not dependent on China in anyway
I don't understand

I believe that the changes we can expect in our lives will be fundamental. The longer these stay-at-home orders in place -- the more changes we'll see. It goes from the micro to the greater parts and traditions of our society.

For example, I friend of mine has eaten out at every lunchtime for all of the thirty-five years that I have known him. He's cooking at home for himself. And now, when he goes for take-out, he complains that the meals are dismal. He's starting to like his own cooking. He's talking about the money he's saved by eating at home. At 83 years old, he's learning to cook for himself. Will he really care when the restaurants reopen? I don't think so.

I have other friends who swore by their personal trainers and gyms. They're now working out at home. They've bought equipment. They've joined digital gyms that they access through the net. Are they losing ground by doing it for themselves? I going to hide and watch to see if they return to their gyms and personal trainers.

When will people return to their businesses? Or will they? Several people around me had marginal businesses that probably won't reopen. They haven't had the heart to shut them down. Now that life has hit the pause button, they must rethink their positions and past decisions. There's going to be a lot of wailing and screaming for a while. But, it's like a forest fire. It will clear out a bunch of non-productive fluff. What grows back will be stronger and quick growing.

No one has asked me... yet... Here's what I would do if they put me in charge of the US.

1. I would let companies write off their costs within our US tax system to bring back our manufacturing and train our workforce. This manufacturing will be different from our last manufacturing era. This time it will be based on robots rather than human assembly lines. It will look and feel differently.

2. I'd open businesses and put people back to work. This virus is not as bad as they thought it would be. I'd let the concept of herd immunity do its magic. The elderly and very sick could stay home and protect themselves. We could contain "hot spots" through testing and following up with contacts.

3. I'd put the federal, state & local governments on "beans & rice" budgets. No pork. No cute projects. No saving anyone from anything. It would first mandate that each balances their budgets and then pay off, pay off, pay off... No printing more money. Yes, it would be painful in the short term -- but, be the most powerful step that we've taken in years.

I think that this situation will change people and their lives. Therefore, it will change our social order.
Unfortunately, I don't think we've hit the forest fire yet.

Also, Americans are very socially isolated as it is, moving industries like gyms to online is only going to worsen. Couple that with a recession and well...it'll be bad...
 

WJK

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I don't understand


Unfortunately, I don't think we've hit the forest fire yet.

Also, Americans are very socially isolated as it is, moving industries like gyms to online is only going to worsen. Couple that with a recession and well...it'll be bad...
It's not "bad" -- just transformative. We'll come out the other end of this changed in ways that we can't know yet.

The Great Depression changed my grandparent's generation -- they didn't trust putting their money in the banks or going in debt. People talk about 2008 and that changed a lot of younger people -- they lost money for the first time. The 1990 recession rewrote our business relationship with Japan and they have yet to recover financially. The overall American attitude, along with much of the rest of the developed world, has turned against China and globalism in a mere 3 years. How will this change play out on the world stage?

This current social experiment will make an impression that will stick. They say it takes 30 days to make a new habit. This has been going on for more than that magic time period. And the thought of dying has scared a lot of people, which makes it even more life-changing. We'll see where it all ends up.
 

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Not sure if the tone is a little optimistic when it comes to the economy.

2007/2008 a healthy economy was in danger of being infected by ailing banks. Now the opposite is the case. It isn't just a few companies that were not doing well that will be culled.
The central banks almost could not stabilize the banks back then. Now they try to stabilize the whole economy. I can't remember exactly what a dangerous amount of zombie companies is for the banking sector. All I remember is that I found the number scaringly low. Big companies have prepared for another credit crunch with "whatever it takes" directives.

When it comes to the DOW it is really hard to tell what happens. On the one side the liquidity flood and money supply will probably lift many asset classes (investment plight). On the other hand the real economic situation might eventually warrant a drop towards DOW 7500.
Inflation could get really bad, if companies can not satisfy demand in the months after the lockdowns.
Personally I expect more tense moments in the stock market and I assume that - at any point - markets might be closed for weeks or months due to high volatility.

Still, I want to have some of my money in stocks. I have not sold any and even bought some through a rebalancing already. Big companies will probably be the most obvious big winners in the aftermath and relative to other assets their stocks might not be a bad bet.

I also assume the average joe will not be able to spend the war chest money the moment they want to pull the trigger. Policies will make sure that big players get the nice deals and regular folk will be allowed to join when prices have gone up painfully. I am primarily thinking about real estate, there.
 
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WJK

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Not sure if the tone is a little optimistic when it comes to the economy.

2007/2008 a healthy economy was in danger of being infected by ailing banks. Now the opposite is the case. It isn't just a few companies that were not doing well that will be culled.
The central banks almost could not stabilize the banks back then. Now they try to stabilize the whole economy. I can't remember exactly what a dangerous amount of zombie companies is for the banking sector. All I remember is that I found the number scaringly low. Big companies have prepared for another credit crunch with "whatever it takes" directives.

When it comes to the DOW it is really hard to tell what happens. On the one side the liquidity flood and money supply will probably lift many asset classes (investment plight). On the other hand the real economic situation might eventually warrant a drop towards DOW 7500.
Inflation could get really bad, if companies can not satisfy demand in the months after the lockdowns.
Personally I expect more tense moments in the stock market and I assume that - at any point - markets might be closed for weeks or months due to high volatility.

Still, I want to have some of my money in stocks. I have not sold any and even bought some through a rebalancing already. Big companies will probably be the most obvious big winners in the aftermath and relative to other assets their stocks might not be a bad bet.

I also assume the average joe will not be able to spend the war chest money the moment they want to pull the trigger. Policies will make sure that big players get the nice deals and regular folk will be allowed to join when prices have gone up painfully. I am primarily thinking about real estate, there.
Why real estate? Make some low ball offers. There's nothing stopping you.
 

Andreas Thiel

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Why real estate? Make some low ball offers. There's nothing stopping you.
Not yet, but isn't this thread about what we expect to see? Probably somebody will complain about the overhead and the need to streamline and all the awesome deals get bundled up or something like that.

Right now, I assume nothing is cheap.
 

WJK

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Not sure if the tone is a little optimistic when it comes to the economy.

2007/2008 a healthy economy was in danger of being infected by ailing banks. Now the opposite is the case. It isn't just a few companies that were not doing well that will be culled.
The central banks almost could not stabilize the banks back then. Now they try to stabilize the whole economy. I can't remember exactly what a dangerous amount of zombie companies is for the banking sector. All I remember is that I found the number scaringly low. Big companies have prepared for another credit crunch with "whatever it takes" directives.

When it comes to the DOW it is really hard to tell what happens. On the one side the liquidity flood and money supply will probably lift many asset classes (investment plight). On the other hand the real economic situation might eventually warrant a drop towards DOW 7500.
Inflation could get really bad, if companies can not satisfy demand in the months after the lockdowns.
Personally I expect more tense moments in the stock market and I assume that - at any point - markets might be closed for weeks or months due to high volatility.

Still, I want to have some of my money in stocks. I have not sold any and even bought some through a rebalancing already. Big companies will probably be the most obvious big winners in the aftermath and relative to other assets their stocks might not be a bad bet.

I also assume the average joe will not be able to spend the war chest money the moment they want to pull the trigger. Policies will make sure that big players get the nice deals and regular folk will be allowed to join when prices have gone up painfully. I am primarily thinking about real estate, there.
I see 2008 completely differently from you. Here in the US our government was doing social engineering with our housing market. The stock market and Wall Street had taken over the housing market from the Saving & Loans industry -- which dramatically failed in the early 1990s. The government was forcing banks to make loans to people who usually didn't qualify for a home loan. They decided that poor people would be better off owning a house. And then they allowed the rating companies to classify that paper as A paper -- which it wasn't. Insurance companies & the US government insured the banker's risk in those loans. That paper was packaged into security instruments that were sold around the world as safe, high yield investments. Failure was a predestined result. And that's my personal knowledge of the situation...
 
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OP
JScott

JScott

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Right now, I assume nothing is cheap.
Not seeing many real estate deals at this point. Supply is limited, there are still a decent number of willing and able buyers out there in many market, and we're not yet seeing the market inefficiencies we saw last time things started to turn down.

Of course, the situation this time is much different than 2008, but assuming the economy falters after all this is done, it will no doubt take a toll on real estate values, and there will be some motivated sellers out there.

The big opportunities I see this time around is short-term rentals. Many vacation rental owners are overleveraged, and their business model just won't hold up during a recession.
 

WJK

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Not seeing many real estate deals at this point. Supply is limited, there are still a decent number of willing and able buyers out there in many market, and we're not yet seeing the market inefficiencies we saw last time things started to turn down.

Of course, the situation this time is much different than 2008, but assuming the economy falters after all this is done, it will no doubt take a toll on real estate values, and there will be some motivated sellers out there.

The big opportunities I see this time around is short-term rentals. Many vacation rental owners are overleveraged, and their business model just won't hold up during a recession.
And the hotel market is going to have a lot of shake-outs with their 80 and 90% vacancy rates. That extends to the cruise lines and all players in the travel industry. Here, in my little town in rural Alaska, we generally double our population during the summers. Those extra people are spread over several portions of our economy. I'm not expecting that influx to happen this year. That will hit everyone hard. My base is pretty solid and I'll still be here. I will have some shake-out of a few marginal tenants. Oh well.
 

savman

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Apr 8, 2020
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Not seeing many real estate deals at this point. Supply is limited, there are still a decent number of willing and able buyers out there in many market, and we're not yet seeing the market inefficiencies we saw last time things started to turn down.

Of course, the situation this time is much different than 2008, but assuming the economy falters after all this is done, it will no doubt take a toll on real estate values, and there will be some motivated sellers out there.

The big opportunities I see this time around is short-term rentals. Many vacation rental owners are overleveraged, and their business model just won't hold up during a recession.
re: vacation rental leverage; what is fundamentally different this time than last time re: vacation rentals? Is it simply the demand shock from say 6 months of drastically reduced revenues (due to quarantine) leading into a recession for a group of property owners already over levered?

If I wanted to test your hypothesis, short of getting MLS access in each vacation spot I wanted to investigate, do you have any suggestions on how to get robust price data since say 2000 for multiple locations? I wonder if Zillow has an API..../endrambling.

I can certainly find it plausible that short term rentals have seen increased demand and therefore leverage since the rise of AirBnB and others (by demand I mean apparent ease of property management making people more likely to get in the game); we should be able to test that hypothesis.

As far as going forward I can also buy into a narrative that a.) there will be continued demand for short term rentals, particularly after the COVID shock wears off and b.) there is potential upside if we assume that international travel will be less popular due to a combination latent virus fears and less discretionary income. The obvious winner here is domestic vacation rentals.
 
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JScott

JScott

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re: vacation rental leverage; what is fundamentally different this time than last time re: vacation rentals? Is it simply the demand shock from say 6 months of drastically reduced revenues (due to quarantine) leading into a recession for a group of property owners already over levered?
First, I need to correct myself: Just re-read my post, and I shouldn't have said "overleveraged." I should have said "overpaid."

With the rise of Internet-based scheduling (VRBO, AirBNB, etc), the number of properties purchased specifically for the purpose of short-term rentals has increased drastically.

That said, the underwriting on a short-term rental is not the same as on a long-term rental. Underwriting a property as a short-term rental will allow you to pay considerably more than underwriting that same property as a long-term rental.

But, during a downturn, tourism typically gets hit pretty hard. As does business travel. These are the two biggest groups of short-term renters. With reduced demand for short-term rentals, many landlords will be forced to convert to long-term rentals (where the demand typically tends to stay strong during a downturn).

Unfortunately, leasing at long-term rates on a property that was underwritten as a short-term rental property will drive many landlords to negative cashflow.

Those who don't have adequate reserves will likely lose their properties or look to sell.


As far as going forward I can also buy into a narrative that a.) there will be continued demand for short term rentals, particularly after the COVID shock wears off and b.) there is potential upside if we assume that international travel will be less popular due to a combination latent virus fears and less discretionary income. The obvious winner here is domestic vacation rentals.
Yes, if we can make the assumption that there will be continued strong demand for short-term rentals, there's no problem.

Personally, I disagree with that assumption (for the two reasons I mentioned above). But, I could certainly be wrong.
 

WJK

Gold Contributor
Speedway Pass
Oct 9, 2017
1,029
2,409
552
Nikiski, Alaska
First, I need to correct myself: Just re-read my post, and I shouldn't have said "overleveraged." I should have said "overpaid."

With the rise of Internet-based scheduling (VRBO, AirBNB, etc), the number of properties purchased specifically for the purpose of short-term rentals has increased drastically.

That said, the underwriting on a short-term rental is not the same as on a long-term rental. Underwriting a property as a short-term rental will allow you to pay considerably more than underwriting that same property as a long-term rental.

But, during a downturn, tourism typically gets hit pretty hard. As does business travel. These are the two biggest groups of short-term renters. With reduced demand for short-term rentals, many landlords will be forced to convert to long-term rentals (where the demand typically tends to stay strong during a downturn).

Unfortunately, leasing at long-term rates on a property that was underwritten as a short-term rental property will drive many landlords to negative cashflow.

Those who don't have adequate reserves will likely lose their properties or look to sell.




Yes, if we can make the assumption that there will be continued strong demand for short-term rentals, there's no problem.

Personally, I disagree with that assumption (for the two reasons I mentioned above). But, I could certainly be wrong.
Oh, the trail to bankruptcy court is paved with these kinds of stories...
 

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