My 2 cents on it is that this isn't a bubble. It's just massive inflation that hasn't arrived at the consumer just yet. The pandemic created a massive problem for economies, but that problem existed pretty much globally, so we didn't see any big shifts between countries. But what resulted was that every government worldwide created completely bonkers amounts of liquidity out of thin air and injected it into the markets so the economies stayed afloat.
The good news is: They pretty much succeeded with that. We're all still here despite revenue generation for whole industries being frozen for more than a year.
The bad news is: All that liquidity mostly ended up in just a few hands, and now it needs to go somewhere: The recipients at the end of the chain keep outbidding each other for a finite supply of value-keeping assets. Everybody is flush with cash with no place to park it.
It may look like a "bubble of everything", but it's just the biggest increase of monetary supply we've ever seen in a long time.
What to take from there and what will happen next, I don't know though. The usual relief valve of raising interest rates won't work anymore without making the debt level quickly unmanageable for governments. Usually I have a hunch on what will happen next, but this time I'm stumped.
Having a clear cause for asset value inflation is not mutually exclusive with having asset bubbles. In fact, a reasonable explanation for inflation can well serve as a catalyst for asset bubbles. Asset prices that increase modestly due to inflationary pressure can become overheated when the narrative of "buy today or you won't be able to afford it tomorrow!" takes over. Most people who are now bidding up real estate or other assets are driven more by FOMO than an analysis of what fiscal policy will lead to what degree of inflation. And inflation alone won't stop the bubble from bursting, because the same people who are operating on greed now will be operating on fear when the prices start declining, and any rational explanation of what the "right" value of an asset should be will do little to stop the panic selling at that point.
I think that's a big chunk of it. It explains a question that's been nagging me: if we've been pumping money into the economy for over a decade, why isn't there inflation?
Answer: there is, it's just asset inflation, not consumer inflation.
Still, if real estate is one of those assets, that should have filtered down to the consumer level. Is it isolated away from most consumer real estate? Or has the real estate fraction of CPI actually been rising while something else is falling to compensate? (The latter should be easily testable, but I don't have time at the moment.)
> The good news is: They pretty much succeeded with that. We're all still here despite revenue generation for whole industries being frozen for more than a year.
I don't know. Lots of stocks and indexes that they are a huge % of are up because their revenue is actually really, really up.
"The FAAMGs reported aggregate 1Q sales of $321 billion, some $24 billion or 8% above consensus, for year/year growth of 41%." (via zerohedge). That's huge.
You are forgetting one big part of the irony of the 2008 crash. The first part of the crisis was that we basically gave free loans to people and anyone could get a loan to buy a house.
Incoming poetry:
It’s 2021, and we are basically giving interest free loans to people and anyone can buy a house. Right now since there’s fewer houses, the check on that loan is that those with cash or higher down payment get the house (the sanity check being that those with actual finances get it). When we make more houses, then it will be the same type of free for all over again.
The economy is nuts. Lots of jobs won’t exist going forward. I don’t think everyone taking out a mortgage today will easily be able to make payments 7 years from now, even with 0% interest.
I think blaming this on government spending is missing the big picture. Yes, it was a contributing factor, but the primary driver of price increases in most sectors is scarcity.
The pandemic brought about a scarcity of raw materials, scarcity of labor, and scarcity of shipping, all of which have contributed heavily to price increases. The trade wars brewing between countries have also contributed to scarcity.
We've had times of massive government spending that coincided with strong deflationary pressure too. So it cannot be the case that all government spending leads to inflation. If we work entirely under that assumption, the we'll never address the problem because everyone will continue to keep wacking on the wrong thing.
If we want lower lumber prices, the solution is to boost lumber production and imports. Not to halt government spending.
The crypto bubble is already deflated, lasting a whole 4 months and then imploding over the past 2 weeks.
Stocks have done really well in large part due to record profits and earnings from large firms. Look how much $ Disney makes for example. Consumer spending , intellectual property, click ads, recurring revenues on high margin digital products ..all that stuff.
The fed is a contributing factor but not the only one. Crypto did really well in 2017 despite the fed raising rates.
Borrowing rates are just too low, and banks are letting people and businesses lever up way beyond reasonable levels.
Short term rentals are lucrative. Owners can earn many multiples of their costs per month on the short term rental market. Significantly more lucrative than traditional long term rental properties.
...and finally, the ridiculous bonus depreciation rules.
Borrow at low rates, secure cash flow into the future, and write off 100% of eligible improvements the year you spend. Yeah, no shit the housing market is going ballistic.
I worry that this is the next step in the desire to optimise everything.
It started with companies, they had to optimise to compete. As we created a data economy they had to use it in order to optimise that bit further to remain competitive.
Then in continued with our work. Employers optimised employee resource usage, specialising people, monitoring what they do.
Then it moved into people optimising their own work – an obsession with productivity, but it eventually became an obsession with optimising our long term lives – homes, investments etc. The crypto bubble is people looking for get-rich-quick schemes because they need them, everyone else has a side-hustle, good investment, home that's skyrocketing in value, so you have to as well in order to "compete". Just extrapolate out 10 years and you could be poor if you don't get this thing right now that is appreciating in value by 20% a year.
> The crypto bubble is people looking for get-rich-quick schemes because they need them
People who desperately need cash aren't speculating huge amounts on crypto. The speculative bubbles are driven by people with extra cash they can gamble on speculative investments.
Crypto has been pushed a way for the little guy to fight back against wall street, but in reality it's a big business for traders with high bankrolls. Someone investing $1000 into crypto and making 10X gains is phenomenally lucky, but $10,000 isn't going to buy them a house. Many of the biggest winners in crypto are the very wealthy individuals who could afford to gamble $10K or even $100K on an ultra speculative investment because losing everything wouldn't appreciably impact their wealth.
It's also important to ask where the money is coming from when someone claims high crypto gains. If someone bought $1000 of DOGE and sold it for $10,000 later, where did the $9000 profit come from? It comes from new entrants buying DOGE. It's often the casual retail investors who are late to the party, cashing out the early buyers with their purchases.
In the 80s a 20-32 year old who was "Doing Well" was on the path to being a Doctor or Lawyer, or Executive at a big company. Those things were high social status but also took years if not decades to accomplish. Now people in that age range compare themselves to YouTube millionaires and crypto millionaires. So it seems stupid to spend 10-30 years working towards "success" to these people.
I understand why you are worried, because it is hard to see how this plays out.
What’s crazy to me is the argument we should ever stop optimizing anything. Doing things efficiently means we have more resources to do other things, so we can do more things in total. That’s how we got from cavemen to smartphones. It’s the human condition.
This is the new normal for the US. We had our ~30 years of prosperity before companies migrated their facilities offshore in search of greater profits and our federal government did nothing to prevent it. Now the rest of the developing world is having their moment. Wages will continue to stagnate/decline as those in developing countries rise. We could have prevented this, but our leaders did nothing. They should all be summarily executed in my opinion for raping this country.
Hoping the housing squeeze will be a trigger for gentle densification in more of the depopulated interior cities of the USA. My midwest city is a lot more pleasant place to be than it was only 10 years ago. Many more amenities in walking distance, more apartment conversions, more vacancy fill in. Would love to see this continue.
Seems like a lot of risk in the system but where to invest? So I'm buying a farm in Iowa. Prices haven't appreciated very much in 10 years, and the Fed can't print farmland
A relative told me something similar once when I was younger and skeptical about buying a house, because it's a depreciating asset class that didn't make sense to me why it increases in value.
His advice: "Population will continue to grow - but you can't make more land."
With the amount of money printing being done globally, and interest rates breaking the zero bound, I am not surprised that investment goods have risen in price. Inflating the monetary supply has a habit of raising prices. The rest of the economy may just be lagging behind the investable goods in price.
He doesn't seem to make the connection to central bank policies? People are basically gambling on the speculation that central banks keep inflating the money supply. It's a ridiculous game and I hope that more people will realize that we need a predictable and immutable monetary policy, as in Bitcoin. It's better for the markets and it's better for the people.
It's inevitable that people will eventually choose Bitcoin, but maybe this is the event that makes people think and it will happen sooner.
Housing isn't a bubble right now. It's a completely rational and explainable response to low supply, a short term burst of demand (from 12 months of no one buying), expensive materials (pandemic supply chain issues), and low interest rates. It'll work itself out.
That being said, people probably shouldn't be buying houses while waiving inspections.
It sucks wanting a home right now. Holding off will raise your own property value but if you’re looking for an upgrade, it raises your future property value even more for a net loss.
But if you try to rush in now, the supply is abysmal leaving you to make significant compromises, and there’s a real chance this winds up being a bubble that bursts giving you a major equity loss.
Where I live we have these booming housing prices and yes it’s fueled by low interest but also by extremely low supply. When I want to see a house, I’m usually too late to even get a chance. And then it’s a bidding war between 10+ parties. It’s no fun, but it’s also not really a bubble I think. We just need to build much more houses.
yawn... he and others have been warning of a housing bubble since 2013 or so. But prices keep going up, especially since Covid. Even if the market was to cash, it would probably not revisit those lows. What this means is, if you wait for a lower price, you may never get it even if the market crashes. Maybe he along with the rest of the financial media and experts need to admit they are clueless about predicting the future. The useless financial media in jan-feb were certain GameStop would be low double-digits by now...so much for that.
wild west real life example - House I bought in 10/20(san diego area) now has jumped in value so much it has exceeded the amount of my downpayment, basically if I sold it now I would get my downpayment * 2 in cash, this is after fees etc.
It really requires too much text to go into all the details, but some points to consider:
1) We've had two drawdowns of more than 50% in equities in the last 20 years. Great stock performance over the past decade may have blunted memories of this for most.
2) After both drawdowns, the fed immediately dropped rates and performed some level of QE to stimulate the economy. If we experience another crisis event, it seems they've largely run out of ammo. Interest rates are already close to 0 and Fed is actively buying (e.g. printing money) 120B in bonds/month.
3) Despite the monetary stimulus, it took many years to break even in the indexes. If you bought at the peak of dotcom, it would've taken you something close to 10 years just to breakeven.
4) S&P valuations are near dotcom bubble peak by some metrics, such as the Shiller P/E ratio. This is often justified by low interest rates, which has truth to it, but is also importantly predicated on rates remaining low.
5) 20% of companies in the S&P are now considered "zombies". Effectively meaning that due to extremely low interest rates many companies have taken on large amounts of debt. If bond yields rise, they may no longer be able to service this debt.
6) The US govt is in a similar position. They sell treasuries to fund policy measures. Often the buyer of these have been free market participants, such as US citizens and foreign countries. However the Fed has been increasingly monetizing this debt. By monetizing, I mean they effectively print money to buy treasuries to fund US govt programs, which increases the money supply. The govt would also be in a sticky situation if rates rose significantly. Foreign countries have been increasingly net sellers of treasuries.
7) Real home prices are at an all time high in recorded history, surpassing the housing bubble peak. According to Shiller.
8) IF inflation presents itself in a big way in the next few months, the Fed may be forced to pull the rug on the whole thing by ratcheting up rates faster than people expect. Potential catalyst for a drawdown/sell off type of event.
Now there's two primary camps. One thinks that the fed will ignore inflation and leave rates low to avoid rising yields that could cause problems with private/public funding. They seem to signal this strategy somewhat with their recent policy shifts.
Another camp believes that if the data is bad enough, the Fed will be forced to act. If inflation expectations become unanchored, it tends to become self fulfilling. People rush to spend money to stay ahead of inflation, thus pushing up prices. This can be pushed by the private markets rejecting the rates on bonds, forcing the Feds hand to either print money to buy even more bonds, or to raise rates to make US treasuries competitive.
Of course there's a third camp that believes inflation will be transitory and not materialize in a significant way in the data. In this case rates can stay low and we follow Powell's gentle liftoff approach.
I don't say these things to spread fear, but people should be aware of the state of the economy. I think the Fed has done a great job at keeping the engine running in the short term, but I fear we're now backed into a corner should another economic crisis arise.
This sadly means that people aren't betting on themselves anymore.
When assets skyrocket, usually business formation and funding goes down.
Banks have better data but anecdotally this is what is happening
Ideally if somebody in here works for the big boys such as JPMorgan , Wells Fargo or Barclays and wanted to decipher such phenomenon you'd look at something like:
(Turnover in business bank account opened in the past year - outgoing payments to insiders,beneficial owners and companies controlled by insiders and beneficial owners) / GDP
Yet another metric of risk taking:
No. of hires + no. of people who quit. This gives you an idea of how confident business are in their growth and how confident people are in their personal growth.
Of course stuff like the stimulus and paying people to stay home distort stuff so much that such data can't be compared to say 2005
[+] [-] endymi0n|4 years ago|reply
The good news is: They pretty much succeeded with that. We're all still here despite revenue generation for whole industries being frozen for more than a year.
The bad news is: All that liquidity mostly ended up in just a few hands, and now it needs to go somewhere: The recipients at the end of the chain keep outbidding each other for a finite supply of value-keeping assets. Everybody is flush with cash with no place to park it.
It may look like a "bubble of everything", but it's just the biggest increase of monetary supply we've ever seen in a long time.
What to take from there and what will happen next, I don't know though. The usual relief valve of raising interest rates won't work anymore without making the debt level quickly unmanageable for governments. Usually I have a hunch on what will happen next, but this time I'm stumped.
I also may be completely wrong.
[+] [-] qzw|4 years ago|reply
[+] [-] jfengel|4 years ago|reply
Answer: there is, it's just asset inflation, not consumer inflation.
Still, if real estate is one of those assets, that should have filtered down to the consumer level. Is it isolated away from most consumer real estate? Or has the real estate fraction of CPI actually been rising while something else is falling to compensate? (The latter should be easily testable, but I don't have time at the moment.)
[+] [-] simonsarris|4 years ago|reply
I don't know. Lots of stocks and indexes that they are a huge % of are up because their revenue is actually really, really up.
"The FAAMGs reported aggregate 1Q sales of $321 billion, some $24 billion or 8% above consensus, for year/year growth of 41%." (via zerohedge). That's huge.
[+] [-] runawaybottle|4 years ago|reply
Incoming poetry:
It’s 2021, and we are basically giving interest free loans to people and anyone can buy a house. Right now since there’s fewer houses, the check on that loan is that those with cash or higher down payment get the house (the sanity check being that those with actual finances get it). When we make more houses, then it will be the same type of free for all over again.
The economy is nuts. Lots of jobs won’t exist going forward. I don’t think everyone taking out a mortgage today will easily be able to make payments 7 years from now, even with 0% interest.
[+] [-] mywittyname|4 years ago|reply
The pandemic brought about a scarcity of raw materials, scarcity of labor, and scarcity of shipping, all of which have contributed heavily to price increases. The trade wars brewing between countries have also contributed to scarcity.
We've had times of massive government spending that coincided with strong deflationary pressure too. So it cannot be the case that all government spending leads to inflation. If we work entirely under that assumption, the we'll never address the problem because everyone will continue to keep wacking on the wrong thing.
If we want lower lumber prices, the solution is to boost lumber production and imports. Not to halt government spending.
[+] [-] paulpauper|4 years ago|reply
Stocks have done really well in large part due to record profits and earnings from large firms. Look how much $ Disney makes for example. Consumer spending , intellectual property, click ads, recurring revenues on high margin digital products ..all that stuff.
The fed is a contributing factor but not the only one. Crypto did really well in 2017 despite the fed raising rates.
[+] [-] imtringued|4 years ago|reply
[+] [-] texaswhizzle|4 years ago|reply
Short term rentals are lucrative. Owners can earn many multiples of their costs per month on the short term rental market. Significantly more lucrative than traditional long term rental properties.
...and finally, the ridiculous bonus depreciation rules.
Borrow at low rates, secure cash flow into the future, and write off 100% of eligible improvements the year you spend. Yeah, no shit the housing market is going ballistic.
[+] [-] imtringued|4 years ago|reply
[+] [-] danpalmer|4 years ago|reply
It started with companies, they had to optimise to compete. As we created a data economy they had to use it in order to optimise that bit further to remain competitive.
Then in continued with our work. Employers optimised employee resource usage, specialising people, monitoring what they do.
Then it moved into people optimising their own work – an obsession with productivity, but it eventually became an obsession with optimising our long term lives – homes, investments etc. The crypto bubble is people looking for get-rich-quick schemes because they need them, everyone else has a side-hustle, good investment, home that's skyrocketing in value, so you have to as well in order to "compete". Just extrapolate out 10 years and you could be poor if you don't get this thing right now that is appreciating in value by 20% a year.
It's crazy. It worries me.
[+] [-] PragmaticPulp|4 years ago|reply
People who desperately need cash aren't speculating huge amounts on crypto. The speculative bubbles are driven by people with extra cash they can gamble on speculative investments.
Crypto has been pushed a way for the little guy to fight back against wall street, but in reality it's a big business for traders with high bankrolls. Someone investing $1000 into crypto and making 10X gains is phenomenally lucky, but $10,000 isn't going to buy them a house. Many of the biggest winners in crypto are the very wealthy individuals who could afford to gamble $10K or even $100K on an ultra speculative investment because losing everything wouldn't appreciably impact their wealth.
It's also important to ask where the money is coming from when someone claims high crypto gains. If someone bought $1000 of DOGE and sold it for $10,000 later, where did the $9000 profit come from? It comes from new entrants buying DOGE. It's often the casual retail investors who are late to the party, cashing out the early buyers with their purchases.
[+] [-] bob33212|4 years ago|reply
I understand why you are worried, because it is hard to see how this plays out.
[+] [-] TechBro8615|4 years ago|reply
[+] [-] JohnWhigham|4 years ago|reply
[+] [-] trgn|4 years ago|reply
[+] [-] throwkeep|4 years ago|reply
[+] [-] jeffbee|4 years ago|reply
[+] [-] throwawaymanbot|4 years ago|reply
[deleted]
[+] [-] 29_29|4 years ago|reply
[+] [-] s3r3nity|4 years ago|reply
His advice: "Population will continue to grow - but you can't make more land."
[+] [-] n0mad01|4 years ago|reply
[0] https://www.theguardian.com/commentisfree/2021/apr/05/bill-g...
[+] [-] pengaru|4 years ago|reply
The Fed can't print any kind of land, why such specificity?
[+] [-] droffel|4 years ago|reply
[+] [-] ralph84|4 years ago|reply
[+] [-] Geee|4 years ago|reply
It's inevitable that people will eventually choose Bitcoin, but maybe this is the event that makes people think and it will happen sooner.
[+] [-] 1270018080|4 years ago|reply
That being said, people probably shouldn't be buying houses while waiving inspections.
[+] [-] emerged|4 years ago|reply
But if you try to rush in now, the supply is abysmal leaving you to make significant compromises, and there’s a real chance this winds up being a bubble that bursts giving you a major equity loss.
[+] [-] teekert|4 years ago|reply
[+] [-] paulpauper|4 years ago|reply
yawn... he and others have been warning of a housing bubble since 2013 or so. But prices keep going up, especially since Covid. Even if the market was to cash, it would probably not revisit those lows. What this means is, if you wait for a lower price, you may never get it even if the market crashes. Maybe he along with the rest of the financial media and experts need to admit they are clueless about predicting the future. The useless financial media in jan-feb were certain GameStop would be low double-digits by now...so much for that.
[+] [-] workallday21|4 years ago|reply
Crypto is just for the fun on human madness, like Pamplona bulls.
[+] [-] drpgq|4 years ago|reply
[+] [-] subsubzero|4 years ago|reply
[+] [-] adam_arthur|4 years ago|reply
It really requires too much text to go into all the details, but some points to consider:
1) We've had two drawdowns of more than 50% in equities in the last 20 years. Great stock performance over the past decade may have blunted memories of this for most.
2) After both drawdowns, the fed immediately dropped rates and performed some level of QE to stimulate the economy. If we experience another crisis event, it seems they've largely run out of ammo. Interest rates are already close to 0 and Fed is actively buying (e.g. printing money) 120B in bonds/month.
3) Despite the monetary stimulus, it took many years to break even in the indexes. If you bought at the peak of dotcom, it would've taken you something close to 10 years just to breakeven.
4) S&P valuations are near dotcom bubble peak by some metrics, such as the Shiller P/E ratio. This is often justified by low interest rates, which has truth to it, but is also importantly predicated on rates remaining low.
5) 20% of companies in the S&P are now considered "zombies". Effectively meaning that due to extremely low interest rates many companies have taken on large amounts of debt. If bond yields rise, they may no longer be able to service this debt.
6) The US govt is in a similar position. They sell treasuries to fund policy measures. Often the buyer of these have been free market participants, such as US citizens and foreign countries. However the Fed has been increasingly monetizing this debt. By monetizing, I mean they effectively print money to buy treasuries to fund US govt programs, which increases the money supply. The govt would also be in a sticky situation if rates rose significantly. Foreign countries have been increasingly net sellers of treasuries.
7) Real home prices are at an all time high in recorded history, surpassing the housing bubble peak. According to Shiller.
8) IF inflation presents itself in a big way in the next few months, the Fed may be forced to pull the rug on the whole thing by ratcheting up rates faster than people expect. Potential catalyst for a drawdown/sell off type of event.
Now there's two primary camps. One thinks that the fed will ignore inflation and leave rates low to avoid rising yields that could cause problems with private/public funding. They seem to signal this strategy somewhat with their recent policy shifts.
Another camp believes that if the data is bad enough, the Fed will be forced to act. If inflation expectations become unanchored, it tends to become self fulfilling. People rush to spend money to stay ahead of inflation, thus pushing up prices. This can be pushed by the private markets rejecting the rates on bonds, forcing the Feds hand to either print money to buy even more bonds, or to raise rates to make US treasuries competitive.
Of course there's a third camp that believes inflation will be transitory and not materialize in a significant way in the data. In this case rates can stay low and we follow Powell's gentle liftoff approach.
I don't say these things to spread fear, but people should be aware of the state of the economy. I think the Fed has done a great job at keeping the engine running in the short term, but I fear we're now backed into a corner should another economic crisis arise.
[+] [-] thatswrong0|4 years ago|reply
[+] [-] runawaybottle|4 years ago|reply
[+] [-] unknown|4 years ago|reply
[deleted]
[+] [-] Opt_Out_Fed_IRS|4 years ago|reply
When assets skyrocket, usually business formation and funding goes down.
Banks have better data but anecdotally this is what is happening
Ideally if somebody in here works for the big boys such as JPMorgan , Wells Fargo or Barclays and wanted to decipher such phenomenon you'd look at something like:
(Turnover in business bank account opened in the past year - outgoing payments to insiders,beneficial owners and companies controlled by insiders and beneficial owners) / GDP
Yet another metric of risk taking:
No. of hires + no. of people who quit. This gives you an idea of how confident business are in their growth and how confident people are in their personal growth.
Of course stuff like the stimulus and paying people to stay home distort stuff so much that such data can't be compared to say 2005
[+] [-] TechBro8615|4 years ago|reply
I’d be curious to see some graphs exploring the correlation between startup funding round sizes and the various asset prices including crypto.