Author Topic: Does anyone think we are in a bubble?  (Read 33754 times)

EverythingisNew

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Re: Does anyone think we are in a bubble?
« Reply #150 on: February 01, 2023, 06:15:52 AM »
One thing that very much controls bubble conditions is ease of money generation. When interest rates drop, money supply greatly increases. When money is easy to generate (crypto mining before halvenings), bubbles form. When it’s hard to generate money, bubbles deflate or pop. When you are full speed in easy money generation, the switch to hard to generate money can be sudden and jarring.

The FED interest rate controls our economy much more than in the past because we have easier access to credit than in the past. Generating money with an interest rate drop is simply a matter of refinancing or letting your credit limit increase… very little work. I remember reading in early 2020 before prices rose that the Fed dropping the rate in 2020 would increase home prices 16% (not based on supply demand, simply on interest rates - guaranteed 16% instant gain). Once this caught on, home prices increased 30-40%. Now with rates up, free money or easy to generate money is gone, but there is always a lag in the popping or topping out. From the point you know that money has become hard to generate to when prices drop can be awhile. This lag is why market timing is hard and although you know the trend direction, it can be surprising how deep or shallow the bear or bull market goes.

I think ease of money generation has drastically decreased with interest rates. Also crypto is decreasing in ease of money generation every time they have a mining halving. Suddenly when people notice that it’s harder to make money than they got used to, that’s when the pop will happen. We are in the aware, but still rolling phase.

The one big wildcard is how locking in 30 year mortgages at low interest rates protects people from the new environment of high rates. They locked in easy money generation and every payment they are “creating” money with their locked in savings. You can’t easily take away the extra $500-1000 people have every month because of their locked in mortgage. This is creating two groups, one group with easy money generation and the other with hard money generation.

clarkfan1979

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Re: Does anyone think we are in a bubble?
« Reply #151 on: February 01, 2023, 08:18:56 PM »
I don't try to engage in market timing, mostly because of this podcast (The Money Guy Show). Watch 26:00 to 32:00.

https://www.youtube.com/watch?v=XwMNYBDqvUQ

They have some other videos showing that people who dollar cost average still end up with higher returns than people who market time perfectly. Those who market time perfectly still end up holding cash for very long periods of time, which hurts their overall return.

ADD:

Below is an episode comparing dollar cost averaging vs. "buying the dip" from 1980 to 2022. Watch 20:00 - 24:00

https://www.youtube.com/watch?v=Mz5m6lZnoDU
« Last Edit: February 02, 2023, 05:57:54 AM by clarkfan1979 »

ChpBstrd

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Re: Does anyone think we are in a bubble?
« Reply #152 on: February 02, 2023, 11:41:01 AM »
Those who market time perfectly still end up holding cash for very long periods of time, which hurts their overall return.
The stakes for market timing would seem to be lower now that 1-year CD's are paying 4.8%. I get the point though.

tooqk4u22

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Re: Does anyone think we are in a bubble?
« Reply #153 on: February 04, 2023, 06:31:53 PM »
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The one big wildcard is how locking in 30 year mortgages at low interest rates protects people from the new environment of high rates. They locked in easy money generation and every payment they are “creating” money with their locked in savings. You can’t easily take away the extra $500-1000 people have every month because of their locked in mortgage. This is creating two groups, one group with easy money generation and the other with hard money generation.

This too shall work its way out, even low fixed rate mortgages aren't immune to layoffs, divorce, relocations, and desire to move up.   The market will open whether it wants to or is forced to! 

Must_ache

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Re: Does anyone think we are in a bubble?
« Reply #154 on: February 04, 2023, 09:29:58 PM »

They have some other videos showing that people who dollar cost average still end up with higher returns than people who market time perfectly. Those who market time perfectly still end up holding cash for very long periods of time, which hurts their overall return.

ADD:


I don't consider that example to be "dollar cost averaging" if it is just someone investing a portion of their income regularly as it becomes available to them over a long time period.  I think the real DCA question is, "I have a million dollars right now, should I invest all of it tomorrow?".  If you think the market will go up over time you should probably invest it all immediately.  If you think the market is headed downward, you should sit on the sidelines until the market bottoms.  If you don't put it all in the market, doesn't that make DCA just another form of market timing? But what I just said is intentionally naive, because who really knows the tops and bottoms in the market.   
« Last Edit: February 04, 2023, 09:34:48 PM by Must_ache »

chasesfish

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Re: Does anyone think we are in a bubble?
« Reply #155 on: February 05, 2023, 04:29:56 PM »
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The one big wildcard is how locking in 30 year mortgages at low interest rates protects people from the new environment of high rates. They locked in easy money generation and every payment they are “creating” money with their locked in savings. You can’t easily take away the extra $500-1000 people have every month because of their locked in mortgage. This is creating two groups, one group with easy money generation and the other with hard money generation.

This too shall work its way out, even low fixed rate mortgages aren't immune to layoffs, divorce, relocations, and desire to move up.   The market will open whether it wants to or is forced to!

I agree with @EverythingisNew about mortgage loans.  The voluntary trade-up is dead and there will be a decade or more for a lot of people with locked in low housing costs.   The other wildcard is student loans, there's a not insignificant portion of the population right now with graduate degrees and multiple six figures in earnings not repaying $2,000+/mo towards the debt that obtained their professional degrees.  This is wildly stimulating the economy and as usual, there's no such thing as a temporary government benefit or program.

tooqk4u22

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Re: Does anyone think we are in a bubble?
« Reply #156 on: February 10, 2023, 03:45:48 PM »
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The one big wildcard is how locking in 30 year mortgages at low interest rates protects people from the new environment of high rates. They locked in easy money generation and every payment they are “creating” money with their locked in savings. You can’t easily take away the extra $500-1000 people have every month because of their locked in mortgage. This is creating two groups, one group with easy money generation and the other with hard money generation.

This too shall work its way out, even low fixed rate mortgages aren't immune to layoffs, divorce, relocations, and desire to move up.   The market will open whether it wants to or is forced to!

I agree with @EverythingisNew about mortgage loans.  The voluntary trade-up is dead and there will be a decade or more for a lot of people with locked in low housing costs.   The other wildcard is student loans, there's a not insignificant portion of the population right now with graduate degrees and multiple six figures in earnings not repaying $2,000+/mo towards the debt that obtained their professional degrees.  This is wildly stimulating the economy and as usual, there's no such thing as a temporary government benefit or program.

Yeah but once they are forgiven all will be right!  Housing will work itself out, it might take a while, but it will.  It's all based on income to payment and we still have housing shortages, and the millenials are really just starting on the household formation so if they are working and continue to cohabitation and have kids like every other generation (albeit 3-5 years later age wise) they will want to move up and older people will want to downsize.   Remember that 40% of the population are renters.  Mortgage rates also will come down and they really should be about 5.5-5.75% right now but liquidity is tight so spreads are wider.

But to your point the low fixed mortgage set will hold on a lot longer than they otherwise would have. 


 

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