The article fails to articulate a specific reason for a market failure besides:
1) The market is really good right now and has had a long run so we must be at the top.
2) An appeal to their own authority for having "trained myself to recognize the top".
This comes across as a scare clickbait piece devoid of substance. That's not to say we won't have a market failure in the near future, but without a clear rational, this specific article is junk.
It's good to run a cash flow positive company, it's good to have 6 months of savings and low debt, but please post something more substantive.
Hey rbliss, article author here. I've been out of pocket all day. I was getting ready for bed when I saw my article on the front page of Hacker News!
Your comment is fair. It's late here, so I don't have the mental energy right now to write the 1000+ words I would like to on this matter.
It's totally worth writing another followup blog post explaining in more detail, which I'll aim for next week.
But, in brief:
-- Flattening yield curve
-- Ridiculously low unemployment ("full employment" is the term that's floating around)
-- Record high housing prices
-- Public corporations sinking profits into stock buybacks instead of acquisitions or capital investment (I find this a highly dangerous trend for the economy)
-- Consumer debt levels now higher than they were in 2008
Thanks ericabiz for the follow up. These are definitely the interesting points I was searching for in the article given the headline.
It certainly seems there are indicators that the market and economy could turn south. On my personal list, I also have the structural instability created by the current tariffs and escalating trade war, geopolitical weirdness, and the long term increase of inequality.
I look forward to reading your next article on this.
Ever increasing personal debt and decades long stagnant wages are themselves a warning sign. It doesn’t take long for debt payments to outgrow stagnant wages - and a new round of large scale bankruptcy.
There’s also the bit of wisdom I got from a professor: “The peak has come when the last hold out buys into the notion of permanent growth.”
Tariffs threaten to ignite a sequence of events leading to the dethronment of the US. If the worlds base currency changes from USD be ready for the US to quickly look like Greece or worse.
Lighting a fire under a hot market through continued low interest rates, increased government spending (even in the form of lowered taxes), and removing market stabilizing regulations (ala the consumer protection bureau or allowing large business mergers, and undoing net neutrality) leverage the market up to almost assure a breaking point.
The last I checked, the underlying issues that contributed to the 2008 recession were also still intact - ARM mortgages, seemingly inexplicable real estate price growths, lack of bank regulation, mortgage backed securities, etc. Wellsfargo even created millions of fraudulent accounts to prop up their valuation.
Just stagnant wages and increasing prices can pop a market. Here’s hoping this time the US takes on New Deal style projects to right itself. We need healthcare corrections, consumer protection, trust busting, and infrastructure. Fiber to the people.
Even the opioid crisis contributes to this. Heroin addicts don’t easily keep work and their spending gets pretty ... singular. It’s having a destabilizing affect on whole populations.
The last paragraph of your article is the most important. Positioning yourself well financially (i.e. limited debt, access to liquid capital) will allow you to really build wealth during the next downturn. 2008 - 2010 were windfall years for me. A little luck and bold, aggressive moves played a big part but if I was not financially positioned to take advantage of the underpriced assets, I would have been stuck on the sidelines.
You are correct that right now is the time to start getting your financial house in order. But, if you're considering investing (rather than paying down debt), I don't believe you should sit in cash. It would be better to invest in a solidly performing asset today than a cheaper asset 3-5 years from now. If the investment is solid, this will just add to your balance sheet during the downturn.
Having been through several more recessions, since the mid 70s, all have been different. Different symptoms, different causes, different sectors.
+ 1970s - Oil crisis & OPEC
+ 1980s - Deliberate govt policies and adoption of monetarism
+ 1990s - ERM, Black Monday, US S&L
+ 2002 - dot Com bust, post y2k contraction
+ 2008 - Global banking crisis
The nearest I've seen to being able to "recognise the top" is some young person, usually looking too young to drive, turning up on national TV financial news explaining why "this time it's different", why the boom will continue, or why the property market isn't overheated. This is usually a clear sign that the economy is now having a Loony Tunes moment, in mid-air and not yet noticing there's no ground any more.
Interestingly, I haven't seen that irrational exuberance about the economy as a whole in a long time. Perhaps for specific sectors, like mobile in 2013 or Bitcoin last December (both of which turned out to be market tops). But in general people seem incredibly pessimistic today, with none of the optimism about everything that characterized the late 90s or even the Web 2.0 boomlet from 2005-2007. People have been predicting a (further) financial crash since the bottom of the market in 2009.
I wonder if that's a sign that the current boom still has a while to go.
Post 2008 has been very odd. The post recession growth phase was more like becoming bored of too long a bust than actual growth as seen previously. Some areas and sectors barely seem out of recession even now. Especially with the added pressure brought by austerity. In a lot of ways we don't yet seem done with the causes of 2008.
The top could be much harder to find without hindsight. :)
I was running a startup during the dotcom boom. Started seeing successful entrepreneurs selling growing businesses where it didn't make any sense. They were young and I thought in five years their company would be worth 10x, so why not hold on?
What I learned was that some people have the talent to spot a market top. Some equally smart people hung on and in a few years had nothing and their investors were left holding an empty bag. One person isn't a trend but when you see multiple people selling for no apparent reason that's a clue to start playing very close attention.
The only time in my life that I was pretty certain of a decline was in 2007. Knew some real estate people who complained of crazy funny business going on. Things that reminded them of an earlier crash. They were told by younger people that the rules of the game had changed and what they thought was crazy was just the new normal and to get used to it. I thought where had I heard that before? Yep, the dotcom go go years. I advised them to trust their gut feelings.
Okay so, I'm about to pay off my mortgage, so a month or two ago I started looking into ways to invest all the extra money I was using to pay extra principal. I've never really paid attention to this before, but in most of the charts I found about market performance, there were dips coinciding with a both the 2002 and 2008 recessions - this part makes sense.
The part I'm confused about is that they also had a similar dip in 2016. Yet no one seems to even mention it.
Was there a small recession in 2016 as well, or were there other factors involved and the 2002/2008 dips just coincidence?
Not sure about in the US, but the dot com bust wiped out IT work and contracting in the UK for a couple of years, but did not translate into a recession for the UK economy. It was very much of the sector. So here 2001/02 didn't count as recession, just a little local crisis, even though friends and I were wondering where the next meal was coming from.
I think I quite like Dr Minsky: "Dr. Hyman Minsky, who noted that bankers, traders, and other financiers periodically played the role of arsonists, setting the entire economy ablaze".
1. The US Fed has started a tightening cycle, and we've seen them repeatedly overshoot in the past, causing a correction or recession. Simply based on recent patterns, one might expect something to happen once short term rates get to, say, 4-5%.
2. The US President is demanding mutually exclusive things from the economy, fomenting trade wars, and attacking the independence of the Fed, which may have negative consequences.
3. The US stock market is valued more highly relative to normalized earnings than it is usually, or the rest of the world is now.
4. US Federal budget deficits are dramatically worsening. Republicans are only deficit hawks when there is a Democratic president. It's been so long since we've had real inflation that it could really shock people, and per point (2) the President appears to want low rates at the expense of inflation (at least today - who knows tomorrow).
Agreed. Seems almost like a reverse gambler's fallacy in a way. That said the advice in the article is just generally good. Not have debt, have an emergency fund, etc.
You're both predicting the future, but at least the OP has offered solid advice based on her prediction. You're just criticizing. Also, predicting that the status quo will continue indefinitely is an extraordinary claim. Clearly, market cycles are real.
Maybe you're right. Maybe she's right. We'll find out when it happens. But by your own admission her article has solid life advice that people should be following. So clearly it has value.
The obvious (and often unrealistic) answer is to buy a much, much cheaper home and save much more. Other than that, "low debt" isn't well-defined and all debt isn't created equal. If you get a mortgage whose payments give you a lot of wiggle room based on your income and expected future income, most people wouldn't have trouble including that situation among "low debt".
Gotcha. That's the boat I've been in. I want to avoid debt as much as possible, but unless I'm willing to live in a really rough neighborhood, I will need to buy a home that is roughly 3.5x my gross yearly pay (before taxes). That's a lot of debt.
The payments however, are manageable. So I suppose it is helpful to frame "low debt" in that way.
At some level, it's a pretty reasonable definition: having all your liquidity tied up in a single asset doesn't make a lot of sense, so having a house with a mortgage secured on it is just a way of getting somewhere between renting and buying outright without having to swing to the other extreme. The main risk you're faced with is a drastic drop in value right after you buy it, but that shouldn't affect your day-to-day if your payments were affordable in the first place.
3.5x your gross yearly pay sounds fairly typical. You should really only care about your monthly mortgage payments. If you have student loan debt then you should try to roll that into your mortgage if it has a much lower rate.
Not typical everywhere... The median wage / house price in sydney & melbourne are 13x and 10x respectively. And you pretty much have to live in one of those two cities if you want a decent job in Australia.
The country’s in for a lot of pain if there’s a big recession.
Through the new school student loan consolidation firms, you may be able to get better interest rate on your student loan debt than your mortgage. This was the case for me. I used Common Bond.
Buy the home in cash is how. Might seem ridiculous and impossible where you are at the moment. But if tech crashes, where will you be? In my home town in the land of unimportance you can own a home for just $26K. And it isn't bad. Compared to homelessness and unpredictable future rent costs.
Marion Ohio, USA. My brother even knew an dying fellow that wanted to sell his house for 10 grand. The house is kind of a relic from the 50s. When soliders came home many of them bought these little 800 sq foot homes. Marion Ohio is more than 45% senior. No tech in the town besides the broadcasters, and ordinary sys admin type stuff. But there is a little bit of tech (tiny) in Delaware Ohio, Lewis Center, and all of Columbus has tech jobs that pay anywhere from $60-100k. If you can put up with a 50 minute commute you could save up a nice pile of cash in no time. Thrift!
Having capital saved up is tough. I've tried to save as much as possible but, year after year, it's amazing that I haven't managed to save more.
As for moving to a cheaper area... We all know what that means. I'm certainly looking in the "cheaper" neighborhood, but it's not the "cheapest". We all have our limits to what we consider a safe and healthy neighborhood, I suppose.
It is okay to make your own call on the general economic outlook and to share your reasons why. You don't have to wait for the crash to modify your behaviour.
Closely tied with the general economy is how the climate is doing. We kind of know that soon there is going to be some crash in this with people having to modify many aspects of their lives. The rest of the world might still be going about spending ridiculous amount of time in aeroplanes and eating food dredged from the furthest ocean but that does not mean that you have to be enjoying these 'good times' too. We have been at 'peak planet trashing' for a long time, 'peak oil' came and went during this time, proven wrong.
The economy, your decisions to borrow and the type of work that you do can be informed by your own internal thought process, there is no need to go along with the herd. From this lady's niche she sees it as a time to tone down the irrational exuberance. There are other people who may have the same thinking, for different reasons not visible to you.
For instance, in the UK, if you are going to lose with whatever is decided regarding Brexit then you just might be thinking along the lines of the article. In your part of Little Britain you might not be able to sell your house, that is a very powerful indicator that something is up and no amount of stock market or unemployment figures are going to change your personal perspective based on the realities you know. That said, you might think that others should see the writing is on the wall. Others may scoff at you and point to the solid government statistics published in the newspapers as a bit more definitive than your personal hearsay.
Nobody imagined a few rubbish mortgages sliced and diced into investment products could bring down the whole of global capitalism, but that was pretty much the situation in 2008.
Right now, sitting by your pool in sunny LA, it could be hard to imagine that a 'bad Brexit' a continent away could mean you having to foreclose your home next year and put the shutters down at your business, with all cars in the garage having to be sold. It could happen. It probably won't but still it could be prudent to downsize to a house that is only as big as you need, put some savings by and get a more sensible vehicle.
This feels like you're using the specter of an economic downturn to push your views on sustainable lifestyles. You should just say, "Everyone should have a smaller house and electric vehicle, which would also help during an economic downturn."
This alarm has been sounded every year since at least as far back as the FB IPO. “We must be at the top!” “This is unsustainable!” “How could CompanyX be worth $NN billion? We are in a bubble!”
One year the person will be right and after the fact we will call him/her a genius for seeing it. All the other people making this prediction so far have been wrong and we have forgotten that they even made the prediction.
Same happened during the housing bubble. I distinctly remember predictions of doom in 2004, 2005, 2006, and 2007. The 2007 guy ended up being right.
To be fair this is addressed in the article: “The market can stay irrational longer than you can stay solvent,” John Maynard Keynes wisely said. Timing the market is extraordinarily difficult.
yes, which is also a way of saying that the whole market is ALWAYS a bubble, and there is absolutely no way to tell when it is going to deflate again.
Markets are made to inflate and deflate. Predicting that a deflation will happen doesn't make you a genius. Using the above quote to cover your back is basically saying that we always live in a bubble.
It's doubly difficult because you have to be right twice. If you're lucky enough to have called the top, you have to get lucky again and know when the bottom is. If you buy back in on a dead cat bounce, you're still going to lose a bunch of money.
I do light manufacturing in Arizona. In the last six months the prices of steel have basically doubled. My #1 material input now costs twice as much, and to add insult to injury, it is now becoming very hard to get in some cases.
Last week we were scrambling to find 1/4 steel plate. A common common material. Its as rare as finding bread in a supermarket, its one of those staples that you never expect to see shortages of. And last week we had a lot of trouble getting it.
I had dinner with tubing salesperson this week. He was complaining that all the fancy DOM and high strength thin wall was in short supply - and this is where most of his commission based pay comes from. We don't use that much DOM, but we have noticed the price doubled this year.
Another friend sells a machine which uses hydraulic parts. He can get all the hose he wants, but nobody has any fittings. His suppliers of hydraulic cylinders are all out of stock and not expecting shipments until November. One supplier told him that he laid off his whole staff since there was nothing to sell and he wasn't sure if he could cover rent let alone employees until November.
The tariffs have caused a two-fold reaction; industrial customers with money in the bank have purchased 6 months or a year worth of stuff instead of a months worth of stuff, while suppliers offshore have stopped shipping because they don't know what the price will be by the time it arrives in port. Since the deal is struck before the ship leaves, what happens if a 25% tariff is added? So they ship nothing and wait.
The actual tariff itself is not the main issue, it is the market forces reaction to it. No USA based suppliers can pick up the slack, and nobody I knew of was hedged against a sudden tariff being applied to their main inputs.
Blue collar workers will get laid off and the effects will ripple through the economy. This crash will be different from the last, but that doesn't mean it won't happen.
I have no strategy other than avoiding new spending on machines and being very slow to add new hires. Your industry segment may vary tremendously, time will tell.
I am moving to a new factory this month, my electrician is harvesting all the conduit and panels, because they have gone up 130% this year he tells me. I am in fear of the invoice.
A lot of this advice (pay down high-interest debt first, have an emergency fund) is reasonable no matter what the market conditions are.
But the common wisdom is that "time in the market beats market timing." Since these boom-and-bust cycles tend to happen over 7-10 year periods, and you really can't predict when they'll happen exactly, I think a market-related investment can be rational at any point in the cycle, as long as it's considered untouchable for ten years.
Yes. If you dollar-cost-average into funds (e.g. invest the same dollar amount every month), you will automatically buy more shares when the market is low and fewer when the market is high. Long term this is exactly what you want to do, and it doesn't depend on being able to predict price movement.
I even buy gasoline this way, because prices at the pump seem to change almost randomly. I buy $25.00 at a time. So I buy more when the price is low and less when the price is high.
> I even buy gasoline this way, because prices at the pump seem to change almost randomly. I buy $25.00 at a time. So I buy more when the price is low and less when the price is high.
At the risk of a joke flying right over my head, I'll ask how this works. Isn't your gas usage mostly inelastic? Are you going to drive to work less or to the supermarket less because your tank is almost empty due to gas prices being higher? If you're thinking about planning a road trip, do you say "nah, only got half a tank of gas" due to your $25 not buying you as much? Wouldn't it be easier to just look at the price of gas and decide based on that?
It works if $25 of gas lasts long enough to get to a different price (harder at a bad price), and your tank has sufficient room to hold $25 of gas (harder at a good price). Those constraints make it worse than real dollar cost averaging, but it should still work.
You can do better if you can predict gas prices but that's sort of the point of DCA - it's a strategy that works without insight.
Edit: this strategy has a higher sample rate when gas prices are bad. This causes a problem if prices are temporally correlated, which they are, unless the sample distance is large enough that the price has enough time to become completely randomized, which is a big ask.
My strategy has always been to just plan on refilling around a half tank, and at that point I just fill up the next time I'm near one of the gas stations that I know to have cheap gas. Gives me a little cushion if it's a holiday weekend or something (which always have higher prices) and I avoid driving way out of my way just to save $0.10 per gallon for gas. If it's real insane, you put $10 in the tank to hold you over until prices drop or you can get somewhere cheaper.
Thought that was how most people did it, but I guess my gasoline-investment strategies may not be as savvy as I thought. Gotta pump up those numbers! /s
(it's a bad idea anyway to drive on less than half a tank - during the summer you can overheat your fuel pump, and during the winter you will tend to pick up water in the tank)
Long term you don't really have a choice about not buying gas, it just is what it is. It's funny how people obsess over it, or will go way out of their way for cheaper gas, when most of the time you're talking about a full tank costing you an extra buck or two, and you burn maybe a tank a week. The greedy strategies (fill up when you need it, with a slight preference to cheaper gas when you can get it) are going to produce pretty optimal results so why obsess about it?
As a city person, I have to disagree about the lack of alternatives. Walking to the grocery store, or if it's really far, cycling to the grocery store, will do wonders for the gas bill.
Yes, that may mean relocating to a part of town where the next grocery store is not 10 miles away.
Point taken and I agree with the advice. That said, you never know what kind of downturn this will be. 2001 was very different than 2008. The GFC was a credit-driven crash and took a long time to unwind, during which all of the scared money went splashing into tech so despite her narrative, 2008 was not a recession for many people in the tech industry. Developers didn't get hit at all and there was plenty of VC money sloshing around.
The next downturn will (probably, maybe) be a normal run-of-the-mill Fed move based on raising rates to cool off inflation. That probably _will_ affect startups. Still, you never know and it always pays to have a bunch of liquid cash—that's never bad advice.
Having been there in 2008 (but not 2001) I will say that 2008 did hit developers a little bit: a number of companies (including big ones like Google) had hiring freezes for about 6 months, and investment dried up starting in early 2008 and lasting until nearly the end of 2008. It looked scary for a little bit, even for developers. (Though of course nothing like the rest of the country.)
Starting in late 2008 it was all rainbows and ponies again.
Hiring freeze? If only we were so lucky. Imagine half the tech companies around you straight up folding, and the other half laying off half their workforce. Now imagine you're part of this huge sea of newly shit canned developers and there are NO jobs available anywhere. That was pretty much 2001 for me.
It was to the point where I honestly thought this whole internet fad had come to an end and I picked the wrong career path. A very large amount of people I know left the field altogether because they couldn't find work in tech.
Picture SOMA with 50% office vacancy. Literally landlords would give you an office for free just to keep people from vandalizing it. And this went on in 2001-2003. The recovery of tech took a really really long time.
I miss the tech crash. So many great people were floating around with nothing to do. It was a good time to be starting something.
This isn't the SOMA I remember back in the day. Even if that estimate is accurate, "SOMA" was barely a thing. Now SOMA is literally south of market, and a 50% vacancy would be quite different.
80%+ of the VC-backed tech companies died between March 2000 and Oct 2001 (fuckedcompany.com, anyone?), the remaining laid of 50% or so, hiring was dead until 2003, and while the the VCs had stopped hiding under their desks by then, they were still skitterish until 2005. Which is why I was shocked at how mild the pause was in 2008...
Fair! Yeah, I had a kiosk software company that took it in the shorts, at least my attempts at making it work in the US. (Primary customers were real estate trusts like malls and airports and such.) I ended up selling my part and doing consulting dev work when I realized I was beating my head against a brick wall. But yeah, I was back in dev land from the end of 08-onward and despite all the blood sloshing around the canyons of Wall St. the job market for dev bros in NY was booming.
I think way too many people wrongly think the economy is separated enough from the current administration. There's a decent enough chance that the next recession is driven by the current administration's decisions.
When the crash happened, most funding round discussions were halted. There was a huge uncertainity about what will happen in economy in general for several months.
I believe every crash is like that: there is huge uncertainity and at that moment it feels once-in-a-lifetime, world changing event for most of the people. This makes it very hard for even rational public market investors to buy from the bottom
“Be fearful when others are greedy and greedy when others are fearful.” - Warren Buffett
I'm a bit more sanguine than the article (No one wants another GFC, and governments will go to ludicrous measures to avoid same), but it does seem to me that the party can't go on too much longer. I didn't see the 2001 crash coming, but saw the 2008 crash coming, and mostly moved out of its way. If you want a window into the world of financial news and predictions, I find Bill McBride at Calculated Risk [0] to be one of the better prognosticators from the wide menu of prognosticators available.
Alot of the party seems to have been concentrated in a few tech stocks - the usual FANG suspects, Microsoft, some newer IPOs, and a bunch of unicorn private companies.
It seems to me that one possible outcome would be for that rather localized party to end with valuations there returning to sustainable levels, while the rest of the market is less affected.
FAANG and most other tech valuations have grown enormously over the last 10 years, but they've roughly followed the growth of their revenue streams and potential monetization opportunities. There may be some short term corrections, but the notion that the majority of risk in the current economy is concentrated in FAANG and some tech IPOs seems overly simplistic and probably just wrong.
The GFC was a result of individuals taking on massive amounts of debt in aggregate. Corporate America has similarly taken on a lot of debt over the last decade for buy backs and growth. As the author of the article notes, the last 10 years have been great for cheap debt. Negative balances are still a risk and rates are going up. The companies taking on the most risk in terms of debt are for the most part not traditional tech. Think Chevron, GE, and other industrial and energy companies. I'd conclude that the majority of the economic risk is in fact not concentrated in FAANG or even most of tech, but elsewhere in the economy.
That doesn't mean some tech companies won't get caught in the storm. I think we could very easily see a couple mid-size players go the way of Yahoo (the Snaps and Ubers).
>The companies taking on the most risk in terms of debt are for the most part not traditional tech. Think Chevron, GE, and other industrial and energy companies.
You mean, precisely what would be considered 'traditional tech' in any sane world? :P
Industrial and energy companies have a much larger and more important impact on the economy than information technology.
We live in the strange topsy turvy world where 'information technology' has somehow been narrowed to "that guy who fixes your computer and administrates the servers" and 'tech' narrowed to mean what 'information technology' should.
It's because growth has been concentrated in software for a decade or two, and people only pay attention to growth.
It's actually more absurd than you note: "tech" today means "Internet tech", and people have largely forgotten that less than a generation ago IBM, HP, Sun, Oracle, Intel, AMD, and Microsoft were all "tech" companies. (You'd have to go back two generations for Chevron and GE to be "tech".) But that's the nature of psychology. Everything that was around when you were a kid is just part of the natural order of things, while the only new and exciting technology is the stuff you just heard of in the last year or two.
(It's pretty likely the pendulum will shift again in a year or two, and FAANG will no longer be tech, which will be reserved for crypto[currency - this is another good example, where if you're > 30 'crypto' means 'encryption' while if you're < 30 it means 'cryptocurrency'], robotics, self-driving cars, drones, and AI.)
I find it fascinating that your glib list of "cool new tech stuff" - cryptocurrency, robotics, self-driving cars, drones, and AI, seems to have a huge characteristic blind spot.
There's a major industry that for some reason people don't mention these days when they are imagining where the future is coming from, and I find it entirely inexplicable that it just doesn't register.
If I told you what it is, you probably would find it too obvious in retrospect, so I won't. I am over 30 BTW. And no, it's not green energy.
Interesting - how did you see the 2008 crash coming? I saw nothing. (Note I'm from Germany, so many local US indicators may have escaped me)
I did totally see the 2001 crash coming (though not its exact time and large magnitude - just like everybody else, I guess?) - ludicrous business models had mountains of cash thrown after them... it was very obviously a hysteria.
In 2005 I received a postcard from my former next door neighbor, a realtor, offering a townhouse in our old neighborhood in South Florida for $300,000. I couldn't believe it: they'd been $100,000 when they were built, six years before. I'd bought mine for $140,000 in 2001 (much to the doubt and disbelief of my neighbors at the time, thinking it too much to pay.) When the advertised townhouse sold for $300,000, I started to ask 'Where did all this money come from?' I read voraciously, came to the same big picture conclusions that the people in 'The Big Short' did (I recommend both the book and the movie, at your preference), but didn't learn to make money off of it the way they did.
CR is an excellent blog. I've been reading since way back when Tanta was writing.
To sum up the entire thing, start being afraid when people are too successful(or fat and happy. Anyone who gets a big exit in a boiling market, you can now safely ignore). When things start getting really good, look for the exit and have at least a leg out the door.
So much this. If you don't have many credit cards I would highly recommend going out and getting a few right now. I went from $0 to $30,000 in available credit in a month, and my score jumped 100 points. The offers are crazy. It's standard these days to get 0% for 18 months, no fee, and 50,000 bonus points. They are literally paying you $500 to use their card for a year at 0%. As long as you're smart enough to never carry a balance it's literally free money. I've made over $1000 in bonuses this year on top of cash back, just by rotating my regular daily spending over 3 different new cards.
This is nice to have, but I don't think that's what she meant. Credit cards are a terrible emergency fund - the interest rates are too high.
She meant you should get approved for a business/personal line of credit now while credit is still being approved. Rates on those are low enough that they can be useful in a cash crunch.
>She meant you should get approved for a business/personal line of credit now while credit is still being approved. Rates on those are low enough that they can be useful in a cash crunch.
Sure, but it's quite hard to get a decent line of credit without extensive history. Whereas literally anyone with a 600+ score can go get tens of thousands of dollars in available credit right now which massively boosts your score.
I definitely don't recommend relying on them as an emergency fund, but the added accounts and increased available credit will get you prime rates on any other lending if you're not at 750+ yet.
If you have the discipline this makes sense. Tho the time it takes you to acquire and manage 3 cards isn't free. I've found it isn't work the mental energy and just stick with one rewards card.
Same for Home Equity lines of credit. I had a friend who was a banker, he had planned on using a $100K HELOC to remodel his house. He was stunned when Chase dropped his Line from $100K to $5K. Killed that remodel.
When I heard that, I maxed out my line of credit and stuck the money in a different bank. That choice got me through 2009. Glad I did it.
Yes, this! Opening credit cards now (but not using them, beyond the initial minimum spend that’s required to get your points) is a good idea. But before you jump into the pool, read about the tricks and gotchas, such as Chase and their “5/24 rule”.
Once I got a card with 2% cash back and no fee, I felt like I had gotten as good a deal as was possible. I expect that some day such deals will go away though.
Sound advice(s). I'm in a unique position where I'm straddling both tech and media. One great indicator of a coming trouble is marketing. When you see budget cuts or downright stops in producing commercials and ad space spending... then you know it's coming, in fact it's already there then. It has been a true canary in the mine so far. I haven't seen that happening yet this time around, but once it starts it's cascading fast.
>I closely watched the financial news during the last two economic expansions and contractions, and for the last 3 months I’ve seen the same indicators I saw at the top of those two expansions.
Anyone know what those signals are? A lot of 'end is nigh' articles I've read have more details. Is it just too much growth in the stock market? Debt? Speculation?
>Anyone know what those signals are? A lot of 'end is nigh' articles I've read have more details. Is it just too much growth in the stock market? Debt? Speculation?
Keep an eye on total consumer debt levels, and more importantly debt-to-income. We've already surpassed the absolute peak value of consumer debt load from 2008 [0], but debt-to-income is still ok for now. When that starts to change we're probably in trouble.
In this case because inflation marches steadily onward I would expect total consumer debt levels to surpass those from 2008 at some point. You need more money now than you did 10 years ago to buy the same things. If the ratio changes, that would seem to be a more reliable indicator because it means people are closer to unsustainable levels of debt.
One indicator people are talking about a lot lately is the yield curve flattening and inverting[0][1]. The yield curve tends to invert shortly before recessions, and is pretty close to doing so now. As always, there are a lot of arguments about whether "this time is different" (i.e. even though this signaled coming recessions in the past, conditions are different now so don't worry). Some people at the Fed recently argued that the traditional ways of looking at yield curve inversion (e.g. the 2s10s[2]) have lost their value as a recession indicator, and that we should instead be looking at various near-term spreads[3][4].
As I understand it, the theory basically goes like this: Low unemployment leads to higher labor costs, which leads to wealthier workers and higher demand for products, which leads to even higher demand for labor. Essentially a positive feedback loop of inflation, which the Fed will stop by increasing interest rates. They may notice too late, or be late deliberately, and thus have to raise interest rates a lot and fast.
The stock market is currently 43% more overvalued than just prior to the 2008 financial crisis and 14% more overvalued than the height of the 2000 dotcom bubble.
So if I’m interviewing with some large companies and a handful of startups (less than 20 people), it seems like the larger companies might be a better move for the next 5 years.
Isn't that always the case? Unless the startups are paying you (in actual cash, not monopoly money) way more than the large company would, which isn't usually what happens.
Many have (rightly) pointed out that this article is devoid of articulating a good reason why the market is at the top right now, and hence, why you should alter your behaviour right now.
Nonetheless, it does outline two key points from my perspective:
1. Saving enough money for unpredictable events. While I wouldn't "put it away as cash" for everything, having an emergency fund that can sustain you for 6-12 months is a good idea. Emergency fund usually means liquid - so cash or a savings account (despite the low interest rate) is your best bet - irregardless of what other investments you may have.
2. More importantly, I would say that this article is a great example of how the environment that one grows up in can vastly change affect their world views. I entered the workforce not too long before the Great Recession of 2008 began.
Seeing my initial retirement fund returns go extremely negative (> -40% for 2008) right at the beginning made me question the "conventional" investment advice to just contribute/DCA into index funds and not look at it. Of course, it didn't help that my first employer went bankrupt in 2009.
I haven't developed such a bearish sentiment as the author of this article, (continue to invest in index funds, with a mix that matches my risk profile) but nonetheless remain extremely skeptical that this bull market is some new normal. Thankfully, I'm in a much better position now (work for a big tech company), but I can see a marked difference between my outlook and those of my coworkers who entered the workforce much more recently.
There are many who've only been working since 2012, and many of them see no reason why you'd want to (immediately) sell the RSUs/equity the company gives you as part of compensation, unless you needed to spend the cash. An argument against this was particularly hard during the bull market of 2017 where equity prices (especially big tech) were essentially just a sloped upward line.
I try to tell them it's about risk management/risk mitigation, but my impression is that most people overestimate their risk tolerance until something bad happens.
"Seeing my initial retirement fund returns go extremely negative (> -40% for 2008) right at the beginning made me question the "conventional" investment advice to just contribute/DCA into index funds and not look at it."
Psychology differs. I got my first job with a 401k in 2007, and I had no problem whatsoever investing as much as possible as the market declined. Hey, stocks are on sale, right? But temperamentally, I get an intense desire to cash out as the market goes up. When I was a kid, someone told me you haven't made money until you've sold at a profit. Luckily, the fact that it was a 401k meant I couldn't cash out without switching jobs.
I think a large part of dealing with risk and money management is accepting the fact of your own psychology and biases.
Even a profound market meltdown should not cause you to change your strategy unless you need your money really soon.
Look at the meltdown in 2000. If you were thirty years old and sold, you might have patted yourself on the back for a while...but assuming you are reserving most of this money for retirement when you are over sixty, you would have to either time a re-entry in the market, or give up 3x gains since.
The only people who should be changing course due to a correction are people who need their money soon.
If you are in your thirties now, the DJIA will probably be 50k+ by time you retire. Does it really matter if it goes to 15k first?
It all comes down if you believe in timing the market.
I know that the best advice is to not time the market, and simply invest in the long term, riding through the market depressions.
That being said, a couple of my friends managed to successfully time the market for 2000 and 2008. Basically, they remove their money more or less 8-10 years after the end of the last depression, and add it back in as soon as it looks like it is going to go up again.
This sounds Nietzsche’s view of ‘slave morality’. It’s actually in fashion to say you invest in or do boaring businesses so this isn’t really all that controversial. However, like time, there’s an arrow of technology and there’s a reason VCs are investing in sexy startups. For instance, AI is sexy because it really will be transformational, unlike whatever today’s latest fashion trends are.
Corporate R&D for S&P 500 in 2018 is estimated at around $325b — compare that to the $65b invested in U.S. VC in 2017. As corporates realize R&D is hard and see Less and Less ROI they will continue to shift more of their budget to acquisitions which effectively means we should see a large increase in VC spending. They’ll have to pay a premium for picking winners. In 10 years we’ll look back at today and ask why VCs were not investing more in tech because that was obviously where the opportunity is until we see transporter beams, jarvis, and molecular fabricators.
The current S&P 500 P/E ratio is around 24. That is historically overvalued (the median is around 14.7, mean 15.7). Yet the new normal might be a P/E of around 20 (though who pays 20X one year of earnings for a business unless it is growing like crazy).
Of course the last time we were at the mean was at the bottom of the 2010 recession.
Just to compare in the 2001 recession we hit a P/E of around 45, during the 2010 recession we hit a P/E of 65.
Obviously it is a lagging indicator as the ratio goes through the roof because earnings drop through the floor.
The market can go sideways for a long time (and has historically). During the obama years that is essentially what happened. Sideways with a slight increase actually feels like a pretty decent economy (especially after 2010).
Yes, because the advice is sound advice, no matter the circumstances. Ironically, the fact that she's using timing makes a sound advice laughable in my eyes:
- NOW you should stop spending investor's money!
- Why not two years ago? Why not in 2025? Are we going to burst anytime soon like next month or decade?
On a more serious note, one thing that might affect greatly the world economy is the breaking of the common European currency, the EURO. We might be closer that scenario than most realise. I'm referring to the Italian elections and what could they bring upon Europe, should the Italians decide to have a referendum on the Euro.
The best case scenario would be for Brussels to suddenly democratise itself and for European integration to continue, but with the rise of the far-right all over Europe, I don't see that happening.
> should the Italians decide to have a referendum on the Euro.
About the only way for an Eurozone member to leave is to leave the EU (since that's a condition for Eurozone membership and the Eurozone has no leaving procedure of its own in its bylaws).
They will at least wait to see how it turns out for the UK before trying anything like that.
"Other analysts[10] have submitted that there are basically three ways of exiting the Eurozone: by leaving and subsequently rejoining the EU, whereby a renewed membership in the European Union would be possible only when economic convergence had been achieved; through a Treaty amendment; or through a European Council decision. The amendment would involve an extension of Article 50[11] of the European Treaty that would set out the process for exiting the euro."
1. "Leaving the EU" is what the UK is doing right now (and Italy would want to wait to see how messy that will be)
2. "A Treaty amendment" requires consent by other treaty members, so not going to happen
3. "European Council decision" also requires consent by a significant portion of European countries, so also not going to happen.
I also feel like we're in a bubble. There's so much capital around that even fairly weak startups are getting amply funded, and we have bubbles within bubbles (everything cryptocurrency) as investors race to get any sort of return.
But I don't trust myself to time the market at all, so most of my liquidity is in investments right now. My employment though is different. While I'd love to work at a small startup... the risk involved (not to mention the pay cut) is definitely a factor.
Speaking of, the hiring market is crazy right now. Good time to scout out a new job, if you want one.
The dot com bubble was different. So many startups were just insane. Working on stuff that had no chance of success. It was all buzzwords and bullshit. Nobody knew what the internet really was going to enable, so they were funding all kinds of ludicrous things that were difficult to comprehend.
S&P PE ratio isn't terribly high [1] let alone if you pull FAANG out of it [2]. There is nothing wrong though with taking some time to reduce your business/personal debt load even in good times.
Unlike some here, I agree with the basic premises of the article: it ‘feels’ like we are near the top, and that while it is always important to reduce debt, it is even more important when a bubble might burst soon.
However, I would never write an article like this because while I am happy making predictions for myself and taking personal actions, I would never feel comfortable giving advice to the general public because I believe that markets and the economy are inherently chaotic.
The Kennady family made a nice fortune selling at the top before the 29 crash and buying somewhere at the bottom. If you can time something like that more power to you.
The only thing that I see more and more, is that it has been now 10 years since the 2008 crisis and the longer it has been, the longer people start to realize that something is going to happen eventually (Thanks captain obvious).
Beside that, there is no way to exactly know when or why it is going to happen. If you knew, it means that you got information that the market doesn't have (since it didn't adjust to it).
This is theory, empirically the data says otherwise. in 2007 there was a huge amount of evidence in plain sight that the housing market was a bubble, but the market didn't adjust to a rational level.
See "The Big Short". That greatly understates the level of willful blindness, since it deals mainly with CDOs, not so much the house prices themselves.
That's an excellent book! I've recommended it here a number of times. I did create one thing with it that was pretty good for a first go-round, but it just never grew beyond a certain point.
Yes, this is a "cobbler's kids have no shoes" moment. (Author here.) I have been busy building other sites. I promise I will make the time investment on my blog soon. :)
It's a good thing to save and be frugal... Essentially always be a cockroach.
But calling market tops is a fools game. You're wrong until you're right and then you look like a genius. But article doesn't explain why the market is going to tank other than "I feel like it's going to happen".
It's possible we're at the top of a market cycle...but I also see a lot of technological progress that has yet to go mainstream but probably will soon. I think the 2020's will be an absolute booming decade for the world economy, U.S. included. Electric vehicles, autonomous vehicles, process automation, robotics, IOT, blockchain, continual cloud software growth, AR/VR applications, space industry, medical tech, solar energy...I just see a huge range of industries that have a long way to grow and I have a hard time being pessimistic. Sure, a recession is possible, but I doubt we'll see the same downturn we saw in 2008. A lot of that boom was driven by real estate flipping, which didn't contribute to sustainable economic growth. Technological progress, on the other hand, is both disruptive and produces permanent gains in quality of life.
1) The market is really good right now and has had a long run so we must be at the top.
2) An appeal to their own authority for having "trained myself to recognize the top".
This comes across as a scare clickbait piece devoid of substance. That's not to say we won't have a market failure in the near future, but without a clear rational, this specific article is junk.
It's good to run a cash flow positive company, it's good to have 6 months of savings and low debt, but please post something more substantive.