A colleague back in 2000 went in hard on tech stocks

Re: Any of you Wall St Investment mavens starting to feel

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Not really. We all knew the tech bubble would pop in 2000

Jan 26, 2021, 9:50 AM

or sometime around there. SOME people knew the housing bubble would burst around 2007-8. Only reason I knew that was coming was in 2003 when my high school friend tried to push an ARM with 5 year teaser rate tied to LIBOR, while qualifying these two recent college grads making less than 40K combined for a $400,000k house with only $10k downpayment. It was insane. If we built a $400K house, we could pay the $700/mo for the first five years, then it jumped to $2400.....no way we could afford that. I asked my good friend (who would get a much larger commission on selling me that garbage) what happens in 5 years and we can't afford that? He said to sell the house then. Market's hot. Use the appreciation to get a bigger down payment on a bigger mortgage, rinse and repeat. That was his advice. I asked him what happens in 5 years when everyone who has these mortgages can't afford them suddenly when the rates jump and they all try to sell? What happens to the housing market then? He said that wouldn't happen. We took the 30-year fixed for less than half what we qualified for. And, it happened. Almost 5 years exactly after we declined that crap mortgage offer.

The Big Short is an interesting movie. Even though I saw it coming, we only saw one part of it that was shown in the movie, with the lenders and the buyers at the bottom of the pyramid. But the movie gives you a much broader picture of everything that happened above the base level with lenders and borrowers.

Looking at today I don't see a bubble really in any one area. Tech, sure. But it's not limited to tech really. It's a very broad bubble. They have diversified the bubble really into all areas. Business loans. Commercial real estate. Tech. Housing again. Medical, pharmaceuticals, biotech, education, you name it. Government debt. No, I don't really see any one sector standing above the others massively in irresponsibility. It's very broad, and it's really stocks in general. Debt is cheap, and we're throwing it at everything really. It has made successful companies have insane market caps. Meanwhile, it's allowed a lot of marginal companies who could never stay in business to thrive.

I think the next bubble isn't a tech bubble. Or a housing bubble. The next bubble to pop is what makes the bubbles in the first place. It will be a dollar bubble that pops. 5% inflation, if it hit tomorrow, would decimate our economy more than all the bubbles we've had, combined. It doesn't take a lot of inflation either. Wall Street knows debt makes marginal companies look very good, and very good companies look insanely good. It also makes marginal companies stay afloat who shouldn't. So when that inflation ticks up, it's a broad popping of everything leveraged in debt. A lot of companies have much of their earnings leveraged with debt. You can have a company making an 8% profit and barely getting by, that company can then leverage debt, service that debt at 4% or whatever, increase sales, and make a 12% profit spending the debt, and only paying 4% to service it. You can use cheap debt to inflate profits and your stock price. It makes them look better, and that makes their stock inflate. Some companies, debt keeps them afloat entirely. Real estate...same. And what happens to mortgages when inflation skyrockets to 5% from 2%? Well, what happens is they don't increase the rates to 5%, nope. ALL the mortgages they have financed below the inflation rate, the new ones must be that much ABOVE the rate of inflation to offset those losses. So that means 5% inflation yields about an 8-10% 30-year rate. Maybe more if they foresee longterm inflation and the obvious decrease in volume from higher rates.

Inflation. Debt. That's the biggest of all bubbles. That's the entire bottle of Palmolive leaking out under the kitchen sink. No more bubbles to pop, because the liquid soap that makes the bubbles disappears.

Going back to the housing market collapse. Why/how did that exactly translate into a stock selloff and broad economic slump. I mean you have stocks, and you have houses. How do the two connect? Answer is with debt. Crap mortgages were packed into securities, which were then sold as an asset on which further debt could be issued. When the mortgages defaulted, the debt became crap, and that debt asset became toxic debt. Then, everything financed with mortgage leveraged debt, also became toxic as were the companies "too big to fail" who leveraged that debt. And Ken Lay with Enron actually provided the financial roadmap on how the Federal Reserve "fixed" the mortgage crisis. And we are to believe those companies "too big to fail", who wrote off their toxic debt to shell companies and made their books green again......we're to believe that they somehow repaid all of that written-off debt in 2-3 years and all is well again?

Do I think this will actually happen? A collapse? Possibly. The other option is a steady, controlled decline over many years. Something akin to Japan's lost decade. That's how you walk back a debt crisis without a total financial collapse. Japan once ran on debt much as we do now. They had their debt bubble pop, and instead of a collapse, they had a very long, protracted, and managed decline. I tend to think we go the way of Japan really. We've managed the climb so well for 30-40 years, I see no reason we can't manage the hangover from it.

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Drop $10 Trillion of new, debt financed money out of an airplane, and results are predictable. The unpredictable part is the short term market movements as that money winds its way through the economy. We discuss weekly and monthly trends, and we make investment decisions on those, but the destination has to be generally higher prices for everything. Put all the technical financial terms on it one wants, but there is where it ends up.

One comment above said inflation hasn't happened yet, but it has. It hasn't happened yet in goods and services, but 10 years ago $100k would buy you and instrument that paid you $6500. 5 years ago that same 100k bought 2500. Today it buys almost 0. If inflation is an increase in the money supply relative to production, and if the result is dollars buying less, there it is. In the financial market, money has gone to worthless. But of course it cant remain hemmed up there forever, hence the inflation bubble you mention,

I had not considered a controlled fall like Japan. I dont know what the mechanism of that would be, but that might be a way out. One can hope.

I dont know if you were in the workforce in the late 70's, early 80's, when inflation was between 6% - $10, but it can get a little nerve wracking. I was young, just graduated, so it didn't affect me except in mortgage rate. We gor inflationary salary increases, life moved on. I dont know what managing a portfolio was like. Interest rates matched, so people were not afraid of having cash: they bought 10% CD's. Maybe that's a point: even then, cash would get you about 2% above inflation, while today that is not so. It's negative today (see inflation being in the financial markets).

Bottom line: There is always a demand for food, tires and clothes, so production will continue. If we dont have a depression type collapse (I dont know what causes that or how to foresee it), a slow inflation rise seems survivable. If you were in 1930 and held cash, I think you were okay. Its just that nobody had any. As a depression approaches all the signs say holding cash is death - people borrowed money to invest - then overnight its golden. So, hopong for a controlled inflation, I guess. Is that your take?

Any of you Wall St Investment mavens starting to feel

As I inch closer to retirement...

Get it off Wall Street and on

Always invest hyper-locally for the best returns.***

If I were in Rock Hill, I would invest 10, maybe 20

It's still a hidden gem.

My son, as much of a burger connoisseur as one can be at 17,

Friendly Billiards is the best burger in town now.***

Why settle for Michael's, when you could have

Buy a pill press while you still can!

Re: Buy a pill press while you still can!

For some reason on a thread like this

IDK, man, high unemployment, uncertain recovery, housing

Also we're going to forgive student loans so people who

Re: Any of you Wall St Investment mavens starting to feel

I think we will come out of the 2020 recession just fine

You're #### right my net worth went up

And your only 3 hours of hard work away from some new to you

Black spraypaint??? Get real.

I'm programmed to think it's all going to burst

The housing market is what concerns me too

We cleaned up buying our house down here in FL in 2011

Wife of and I have had that conversation

Sell now, KOA your days away until the bubble bursts, then

I have two friends who sold now and moved into parent's

No amount of money is worth moving back in

One set did it and moved into Mom's house (dad is passed)

the r/wsb movement is skrong mane, plus Fed

I sweater gawd, you could have written this in Russian and I

I am with you

I just assume I am too poor to understand it and just shake

He said keep buying because stonks only go up***

My employer will continue to draw money out of my check and

TL;DR

So moving money within your retirement accounts (10%)

Sames.***

moving money within your retirement accounts

My liquidity is sunk into

Re: moving money within your retirement accounts

Not really. We all knew the tech bubble would pop in 2000

Great take. I sont see any way around what you said.

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