And Michael Burry has been predicting crashes every few years since the 2008 one.
And Bill Ackman predicted 'hell is coming' at the onset of the pandemic and made $2B [0]. And there were US Senators that also did possibly illegal things to pull money out of the market before the public knew about the pandemic.
Outside of disclosures filed with the SEC, stock trading is anonymous yet they will have all sorts of headlines like today on Yahoo Finance it states "Stock futures tumble on heels of grim warning from FedEx". So all players in the market are just selling everything across the market to the tune of -1.4% because FedEx is having issues? I question headlines in the financial sector, more often lately it feels like its just what they want you to believe to get you to take actions that benefit themselves.
I read a lot of these type of predictions, often you see some people say it's a great time to buy, and others it's a bad time to buy, and generally you will only remember the people who guessed correctly, so none of this helps you today at all. Every time those people who got lucky will appear in some future ad or article making a new prediction, and generally fewer will be lucky twice. In the long run, everyone is likely wrong.
Your comment makes me realize that in the medium term, after most of the unlucky predictors drop off, you are statistically likely to be left with a few really lucky ones (i.e. if a thousand people are tossing coins, you're likely to get one guy with a streak of 10 heads), and these individuals are perfect to put on pedestals as rare and brilliant talents.
1) Send out a bunch of letters predicting moves on (usually) penny stocks; a different set of stocks is used for each letter
2) A few days later, cull the recipients whose predictions didn't work out. Send another batch of predictions, again individually varied, to the remainder
3) Repeat once or twice more and you've got a small list of people who've received three or four correct predictions in a row. Hammer them with solicitations to invest in your "foolproof" scheme
4) Collect (via a pump-and-dump, or just solicit the money directly and run)
Nowadays it's probably happening in Telegram groups or some such. Or you could do this on Reddit et al. using different usernames, and only keep the accounts that were right.
What you do is look at the rationale that was given before it happened. You look at their reasoning and figure out if it was actually what happened in reality. Just make sure you are not picking up on their rationalisation after the fact.
The rationalizations before they happened are always very intelligent sounding, even in retrospect. If you have 100 intelligent sounding speculators lay out their reasoning and one hits the jackpot, it doesn't mean much.
The general problem is each has a mental (or computer) model of the world that is a vast simplification of the world. When they get it right it sounds like they understood and accounted for all the variables. They never did.
if someone made a correct prediction on a coinflip, you’re more likely to believe they knew what they were doing (rather than just get lucky) if they sound intelligent
You are right, but it is not very useful way of looking at the world.
Sometimes you just need to trust people on certain things to be able to make useful decisions having very little or no knowledge in the subject.
One useful way of dealing with this is to look at the past performance of the person.
Assuming you have no other information about the market, if you see a person having track record of well-reasoned, accurate market predictions it is probably as good signal as it gets that you should trust their predictions.
Ideally you would want to check this with other people having knowledge in the topic (and also good track record), check that their knowledge is still applicable to circumstances (if they were able to give good predictions in peace maybe they are not suited to doing this in the time of war) and hopefully also educate yourself just a bit to be able to ask clarifying questions and spot obvious problems.
Your comment reminds me of Buffet’s 1984 article titled “The super investors of Graham and Doddville”. Here’s the relevant excerpt
> Before we begin this examination, I would like you to imagine a national coin-flipping contest. Let’s assume we get 225 million Americans up tomorrow morning and we ask them all to wager a dollar. They go out in the morning at sunrise, and they all call the flip of a coin. If they call correctly, they win a dollar from those who called wrong. Each day the losers drop out, and on the subsequent day the stakes build as all previous winnings are put on the line. After ten flips on ten mornings, there will be approximately 220,000 people in the United States who have correctly called ten flips in a row. They each will have won a little over $1,000. Now this group will probably start getting a little puffed up about this, human nature being what it is. They may try to be modest, but at cocktail parties they will occasionally admit to attractive members of the opposite sex what their technique is, and what marvelous insights they bring to the field of flipping. Assuming that the winners are getting the appropriate rewards from the losers, in another ten days we will have 215 people who have successfully called their coin flips 20 times in a row and who, by this exercise, each have turned one dollar into a little over $1 million. $225 million would have been lost, $225 million would have been won. By then, this group will really lose their heads. They will probably write books on “How I turned a Dollar into a Million in Twenty Days Working Thirty Seconds a Morning.” Worse yet, they’ll probably start jetting around the country attending seminars on efficient coin-flipping and tackling skeptical professors with, “If it can’t be done, why are there 215 of us?” By then some business school professor will probably be rude enough to bring up the fact that if 225 million orangutans had engaged in a similar exercise, the results would be much the same — 215 egotistical orangutans with 20 straight winning flips. I would argue, however, that there are some important differences in the examples I am going to present. For one thing, if (a) you had taken 225 million orangutans distributed roughly as the U.S. population is; if (b) 215 winners were left after 20 days; and if (c) you found that 40 came from a particular zoo in Omaha, you would be pretty sure you were on to something. So you would probably go out and ask the zookeeper about what he’s feeding them, whether they had special exercises, what books they read, and who knows what else. That is, if you found any really extraordinary concentrations of success, you might want to see if you could identify concentrations of unusual characteristics that might be causal factors. Scientific inquiry naturally follows such a pattern. If you were trying to analyze possible causes of a rare type of cancer — with, say, 1,500 cases a year in the United States — and you found that 400 of them occurred in some little mining town in Montana, you would get very interested in the water there, or the occupation of those afflicted, or other variables. You know it’s not random chance that 400 come from a small area. You would not necessarily know the causal factors, but you would know where to search. I submit to you that there are ways of defining an origin other than geography. In addition to geographical origins, there can be what I call an intellectual origin. I think you will find that a disproportionate number of successful coin-flippers in the investment world came from a very small intellectual village that could be called Graham-and-Doddsville. A concentration of winners that simply cannot be explained by chance can be traced to this particular intellectual village.
The funny thing about these people is that they did really well for a few decades. And then it dried up. Computers, the internet, software - it changed the world so much in the last 20 years that many things which looked like "deep value" just went belly up.
Eddie Lampert is a great example of a (brilliant) graham and doddsville guy who basically got squashed by not understanding the world had changed.
Over the past 20 years the tech "intellectual village" has been the smart money. They'll probably be for another 20 years. And then someone will point to it with a similar explanation that Buffett had. And then they'll get crushed by whatever multi-decade driving force comes next.
I don’t disagree, but somehow Buffett still managed to pivot from investing in newspapers and railroads to being one of the largest investors in Apple. Although even with his excellent timing on that one Berkshire only roughly matched the S&P over the past 15-20 years.
> Every time those people who got lucky will appear in some future ad or article making a new prediction, and generally fewer will be lucky twice.
Survivorship bias, survival bias or immortal time bias is the logical error of concentrating on the people or things that made it past some selection process and overlooking those that did not, typically because of their lack of visibility.
This is why the dollar cost averaging technique works so well. No, it's not likely to provide you a financial windfall, but it's also not likely to yield you financial devastation either. If you're investing for retirement then it generates quite a bit of wealth in the long term.
Yeah, but if you have a lump sum of money it's still better to invest everything at once if you plan to hold it for decades. Vanguard has a good paper on that titled "Dollar-cost averaging just means taking risk later". And as you get close to retirement, you need to be mindful about sequence of returns risk.
No, it isn't better. There is no such knowledge whether it is better to invest $100k today or $10k per month over the next ten months.
There is historical data showing that in 2/3 cases, lump sum is better. That says exactly nothing about which will be better today or tomorrow. The future is unknown.
And here's a question. Say you have a windfall and you're deciding whether to lump sum or DCA it. And you decide to DCA. So therefore, why wouldn't you liquidate your entire investment portfolio and also DCA that the same way?
Good point, but how about for retirement portfolios?
I'm trying to point out the irrationality of it - after all, I don't think people desist from liquidating only for tax/fee reasons. "I would sell everything today and DCA back in over the next year if not for those pesky taxes and fees! (shakes fist at sky)"
Having thought about it a bit more - I'm not sure what motivation I'd have to sell then immediately DCA back in, my position would end up in the same place!
If at the beginning of 2022, I'd had a crystal ball saying "stocks will crash in March then rebound in December", then I have a motivation: I do want to switch to a stock-light position, hold that for a while, then move back. In that situation I'd be inclined to DCA on the way out in January, as well as DCA back in during December.
I want to reduce variance more than I want to increase the expected value.
Yeah, people often talk about DCA like there's an alternative. You earn money, you invest a bit... I guess you could borrow money to invest a lump sum, that would be unwise.
>So all players in the market are just selling everything across the market to the tune of -1.4% because FedEx is having issues?
FedEx's issues is that their volume is down massively. High (nay, accelerating) rates of trade are the foundation of the modern economy. If trade starts to slow down, or, Lord forbid, decline, then yes that can have massive negative repercussions.
Based on the last few years of my (and a relatively wide friend circle) experiences with FedEx I wouldn't be surprised if they are just suffering from getting outcompeted by Amazon and others. If their internal logistics are as bad as what the customer-facing experience would lead me to believe, I worry for their future.
Edit: completely subjective and armchair-quarterback-like opinion, of course.
US military industrial complex donated propaganda research to unis after Korea and it made its way to journalism, behavioral economics, advertising, and marketing programs.
“Stimulate as best as possible an emotional mood, insert talking point so next time that mood bubbles up the message comes to mind.”
Ackman said hell was coming, was appropriately hedged using instruments which would appreciate when hell did indeed come, and made $2bn on his hedge which offset the losses in his equity positions. He didn't net profit $2bn.
Ackman has a very mixed track record and has not had particularly great returns. To believe that he somehow predicted the entire sequence of events is being incredibly generous. Earlier this year he laid out an unbelievably lazy bull case for Netflix when it was around $350/share and said he had accumulated over a billion dollar position only to sell it a month later a massive loss saying the story had changed.
It's not that he tried to predict, it's that he tried to cause a panic selloff to buy stocks for cheaper. I imagine his CNBC interview had some effect it was unhinged and went semi viral.
This is the first time it's occurred to me that any "market-expert" who is widely listened too has an inherent conflict of interest. By misleading the public they can increase their own gains.
Burry is doing a lot of pretty short term speculation, according to his filings. What is a crash for a short term investor might be a bump for a long term one.
They disclose their trades a month or two afterward. If there's any confidential info embedded in those trades its value is probably gone by the time we find out about them.
The key word in hedge fund is hedge. They're not supposed to outperform the market. They're supposed to not fall as far as everything else during a crash as well.
Granted, that's not really how things work in practice anymore, but that's supposed to be the idea.
Why is 'the market' the only benchmark worth comparing to? For many investors it is too volatile, they can take worse performance if the chance of major drawdowns is reduced.
You shouldn't read those headlines. Both the ones walking you off a cliff in increasingly devious ways the interviews with Warren Buffett saying buy and hold which is a pessimal strategy, and the headlines announcing x happened because y as if you should think y leads x. It did not, they don't know that, news blogs get a pass in telling people false causes after the fact, dude it's purely made up and it's a guessing game to train you to guess as it suits them. Plato's Cave.
IDK what OP believes, but to me, the "Boglehead" strategy is great, with giant caveats.
Most devotees I talk to get visibly frustrated when I suggest that you can look at larger macroeconomic forces, like COVID, supply chain issues, Fed manipulations(both positive and negative) and make educated predictions on the direction of stocks. My guess is that these are folks who just don't want the frustration of learning about these things, and I get that. It is a significant cognitive load to maintain an understanding and awareness of market influencing factors.
I use a family member as an example who was told by their money manager to move to cash at the beginning of the year. That wasn't just dumb luck. Was it a sure bet? Nothing is in this world. Do you bring a winter coat to a July outdoor event in Phoenix? I mean, it could be cold, right? But yet the writing was on the wall for the direction equities and bonds would take this year.
Can you perfectly time the bottom? No. It's also important not to be too conservative. The majority of gains in a stock market cycle are made in the first sprint out of the gate when everyone is still fearful. But you can know when things are peaking and GTFO before the slide. You don't need to be Michael Burry to spot these things either. You just need to not watch CNBC and Cramer or any of the other paid shills.
Well so some stocks are obviously bad, it's not an strong-form efficient stock market for eg Nikola because turns out shorting small stocks can go terribly wrong. It's up to the people who actually own shares to sell them, or forfeit them, like this is worth nothing I'll put it on the exchange for a cent. And in fact on the other hand that is what naked shorting is, only without actually owning a share, identical to casting a ballot you didn't receive, like same as an immigrant or tourist voting without legitimacy, or a dead man's vote.
Obviously you can look at those factors and predict market movements based on them, the question is can you do that BETTER than everyone else in the market, including institutional investors?
The problem with timing the market is you have to be right twice - you have to choose when to sell and when to buy back in.
On the other hand, DCA'ing you way through a market decline and recovery will always leave you in a better position than one where the crash never happened.
> problem with timing the market is you have to be right twice
And times like this when macro forces dominate it's not hard to predict. If you're talking about timing entry/exit over the past decade, sure, but now is not then, and it's bogleheads refusal to see that which is most frustrating.
But I'll say again, you don't need to nail it. Don't try to time the exact top and bottom, but don't pretend you can't get close.
I guess the lesson on macro now is when the Fed says it wants to cool inflation, market be damned, believe them. But in general I claim you cannot get close to top bottoms consistently- because so much of the movement happens so fast now, you can get 10% in days or weeks and if you are out of position all your effort was for nothing. I’ve been trying for decades but would have been better taking the advice to put it in the SP500.
For example, say you left a company and transferred a 401k balance into Vanguard and put it into VTSAX (total stock market ETF) with no ongoing deposits. Lets say you thought the market was going to go down and on Jan 3rd 2022 you yoinked out your entire balance which for the sake of easy math was exactly $100k (not take a withdrawal, just pull it from the ETF). Today you would still have $100k sitting there in a placeholder account earning $0 (its like a no-mans-land account for moving money in between funds, or if you were prepping an actual withdrawal).
If you let that $100k balance stay in VTSAX on Jan 3rd, you would be -19.15% and have $80,850 sitting there today. Granted in this example there aren't regular deposits going in so it really is just money parked there. If you are continually contributing money into a 401k or other tax deferred account, contributing as the market goes down is fine because you're averaging down with the market. Or maybe its not fine depending on your personal circumstances (i.e. going to retire soon or something like that).
Not like he has a fucking Bloomberg terminal with no latency or anything. Like he can't spell out FPGA's but he delegates. Not half as senile as he makes himself look, not a shit mathematician at all, not a folklore-driven dude that anybody can imitate (counterfactual, that's part of the business), publishes information on his colon biopsies for a reason, he is rich because he wants to be rich, he likes money. Plus he's the designated "Richest Man in the World" trading off with Bill Gates like they're a wrestling team. Makes no fucking sense, wealth has been aggregating incredibly for thirty years, rich getting richer, more stratified, more clustered, according to literally everyone even USG census, everyone. But the richest man in the world has had 60 billion dollars on the nose since 2000? What the fuck? Apparently now it's a little higher, Jeff Bezos and Elon Musk, at like $160 or some billion...like no it's not. Diminished variance stedda amplified variance. Silva Paradox, http://fgemm.com. An actual valuation of their wealth would significantly diminish it, and inform others of it, they don't know really. Only a hobo can look in his pocket and say "I have 550 pesos" a rich man it's like either his company has a fluctuating market cap or he needs armies of accountants and lawyers and like occasionally vudu priests literally "Vudunomics" like they believe in magic. Why not? There can be a physics explanation behind it that will not be understood for hundreds of years, if it works hell. Yeah. If it works Hell.
White magic or black magic? Well preferably white but when told that requires giving all wealth away to the poor as the first step, they like say...uh...what's the other one? Be richer and richer, always, black magic. OK that works better. And the richest men wrestling team agreed to give half their wealth away, which is OK that's cool in principle, I don't have a read on that. What I can say is white magic simply is hard, you can't successfully give away all your money, you end up with more even more money, and then you give that away and you get it all back, give all all of it away get down to a penny. Apologize to a beggar when you give it to him (it's considered insulting) dude riches leak into your ascetic life, from every nook and cranny, out of nowhere like not quite to the point of finding cash on the sidewalk (who knows, any day now, it's becoming a sick game). Spesh when you have faith, a mustard seed, thing is a mustard seed is a huge amount of neurons, that's a subsection of your brain that needs to germinate from somewhere, very tricky very tricky, and it doesn't work at all half-way. It's all or nothing. Saying more would make it impossible for you to develop it. Matthew 17:20, that's all I got, that's all you need.
Whereas if Warren Buffett asks me, I'd say "you're rich." Simple as that, and that's the actual question, it's in practice binary, does he have to worry about money or not? No because he's rich.
No, Buffett has no bloomberg terminals, no technology he does understand (he gets for instance stock tickers, gets a ton of things, plays dumb, and some stuff he does in fact not get and is truthful about it, like investing in Apple, he doesn't get that). Yeah bajillion dollars and gets his information for free on yahoo finance like you or me.
[I talk about predicting the future in this essay. I mention that up front because maybe then you can take on the walls of text.]
Companies always go to shit eventually and you're left holding the bag. Spesh because there's no dividends and companies never wind down, they just do gambits with borrowed money. That's the Way of the American CEO. Dude these dumbasses even publish books about that being the way, like Jack Welch's suckafucking book Straight from the Gut yeah spilled his guts alright.
That means that when they can't pay that debt, the creditors have priority, shares get no part of any of the money. So CEOs can't own debt on their own company (I think, there's rules, like they all get broken but there's still rules and breaking them has a cost like in slaps on the wrist, like it has to be very intermediated, because otherwise duh first thing everybody would do is short the company they run and fly it into a mountain). So it looks very smooth, very well thought-out, high-integrity, the American tax system is like that too, looks air tight on form 1040, and if you dig it looks more and more airtight until--whoosh cracked window on an airplane everything flying out. Nah.
Dude get in and get the fuck out. Know when to sell. Bill Browder, whom I don't think much of in most regards and have ripped on here explained why he's a nomad. But having talked him down, he does say smart dead-on-the-money intel. You gotta know first off when to get in. Under the thesis that it's exponential (it's impossible to respect that thesis, cubic at best, cubic is short and sweet, "ex-po-nen-tial" is a mouthful) so you can get in whenever it makes no difference. There's no sexy part of the exponential, every part of the exponential is sexy. Like I don't know I got advice like get out right when it's taking off--it never takes off. It's identical to its derivative, no inflection points, no maxima, no minima, it's the comparable in its uniformity to a flatline. In a sense it is a flatline because of inflation, that connects both curves, e^x - e^x = 0, f(x)=0 is the flatline. Alternately, e^x / e^x = 1, f(x)=1, though that's a totally different flatline.
So there is a moment to get in and that's when there's a genuine crash that nobody saw coming, that later is said to be impossible to predict--dude that's when. But to get in at that point you need to have gotten out before then, ideally at the peak. So because of relativity you can't react to the peak, see oh it just peaked time to sell--no there's a delay, like coupla hours for a customer to talk to his broker, so gotta preempt the peak by a coupla hours, that means gotta give the sell order pre-peak--meaning while it's still going up according to some smooth description of the Brownian curve (you never see it in the full grain, that information costs money an hn user doesn't pay). So it's critical your broker try to talk you out of it--that's a very good sign, just convince him you're stupid and he'll say "eh, masochist"--that's exactly what you want to hear. Because if you do depart the cyclical assets at the peak of the cycle and transfer it to countercyclical assets, then you get a bonus from them (not much, gold is politically oppressed by practically all empires, only one exception) so like gold won't double, but in my analysis that's because it's too feared so instead Bitcoin would jump, and I bet on it on margin almost at the trough, and I got 90% of the appreciation in Oct-Nov last year.
So that's the thing, selling near the top. So it's a totally political move, just like predicting the peak on Sep 27 (when the Fed announced the rate hikes, charts lie inflation lies that was the peak that was when the shit got really sticky and the pipes backed up) 30 days before. So for my personal protection, in order not to be subjected to additional psychiatric malpractice and experiments and all that shit, instead of saying my spine gave me a trillion-dollar twitch, I will play the fool card and say it was a quadrillion dollar twitch. What's the difference? For me both are infinite resources, even a million dollars is infinite resources. The difference--even if I say this explicitly--is when I say quadrillion shrinks say I'm crazy, which is good that's what I want. Chose which ward I end up in carefully. Dude no spinal taps.
Yeah some clowns named Ray and Warren also keeps crying wolf about how the economy has issues too. These guys have no idea what they are talking about! I don't think they even trade.
I'd read the strategy there more as "don't be greedy and invest in companies with lots of growth and weak fundamentals". That applies to bull markets too.
> “There’s a high probability in my mind that the market, at best, is going to be kind of flat for 10 years, sort of like this ’66 to ’82 time period,” he said in an interview with Alex Karp, CEO of software and A.I. firm Palantir.
Adjusting for inflation, the stock market was not "flat" during this period [0]. The DJIA, for example, closed at an effective price of 9,160.41 in January 1966 and closed at an effective price of 3,176.25 in December 1982. That's a 65% drop, which is a pretty big stretch to call "flat".
You are correct, but to clarify, you are saying the value declined when adjusted for inflation. The DJIA average sat around 900 the about a decade, with the real value getting eaten away by the high inflation of the time.
A lot of the adjectives that traders use are different from how casuals would interpret things. They are looking for massive profit opportunities and declare hell on earth when they aren't there because it is for them. People who are just putting 401K money into index funds just need their money to slightly outpace inflation which it will almost always do in a long enough time horizon. We saw an outsize bull market and are now giving up a lot of those gains, but if you just buy and hold, you're nearly guaranteed to come out ahead even if you don't really have much chance of making a killing.
"Nearly guaranteed" may be a stretch. There are decades in US history where you wouldn't really come out ahead (although I'm not sure any alternatives to stock would have done better) but internationally, there are many clear examples where the stock market hasn't been a good investment on a generational basis, like Japan now. The question is how much do you believe in American exceptionalism, are US markets really immune to this kind of failure forever, or have they just been on a really good run?
There's an awesome website posted to HN a while back that calculates total real returns (accounting for dividends and inflation). Here's the chart for the Vanguard S&P500 index fund:
Question is, will the market be able to make 7-8% p.a. in the face of massive headwinds like QT and rising interest rates and rising inflation from the CRB index.
Sometimes you can't beat inflation. Wealth equality is inherently inflationary. If people in developing nations start demanding the same standard of living, prices are screwed, costs go up, and certain cost changes cannot be hedged.
For example, how exactly would you plan on protecting yourself against wage increases? It's not like there's a futures market for wages.
If people could agree on some source of unbiased data about average wages that updates frequently for a job type, then there certainly could be (cash-settlement only) futures based on that value.
What seems relatively unlikely is that you will find people willing to offer physical settlement futures!
The market would probably also be somewhat shallow, being more speculators than anything else. Basically only groups acting more like insurance companies would be willing to add much to the depth of the market, and obviously they would sell such futures at such a steep premium that is unlikely to be a very useful hedge.
A 65% drop in price over 17 years is "only" about 6% per year. The S&P500 annual dividend yield during 1966-1982 was not much less than 6%, especially during the latter half of that period.
If you look at an inflation-adjusted total return chart (as opposed to just price), the actual drop in investment value was much smaller. I think "flat" isn't a terrible way to describe it.
I think we'd have to look at the data, but it's possible given that drop happened over an almost 20 year period. Dividends around 2-4% annual over that time could make up for it depending on specifics.
For those who don't know, Druckenmiller is also very well known for changing his mind the minute facts change which is one of the hallmarks of good trading.
Very true. Plus this is nonsense. Interest rates are still far too low. There is wayyyyy too much money floating around in the system and global growth has slowed. That money will be chasing returns wherever they can find them and that has been the market and now real estate. Both of these will be net up over the next 10 years. It will be choppy for a few years as inflation is battled and interest rates rise a little bit more.
Inflation adjusted won't that look rather flat or negative? Where are these real returns going to be coming from? Hot stocks haven't been paying appropriate dividends for the last two decades.
I wonder how much the end Moore's law is a part of this current slowdown. It would make sense to me that its impact would lag a while, and would eventually catch up.
I don't know if it's moores law. except for servers, CPUs are mostly running near idle.
My intuition would say tech saturation would make more of a difference. That is, worldwide pretty much everyone have now has adopted a computer and all businesses have automated the low hanging fruit.
There are probably a lot of companies that could see huge automation benefits but can’t a due to inefficient corporate structure. They might take decades to die though
Moore’s law ending? I’d say declining birth rates is at least an order of magnitude more important. If the future has half as many consumers and producers, scientists and engineers, entrepreneurs, etc. what do you think GDP and the stock market will look like?
This is the best comment in all. HN folks don't understand the purpose of this article. You think Druckenmiller is so bearish? for the next 30 yrs? Not a chance. He must have a huge short position on the S&P500, and he likes you to sell your stocks so he could cover at a lower level.
Nah. Druck isn't one of those types. Bill Ackman is.
Druck is just known to change his opinion when the facts change or he comes to a new conclusion. There's some anecdote about him completely flipping on a position when going in and out on an elevator ride that I can't quite remember.
By the way, sideways means that the stock market is going nowhere long or short. IMO, currencies and commodities are a far better place to speculate.
While you may know the guy better, notice this Druck comment comes at a time when the long term buy-and-hold thinking is at its weakest point. A slightly respectable guru saying this sort of things is enough to make some people sell.
Druck was short the S&P jan-march and covered, he was looking for a second entry if it was given. His position isn't a secret.
Also, forget him saying it. He says a lot of things at a lot of different times. The real people to question are the ones making his headline known. CNBC/MarketWatch/Cramer et all are the biggest shills for banks. If you remember, they were all pushing Dalio's cash is trash line--which he has been saying since about 2018--HARD at the peak.
Saying the market was "flat" between 66 and 82 is a ridiculous oversimplification.
There was a pretty strong bull market leading into 1973 which then began the worst bear market since the great depression, lasting until November of 1974.
Then the market bounced and a strong bull market ensued. Net inflation and price over a long period one could argue the market was flat or down, sure, but on a year-to-year basis to argue there was no money to be made or lost holding stocks during this period is just wrong.
If you were clever enough to get out of the market early in the 73-74 bear market and then get in relatively early after the November of 74 rebound, you'd have certainly had good returns. If you think that's just hindsight and nobody could've done that, read Marty Zweig's Winning on Wall Street where he has a section entirely devoted to that period and how he did avoid most of the drawdown.
At this point, I’m expecting both stagflation and a flat market for years to come. Odd that mortgage rate is above 6%, inflation is high, layoffs are happening, and yet the White House is pretending it’s not a recession and won’t say the word.
I don't doubt that high interest rates will cause unemployment to rise, but saying "layoffs are happening" is a little disingenuous. We are still in the midst of one of the strongest labor markets in US history.
A million people left the labor force during COVID, either through death or retirement, not to mention parents who have reduced employment or left because of child care challenges. Very roughly, there’s a 300k worker shortage, and that will continue to grow year after year until 2034 where we get closer to a 900k worker shortage [1]. 10k Boomers retire each day.
Can the Fed destroy demand/cool growth via the benchmark rate faster than workers leave the labor force (strengthening the labor market for those who remain)? ¯\_(ツ)_/¯
The top 40% are unbelievably flush with cash and the job market is strong as ever (bloated tech companies don't count, their value was solely promises anyway).
The fed is fighting to undo the QE it over did during the pandemic
Why would they even try to undo 14 years of asset purchases? Their goal is only to reduce the growth in nominal spending in the economy so that it grows at around 4% annually (yielding an inflation rate of 2%). The goal is not to return nominal spending back to where it was in 2008, which would involve nearly a 50% cut from current levels.
"Layoffs are happening" is not a metric, it's a truism. Layoffs are always happening somewhere, even in a growing economy. How prevalent are layoffs in the overall economy? You didn't even bother to check.
Current mortgage rates have little to do with recession, if at all.
Inflation is a problem, and it could absolutely lead to recession in the near future, but it hasn't yet. This is why the White House is "pretending" we're not in a recession.
Inflation isn't high any more. July was 0% and August was 0.1%. The headline number looks at a 12 month window. Until the very high inflation months earlier this year drop out of that window the headline number will be high. But it does not look like prices are increasing much anymore.
All of the long term trends still point to low inflation like they did before Covid. Slow population growth, technology, and boomers aging out are strong forces keeping inflation in check. IMHO we are going to go back to worrying about deflation in the next 12 months or so.
The reason people find the 'zero inflation' headlines misleading are mainly for three reasons:
1) Aggregate month-to-month inflation metrics were flat/low due to gas prices falling, but many important categories were still quickly inflating. Notably rent, but also food.
2) The reason people normally reference 12 month inflation windows is because many things, like energy prices, are very volatile month to month. It is going to take time to really see the trends.
3) For things that skyrocketed like food, people are hoping to actually see the prices come back down.
So, yeah, you are correct on your numbers, clearly. But as an non-expert, I'm not really sure the current trends are positive. I think they are still pretty troubling.
The CPI was 255.7 in 2019 and estimated to be 294.4 for 2022. That's a 15% increase in three years in an index that's acknowledged to somewhat under-report inflation. CPI could flatline (zero MoM) for the next two years and we would still be at 3% annual inflation over five years, which is above the Fed's target, in addition to all the asset inflation we've had that the CPI doesn't really track. Absolutely nobody who pays real bills will feel like inflation has subsided.
> IMHO we are going to go back to worrying about deflation in the next 12 months or so.
There's a lot of money to be made in the STIRS markets if your prediction comes true.
You're right, but it's going to take either a while or actively lower prices before people will stop feeling like everything is more expensive than it should be. Psychology matters for the effects of inflation on the macro economy.
I've definitely altered my purchasing behavior because things "feel" too expensive, and a few months of 0% MoM inflation isn't going to change that. Either in two years I'm going to finally get used to a cart of groceries costing $250, or prices come down sooner.
I have a very different position on this. I think we will see the most growth we’ve ever seen in the next decade and it will be powered by AI.
I think most of these investors don’t really understand how close we are to have very useful AI and what it’s impact will be. We are roughly on the verge of another industrial revolution
None of the AI stuff really solves things like affordable housing or keeping wages up with inflation (or addressing inflation). It's not going to magically give us more energy without environmental impacts, or settle conflicts between countries.
Building another AI-marketed SaaS only benefits people who don't need those benefits. In all likelihood, it'll just give us more bullshit jobs.
One way that we become twice as productive is to use half the labor. This is my fear that AI brings about—not huge gains for society, but huge gains for a small minority.
Again, unknown. If we look at history, technology that increases productivity is initially disruptive, then just frees up people to tackle bigger problems.
If you look at worker productivity vs income, they have diverged sharply over the past 50 year. I have zero optimism that AI-driven productivity would improve the financial footing of the average citizen. It will likely just exacerbate existing social unrest as more jobs are automated.
The percentage of people working in US society has increased steadily since the 50's, and the income of individuals has also increased steadily over the same time frame.
It may not exactly match productivity, but more people are working and people are earning substantially more than ever before.
AI may be different, but its entirely likely that it will just continue this trend
> I think most of these investors don’t really understand how close we are to have very useful AI and what it’s impact will be. We are roughly on the verge of another industrial revolution
Tell me more. I'm willing to be persuaded by this position but I'm skeptical.
What specific AI breakthroughs do you think will happen on what timelines?
Just take AI assisted programming, if it makes devs twice as effective at their jobs then its massively increased the output of our most profitable industry.
This is just one field, AI will impact the output of most fields
AI will only be a positive revolution if it's not putting a large number of people out of jobs, but merely increasing their productivity.
Or, if it DOES put a lot of people out of jobs, it would be good for them to have some ownership over the AI, so that it's the labor force who reaps the benefits, not just the corporations. The bad scenario is mega-corps replace lots of humans with a fleet of machines owned by the mega-corp. The better scenario is we see widespread ownership of AI-powered productive property (that is, distributism), such that mega-corps contract out jobs to humans who own that property, and the property allows those humans to provide better service than before.
I think the economy is hitting real, hard barriers in resource extraction, energy usage, and number of people that buy and sell. That’s where stagnation comes from.
The real economy will stagnate. AI can automate some work and intensify future technological discoveries, but that won’t make energy any cheaper, clean our environment, create more humans, or make resources as easily extractable as they were 100 years ago.
The real economy can’t grow too much more than it’s current size, at least in the physical world.
>We are roughly on the verge of another industrial revolution
I was told that the "internet of things" would bring about unparalleled gains in manufacturing, and then that very quietly went away. I'm not holding my breath for AI to deliver on what IoT was supposed to do.
When drive into my neighborhood downtown areas, I still see 'hiring' boards at lot of places with a healthy % advertising higher than minimum pay hourly rate. At the same time I also over heard complaints at grocery & super markets on how things are getting costlier. An elderly gentlemen was complaining how he used to get 3 items but now gets only 2 for the same price. Even as a layman, I think the high employment rates and healthy housing/stock markets mean there is lot of money in the market which is driving demand which in turn driving inflation. With Fed tightening up interest rates, money may stop flowing into the market yet and hence ease the demand eventually inflation. A likely side effect is companies have no money to fund growth and hence recession (and job cuts etc.). Next one year is going to be tight.
However, its still a stretch to say the stock market will crash, stay flat etc. etc. I think these predictions are more media created (they are excellent click bait) than actual warnings from genius investors. For example, if you follow Michael Burry's tweet it's more of a rant or running commentary (combined with partisan view point) than doomsday predictions.
The bigger problem in my opinion is partisan politics is stealing attention from more important problems. Dems are wrong with the number of freebies being thrown in but Reps are also wrong ignoring climate change (or kicking up the abortion repertoire). The checks and balances thing is not working currently.
I don't know about apocalyptic, but US Treasury bonds either exceeded that return, or trailed not far behind for much of that period. If you look at the S&P at a reward/risk perspective, it wasn't very attractive at that period of time.
6.8% with 6.8% inflation, according to that article.
Edit: just got to the conclusion of this article, from 2014: "Many smart people in the industry are predicting lower investment returns over the next decade or so."
"The S&P 500 usually averages 10% over long timescales."
This is a pretty meaningless statement.
6.8% over 10-20 years is certainly a nightmare scenario for most investors and is probably a significant loss against the risk free rate over the same period.
I don't know if it'll last a decade or only be flat, but my local city has lost a lot of upper end clothes stores and even a burger king. The high street has well and truly died and if even BK can't survive that's a bad sign
> “There’s a high probability in my mind that the market, at best, is going to be kind of flat for 10 years, sort of like this ’66 to ’82 time period,”
Is there a resource that has the chart between ’66 & ’82 so I can have a look at what it was like?
If interest rates get high enough, putting money in bonds or even CDs will start to get appealing for sure. That used to be the primarily saving mechanism for consumers before policy required us all to speculate on stocks.
Once you learn about Paul the octopus, it puts all off these predictions into perspective. Predictions have low reputations costs when wrong because the public will just forget about it. If he’s right, he’ll remind us at every chance he gets.
https://en.m.wikipedia.org/wiki/Paul_the_Octopus
Personally, I wish it was as rewarding building or creating something as it is to invest in the stock market over the past decade. If you have capital it makes more sense to put it into stocks than opening a coffee shop or computer repair shop, etc. If the stock market stops paying out maybe we'll go back to trying to create value instead of profiting from value created by others.
Depends on what you mean by "rewarding". I feel that building and creating is far more rewarding then clicking a button and watching a number go up. I hope others feel the same, because when everyone is clicking buttons and watching numbers, that's not something society can sustain.
I meant financially rewarding. It feels like the person that bought S&P500 stocks ten years ago probably fared better financially than the average entrepreneur.
If you built or created something that other people like (i.e. will pay for), you could probably get a way better 10 year ROI than you would in the market.
Doing that creating requires taking on sizable risk, a chunk of investment up front, and most importantly, a lot of hard work, consistently applied over multiple years. I know I have had conversations with myself about starting a business or building a rent house and the cost benefit calculus always comes back “invest in the stock market, 10% return for zero effort over the long haul.”
It’s getting over the initial hump of “would trying this be profitable, discounting for risk, effort, and opportunity cost?” That is the issue. Lower real returns in the market might change this.
stock market is a future indicator of economic activity, so if its down, it also an indicator that less coffee shops will be opened because of lack of capital
I was thinking the opposite: that the model of saving for retirement via investment accounts requires good returns in the early part of your career, so the smaller amounts of money you can afford to put away for your relatively smaller early career salary can compound over your career length to be enough for retirement.
What others wrote was pretty much my reasoning but a bit further, over the very long run (30+ years) markets will revert to mean performance. If you have strong gains in the first half of your career then when you are in your peak earning years, investments will be more expensive at time of purchase. As a result when you are investing the most, returns on that principle will be lower.
Isn't this just the gambler's fallacy? Yes, markets over a given period of time will likely conform to a particular distribution of performance, with some below-average periods and above-average periods that average out. But that does not mean that if there is an extended time period of terrible performance now, X years from there is likely to be a very strong rebound to compensate.
What you wrote is true about the performance of the underlying businesses but not necessarily true about an investment.
Stock performance (and any investment) is driven by both cost of purchase and underlying performance. Cost is driven by human psychology as much or more than business fundamentals.
As a result, poor stock performance is in some way an indicator of future improved investment performance because it corresponds with lower purchase price but as you note, deterioration of economic performance is absolutely not an indicator of improved future economic performance.
Most of the HN audience is privileged class by courtesy of being tech savvy. Unlike many others, most of us can keep investing even in less fortunate times when others cannot. Exactly those investments might yield extra high long term returns.
Assume for a moment that stocks are currently overvalued from a historical perspective. So it is better if they stay flat for a while and get back to normal valuations so when you buy them each month, they are not overvalued. If they were to go up in the next few years, they would become even more overvalued and you would be buying them at even more overvalued prices.
You're flying dangerously close to buying into the idea that anyone working in markets actually has any meaningful ability to predict, and isn't just semi-gambling in a semi-rigged environment.
Look, at a fundamental level, the stock market is a tool for letting people put money into risky ventures without them actually experiencing consequences for that risk.
Given the extent to which the nature of information has changed, I'm comfortable no longer letting this be a driver of economic growth. You want to put money in a thing in the hopes of getting more money, fine. But do your homework -- if they screw up, yes, YOU have to pay.
Let's say the market does what he is warning it will do:
Dividend reinvestment will be a major component of you portfolio returns. So you need to focus on companies that pay dividends. Also, avoiding obvious scam companies. Hanging out here has already given you a picture of how to identify a certain class of such companies long before their IPO ;)
Does anyone understand the "They’re like reformed smokers" comment?
> “They’ve gone from printing a bunch of money, like driving a Porsche at 200 miles an hour, to not only taking the foot off the gas, but just slamming the brakes on.”
I understand the Porsche example, but I don't understand the smoker reference.
_he has a history of a _bearish bias_ that he has had to work around his whole career. _I like darkness_ he said._
Well, that's the only way to win long term at playing that game. Buy very very low and sit on it. It helps if you already have money. The bear feeds on the bull. Never be the bull.
No one knows what the hell is going to happen, the only certainty is that compared to the long slowly-eroded geopolitical and economic stability of the late 20th century for the capitalist world, black swan events are much more likely and their impact much greater.
The next few years may see Russia collapse.
Or Russia use nuclear weapons to prevent ceding Crimea.
We may see accelerated catastrophic climate change and knock-on effects like mass migration or as the Thai floods only a few years demonstrated, that knock out of critical infrastructure for our globalized economy is only one bad storm away.
We may see low-level domestic terror campaigns in the USA dressed up as "civil war" or,
we may see a de facto internal balkanization with erection of internal regulatory barriers to interstate commerce and logistics.
We may see China's economy collapse with calls for historically-enshrined dynastic change resulting in internal chaos.
We may see next-wave pandemics.
Or maybe none of these things and the ship rights and we sail quickly forward into renewed economic prosperity.
that would actually be great, the volatility and speculation only helps a narrow group of dedicated traders. as long as stock market saves you from inflation, you should be happy with your investment
People need to stop trying to find the best portfolio to keep up with inflation. It's futile. Just be happy if your portfolio appreciates 3% in a year, like our forefathers were.
Property is great because the government subsidizes fixed rate 30 year mortgages - you beat inflation on the backs of tax payers. I own a lot of property!
But it kind of does, since you don't own cash but a portion of a company. As long as that company does well for the next 10 years and doesn't go to shit the "value" stays the same. 10 shares of Company X are still worth 10 shares of Company X in the future in that case. But the monetary value of those shares will most likely change based on inflation.
Well, that was my question, if "kind of flat" means keeping up with inflation at least, or not.
Although my understanding of the standard model of how privatized "saving for retirement" via investment funds works, is that you better have returns at more than inflation, especially in the early part of your career, if you want to be able to retire.
We need to drastically increase pension ages and even abandon retirement as a mainstream concept. Working part-time in 60s and 70s should be commonplace.
After the global awakening, the rest of the world doesn't want to do our work for pennies on the dollar anymore.
For example, Apple won't be able to enjoy high profits on the back of indentured servants at Foxconn. Marketplaces like app stores and Amazon won't be able to skim such high percentages from the people doing the actual work of making and shipping things. Even portals like Google will find that their best efforts can't keep up with the dizzying pace of technological improvements in areas like machine learning as tech becomes more and more democratized.
I have a question about this: I perceive profit as theft because I've spent my life working for employers for pennies on the dollar too. I'm averse towards investing because I don't want to use people. What's a "fair" return on investment? 5%? 10%? Or is investment inherently usurious? I'm concerned that my unwillingness to invest could end up being a burden on Millennials and Gen Z, the same way that the Boomers refusing to invest in Gen X caused us many lost decades. Your experience may not have been like mine, but trust me, the proletariat/plebeians/paupers of the world are wrestling with this as one of the central issues this century. Can we have capitalism without exploitation, and if so, how will we accomplish that?
You can’t have capitalism without exploitation. But I’m pessimistic on any sort of global awakening happening soon. Also, capitalism does some things well that have yet to be duplicated in other systems, so finding a viable replacement for capitalism will take trial and error.
I don’t honestly know how to answer your moral question though, i have similar thoughts.
I think the poster is saying he expects the stock market to fall a few more months before turning around. Not that green energy will complete its transition in a few months.
If you think oil/gas will demand the backbone, you ask yourself why none of the oil and gas majors are drastically expanding their production capacity during this time of high prices. Oil and gas, and their investors, are planning for their phase out, and nobody wants to be holding on to a new asset that has a lifetime of 10-20 years but won't have value after five.
Oil and gas companies and investors know that fossil fuels are on the way out, it surprised me that the general public doesn't know this.
When there's an influx of cash like now, it's usually an ideal time to invest that money in new production because you have the cash in hand.
General consensus is that new development should be small and only in a few types of projects, due to the transition under way. For example see this BCG report (PDF):
I think more important than removing dependencies on oil/gas is that energy will be much cheaper, reducing the cost of everything.
One other aspect of the IRA is that it heavily incentivizes building the new manufacturing capacity in the US. If US manufacturing is not competitive with other parts of the world, this could be less efficient than a world where the best manufacturers do more of it. So it has the potential to lower growth rates, but personally I think the tech advances for cost reduction of solar/wind/storage will likely be so massive as to overwhelm any potential US-based inefficiencies.
In order to correct it, we could tie some of these benefits back to the manufacturers being able to compete on the global market; I.e. if they can't export X% of their product successfully in a competitive market, then the subsidies taper out. But we will see.
I, a random anon from the Internet, think SP500 is heading for 2400 or even lower (1600ish?), which is great news, as millenials will get a chance to buy stocks at a low price.
> You probably don't realize it, most don't, but your statement is contradictory.
It's not.
> If something is crashing, it means no one can or will buy it. [..] If people can buy something or want to buy it, it will no crash.
You're only looking at demand as if that's everything that determines price. There's also the supply side to consider, as well as the fact that markets aren't a formless thing with no fixed location existing in a vacuum.
Price crashes can also happen because of competition destroying high margins or production simply becoming way cheaper. Price crashes don't have to be related to demand: it can simply be a matter of companies undercutting each other.
A third way for price crashes to happen is investors buying up a commodity, increasing the price. This will likely cause production to ramp up to compensate, slowly driving the price back down. Once investors see the price beginning to drop, they may sell in a panic. You're left with a market that is flooded by investors trying divest themselves amidst an overproduction, causing a price crash. The consumer never went away or was unwilling to buy though! Averaged over the entire timespan, demand never changed.
Do you remember the financial crisis? In 2008 Paulson was literally on his knees in front of Pelosi begging for congress to do something. I doubt we're headed there again.
And Bill Ackman predicted 'hell is coming' at the onset of the pandemic and made $2B [0]. And there were US Senators that also did possibly illegal things to pull money out of the market before the public knew about the pandemic.
Outside of disclosures filed with the SEC, stock trading is anonymous yet they will have all sorts of headlines like today on Yahoo Finance it states "Stock futures tumble on heels of grim warning from FedEx". So all players in the market are just selling everything across the market to the tune of -1.4% because FedEx is having issues? I question headlines in the financial sector, more often lately it feels like its just what they want you to believe to get you to take actions that benefit themselves.
[0]https://www.cnbc.com/2020/03/25/bill-ackman-exits-market-hed...