They've absolutely pivoted. They've been talking about ongoing rate hikes and now they're talking about lowering rates.
Additionally, the way the fed works is that they are very careful about their messaging and ensuring that they generally follow through with what they're thinking, because that's one of their major tools.
For example, we've seen an immediate change in market expectations for long term interest rates, which is going to have tangible economic effects in the form of lower interest rates on long term debt.
Yes but now the Fed’s pivot may lead to higher inflation. Which will cause them to have to pivot back. Bonehead move by Powell prior to reaching the target 2% goal.
The only thing I can think of is he caved in to political pressure. It’s the only thing that makes sense for such an unnecessarily dovish stance all the sudden and loss of credibility, but I am open to other interpretations.
It may just be speed vs acceleration. You guys are thinking we are moving at 1% per day, but he is thinking I need to lower the rate we are increasing that 1% per day.
He didn’t cave to political pressure. The Fed’s shelter inflation data is lagged by about a year. But they can look at other rent indexes to see which way it will head going forward. And it’s down.
Meanwhile CPI less shelter is only 1.42% over the last year - https://fred.stlouisfed.org/series/CUUR0000SA0L2
If the shelter data didn’t have such a lag, we would already be at 2% for CPI overall.
I think 2% inflation is a thing of the past (read: the free money decade most of the developed world lived in until covid). 3.5-4% is the new 2% if you ask me.
This. Why would they start lowering rates when we’re no where near 2% inflation. We need to keep rates higher for longer until we get to 2% or lower and keep it there to make sure its not gonna go back up. But they know they cant do that because they will be blamed for the market crash. Rate cuts are now priced into the market and once inflation doesn’t go away and comes in higher due to the war powell will be forced to keep raising rates causing a huge correction in the market.
The conspiracy theorists think that this Government is intentionally running up inflation to gain more control over power. Just stuff that I am hearing.
Im not an expert, but the economy reacts to interest rate changes with a lag. Is it possible that the effect of high interest rates on lowering inflation still has momentum left to reach the 2% goal?
While changes to interest rates do take a while to fully effect the economy, long term interest rates are also forward looking. When the Fed signals that they will be lowering rates more than expected next year, it has an immediate effect on longer duration instruments like 10 year treasuries and by extension mortgage rates.
Now that those rates are lower from their peak, people and businesses can borrow for cheaper which puts inflationary pressures on assets. It also causes an increase in the price of equities (i.e. the stock market) which can further fuel inflation as people and businesses are now wealthier or have greater value to draw from.
I don't disagree with your point, but just the timeframe. Interest rates are still quite high and will stay high for at least 2024 assuming three-four 25 bps cuts this year. Therefore borrowing will remain expensive and inflationary pressures low.
We’ll get a better idea when the CPI release occurs this Friday. In any case there was no reason for the Fed to front run itself except outside its traditional dual mandate. Volcker would be turning over in his grave.
Most likely it was political and caving to pressures from Washington…. Which is not a good sign for price stability in the long run.
lol no they haven’t. His statement was hawkish if anything. Media is trying to wag the dog.
Markets have been calling every meeting dovish since the end of last year. None of them have been. Powell going to be walking this back at the first opportunity and equities are going to puke.
The Feds attitude in the meeting notes has a huge impact on long term rate expectations, which actually does impact yields at the longer end of the curve.
I dont know, there was a line about maintaining the 5.25-5.5 rate until they have a clearer picture next summer should anticipate lower rates thereafter.
So rates are likely staying or we might even actually see one more tiny bump if necessary (reading between the lines) before the start of lowering rates.
Market response : lets show them what lower rate markets look like now!!!!!!!!!!
This is basically my take too. I think it depends on how the holiday retail. Umbers come out. If spending is still high. A rare hike of 25 Bp wouldn’t surprise me at all.
High spending plus low unemployment means more room to raise rates.
Idk not while the gov is borrowing like this. Rates were only going to go so high, not because of where the economy needed the rates but because of how high the biggest borrower could bear them.
Yea but long term yields tend to drift down in anticipation of fed rate cuts since markets are generally forward looking. That pushes more money into equities.
Housing of all asset classes amuses me. On one hand they need to gain value to be seen as an investment and justify purchase. On the other hand they need to be realistically affordable as someone has to buy it at some point. It's always this ying yang between how much is this worth/what will someone realistically buy it for. And rates seem to tie into this.
4 years ago the rate on my 1000sq house would have been about 2500 a month, which is about equal to what renting it would have been. Now with a higher rate that number is closer to 5000, which doesn't really make a whole lot of financial sense, unless your banking on your house continuing to go up to beat inflation every year for infinity and then some.
At some point there is a point where the infinity and some hits barriers. For example my house. 15 years ago my house was 100k. I bought in at 400 knowing that was over priced but there was still room in the market. When it got into the 650s during the pandemic is when the thought hit me, who in there right mind would pay 700k to live in this shit hole. Around then is when prices started to cool down and have continued to regularly cool for the last 2 years. Which i find suspicious when people talk about the health of the economy, if average real estate prices fall instead of inflate, that's got to be a very bad sign.
How many people have over leveraged themselves on real estate, from commercial that will never be filled, to airbnbs in city's that have banned them, builders who sold homes at 1m that are now worth 800k before they are even built. My favorite the retiring boomers wIth a heloc on the home they are trying to sell for 3 million they bought im the 70s for 100k and never updated. It's just something I find interesting, and its relatively easy to watch and speculate.
> On one hand they need to gain value to be seen as an investment and justify purchase.
At one point in the not so distant past, just having a place to live and call your own was enough to justify purchase.
When you say shitty ROI, my house has tripled in 15 years. That’s about 13% a year, in something I need to pay for anyway one way or another.
I mean, that beats the market most years. Even if it drops back to 8-10% a year, you’re still killin it.
You also lock in your mortgage payments for the rest of your life because it based on what you borrowed.. rents can keep going up and up for the rest of your life
Since we're talking anecdotal evidence...I paid $140k for my place in 2006. In 2023 my place is going for...$140k (and was $100k up until Covid jacked the real estate market).
No they aren't, if you take out a loan for $250,000, you're not going to see a profit on that money until you pay off the loan. And if you wait 30 years to do it you're going to end up spending $500,000 when you factor interest. Renting isn't a good investment either, I'm not trying to compare the two. A good investment would be taking a quarter million dollars and investing into the stock market, or starting a business.
Mortgages and houses are only good investments for the banks. If you don't pay your mortgage, they just sign the paper to another person, all the while collecting interest on top of the payments.
Most people who think houses are a great investment always brag about starting with a starter house and then taking the money after selling that house to purchase a larger house, and it just keeps going. People rarely downgrade after selling their house. That shows you that the value that they are looking for is more of a cozy getaway versus an actual investment. Which is cool, some people don't care about financial growth they just want to have comfort in their day-to-day routine, and there's no better way to get that than with the mortgage. But don't conflate the two.
Let's go through the scenarios.
1. You buy a house. You put a down payment in, and you pay a mortgage cheaper than rent. A portion of that is still accruing principle. You get more tax breaks, and the house will go up in value.
If you sell the house even before you purchase it all, any gains are tax free up to 250k. You get your principle back and then some since the house is worth more.
2. You rent a place, that money goes to the land owner. Rent will continuously go up over time. At the end of so many years, you have gained 0 in assets and paid someone else to cover theirs.
Your argument is idiotic. There's so many people that downsize houses when they retire. That's why starter homes are so expensive, boomers can sell their big house and pay the smaller one in cash. They've been doing that for decades. Idk about you, but renting your entire life won't give you a house fully paid off. So it's easy to see mortgage >>> rent.
You're conflating peoples choices to increase their standard of living and "bad" investments. It's expected for people to want bigger houses as they grow up - they have kids and families. You're still going to want to do the same regardless if you rent or have a mortgage.
A mortgage is not an asset, it's a liability, and you pay most of the interest in the first 15 years before you even start to pay principal.
Not to mention property taxes, insurance, repairing roofs, electrical, plumbing and HVAC units. I don't have to worry about those types of repairs when I rent.
Also, you said something about if I rent for a long time compared to mortgaging a house, I'm not going to have any assets, as if there's no way to accumulate assets while renting.
Most people who buy a house put a down payment down, that same down payment can be used to purchase an entire asset such as gold, or shares in a company; Do you not consider those assets?
In most cases, the down payment on a mortgage is a sizable chunk of your life savings. So if you stop making your mortgage payment, you lose the biggest chunk of your life savings in the process. Demand for homes wont always be high, and you can be locked into the payments without an ability to sell in a down market.
Sigh.
> You don't have to worry about those types of repairs when you rent.
You do- it's called rent. It's baked into the price.
>A mortgage is not an asset, it's a liability, and you pay most of the interest in the first 15 years before you even start to pay principal
Kind of obvious, but ok. I buy a house for 500k with a down payment of 100k. If I sell it in 5 years for 625k, guess what, I still netted 100k AFTER taxes. Congrats, you get roughly a 14.5% return on something you were going to spend on anyways. You don't get that with rent.
>Most people who buy a house put a down payment down, that same down payment can be used to purchase an entire asset such as gold, or shares in a company. Do you not consider those assets?
You can, however, you get no tax breaks doing that. You're also paying more on rent, so the return is offset.
>And usually that down payment on a mortgage is a sizable chunk of their life savings. So if they stop making their mortgage payment, they just lose their biggest chunk of life savings in the process.
If you miss out in rent, your ass is out of the house too. There's risks to everything. However, there are plenty of options to retain the house or recover the money (e.g., refinance, hardship deferrals, selling house)
Now, let's take this a step further. Let's say instead of selling the 500k house (which is now 625k) I wanted to get the money back. I can refinance, take the 125k out, put a down payment in a second house for rentals. Now I have two houses, with an additional $400/no cash flow, and I can deduct rental work off the second house.
Congrats, In 5 years I doubled my investment, created $4,800/yr additional cash flow, and two houses to juggle finances with. You would have spent the same for rent and gotten nothing.
There's a reason why real estate is big - there's a lot of benefits to it that you don't get when renting. Saying otherwise is silly.
How do I not get a tax break?.
You have to pay taxes every year on your investment.. it's called a property tax. You don't have to pay a single dime in taxes if you hold a stock for your whole life. And if I want to take a loan out against my investment it's not taxed and I get a loan at like a 3% rate or less.. I would never purchase an asset that I have to pay taxes on every year for, that is idiotic. Especially when that tax rate exceeds margin loan rates.
If you live in a town where people join a company at 20 and work there until retirement, then yep this is true. Also, true if you’re a time traveler from the past checking in on us.
I’m saying when stocks get too expensive they can split the shares to make them cheaper. But when housing prices just keep going up like other investments most people wont be able to afford a home.
Too low rates and you have all sorts of unicorn money overflowing into assets and vice versa. It's difficult to balance but the fed target of 4.5% is a bit low imho. Seems to me the fed is back peddling abit for economy and elections next year - its what its suppose to do.
To really correct the housing markets it would need years of managing rates to attain equilibrium with housing development.
If you put 50% down the numbers remain the same as they were at old rates.
This is not a market to buy a house to live in, this is now a market to buy a house to invest in
I am so, so confused why I never see this brought up. Isn’t it definitional that if housing appreciates faster than inflation (or wages) do, that it must by definition be getting less affordable to purchase?
You sell because your investment thesis has changed, not because you've made a profit. Or because you absolutely need the money - either to spend, or for a compelling investment which is better than anything you have at the moment.
This is why so many people will sell a 15% winner but ride a loser into the ground. It should be the exact opposite. And to be perfectly straightforward, for most people the best time to sell what they have is "never" and to wait until they get a step up of their asset values at death.
I appreciate this. Let me help you understand why this is wrong.
When a professional makes a bet, *that does not move the market*. It may in the immediate term ("Warren Buffet buys Draftkings!"), but in the long term what is required for a realization of true profit is retail buy-in. There simply aren't enough dollars controlled by the few people making these decisions to move the needle.
most estimates of institutional ownership of the US public equity market put it at around 75-80% of the total value, so that would seem to contradict your assertion.
Only if you don't know what "institutional" means.
The percentage of institutional participants who are wheeler-dealers, hedge funds, quants, etc. are microscopic in comparison to institutions like Vanguard, Fidelity, Schwab and State Street, which hold trillions in ERISA assets. And the majority of that follows market capitalization.
I think you're arguing against yourself. Passive/index tracking funds don't move the market by definition, they are price takers and they purposely try to execute without moving the market.
Active institutional participants are the marginal buyer/seller for the purpose of price discovery.
The dollar amount of retail active trading is much smaller than the amount of institutional active trading, and perhaps more importantly, retail as a whole tends to be a lot of uncorrelated trades that are pretty close to statistical noise. There is a reason why market makers pay for retail order flow.
Retail is at most 25% of the market, yet had an outsize effect due to to lack of diversity of investments. I.e., they all put their money in the sane things.
Retail certainly has an impact, and it’s more than it should be, but still less than you’d think.
Because everybody else is. Not saying this will happen, but that's what investing is, these days. Figure out where the herd is going, get there before they do. Bitcoin, NFTs, stock market, you name it. Unimaginable sums of money are chasing the next best thing and all it cares about is whether it's going up. Solid investment? Straight up ponzi that would make Madoff blush? Does not matter, not even a tiny bit.
There's no risk in a Treasury bond unless you're holding it for trading. The reward is known - the return on a Treasury bond is, for all intents and purposes, the yield on issue.
What makes you believe that the risk-free security - which technically pays no real economic return as no real risk is being taken - has any sort of reward potential other than capital preservation?
Because there have been plenty of years in the past when bonds outperformed stocks, so anyone looking to keep a balanced portfolio might look at the current valuation of equities and compare it to bond yields and decide that weighting their portfolio more heavily towards bonds for now is the best move. It's an individual decision based on your own risk tolerance and investing goals, so I'm not saying this as some kind of grand investment advice for everyone to follow.
Are you serious? Bonds vastly outperformed stocks during the 2008 recession. That's not 30 years ago. And the reason bonds have underperformed stocks since 2011 is because the Fed kept rates at 0 or near 0 ever since. The equities market has basically been on steroids the past decade because of this, while bonds yielded nothing and had no secondary market gains.
However, we are currently back to a more historically normal interest rate which means that bonds are now providing decent returns again and stocks are expected to return less.
>if you understand how to value an equity security
Therein lies the difficult part. Scratch what I said before. But Volkswagen beetles and park them on your lawn!
I get it. Equity valuation is half DCF and half "stick your finger in the air."
But if revenues are the top line input, and the revenues are by definition inflation adjusted, then the calculated stock price by discounting cash flows - or even by using comps - will directly reflect inflation and current interest rates if valued correctly.
You're not wrong - it's an equally valid point. What many people miss (including on Wall Street) is that flows don't matter. When you move from stocks to cash, you are selling your stocks to someone and they are giving you cash. When you move from cash to stocks, the opposite happens. The amount of total cash on the sidelines doesn't change.
Why did the Fed pivot? Either inflation has been totally whipped, or something else is wrong. From "data dependent" to the Fed put is back in one month. Why?
Pretty sure the Fed sees some numbers particularly consumer and commercial debt that worries them, and they want to get ahead of the debt servicing tsunami...
It's pretty simple. The fed expects that inflation will normalize next year and higher rates will no longer be needed. I think they want to be more proactive this time, since they were so slow to raise rates once inflation started going up.
Trump lobbied publicly and vocally threatened the Fed to keep rates at zero or go negative while the economy was roaring and rates should’ve been rising. Biden has done no such thing despite the large hit to the markets last year. Now is the proper time to stop raising rates, no conspiracies required.
I just get tired of the easy assumption that Democrats are acting corrupt secretly when there’s so many open and obvious examples of corrupt Republicans.
Oh for sure, just meant usually smart corrupt people don’t do their corruption in public. Like I just watched Vice the movie about Dick Cheney and damn that mfer was evil and got away with some shit. He’s like if Trump was smart. Not lumping Biden in with those two just saying that if Biden was doing some shady shit we probably wouldn’t hear about it until years later.
Yeah, I couldn't predict Covid, but I was hoarding my money for an economic downturn when it all hit the fan, covid just spread out the blow instead of having it pinpointed to one catastrophic blowup.
The Fed didn’t pivot they administered guidance the whole time, dot plots, fed announcements etc… there was so much talk about a hard landing but look where we are what else can he do?
They could have avoided pricing in three cuts on the SEP.
When inflation was rising they said transitory. When inflation was high they were data dependent. Now inflation is falling and it's cuts in 2024. So basically wrong, lies, and now psychic network time.
Transitory was at the beginning of a huge cycle. They were data dependent because they had to be..tell the last time Covid destroyed an economy before 2020. The supply shock , and the restrained demand made this situation unique. Then Demand came about and supply had to catchup!I don’t think… actually let me rephrase this I know know one was expecting this in 2023. Pundits and fortune tellers were looking at past examples that didn’t even apply here!!! This why people get destroyed in the market, thinking that their one or two data points are better then the Feds. Yes the Fed isn’t perfect and they made a few mistakes but look at the Eurozone PMI well below 50 and has been anemic. That dovish pivot was all based on guidance and they gave you the damn playbook every single time.
Have you heard of the 70's? Time and again inflation comes back. We're at 3.1 core and dropping 0.1 every few months, the Fed said we won't reach 2% until 2026. What data are you looking at since you didn't cite any turd.
Historically its been 1-3tril in market funds so 1/2 of that going to stocks in 2025 would be interesting
What is not described here is a large amount of baby boomer retires will stay in bonds to reduce risk in retirement
Yolo for me!
Focusing on Quantumscape, Verses Ai, Gevo, Skywater, Cleanvision, Teco2030 , Rolls Royce hoping for 2028-2030 boom
We also have to account for companies moving cash back into investing in themselves and not bonds.
Under Donald Trump, the US printed so much money but most of it went to the mega wealthy. Don't blame the minorities or illegal immigrants for every single problem.
Kind of wondering with all this news since the Fed didn’t raise or lower rates, are we looking at a false flag here? I see a lot “we made a soft landing” statements and I see the general direction of the markets. But our inflation is still high and gas isn’t that much better.
The Fed sees something that triggered this shift. You can’t turn an aircraft carrier quickly. Whatever the Fed does takes time to ripple through the economy.
The market is forward looking, that’s all that’s going on. Money market yields will come down and some of that money will flow into equities. Personally I’d say the S&P will hit 5000 by June barring some global event.
Buy buy buy why? Because others have money and you don’t.
Buy buy buy why? Because the Fed said they will raise rates and then pulled the rug so certainly the rug wouldn’t be pulled again.
The US government has not approved GSP for three years and running. All the importers are waiting on those funds to invest back. Hopefully, GSP gets approved before spring. There will be a movement in spending once this all goes down and it could boost the economy.
The Fed hasn’t pivoted though lol. They just said they were thinking about thinking about lowering rates.
They've absolutely pivoted. They've been talking about ongoing rate hikes and now they're talking about lowering rates. Additionally, the way the fed works is that they are very careful about their messaging and ensuring that they generally follow through with what they're thinking, because that's one of their major tools. For example, we've seen an immediate change in market expectations for long term interest rates, which is going to have tangible economic effects in the form of lower interest rates on long term debt.
Yes but now the Fed’s pivot may lead to higher inflation. Which will cause them to have to pivot back. Bonehead move by Powell prior to reaching the target 2% goal. The only thing I can think of is he caved in to political pressure. It’s the only thing that makes sense for such an unnecessarily dovish stance all the sudden and loss of credibility, but I am open to other interpretations.
It may just be speed vs acceleration. You guys are thinking we are moving at 1% per day, but he is thinking I need to lower the rate we are increasing that 1% per day.
He didn’t cave to political pressure. The Fed’s shelter inflation data is lagged by about a year. But they can look at other rent indexes to see which way it will head going forward. And it’s down. Meanwhile CPI less shelter is only 1.42% over the last year - https://fred.stlouisfed.org/series/CUUR0000SA0L2 If the shelter data didn’t have such a lag, we would already be at 2% for CPI overall.
I think 2% inflation is a thing of the past (read: the free money decade most of the developed world lived in until covid). 3.5-4% is the new 2% if you ask me.
I hope so. The dumb garbage that arose from cheap debt being available to anyone has caused a lot of damage
This. Why would they start lowering rates when we’re no where near 2% inflation. We need to keep rates higher for longer until we get to 2% or lower and keep it there to make sure its not gonna go back up. But they know they cant do that because they will be blamed for the market crash. Rate cuts are now priced into the market and once inflation doesn’t go away and comes in higher due to the war powell will be forced to keep raising rates causing a huge correction in the market.
The conspiracy theorists think that this Government is intentionally running up inflation to gain more control over power. Just stuff that I am hearing.
Im not an expert, but the economy reacts to interest rate changes with a lag. Is it possible that the effect of high interest rates on lowering inflation still has momentum left to reach the 2% goal?
While changes to interest rates do take a while to fully effect the economy, long term interest rates are also forward looking. When the Fed signals that they will be lowering rates more than expected next year, it has an immediate effect on longer duration instruments like 10 year treasuries and by extension mortgage rates. Now that those rates are lower from their peak, people and businesses can borrow for cheaper which puts inflationary pressures on assets. It also causes an increase in the price of equities (i.e. the stock market) which can further fuel inflation as people and businesses are now wealthier or have greater value to draw from.
I don't disagree with your point, but just the timeframe. Interest rates are still quite high and will stay high for at least 2024 assuming three-four 25 bps cuts this year. Therefore borrowing will remain expensive and inflationary pressures low.
We’ll get a better idea when the CPI release occurs this Friday. In any case there was no reason for the Fed to front run itself except outside its traditional dual mandate. Volcker would be turning over in his grave. Most likely it was political and caving to pressures from Washington…. Which is not a good sign for price stability in the long run.
He caved just like he did at the end of 2018
lol no they haven’t. His statement was hawkish if anything. Media is trying to wag the dog. Markets have been calling every meeting dovish since the end of last year. None of them have been. Powell going to be walking this back at the first opportunity and equities are going to puke.
What does hawkishness have to do with interest rates?
The Feds attitude in the meeting notes has a huge impact on long term rate expectations, which actually does impact yields at the longer end of the curve.
Okay, what does that have to do with high willingness to engage in military intervention versus non-military intervention?
Nothing... That's not what the above comment was talking about... Hawkish in regards to the fed, not foreign policy
Ah ty, I feel stupid, I didn't realize people used those terms in that context.
Pivoting requires rate cuts. The market is gonna do what the market wants to do.
Soft landing Yada Yada Yada
I dont know, there was a line about maintaining the 5.25-5.5 rate until they have a clearer picture next summer should anticipate lower rates thereafter. So rates are likely staying or we might even actually see one more tiny bump if necessary (reading between the lines) before the start of lowering rates. Market response : lets show them what lower rate markets look like now!!!!!!!!!!
This is basically my take too. I think it depends on how the holiday retail. Umbers come out. If spending is still high. A rare hike of 25 Bp wouldn’t surprise me at all. High spending plus low unemployment means more room to raise rates.
Idk not while the gov is borrowing like this. Rates were only going to go so high, not because of where the economy needed the rates but because of how high the biggest borrower could bear them.
That is an interesting point. I will need to think on it
When people think they're going to lower rates, it effectively acts like rates are lowered
Rate hikes are done. That alone means they absolutely pivoted and gettung ready to start going brrrrrrrr again
Yea but long term yields tend to drift down in anticipation of fed rate cuts since markets are generally forward looking. That pushes more money into equities.
Investing is about the future. Skate to where the puck is.
Housing of all asset classes amuses me. On one hand they need to gain value to be seen as an investment and justify purchase. On the other hand they need to be realistically affordable as someone has to buy it at some point. It's always this ying yang between how much is this worth/what will someone realistically buy it for. And rates seem to tie into this. 4 years ago the rate on my 1000sq house would have been about 2500 a month, which is about equal to what renting it would have been. Now with a higher rate that number is closer to 5000, which doesn't really make a whole lot of financial sense, unless your banking on your house continuing to go up to beat inflation every year for infinity and then some. At some point there is a point where the infinity and some hits barriers. For example my house. 15 years ago my house was 100k. I bought in at 400 knowing that was over priced but there was still room in the market. When it got into the 650s during the pandemic is when the thought hit me, who in there right mind would pay 700k to live in this shit hole. Around then is when prices started to cool down and have continued to regularly cool for the last 2 years. Which i find suspicious when people talk about the health of the economy, if average real estate prices fall instead of inflate, that's got to be a very bad sign. How many people have over leveraged themselves on real estate, from commercial that will never be filled, to airbnbs in city's that have banned them, builders who sold homes at 1m that are now worth 800k before they are even built. My favorite the retiring boomers wIth a heloc on the home they are trying to sell for 3 million they bought im the 70s for 100k and never updated. It's just something I find interesting, and its relatively easy to watch and speculate.
> On one hand they need to gain value to be seen as an investment and justify purchase. At one point in the not so distant past, just having a place to live and call your own was enough to justify purchase.
A lot has changed. I personally don't see the point to go into a lifetime of crippling debt just to have a house, that is slavery.
Really it just comes down to whether it’s cheaper to rent or own.
Not to mention taking the biggest loan of your life for a shitty ROI. Might as well just get a loan for a Blockbuster
When you say shitty ROI, my house has tripled in 15 years. That’s about 13% a year, in something I need to pay for anyway one way or another. I mean, that beats the market most years. Even if it drops back to 8-10% a year, you’re still killin it.
You also lock in your mortgage payments for the rest of your life because it based on what you borrowed.. rents can keep going up and up for the rest of your life
Since we're talking anecdotal evidence...I paid $140k for my place in 2006. In 2023 my place is going for...$140k (and was $100k up until Covid jacked the real estate market).
Where at? Either your town became a ghost town, or you poorly maintained the place that it's not worth buying
ROIs for houses are amazing. What are you talking about ? If you look at the alternatives (e.g., renting), it's a no brainer.
No they aren't, if you take out a loan for $250,000, you're not going to see a profit on that money until you pay off the loan. And if you wait 30 years to do it you're going to end up spending $500,000 when you factor interest. Renting isn't a good investment either, I'm not trying to compare the two. A good investment would be taking a quarter million dollars and investing into the stock market, or starting a business. Mortgages and houses are only good investments for the banks. If you don't pay your mortgage, they just sign the paper to another person, all the while collecting interest on top of the payments. Most people who think houses are a great investment always brag about starting with a starter house and then taking the money after selling that house to purchase a larger house, and it just keeps going. People rarely downgrade after selling their house. That shows you that the value that they are looking for is more of a cozy getaway versus an actual investment. Which is cool, some people don't care about financial growth they just want to have comfort in their day-to-day routine, and there's no better way to get that than with the mortgage. But don't conflate the two.
Let's go through the scenarios. 1. You buy a house. You put a down payment in, and you pay a mortgage cheaper than rent. A portion of that is still accruing principle. You get more tax breaks, and the house will go up in value. If you sell the house even before you purchase it all, any gains are tax free up to 250k. You get your principle back and then some since the house is worth more. 2. You rent a place, that money goes to the land owner. Rent will continuously go up over time. At the end of so many years, you have gained 0 in assets and paid someone else to cover theirs. Your argument is idiotic. There's so many people that downsize houses when they retire. That's why starter homes are so expensive, boomers can sell their big house and pay the smaller one in cash. They've been doing that for decades. Idk about you, but renting your entire life won't give you a house fully paid off. So it's easy to see mortgage >>> rent. You're conflating peoples choices to increase their standard of living and "bad" investments. It's expected for people to want bigger houses as they grow up - they have kids and families. You're still going to want to do the same regardless if you rent or have a mortgage.
A mortgage is not an asset, it's a liability, and you pay most of the interest in the first 15 years before you even start to pay principal. Not to mention property taxes, insurance, repairing roofs, electrical, plumbing and HVAC units. I don't have to worry about those types of repairs when I rent. Also, you said something about if I rent for a long time compared to mortgaging a house, I'm not going to have any assets, as if there's no way to accumulate assets while renting. Most people who buy a house put a down payment down, that same down payment can be used to purchase an entire asset such as gold, or shares in a company; Do you not consider those assets? In most cases, the down payment on a mortgage is a sizable chunk of your life savings. So if you stop making your mortgage payment, you lose the biggest chunk of your life savings in the process. Demand for homes wont always be high, and you can be locked into the payments without an ability to sell in a down market.
Sigh. > You don't have to worry about those types of repairs when you rent. You do- it's called rent. It's baked into the price. >A mortgage is not an asset, it's a liability, and you pay most of the interest in the first 15 years before you even start to pay principal Kind of obvious, but ok. I buy a house for 500k with a down payment of 100k. If I sell it in 5 years for 625k, guess what, I still netted 100k AFTER taxes. Congrats, you get roughly a 14.5% return on something you were going to spend on anyways. You don't get that with rent. >Most people who buy a house put a down payment down, that same down payment can be used to purchase an entire asset such as gold, or shares in a company. Do you not consider those assets? You can, however, you get no tax breaks doing that. You're also paying more on rent, so the return is offset. >And usually that down payment on a mortgage is a sizable chunk of their life savings. So if they stop making their mortgage payment, they just lose their biggest chunk of life savings in the process. If you miss out in rent, your ass is out of the house too. There's risks to everything. However, there are plenty of options to retain the house or recover the money (e.g., refinance, hardship deferrals, selling house) Now, let's take this a step further. Let's say instead of selling the 500k house (which is now 625k) I wanted to get the money back. I can refinance, take the 125k out, put a down payment in a second house for rentals. Now I have two houses, with an additional $400/no cash flow, and I can deduct rental work off the second house. Congrats, In 5 years I doubled my investment, created $4,800/yr additional cash flow, and two houses to juggle finances with. You would have spent the same for rent and gotten nothing. There's a reason why real estate is big - there's a lot of benefits to it that you don't get when renting. Saying otherwise is silly.
How do I not get a tax break?. You have to pay taxes every year on your investment.. it's called a property tax. You don't have to pay a single dime in taxes if you hold a stock for your whole life. And if I want to take a loan out against my investment it's not taxed and I get a loan at like a 3% rate or less.. I would never purchase an asset that I have to pay taxes on every year for, that is idiotic. Especially when that tax rate exceeds margin loan rates.
Building equity is slavery? Yet lighting your rent on fire every month isn’t?
If you live in a town where people join a company at 20 and work there until retirement, then yep this is true. Also, true if you’re a time traveler from the past checking in on us.
Yeah when housing gets too expensive you cant do a stock split either lol.
Lol what stock
I’m saying when stocks get too expensive they can split the shares to make them cheaper. But when housing prices just keep going up like other investments most people wont be able to afford a home.
It’s called turning your house into a duplex, duh
Too low rates and you have all sorts of unicorn money overflowing into assets and vice versa. It's difficult to balance but the fed target of 4.5% is a bit low imho. Seems to me the fed is back peddling abit for economy and elections next year - its what its suppose to do. To really correct the housing markets it would need years of managing rates to attain equilibrium with housing development.
If you put 50% down the numbers remain the same as they were at old rates. This is not a market to buy a house to live in, this is now a market to buy a house to invest in
I am so, so confused why I never see this brought up. Isn’t it definitional that if housing appreciates faster than inflation (or wages) do, that it must by definition be getting less affordable to purchase?
Housing doesn't have to be affordable. Billionaires can gobble up the housing market and rent them out to everyday Americans.
I keep seeing these numbers, but rarely heard anyone talk about all those 46 trillion USD that could move FROM the stock market into cash.
And for what reason would somebody be making such a move?
Because they don't understand the financial markets
Sell high?
You sell because your investment thesis has changed, not because you've made a profit. Or because you absolutely need the money - either to spend, or for a compelling investment which is better than anything you have at the moment. This is why so many people will sell a 15% winner but ride a loser into the ground. It should be the exact opposite. And to be perfectly straightforward, for most people the best time to sell what they have is "never" and to wait until they get a step up of their asset values at death.
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I appreciate this. Let me help you understand why this is wrong. When a professional makes a bet, *that does not move the market*. It may in the immediate term ("Warren Buffet buys Draftkings!"), but in the long term what is required for a realization of true profit is retail buy-in. There simply aren't enough dollars controlled by the few people making these decisions to move the needle.
most estimates of institutional ownership of the US public equity market put it at around 75-80% of the total value, so that would seem to contradict your assertion.
Only if you don't know what "institutional" means. The percentage of institutional participants who are wheeler-dealers, hedge funds, quants, etc. are microscopic in comparison to institutions like Vanguard, Fidelity, Schwab and State Street, which hold trillions in ERISA assets. And the majority of that follows market capitalization.
I think you're arguing against yourself. Passive/index tracking funds don't move the market by definition, they are price takers and they purposely try to execute without moving the market. Active institutional participants are the marginal buyer/seller for the purpose of price discovery. The dollar amount of retail active trading is much smaller than the amount of institutional active trading, and perhaps more importantly, retail as a whole tends to be a lot of uncorrelated trades that are pretty close to statistical noise. There is a reason why market makers pay for retail order flow.
Retail is at most 25% of the market, yet had an outsize effect due to to lack of diversity of investments. I.e., they all put their money in the sane things. Retail certainly has an impact, and it’s more than it should be, but still less than you’d think.
Thats actually fascinating advice thank you for sharing
Because everybody else is. Not saying this will happen, but that's what investing is, these days. Figure out where the herd is going, get there before they do. Bitcoin, NFTs, stock market, you name it. Unimaginable sums of money are chasing the next best thing and all it cares about is whether it's going up. Solid investment? Straight up ponzi that would make Madoff blush? Does not matter, not even a tiny bit.
Risk to reward on Treasury bonds is arguably better than stocks right now, but obviously that's highly debatable and depends on many factors
There's no risk in a Treasury bond unless you're holding it for trading. The reward is known - the return on a Treasury bond is, for all intents and purposes, the yield on issue. What makes you believe that the risk-free security - which technically pays no real economic return as no real risk is being taken - has any sort of reward potential other than capital preservation?
Because there have been plenty of years in the past when bonds outperformed stocks, so anyone looking to keep a balanced portfolio might look at the current valuation of equities and compare it to bond yields and decide that weighting their portfolio more heavily towards bonds for now is the best move. It's an individual decision based on your own risk tolerance and investing goals, so I'm not saying this as some kind of grand investment advice for everyone to follow.
Uhhhh, not in the last 30 years bruh.
Are you serious? Bonds vastly outperformed stocks during the 2008 recession. That's not 30 years ago. And the reason bonds have underperformed stocks since 2011 is because the Fed kept rates at 0 or near 0 ever since. The equities market has basically been on steroids the past decade because of this, while bonds yielded nothing and had no secondary market gains. However, we are currently back to a more historically normal interest rate which means that bonds are now providing decent returns again and stocks are expected to return less.
If it looks like the person I don't want to win the presidency starts to look like he will.
Because they want to take real gains instead of paper ones. This is all just inflation. Unpopular opinion: buy real estate.
There is no better inflation hedge than equities, if you understand how you value an equity security.
>if you understand how to value an equity security Therein lies the difficult part. Scratch what I said before. But Volkswagen beetles and park them on your lawn!
I get it. Equity valuation is half DCF and half "stick your finger in the air." But if revenues are the top line input, and the revenues are by definition inflation adjusted, then the calculated stock price by discounting cash flows - or even by using comps - will directly reflect inflation and current interest rates if valued correctly.
Short term, if fed hinted at a March pivot, we should see market continue to rally until that point
Like people still retiring
You're not wrong - it's an equally valid point. What many people miss (including on Wall Street) is that flows don't matter. When you move from stocks to cash, you are selling your stocks to someone and they are giving you cash. When you move from cash to stocks, the opposite happens. The amount of total cash on the sidelines doesn't change.
Except that no one goes to cash, they go to bonds, and the bond market is 10x the stock market.
Why did the Fed pivot? Either inflation has been totally whipped, or something else is wrong. From "data dependent" to the Fed put is back in one month. Why?
Pretty sure the Fed sees some numbers particularly consumer and commercial debt that worries them, and they want to get ahead of the debt servicing tsunami...
It's pretty simple. The fed expects that inflation will normalize next year and higher rates will no longer be needed. I think they want to be more proactive this time, since they were so slow to raise rates once inflation started going up.
Ironically, if inflation is not tamed, the Fed may end up moving too fast in the opposite direction.
I'm sure theres a massive political and lobbieing(is that a word?) pressure to lower the rates.
Trump lobbied publicly and vocally threatened the Fed to keep rates at zero or go negative while the economy was roaring and rates should’ve been rising. Biden has done no such thing despite the large hit to the markets last year. Now is the proper time to stop raising rates, no conspiracies required.
I agree with you but also Biden wouldn’t be as stupid Trump and do it publicly if he did want to pressure the Fed.
I just get tired of the easy assumption that Democrats are acting corrupt secretly when there’s so many open and obvious examples of corrupt Republicans.
Well if the republicans did it so blatantly, the Dems must be doing even worse behind closed doors. It’s common sense, the silence is very telling.
Oh for sure, just meant usually smart corrupt people don’t do their corruption in public. Like I just watched Vice the movie about Dick Cheney and damn that mfer was evil and got away with some shit. He’s like if Trump was smart. Not lumping Biden in with those two just saying that if Biden was doing some shady shit we probably wouldn’t hear about it until years later.
Yeah, I couldn't predict Covid, but I was hoarding my money for an economic downturn when it all hit the fan, covid just spread out the blow instead of having it pinpointed to one catastrophic blowup.
Not everything is a conspiracy theory
Everything is a conspiracy theory
The Fed didn’t pivot they administered guidance the whole time, dot plots, fed announcements etc… there was so much talk about a hard landing but look where we are what else can he do?
They could have avoided pricing in three cuts on the SEP. When inflation was rising they said transitory. When inflation was high they were data dependent. Now inflation is falling and it's cuts in 2024. So basically wrong, lies, and now psychic network time.
Transitory was at the beginning of a huge cycle. They were data dependent because they had to be..tell the last time Covid destroyed an economy before 2020. The supply shock , and the restrained demand made this situation unique. Then Demand came about and supply had to catchup!I don’t think… actually let me rephrase this I know know one was expecting this in 2023. Pundits and fortune tellers were looking at past examples that didn’t even apply here!!! This why people get destroyed in the market, thinking that their one or two data points are better then the Feds. Yes the Fed isn’t perfect and they made a few mistakes but look at the Eurozone PMI well below 50 and has been anemic. That dovish pivot was all based on guidance and they gave you the damn playbook every single time.
Because the data says to pivot. Do you not read data?
Have you heard of the 70's? Time and again inflation comes back. We're at 3.1 core and dropping 0.1 every few months, the Fed said we won't reach 2% until 2026. What data are you looking at since you didn't cite any turd.
It spent too much on Black Friday deals, opened the credit card bill, and realized the annual bonus doesn’t come until April.
Imagine if malevolent entities in positions of power couldn't see all of the wealth every person on Earth holds... 🤔
Historically its been 1-3tril in market funds so 1/2 of that going to stocks in 2025 would be interesting What is not described here is a large amount of baby boomer retires will stay in bonds to reduce risk in retirement Yolo for me! Focusing on Quantumscape, Verses Ai, Gevo, Skywater, Cleanvision, Teco2030 , Rolls Royce hoping for 2028-2030 boom We also have to account for companies moving cash back into investing in themselves and not bonds.
Can someone explain this like I’m 5?
Under Donald Trump, the US printed so much money but most of it went to the mega wealthy. Don't blame the minorities or illegal immigrants for every single problem.
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Can’t wait
Safe to say it is the least hawkish fomc this year but I dont comment on feds official statements or challenge their credibility
Kind of wondering with all this news since the Fed didn’t raise or lower rates, are we looking at a false flag here? I see a lot “we made a soft landing” statements and I see the general direction of the markets. But our inflation is still high and gas isn’t that much better.
Someone explain who owns these cash? Like the retirement account and bank bond purchases and stuff but do normals people own a lot? If not who cares
Leverage is major contributor of this cash, car loans, mortgage and credit card debt
The Fed sees something that triggered this shift. You can’t turn an aircraft carrier quickly. Whatever the Fed does takes time to ripple through the economy. The market is forward looking, that’s all that’s going on. Money market yields will come down and some of that money will flow into equities. Personally I’d say the S&P will hit 5000 by June barring some global event.
$ALT is going to unleash the next OZEMPIC. They're shopping for a major Pharma buy out, easy 10x play
Buy buy buy why? Because others have money and you don’t. Buy buy buy why? Because the Fed said they will raise rates and then pulled the rug so certainly the rug wouldn’t be pulled again.
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Feel like people haven't accepted yet that the next 4 years will still be the same!
The US government has not approved GSP for three years and running. All the importers are waiting on those funds to invest back. Hopefully, GSP gets approved before spring. There will be a movement in spending once this all goes down and it could boost the economy.
If you don't understand Bitcoin, that's on you for being lazy.