Investing in the stock market - Discussion

[Warhippy]

41 minutes ago, Boudrias said:

Fear of Covid in Shanghai and fear of much higher interest rates. SPACs anyone? 

Ya, evidently China is shutting down more than they are saying again.  Rumours that the US fed is mulling a 75 point hike, Canada mulling the same.  Talk about a need for a hike every other week to combat rising inflation.  It's gonna get uglier before it gets better.

 

Shockingly, crypto is leading the charge to the gallows again.  SO much for that "safe haven" from criminal monetary policy.

[Warhippy]

Speaking of Crypto.  the slaughter continues.

 

https://www.cbc.ca/news/business/markets-crypto-monday-1.6486635

 

Bitcoin and other cryptocurrencies plunged through the weekend and into Monday as high inflation sent investors running for the exits and caused major trading platforms to seize up.

Bitcoin was changing hands below $23,000 US at one point on Monday morning, down 20 per cent since Friday and enough to push the value of the world's dominant cryptocurrency down to its lowest point since December 2020.

The sell-off prompted a major crypto exchange, called Celsius, to halt withdrawals on Sunday evening, meaning investors can't take what's left of their money out. "We are taking this action today to put Celsius in a better position to honour, over time, its withdrawal obligations," said the exchange, which had roughly $11 billion in customer deposits on its books.

Celsius was offering depositors returns of more than 18 per cent in exchange for keeping their cryptocurrencies on the company's platform. Another crypto platform Terra offered similar yields on customer deposits. But that was before a surge in customer withdrawals prompted the company's so-called "stablecoin" Luna to collapse, losing 99 per cent of its value in May.

Quebec's pension plan, the Caisse de dépôt et placement du Québec, is one of the financial backers of Celsius, having participated in a $400 million investment into the platform last November.

[Boudrias]

55 minutes ago, Warhippy said:

Ya, evidently China is shutting down more than they are saying again.  Rumours that the US fed is mulling a 75 point hike, Canada mulling the same.  Talk about a need for a hike every other week to combat rising inflation.  It's gonna get uglier before it gets better.

 

Shockingly, crypto is leading the charge to the gallows again.  SO much for that "safe haven" from criminal monetary policy.

I stayed with gold over crypto so I have fared a tad better. Central Banks are like trying to train a young puppy with a rolled up newspaper at feeding time. Poor analogy I know. Raise rates to contain inflation and in the process cause defaults on mortgages. The options are narrowing very quickly.  

[Warhippy]

9 minutes ago, Boudrias said:

I stayed with gold over crypto so I have fared a tad better. Central Banks are like trying to train a young puppy with a rolled up newspaper at feeding time. Poor analogy I know. Raise rates to contain inflation and in the process cause defaults on mortgages. The options are narrowing very quickly.  

I've been banging the "The End is Near" drum for a few years now; even prior to covid.  Just about every possible risk factor has been noted and come to fruition.  The craziest thing is how little of this is genuinely going to be the actual fault of the government vs how much of this is actually at the feet of corporations and people who were unable or unwilling to live within their means.

 

Fuel prices nearly doubling in 120 days

Rent/Housing almost tripling in a decade

Food costs and transportation costs jumping by 44% in 3 years

 

This is insanity and it only has/had one logical outcome.  The fed and BoC are up against a wall and they are out of options outside of large rate increases.  If our government is smart, they'll enact laws to curtail corporate purchases of homes and farmland as well as essential corporations and industry.  The run on will be swift and vicious because there's a lot of $$ out there still and it's owned by people who already have enough sway and hold over governments due to their extreme wealth without buying up everything essential.

[Boudrias]

6 minutes ago, Warhippy said:

Speaking of Crypto.  the slaughter continues.

 

https://www.cbc.ca/news/business/markets-crypto-monday-1.6486635

 

Bitcoin and other cryptocurrencies plunged through the weekend and into Monday as high inflation sent investors running for the exits and caused major trading platforms to seize up.

Bitcoin was changing hands below $23,000 US at one point on Monday morning, down 20 per cent since Friday and enough to push the value of the world's dominant cryptocurrency down to its lowest point since December 2020.

The sell-off prompted a major crypto exchange, called Celsius, to halt withdrawals on Sunday evening, meaning investors can't take what's left of their money out. "We are taking this action today to put Celsius in a better position to honour, over time, its withdrawal obligations," said the exchange, which had roughly $11 billion in customer deposits on its books.

Celsius was offering depositors returns of more than 18 per cent in exchange for keeping their cryptocurrencies on the company's platform. Another crypto platform Terra offered similar yields on customer deposits. But that was before a surge in customer withdrawals prompted the company's so-called "stablecoin" Luna to collapse, losing 99 per cent of its value in May.

Quebec's pension plan, the Caisse de dépôt et placement du Québec, is one of the financial backers of Celsius, having participated in a $400 million investment into the platform last November.

Yikes! I always considered crypto a hucksters dream. Almost no oversight, nothing tangible, no metrics to measure value... Bernie Madoff would have loved this. No need to keep 3 or 4 sets of books. 

 

That said I have bought MICs (Mortgage Investment Corporations) which are companies that provide mortgages for residential and commercial properties. They pay a 6-7% yield which is far better than CD's. In the 2020 crash the liquidity on these funds dried up as many people fled the market. The funds had to restrict withdrawals as their funding to customers were, of course, long term. The funds have recovered from that scare but the whole scenario might repeat. There is a metric in the mortgage industry know as L/V (loan to value). It measures how much cushion a financial institution has between money lent out versus the market value of those assets. The standard used to be 55%. At my Credit Union's AGM I asked for that ratio and it was 68%. Theoretically the Credit Union has a 32% cushion in a real estate collapse. What it does not quantify is whether there would be a market for those homes they had to repossess. I guess I am suggesting that much of the market place functions on confidence in markets and personal prospects of citizens. It would take years to recover from a real estate collapse. 

[Warhippy]

6 minutes ago, Boudrias said:

Yikes! I always considered crypto a hucksters dream. Almost no oversight, nothing tangible, no metrics to measure value... Bernie Madoff would have loved this. No need to keep 3 or 4 sets of books. 

 

That said I have bought MICs (Mortgage Investment Corporations) which are companies that provide mortgages for residential and commercial properties. They pay a 6-7% yield which is far better than CD's. In the 2020 crash the liquidity on these funds dried up as many people fled the market. The funds had to restrict withdrawals as their funding to customers were, of course, long term. The funds have recovered from that scare but the whole scenario might repeat. There is a metric in the mortgage industry know as L/V (loan to value). It measures how much cushion a financial institution has between money lent out versus the market value of those assets. The standard used to be 55%. At my Credit Union's AGM I asked for that ratio and it was 68%. Theoretically the Credit Union has a 32% cushion in a real estate collapse. What it does not quantify is whether there would be a market for those homes they had to repossess. I guess I am suggesting that much of the market place functions on confidence in markets and personal prospects of citizens. It would take years to recover from a real estate collapse. 

What happens to you if housing crashes?  Like if corporate owned places like those by the broadstreet or pacific quorum companies go teets up?

[Boudrias]

6 minutes ago, Warhippy said:

I've been banging the "The End is Near" drum for a few years now; even prior to covid.  Just about every possible risk factor has been noted and come to fruition.  The craziest thing is how little of this is genuinely going to be the actual fault of the government vs how much of this is actually at the feet of corporations and people who were unable or unwilling to live within their means.

 

Fuel prices nearly doubling in 120 days

Rent/Housing almost tripling in a decade

Food costs and transportation costs jumping by 44% in 3 years

 

This is insanity and it only has/had one logical outcome.  The fed and BoC are up against a wall and they are out of options outside of large rate increases.  If our government is smart, they'll enact laws to curtail corporate purchases of homes and farmland as well as essential corporations and industry.  The run on will be swift and vicious because there's a lot of $$ out there still and it's owned by people who already have enough sway and hold over governments due to their extreme wealth without buying up everything essential.

I think you are being too easy on government. Corporations operate according to exiting laws. If they don't then charge them if need be. People who overextend themselves are supposed to do their due diligence but many don't have the capability of doing so and become subject to vendors who really don't care about their well being. You seem convinced that businesses are ripping people off. I haven't run a business for years now but fundamentally you have to bring enough revenue in to pay for the cost of goods and operating cost. I suspect businesses are experiencing huge increases on both. If your revenue drops by 10-20% how much do your prices have to go up to cover that? Same for operating costs?  

[nuckin_futz]

I don't see a real estate crash around these parts. There's simply too much demand. That demand will buttress any serious price decline. We already saw this in 2009. Canadian real estate fell something like 10% across the board. It only fell about 1-3% around here. I am of the opinion that what would normally be a serious price correction would instead be a period of about 2-3 years where prices go flat to slightly lower.

 

The government has many things they can do to avert/lessen a real estate crash. They could extend even more credit. Or they could open the floodgates to foreign buyers. Who would trip over themselves to scoop up property in one of the most desirable real estate markets in the world. The government isn't going to sit by as their tax base is eroded. Kind of like the junkie rushing in to save the meth lab.

Edited June 13, 2022 by nuckin_futz

[Boudrias]

6 minutes ago, Warhippy said:

What happens to you if housing crashes?  Like if corporate owned places like those by the broadstreet or pacific quorum companies go teets up?

I am not familiar with the names you mentioned. Corporate ownership of housing at first blush doesn't sound good. That said who is creating more housing? In my little town some long term contractors refused to get 'bonded' so they could build new houses. This was the fall out from the leaky condos at the coast. If my little town is any example then BC lost a huge number of contractors who used to build one or two homes a year. Now you have MIC's that finance mortgages and REITs who buy apartment buildings. There is a profit motive but the buildings get repairs and upgrades to a standard that might not exist otherwise. I think the issue is lack of new construction.   

[WeneedLumme]

3 hours ago, nuckin_futz said:

I don't see a real estate crash around these parts. There's simply too much demand. That demand will buttress any serious price decline. We already saw this in 2009. Canadian real estate fell something like 10% across the board. It only fell about 1-3% around here. I am of the opinion that what would normally be a serious price correction would instead be a period of about 2-3 years where prices go flat to slightly lower.

 

The government has many things they can do to avert/lessen a real estate crash. They could extend even more credit. Or they could open the floodgates to foreign buyers. Who would trip over themselves to scoop up property in one of the most desirable real estate markets in the world. The government isn't going to sit by as their tax base is eroded. Kind of like the junkie rushing in to save the meth lab.

I remember saying similar things in 1980, and again in 1994. By the time the third crash I experienced was approaching, in 2008, I wasn't saying them any more, but other people still were. 

 

The 2008-09 correction was a LOT more than 1-3%. It was more like 10-15%, but it did not last long; by the end of 2009 the market had recovered all the lost ground. BTW, in case we are talking about different things, I am talking about the Greater Vancouver market.

 

This time, the situation is much more like the 1981 real estate crash. Extremely high inflation and a ridiculously hot/high real estate market, causing governments to raise interest rates to very high levels to choke off demand. The economy in general is interest rate sensitive, while the real estate market is probably the most sensitive sector due to the universal use of financial leverage.

 

The 1981 crash dropped real estate prices sharply, and they did not recover to pre-crash levels for almost a decade. Don't be shocked if something more like that happens again, rather than the couple of years of flat markets you are expecting.

[Warhippy]

4 hours ago, nuckin_futz said:

I don't see a real estate crash around these parts. There's simply too much demand. That demand will buttress any serious price decline. We already saw this in 2009. Canadian real estate fell something like 10% across the board. It only fell about 1-3% around here. I am of the opinion that what would normally be a serious price correction would instead be a period of about 2-3 years where prices go flat to slightly lower.

 

The government has many things they can do to avert/lessen a real estate crash. They could extend even more credit. Or they could open the floodgates to foreign buyers. Who would trip over themselves to scoop up property in one of the most desirable real estate markets in the world. The government isn't going to sit by as their tax base is eroded. Kind of like the junkie rushing in to save the meth lab.

Thing is.  Even if...IF we saw 30%, we'd still only be back to something like mid 2020 prices which is not much of a real or true correction.

[nuckin_futz]

1 hour ago, WeneedLumme said:

I remember saying similar things in 1980, and again in 1994. By the time the third crash I experienced was approaching, in 2008, I wasn't saying them any more, but other people still were. 

 

The 2008-09 correction was a LOT more than 1-3%. It was more like 10-15%, but it did not last long; by the end of 2009 the market had recovered all the lost ground. BTW, in case we are talking about different things, I am talking about the Greater Vancouver market.

 

This time, the situation is much more like the 1981 real estate crash. Extremely high inflation and a ridiculously hot/high real estate market, causing governments to raise interest rates to very high levels to choke off demand. The economy in general is interest rate sensitive, while the real estate market is probably the most sensitive sector due to the universal use of financial leverage.

 

The 1981 crash dropped real estate prices sharply, and they did not recover to pre-crash levels for almost a decade. Don't be shocked if something more like that happens again, rather than the couple of years of flat markets you are expecting.

The situation is a lot different than in 1980. You've had a ton of money made in China (and elsewhere) that is looking to park itself somewhere else and I can't say I blame them.

 

In 2008 the dip which looks to have been about 10% (from peak to trough) lasted maybe 6 months. The year over year dip certainly was not 10%. If a dip lasts only 6 months it means 2 things happened. 1) Not many were forced to liquidate. 2) Buyers stepped in quickly to stop the slide.

 

I wouldn't say inflation is extremely high. It's high for sure but 6.8% is a long way off the 13.5% reading in 1980.

 

Interest rates are projected to go to 3 maybe 3.5%. In 1981 rates topped out at over 19%. We're a long way off of repeating that.

Edited June 14, 2022 by nuckin_futz

[Warhippy]

37 minutes ago, nuckin_futz said:

The situation is a lot different than in 1980. You've had a ton of money made in China (and elsewhere) that is looking to park itself somewhere else and I can't say I blame them.

 

In 2008 the dip which looks to have been about 10% (from peak to trough) lasted maybe 6 months. The year over year dip certainly was not 10%. If a dip lasts only 6 months it means 2 things happened. 1) Not many were forced to liquidate. 2) Buyers stepped in quickly to stop the slide.

 

I wouldn't say inflation is extremely high. It's high for sure but 6.8% is a long way off the 13.5% reading in 1980.

 

Interest rates are projected to go to 3 maybe 3.5%. In 1981 rates topped out at over 19%. We're a long way off of repeating that.

So in your opinion.  it's not as bad as some are suggesting?

[nuckin_futz]

2 minutes ago, Warhippy said:

So in your opinion.  it's not as bad as some are suggesting?

Not many are versed in what happened in 1980. There's a lot of Chicken Little's out there who like to write articles for clicks.

 

I don't see this as a 'wheels off' scenario. 2008 was truly a 'wheels off' scenario and the Central Banks stepped in big time to avert another 1929. This is probably a little more than your garden variety recession.

[Elias Pettersson]

9 hours ago, WeneedLumme said:

I remember saying similar things in 1980, and again in 1994. By the time the third crash I experienced was approaching, in 2008, I wasn't saying them any more, but other people still were. 

 

The 2008-09 correction was a LOT more than 1-3%. It was more like 10-15%, but it did not last long; by the end of 2009 the market had recovered all the lost ground. BTW, in case we are talking about different things, I am talking about the Greater Vancouver market.

 

This time, the situation is much more like the 1981 real estate crash. Extremely high inflation and a ridiculously hot/high real estate market, causing governments to raise interest rates to very high levels to choke off demand. The economy in general is interest rate sensitive, while the real estate market is probably the most sensitive sector due to the universal use of financial leverage.

 

The 1981 crash dropped real estate prices sharply, and they did not recover to pre-crash levels for almost a decade. Don't be shocked if something more like that happens again, rather than the couple of years of flat markets you are expecting.

Yeah I agree pretty much with this scenario.  I can't see how real estate prices will only stay flat over an extended period of time when interest rates are headed over 5% for a 5 year fixed term.  Buyers are only buying because they can borrow what they need.  If they can't borrow the amount that is needed to buy the property they want then they won't buy it and will walk away.  Demand isn't to the point where buyers will simply pay what the market is asking.  Most people have to borrow to purchase.  Real Estate is the most interest rate sensitive investment you can buy.  Reason being is because pretty much everyone has to borrow the money to buy the home they want.  Very few people are paying cash for a property.

 

Also, there will come a point will supply will outpace demand, especially if people are forced to sell because they cannot afford to live in their home any longer.  That turning point is coming sooner than people think.

[Elias Pettersson]

8 hours ago, nuckin_futz said:

The situation is a lot different than in 1980. You've had a ton of money made in China (and elsewhere) that is looking to park itself somewhere else and I can't say I blame them.

 

In 2008 the dip which looks to have been about 10% (from peak to trough) lasted maybe 6 months. The year over year dip certainly was not 10%. If a dip lasts only 6 months it means 2 things happened. 1) Not many were forced to liquidate. 2) Buyers stepped in quickly to stop the slide.

 

I wouldn't say inflation is extremely high. It's high for sure but 6.8% is a long way off the 13.5% reading in 1980.

 

Interest rates are projected to go to 3 maybe 3.5%. In 1981 rates topped out at over 19%. We're a long way off of repeating that.

19% interest where your mortgage was $60,000 on an $80,000 property is ALOT different that 3.5% on the same property where your mortgage is $1.5 million and the value of the same property is over $2 million.

 

We don't need to get to 19% interest rates to have a full blown real estate market crash.  6-7% will probably do the trick.  We are looking at the potential of 5 year fixed rates hitting close to 6% by end of year.  So we are not as far off as you think.  A 6% fixed mortgage rate on a $1 million mortgage is around a $6000 per month mortgage payment.  Add in the property taxes and the buyers other debts and your yearly income for qualification of that $1 million comes out to over $220,000.  At 7%, the yearly income that is needed is over $240,000.

 

The average price of a home today is close to $1.3 million.  With a 20% downpayment you are looking at a $1 million mortgage.  Most couples are not making anywhere near $220,000 combined income.  The math does not support these current real estate prices based on these higher interest rates.  Also, most buyers today are local, they are not foreign buyers, so the foreigners are not coming to save the real estate market.  It's gonna get ugly...

[Boudrias]

12 hours ago, nuckin_futz said:

Not many are versed in what happened in 1980. There's a lot of Chicken Little's out there who like to write articles for clicks.

 

I don't see this as a 'wheels off' scenario. 2008 was truly a 'wheels off' scenario and the Central Banks stepped in big time to avert another 1929. This is probably a little more than your garden variety recession.

I kinda agree with you. Markets will revert to value driven pricing. That means earnings and not wishful thinking. I am not selling my GOOGL or MSFT. My biggest concern is debt, both by governments and consumers. I see that as the dif between 1980 and today. Much of the flexibility that existed then does not today. Also the role that ETF's and hedge funds play in markets didn't exist in '80. More money moving much more quickly. It does create opportunity. I have had some stink bids go thru. 

[Warhippy]

Over $2 trillion estimated to have been lost to markets this week.  Crypto keeps tanking hard.

 

Coinbase now laying off 1100 people.  Numerous wallet services frozen.

 

It's bad for the mario coin x believers.

 

https://www.cbc.ca/news/business/crypto-bitcoin-coinbase-1.6487867

[nuckin_futz]

8 hours ago, Elias Pettersson said:

19% interest where your mortgage was $60,000 on an $80,000 property is ALOT different that 3.5% on the same property where your mortgage is $1.5 million and the value of the same property is over $2 million.

 

We don't need to get to 19% interest rates to have a full blown real estate market crash.  6-7% will probably do the trick.  We are looking at the potential of 5 year fixed rates hitting close to 6% by end of year.  So we are not as far off as you think.  A 6% fixed mortgage rate on a $1 million mortgage is around a $6000 per month mortgage payment.  Add in the property taxes and the buyers other debts and your yearly income for qualification of that $1 million comes out to over $220,000.  At 7%, the yearly income that is needed is over $240,000.

 

The average price of a home today is close to $1.3 million.  With a 20% downpayment you are looking at a $1 million mortgage.  Most couples are not making anywhere near $220,000 combined income.  The math does not support these current real estate prices based on these higher interest rates.  Also, most buyers today are local, they are not foreign buyers, so the foreigners are not coming to save the real estate market.  It's gonna get ugly...

I'm pretty sure Central Banks have a pretty good idea where interest rates tip things into chaos. Current rate projections are for 3-4%. That's quite a ways off from 6-7%.

 

You're looking at things through the lens of how they are now. Government will do "whatever it takes" to avert a crisis and kick the can down the road. Look at the massive financial response to Covid. They threw that together in about a week. As for most buyers being local. That is the current landscape. If needed government would change the rules at the drop of a hat in order to keep the train on the tracks.

[nuckin_futz]

For all the market doom and gloomers. Just answer this question for me, if we're heading into a really nasty recession why is oil trading at $121/barrel? Why is Natural Gas trading at $8.5? Why is copper at $4.15? etc. That's a pretty major part of the equation. If the market truly felt something bad was coming it would be reflected in commodity prices.

 

Far too many make the mistake of telling the market what it's going to do. Rather than listening to what the market is saying. If you think something terrible is coming there's a massive hole in your thesis.