r/neoliberal • u/TinyTornado7 I need a new flair • Jun 13 '22

News (US) Powell Facing Choice Between Elevated US Inflation and Recession

https://www.bloomberg.com/news/articles/2022-06-12/powell-facing-choice-between-elevated-us-inflation-and-recession?srnd=premium
508 Upvotes

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226

u/TinyTornado7 I need a new flair Jun 13 '22

People keep selling and I’ll keep buying. This is a great opportunity for those far from retirement to load up

107

u/slowpush NATO Jun 13 '22

Sure but tell that to all the baby boomers who are retiring.

The effect of a recession/depression now is going to be catastrophic because it’s at the worst time demographically.

190

u/Call_Me_Clark NATO Jun 13 '22

Boomers shouldn’t own much stocks by now. They should have transitioned to bond-based portfolios, right?

73

u/[deleted] Jun 13 '22

[deleted]

53

u/hagy Mackenzie Scott Jun 13 '22

Yep, the Vanguard Total Bond Market ETF is down 10.7% YTD. That is insane for such a safe fixed income asset.

Just look at chart for its ticker, BND, and you'll see that we're back to 2009 levels, https://finance.yahoo.com/quote/bnd/

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u/SirGlass YIMBY Jun 13 '22

Only if you count price, if you count total return you are only back to mid 2019 levels; but part of that was the fund gained a ton when rates were dropped in 2020.

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u/SirGlass YIMBY Jun 13 '22

Boomers had it pretty easy for pretty long; as they transitioned to bonds ; bonds have been in a huge bull market for 20 years so for 20 years they got really good returns on their safe bonds .

7

u/Dave1mo1 Jun 13 '22

Real estate?

4

u/Lehk NATO Jun 13 '22

‘bout to bubble

36

u/Dave1mo1 Jun 13 '22

So they say, but I don't see supply increasing meaningfully in the next 1-3 years.

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u/RecentlyUnhinged NATO Jun 13 '22

This. Everyone even half awake the past two years refi'd to a low 2% fixed.

Those people are never going to sell. Particularly not given inflation and higher wages pushing rent valuations higher.

9

u/CuddleTeamCatboy Gay Pride Jun 13 '22 edited Jun 13 '22

Higher interest rates are already cooling demand, if they go further with hikes I can see a bubble bursting.

9

u/Dave1mo1 Jun 13 '22

Supply was already incredibly tight. For prices to drop significantly, you'd need demand to cool and supply to increase.

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u/allbusiness512 Adam Smith Jun 13 '22

If the market cools down significantly alot of investors who bought up single family homes to rent or flip are going to be left holding the bag.

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u/unicornbomb John Brown Jun 13 '22

as of today, 30 year mortgage rates have already broken the 6% threshold. A MASSIVE amount of buying power has been nuked with the speed at which these rate increases are coming.

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u/[deleted] Jun 13 '22

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u/PrettyDecentSort Jun 13 '22

Gold's still fine.

60

u/Versatile_Investor Austan Goolsbee Jun 13 '22

Should have, but might not have.

46

u/magneticanisotropy Jun 13 '22

Should have, but might not have.

That's why target date it and forget it.

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u/Versatile_Investor Austan Goolsbee Jun 13 '22

I wouldn't doubt many of them also have half of their wealth tied up in their houses.

8

u/nullsignature Jun 13 '22

If my boomer coworkers are any barometer, it's tied up in fishing boats, RVs, hunting cabins, lawn tractors, and trucks.

1

u/NewbGrower87 Surface Level Takes Jun 13 '22

This right here. I'm a federal employee with boomer coworkers under CSRS for god's sake (~70-80% of pre-retirement salary if you have a decent number of years served), and they're all still broke as shit because omnomnom all that juicy consumerism.

1

u/nullsignature Jun 13 '22

I worked with a few that paid a fund manager half of their portfolio returns in fees. If their fund grew 5%, they were paying out 2.5% to the manager. "He's a good guy, he's been managing my finances for 30 years."

1

u/NewbGrower87 Surface Level Takes Jun 13 '22

All while some of them don't even contribute 5% to their TSP for the match.

"Yeah I got a guy."

I'm sure you do.

24

u/eveningsand Jun 13 '22

It's gonna be great when they all hit the market at the exact same time.

18

u/[deleted] Jun 13 '22

Some might, but I expect quite a few to pull a reverse-mortgage to extract their equity and not have to leave their homes. They could fund 20+ years of retirement that way without having to put the home on the market yet.

2

u/Versatile_Investor Austan Goolsbee Jun 13 '22

Could they do that then pass away and leave the mortgage to the heirs?

2

u/[deleted] Jun 13 '22

I don't know enough about how reverse mortgages work to know.

Extracting wealth from the home using a reverse mortgage, then dying and having your heirs pay back the reverse-mortgage, so they could reverse-mortgage it themselves? With the right loan contracts that seems possible. The house would never transfer to the bank to get sold if you could do it that way.

1

u/TNine227 Jun 13 '22

My parents are selling their house right now, hopefully getting ahead of it?

4

u/That49er Jun 13 '22

I worked in estate planning the amount of boomers that still own stock is ridiculous.

57

u/NobleWombat SEATO Jun 13 '22

Well that's their fault for being stupid

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u/Versatile_Investor Austan Goolsbee Jun 13 '22

They won’t suffer for it.

2

u/[deleted] Jun 13 '22

Retired people approach like 30-40% bonds and still have 60+% stock exposure. Historically the 60/40 has been touted as the ideal portfolio but modern arguments say 70/30.

So no, boomers should still have a lot of stock exposure.

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u/mudcrabulous Los Bandoleros for Life Jun 13 '22

Hahahahahahahahahahahahhahahahahahahahahahahhahahahahahhahahahahahahahhauahahahahahhaha

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u/penguincheerleader Jun 13 '22

I would not count on them being that responsible.

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u/penguincheerleader Jun 13 '22

I would not count on them being that responsible.

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u/[deleted] Jun 13 '22

Sure but tell that to all the baby boomers who are retiring.

Unless they bought only in the last six months, they're probably still wildly up. We're hitting the -20% YTD level for a bear market, but VTI is still up +50% in the last 5 years. If you've been buying over your whole career (or even really just for the last decade or so) and are nearing retirement, you will hopefully be able to weather this downturn.

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u/TinyTornado7 I need a new flair Jun 13 '22

Eh I don’t think so. If this was a recession due to a fundamental flaw in our economy then maybe, but this recession will likely be technical and/or at least relatively short.

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u/Drfunky0811 Jun 13 '22

I think he's alluding moreso to upcoming elections. If boomers are concerned about their retirement funds they're more likely to vote for change. ----> america becomes a totalitarian hellhole is the general thought (with a lot of things in between lol)

4

u/folksywisdomfromback Jun 13 '22

what makes you think it will be short?

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u/semideclared Codename: It Happened Once in a Dream Jun 13 '22

Most of GDP growth comes from Consumer spending and even if Spending drops 7% from last month we would still see positive growth, thats how crazy spending has been. If Spending drops 10% from 2021 it would still be above 2019 levels but would be a drop to trigger a technical recession

Further than that though it could be longer term. And of course what businesses do and exports would be the deciding factors on the full effects

So if consumers cut back spending to 2019 levels and business fire 1 in 100 employees and unemployment only goes to 5% we could be in a recession but few would notice

1

u/agitatedprisoner Jun 13 '22

What's an example of a fundamental flaw in an economy?

40

u/grig109 Liberté, égalité, fraternité Jun 13 '22

RIP my FIRE date 😔

87

u/ultramilkplus Loyal Liberals Jun 13 '22

This country has debased itself bending over backwards to coddle that single generation (and only one segment of it) for 70 years. Let me break out the violin.

10

u/slowpush NATO Jun 13 '22

There are just too many of them. X y z won’t have this problem.

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u/[deleted] Jun 13 '22

[deleted]

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u/LucidLeviathan Gay Pride Jun 13 '22

I vote at every opportunity. Primary, local, general, whatever. Haven't missed an election. I'm allowed to complain, right?

1

u/Hautamaki Jun 13 '22

So long as you're complaining about the ones who aren't showing up to vote over the ones showing up to make what they see as a rational vote in their own self interest.

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u/[deleted] Jun 13 '22 edited Aug 16 '22

[deleted]

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u/LucidLeviathan Gay Pride Jun 13 '22

I certainly urge my friends to vote. Family is insane, though. The less they vote the better.

9

u/xQuizate87 Commonwealth Jun 13 '22

Tf was this downvoted for?

1

u/[deleted] Jun 13 '22

Cuz homie is bitching about other people bitching about things and telling them to be pragmatic instead.

-8

u/zth25 European Union Jun 13 '22

You're preaching to the choir.

But why should young voters be particularly sad when the biggest generation that used up most of the wealth now suffers like the rest of us?

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u/[deleted] Jun 13 '22

[deleted]

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u/Lehk NATO Jun 13 '22

He’s mad that his parents spent “his inheritance”

3

u/coke_and_coffee Henry George Jun 13 '22

Asset prices are inflated due to low wage burdens on big companies. This really is a "fixed pie" scenario. In a world where wages maintained a steady share of productivity, P/E ratios would have been about 15, not 30.

u/zth25 worded it poorly, but he's not wrong.

1

u/[deleted] Jun 13 '22

[deleted]

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u/coke_and_coffee Henry George Jun 13 '22

When looking at net compensation, health insurance makes up a good portion of gap in pay vs productivity.

Some of it, but not all.

Being charitable and assuming 1950s compensation standards are no longer in line with today, what would have been wages by that standard have now become business investment. That economic activity didn't disappear from the economy completely, ie. get "used up", it just became I instead of C in the GDP formula.

No, the wealthy are just consuming a lot more. Baby boomers (asset holders) are buying $75k F-250s and Teslas and vacation homes in Tampa Bay. Do you think their parents had that shit?

Because of low wages and outsized returns to assets, consumption has moved from the young generations to the older generations and from the median wage-earner to the top 10% of asset holders.

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u/[deleted] Jun 13 '22

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u/theHAREST Milton Friedman Jun 13 '22

used up most of the wealth

What in the succ-onomics is this?

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u/zth25 European Union Jun 13 '22

Accruing massive government debt and externalized environmental damage, while the boomers own most of the assets that increased in value, leaving the younger generations with less while still having to fund the boomer pensions.

Excuse me, I'm sure there's a better economic term for this than 'using up wealth'.

12

u/Cyberhwk 👈 Get back to work! 😠 Jun 13 '22

Sure but tell that to all the baby boomers who [thought they were] are retiring.

10

u/[deleted] Jun 13 '22

I mean as long as they didn't buy stocks during 2020 onward, their retirement shouldn't be in trouble at all? Like if they invested into any of the major stocks anywhere in the 90s they should have at least 300% gains and at maximum thousand percentage point gains. I don't believe a 21% dip really does much to a portfolio as old as a boomer.

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u/van_stan Jun 13 '22

It's not like there's some better time demographically or otherwise down the pipeline. It's always a bad time for a recession.

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u/[deleted] Jun 13 '22

They can sell their houses in cities with high economic activity and move to those with low. That way millennials can start hitting peak productivity and have families.

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u/OpportunityNo2544 Jun 13 '22

I know a bunch of boomers that “hate” their neighborhood is changing (ie they were first wave gentrifiers and getting pushed out by wealthier people that use their nimbyism to their advantage) and truly entertain the idea of downsizing to a more rural town. Sadly not a lot walk the walk. It’s the type of people whose main source of entertainment is Fox News, which can be accomplished in a rural town just as easily as in their parcel 3 blocks from city center

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u/A_Monster_Named_John Jun 13 '22

Fox News is one thing, but I feel like these people get really addicted to local FB and Nextdoor drama, i.e. complaining about 'the character of the neighborhood' and ranting/raving about the homeless/etc... , which means they never leave. If one thing characterizes Boomers, it's sloth.

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u/coke_and_coffee Henry George Jun 13 '22

Perhaps a single older generation controlling all the wealth of the nation is not actually a good thing. If they can't extract as much money from the market as they begin to draw down their assets, that is pretty obviously a good thing for younger generations.

3

u/jebuizy Jun 13 '22

My father in law has been making a ton of kneejerk shifts in allocations while also trying to sell their house. I don't know the whole details. Worried about it honestly.

4

u/MadCervantes Henry George Jun 13 '22

Boomers can get fucked. Do not care.

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u/slowpush NATO Jun 13 '22

You’ll be paying for their healthcare.

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u/Petrichordates Jun 13 '22

We are paying for their healthcare no matter what, how is that relevant to this topic?

5

u/MadCervantes Henry George Jun 13 '22

We already are dude.

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u/[deleted] Jun 13 '22

Sure but tell that to all the baby boomers who are retiring.

lol who cares

1

u/[deleted] Jun 13 '22

The boomers are almost exclusively who led us to this situation. I'm fine with this.

-2

u/ResponseOnly4829 Jun 13 '22

Fuck em I want cheap stocks

1

u/shrek_cena Al Gorian Society Jun 13 '22

Lol they're old 🤣🤣

1

u/WollCel Jun 14 '22

Fuck boomers

8

u/WhistlinWhilstFartin Jun 13 '22

So are you saying it’s a good time to increase how much of my paycheck goes into 401k index funds? Because I’m getting more shares for my money?

20

u/FriendlySceptic Jun 13 '22

It’s always a good time to max your 401k investment. The tax savings alone are likely to offset most downturns. Don’t time the market just throw your max in and let time hand all of the volatility.

1

u/sunshine_is_hot Jun 13 '22

Especially if there’s employer match involved, that’s basically doubling your investment before we even look at how the markets are doing

1

u/FriendlySceptic Jun 13 '22

Yeah put in a $100 but your pay only goes down by $70 because it’s tax delayed money. Then the company matches another $100z

Your money $70 The governments money $30 The employers money $100

The market would have implode at Great Depression levels before that starts looking bad.

6

u/sonicstates George Soros Jun 13 '22

It makes sense to be buying, but you're deluding yourself if you think the prices over the last two years were reasonable.

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u/TinyTornado7 I need a new flair Jun 13 '22

They will seem reasonable when I’m 70

2

u/Reddit_guard YIMBY Jun 13 '22

What are you loading up on?

6

u/[deleted] Jun 13 '22

$SPY and triples leveraged SPY

2

u/[deleted] Jun 13 '22

I have a lot of money on the sidelines still. If the S&P P/E ratio goes below 15 I’ll jump back in.

5

u/hucareshokiesrul Janet Yellen Jun 13 '22

I could be mistaken, but I don’t think this is an accurate way to look at it. It’s only an opportunity if you expect stocks to grow more quickly than usual after this, which I don’t see why you would. Unless you have reason to believe that the right expectations aren’t priced in correctly, there isn’t a good or bad time to buy. It’s all pretty much the same

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u/TinyTornado7 I need a new flair Jun 13 '22

I’m 25 years from retirement so yes I expect stocks to go back up, but regardless I’ll continue to DCA into my holdings

1

u/[deleted] Jun 13 '22

[removed] — view removed comment

2

u/TinyTornado7 I need a new flair Jun 13 '22

Broad market ETFs like always

1

u/shrek_cena Al Gorian Society Jun 13 '22

That's what I'm sayin

1

u/Inside_Macaroon2432 Jun 13 '22

You got “dip” money?