
The Market Is Poised For Catastrophic Losses (Part 1) - iooi
https://medium.com/@vikjindal/the-market-is-poised-for-catastrophic-losses-part-1-70bd90d9a1b7
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habitue
Can anyone qualified/knowledgeable offer commentary on this? It sounds
compelling, but since I don't know much about this I am suspicious of making
too much of an argument where all the relevant background was provided to me
by a person trying to make a point. (that is, the fact that it sounds
compelling to me as a layman is very weak evidence that it's true)

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nodesocket
I have been a hobbyist investor in the market since I was 20. Take my thoughts
with a grain of sand as I by no-means am a professional. Full disclosure; I am
also bullish.

While I will agree the market has been on an absolute rip roaring tear the
last 1 1/2 years, YTD the S&P is only up 5.75%, which is marginally above pace
for the historical average. 2018 has been much more volatile, with big swings,
and until the last couple of week rally we've been trading nearly sideways.

The good news is there are fundamental economic reasons for the rally.
Unemployment is at 10 year record lows[1]. The Trump tax cuts really improved
fundamentals for companies, allowing many to repatriate capital, increase
hiring, and ramp up R&D spending. The GDP growth for the second quarter of
this year was an astonishing 4.1%[2]. The US is growing faster than China, and
comparing markets is winning the "trade war".

Have some high tech growth stocks gotten ahead of themselves? Absolutely, look
at their valuations and P/E. With that said, are we on a the verge of a
recession and economic collapse, I'd argue firmly no. There are many sectors
that are still undervalued in the market, chiefly banks.

[1]
[https://data.bls.gov/timeseries/LNS14000000](https://data.bls.gov/timeseries/LNS14000000)
[2] [https://www.wsj.com/articles/strong-economic-growth-
boosts-u...](https://www.wsj.com/articles/strong-economic-growth-boosts-u-s-
in-trade-battles-1533087875)

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fallingfrog
Banks! My goodness. You know, banks were making tons of money right before the
2008 crash too, it's just that the loans they were making were bad ones.
They're in the same situation now, wouldn't you say?

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nodesocket
Nope I would not say. Regulation has increased, they go through stress tests,
and historically they are undervalued right now. Take Bank of America which
has a P/E 14.75 and 1.92% divy yield. Again, I am bullish, which I have
noticed is not the general sentiment here on HN. I recognize and fully
acknowledge I could be completely wrong, but the bears have been calling for a
recession and market collapse ever since Trump took office. Eventually of
course there will be a correction (though we've already had a few micro-
corrections this year). It is much easier to be a bear and negative, because
eventually they'll be right. They just have to keep preaching doomes day and
wait it out. Long term though, show me a better way to get return on capital
than the market.

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fallingfrog
Oh - to answer the question about return on capital: use the money to convert
the power grid to 100% renewables, which might literally _save the world_ in a
few decades time. There is more to life than maximizing profits in the short
term.

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nodesocket
I believe that is vastly over exaggerating "save the world in the few
decades". Do you have trustworthy scientific research to suggest the world is
going to end in a few decades if we don't find "100% renewable energy"? I'd
imagine that would be headline news.

I know that I am being tongue and cheek, but that's the point. Fear tactics to
push political or economic agenda should not be tossed around so casually
(absolutely on both sides) without scientific data.

Furthermore I believe the US government is horrendous at spending money and
innovating, so I'd much rather leave energy solutions and innovation up to
private companies. Do you honestly believe that big oil and energy companies
are not working on this? The first one that crack the 100% renewable nut
literally will be printing money for eons.

~~~
fallingfrog
Are you genuinely willing to be open to the possibility that climate change
might be worse than you think? If you are curious about the science behind
climate change, here:

[http://rsta.royalsocietypublishing.org/content/371/2001/2012...](http://rsta.royalsocietypublishing.org/content/371/2001/20120294#sec-8)

is a link to a paper by James Hansen from 2013, which provides a technical but
good overview of the whole field. My favorite quote:

"Burning all fossil fuels would produce a different, practically
uninhabitable, planet. Let us first consider a 12 W m−2 greenhouse forcing,
which we simulated with 8×CO2. ...

Our calculated global warming in this case is 16°C, with warming at the poles
approximately 30°C. Calculated warming over land areas averages approximately
20°C. Such temperatures would eliminate grain production in almost all
agricultural regions in the world [130]. ...

More ominously, global warming of that magnitude would make most of the planet
uninhabitable by humans. The human body generates about 100 W of metabolic
heat that must be carried away to maintain a core body temperature near 37°C,
which implies that sustained wet bulb temperatures above 35°C can result in
lethal hyperthermia. Today, the summer temperature varies widely over the
Earth's surface, but wet bulb temperature is more narrowly confined by the
effect of humidity, with the most common value of approximately 26–27°C and
the highest approximately of 31°C. A warming of 10–12°C would put most of
today's world population in regions with wet a bulb temperature above 35°C
[132]."

The reason this is not more well known has to do with the fact that climate
denial is funded by very deep pocketed fossil fuel companies and ideological
activists:

[https://www.theguardian.com/environment/2013/feb/14/funding-...](https://www.theguardian.com/environment/2013/feb/14/funding-
climate-change-denial-thinktanks-network)

The problem here is that many people on the right have a deep set ideological,
almost religious belief system that markets are rational and can solve every
problem, when that is _clearly and obviously_ not the case. Corporations only
act to increase shareholder value; to the extent that they behave morally it's
because of the legal framework they operate in. And if they can buy
politicians to avoid paying the costs of pollution, and save money by doing
so, then of course they will. And that's what is happening. If they are doing
a cost benefit analysis, and the benefit of humanity at large is a cost to
them, then they don't care.

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pesmhey
Maybe encouraging riskier bets is a feature not a bug. With a lot of ‘free’
capital floating around, we’ve got people building rockets and AI, people
researching how to bring the material resources on an asteroid back to earth.
Really ridiculous shit, tbh. But maybe that’s the intent - encouraging risk-
taking in search of the next big thing.

I could be talking out of my ass though, or I could be completely right and
those bets fail anyways.

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dragonwriter
On his key point: “The Federal Reserve Has Lost Control”: it never had
control. Monetary policy has limited power, mostly to moderate short-term
effects and stop them (or slow them) from becoming runaway catastrophes. The
real power is in fiscal policy, which requires the government (as opposed to
central bank) to act, usually through Congress. Recently—despite modest and
inadequate action in the Great Recession—Congress has been basically asleep at
the switch on fiscal stimulus, leaving the Fed on its own with monetary policy
as the only lever. Whether this is a limited-time historic aberration or a
durable condition is unclear. He's probably right to the extent that collapse
is inevitable, even if the timing is far from clear, if the Fed continues to
be left alone with monrtary policy as the only took available. He's also right
that if Congress were to respond to that by obliterating the Fed and taking on
monetary policy itself, things would go from bad to worse.

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hsienmaneja
Why can’t the fed keep interest rates low for the next, say, 15 years? That
seems implied from their statements.

The market can remain irrational longer than you can remain solvent. Any bet
that involves unlimited or outsized risk needs to always consider the
possibility of being catastrophically wrong. This includes selling volatility,
shorting delta, etc

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HIPisTheAnswer
Shorting isnt a good idea either since all the counterparties to those
contracts _will be insolvent_. Buy lead, gasoline, gold and seeds. Collect
rainwater and plant food. _That_ s how bad its going to be this time. 1929 was
childs play in comparison.

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hndamien
Buy Bitcoin.

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HIPisTheAnswer
Yea and dont forget that 'limited liability' is illegitimate, hence equity can
go _below_ zero in case of lawsuits. This will eventually be recognized, then
watch the stampede out of equity markets.

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gamblor956
Courts only pierce the veil of limited liability when the opposing party can
show that the company was deliberately undercapitalized (meaning,
insufficiently funded to satisfy its liabilities).

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HIPisTheAnswer
There are no courts if law in our time. Theyll soon come back on the dark web
I hope.

