The Investment Thread

[LouisEly]

The S&P 500 crashed, what, 30%? The question is if that priced in all the damage to come. I'd say it really happens how long this lasts. I think that drop priced in a significant shelter in place order. If those restrictions are eased and another wave of this hits, I think there is going to be another drop.

The stocks in industries that are hardest hit by this - travel/tourism, airlines/aviation, hotel/hospitality, oil, restaurants, retail, anything mortgage-backed - are down 50-75%, not 30%, so a lot of it is already baked in.

 

Some companies won't survive, but other than perhaps the cruise lines the demand for those services/products will return eventually and the more financially stable companies that survive will pick up that demand and be more profitable in the future. Invest in companies that have a lot of cash right now.

 

31% of Americans didn't pay rent at the start of April

I have a hard time believing that 31% didn't pay rent. If even close to true, it speaks to entitlement, not economic impact. People didn't start losing their jobs until mid-March, and two weeks later they can't pay rent? And 1/3rd of renters lost their job? I'd believe it for May, but not for April.

[nate82]

 

31% of Americans didn't pay rent at the start of April

I have a hard time believing that 31% didn't pay rent. If even close to true, it speaks to entitlement, not economic impact. People didn't start losing their jobs until mid-March, and two weeks later they can't pay rent? And 1/3rd of renters lost their job? I'd believe it for May, but not for April.

 

I don't believe the numbers account for COVID only related non-payment. I believe the consensus for rent and mortgage non-payment for the month of April was going to be higher than average. May is probably going to see another spike with a peak in June. July should be the first month that should start to stabilize if we don't see stabilization by September expect something like the 2008 mortgage default issues popping up again.

[owbc]

Why is the rent number surprising? Most Americans live paycheck-to-paycheck and almost everyone who lost their job was renting. They don’t have any savings. They need to hold onto their remaining money to spend on essentials.

 

The unemployment claims amount to over 1/3 of the total number of rental units in the US so the numbers work out.

[superfly]

Every day shut down is another 500k-1m unemployed. This obscene intrusion of government power needs to end by three days ago or we’ll have much worse things to worry about than Covid19. I have the utmost faith we will return to normal faster than some think, but that will only happen if we get out of this lockdown state.

[owbc]

Every day shut down is another 500k-1m unemployed. This obscene intrusion of government power needs to end by three days ago or we’ll have much worse things to worry about than Covid19. I have the utmost faith we will return to normal faster than some think, but that will only happen if we get out of this lockdown state.

 

Do you think people are just going to start voluntarily shopping, going to restaurants, or traveling after the restrictions are lifted? Especially if they see the case counts start to go up again?

[LouisEly]

Why is the rent number surprising? Most Americans live paycheck-to-paycheck and almost everyone who lost their job was renting. They don’t have any savings. They need to hold onto their remaining money to spend on essentials.

 

The unemployment claims amount to over 1/3 of the total number of rental units in the US so the numbers work out.

Most people who rent don't live by themselves - they have roommates - thus the unemployment claims would need to be cut in half in order to be compared to the total number of rental units.

 

And many people in those industries hardest hit do own homes, particularly if they are in management. Bartenders and waitresses at nice restaurants make a good living. One of my friends who is a bartender is married to a chef and they own two homes - one in Chicago, and a vacation home in WI. Or they have spouses in a different industry and have two incomes, able to buy a home.

 

And heaven forbid that (some) millennials feel entitled, but that's for a different thread.

[owbc]

Why is the rent number surprising? Most Americans live paycheck-to-paycheck and almost everyone who lost their job was renting. They don’t have any savings. They need to hold onto their remaining money to spend on essentials.

 

The unemployment claims amount to over 1/3 of the total number of rental units in the US so the numbers work out.

Most people who rent don't live by themselves - they have roommates - thus the unemployment claims would need to be cut in half in order to be compared to the total number of rental units.

 

And many people in those industries hardest hit do own homes, particularly if they are in management. Bartenders and waitresses at nice restaurants make a good living. One of my friends who is a bartender is married to a chef and they own two homes - one in Chicago, and a vacation home in WI. Or they have spouses in a different industry and have two incomes, able to buy a home.

 

And heaven forbid that (some) millennials feel entitled, but that's for a different thread.

 

If "entitlement" means having the ability to pay for basic needs like rent, groceries, and medical care, then yes, some people feel entitled. It seems like you have the privilege of being quite disconnected from the lives of people struggling to make ends meet. One only needs to look at the lines at food banks to see there is a serious crisis unfolding.

 

Sure, maybe some people didn't pay their rent when they could have. Who really cares? They are going to have to pay it eventually or get evicted when things return to normal. It's not like there are no consequences here. All I'm saying is that for those of us interested in investing it is going to take a long time for all of this to ripple through the economy, which is why I predict the DOW will not get back to its previous high until late in the decade if at all.

 

As for the comments about lockdown state...what a freaking joke. There's no martial law, virtually no enforcement. And the protestors are mostly in their cars! Why not get out and protest in a crowd? Nobody is stopping them! Are they afraid of a virus or something?

[superfly]

Every day shut down is another 500k-1m unemployed. This obscene intrusion of government power needs to end by three days ago or we’ll have much worse things to worry about than Covid19. I have the utmost faith we will return to normal faster than some think, but that will only happen if we get out of this lockdown state.

 

Do you think people are just going to start voluntarily shopping, going to restaurants, or traveling after the restrictions are lifted? Especially if they see the case counts start to go up again?

 

I do because this is turning out to be nowhere near the bill of goods we have been sold. It’s not a plague, it’s a mild to nonexistent virus for 90% of the country that may just disappear due to seasonality soon. Not 100% for awhile, but maybe 75%. Traveling has never been safer than it will be this summer if you’re interested in a more contrarian view of things.

 

Maybe sometime next year we’ll be operating at normal capacity. Just look at Home Depot next time you drive by, nobody cares whatsoever about the virus that is headed there.

[LouisEly]

If "entitlement" means having the ability to pay for basic needs like rent, groceries, and medical care, then yes, some people feel entitled. It seems like you have the privilege of being quite disconnected from the lives of people struggling to make ends meet. One only needs to look at the lines at food banks to see there is a serious crisis unfolding.

As someone who had some bad employment luck after graduating undergrad and worked three part time jobs on nights and weekends to make ends meet and pay rent with a credit card, I'm pretty sure that I have first-hand experience in what it means to lose a job and have to provide the basics for myself. The "privilege" comment I strongly resent. I've been there - how about you?

 

I didn't say that everyone was entitled. I said that some are. And I said that it's possible for May. But I highly doubt that 1/3rd of renters could lose one paycheck and not be able to pay rent. Many of them, yes, but not 1/3rd.

 

Sure, maybe some people didn't pay their rent when they could have. Who really cares?

People like me who own rental property and have to pay that mortgage, whether my renters pay their rent or not.

 

For calling me "disconnected", you seem fairly disconnected yourself.

[igor67]

We the people of the United States, in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense

 

Everyone gets that this is a huge drag and lots of people are getting hit hard, superfly. But your comments indicate you don't actually understand the scale of potential carnage. Particularly your earlier flippant 'a real threat would be 50% mortality' comment. Only the Black death has ever come somewhat close to that level of mortality and been widespread. On most historical population graphs it's also the only population decline recorded for humans. Think about that no wars ever managed to kill enough people to produce a net population decline. To try and put some perspective rather than pretending 90+% survival is good let's look at the American Civil War about 620,000 dead Americans out of 31 million.

As stated before the natural R0 rate puts herd immunity at 2/3 of the population. The exact death rate remains to be seen, but if we go on the very low side at 1% that still gets us to 2.2 million after accounting for the disease sputtering out. If you scale up the Civil War present size that would be 6.2 million. A 2% death rates produces 4.4 million, and 3% surpasses in everyway.

 

Undoubtedly you can come up clever sounding comebacks, but that completely misses the point. The fact that a reasonable estimate of not using our 1 tool that works right now to slow the spread gives final death tolls even remotely comparable to the war that killed more Americans by far than any other is horrific.

[thebruce44]

Sure, maybe some people didn't pay their rent when they could have. Who really cares?

People like me who own rental property and have to pay that mortgage, whether my renters pay their rent or not.

 

Don't you have a safety fund in place to be able to weather this lack of income?

[owbc]

I don't wish to escalate my previous comment any further, the fundamental debate is about what percentage of Americans are living paycheck-to-paycheck? Googling that question gives all sorts of numbers, from a third to even 75-80%. Most likely it's somewhere around a half. So even with people cutting their expenses, it is completely reasonable that a third can't afford rent.

 

And yes, that means that landlords will not get all of their rent or their airBNB income, ever.

 

And yes, that means there will eventually be a big increase in auto repossessions, foreclosures, etc. Especially since a decent chunk of people with 6-figure incomes are also living paycheck-to-paycheck (irresponsible, but if there are whole industries that depend on upper-middle class people blowing money on clothes, furniture, vacations, etc).

 

For now everyone is going to be patient, extend payment deadlines, etc while the quarantine is still going on. After the quarantine is when the real feedbacks will start to be felt across the economy. When it becomes apparent that the lost money isn't going to reappear.

[nodakfan17]

I’m a personal finance nut and it took me nearly a decade to establish a $10,000 emergency fund. I was saving for retirement along the way and had a much higher cash balance at times, but life just happens. In the span of 4 years, I got married, bought a home, had a kid, and paid cash for a used car. On top of that, my wife had an $800/month student loan payment for 10 years. Having graduated in the middle of the last recession, it took longer than expected for our careers to gain traction, but I think we finally felt financially secure around age 32. It’s much easier to save now that our expenses have leveled off and we continue to receive modest raises each year. Despite being a big personal responsibility advocate, I’m willing to cut everyone some slack. This is a true black swan event.

[RWeeksFan23]

An entire decade? That's a little strong no?

 

Just wait for the effects of this to cascade through the economy. Currently everything is being held together by short-term fixes and the assumption that things can return to normal quickly. Air travel is down 96%. How long is it going to be before travel even gets back to 50% of normal? They just announced a record drop in retail. 31% of Americans didn't pay rent at the start of April...how many will be able to afford rent in May? June? What will landlords do without rental income?

 

Virtually everyone is preparing for massive budget cuts. This is happening at my university, it is happening behind the scenes at every corporation in America. Most of us lucky enough to be employed are going to see pay cuts at some point later in 2020 or 2021. Which will then further ripple through retail, travel, etc.

Understood but what does any of that have to do with an entire decade long effect?

[igor67]

On the other hand getting backed into a corner policy wise might give Modern Monetary Theory a boost and give use some tools to get things moving faster going forward.

[thebruce44]

I’m a personal finance nut and it took me nearly a decade to establish a $10,000 emergency fund. I was saving for retirement along the way and had a much higher cash balance at times, but life just happens. In the span of 4 years, I got married, bought a home, had a kid, and paid cash for a used car. On top of that, my wife had an $800/month student loan payment for 10 years. Having graduated in the middle of the last recession, it took longer than expected for our careers to gain traction, but I think we finally felt financially secure around age 32. It’s much easier to save now that our expenses have leveled off and we continue to receive modest raises each year. Despite being a big personal responsibility advocate, I’m willing to cut everyone some slack. This is a true black swan event.

 

Why would you be saving for retirement while working to establish your emergency fund? Or were you comfortable having less than $10k as your amount? Just curious.

 

I'm guessing we are around the same age. Our generation will have been hit by two massive recessions while trying to start families and get our lives in order. My family is in a really good place at this point in time, but man has it been exhausting. I don't think people should have to be as frugal and financially educated as my wife and I have become. Yes, we did it through hardwork, but I don't blame anyone else for not also doing so.

 

FWIW, I'm 37, own investment property, have been maxing 401ks and IRAs for 7 or 8 years, have taxable investments, and still do not feel financially secure.

[nodakfan17]

Why would you be saving for retirement while working to establish your emergency fund? Or were you comfortable having less than $10k as your amount? Just curious.

Even as a young guy just starting out, I never wanted to leave my employer match on the table.

[nodakfan17]

FWIW, I'm 37, own investment property, have been maxing 401ks and IRAs for 7 or 8 years, have taxable investments, and still do not feel financially secure.

I guess Financial Security and Financial Independence have different meanings to me. I’m financially secure in that I’m years away from having to stand in a bread line; however, I’m still financially dependent on my paycheck to pay household expenses and meet my savings goals.

Edited April 17, 2020 by nodakfan17

[homer]

 

FWIW, I'm 37, own investment property, have been maxing 401ks and IRAs for 7 or 8 years, have taxable investments, and still do not feel financially secure.

 

I'm a decade older than you, have been doing the same with IRA, 401K, and feel the same way. I'm terrified of outliving my retirement funds...I probably won't but it's why I live very frugally. I can't really make up lost ground when I'm 80 but I can while I am still able to work.

[igor67]

The amount of money that wouldn't have to go to retirement under the 401K model if people didn't have to self insure against living too long is pretty staggering. It's one of the big reasons pensions are so much more efficient/ cheaper as an investment they can just assume the actuarial average.

 

On the teaching side, the most recent data is that wealth is the biggest environmental variable on student performance yet most people need to start their families years before they hit peak earning, so it is a pretty common phenomena. The 2008 recession doubled our free/ reduced lunch population over night, including myself back then.

[homer]

The amount of money that wouldn't have to go to retirement under the 401K model if people didn't have to self insure against living too long is pretty staggering. It's one of the big reasons pensions are so much more efficient/ cheaper as an investment they can just assume the actuarial average.

 

I hadn't thought of that. That's money that could be tossed back into the economy quite easily I would imagine.

[FVBrewerFan]

The amount of money that wouldn't have to go to retirement under the 401K model if people didn't have to self insure against living too long is pretty staggering. It's one of the big reasons pensions are so much more efficient/ cheaper as an investment they can just assume the actuarial average.

 

I hadn't thought of that. That's money that could be tossed back into the economy quite easily I would imagine.

 

What would be even better? Let people control at least half of the 12.4% paid in under SS. Then there would be no need for pensions or 401k.

[MrTPlush]

I hate SS and I am not really a fan of pensions either. The things I would do to be able to use that SS money for retirement myself.

[owbc]

Isn't SS essentially insurance against living too long?

[bani1717]

If you're concerned about outliving your wealth, you can always buy some kind of annuity. I'm not an expert, but that's pretty much the point of them. That basically allows you to pay in the actuarial average and get income for life, similar to what a pension would offer.