So are you making the argument that mortgage-centric stocks are going to go to zero?
It should be no surprise that Tech/NASDAQ is doing well since both individuals and companies are investing more in tech during this crisis, while industrial/travel/etc are all still down substantially.
Maybe the banks will take a larger hit, but the overall market has already priced in what you are saying.
In 2008 we thought that the problem was contained to the subprime housing market, and once the Fed started supporting that market people breathed a sigh of relief and there was a rally and recovery from March-May. It wasn't until first Bear Stearns and then Lehman Brothers failed that people realized we were in a crisis. These were centuries-old, multi-hundred-billion-dollars institutions. The idea that they could cease to exist was unthinkable to anyone not actively looking at their balance sheet and doing the math, which is why there was such a panic when they did cease to exist.
what possible justification is there to be worried about their FDIC-insured bank accounts? even sticking that in as an off-hand comment is spreading FUD.
As a result:
> The Emergency Economic Stabilization Act of 2008 is signed on Oct. 3, 2008. This temporarily raises the basic limit of federal deposit insurance coverage from $100,000 to $250,000 per depositor.
The limit was subsequently permanently raised. So with a limit of $250,000 there’s less reason to worry about bank accounts today. But the important point remains, what causes panic is when things that everyone assumes to be safe turn out to no longer be so safe after all.
But this isn't really a risk to the broader market, because the government has already made it plain that it's going to backstop the liquidity to prevent any liquidity crisis, from buying commercial debt, to even buying equity. ...so if the gov't is the lender of last resort, then your argument doesn't make sense because.
Lehman Brothers going under is something the Fed has said it will not let happen again. Particularly in this scenario where bad debt is due to a pure externality.
...not to mention that people's bank accounts are protected by FDIC, and equity/retirement accounts are protected by a similar program.
Not that it really matters, because the banks are all much better capitalized than they were in 2008.
The real danger here is the potential for snap-back inflation (in a stagflation scenario), which I'd argue actually makes equities MORE attractive, not less - since stocks are inherently inflation protected.
Stocks tend to perform chaotically during major inflationary episodes. Over the long run corporate earnings are inflation-protected. The problem is that inflation hits unevenly, depending on where relative shortages are, and some businesses can raise prices much more than other businesses can. That can make some businesses non-competitive (= insolvent) during an episode of high inflation, while also pooling profits within a small number of survivors. You often see a big consolidation of winners, great companies of the next era born, and then a lot of bankruptcies. Mainstream investors are often not very good at predicting the winners, so you get panic and malaise in the short term.
Governments and central banks will certainly attempt to prevent contagion by buying assets and handing out bailout cash.
Does that fix the problem and then we go back to normal? Does it result in Weimar-style hyperinflation? Does it cause negative rates on long-term bonds?
I can only think of two historical precedents for guidance on how this might play out. First, Japan's "Lost Decade" (which was really more like 25 years). And second, the 2008 financial collapse.
Not sure either of these are directly comparable to the current predicament, though.
And don’t forget, property taxes are based on their value as of Jan. 1 - huge, unpayable tax bills are coming this year, too.
They’re already deep in the red financially, but there is some relief for the property owner.
This is important because people overbuild SFH not understanding the expenses, and people ruin their financial lives buying mobile or fake-mobile homes to put on rented land, not understanding that the land is where all the value is.
