Quote (NetflixAdaptationWidow @ May 22 2022 04:51pm)
The true function of hedge funds is to hedge against things like this. That's why they're called hedge funds. They aren't supposed to go up as much as a regular market investment, but when the market goes down they should be hedged against it, so they don't go down as much.
Problem is lots of hedge funds take risky investments to get large returns because there's a superstar culture around high returning hedge funds. Which is stupid, because that's not the job of a hedge fund in the first place.
Rant over.
On subject of what you said though. Our current situation is pretty different from a 2008 level event. 2008 happened because a massive proportion of the country was underwater on their mortgages. If we want to predict large institutions going under, we need to look at leverage and see if there are any large sectors that are over-leveraged. Housing is expensive, but only a small portion of people are underwater on their mortgage. I've heard rumblings about corporate real estate being a massive bubble, but I haven't seen any followup on it.
The situation was basically that a store changes its address by one point (4530 E. Montgomery vs 4531 E. Montgomery) to evade previous income data, and then claim a large year is typical for their business to secure good real estate financing on a questionable location. The bank then loans them more cash than they can actually afford. I'm not sure if this is going to blow up or not. Companies tend to be a lot more insulated than individuals and also tend to have assets to reposses that don't go down at the same time as the building. So we'll have to wait to see if it turns into anything. A pandemic probably would have already triggered that if it was a real systemic issue with how bad brick and mortar stores got hit.
Inflation is putting people on the breadline and rising interest rates are causing additional pressure on variable rate homeowners. If this ends up being a recession, it will be a classic case of people tightening their spending due to lower disposable income, and in some cases a collapse in net worth from speculative investments in property, crypto, EVs, and ESG bubbles
Government debt is hardly talked about either. For 18 months, governments were spending at wartime levels to keep the private sector going. Highly leveraged governments have less manoeuvrability to respond to crises and rising interest rates exacerbates the issue
What the stock market has going for it right now is that earnings are still quite strong, which is why I'm not as pessimistic as many. Growth is still overvalued, but the rest is ok
This post was edited by dro94 on May 23 2022 12:39pm