It's caused by the fact the bank of Japan put up their interest rate by 0.25% last week? The second rate hike in years.
Japanese are extremely cautious and change isn't something they deal with on a frequent basis (Japan moves very slowly) so I think this freaked people out. I guess it might signal the end of the government prioritizing corporate profit over the well being of the populace, at least for a few years? Low interest rate, means the Yen would weaken further, which is great for major Japanese companies who deal heavily in exports. Any sign of this changing and it looks like investors run for the hills.
From what I understand (and I may be completely wrong so please someone correct me) is that these rate hikes are causing the “carry trade” (estimated to be 20+ trillion dollars) to come to an end and investors are unwinding their positions fueled by these low borrowing rates- which is why we’re seeing US stock prices being dragged down as a result as well. (Investors borrowing yen at low value, investing in higher yield equities aka S&P500, and now owe yen at potentially higher than original cost, causing panic selling).
Yes, hedge funds were selling (borrowing) yen which had positive carry, to fund purchase of US tech stocks. The carry is gone so now they're closing their positions, which means buying yen (which makes the yen stronger, which hurts Japanese exporters), while selling US tech stocks.
I'm almost getting it but I feel like I need a step by step explanation. From what I understand the JPY had a low or negative interest rate which made it effectively 'free' or at least cheap to borrow funds in it.
So am I correct that it was supposed to work like the following:
- Borrow JPY at a low interest rate
- Convert to USD
- Buy stocks
- Sell stocks (ideally with profit)
- Convert to JPY
- Pay back JPY loan (which had a low interest rate, leaving more profit)
For this to work the JPY interest rate had to remain low and the yen had to remain cheap, both of which are now no longer certain which is exacerbated by investors cutting their losses en masse making the yen more expensive (and maybe increasing the effective interest rate as well?).
> Japanese are extremely cautious and change isn't something they deal with on a frequent basis (Japan moves very slowly) so I think this freaked people out.
I feel like if this is your level of analysis for the entire country you're not going to have that many insights beyond "interest rate movements matter more".
There's a lot of economic difficulties right now in Japan due to high costs and a stubbornly weak yen. Of course it's dangerous to make quantitative arguments with qualitative facts, and it makes it hard to counterbalance the above with a statement like "the weak yen helps exporters". But if we're going off of vibes, a lot of people in Japan are struggling with worse buying power, downstream of an economy that needs to import a lot of raw materials... and that can cause pressure.
And combining that with the tech news in the US... well... at least as a narrative there's a lot to say!
I'd love to hear something more quantitative though. At the end of the day this all _might be_ vibes, but at one point the economy has to be somewhat linked to something a bit real, right?
I've lived in Japan for a while now. Everyone understands a weak yen is a preference for major business here and that the government of Japan strongly prioritizes for major business happiness.
There is almost zero concern for the populations economic prosperity and there is no political opposition. This isn't a "vibe" this is fact. If you go far back as the 90s economic collapse, most of it was ultimately caused by the mingling of politicians being executives of the banking sector and ultimately looking after their own interests. Rather than doing the right things to fix the situation then, the government did the wrong things.
It's really sad but your average Japanese citizen has very little interest or idea about politics and policy and the population and the country suffers greatly because of this.
Democracy isn't in their DNA, it was imposed.
I will tell you though, the "vibe" here is, things aren't good, they just haven't worked out they're allowed to blame the government for poor monetary policy yet. Which IMO is what the government is starting to worry about. Personally, I don't think much will manifest from this, and Japan will just continue to slip backwards while the major corporations are taken care of.
Vibes do matter when it comes to the share market, clearly.
this is an aside but the 1889 constitution had democractic components. Turns out a military coup stops democratic progress for a while. Japanese popular participation in politics has a lot of dimensions to it, including popular uprisings and authoritarian pushback by the government (including post-1945)
I've also lived in Japan for a while, and I've always found any sort of argument around the different nature of Japan based in "people be different" to be unsatisfying.
Usually you can dig just a bit more and find very straightforward material explanations for people's behavior. Or even at worst the same kind of behavior you see everywhere, just shifted around in intensity a little. Maybe this is too nihilistic but sometimes there are less magical explanations (like not caring about interest rates being downstream of them being near 0 percent)
I don't really understand this statement ,can you clarify?
I've also lived in Japan for a while, and I've always found any sort of argument around the different nature of Japan based in "people be different" to be unsatisfying.
I would say that your analysis seems to be based on tropes about Japanese people that are familiar to me as someone who has never visited Japan. I can't speak to the accuracy of your analysis, but for this reason it is not very satisfying. You don't get the kind of "aha!" moment that you might expect to get from an analysis based on a deep familiarity with Japanese culture, history and politics.
I'd say this level of push back is fairly common. People don't want to believe society here actually works differently. But there is a strong culture in Japan which I don't think you can just experience by being on holidays. Some of the stories I tell people are hard to believe.
I'll give you a simple real world example. The other day I left my wallet in a bag on a towel rack at the gym, my wallet was visible.
I was mid workout and I didn't want to go back to get it. Honestly, knowing Japan well enough, I just left it there , and sure enough, when I got back, it was still there, not a single dime taken. Thieves exist here, but they're the exception, not the rule.
I would never do this in any other country. Tell me that's familiar to anyone living in the US.
I mean it's familiar in the sense that it conforms to well-known cultural tropes about Japan. I'm not saying that all of these tropes are necessarily inaccurate, only that they're so well known that an analysis based solely on them feels a bit slapdash (even if it might still be correct). Japan is widely known as being a society with low crime, high trust, etc. etc. This isn't something only known by people who've lived in Japan for extended periods.
So no, I'm not at all surprised by your story about the wallet, and I don't think most people would be. (To be honest I wouldn't be surprised if the same thing happened in the US either – it's not like everyone in the US is a criminal and all unattended wallets reliably get stolen.)
>I wouldn't be surprised if the same thing happened in the US either
I would. There's not even any cash in my wallet and I was pickpocketd in broad daylight (I'm not exactly exuding "rich dude" so I'm an odd target). I'm just lucky I had an apple tag in it and the thief ditched it in the bathroom when they assumedly saw it (before I activated it).
Even if there was nothing in the wallet, I wouldn't be surprised if my unattended wallet was shuffled, drop, and probably dripping wet when I came back. Part of why I switched to a metal one, actually.
These aren't "tropes" they are real aspects of the culture. These cultural features do have an effect on how democracy works in Japan and how the government perceives and responds to the public reaction to certain events, especially in regards to the economy. I have not heard a single, not a single person say the administrators of the country are doing a bad job which is why we're in this mess, no, they just seem to talk like there is some external, mysterious force causing these issues. Now maybe people are thinking differently, but when it comes to the democratic process, the public discourse is important and it's lacking.
I have personally only heard one, I repeat one person criticize a politician in my entire time being here, can you believe that? He was a politician himself :)
The only other time I remember there being some suspicion about politics was after Abe's assassination, there was some conspiracies going around about how Korea is running the government because of his affiliations with a Korean cult. Even then, everything I heard was radically civil.
If this stock market and currency collapse was in the USA, you could imagine the discourse around it right?
I'm sorry but there is a real stark difference between cultures and the effect it has on the democratic process and therefore the urgency in which a government would react to negative public opinion. In this case, In Japan the government is almost always siding with big business, because why not? What will happen? The LDP will be removed?
The government in Japan is practically authoritarian at this point, they have no opposition, they're not going to adapt very quickly for the sake of worrying about the polls. Also worth reading about is Japan's "online defamation laws" which are also pretty dystopian in my opinion.
> It's really sad but your average Japanese citizen has very little interest or idea about politics and policy and the population and the country suffers greatly because of this.
Japan has been an effectively ”managed” democracy for the entirety of the postwar period, so I find this argument to be unconvincing. In the postwar period, the ruling LDP party was assembled by U.S. intelligence services from a mix of war criminals and far right business leaders and funneled millions of dollars and provided other forms of support for decades. There was widespread unrest as a result of this up until the early 70s, where the tensions around America’s use of the country as a FOB for the Vietnam War came to a boil and state police and security services engaged in widespread violence and crackdowns, ANPO was reauthorized, and it was demonstrated that no, actually, things will not be allowed to change. From this point on, most Japanese people became increasingly disengaged from politics because they correctly determined that their votes and protests did not matter, except to the extent that they reinforced the status quo.
> Democracy isn't in their DNA, it was imposed.
Separately, your depiction of the imposition of democracy is also entirely incorrect and ignorant of history. Japan had one of the most politically active and engaged populations in it prewar period, but this was strangled by its ruling elites because popular political movements were almost universally left wing. The perfect example of this was that the expansion of universal male franchise in response to widespread labor unrest was paired with the outlawing of left wing political parties.
Why is the argument unconvincing to you after you've just provided a bunch of evidence as to why Japanese people aren't engaged in politics and there is no opposition here?
I disagree specifically with the framing that the “the population and the country suffers greatly because of this” as it was demonstrated that mass political movements would never be allowed to exert control over its politics. It’s an entirely rational response to a sham democracy. The country (now) suffers greatly as a result of the course the U.S. set it on by subverting its democracy to protect its own interests.
As someone who has a decent grasp on Japanese culture, I think your take is too conspiratorial. The issue is simpler than this. Japan has an extremely hierarchical society and authority must be respected. This isn't a great combination, especially when combined with a severely aging population.
Young people have very little chance to enter into politics or gain any traction at all. There is almost zero chance a 75 year old will vote for someone in their forties.
Combine that with the natural tendency for some to a lot of corruption among politicians and it's just a perfect storm of stagnation, corruption and vested interests, there is absolutely no US involvement required.
This comment continues to be an entirely ignorant of the country’s modern history, which belies the claim that you have a decent grasp on Japanese culture. I recommend you spend some more time reading and less time making Orientalist claims of no substance.
> might signal the end of the government prioritizing corporate profit over the well being of the populace
Can you say more words about this?
I've googled, and it looks like the Corporate Tax Rate for Japan (30%) is higher than the US (21%), and basically all the other developed countries (mostly around 25%), so from that it seems like it's prioritizing corporate profit less than other countries.
My image of Japan is that it has well-functioning social services (healthcare and pension which are working, despite a largely aging population), that it has generally high standard of living and invests in infrastructure, and that corporate profits are quite low compared to other highly developed countries.
It's also "common knowledge" (thought possibly wrong) that Japan's CEOs are paid less than those of, say, the US.
In what way does the government prioritize corporate profits more than other governments?
Govt has been intentionally weakening yen (perhaps too much) so that big companies can export more thanks to cheaper prices. This also introduced inflation which would be fine if wage went up as well. But wage has remained stagnant while corporate profit / nikkei soared. It also doesn’t help that foreigners are flooding into the country while yelling “omg everything is so cheap!”
My naive googling shows me that Japan imports more than it exports, so it would seem like a weak yen would reduce corporate profits too, so weakening the yen being proof that Japan prioritizes corporate profits more than other countries seems pretty weak to me.
How has the government been intentionally weakening the yen? Zero interest rates? Was the US doing zero interest rates a ploy to weaken the dollar?
Have they specifically said they're trying to weaken then yen?
This really sounds like it's ascribing too much control and intention to the japanese government to me, when in reality hanlon's razor seems like it might apply to me
When you say Japan imports more than it exports, for who? Corporations? Because major Japanese corporations export, Toyota, Honda, Sony, Nintendo etc. We're talking about favorable conditions for corporations here.
Personally, I didn't say the government is "intentionally" weakening the yen, but when the yen is weak, the people who "matter", don't complain or try improve the situation because it's good for exports. If the biggest companies in Japan are happy, I'm sure those who keep them happy are well looked after too.
If you care about a poor old lady in her house, you wouldn't want to see the price of everything go up.
Yeah I guess that's probably all I had to say :) I'd just really like to understand a bit more about it. I suppose my original comment was a little bit of a question too.
>It's caused by the fact the bank of Japan put up their interest rate by 0.25% last week? The second rate hike in years.
Certainly connected and related. They did the opposite of what they should be doing, but why didnt it crash in march? This is certainly not the whole story.
Why would a 0.15% increase to bank rates in Japan cause all of crypto to crash the same?
Also, why did lockheed martin just do a 52 week high? All rational.
I read a lot of reports stating that this trade is north of 20 trillion dollars. Do you know how this number is calculated? Or if it’s possible to identify other large risks like this? Seems pretty insane to me as someone not in finance.
There's no such thing as an "everything bubble." All prices are relative.
An everything bubble would basically be inflation which wouldn't justify moving any assets. You only need to move between assets when one is inflated relative to another (e.g. stock vs real-estate)
However, when share prices go backwards, governments start stimulating the economy, lowering interest rates, spending and increasing debt. Asset prices rise again and debt, both government and private continues to increase.
Well in a downturn debt usually gets cycled from private holdings to public holdings.
After the economy rights itself, governments should be eager to unwind their positions, but this doesn't always happen.
The Fed has been doing some quantitative tightening for a while, and if we're now entering a proper recession, we'll soon get to see if they reloaded enough bullets.
Not OP, but it's very simple - by historical standards, everything is crazy expensive, especially in the stock market, but not only (housing...).
Home price to median household income ratio is at all time high - current generations have to work almost twice as long to pay a house, compared to their parents.
S&P price / earnings ratio is around 27 now and it's been above 20 pretty much all the time since late 90s.
We have huge companies (the famous MAG 7) with PERs above 30. Given their scale, it's pretty much impossible to grow enough to reduce this PER significantly, unless we discover another planet with eager customers, or solve poverty worldwide.
So while they do make a lot of cash, if you were to buy the whole business, you would need to wait 30 years for it to pay back for itself...
I know people stopped thinking like that, and just hope the 'price will go up' and there will be a greater fool willing to buy even higher. But at some point, the music will stop, although nobody knows when though. And if you look at the history of when the music stops for the markets, it's not pretty.
There is - humans have a finite horizon for their investments to pay back on for it to be useful to them in this lifetime and we have reason to believe it is, in practice, around 10-20 years.
In theory maybe we could have enough capital to get it arbitrarily high but that isn't remotely the situation we're in right now. Globally we have a couple of billion people who need more stuff and in the Western economies we are facing a concerning prosperity problem (the political situation seems to be flashing bright red lights at us and we're being out-competed by Asia). Nothing here is screaming excess capital. If anything we seem to have some serious capital misallocations playing out (my slogan for the month has been China seems to have built >1 US real economy in the time it took the US to build 0 new US economies - you can't tell me the US is efficiently allocating capital with results that bad).
Can you explain your slogan more? What time frame are you talking about with respect to China and the US? If you benchmark say the 1940s, the US economy has expanded about 4.5 times, and the Chinese economy has increased about three US economies in that same frame.
Questions of capital allocation of course depend on what variables you consider available for change. To me it's not at all clear that there are excellent investment opportunities available in the West which are being overlooked
I look first and foremost at energy [0] and would typically measure from 1970 since that seems to be the last time we had a major change in economic regime [1]. Although admittedly the US has grown since the 70s, stagnation didn't set in until around the 2000s. So as far as sloganing it'd have to be sometime around then.
And I don't think the US is growing at all. The energy picture and GDP/M2 [2] both suggest it is treading water at best although the situation is hopefully a little better than those timeseries suggest since there should be some efficiencies from better tech.
But the political situation to me is the most telling. We shouldn't be seeing the sort of slow-motion collapse of the polity that we are in the US unless there was also serious slow-burn economic pressure.
EDIT I can't decide which follow up comment to respond to so I'll just put it here: The energy efficiency argument isn't really valid - improvements in energy efficiency tend to cause usage to increase; it is a textbook case of Jevons' paradox [3].
Primary energy consumption would matter if energy efficiency did not exist. Generally speaking all sorts of industries use electricity way more efficiently in the US, which is why that number has not really budged; it is not really providing economic output to replace all our LEDs to inefficient incandescents, for example.
China's graph looks substantially different because it started from an extremely low base living standard.
I don't necessarily want to disagree with the you on your no growth claim. what I want to know is why you think that is evidence of for poor Capital allocation, and not evidence of poor opportunities for Capital allocation. It seems like the evidence supports both (no growth). The main difference is that the poor allocation hypothesis requires the additional assumption that investors are too stupid to figure it out or dont want to make a return.
Why do you expect efficient capital allocation? Market economic theory predicts efficient capital allocation but only under the assumption of relatively even distributed buying power. On a national level that assumption might or might not hold, but globally it just doesn't.
I don't think either of the things you said are true. Economists have understood that markets are not perfectly efficient for more than 100 years, even Friedman. Similarly, buying power is not a prerequisite for the efficiency they do have. I have no idea where you got those ideas.
> Economists have understood that markets are not perfectly efficient for more than 100 years
Of course. Never said they don't? What I'm saying is not new it's perfectly ordinary.
Widely distributed buying power/equality is a prerequisite for market efficiency. Proof: If all buying power is concentrated in a fraction of the population, the market will not consider the needs of the rest, regardless of how cheap their needs would be to satisfy and how grave their needs are. That's not efficient.
In practice there's an empirical question how much equality you need to have a market that's efficient enough.
What does the needs of the rest have to do with market efficiency?
They could all be die and it might not impact market efficiency. Market efficiency is a technical term, and I think you are using it for something completely different.
It has nothing to do with equality, or satisfying the masses.
I agree with that definition, but I think a big part of it comes down to two factors.
1) What you can change in the "could have" hypothetical alternative. Are the laws different in the hypothetical? Is human nature different? The way I see it, criticism of market efficiency is measured using the existing rules. If you must change the laws and policy, in your hypothetical, that means your Policy is what is driving the inefficiency.
2) How you measure utility. Are you measuring dollars changing hands? are you measuring national GDP? Are you measuring some sort of national happiness index?
It sounds like Im speaking in financial terms, and you are measuring utility using more on the happiness scale
What is changed in the "could have" scenario is how capital is allocated. For example, the public sector could allocate a larger fraction of the capital than they do currently, maybe by spending more to prevent homelessness and build infrastructure. This would require changing policy, and you are right that I think the policy of letting the market determine such a large fraction of our capital allocations is driving the inefficiency.
It's a "know it when I see it" kind of utility measurement. Probably closer to a "happiness index" than GDP. It's fuzzy but I don't think that makes it meaningless. I think most people have a similar idea of "better utility" (not exactly the same, similar). For example, what's most utility: New boat for Bezos or dental care for 1000 kids?
In any case, some kind of utility measure is necessary to determine when markets are efficient or not. If the measure excludes people just because they have limited means then few would call that a good utility measure. If the utility measure doesn't exclude people with limited means then markets can only be efficient when means are relatively well distributed.
The first result I get when I search for "us homeless tent city" is https://www.latimes.com/california/story/2024-08-03/as-san-f... . That looks to me like a population who could make use of a bit more allocated capital. I don't buy the idea that capitalism is done in any country that still has substantial homeless populations; there is obviously a need for more something.
And I don't think the investors are confused by the situation; I mean, I know about it. I'm an investor and I'm claiming the trend is so big I can spot it from more than a continent away. ~40% of the US economy is government spending and there is a central planning committee that was publicly committed to keeping interest rates at 0% up until about 2 years ago which, funnily enough, makes it damn hard for rational people to make their voices heard on where money should go. The structurally important thing since '07 is positioning to be in the path of government largess and to be near the front of the queue for bailouts when the losses are realised. That isn't an environment where efficient capital allocation is possible.
Since efficient capital allocation is probably impossible, I don't expect it to be happening. It doesn't seem to be happening either, there are obviously opportunities, there is a huge and increasingly upset political constituency in the US who are screaming that the current situation isn't working for them.
I just dont see the global capitalist conspiracy to not make money in what you are saying.
What is the investor ROI for a typical homeless person?
Are you claiming they hate homeless more than they like making money?
>Since efficient capital allocation is probably impossible, I don't expect it to be happening. It doesn't seem to be happening either, there are obviously opportunities, there is a huge and increasingly upset political constituency in the US who are screaming that the current situation isn't working for them.
I think you are conflating efficiency of allocation and the availability of opportunities and rules of the system. Investors are allocating as efficiently as they can given the investment opportunities available.
There are are huge policy problems preventing the better opportunities. Central planning of the interest rate and 40% government spending is not an allocation selected or determined by the market, it is a policy choice.
Markets operation within the rules and incentive established by policy. What you are calling market failure is policy failure.
I don't think there is a point of disagreement on any of those matters; I never said it was a market failure. I'm complaining about the US's persistent decades-long policy failures. It seems self-evident to me that if investors are being corralled into P/E ratios up near 30 it is policy driven. Left to their own devices investors don't choose to invest in things with 30-year payback periods, they invest in things with 15-20 year paybacks.
> What is the investor ROI for a typical homeless person?
High? They're in a terrible negotiating position so anyone who can get them a better job & lifestyle can probably extract usurious profits. Finding and mobilising pools of cheap labour is one of the more reliable paths to prosperity. Market-driven capitalism is a heartless, brutal and effective machine for taking people like that and pushing their living standards up.
I doubt it'd be easy to do, but California's housing market happens to be a very obvious example of capital allocation failure right on the doorstep of the likes of Google.
If I'm an investor with 1million, how do I make money by helping a homeless person in California given the current laws and policies?
There is no option to allocate the capital to make money. That's why I think the problem is lack of options,not allocation. Allocation failure means a failure of investors to select an available option.
There seems to be a disagreement on terminology here. Would you agree that a hypothetical extremely communist society is automatically allocating capital correctly? Because under the definition you seem to be arguing for there is only one investor (the state), that investor has exactly one option under existing regulatory policy (the state's choice [0]) and therefore cannot misallocate capital.
That seems to be a weird understanding of capital allocation to me and my follow up if I'm reading you right is how would you describe a failure of central planning? They have capital, they misallocate it and get terrible results relative to the free market. Assuming that isn't capital misallocaiton to you, what is it?
It is hard for me to see how you'd even have a concept of capital misallocation that isn't implicitly "relative to a free market". Otherwise it'd be extremely challenging to even detect it even if capital was being deployed in a horribly stupid way.
[0] Noting that there are only administrative differences between the tax office taking $1 and spending it on something vs. the legislature telling someone that they have to spend $1 on the thing and that line of logic means that the state could implement its policies by directing investors.
>Would you agree that a hypothetical extremely communist society is automatically allocating capital correctly?
no, and I dont see how that follows at all. I think the opposite is more likely true due to the lack of markets. End stage communism is stateless (but that is a tangent).
If you have a single investor/state and law says exactly where the money goes, I would say that low capital efficiency is a policy failure, not a failure of the market to allocate.
I think this comes down to confusion of what a market is. A market has private buyers and sellers making exchange.
I grant that you could have a poor capital allocation by a government. I think the part that I vehemently disagree with is calling that a "market misallocation".
I suppose we're done here then, we don't agree on the terminology and there isn't much to be done.
It isn't important but if you can point at large community who uses capital allocation in that sense I'd be interested to know it. It seems like a weird usage to me because it would seem to imply that a fully (or even heavily) planned economy either doesn't have capital or don't allocate it; both flawed implications.
> I think the part that I vehemently disagree with is calling that a "market misallocation".
I didn't. I've been quite specifically talking about US government policy causing capital misallocations. The US bankers are generally very keen on the idea of getting richer and the US wouldn't have the sort of real metric stagnation it has if the policy settings weren't visibly stupid. Indeed, even then the market has attempted to reset the situation multiple times (politically interesting examples are '07, introducing Bitcoin and SVB's failure) and generally been stymied by active interventions to keep incompetent investors wealthy.
OK, I have been operating under the assumption that the capital allocation under debate was with respect to private markets because we started with the pricing of publicly traded stock pricing. Looking through the sequencing, I do note that you didn't specifically call out markets in your comments, and it was others invoking the idea of market failure of some sort.
It seems like I do agree with your assessment of government policy, but I still dont get where you were going with the communist thing.
Energy usage seems like a pretty bad indicator to start with, given vast efficiency improvements in nearly every aspect of industry?
As a contrary example, we might well see energy usage massively surge here in the short run due to generative AI. And at this point there’s not much evidence there’s actually much real GDP value creation yet in any of that at all.
Can you point me to any discussion of it being 10 to 20 years?
I'd like to read more about that because it feels like that could provide insight into politics/policy more broadly. For example, if someone came up with a solution for the housing crisis but it would take more than 10 to 20 years, would people view that as effectively no solution at all?
> if someone came up with a solution for the housing crisis but it would take more than 10 to 20 years, would people view that as effectively no solution at all?
If it made things worse short term, absolutely! Rent control is the opposite, it makes things worse long term but better short term, and people love to vote for that, so we already know the answer.
> Rent control is the opposite, it makes things worse long term but better short term...
In general, rent control regulation is SUPER, SUPER BAD and absolutely will turn everything to shit.
However, local conditions and the particulars of what is being called rent control matter A LOT.
The only rent control laws I'm intimately familiar with are those in San Francisco. I'm also somewhat familiar with the history that caused such regulations to be enacted in major cities in the state.
About the regs in SF:
* The rent control regulation in SF is more-correctly called "rent stabilization". Once all original tenants (termed "master tenants" in the regs) on the lease move out, the covered unit can be rented at any price. Until all master tenants move out, the base rent for the unit may only be increased by 60% of the Urban CPI in the Bay Area. Many other costs may be passed through at 100%.
* SF's Rent Stabilization only applies to residential buildings built BEFORE 1979. [0] Construction NEWER THAN 1979 IS NOT COVERED by Rent Stabilization, unless the owner of the building chooses to be covered by it. [1] Commercial non-residential buildings are NOT COVERED by SF's Rent Stabilization.
* It is super duper not permitted for a particular human to be a "master tenant" in more than one apartment. If you do this, are discovered, and someone complains to the Rent Board, you will quickly find yourself paying whatever the landlord cares to charge for all of those apartments.
About the history of Rent Control in California:
Two words: "Proposition Thirteen".
Wind back to the mid-to-late 1970s in California. Rents are spiraling upwards, out of control, and have been for years. Folks are getting extremely worried about being able to pay the rent. Proposition 13 is proposed as a solution... landlords SWEAR that they can't do anything BUT increase the rents because property valuations are SOARING. If only Californians could vote to limit annual property tax increases to no more than 2% per year (unless that property changes hands... except for a "few" exceptions), then landlords would finally be able to keep rents in control. Mix those promises in with a few commercials and full-page ads about "How will granny keep her house if she can't pay the tax man??" and Prop 13 passes.
Well, some time passes and rents keep spiraling out of control. Turns out the landlords were full of shit. So, to match landlords' new, shiny "Property Tax Control", major cities enacted various Rent Control and Rent stabilization ordinances.
Two things I super want to point out here: Prop 13 applies to ALL property in the state, residential, non-residential, commercial, and non-commercial built at ANY time. SF's Rent Stabilization regs ONLY apply to residential property that's being rented to tenants, and ONLY buildings built before 1979. SF's rent control regs are absolutely NOT why SF has been failing and continues to utterly fail to build even a tiny fraction of the housing required to meet local demand.
[0] Nor does it apply to buildings being used as single-family homes, nor to many-to-most condominiums.
[1] It's my understanding that this has happened exactly once. Trinity Place is a very large apartment complex. In order to build it, a much smaller motel-style pre-1979 apartment building with like ten or twenty apartments needed to be demolished. The owner of the land and the building reached an agreement with the city to forever subject ten or twenty units in his new building to the Rent Stabilization regs so as to provide the residents of the motel-style building (and any and all future tenants of those units) with 1:1 replacements for the Rent Stabilized apartments. All other apartments in the big-ass complex are "market rate" apartments.
> Well, some time passes and rents keep spiraling out of control. Turns out the landlords were full of shit. So, to match landlords' new, shiny "Property Tax Control", major cities enacted various Rent Control and Rent stabilization ordinances.
Prop 13 wasn't driven by landlords, it was driven by higher housing prices forcing out retirees. The two aren't really connected. Prop 13, enacted in 1978, actually set property value at 1976 levels, so property taxes didn't just stop going up a lot, they went down.
And the timing doesn't really work out. Prop 13 was passed in 1978 and rent control was enacted in SF in 1979. If anything, Prop 13 helped drive rent control as landlord's no longer could claim that property tax increases would bankrupt them.
> ...it was driven by higher housing prices forcing out retirees.
That's part of it, yes.
As I mentioned:
> Mix those promises in with a few commercials and full-page ads about "How will granny keep her house if she can't pay the tax man??" and Prop 13 passes.
> And the timing doesn't really work out. Prop 13 was passed in 1978 and rent control was enacted in SF in 1979.
What? A ~year is very reasonable amount of time to discover whether landlords' promises of reining in rents because of the property-tax-payment-control they just got gifted were genuine. That's not something you're going to find out in a month or a quarter.
How would you view it if you were 30 years old, unable to buy a house, and if it was affecting you directly ?
Would you rationnaly evaluate the situation and say 'yeah, that's fine, it will be better for my kids' or rather feel a very justified anger that bad politics effectively cost you ... the ability to buy a place to live during your, checking notes, only life you have on this earth ?
If you need can afford a house but it take 30 years for a return, then most people are still happy.
Inversely, If it is a 10 year ROI, but you cant afford it, they are unhappy.
If you look at the US housing market of the last decade or two, the issue is closer to the 2nd case than the first. Base price is out of reach for most, but those that get have a excellent returns.
I was extremely jealous when I couldn't by a first house but my friend who could pay 1 million did so, only to sell it 2 years later for 2 million. He did it again and now his current house is in the 6-8 million range, and I'm just getting in the market.
A big part of the social contract behind society is something like "the working class agrees to respect the private property rights of the capital class, in exchange society ensures that they are able to maintain a decent standard of living". Many people consider owning a home part of "a decent standard of living" both due to the economic stability it provides and due to the autonomy it provides.
Another way to look at it is that a home is the primary large piece of property that most people own. Therefore, owning a home gives people a stake in a capitalist society.
What both of these are getting at is that if common people are unable to buy a house then they are less likely to feel obligated to support the rules that society is built upon.
I wonder how Japan's 46% Buddhist population, which believes in reincarnation, checks religious texts, meaning they get another life on Earth,
factors in here.
Not really discussion, but if you look at long-run low-risk investments like bonds, people invest in things that pay back in <50 years. As the risk profile increases and you get to high-risk investments like stock that tend to pay back in <25 years. A company like Google is 25 years old, expecting it to even exist in another 25 years involves a certain level of optimism - companies have lifespans just like everything else. But ultimately any preference is implied, it isn't the sort of thing people can be surveyed on (revealed economic preferences and all that).
> For example, if someone came up with a solution for the housing crisis but it would take more than 10 to 20 years, would people view that as effectively no solution at all?
That does sound like it'd be a politically hard sell. People generally expect governments to implement their solutions inside a decade. Not an entirely rational expectation, but nonetheless.
To flip the burden of proof, 30 year ROIs imply that people are routinely sitting down and having serious conversations where they expect to make their money back over 30 years assuming literally nothing goes wrong. Any bankruptcies and they are in the negatives. Any stock price drops and they are probably in the negatives. If you believe that is the norm where people are comfortable, I hope to see you in the conversation next time people on HN attack stock market investors for being too focused on the next quarter!
> we seem to have some serious capital misallocations
People are too zealous about the virtues of market economy to see plain truths staring them in the face. The China example is excellent. There's no lack of investment opportunities with huge roi (industrializing, infrastructure, etc parts of the world not having western living standards) but the market is unable to prioritize them above hype and incremental improvements for already well off populations.
I dont think there is a conspiracy where all capitalists refuse obvious profits that can be made in the 3rd world, and not one of them is greedy enough to go for it.
Instead, I think there are some very real barriers to returns in these locations making them much less profitable and worse investments.
It's a lot more complicated than that. There are advantages to having Capital chasing investments and high pER. As a thought experiment, consider what factors would have to be true for extremely cheap assets, say a PER of 1.
> As a thought experiment, consider what factors would have to be true for extremely cheap assets, say a PER of 1.
The singularity? The bad things you are thinking about doesn't come from assets being cheap, they are flaws that causes the asset to be cheap for other reasons. All else being equal it is better when things are cheaper.
I don't think it necessarily needs to invoke a singularity. It just means that the cost of capital is low relative to the value of goods produced. You can find examples of this today.
If I am a small scale fisherman from a pier, I might be happy to sell my business for one year's revenue. The pole only costs $200, and the vast majority of the value is created through my time and labor. I'll be happy to recieve my annual earnings of say $20,000, sell you the business, buy a new pole and see you out on the pier tomorrow.
Inversely, if I run a semiconductor Fab that billions of dollars in construction, the situation might be the opposite because there is a vast amount of value tied up in the infrastructure that is not represented in my earnings number.
> If I am a small scale fisherman from a pier, I might be happy to sell my business for one year's revenue. The pole only costs $200, and the vast majority of the value is created through my time and labor. I'll be happy to recieve my annual earnings of say $20,000, sell you the business, buy a new pole and see you out on the pier tomorrow.
This is a good example, imagine having to spend $200k just to get a fishing pole? That isn't a good thing, that is asset inflation, cheaper assets is better. Many modern evaluations are on that level, you pay a ton and get very little.
For future inflation. It was relatively low between 2010 and 2020 and has been reducing at a fairly fast pace recently. It’s not obvious it won’t go back to the baseline.
Some investors and economists have been saying for several years that there is an "everything bubble" that inflated in the ZIRP era–stocks, bonds, real estate, art, etc. Asset prices completely detached from their underlying intrinsic value. The belief is that zero interest rates have caused the inflation, and with the end of ZIRP, prices will collapse. Earliest reference to the term I can find dates back to 2017. To my knowledge, Jeremy Grantham, a famous investor, is the most prominent advocate of this theory.
Yen jumped because Japanese central bank raised interest rate from abt 0 to 0.25% and this caused unraveling of pretty massive carry trade.
Carry trade is borrowing money at low interest rate (yen) and converting it into safe money yielding more (dollar). This is not as trivial as borrowing at 0% and investing at 5%, you also need to construct hedges against currency moves (to a certain point), so the profit margin can be low.
While 0.2% was a small change, a lot of funds who borrowed yen and converted into dollars started losing money. They wanted to close some trades so needed to buy yen (since they borrowed in yen and have to repay in yen to close the loan). This made yen rise and positions of more funds (who now have to repay more dollars to close yen loans) even more unprofitable as their currency hedges become very expensive. So more funds wanted to close carry trade positions. And so on.
This is not the only process that drove yen up, but it's a significant one.
- Interest rates up is a market reflection of more scarce capital
- more competition for capital leads to cheaper shares (hence the lower share price)
- and larger desire for foreign investment / less capital outflow to higher yielding / more capital scarce markets
- less capital outflow means fewer yen going out to be transacted for foreign currency (lower forex yen supply) and more investment going into the economy (higher forex yen demand)
- lower supply, higher demand, holding dollar steady (partial equilibrium) leads to higher yen relative to dollar
The BoJ chairman said in the Q&A afterwards that he sees them raising rates above 0.5%, possibly by year end.
The BoJ is also cutting back on the number of government bonds they're buying by half, from 6 trillion yen to 3 trillion yen each quarter.
The yen strengthened a lot in the past 2 weeks, from $1 / 160yen to $1 / 143 yen. This likely triggered a lot of margin calls, exacerbating the drop.
Basically, it was an aggressive and unexpected move.
> If Ueda's goal was to change his dovish image, he was clearly successful. "He sounded very hawkish today," said Hideo Kumano, chief economist at the Dai-ichi Life Research Institute. "He has made the market think more rate hikes are on the way."
> Only 26% of market players expected a rate rise, according to a survey of 181 bond investors conducted by Nikkei affiliate QUICK on July 23-25. Most investors expected a rate increase to take place either in September or October.
This reminds me of a lovely joke about two economists on a desert island creating an economic miracle of GDP-per-capita growth by repeatedly paying eachother to eat sand.
The opposite of this is factoring in devaluation of currency. There is no guarantee of a sudden collapse in a given time period. It could just be a slow deterioration of quantity and quality of products and services being produced, with uneven effects across different businesses.
To be honest, crypto is a rounding error compared to the movements we are observing in traditional markets. It has a very high psychological presence but its market cap is still essentially zero
When the market was less diverse or not even a "perfect" market. Now you have ETFs where institutions and people can access BTC in a full US compliant way.
It is as good as wind direction. It is instead a finger on the pulse of the scamosohere. It will crash at 10 minutes past the next SBF saga. Until then it is influenced by Paolo Ardoino and Micheal Saylor, Texas Grid Subsidies and now maybe Donald Trumps bid for election.
Certain people on this forum have an inflated view of their own understanding of the world while lacking epistemic humility.
That means the sky is falling no matter what the news is. I’m not going to take “recession” talk seriously from people that thought we were already in one.
Just so happens I watched this guy (Ian Caroll) yesterday predicting a global market crash. He was explaining that Banks are leveraged 100 to 1 in derivative trading. Eg. Goldman Sachs is sitting on 50 trillion in derivative trades (bets on stock prices) but has less than 1/2 trillion dollars in assets. It's the biggest bubble ever. 1 Trillion is equal to 1,000,000 Million.
It's caused by the fact the bank of Japan put up their interest rate by 0.25% last week? The second rate hike in years.
Japanese are extremely cautious and change isn't something they deal with on a frequent basis (Japan moves very slowly) so I think this freaked people out. I guess it might signal the end of the government prioritizing corporate profit over the well being of the populace, at least for a few years? Low interest rate, means the Yen would weaken further, which is great for major Japanese companies who deal heavily in exports. Any sign of this changing and it looks like investors run for the hills.
What else could be the cause ?