The corona effect

[Roger101]

Olympics? no, they will be put off for sure. It should have been done by now!

so pleased I didn't have any stocks .......... have thought about it many times but my wife is not a fan

[eyeswideshut]

Bought more stocks (all world developed and emerging market) last night - the market's decline singed my eyebrows it was so fast! I wonder where the bottom will be? Anyway - I will continue to buy into this bear on a weekly basis until my dry powder runs out.

Putting my prognosticator hat on - I think we will not see much more downside over the next few weeks as governments start buying assets and passing massive fiscal stimulus packages so this could constitute an intermediate bottom in markets as the US Fed effectively is promising to be the counter-party to all sales. Wouldn't be surprised if we even saw a significant rebound in stock prices over the short to medium term. Long term - it all depends on how the situation plays out but I think there has been significant damage to the economies of the west and we are facing 'great depression' levels of unemployment over the coming months. In such a situation I don't think we will see a true recovery for years. But I hope I am wrong.

*edit for spelling

[DragonAsh]

REIT stocks and ETFs are getting smashed. I see some on the NYSE have dropped as much as 80%. However, I'm pretty confident that the big boys will bounce back. Likely a cut in dividends for the short term though.

I am not at all confident they will come back. At least overseas, this could devastate the office and residential real estate markets.

It's going to be fairly clear that for many jobs, WFH is viable. Given solid internet access and cameras, Zoom meetings are viable - obviously not as good as face-to-face interaction, but 70-80% as effective at a fraction of the cost.

So in 10 years, perhaps we'll look back and wonder why companies spending millions of dollars a year on rent in expensive office space in city centers wasn't just common, it was the norm.

What does that mean for office real estate?

And this leads me to the corollary subject - schooling from home. A Khan Academy-esque approach, with drills/video instruction, set time for asking questions...it can work. Which means who cares where you live, you can attend school anywhere (we already know this with higher education, but with the right teachers and right setup, it could work for all but the youngest school children).

This is less an issue in Japan, but think about how proximity to 'good schools' is a key driver of real estate prices in the US and UK, for example. But if where you live has little to do with the school you can go to...

What does that mean for residential real estate prices?

Some of the newer RJ readers may not remember me, but older posters may remember how I yelled at people to avoid bitcoin (sigh), yelled at people to avoid the lure of the 'loans in Japan are like free money', strongly encouraged people to pay down debt first and not play the 'take out a loan and invest instead' card, etc etc.

Congratulations, you're now sitting on debt, with a cratering stock market, and the possibility of a steep recession that could take months - if not years - to recover from. We've never seen a supply-side shock like this. Unemployment in the US and Europe could easily hit 20-30%. Congrats, now you're sitting on debt, with a cratering stock market, and you and your spouse are unemployed.

And I'm not just being sensationalist - a number of family friends are out of a job, with no clear visibility when the next paycheck will come in.

Priorities, people - get out of debt first. There will be plenty of time to invest during the correction - even ignoring the human pain and suffering likely ahead, if the economic downturn only lasts a year, I'd say we got off lucky.

[mighty58]

Interesting thoughts Dragon Ash, particularly on the effects on real estate and working, although I think schooling will always need the teacher and peer-interaction factor, so I don't see it going as far down the road of distance ed as might.

I'm not totally down with your "I told all y'all!" tone but I understand where you're coming from. Comfort levels around debt though, particularly in times like this, totally fall on how stable you perceive your income stream is. I've long been a critic of Japanese corporations' seishain HR systems myself, but I gotta admit I'm glad I am a seishain at a major corp right now. I know it's not a ironclad guarantee of job security by any means, but I also know I'm much lower down the pecking order if and when it came to making headcount cuts. Given that (relative) stability, I'm still comfortable holding my low-rate mortgage. And if I do get laid off, I know my years of saving/investing have given me a significant buffer so that I don't have to scramble to avoid finding myself out on my ass in three month's time. Now if I was still living paycheque-to-paycheque as a contract employee, spending all my disposable money on beer, women and vanity, like I was 10-15 years ago, then sure, I'd be sweating right now.

[Wales4rugbyWC23]

I think the government is being way too relaxed here, and it filters through to the general population.

We had 10,000+ people waiting in line here in Sendai to see the Olympic flame yesterday

Let's all be Olympics flames- and not go out, together we can beat the Corona virus.

[stevendorrans]

Some of the newer RJ readers may not remember me, but older posters may remember how I yelled at people to avoid bitcoin (sigh), yelled at people to avoid the lure of the 'loans in Japan are like free money', strongly encouraged people to pay down debt first and not play the 'take out a loan and invest instead' card, etc etc.

Congratulations, you're now sitting on debt, with a cratering stock market, and the possibility of a steep recession that could take months - if not years - to recover from. We've never seen a supply-side shock like this. Unemployment in the US and Europe could easily hit 20-30%. Congrats, now you're sitting on debt, with a cratering stock market, and you and your spouse are unemployed.

And I'm not just being sensationalist - a number of family friends are out of a job, with no clear visibility when the next paycheck will come in.

Priorities, people - get out of debt first. There will be plenty of time to invest during the correction - even ignoring the human pain and suffering likely ahead, if the economic downturn only lasts a year, I'd say we got off lucky.

Humility is a wonderful thing.

[Bubblegun]

The Japanese banks are saying they are going to put money into ETFs, and I’m wondering in the current climate, is that really a good idea?
The government/Bank pumping, pushing money into funds, stock markets, pushing up the prices. But actually pushing up the prices artificially? Similar to how CEOs buy back their own companies shares, pushing up the price? It just seems they’re artificially inflating prices.Especially if your salary bonus is dependent on stock prices
I wouldn’t say I know everything about them, but it seems Banks/governments suddenly have found a money tree, when it was only a few years months ago people, and services were struggling, and everyone said “there is no money tree” or for the future elections “ we can’t afford this ,eg increase minimum wages, or , we can’t afford that” now it seems that when a government sees the stock market go into a dive, they seem to want to “possibly” bail out, huge companies.
Infact as a landlord I have only just realized the knock on effects due to then current situation.
Eg tenant looses job, can’t pay rent.
Landlord can’t pay loans.
Landlord can’t pay insurance.( what’s gonna happen if you need to claim?) If everyone needs to skip a month or two.
Building insurance all needs to be payed, life insurance?
People in the GIG economy, being left high and dry by these companies and the governments not giving them legal protection. Not employed and not really self employed, no sick pay, no holiday pay......blah blah.
Unprecedented times but the knock effect is certainly going to be felt, and it makes me wonder if the stock market was just a slight of hand by some CEOs, or Government tax breaks to companies who didn’t increase salaries, but used it to buy their own shares back.
Definitely a little jaded at the moment.

[eyeswideshut]

My # 1 worry is a resurgence of inflation. With governments pumping money into the economies and providing unlimited low or 0 yielding credit to banks and corporations, we will have a lot of money chasing after a diminishing set of supplies due to supply chain disruptions. I am no economic genius but I think that necessarily would lead to inflation and probably a second asset bubble at some point. Which, somewhat ironically, means that stocks are the best thing to be invested in even as the market tanks. Over the long run stocks (and maybe gold) have offered good protection against inflation. Residential real estate is probably also pretty safe - commercial real-estate less so IMO. Anyway I was about 40-60 stocks/bonds and other assets prior to this crash and my goal is to get myself up close to 60-70% in stocks over the next year or so.

[Bubblegun]

My # 1 worry is a resurgence of inflation. With governments pumping money into the economies and providing unlimited low or 0 yielding credit to banks and corporations, we will have a lot of money chasing after a diminishing set of supplies due to supply chain disruptions. I am no economic genius but I think that necessarily would lead to inflation and probably a second asset bubble at some point. Which, somewhat ironically, means that stocks are the best thing to be invested in even as the market tanks.

I’m not worried that this would cause any inflation and to be honest maybe some inflation mightn’t be a bad thing.... infact I wonder if the government would like inflation to be a tad higher so it can whittle away the value of their debt. Although if they’ve borrowed a lot there could be a downside if the interest rate go up, then they’ll need more taxes to pay the interest on the loans.
But back to your point about this money causing inflations. I thought about this before when all the governments said they couldn’t afford this or that but could afford massive company tax breaks. Which the companies then used to buy back the companies shares. Wouldn’t this artificially cause share inflation? Great for the share holder or fund holder, but it just seems like moving the money from one set of people to another set of people. A slight of hand on choosing where Money goes.
Give the money to joe blogs, everyone worries about hyperinflation, give it to the banks for home loans, it causes house inflation and an asset bubble because people borrow more and pay more for a home, then they can’t afford to buy,( the UK is a good example) then they give massive tax breaks to the corporations, and they buy back their own shares, causing the shares to artificially inflate. One thing is for sure what goes up must come down, eventually!
I think it was only a few months ago the USA , UK were saying they couldn’t afford anything. Now there are Food banks , people couldn’t really get wage rises or employment protection. Now all of a sudden the money tree appears.
I worry about the world being stuck like Japan. Borrowed up to the hilt, they can’t afford interest rate to go up, wages are stagnant, and eventually the debt must be repaid. We are basically a debt economy, and with a demographic problem on top, they’ll turn to higher taxation or dare I say it..... higher immigration to expand a consumer/tax base. Have things tilted too much towards the stock markets, as the only gauge of how a country is performing.

[DragonAsh]

Inflation?

Inflation is the very last thing we need to be worried about right now. If we really do face a bad/really bad scenario, we're talking widespread unemployment, healthcare system razed to the ground and real estate market is destroyed - there's zero risk of inflation in that scenario; in that scenario we're looking at another round of persistent *deflation*, with severe downward pressure on wages and an even greater chasm in the part-time vs seisha-in divide.

You know who deflation is bad for? People with debt.

Modest inflation would be a very good thing, as it would encourage spending, investment, debt repayment is easier etc.

Now, I think Japan is in a better place to survive a bit longer. It's an older population (deflation is great for senior citizens on fixed pension income). The labor market was already super tight, and seishain are relatively unlikely to lose their jobs, so unemployment is not going to be as bad as it will be in the US (underemployment is and will remain a chronic problem though). The healthcare system is relatively solid (but facing a pretty significant shortage of care providers in the next few years and that's even before assuming any coronavirus impact). But it could still be a really tough few years.

The US, on the other hand - yikes. The so-called 'richest country on earth' could easily be facing either widespread economic carnage plus the risk of the idiot in the White House trying to convince everyone that a few million poor people and immigrants dying to save the stock market is worth it.