The everything bubble

[Core Shot]

https://www.oftwominds.com/blogsept1...ators9-18.html
Too lazy to post his charts. Maybe later.

Forget his personal agenda, the stats and charts are real

Thoughts?

[PB]

The nugget of truth is the size of Mt. Everest.

[Harry]

Good link.

[DBdude]

yeah, the guy is an idiot. it's always been this risky. just different risks at different points in time

how to hedge housing? what a laugh. you need to live somewhere. if it works out that you make money on it, great! if you are investing in family homes, it's not guaranteed money. It's an investment and a business.

[riser4]

Great analysis. Yet another illustration of how market capitalism is bad for people.

[Buster Highmen]

What percentage of our GDP is comprised of financial instruments? Limit this to bank and stock markets. Is there a trend in that percentage?
http://www.people.hbs.edu/dscharfste...inance_jep.pdf


(^from http://cepr.net/blogs/cepr-blog/the-...ance-in-graphs)

I think the question is whether this is healthy or sustainable.

[DBdude]

Great analysis. Yet another illustration of how market capitalism is bad for people.

yeah, i want the government to allocate economic profits

[schuss]

yeah, the guy is an idiot. it's always been this risky. just different risks at different points in time

how to hedge housing? what a laugh. you need to live somewhere. if it works out that you make money on it, great! if you are investing in family homes, it's not guaranteed money. It's an investment and a business.

Also, housing is only really bubbling up high. Selling demand below 300k is still fairly healthy and between lending rule tightening and people remembering 2008 I think it's only the aspirational luxury market that's bubbling as it's overbuilt compared to demand.

[Timberridge]

If you're worried about this, just rent everything. Then you don't have to worry about asset bubbles blowing up your nest egg.

[AdironRider]

Well everything I ultimately enjoy floats, flys or fucks, so I guess that is the prudent advice.

[DBdude]

you have expensive toys

[Timberridge]

There's somehow a stigma attached to renting which I don't get. I'd love to cash out of my house and rent something, but my wife won't have any of it.

[GeezerSteve]

There's somehow a stigma attached to renting which I don't get.

I know several independently wealthy individuals who rent their residences, and always have.

What percentage of our GDP is comprised of financial instruments? Limit this to bank and stock markets. Is there a trend in that percentage?
* * *
I think the question is whether this is healthy or sustainable.

From Investopedia: Financialization:

In the United States, the size of the financial sector as a percentage of gross domestic product has grown from 2.8 percent in 1950 to 7.9 percent in 2012.
* * *
. . . since the 1980s, the financial industry has chased short term financial returns over long term goals, which would require investment in technology and product development. One of the biggest reasons for this was simply a matter of Wall Street following its capitalistic instincts, which told them there was more profit in making money from money rather than in engineered products. Financial instruments provided quick returns with little fuss. They invested in software that facilitated this approach rather than investing in costly brick and mortar needed to build factories.

BIG private money has hedged this trend via purchasing hard assets with virtually guaranteed future value, e.g., huge tracts of farm land.

[neufox47]

Hedge funds and PE have been dumping money into reinsurance the last couple years. I’m told that is why insurance rates barely increased after the largest catastrophe year ever, 2017. They are currently attracted to it as it is not directly correlated to the stock market.

[Conundrum]

Hedge funds and PE have been dumping money into reinsurance the last couple years. I’m told that is why insurance rates barely increased after the largest catastrophe year ever, 2017. They are currently attracted to it as it is not directly correlated to the stock market.

PE is huge in insurance brokerages too, not just reinsurance. Many of the large national firms are PE owned now. And the PE folks are stuffing huge money into those houses to acquire smaller firms. Most of them were looking to IPO but the profits keep going up so the big firms held in PE portfolios are all talking M&A with each other now.

My prediction-when insurance/re-insurance markets start to harden, PE money will move out of reinsurance and all in to brokerages where the profit will be then they'll IPO the brokerages and move on to the next big thing. Everything will look rosey to those investors as a safe money haven based on the brokerage performance but the bottom will fall out a year or two after the next market correction and the shareholders will be left holding that bag. I don't know if the insurance market hardens before the next correction. If the correction is first, who knows. I can tell you the auto insurance market is hardening now. Expect to see 10-20% increases in the next year in both commercial and private.

We're also seeing crazy cat losses-fires, floods, wind/hail, etc. There's got to be a point where hedge/PE money will refuse to subsidize any longer. The last cycle didn't hold nearly as long as this soft market has. It only takes a couple large reinsurers to jump and it will snowball quickly.

[DBdude]

+1

[skaredshtles]

<snip> I can tell you the auto insurance market is hardening now. Expect to see 10-20% increases in the next year in both commercial and private.

Good. Will push us to autonomous cars faster.

Please, in the name of the FSM, deliver us to our robot overlords.

[Timberridge]

Good. Will push us to autonomous cars faster.

Please, in the name of the FSM, deliver us to our robot overlords.

Wait till we start fighting wars with robots, a la Star Wars.

[skaredshtles]

Wait till we start fighting wars with robots, a la Star Wars.

I think WRT that... we're going to realize that humans are cheaper.

[GeezerSteve]

Wait till we start fighting wars with robots, a la Star Wars.

[schuss]

PE is huge in insurance brokerages too, not just reinsurance. Many of the large national firms are PE owned now. And the PE folks are stuffing huge money into those houses to acquire smaller firms. Most of them were looking to IPO but the profits keep going up so the big firms held in PE portfolios are all talking M&A with each other now.

My prediction-when insurance/re-insurance markets start to harden, PE money will move out of reinsurance and all in to brokerages where the profit will be then they'll IPO the brokerages and move on to the next big thing. Everything will look rosey to those investors as a safe money haven based on the brokerage performance but the bottom will fall out a year or two after the next market correction and the shareholders will be left holding that bag. I don't know if the insurance market hardens before the next correction. If the correction is first, who knows. I can tell you the auto insurance market is hardening now. Expect to see 10-20% increases in the next year in both commercial and private.

We're also seeing crazy cat losses-fires, floods, wind/hail, etc. There's got to be a point where hedge/PE money will refuse to subsidize any longer. The last cycle didn't hold nearly as long as this soft market has. It only takes a couple large reinsurers to jump and it will snowball quickly.

Rate push is because sensors and complex paint have driven up repair costs unexpectedly. Insurance investment is a safish replacement for treasuries with better returns, and given all the capital around it's easy to get into the reinsurance game if you stick to safe bets.
US markets are already very competitive in most segments with tech sniffing around for potential profits. Any smart company is making their money elsewhere.

[Conundrum]

Proves my point and you are correct. More expensive repairs plus texting and driving and just flat out more people on the roads. They’re taking rate because their loss ratios suck. That makes brokerages more profitable because revenues are tied to premium volume. We’re already seeing deeper investments on that side. When the economy contracts, premium volume slows. It looks shiny on an IPO right before the contraction so the shares should be easy to sell. I could even see PE money coming back in once the stock goes low enough. Either way, it’s still part of the everything bubble if that’s the track we’re talking.

I might be way off on my prediction too.