The Investment Thread

[Fear The Chorizo]

45 minutes ago, wallus said:

Nah, I would take an argument that the student loan repayment is going to have a bigger effect than unemployment/participation rate. We are FAR away from worrying about that.

The fact that borrowers with current student loan balances, a relatively small percentage of the overall American population, simply have to resume repaying loans they've had over 3 years of a grace period to make payments on (when they could've actually paid them off during this period anyways), is likely to have any sort of impact on economic growth/consumer spending should tell you how precarious things are.

 

[wallus]

4 hours ago, Fear The Chorizo said:

The fact that borrowers with current student loan balances, a relatively small percentage of the overall American population, simply have to resume repaying loans they've had over 3 years of a grace period to make payments on (when they could've actually paid them off during this period anyways), is likely to have any sort of impact on economic growth/consumer spending should tell you how precarious things are.

 

According to the business/market station I was watching this morning, they said this will affect 40 million Americans with an average payment of $250 per month. That is not insignificant. 

[Fear The Chorizo]

57 minutes ago, wallus said:

According to the business/market station I was watching this morning, they said this will affect 40 million Americans with an average payment of $250 per month. That is not insignificant. 

But it also shouldn't be substantial in terms of macroeconomics for a nation of ~350 million people, many of which already paid their loans back or never went to a college to take on that debt.  The fact that now 40 million people will have to resume paying a couple hundred bucks a month (on average, of course) to pay back a loan they voluntarily agreed to instead of making an extra run to a big box store or night out to dinner could significantly alter economic growth is a problem...not one that the stock market really cares about (at least until it realizes the ramifications of consumer spending being that stressed), but that's the reason I view the current economic climate as precarious at best.

[wallus]

7 minutes ago, Fear The Chorizo said:

But it also shouldn't be substantial in terms of macroeconomics for a nation of ~350 million people, many of which already paid their loans back or never went to a college to take on that debt.  The fact that now 40 million people will have to resume paying a couple hundred bucks a month (on average, of course) to pay back a loan they voluntarily agreed to instead of making an extra run to a big box store or night out to dinner could significantly alter economic growth is a problem...not one that the stock market really cares about (at least until it realizes the ramifications of consumer spending being that stressed), but that's the reason I view the current economic climate as precarious at best.

Yeah when people freak out about gas going up a quarter a gallon which comes out to less than what this will cost them...

[Fear The Chorizo]

4 hours ago, wallus said:

Yeah when people freak out about gas going up a quarter a gallon which comes out to less than what this will cost them...

Very true...at least directly.  Gas going up a quarter thins the margins for all products delivered or provided, which leads to price increases in other ways though. 

Gas prices as a whole have been stagnant this summer...but the SPR also hasn't been replenished one bit and remains at levels not seen since the early 1980s....probably a wise thing at the moment but the govt is also wasting a golden opportunity to replenish when prices are reasonably low due to diminished global oil demand because of floundering economic growth.

 

[wallus]

4 minutes ago, Fear The Chorizo said:

Very true...at least directly.  Gas going up a quarter thins the margins for all products delivered or provided, which leads to price increases in other ways though. 

Gas prices as a whole have been stagnant this summer...but the SPR also hasn't been replenished one bit and remains at levels not seen since the early 1980s....probably a wise thing at the moment but the govt is also wasting a golden opportunity to replenish when prices are reasonably low due to diminished global oil demand because of floundering economic growth.

 

Except it has? https://www.wsj.com/livecoverage/stock-market-today-dow-jones-06-09-2023/card/the-u-s-has-started-to-refill-its-strategic-petroleum-reserve-fd8oPYWqYIgkub7QKgeg

[Fear The Chorizo]

34 minutes ago, wallus said:

Except it has? https://www.wsj.com/livecoverage/stock-market-today-dow-jones-06-09-2023/card/the-u-s-has-started-to-refill-its-strategic-petroleum-reserve-fd8oPYWqYIgkub7QKgeg

3 million barrels is nothing...and this was supposed to start happening early this year at a much higher rate but they are hesitant to put any extra strain on oil markets that would drive its price higher and cause more pain at the pump.  The SPR is actually down this year compared to where it was when they stopped drawing it down late last year. 

It's a fine line to walk until they get another 150-200 million barrels back into the reserve hoping there isn't a significant geopolitical event or natural disaster that creates a need to rapidly draw down the reserve for daily supply needs.

[wallus]

1 hour ago, Fear The Chorizo said:

3 million barrels is nothing...and this was supposed to start happening early this year at a much higher rate but they are hesitant to put any extra strain on oil markets that would drive its price higher and cause more pain at the pump.  The SPR is actually down this year compared to where it was when they stopped drawing it down late last year. 

It's a fine line to walk until they get another 150-200 million barrels back into the reserve hoping there isn't a significant geopolitical event or natural disaster that creates a need to rapidly draw down the reserve for daily supply needs.

You literally said "but the SPR also hasn't been replenished one bit". I was just providing an article that proves that is false and they have started buying, even if a little bit.

[Fear The Chorizo]

On 6/30/2023 at 11:03 PM, wallus said:

You literally said "but the SPR also hasn't been replenished one bit". I was just providing an article that proves that is false and they have started buying, even if a little bit.

Should have been more specific, as these sales replace a fraction of the 23M barrels of additional oil released from the SPR in early 2023 that was congressionally mandated from previous legislation, which wasn't at all part of the ~200M barrel siphoning done last year.

So they'll need to buy 7 more similar volumes to the article you cited to get back to where things were end of 2022.  And I'd imagine there's another mandated sale from the reserve set to happen in early 2024.  If they wanted to replenish the reserve, there'd be alot more oil getting bought by the government.

[owbc]

 

On 6/30/2023 at 8:58 AM, Fear The Chorizo said:

The fact that borrowers with current student loan balances, a relatively small percentage of the overall American population, simply have to resume repaying loans they've had over 3 years of a grace period to make payments on (when they could've actually paid them off during this period anyways), is likely to have any sort of impact on economic growth/consumer spending should tell you how precarious things are.

 

There are 43 million people who owe student loans and the average monthly payment is something like $300 or $400. So you can do the math on that and see how much money is going to be coming out of the economy every month starting this fall. It's absolutely going to put a noticeable dent in consumer spending (I would guess low-to-mid single digit percentage but that's still significant). 

I can't imagine more than a quarter of people with student loans actually stashed away those payments (and I say that as someone who did). You would have to have been an idiot to make payments while the interest rate was zero. Most people just spent the money because many needed to and the rest have the financial literacy of the average American or worse. 

I doubt there will be many defaults, most will go on income-based repayment plans and whatever other help the Biden admin comes up with. 

I don't mind paying them back but after what happened with the PPP loans it feels kind of icky. Given the interest rates of mine and my income, the math says I should be frugal and pay then down quickly so I probably will. 

[nate82]

11 minutes ago, owbc said:

You would have to have been an idiot to make payments while the interest rate was zero.

What?

All of your payments would have gone to the principal at 0%.  You are saving money while paying down the debt.  The only way it would make sense is if you were investing all of those payments at a higher rate than your interest rate.  Which I doubt more than 1% of the people were doing this.

If they made even just half of their regular payments they would have reduced their debt significantly.  I continued to pay mine and I just paid all of mine off.  All because of the 0%.  I cut my final payment date by about 2-years.  

[homer]

My last student loan payment for grad school is in two weeks. Woo hoo!

[owbc]

10 hours ago, nate82 said:

What?

All of your payments would have gone to the principal at 0%.  You are saving money while paying down the debt.  The only way it would make sense is if you were investing all of those payments at a higher rate than your interest rate.  Which I doubt more than 1% of the people were doing this.

If they made even just half of their regular payments they would have reduced their debt significantly.  I continued to pay mine and I just paid all of mine off.  All because of the 0%.  I cut my final payment date by about 2-years.  

Why didn't you invest the money and do a bulk payment when interest collection resumes? 

[nate82]

45 minutes ago, owbc said:

Why didn't you invest the money and do a bulk payment when interest collection resumes?

Because the amount wouldn’t have been worth it for me.  It was less than $9k.  If it was higher sure but at how much I had left it was better to just pay each month.

For the vast majority of people who are bad with financial planning it would have been better for them to continue paying on their student loans when it was at 0%.  With all of their payments going to principal it would have reduced their debt amount.

 

On another point if someone wants their student loan debt forgiven I would be all for it if they are willing to pay an extra 5% tax on their income until the loan amount is paid off.  This goes against my Libertarian ideals on taxes but I think this would be a simple solution to this issue.  The loans still get paid back but are instead paid based on the job you get from your degree.

[owbc]

34 minutes ago, nate82 said:

Because the amount wouldn’t have been worth it for me.  It was less than $9k.  If it was higher sure but at how much I had left it was better to just pay each month.

For the vast majority of people who are bad with financial planning it would have been better for them to continue paying on their student loans when it was at 0%.  With all of their payments going to principal it would have reduced their debt amount.

 

On another point if someone wants their student loan debt forgiven I would be all for it if they are willing to pay an extra 5% tax on their income until the loan amount is paid off.  This goes against my Libertarian ideals on taxes but I think this would be a simple solution to this issue.  The loans still get paid back but are instead paid based on the job you get from your degree.

Makes sense.

Curious to hear your libertarian perspective on PPP loans. 

[Fear The Chorizo]

 

13 hours ago, owbc said:

 

There are 43 million people who owe student loans and the average monthly payment is something like $300 or $400. So you can do the math on that and see how much money is going to be coming out of the economy every month starting this fall. It's absolutely going to put a noticeable dent in consumer spending (I would guess low-to-mid single digit percentage but that's still significant). 

I can't imagine more than a quarter of people with student loans actually stashed away those payments (and I say that as someone who did). You would have to have been an idiot to make payments while the interest rate was zero. Most people just spent the money because many needed to and the rest have the financial literacy of the average American or worse. 

I doubt there will be many defaults, most will go on income-based repayment plans and whatever other help the Biden admin comes up with. 

I don't mind paying them back but after what happened with the PPP loans it feels kind of icky. Given the interest rates of mine and my income, the math says I should be frugal and pay then down quickly so I probably will. 

Sorry, but I paid the last of my student loans down by early 2021, admittedly was close to the end of my repayment anyway when the government decided to let them slide interest free...I'd do that every damn time again so I didn't have the extra $150 a month bill knowing where inflation was taking prices regardless of when payments had to resume.  Anyone who didn't see prices skyrocketing while the govt was printing money was kidding themselves.

For the people who stopped paying and will need to resume, I'm sure it will be a jolt because everything costs more today than it did 3 years ago.  Will that cripple their discretionary spending if they have a large loan balance?  Yes it probably will, and frankly it should so they can get their own financial house in order.  Those payments have to resume sometime.  

As for investing the monthly payments and then making a bulk payment when it finally does resume, in a perfect world sure, but you run the risk of losing money on the investment or having it tied up somewhere where you can't immediately take it out without taxes or other penalties.  If you can eliminate a debt payment, in my book you eliminate it.

[nate82]

5 hours ago, owbc said:

Curious to hear your libertarian perspective on PPP loans. 

Since they come from the SBA I don't really have a big problem with them though we shouldn't really be giving away money.  This also shouldn't be forgiven either.  I am fine with taxes where if you borrow from the government either student, business or other types of loans that you would have to pay it back as a tax.  I would be fine with that and I think it would actually make the economy stronger if we moved to something like that and just removed all personal income taxes. 

[zurch1818]

My libertarian take is as follows:

For the duration that the PPP loan was issued, a wall-run business should have had enough retained earnings to cover the business expenses and not needed take out a loan to cover this.

If they didn't, they should have closed down (at least temporarily) and the employees should go on unemployment and gotten paid through that. We already had a system in place to cover this. There is no reason a new inefficient government program was needed.

In hindsight, the PPP loan just was too susceptible to fraud since the employer was getting paid upfront and could take advantage of the government. I think business owners agreed to take on risk when they opened a business. With higher risk comes possible higher reward (higher compensation). In my opinion, businesses should be grown at the speed of cash. It's slower but much more sustainable and can weather storms such as pandemics.

On the other side of the equation, I feel that car and student loans both need to be given based upon your earning potential. There is no reason why someone should qualify for $100k+ loan for someone that will have an earning potential of $40k. That's how the whole student loan debt debacle started. There are other more affordable options to get the training you need for your career. Where you go to school is not a major factor when getting hired.

Mortgages are the same way. When I got my mortgage, I was pre-approved to buy a house that would have had a payment of nearly half my net home pay which is just financial suicide.

Now I've mentioned this before, but I am now a year into paying off my house early. It's been great. My 401k deferral is at 18% and I can adjust it as needed. It is making saving for a minivan to buy with cash so easy since we have more positive cash flow than when we had a mortgage payment. To me the cash flow vs. the potential to earn a little more interest(other risk) is just not worth it. Let me give an example:

I just opened a HYSA (since I have positive cash flow and am saving for a minivan) and it gets 4.25%. That means for every $1,000 saved, I get $42.50. That is not life changing money for me.  Point being, playing the interest game just isn't worth all the hassle of having a separate account...especially if something goes wrong and I need the money. Just pay your loans off as fast as you can. That was you can't cheat on yourself either. If you need to pay them off faster, a second job/side hustle is going to be more effective than playing the interest game.

[homer]

Libertarians support unemployment benefits?

[Fear The Chorizo]

5 hours ago, homer said:

Libertarians support unemployment benefits?

When the choices are to utilize the existing unemployment system to pay people forced out of work by government mandated business shutdowns, or to pay them under another government program hastily created and full of loopholes for fraud with printed money that accelerates debt spending not to replace unemployment but in addition to it, I'd imagine libertarians would be in favor of unemployment benefits, yes.

[zurch1818]

3 hours ago, homer said:

Libertarians support unemployment benefits?

Yes. At least this moderate one does. There are crazies that are in each political party that give each party a bad name (democrats, republicans, and even libertarians).

Employees shouldn't suffer because the company ownership didn't prepare for a storm...or a government mandated shutdown. It is the exact reason why unemployment benefits make sense.

Now if that was an employee that never showed up for work, slept on the job...then full unemployment benefits don't make sense. It's a spectrum that is hard to quantify which makes this such a touchy subject.

[owbc]

 

On 7/4/2023 at 4:47 AM, zurch1818 said:

My libertarian take is as follows:

For the duration that the PPP loan was issued, a wall-run business should have had enough retained earnings to cover the business expenses and not needed take out a loan to cover this.

If they didn't, they should have closed down (at least temporarily) and the employees should go on unemployment and gotten paid through that. We already had a system in place to cover this. There is no reason a new inefficient government program was needed.

In hindsight, the PPP loan just was too susceptible to fraud since the employer was getting paid upfront and could take advantage of the government. I think business owners agreed to take on risk when they opened a business. With higher risk comes possible higher reward (higher compensation). In my opinion, businesses should be grown at the speed of cash. It's slower but much more sustainable and can weather storms such as pandemics.

On the other side of the equation, I feel that car and student loans both need to be given based upon your earning potential. There is no reason why someone should qualify for $100k+ loan for someone that will have an earning potential of $40k. That's how the whole student loan debt debacle started. There are other more affordable options to get the training you need for your career. Where you go to school is not a major factor when getting hired.

Mortgages are the same way. When I got my mortgage, I was pre-approved to buy a house that would have had a payment of nearly half my net home pay which is just financial suicide.

Now I've mentioned this before, but I am now a year into paying off my house early. It's been great. My 401k deferral is at 18% and I can adjust it as needed. It is making saving for a minivan to buy with cash so easy since we have more positive cash flow than when we had a mortgage payment. To me the cash flow vs. the potential to earn a little more interest(other risk) is just not worth it. Let me give an example:

I just opened a HYSA (since I have positive cash flow and am saving for a minivan) and it gets 4.25%. That means for every $1,000 saved, I get $42.50. That is not life changing money for me.  Point being, playing the interest game just isn't worth all the hassle of having a separate account...especially if something goes wrong and I need the money. Just pay your loans off as fast as you can. That was you can't cheat on yourself either. If you need to pay them off faster, a second job/side hustle is going to be more effective than playing the interest game.

 In my view the biggest risk in repaying federal student loans too soon is that I would miss out on a forgiveness program. I didn't quality for the $10K forgiveness so that one was no personal loss to me, but various other options have been floated that I would have qualified for. I'm especially interested in proposed reductions to interest rates or accrued interest.

I don't know how you estimate earnings potential from a college or college major. The biggest issue was people who took the loans and then didn't finish their college degree. Some of the people in the worst financial shape with loans are doctors and lawyers. 

[igor67]

Over the decades the various student loan programs and forgiveness options have just built a litany of problems (some I would argue fit a lay person definition of fraud). As a less common example I discovered the hardway over a decade ago that the public service forgiveness was a joke, and not even for all the reasons commonly given. It was heavily promoted at my private grad university as an option for all working on our licenses, but buried in all that red tape was that the forgiveness only ever worked for specific types of public loans. None of which were actually offered as part of my package to begin with. Frankly most of the loans I'd ever been offered did not qualify at that time. Then of course there was the standard repayment options defaulted to paying off your loan in 10 years anyway, so by time you qualify there is nothing left. I also realized that despite working in a major metro area, you can't guarantee that you get hired at a district that qualifies for the forgiveness option was a frequently overlook hurdle. Today of course you could almost guarantee your district qualifies, but fluctuating economic condition can alter whether or not your district qualifies over the course of 10 years. All of which just amplifies OWBC's point about all of these things being overly dependent on predicting the future. My teaching cohort actually had both an ex-physician and an ex-professional cyclist. So while I can try and play the complicated gymnastics, better policy is something simpler and more robust.

[homer]

3 hours ago, igor67 said:

 So while I can try and play the complicated gymnastics, better policy is something simpler and more robust.

Like grants.

 

I have worked at a not for profit for a while. I chose to refinance my grad school loans with a private bank instead of going for the 10 years precisely because I didn't trust the promises made would be good in ten years time.

[Fear The Chorizo]

I think just about any broad student loan forgiveness policy change/update needs to utilize university endowments as sources of forgiveness funds, or push to tie further tuition growth directly to a baseline inflation figure - until the main sources of ballooning student loan debt are held accountable (skyrocketing tuition due in large part to university largesse and excessive administrative costs, and large loans provided to students seeking degrees whose typical jobs don't pay close to the amount of salary needed for them to readily repay them without it severely handcuffing them financially for decades), this problem will only keep getting worse.

Public sector student loan forgiveness policy will drive people insane, and frankly that sort of thing should also be eliminated - a big reason it started out in the first place was to dampen the effect of rising tuition costs at universities by incentivizing students to take out larger loans upfront than they otherwise would, particularly for fields where you don't need to attend a 4-year university at $25K+ in tuition annually to get a degree and ultimately a job.