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    How Wall Street Escaped the Crypto Meltdown

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    Last November, in the midst of an exuberant cryptocurrency market, analysts at BNP Paribas, a French bank with a Wall Street presence, pulled together a list of 50 stocks they thought were overpriced — including many with strong links to digital assets.They nicknamed this collection the “cappuccino basket,” a nod to the frothiness of the stocks. The bank then spun those stocks into a product that essentially gave its biggest clients — pension funds, hedge funds, the managers of multibillion-dollar family fortunes and other sophisticated investors — an opportunity to bet that the assets would eventually crash.In the past month, as the froth around Bitcoin and other digital currencies dissipated, taking down some cryptocurrency companies that had sprung up to aid in their trading, the value of the cappuccino basket shrank by half.Wall Street clients of BNP who bet that would happen are sitting pretty. Those on the other side of the trade — the small investors who loaded up on overpriced crypto assets and stocks during a retail trading boom — are reeling.“The moves in crypto were coincident with retail money flooding into U.S. equities and equity options,” said Greg Boutle, who heads BNP’s U.S. equities and derivatives strategy group, which put together the trade. “There’s a big bifurcation between retail positioning and institutional positioning.” He declined to name the specific stocks that BNP clients got to bet against.In the great cryptocurrency blood bath of 2022, Wall Street is winning.“The moves in crypto were coincident with retail money flooding into U.S. equities and equity options,” said Greg Boutle of BNP Paribas.Benoit Tessier/ReutersIt’s not that financial giants didn’t want to be part of the fun. But Wall Street banks have been forced to sit it out — or, like BNP, approach crypto with ingenuity — partly because of regulatory guardrails put in place after the 2008 financial crisis. At the same time, big money managers applied sophisticated strategies to limit their direct exposure to cryptocurrencies because they recognized the risks. So when the market crashed, they contained their losses.“You hear of the stories of institutional investors dipping their toes, but it’s a very small part of their portfolios,” said Reena Aggarwal, a finance professor at Georgetown University and the director of its Psaros Center for Financial Markets and Policy.Unlike their fates in the financial crisis, when the souring of subprime mortgages backed by complex securities took down both banks and regular people, leading to a recession, the fortunes of Wall Street and Main Street have diverged more fully this time. (Bailouts eventually saved the banks last time.) Collapsing digital asset prices and struggling crypto start-ups didn’t contribute much to the recent convulsions in financial markets, and the risk of contagion is low.But if the crypto meltdown has been a footnote on Wall Street, it is a bruising event for many individual investors who poured their cash into the cryptocurrency market.“I really do worry about the retail investors who had very little funds to invest,” Ms. Aggarwal said. “They are getting clobbered.”Lured by the promise of quick returns, astronomical wealth and an industry that isn’t controlled by the financial establishment, many retail investors bought newly created digital currencies or stakes in funds that held these assets. Many were first-time traders who, stuck at home during the pandemic, also dived into meme stocks like GameStop and AMC Entertainment.They were bombarded by ads from cryptocurrency start-ups, like apps that promised investors outsize returns on their crypto holdings or funds that gave them exposure to Bitcoin. Sometimes, these investors made investment decisions that weren’t tied to value, egging on one another using online discussion platforms like Reddit.Spurred partly by the frenzy, the cryptocurrency industry blossomed quickly. At its height, the market for digital assets reached $3 trillion — a large number, although no bigger than JPMorgan Chase’s balance sheet. It sat outside the traditional financial system, an alternative space with little regulation and an anything-goes mentality.The meltdown began in May when TerraUSD, a cryptocurrency that was supposed to be pegged to the dollar, began to sink, dragged down by the collapse of another currency, Luna, to which it was algorithmically linked. The death spiral of the two coins tanked the broader digital asset market.Bitcoin, worth over $47,000 in March, fell to $19,000 on June 18. Five days earlier, a cryptocurrency lender called Celsius Networks that offered high-yield crypto savings accounts, halted withdrawals.Martin Robert has two Bitcoins stuck on Celsius Networks and is afraid he will never see them again. He had planned to cash the coins in to pay down debt.Bridget Bennett for The New York TimesThe fortunes of many small investors also began tanking.On the day that Celsius froze withdrawals, Martin Robert, a day trader in Henderson, Nev., was preparing to celebrate his 31st birthday. He had promised his wife that he would take some time off from watching the markets. Then he saw the news.“I couldn’t take my coins out fast enough,” Mr. Robert said. “We’re being held hostage.”Mr. Robert has two Bitcoins stuck on the Celsius network and is afraid he’ll never see them again. Before their price plunged, he intended to cash the Bitcoins out to pay down around $30,000 in credit card debt. He still believes that digital assets are the future, but he said some regulation was necessary to protect investors.“Pandora’s box is opened — you can’t close it,” Mr. Robert said.Beth Wheatcraft, a 35-year-old mother of three in Saginaw, Mich., who uses astrology to guide her investing decisions, said trading in crypto required a “stomach of steel.” Her digital assets are mostly in Bitcoin, Ether and Litecoin — as well as some Dogecoins that she can’t recover because they are stored on a computer with a corrupted hard drive.Ms. Wheatcraft stayed away from Celsius and other firms offering similar interest-bearing accounts, saying she saw red flags.Beth Wheatcraft, a mother of three, said trading in crypto required a “stomach of steel.”Sarah Rice for The New York TimesThe Bitcoin Trust, a fund popular with small investors, is also experiencing turmoil. Grayscale, the cryptocurrency investment firm behind the fund, pitched it as a way to invest in crypto without the risks because it alleviated the need for investors to buy Bitcoin themselves.But the fund’s structure doesn’t allow for new shares to be created or eliminated quickly enough to keep up with changes in investor demand. This became a problem when the price of Bitcoin began to sink rapidly. Investors struggling to get out drove the fund’s share price well below the price of Bitcoin.In October, Grayscale asked regulators for permission to transform the fund into an exchange-traded fund, which would make trading easier and thus align its shares more closely with the price of Bitcoin. Last Wednesday, the Securities and Exchange Commission denied the request. Grayscale quickly filed a petition challenging the decision.When the crypto market was rollicking, Wall Street banks sought ways to participate, but regulators wouldn’t allow it. Last year, the Basel Committee on Banking Supervision, which helps set capital requirements for big banks around the world, proposed giving digital tokens like Bitcoin and Ether the highest possible risk weighting. So if banks wanted to put those coins on their balance sheets, they would have to hold at least the equivalent value in cash to offset the risk.U.S. bank regulators have also warned banks to stay away from activities that would land cryptocurrencies on their balance sheets. That meant no loans collateralized by Bitcoin or other digital tokens; no market making services where banks took on the risk of ensuring that a particular market remained liquid enough for trading; and no prime brokerage services, where banks help the trading of hedge funds and other large investors, which also involves taking on risk for every trade.Banks thus ended up offering clients limited products related to crypto, allowing them an entree into this emerging world without running afoul of regulators.Goldman Sachs put Bitcoin prices on its client portals so clients could see the prices move even though they couldn’t use the bank’s services to trade them. Both Goldman and Morgan Stanley began offering some of their wealthiest individual clients the chance to buy shares of funds linked to digital assets rather than giving them ways to buy tokens directly.The headquarters of Goldman Sachs. Only a small subset of the company’s clients qualified to buy investments linked to crypto through the bank.An Rong Xu for The New York TimesOnly a small subset of Goldman’s clients qualified to buy investments linked to crypto through the bank, said Mary Athridge, a Goldman Sachs spokeswoman. Clients had to go through a “live training” session and attest to having received warnings from Goldman about the riskiness of the assets. Only then were they allowed to put money into “third party funds” that the bank had examined first.Morgan Stanley clients couldn’t put more than 2.5 percent of their total net worth into such investments, and investors could invest in only two crypto funds — including the Galaxy Bitcoin Fund — run by outside managers with traditional banking backgrounds.Still, those managers may not have escaped the crypto crash. Mike Novogratz, the chief executive of Galaxy Digital and a former Goldman banker and investor, told New York magazine last month that he had taken on too much risk. Galaxy Digital Asset Management’s total assets under management, which peaked at nearly $3.5 billion in November, fell to around $1.4 billion by the end of May, according to a recent disclosure by the firm. Had Galaxy not sold a major chunk of Luna three months before it collapsed, Mr. Novogratz would have been in worse shape.But while Mr. Novogratz, a billionaire, and the wealthy bank clients can easily survive their losses or were saved by strict regulations, retail investors had no such safeguards.Jacob Willette, a 40-year-old man in Mesa, Ariz. who works as a DoorDash delivery driver, stored his entire life savings in an account with Celsius that promised high returns. At its peak, the stored value was $120,000, Mr. Willette said.He planned to use the money to buy a house. When crypto prices started to slide, Mr. Willette looked for reassurance from Celsius executives that his money was safe. But all he found online were evasive answers from company executives as the platform struggled, eventually freezing more than $8 billion in deposits.Celsius representatives did not respond to requests for comment.“I trusted these people,” Mr. Willette said. “I just don’t see how what they did is not illegal.” More

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    Inflation Expected to Remain High Even as Economy Slows and Layoffs Rise

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    Kat Johnston didn’t expect the pandemic to make her less stressed about her finances. After all, she temporarily lost her job at the library where she worked full time. But, like many Americans, she found an unexpected reprieve from money worries: Months at home limited her spending, and she received expanded unemployment insurance and two one-time checks from the government.“When I first came back to work, I had probably $2,200 in savings — which I know is not much, but it’s more than I’d had in a while,” she said. But it was no match for the inflation that has come since. “That savings is pretty much gone now. As things have gotten so expensive, it’s been almost a paycheck-to-paycheck life.”Ms. Johnston, 31, lives in the Dallas area in a studio apartment and had hoped to upgrade to a one-bedroom — her cat will occasionally use her bed as a litter box, so being able to shut the door would be good. Yet rent is increasing enough that she is considering moving in with a roommate instead.Gas is so expensive that she is buying just a quarter of a tank at a time. Her $65,000 in student loans from undergraduate and graduate school were in forbearance before the pandemic because she was struggling to afford them on her roughly $40,000 annual income. She has been able to continue not paying them because of a government moratorium, but she knows that may not last forever.She’d like to find a better-paying job, but she’s unsure about leaving a secure position — and embarking on a draining job search — at a moment when economists and investors warn of an impending recession. “It does feel like whatever I was thinking I was going to do is on hold,” she said.Kat Johnston has returned to work full time but her savings are depleted and she is thinking about getting a roommate as rents in the Dallas area climb sharply.Dylan Hollingsworth for The New York TimesMillions of Americans are feeling similarly stuck as their savings run low and their cost of living runs high. Now, the economy appears poised to slow — potentially sharply — in ways that could limit wage growth and cause job losses even as prices remain elevated. But instead of rushing to the economy’s aid by giving Americans money, as they did in March 2020, policymakers are engineering this slowdown. Then, the problem was a global pandemic; now, it’s stubbornly high inflation, and the main way the government knows to solve that is by inflicting some economic pain.In other words, the long-predicted “cliff” may finally have arrived.When the first round of pandemic aid programs began to expire in the summer of 2020, economists warned of a looming cliff facing both Americans who still needed government help and the pandemic-addled economy that was not yet ready to stand on its own. They repeated those warnings last fall, when Congress allowed unemployment benefits to expire for millions of workers, and again in January, when monthly payments for families with children came to an end.The loss of those programs and others, including enhanced nutrition benefits, was painful for many families. But for the economy as a whole, the cliffs turned out to be more like potholes. Consumers kept on spending, in part because trillions in government aid had allowed many Americans to build up at least a small financial buffer — as Ms. Johnston did — and in part because a record-setting recovery in the job market gave workers an income boost that helped offset the loss in government aid.Now, as savings run dry and consumers struggle under the weight of higher prices and rising interest rates, early cracks are beginning to show — and are likely to widen from here.Understand Inflation and How It Impacts YouInflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Greedflation: Some experts contend that big corporations are supercharging inflation by jacking up prices. We take a closer look at the issue. Inflation Calculator: How you experience inflation can vary greatly depending on your spending habits. Answer these seven questions to estimate your personal inflation rate.For Investors: At last, interest rates for money market funds have started to rise. But inflation means that in real terms, you’re still losing money.Pay gains have been falling behind inflation for months. Credit card balances, which fell early in the pandemic, are rising toward a record high. Subprime borrowers — those with weak credit scores — are increasingly falling behind on payments on car loans in particular, credit bureau data show. Measures of hunger are rising, even with unemployment still low and the overall economy still strong.“It’s a grim picture already,” said Elizabeth Ananat, an economist at Barnard College who has studied the pandemic’s impact on low-income families. “Families are doing much worse than they were a few months ago.”Matrice Moore-Carr, a registrar at a public hospital in Nashville, Tenn., kept her job during the pandemic, and even managed to get a bit ahead, thanks to stimulus checks that helped her pay off her electric bill and stop worrying, at least for a little while, about whether she could afford gas for her car.When prices began to rise last year, Ms. Moore-Carr took on overtime shifts in the emergency room to make ends meet. When that wasn’t enough, she took a part-time job as a hotel receptionist. Now she is working seven days a week, often multiple jobs in one day, and still struggling to pay her bills.“That’s what’s been helping me keep the gas in the car and food on the table and the electricity going,” she said. “I’ve been making it work. I’m tired, I’ll tell you that. I’m so sleepy.”Ms. Moore-Carr, 52, owns her home, which she said is the only thing that allows her to keep living in Nashville, where both rents and home prices have soared in the pandemic. But the price of everything else has gone up — she joked about buying a horse to save on gas. On Tuesday, she stopped by the bank and turned in $47 in pennies.What she said she really worries about is the prospect of losing her overtime hours.“I don’t know what I’m going to do if anything gets any worse than it is now,” she said. “Am I going to have to cut my meals back? Am I going to have to eat once a day as opposed to three? I don’t know. It’s just tough.”Low-income households, at least on average, emerged from the first two years of the pandemic in remarkably strong financial shape. Trillions of dollars in government aid ensured that poverty fell in 2020, despite the loss of tens of millions of jobs. New rounds of assistance in 2021, including monthly payments through an expanded Child Tax Credit, led to a sharp drop in measures of childhood poverty and hunger. Those programs came from a very different economic moment, however. In 2020, and to a lesser degree in 2021, the needs of individual households and the needs of the broader economy were aligned: Stimulus checks and other forms of government aid helped jobless workers and their families avoid eviction, while at the same time helping businesses avoid bankruptcy, landlords avoid foreclosure, and cities and states avoid a collapse in their tax revenue.Today, that alignment has broken down. Giving people money now might help them pay their bills, but it could also make inflation worse by adding to demand as businesses are already failing to produce enough goods and hire enough workers.The Federal Reserve is instead trying to cool off the economy by raising interest rates, making it more expensive to borrow money to buy a house or expand a company. Weaker business activity will slow hiring, leading to slower wage growth and, most likely, more layoffs. It could also allow America’s goods and services — limited for more than a year by supply chain snarls and labor shortages — to catch up to demand, putting a damper on rising prices.Fed policymakers argue that this strategy is necessary to put the economy on a more sustainable path. But even as conditions take a turn for the worse, inflation will probably take a while to slow, and Fed officials themselves think it will still be elevated at the end of the year.“The transition is going to be very difficult,” said Seth Carpenter, global chief economist at Morgan Stanley and a former Fed economist. “At least historically, it takes a really long time for inflation to come down, even after the economy slows.”Even if the Fed can avoid causing a recession, a weakening labor market will bring hardship for many. Job losses can be devastating, often setting off a downward spiral of eviction and debt. Those who keep their jobs are likely to get fewer hours of work and to lose bargaining power.“Low-income workers, workers with low levels of education, Black and brown workers are the first to lose their jobs and the last to get them back,” said Diane Whitmore Schanzenbach, a Northwestern University economist who studies anti-poverty programs.Inflation F.A.Q.Card 1 of 5What is inflation? More

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    What’s Your Rate of Inflation?

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    Inflation is at the highest level in four decades. But how you experience it can vary greatly depending on what you eat, how much you travel and your other spending habits. Answer seven questions to estimate your personal inflation rate.

    The numbers above are derived from the Consumer Price Index, the best-known measure of inflation. The C.P.I. is based on a “basket of goods”: The prices of hundreds of commonly purchased goods and services, from cookies to cars to college tuition, are blended together, with each product counted in proportion to its share of overall spending.

    Clothing, for example, accounts for about 2.5 percent of the average American’s monthly spending, so clothes prices make up that share of the index. But those are averages — if you spend more than 2.5 percent of your budget on clothes, your personal rate of inflation will look different.

    Prices are rising pretty much across the board now, but the increases are particularly rapid in some categories, like meat, cars and travel. People who spend a lot on those categories are experiencing much faster inflation as a result.

    The calculator above adjusts your rate of inflation based on how much more or less you spend on different products than the average American. It doesn’t account for other factors, like whether you live in a more expensive part of the country or are more likely to shop around for bargains. Even so, it reveals a wide range of different experiences: Based on how you answered the questions above, you might have a “personal inflation rate” as low as 5 percent or as high as 15 percent.

    Even a 5 percent inflation rate is high by the standards of recent history – before the pandemic, prices in the United States were rising about 2 percent a year. But when it comes to inflation, small differences have a big impact. At 5 percent, prices double in about 15 years. At 7 percent, prices double in just over 10 years. And at 15 percent, prices double in only five years.

    Oil price boom

    Perhaps the clearest case study in how people experience inflation differently is gasoline.

    Gas prices have shot up in recent months, partly because Russia’s invasion of Ukraine roiled global energy markets. Prices were up 48 percent in March from a year earlier, accounting for a fifth of the increase in the overall Consumer Price Index. More

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    Rising Mortgage Rates Add to the Challenge of Buying a House

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    The average rate on a 30-year, fixed-rate mortgage is now the highest since May 2019. And home prices are expected to rise, though probably more slowly.Home prices remain high, and rising borrowing costs are adding to the challenge of buying a home heading into the traditional spring selling season.The pace of housing price increases may slow from double- to single-digit percentages this year, said Danielle Hale, the chief economist for Realtor.com. But prices are still expected to go up, and conditions will probably continue to favor sellers.“Prices will continue to grow, just at a slower pace,” she said, and one of the main reasons is that mortgage rates are expected to rise. “Higher mortgage rates decrease affordability for anyone taking out a mortgage,” which the majority of home buyers do, she said.The average rate on a 30-year, fixed-rate mortgage this week rose to 3.92 percent, the highest rate since May 2019, according to the mortgage finance giant Freddie Mac. A year ago, the average rate was 2.81 percent. Freddie Mac’s weekly survey looks at loans used to buy homes, rather than at borrowers refinancing loans they already have.Mortgage rates are rising quickly. The Mortgage Bankers Association forecasts average rates will be slightly above 4 percent by the end of the year — still low in historic terms, but higher than the 3 percent or lower that borrowers have been seeing. (The association includes rates for refinances as well as purchases in its forecast.)Why are rates rising? In response to higher inflation and a strong employment market, the Federal Reserve is expected in March to begin a series of increases in its benchmark interest rate, indirectly helping to push up mortgage rates. (In general, mortgage rates are tied to the 10-year Treasury bond, which is affected by various factors, including the outlook for inflation.) Consumer price increases recently have reached levels not seen in 40 years, mainly because of lingering supply constraints from the pandemic.The average borrower with a 20 percent down payment would pay about $100 more a month on a new mortgage than one taken out at the end of last year because of rising rates and higher home prices, said Andy Walden, vice president of enterprise research strategy at Black Knight, a mortgage data provider.Understand Inflation in the U.S.Inflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Your Questions, Answered: We asked readers to send questions about inflation. Top experts and economists weighed in.What’s to Blame: Did the stimulus cause prices to rise? Or did pandemic lockdowns and shortages lead to inflation? A debate is heating up in Washington.Supply Chain’s Role: A key factor in rising inflation is the continuing turmoil in the global supply chain. Here’s how the crisis unfolded.Rates are rising as strong demand for homes, along with a tight supply of properties for sale, has pushed up home prices. The typical sale price of a previously owned home in 2021 was just under $347,000, according to the National Association of Realtors — an increase of nearly 17 percent from 2020.Shoppers should still expect a competitive spring housing market, Ms. Hale said. Some potential buyers who have been on the fence may move quickly to lock in mortgage rates before they rise further. “It gives shoppers some urgency to close sooner rather than later,” she said.But some shoppers — particularly first-time buyers — may decide to wait until even higher rates help cool off prices later in the year. The largest share of home buyers are millennials ages 21 to 40, many of whom are first-time buyers, according to the National Association of Realtors.“The spring season will be very interesting,” said Lawrence Yun, the chief economist with the Realtors association.Ultimately, the housing market needs an increase in inventory, Mr. Yun said. “We need a supply of empty homes.” Builders have faced challenges in keeping newly built homes affordable including high lumber prices and difficulty finding construction workers.Buyers may need to consider more affordable homes in less urban areas, Mr. Yun said. That may depend on whether homeowners expect to be able to continue working remotely.One variable in the number of homes for sale is the winding down of mortgage forbearances granted during the pandemic. Many homeowners have been able to resume payments after their payment pause expired. But some may be unable to, forcing them to sell their homes, said Michael Fratantoni, the chief economist with the Mortgage Bankers Association. The number of borrowers in forbearance has been declining, to an estimated 705,000 homeowners at the end of 2021.Inflation F.A.Q.Card 1 of 6What is inflation? More

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    in Economy

    This Is a Terrible Time for Savers

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    In an upside-down world of financial markets, expected returns after inflation are at record lows.The Bank of England in London earlier this year. Worldwide demographic trends tied to the aging of the baby boom generation have contributed to a glut in savings.Matt Dunham/Associated PressIf you are saving money for the future, one way or another you had best be prepared to lose some of it.That is the implication of today’s upside-down world in the financial markets. The combination of high inflation, strong economic growth and very low interest rates has meant that “real” interest rates — what you can earn on your money after accounting for inflation — are lower than they have been in modern times.This outcome is a result of a glut of global savings and the Federal Reserve’s extraordinary efforts to bring the economy back to health. And it means the choice for a saver is stark. You can invest in safe assets and accept a high likelihood that you will get back less, in terms of purchasing power, than you put in. Or you can invest in risky assets in which you have a shot at positive returns but also a substantial risk of losing money should market sentiment turn negative.“For people who are risk averse, they have to get used to the worst of all possible worlds, which is watching their little pool of capital go down in real terms year after year after year,” said Sonal Desai, the chief investment officer of Franklin Templeton Fixed Income.Inflation outpacing interest rates is good news in certain circumstances: if you are able to borrow money at a fixed rate, for example, and use it to make an investment that will provide something of value over time, whether a house, farmland or equipment for a business.But consider the options if you are not in that position, and instead are saving money that you expect to need five years down the road — for the down payment on a house, or a child’s college expenses.You could keep the money in cash, such as through a bank deposit or money market mutual fund. Short-term interest rates are at zero or very close to it, depending on the specific place the money is parked, and Federal Reserve officials expect to keep rates there for perhaps another couple of years. Inflation has been at 4 percent to 5 percent over the last year, and many forecasters expect it to come down slowly.Or, you could buy a safe Treasury bond that matures in five years. The annual yield on that bond, as of Friday, was 0.77 percent. That means that if annual inflation is above that, the buying power of your savings will diminish over time. The highest-yielding federally insured bank certificates of deposit over that span offer only a little bit more, just over 1 percent.If you’re particularly nervous about rising prices, you could buy a Treasury Inflation Protected Security, a government-issued bond that is indexed to inflation. The five-year yield on TIPS? A negative 1.83 percent. That means that if inflation were 3 percent annually, your holding would return only 3 percent minus 1.83 percent, or 1.17 percent. In exchange for protection against the risk of high inflation, you must tolerate losing nearly 2 percent in purchasing power each year.Then again, you could take on a little more risk and buy, say, corporate bonds. But that adds the risk that the companies that issued the bonds will default — and it’s still only enough to roughly keep up with anticipated inflation. (An index of BBB-rated corporate bonds yielded only 2.19 percent late last week.)The stock market and other risky assets offer potentially higher returns, with some degree of protection from inflation. The corporate profits that are the basis for stock valuations are soaring, one reason major indexes hit record highs in recent days. But this comes with the omnipresent risk of a sell-off — tolerable for people investing for the long run but potentially problematic for those with shorter horizons.This extreme negative real interest rate environment leaves people whose job is to analyze and recommend bond investing strategies with few good options to advise.“It’s hard to even make an argument for fixed income at these levels,” said Rob Daly, the director of fixed income for Glenmede Investment Management. “It’s the old ‘pennies in front of a steamroller trade.’”That is to say: Someone who buys bonds with ultralow yields is collecting puny interest in exchange for taking the substantial risk that higher inflation or a surge in rates could more than wipe out gains (when interest rates rise, existing bonds fall in value).For those reasons, Mr. Daly recommends investors allocate more of their portfolios to cash. Yes, it will pay almost no interest, and so the saver will lose money in inflation-adjusted terms. But that money will be ready to invest in riskier, longer-term investments whenever conditions become more favorable.Similarly, Rick Rieder, the chief investment officer of global fixed income at BlackRock, the huge asset manager, recommends that investors focused on the medium term build a portfolio that combines stocks, which offer upside from rising corporate earnings, with cash, which offers safety even at the cost of negative real returns.“It’s surreal,” Mr. Rieder said. “This is one of those periods of time when the fundamentals are completely detached from reality. Where real rates are today makes no sense relative to the reality we live in.”The Fed, besides keeping its short-term interest rate target near zero, is buying $120 billion in securities every month through its quantitative easing program, and is only now starting to talk about plans to taper those purchases. That has the effect of putting an enormous buyer in the market that is bidding up the price of bonds, and thus pushing rates down.Fed officials believe the strategy of keeping easy monetary policy in place even as the economy is well into its recovery will help bring the American job market back to full health quickly. The aim is also to establish credibility that its 2 percent inflation target is symmetric, meaning that it will not panic when prices temporarily overshoot that target.Many of the people involved in market strategy are less than thrilled with this approach, and the consequences for would-be investors.“Nominal yields are low because of how much the Fed is buying,” said Ms. Desai of Franklin Templeton. “It’s ludicrous given where we are” with growth and inflation.At the same time, Americans have accumulated trillions in extra savings during the pandemic, money they are parking in all sorts of investments, which has been pushing asset prices upward and expected returns down. Arguably, the flip side of low expected returns on safe assets is stratospheric prices for real estate, meme stocks and cryptocurrencies.Globally, demographic trends tied to the aging of the enormous baby boom generation are causing a surge in savings. Gertjan Vlieghe, a top official with the Bank of England, has shown that the pattern of retirement savings evident in Britain and across advanced nations points to continued low interest rates.“We are only about two-thirds of the way through a multidecade demographic transition that is affecting interest rates,” Mr. Vlieghe said in a speech last month. “The key mechanism is not that older people have lower savings rates, but rather that, as people age, they hold higher levels of assets, in particular safe assets,” then spend those savings down slowly when they hit retirement years.That helps explain why interest rates have been persistently low across major economies — in Europe, the United States and Japan in particular — for years, even at times when those economies have been performing relatively well.In other words, Fed policy and the unique economics of the pandemic are major factors in the extremely low rates of summer 2021. But it doesn’t help that these come in an era when so much of the world is eager to save — and that part won’t change anytime soon. More

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    Even Your Allergist Is Now Investing in Start-Ups

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    The once-clubby world of start-up deal making known as “angel investing” has had an influx of new participants. It’s part of a wider boom in ever-riskier investments.SAN FRANCISCO — On a recent Wednesday evening, 60 people gathered in a virtual conference room to discuss start-up investments. Among them were a professional poker player from Arizona, an allergist in California and a kombucha maker from Tennessee. All were members of Angel Squad, a six-month $2,500 program that aims to help people break into the clubby world of venture capital as individual investors, known as “angels.”The group listened as Eric Bahn, the instructor, rattled off anecdotes and advice from the front lines of start-up investing. “The most important question when you are an early stage investor is: What happens if things go right?” he said, stepping back from his desk and raising his hands for emphasis.Caroline Howard, 29, one of the founders of Walker Brothers Beverage, a kombucha company in Nashville, said the class taught her how to evaluate deals. “I think it’s so fun to see companies when they’re so young and have a germ of an idea and back them,” she said.Founded in January, Angel Squad is one of several ways that people from outside Silicon Valley’s investing elite are now joining the ranks of angel investors. The influx — which includes art curators, dentists, influencers and retirees — is transforming the way that start-ups raise money, upending the pecking order in venture capital and pushing a niche corner of the investing world toward mass adoption.“It is absolutely going mainstream,” said Kingsley Advani, founder of Allocations, a tech platform for angel investors. “It’s accelerating and it’s getting faster and faster.” He said even his mother, a retired schoolteacher in Australia, has invested in 41 start-ups over the last few years.More than 3,000 new angel investors are projected to make their first deal this year, up from 2,725 last year, according to the research firm PitchBook. And the amount of money that angels are pouring into start-ups has swelled, reaching $2.1 billion in the first six months of this year, compared with $2.6 billion for all of 2020, according to the National Venture Capital Association and PitchBook.Until recently, such investing was off-limits to most people. Securities rules restricted it to the wealthy because of the level of risk involved, since most start-ups fail. Even those who qualified often lacked the connections to find deals. And start-ups preferred to raise big slugs of cash from a handful of investors, rather than deal with the costs and headaches of processing dozens of tiny checks.But over the last year, many of those roadblocks have dissipated. Last year, the Securities and Exchange Commission loosened restrictions and began allowing people to become accredited investors — those allowed to back private start-ups — after passing a test. New tech tools are making the process of raising funds from many small investors cheaper and faster. And start-ups have become eager to add potentially helpful angels to their rosters of backers.The boom is part of a rush into ever-riskier forms of investment, driven by low interest rates, stimulus money and a little bit of “why not?” chutzpah. Nowhere is that sentiment stronger than in the tech industry, where start-ups are flush with cash, initial public stock offerings have been plentiful and Big Tech is delivering blockbuster profits.“Overnight, the entire world just woke up and went, ‘Oh, wow, we want to go invest in technology,’” said Avlok Kohli, chief executive of AngelList Venture, a company that provides tools for start-up fund-raising.Many new angel investors have some connection to the tech industry but are not the V.I.P.s who are normally invited into deals. Some are complete outsiders. Many are broadcasting their activity on social media and turning the investing into a branding opportunity, a hobby, a networking play, a social status or a way to give back.Karin Dillie, 33, an executive at an e-commerce company in New York, said she hadn’t realized that she could be an angel investor. But in June, when a business school classmate emailed asking her to help fund a calendar app called Arrange, Ms. Dillie decided to go for it. She invested $5,000.“I probably needed someone to give me permission to play the game because investing always seemed so elusive,” she said.Karin Dillie, 33, an executive at an e-commerce company in New York, said she hadn’t realized that she could be an angel investor.Elianel Clinton for The New York TimesMs. Dillie has since joined several informal investing groups, listened to podcasts and set up news alerts for terms like “preseed funding” (the earliest money a start-up usually raises from outside investors). She said she was motivated to support female founders, who raise less than 2 percent of all venture funding.In London, Ivy Mukherjee, 28, a product designer, and Shashwat Shukla, 30, a private equity investor, also started putting money into start-ups together this year to learn new skills and network with others in the industry. They said they were proceeding cautiously, with checks of $2,000 to $5,000, knowing they could lose it all.“If we happen to make our money back, that’s good enough for us,” Mr. Shukla said.The new angels have the potential to transform a venture capital industry that has been stubbornly clubby. They could also put pressure on bad actors in the industry who get away with things ranging from rudeness to sexual harassment, said Elizabeth Yin, a general partner at Hustle Fund, a venture capital firm. The firm also created Angel Squad and shares deals with its members.“More competition brings about better behavior,” Ms. Yin said. (In addition to investing in start-ups, Hustle Fund sells mugs that say “Be Nice, Make Billions.”)The angel boom has, in turn, created a miniboom of companies that aim to streamline the investing process. Allocations, the start-up run by Mr. Advani, offers group deal making. Assure, another start-up, helps with the administrative work. Others, including Party Round and Sign and Wire, help angels with money transfers or work with start-ups to raise money from large groups of investors.AngelList, which has enabled such deals for over a decade, has steadily expanded its menu of options, including rolling funds (for people to subscribe to an angel investor’s deals) and roll-up vehicles (for start-ups to consolidate lots of small checks). Mr. Kohli said his company runs a “fund factory” that compresses a month of legal paperwork and wire transfers into the push of a button.Still, getting access to the next hot tech start-up as a total outsider takes time.Ashley Flucas, 35, a real estate lawyer in Palm Beach County, Fla., began investing in start-ups three years ago. She said it was a chance to create generational wealth, something underrepresented people did not typically get access to.“It’s the same people doing deals with each other and sharing in the wealth, and I’m thinking, how do I break into that?” said Ms. Flucas, who is Black.But it took cold emails, research, building her reputation on AngelList and participating in three angel investing fellowships to get access to deals and construct a portfolio of more than 200 companies, she said. Things especially took off this spring after she invested in several companies that had just graduated from Y Combinator, the start-up accelerator. Some of her investments have appreciated enough on paper to return more than she has put in.Now, Ms. Flucas said, she is getting asked to join venture firms or raise her own fund. “The seeds I planted at the beginning of the journey are bearing fruit,” she said.“It’s the same people doing deals with each other and sharing in the wealth, and I’m thinking, how do I break into that?” Ms. Flucas said.Ysa Pérez for The New York TimesSome longtime angels have cautionary words for those just beginning their start-up investments. Aaron Houghton, 40, an entrepreneur, said he lost $50,000 that he had invested in a friend’s start-up in 2014, along with a $10,000 deal that went belly-up. He sarcastically called the losses a “really nice, somewhat inexpensive wake-up call” that showed he needed to spend more than a few hours researching companies before investing.But that isn’t always an option in today’s frenzied market. Mr. Houghton said he had recently been given little more than a pitch presentation, a high price tag and a few hours to decide whether he was in or out of an investment.“It’s all so hot right now,” he said.In the recent Angel Squad class, one participant asked if investors should be concerned about valuations. Mr. Bahn said it was up to each investor, but he added that there was an upside to the skyrocketing prices. Some tech companies were becoming huge, worth $10 billion or more on paper, creating bigger returns for investors who got in early. That was the exciting thing about investing in young start-ups, he said.“The alpha,” he said, referring to an investor’s ability to beat the broader market, “just continues to grow.” More

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    Americans Are Retiring Earlier Because of Pandemic

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    After years in which Americans worked later in life, the latest economic disruption has driven many out of the work force prematurely.Dee Dee Patten, 57, hadn’t planned to retire early. But when the coronavirus-induced lockdown took hold in 2020 and business dried up at the mechanical repair shop that she and her husband, Dana, owned in Platteville, Colo., they decided to call it quits.Mildred Vega, 56, had even less choice in the matter. Soon after she lost her job because of a restructuring at a Pfizer office in Vega Baja, P.R., the pandemic foreclosed other options.Mrs. Vega and the Pattens are three of the millions of Americans who have decided to retire since the pandemic began, part of a surge in early exits from the work force. The trend has broad implications for the labor market and is a sign of how the pandemic has transformed the economic landscape.For a fortunate few, the decision was made possible by 401(k) accounts bulging from record stock values. That wealth, along with a surge in home values, has offered some the financial security to stop working well before Social Security and private pensions kick in.But most of the early retirements are occurring among lower-income workers who were displaced by the pandemic and see little route back into the job market, according to Teresa Ghilarducci, a professor of economics and policy analysis at the New School for Social Research in New York City.“They might call themselves retired, but basically they are unemployed and in a precarious state,” Ms. Ghilarducci said. Economic downturns typically induce more people to leave the work force, but there has been a faster wave of departures this time than during the 2008-9 recession, she said.After analyzing data from the Bureau of Labor Statistics and the University of Michigan Health and Retirement Study, Ms. Ghilarducci found that among people with incomes at or below the national median, 55 percent of retirements recently were involuntary.By contrast, among the top 10 percent of earners, only 10 percent of exits were involuntary. “It’s a tale of two retirements,” Ms. Ghilarducci said.For the Pattens, most of their company’s revenue came from inspecting school buses in the northern part of Colorado. When schools pivoted to remote learning in March 2020, the business stopped receiving its usual traffic.“On average, we had 10 to 20 buses a day that we brought in and inspected and then put them out on the road for the kids,” Mrs. Patten said. “When spring break hit, we didn’t see another bus.”When schools reopened, they had trouble finding a mechanic. In July, they managed to hire one, but he left almost immediately. And the work was too physically demanding for the couple to carry on by themselves, Mrs. Patten said.They sold their shop and equipment, along with their house, putting some of the money into a retirement account. When a separate certificate of deposit account matures, they plan to buy a home in Denver. Since Mr. Patten is 62, he applied for Social Security — but his monthly benefits will be far lower than what he would have received if he had waited a few more years.Mrs. Patten with a photo of her old home and business. When schools pivoted to remote learning, the Pattens’ business of inspecting school buses stopped.Matthew Staver for The New York TimesThe shift toward early retirement reverses a long-running trend. The share of Americans over 65 still active in the work force is 50 percent higher than it was 20 years ago. Some are working longer because they have to and can’t afford to retire, while others are living longer and in better health and want to keep going into the office.Early retirements not only reflect the pandemic’s economic impact but may also hold back the recovery, because retired workers tend to spend more cautiously. They will also be drawing on Social Security sooner rather than paying into the program and bolstering its long-term viability.“Older generations tend to earn more and lift spending,” said Gregory Daco, chief U.S. economist at Oxford Economics. With this group out of the labor force in greater numbers, “it’s more of a negative than a positive for the economy.”In the 15 months since the pandemic began, about 2.5 million Americans have retired, Mr. Daco said. That’s about twice the number who retired in 2019, which means there are essentially 1.2 million fewer people in the work force over the age of 55 than would otherwise be expected.The abrupt increase in retirements — as reflected in the way people describe their work status in monthly government surveys — has also fallen unequally among groups of different educational and ethnic backgrounds.A November 2020 study by the Pew Research Center found that the share of Americans born between 1946 and 1964 with just a high school diploma who are retired rose two percentage points from the prior February, double the proportion among those with a college degree.What’s more, the share of the Hispanic population in this age group who are retired jumped four percentage points, compared to one percentage point increases for white and Black boomers.Hispanic workers, especially Hispanic women, were hit disproportionately hard by the downturn in leisure and hospitality employment, said Richard Fry, a senior researcher at the Pew Research Center.In terms of older workers over all, “it’s anyone’s guess whether they will return,” Mr. Fry said.The proportion of adults 16 or older who are employed or looking for a job, now at 61.6 percent, has been slipping for years, falling from 66 percent in 2009 to 63 percent in early 2020. But it dived when the pandemic hit and has been slow to recover.The aging of the population, along with the tendency of less educated workers to drop out of the work force amid stagnating wages and fewer opportunities in higher-paid fields like manufacturing, has also hurt labor participation.And evidence is accumulating that more older workers are eyeing the exits.A recent household survey by the Federal Reserve Bank of New York found that the average probability of working beyond age 67 was 32.9 percent, equaling the lowest level since researchers began asking the question in 2014. In November 2020, the figure was 34.9 percent.The premature retirement of millions of workers sensing a lack of opportunity may seem puzzling when many businesses are scrambling to find employees — a conundrum that has forced economists to rethink the workings of the labor market.Part of the answer appears to be a mismatch of skills between available workers and jobs. In addition, salaries in many open positions have remained too low to lure people from the sidelines.If the newly retired workers don’t return, the labor market could get a lot tighter, heightening the risk that the Federal Reserve will need to raise interest rates to tamp down inflation, said Carl Tannenbaum, chief economist at Northern Trust in Chicago.“We already have a challenge of keeping labor force growth at decent levels,” he said. “Immigration is down, the birthrate is down, and it’s much harder for the economy to maintain its productive potential if all these folks stay retired.”Mrs. Vega said she might take a part-time job once the pandemic ebbs enough for her to comfortably return to an office setting, but she plans to spend the rest of her time with her parents and children.She qualified for a Pfizer pension available to retirees 55 or older. Though early retirement wasn’t in her plans, she is trying to make the best out of her situation.“I loved my job, but I don’t miss the stress levels,” she said. “The constant stress affects my mental and physical health. The pandemic made me realize how much time my job was taking away from me to spend with my family.”The Pattens feel unnerved with the sudden change after 22 years of nonstop work, but they, too, are looking at the upside.“We both know that, at our age, it was probably the best thing for us,” Mrs. Patten said. “We will get used to all of this time on our hands. Our plan is to volunteer, travel and look for a new place to live after 30 years on the old homestead.” More

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    Ron Lieber: Invest in the People You Love

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    If you’re emerging from the pandemic in better financial shape than before, ask yourself this: What will you spend to renew your bonds, and how will you do it?In early 2013, three years after the unexpected death of her husband, Chanel Reynolds posted a warning to those who had neglected the bonds that ought to matter most.She had started a website to help people avoid a predicament she had found herself in after he died. His will had an executor but didn’t have signatures, and she didn’t know many of his passwords. The resulting red tape seemed as if it would suffocate her.Her message to others, who might not know whom to put down in their will as a guardian for a child or an overseer of their estate, was this: “If you are at a loss for whom to name, get out there and tighten up your friends and family relationships. Find some better friends. Be a better friend. This is everything. This means everything.”As many of us stumbled toward the light these last few months, I kept returning to her entreaty. Americans who have been lucky enough to keep their jobs have saved more money this past year than they had in decades. So it seems wise — urgent, even — to plot the best way to invest in our ties to other people.Last week, when discussing the spare money that so many want to spend so quickly, I focused on the what — bigger and better emergency funds, and experiences rather than things. This week, I asked people who spend their professional lives thinking about relationships to address the who.For all of Ms. Reynolds’s organizational foibles, she did not fail at friendship. When her husband, José Hernando, was near death in the hospital in 2009 after he was hit while riding his bicycle, her people came running. “I was on a sinking ship, shot out the few flares that I had and was hoping that they would come find me,” she said. “And they did.”You can’t buy that kind of support at any price. But you can invest in it. In his book “Consolations: The Solace, Nourishment and Underlying Meaning of Everyday Words,” the poet and walking-tour leader David Whyte observes that the ultimate touchstone of friendship is “the privilege of having been seen by someone and the equal privilege of being granted the sight of the essence of another.”It is hard to bear witness through Zoom. “I’m already plotting and planning to see all my friends in Britain and Europe,” Mr. Whyte told me this week, from his home on Whidbey Island in Washington.This will not be cheap, for him or anyone else trying to snap up scarce airline seats. But it is restorative in a way we may not always realize. “You can see, through a very good friend, a bigger version of yourself,” he said. “They became friends with you because they saw something more than what you, perhaps, see every day.”Erica Woodland, a licensed clinical social worker and the founding director of the National Queer & Trans Therapists of Color Network, put out a plea for people to remember how extended circles of more loosely affiliated people rallied around one another these past 15 months. Mutual aid networks sprang up to provide food and help in neighborhoods all over the country.Maybe you had no need, didn’t know about the networks, or didn’t or couldn’t pitch in or form your own group for whatever reason. But for others, they were essential.“We don’t expect folks outside of our community to actually care for us,” Mr. Woodland said. “There is a practice of care that is not new to our communities but became more interwoven thanks to the intersecting challenges of 2020.”These organizations are exemplary not just because they facilitate the basics of care and feeding. They also help people navigate confounding systems, like overloaded state unemployment departments.And it is this mutuality that can make any money you spend within your own friend or family circles feel less like an awkward act of charity. Instead, it becomes more like a reciprocal act — or an investment in your own future care. I learned this intimately on the receiving end, during my own period of grief this year, when members of my synagogue kept showing up to feed my family and me.There are a number of ways to put all of this into practice. If you’re trying to get the gang back together someplace far away, as Mr. Whyte is with his pals in Europe, you could offer to pay for a shared rental house if you’re the most flush.Elizabeth Dunn, the co-author with Michael Norton of “Happy Money: The Science of Happier Spending” and the chief scientist of a company called Happy Money, suggested a more subtle twist: If you’re trying to reconnect with a long-lost friend who has less money than you, just tell that person you’re going to get on the plane for a visit. It’s the type of prosocial investment in others that Professor Dunn’s research has shown will pay off in your own contentedness.During the pandemic, Ms. Reynolds, who lives in Seattle, paid for a lawyer to help relatives of a deceased friend from Minneapolis who were trying to navigate the legal process after her death. “Going through probate alone is like walking through a country where they speak a language that you have never even heard before,” she said.Having the money to pay to help friends is not a requirement, though. In the years after her husband’s death, Ms. Reynolds found herself easily remembering the birthdays and death anniversaries that people close to her were marking — or was just more inclined to text when she was thinking of them.“One version of this is ‘I have more, so I will spend more to care for the people I love,’” said Mr. Woodland, the social worker who runs the therapist network. “I also think it’s almost easier to spend money than to spend time, to say that ‘I prioritize you and want to know you in a more intimate way.’”Among couples with children, time has often been its own fraught asset these 15 months. Even if you won back your commuting time, you may have been stuffed in a home with two adults working and children who needed all manner of supervision. It has been a form of quality time, perhaps, but maybe not precisely what you needed to renew or reinforce your romantic bonds.To people seeking to shore those up, Eve Rodsky offers a counterintuitive possibility: Be as thoughtful about spending time apart as you are about time together. Ms. Rodsky, the author of “Fair Play: A Game-Changing Solution for When You Have Too Much to Do (and More Life to Live),” learned this from surveying 1,000 members of the community that she has built around her work.Many people have changed during the pandemic. Maybe your partner has in ways you haven’t even recognized. So offering time — and a budget — toward whomever that person wants to become is its own act of service.“The permission to be unavailable to each other is the investment that they have in each other,” Ms. Rodsky said in a recent interview. Now, she and her husband each have a weekend day to themselves; she has Saturday this week.This year, Ms. Reynolds got engaged, which set off a whole new round of bond-forging investments, including making plans to buy a home with her intended.Given her experience in 2009, she took her own advice about making sure that some of the most important things in life could persist even if the worst happened to her next husband.“I said — in what I hoped was a beautiful and loving way — that if he dies before the mortgage is paid off, that I needed him to up his life insurance to cover his share,” she said. “And he said, ‘OK.’ It was kind of amazing.” More