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Inflation + Deflation = Stagflation ~ Lower Real Estate Values!
Of the major economic powers, China is the only economy that is
facing true inflation as I see it and China is primed for a hard landing
– at best. The US, EU, and UK face stagflation. After the AP excerpt
below is a clip from my recent keynote presentation at the ING Real
Estate Valuation seminar in Amsterdam on this very timely topic.
LONDON (AP) — Rising inflation around
the world weighed on stock markets Friday as investors wondered how
fast central banks will raise borrowing costs to counter the threat of
rising prices, while the euro was undermined by ongoing worries that
Greece will have to restructure its massive debts.
Figures Friday reinforced market
expectations that both the European Central Bank and the People’s Bank
of China will soon be raising interest rates again to counter rising
inflation.
In China, figures showed consumer
prices rose 5.4 percent in the year to March, up from February’s 4.9
percent. The increase was largely driven by surging food costs and
represents a setback for the government, which has boosted interest
rates four times since October to cool prices.
Analysts expect the People’s Bank to enact further measures in the days to come in response to those figures.
Here is a collection of my archived posts on the topic:
- Economic contractions AND rising prices, dare Reggie utter the “I” word – Enter a global phenomenon
- Reggie Middleton’s Take on Investing for Inflation, pt. 1
- Reggie Middleton’s Take on Investing for Inflation, pt. 2
- Reggie Middleton’s Take on Investing for Inflation, pt. 3
- Reggie Middleton’s Take on Investing for Inflation, pt. 4
- Reggie Middleton’s Take on Investing for Inflation, pt. 5
- More on my stagflation rant
- Deflation, Inflation or Stagflation – You Be the Judge!
- Is My Warning of the Risks of a Stagflationary Environment Coming to Fore?
- China’s Most Expensive Export: Price Inflation
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No one in his right mind wants to buy a house now. No way you will come out ahead with rent so cheap....plus, the average American moves every 3-5 years....what are you going to do with a house that has dropped 20-40% in value and will cost you 10% commission and fees to sell. Even landlords are lsoing their shirts due to tenants who refuse to pay rent then destroy the place when they are evicted....many are judgement proff (have no money) so the landlord has to eat $15,000 on up. I see that all around.
No, the place top be is oil, gold, palladium, etc as Peter Schiff and Faber recommend imo. These will go up in value...preserve your wealth as paper currencies throughout the world devalue.
GL! to all ...rough times ahead for many years....even The Buiffet said it will be .."long and hard."
Without question we are in stagflation.
As a result of this, real estate prices are going to continue to collapse:
http://goldsilverrealestate.com/?p=73
No pain just sustain this will go on for a long long time. At least for the upper 10% ... the rest are royally farked.
right on RM; and for some strange reason, there are alot of people (including economists) who still don't seem to get it: no or low, low growth + rising prices=welcome to the stagflation party.
Roger that.
I live in a high-end beach area that thrives (or used to) off of tourism (rentals). There has been a mad dash to buy short sales, foreclosures, shadows, in the last 7-8 weeks. Many of these properties are down (sales price) by 60% from 2005-6 highs. But, they still don't make sense! Maybe 120k rent out of a 2mm purchase? Hmmm...add taxes and insurance, up 50% this year alone? How is this happening? Shadow credit.
What is shadow credit? Shadow credit is the local bankster, the local fraud realtor and/or mortgage broker, the local attorney or title company, forming an LLC using friends and relatives (must be different last names) to buy a deal that nobody, nobody else could get. I have been locked out of many of the legitimate deals because I'm in the wrong camp, and/or I refused to over-finance. Fraud is again rampant, back for another round of pillage. These are things that Reggie cannot see at a local level.
Now fraud is running our local economy. Until these people are jailed, it will continue, on and on. Sign on the line loans. No recourse, no qualifying. Why should they stop when the damn Fed is doing the same thing with MS wives? There is an aire in our era, stinkin' in our thinkin', fraud mentality because the banksters KNOW they will not be caught.
The third leg is being done.
http://hotair.com/archives/2011/03/01/was-financial-meltdown-the-result-...
REITs have had a 3 day ramp up bonanza and are still near 52 wk highs and refuse to crack today also (outperforming the broad market even as it sells off).
It doesn't matter what the truth is; It matters what they want it to be.
It all makes sense considering those empty warehouses, strip malls, and office buildings represent a valuable source of raw materials.
Or, more likely -- these sharpie bastards know that Uncle Sugar will buy them out at full price when the day of reckoning arrives.
They'll all be turned into indoor go-kart tracks and paint ball venues. It's bullish.
...and good old Morgan Stanley mails the keys on the biggest repayment default in Japan's history. They pulled a similar stunt with SF downtown primes.
http://www.reuters.com/article/2011/04/15/us-morgan-stanley-real-estate-idUSTRE73E63E20110415
RMZ being defended at-all-costs right at $799 again. Fuck it. Why even bother with this garbage?
Sorry Reggie, Real Estate prices are dropping because they were hyperinflated. Remember?
An interesting side effect of the ongoing declines in RE prices is a burst of transactions in my local market. It appears that some high-end sellers are now throwing in the towel and dropping prices 15%-25% to get their homes sold. Bank-owned properties sit and languish, and for whatever reasons the idiots in their RE operations continue to hold firm, rejecting offers that are in-line with reality.
My sense is we are headed into the second big dip for RE, and this one will be the true washout.
"Bank-owned properties sit and languish, and for whatever reasons"
why sell at a loss? If you're a TBTF, you're just waiting for the right taxpayer bailout to buy up your toxic garbage at book value.
For those not on the Feds speed dial, I guess its crossed fingers and hope to outlast the down turn. They just won't accept that they may be waiting years, or even decades.
dont FORGET about the most regressive tax in the world PROPERTY TAXES......they will take what little home equity is left
Here we go again *yawn*
Congrats on your success,
Rockon
Reggie,
Good to see you're finally moving on from your crusade against AAPL and RIMM.
Only China is facing true inflation if real estate is your main criteria. Those of us who aren't going to buy a new house in the foreseeable future are still seeing food, gas, and healthcare costs taking up a lot more of our income however.
You are missing the point. Those are all input costs to businesses.
You will not get any argument from me that input costs are spiking, but everything else is deflating. That is stagflationary. In China (at least up until a few days ago), wages, employment, input prices, SMB equity, liquidity, credit, real asset prices - everything was skyrocketing. That's the face of real inflation.
No pain, no gain as they say. Systems need to blow up before we have any real change IMO.
middle class is decreasing...
Readily liquid asset inflation in stocks and commodities are tied directly to the FED. This couldn't be considered real inflation, but manipulation.
Is that why you believe "real asset values are not increasing" ?
I think US stagflation is an accurate assesment, considering todays action specifically. Dollar up on US debt downgrade?
We're seeing the effects of dollar destruction. We aren't seeing the effects of M1 increases. And lord help us if we ever do because loosening credit is one of the main obstacles of ever actually recovering.
Whatever you want to call it, the outcome is the same for most. I sold my house in 2006 after making 50% in 18 months and don't plan on buying one for a long time so real estate values aren't much of a concern to me anymore. It becomes a silly debate that is mostly about faulty economic definitions.
Inflating prices mainly come from either currency devaluation or rising M1 (along with rising demand/falling supply). Inflation, deflation, and stagflation definitions don't really do a good job differentiating what factors are causing price increases and asset value changes. Asset values for real estate are also falling because of a big drop in demand because people have learned that they don't need 4000 sq foot houses for 2 people anymore. And of course you know the supply problem.
nice post
Agreed.
What do you think about hyperinflation?