6.8% Inflation - where is this going?

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6.8% Inflation - where is this going?

Marcus Auerbach
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes

For the longest time people have predicting inflation, now we are at 6.8% in November after I thing 6.2% in October. The FED said this is going to be short term, but I have a feeling it's going to stay with us and leading us into an asset bubble. Where do you see this go long term? Is this like 2007, where we should all see it in the data, but we didn't?

There is a part of me that likes inflation for what it does no real estate debt, at least as long as wages are following and with that hopefully rents. So far I have not seen income grow that much for tenants. 

At this point I think it is pretty clear what we can expect from the housing market in 2022. And intererest rates are predicted to go up, but will the go up faster/longer and higher than generally expected (just like inflation itself?) and does that mean a change in startegy is on the table?

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Russell BrazilBusiness Member
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
4y

It was a monthly reading of 6.8%. And for comparison last Novemeber was 0.2%, and last October 0.0%...so the year over year inflation rate are being measured against a zero inflation environment. 

The yearly inflation rate is projected to be 4.8% for 2021, after 2020's 1.2% (the 2nd lowest since 1960). So we are on a 2 year average of 3%. So 3% per year worry anyone? Probably not. Does 4.8% even seem that concerning?  it is higher than the average....but that is how we get to averages...half the years are above the average, half the years below the average.

Will inflation be higher over the next decade than it was in the previous decade? More than likely yes.  But the current inflation rate is bumping up, because 2020 had virtually no inflation. Supply line disruptions and the cost of used cars (a normally deflationary asset) have put pressure on the CPI upward. 

Context matters.

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  • Lesley Resnick
    Real Estate Agent · Jacksonville, FL · Member since 2015 · 1k+ posts · 1k+ votes
    4y
    Originally posted by @Marcus Auerbach:
    Originally posted by @Lesley Resnick:

    I don't have the level of confidence in any of these predictions or the CPI, itself since you can't compare it to historical data if the metric has changed.  

    When some asked, "where do you see yourself in five years?"  I know it was not here.

    We are in unprecedented times.  Debt at levels not seen since WWII.  Interest rates at record lows, fed pumping money.  Markets at all time highs.  People are not working by choice, since they are being subsidized by the government.

    There is a global supply problem that is effecting inflation.  This does not appear in any stats.  For example, I need to replace a work truck.  I am not going to since there is a shortage and even if I could find one, the prices are up.  My choosing not to purchase is an example of unwinding of this mess.  People are getting priced out of the market and consumption is going to fall off as long as there is no more free money chasing fewer goods.

    The question is, are we on the way to Weimar Germany and hyper inflation?  Representing a complete collapse?  The scenario that I find most concerning is we are, "out of rounds in our economic stimulus gun."  In the event of a negative economic event, there is no way to soften the blow.

    There are a few things I do know….

    Politicians will act in their own best interest, re-election, financial benefit.

    Inflation will outpace interest rates.  It is called economic repression and will ultimately fix this mess.  Inflation will erode the future value or cost to payback the debt.  It will be at the cost of millions of Americans that do not hold hard assets that will increase in value with the inflation.  They will never know why or how it happened only that they are worse off and the top 10% is richer than they have ever been.

    This is not: the great recession, depression or the dot-com bust, market crash of 1987, gas crisis of the 70s, the economic contagion in Asia.  

    There may be similarities, but none of them were caused by a health crisis, resulting market boom, real-estate boom, consumption boom, supply chain falling apart.  

    Thanks for sharing your perspective Lesley. The only similarity is that it's hard to predict before it happens. If we play out an economic repression and wealth distribution widens more than it already has the social tension may get too high. We have seen how that has played out in history and hopefully thats not where we are headed. 

    You make a great point.  The US has seen very little wide spread social unrest.  I used to believe, naively, it could not happen here.  I think we are in challenging times.  You nor I will benefit in any way from this.  I would propose that no one will be better off.  It will result in a lot of suffering on all sides.   

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  • Marcus Auerbach
    OP
    Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
    4y

    @Joe Splitrock any type of inflation measurement is always flawed; I have known that argument growing up in EU and going from Austrian Schillings to Euro. The exchange rate was 13.7603 when it launched in 1999 - total pain to do the math in your head. And it made your bank acount look you were broke! 

    The politicians promised there would be no inflation. Going out with my buddies a beer was 19 Schillings for half a liter (yes, that's a propper size beer), or 1.38 Euros. For reference one Euro is just a little more than a Dollar. It was not long until a beer was E1.50 and then E1.90, E2.50 and fast forward today it's 3.50 for half a liter!! 

    If you do the math that's almost 5% annually over 21 years!

    In terms of strategy, I do the same: we refinanced all the commercial notes to longer terms and lower rates earlier this year. I left the old 30 year fixed alone. Where I have been shifting is to even higher price points over the last 2 years, I just went under contract this week on what will be one of my most expensive SF rentals yet. This maximizes the benefits of inflation, but I better be right with that prediction, otherwise the rest of the portfolio will have to carry the top end...

    The next few months will show where the CPI is going (with all it's imperfections), I think Jan 10th we will get the next data point.

    I love what you said: 'it's far more important to buy early than to buy cheap!"

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  • Bob E.
    Queen Creek, AZ · Member since 2014 · 2k+ posts · 1k+ votes
    4y

    @Joe Splitrock  You summary of 2005-06 reminded me of how people who warned of a housing bubble were discounted with the most dangerous words in history "This time its different".  Great write up and summary, you hit several nails on the head.

    I heard a podcaster yesterday state that if we used the same measure for inflation as we did in the 1980's we would be talking about 14% inflation.  Yesterdays Producer Price Index number was pushing 10%, inflation will continue until they pull money out of the economy, then we will have a recession.  Since the Fed hates deflation the higher prices will be the new base going forward.

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  • Bob E.
    Queen Creek, AZ · Member since 2014 · 2k+ posts · 1k+ votes
    4y

    I grabbed this screenshot of margin interest from Steve Van Metre's latest You Tube posting.  Looking at this I can see a scenario where rates start going up, and people start to un wind their positions, causing others to get margin calls.  Even if we avoid that it tells me that there is not a lot of upside left in the stock market.  Most people are fully invested so not a lot of buyers left. 

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  • Account Closed
    Member since 2021 · 217 posts · 190 votes
    4y

    The main message that should be taken away here is, don't make macro predictions. Not if you are the Fed chair squawking "transitory" like a parrot, who now looks like an ***, and not if you are a BP poster for the same reason.

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