What to do? What to do in this case?

Question

There have been a couple long threads lately about inflation, hiperinflation, and deflation. there are also economists, econ grads, students etc posting on these subjects. 
    My questions are as follows:

1. If you believe deflation (total of 15-20%) is coming in the near future?

2. If you believe inflation (5% annually) is coming?

3. If you believe hiperinflation (armageddon) is coming ?

4. Stay exactly the same .

Select only one choice and tell the world, what would you invest in based on selection 1,2 3 or 4? Assume 500K available in either  scenario.
    This should be fun for those "in the know" and get their feelings on the record of BP. My feelings are INFLATION for 2-3 years of at least this amount. Rich

Kevin Yeats · Answer

I'll add a comment without making a prediction.

As a property owner under an accelerating inflation environment - especially, egads, if we hit double digit inflation, take care of both ends of your cash flow.  Don't sign any tenants to long term leases (longer than one year).  This will allow you as the property owner to reprice the monthly rents to more current levels more frequently.

Also, if possible refinance to fixed rate loans before the inflation heats up.  Of course, after inflation heats up, and inflation premium is added to interest rates.  If you have variable rate debts, those rates will ratchet up as inflation accelerates.

Good luck.

Kevin Yeats · Answer

Prices will increase by 10% ..... but I don't know how long it will take to hit that increase.

When I worked for an organization that made (internal) predictions we learned to predict a number OR provide a date .... NEVER BOTH!

But since this is just in fun and I reserve the right to change my prediction without notice, I will answer.

I seriously doubt if we will witness widespread deflation.  Ben Bernanke is much too alert and too concerned of the consequences of deflation to let that become a problem.  We will still see some markets exhibit price weakness and that will infect other collateral industries.  (Notice I didn't name markets - but I think the Southeast will be weak for a while yet and again lead the nation in bank failures).

I also seriously doubt that we will witness hyperinflation - at least the kind where we observe people hauling wheelbarrows of cash around.

My guess is that at some point we will witness accelerating inflation that will last for several years --- kind of a creeping acceleration.  Unless the Fed still has GREAT concerns over deflation OR is tied up in Congressional hearings, the Fed will handle the inflation before it gets out of control

The number (SWAG) CPI inflation of between 3% & 6% in 2012 or thereafter.

Wildcards: Obamacare (not a fan), antibusiness initiatives, state and municipal bankruptcies and government response thereto (higher taxes & fees or drastic cuts).

This is worth exactly what you paid for it!

Jon Holdman · Answer

I'm with Kevin that its very hard to make predictions, especially about the future.  While I see some drivers that will push up the inflation rate, I also see some drivers that will hold it down or even produce deflation.

A better way to plan for the future, IMHO, is to consider the effects of these different possibilities on your investment alternatives and then choose a strategy that fares reasonably well under a variety of different scenarios.

I do think wild hyperinflation is a low probability outcome and would likely be accompanied by or produced by other unpleasant events.  But as far as predicting exactly where the inflation rate will be on in the range of -10% to +10%?  Beats me.

Jon Klaus · Answer

Rich, in the past I've been quicker to predict what will happen economically in the future.  Now, not so much.  I have learned that the economy cycles, and just when it seems like the present situation will become the status quo, we see change.  I also know we haven't seen high inflation for nearly 30 years.  And I understand that economies don't have inflation in periods of deleveraging. Are we really deleveraging?

So now I think I know only a little about what will happen economically over the next few years, but my investment strategy should do at least OK through most of your options.  Buy and hold income properties, with just a few specualative "appreciation" properties thrown in the mix.

What are your answers?

Kevin C. · Answer

I'll go on record to say that nobody knows what the future holds, not for the country, not for themselves, not for anything.   To try and predict the future is nothing more than a game at best.

I have a couple investment properties now, and I plan to add more, under the assumption that life as we know it today will continue.   There are certain actions I may take based on current conditions, but there is no guarantee the actions taken are correct for what the future holds.

Regardless of whether there is inflation, deflation, hyperinflation or whatever, people will still need a place to live.

If all hell breaks loose, and life as we know it today no longer exists, then nothing really matters anyway does it?

All that being said, my guess is that at some point at least moderate to high inflation will rear its head due to all the worthless money our dear govt continues to print.  With that in mind, cash flowing properties appear to be a viable investment strategy and one I will continue to pursue, along with other investments.

Of your choices, my guess is that at some point in the not too distant future, inflation will be somewhere between #2 and #3.

Account Closed · Answer

Personally,  I believe the current situation is going to drag out another two years.  I then believe we will see scenario 2.

I intend to continue to grow my RE investments looking for distressed properties that make sense preferably multi-family.  If retail or office come available in areas that might make sense and the numbers are right, I will be giving these consideration as well.  Personally I have enough SFRs in my portfolio.

Kevin Yeats · Answer

Believe it or not, the Fed is much better at constraining than loosening.

The "pushing on a string" analogy.

Kevin C. · Answer

I'm with you on these times feeling different!

I was a homeowner back when interest rates were in the mid to upper teens (mid 80's I believe it was).   We bought a new home back then, with a variable rate, 40 year loan, with a starting rate in the teens!   Hard to believe, but homes sold in that environment.

Unemployment I don't believe was anywhere near where it is today back then.

In my opinion, problems today are mostly due to excessive govt intervention - govt sticking their noses in where they have no business.

Today feels very different, especially with govt run amok like it has.   Hard to predict anything when govt can change the game overnight.   Seems there are absolutely NO rules anymore, that's the scary thing to me.

Travis H. · Answer

I'm bracing for some pretty strong inflation in the coming years.  If you look at historical money supplies and gold and silver "values," it is pretty clear, IMHO, that we are in the middle of a currency bubble right now.  Also, there has never been a currency in the history of the world that has survived for much longer than 100 to 200 years.  That being said, it don't think hyperinflation is necessarily imminent.  I do think that we are certainly headed in down an inflationary path, and as investors should take heed.  That doesn't mean, though, that we need to cash in all our chips and buy gold ounces, just that we need to weigh the effects of high inflation on each investment that we make.  In this market, it think it is certainly a good idea to look for investments with strong ROI under steady conditions, as well as an upside in inflationary conditions.

ps - the Social Security Administration is not giving our seniors a COLA this year, because they claim there 'is not inflation.'  Funny how my silver is "worth" about $30 per ounce today, and it was only "worth" $17 - $18 last January...  Problem is, I can't find anyone that wants to rent my silver, or give me a 30 year fixed rate loan with low interest to leverage... :)

Bryan Hancock · Answer

Unfortunately it is hard to convince people that are prone to being afraid of things that the Fed really knows what it is doing.  People can make up very wild stories sometimes.

What to do? What to do in this case?

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