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cpi shows inflation over 9% using 1980 methodology
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funny how everyone bought into the new method.

http://www.shadowstats.com/alternate_data/inflation-charts

And unemployment is over 20%, just like the great depression. But hey, if you can't do a better job, you can change the metrics by which you're evaluated so it looks like you're doing a better job.

RS, can you summarize the differences between the 1980 methodology and the current methodology for us? I'd be curious to understand them.

`When I use a word,' Humpty Dumpty said in rather a scornful tone, `it means just what I choose it to mean -- neither more nor less

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http://www.shadowstats.com/article/consumer_price_index

Start here Ino, Do not have time to digest and summarize myself. Perhaps Urban Digs can chime in on this. It seems up his alley.

http://www.europac.net/whitepapers/The Truth About CPI.pdf

In a “Cost of Living Index” index, however, as the prices for these goods rise, they would be substituted for cheaper, lesser quality goods. After years of rising prices, the basket might look like hamburger and kraft singles. If this change happened in 5 years, assuming that the prices of hamburger and kraft singles rose to the point where they now cost 15% more than what steak and gruyere cheese used to cost, the government would report that the CPI increased 15%. However, the gruyere and steak are now 40% more expensive. Was inflation 15% or 40% during the 5 year period? Do you want a steak or hamburger?

to me the reason is clear. if the inflation measurements were NOT tweaked to understate inflation when inflation is a problem, the cost of living increases that ripple into the payouts of the social security ponzi scheme will bankrupt the program dozens of years early

In a geometric weighting, steak would be given a lesser weight because it increased in price. The geometric weighted inflation may only come out to be 12.5%. The result is a consistently lower published CPI number. The reasoning behind such a change is that consumers will stock up on goods that are decreasing in price and will buy less of goods that are increasing in price. While buyers may change their behavior, it does not change the underlying fact that prices are rising.

http://www.europac.net/whitepapers/The Truth About CPI.pdf

Agree Urban, First the gov't cons everyone to accepting the CPI, then they tweek it and justify it using logic only a sophist could appreciate. And as a result anyone who has income tied to the CPI is screwed. And now we are doubly screwed because the gov't justifies zero fed funds on low inflation enabling the huge transfer of our welath to the banks, who engage in a huge carry trade thanks to zero short term rates which comes at the expense of our interest on savings

yep.."who engage in a huge carry trade thanks to zero short term rates which comes at the expense of our interest on savings "

that carry trade got murdered the past 3-4 weeks...tons of huge positions were unwound I believe as the dollar surged and equities, commodities, bonds, got hit.

By understating the true rate of inflation, the government saves an enormous amount of money because so many programs’ benefits escalate with the CPI. These expenditures include social security benefits for approximately 48 million people, benefits for about
4.1 million military and Federal Civil Service retirees and survivors, and payments for about 22 million food stamp recipients.

http://www.europac.net/whitepapers/The Truth About CPI.pdf

And I love how when housing prices were tripling, this very significant rise in cost of living was minimized by tracking rents instead. If they want to be honest they would track the % of existing homeowners (unaffected, because it is a hedged cost), vs. % of new homeowners (paying higher prices) vs. % renters (paying rental rates).

Urban, Seems our banks are not that more sophisticated than the Japanese houswives shorting Yen and buying Ausie dollar.

Wouldn't higher inflation be better for real estate? Isn't the bear case for real estate assuming deflation?

Just saying that if you think there is inflation out there, you should borrow to buy a real asset, and pay back that borrowed money with inflated dollars. No?

>> Wouldn't higher inflation be better for real estate? Isn't the bear case for real estate assuming deflation?

Unclear, because higher inflation means higher interest rates as well. Personally I think real estate will be up slightly or flat, but plain cash will lose value. Doesn't mean you shouldn't have cash though either LOL.

Don't know how far out that will happen, but that's my view at the moment. A lot of bears here are deflationists so they believe that real estate asset prices will plummet more. If anyone knew the answer to this, they'd probably make a ton of money.

jhochle, you are exactly right that inflation generally benefits real estate owners, but a leveraged buyer today is placing a bet: borrow at 4.875% or a bit higher to buy an asset "yielding" (in rental savings) 3.5%. In the short run, a buyer is definitely losing money. If you believe rents rise due to inflation, the buyer's bet begins to pay off. The real estate bears may be correct to defer a purchase on the hopes of a further price correction.

except the type of inflation that really benefits homeowners is credit inflation. clearly right now we have the opposite. I think inflation will trickle into the things that hit margins and squeeze wallets first; energy, health care, food, metals, raw goods, etc..not home prices..if home prices rise, its because they fell too far too fast and are equalizing..but I guess some will say that its due to inflationary forces.

I don't agree with shadowstats.com, nor would I ever trust anything from a website with that name. I would think the government would love to show some inflation here, it would give the market a lot more confidence. Also, if you think that prices are rising (inflation) then you should buy assets, and if you want to be aggressive, you should buy levered assets. If you think there is inflation, yet somehow you think that real estate prices won't go up, I think you are over thinking things. Prices going up means prices going up, and it is better if you are levered if there is inflation.

The bear case for real estate is deflation not inflation. If you think there is going to be inflation, and that makes you not want to buy, then you are blindly bearish.

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We experienced a LOT of blind bullishness in the past, so we're probably do for an equal amount of blind bearishness. The people who miss out are the ones not thinking long term: You only have one lifetime to save for retirement: your prime earning years 30 or more if you are lucky. Where do you want to be? If you are where you want to be long term, buy a place you can afford and own it gradually over 10 or 20 years as you pay off the mortgage.

I am not saying CPI was sandbagged.

2007-2009/2010 were deflationary periods. That is my point. Deflation = bad for real estate, Inflation = good for real estate from that standpoint of the owner.

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jhochle - inflation can come in varying forms. you say over analyzing, I say you are not taking into account where we came from and how the world has changed. your assuming all the normal formulas apply, no matter what changes we have experienced.

there IS no inflation with credit contraction. PERIOD! Years ago, when the fed started to take rates to 0% and start their 1.75trln QE program, all the hyperinflationists came out on these boards are screamed how huge inflation was just around the corner - that the dollar is going down huge and that real estate was a huge buy. So what happened? The reason is they didnt understand what was going on. They were stuck using old theories on inflation..money supply surging, fed printing, zero rates, HUGE inflation. Not once did they understand the huge credit contraction, destruction of wealth in shadow banking system, hoarding of excess reserves, negative multiplier effect, and how our fractional reserve system of banking was not being used as it was design to be used..to multiple via credit creation.

deflation has been here for years and is here now. the fed is fighting it by trying to reflate. trying the key word. they can add all the liqudity they want, but in the end, they can determine where that liquidity goes. for most part it went to all risk assets, NOT real estate, and those have now taken a big hit as carry unwind occurs. I recall all the people loving GOLD because it was an inflation hedge, a dollar hedge...they didnt get the gold trade. I explained why the dollar can rise and gold can rise too..that inflation is NOT the reason gold went from 600 to 1200, where is the inflation? My guess is the answer will be, 'well its coming'..oh ok. Same answer from 2008, and 2009. Now its 2010 and guess what, no inflation.

As for real estate, what about changes to lending standards? Unemployment rate? psychological changes in viewing a home as an asset class? hit to credit? Consumers were whacked and millions of americans wont look at housing like they did a decade earlier. credit will never be like it was 5-6-7 years ago. loans wont be issued like it was in the years leading up to the peak. Things changed. Thats all Im sayin

oops, mean they CANT determine where that liquidity goes..

No, just saying that prices will rise if there is inflation.

If you tell me that inflation is or is going to be 9% . You would be a fool to do anything but buy real assets using leverage. I understand the effects of interest rates, trust me I do, but if you think there is 9% inflation then you should sell all of your bonds and other fixed income, borrow at 5-6% and buy as many things as you can. If you can't understand that, then you are blindly bearish.

I am not saying that Real Estate is a buy. I am not saying buy tulips. I am saying that if you think that inflation is or is going to be 9% then you should be a RE bull not a bear.

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if inflation is 9% , then mortgage rates will be 13% ...who in the world will be buying real estate?

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When inflation is 9%, by definition rates are higher ... nobody will lend money to you below the inlfation rate. That's negative carry for the lender ...

Still, though, if you look at the past 30 years of history, real estate had done okay in period of inflation, because it's accompanied by rising rents as well. That's why in 1980, when rates were 16%, Manhattan RE was $750 psf in today's dolllars.

Urbandigs - inflation always lags the economic cycle by 1-2 years, so it's hard to say whether it will come.

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Ill say this, I can see mortgage rates hitting 13% NOT because of inflation, but as unintended consequence of fiscal insanity taken on to stem the deflationary crisis and prevent systemic collapse. If the world loses faith in our ability to roll over debt, to finance our debt, or our currency in general, yes, you will see bond market turmoil and the market will set rates way higher than they are now. Inflation doesn't necessarily have to be the reason! If there is runaway inflation it means the economy is overheating and wages are rising out of control..

13% lending rates can come from either scenario. what do you think is more likely? Look at Greek gov't bonds as they dealt with their fiscal insanity. Portugal, Italy, Spain. Now governments are bailing out other governments...nuts if you ask me.

"inflation always lags the economic cycle by 1-2 years, so it's hard to say whether it will come."

Im aware of that. But in the camp that the inflation to worry about is wage inflation spiraling out of control. I dont see that happening anytime soon

Urban- I think we are much more on the same page than you think. There is no way there is 9% inflation for the reasons you stated.

I agree with urbandigs, credit will never be again in our lifetimes like it was a few years ago. Where I differ from him is that I believe that just results in a higher percentage of renters *professional landlords* in our future. Just because fewer people can afford to own homes, does not make them a bad financial investment. That will depend on where rents go, which will be impacted by inflation. Recent housing price appreciation may have been driven higher by blind bullishness, debt availability etc. But if you believe landlord will have a greater influence on asset prices, as I do, they you have to look at where they are buyers. In manhattan, I'd say currently the price is about $700 bid $1000 ask generically speaking. Those prices are subject to change based on rents and risk free interest rates. In a period of deflation, rents may not rise, but neither will risk free interest rates--in fact those are currently declining likely because banks would rather clip risk free coupons than lend at risk.

W67

The whole point of this thread is that CPI apparently does not measure true inflation which is somehow really 9% right now. I think that is absurd. I am saying that if you are in the camp that believes inflation is 9% you should be a bull because right now apparently lenders are so stupid they are willing to lend to you at 5% even though inflation is 9%. If inflation is 9% and you can borrow at 5% you should buy nearly all assets that are correlated to economic activity or inflation (and yes I would include real estate in that category).

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"Still, though, if you look at the past 30 years of history, real estate had done okay in period of inflation"

Ok, but again you MUST look at where we came from. Prior to those times that you are using as a historical reference, I ask you: Did housing as an asset class jump 100% from the period 6-8 years earlier?

I would bet alot the answer is NO. In fact, housing prices likely remained flat or even went down a bit.

Fast forward to today and the threat of future inflation. Look at where we came from? Since 2002-2003, arguably, this market appreciated about 80-100%. Then we had an adjustment down and a reflation period. But we held on fairly well considering the severity of the crisis a few years ago. But we are still well above levels from only 6-8 years ago. THAT is my argument.

PMG - Okay, the rents argument does in fact make sense to me. But rents too have risen substantially from obly 4-5 years ago. I guess if wages spiral out of control, rents will rise and prices will rise with it. Granted I dont see it happening, but in that hypothetical, borrowing rates would probably be at 10%-11% levels. If the wages support it, I guess I can see it being affordable, but my bias is so much against that possibility even happening that I am forced to ask who in the world can afford to pay much higher prices than today if lending rates are above 10% due to runaway inflation?

"if inflation is 9% , then mortgage rates will be 13% ...who in the world will be buying real estate?"

You wouldn't, but if you are locked into a 30 year fixed at 4.75%, don't plan on moving, and inflation is at 9% you are pretty happy about your real estate purchse. Not a reason to buy real estate IMO but a side benefit.

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100,000 sperm, and you were the fastest?

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W67

No, I wouldn't fly to Vegas for 50.1% odds. I would buy real estate if I believed that inflation was going to be 9%. Your analogy is terrible. If inflation is 9% the odds of making money on buying an asset financed with 5% borrowings is much higher than 50.1%. At current prices, if you bought a NYC apartment, and then projected 9% rental rate increases, it would make money under that hypothetical forecast. Your yield would be huge. Can you understand that?

Urbandigs, I agree ... I don't see a lot of upside from here ... I think prices will continue to come down some more ... it's a question of how much, but I don't buy the argument "the sky is falling and we're going back to $500 psf."

I think NYC real estate was profoundly undervalued in the 1990s - and if you look at over the last 30 years you can see that NYC real estate in the 1990s was cheaper than the late 1970s or 1980s, and you can also see in the 1990s price/rent ratios in NYC lagged the rest of the country. People say it should structurally be lower because renting is a real option here, but look at San Francisco - a city of 65% renters - which has had a price/rent ratio that's closer to 20x over the last 20-30 years. So it's hard to look at the percent gain when the starting point may have been too low, plus, there has been a correction.

On an inflation adjusted basis, rents haven't really risen since 2000, in fact, as of today, they are lower post-Lehman. So I don't see them getting lower than they are right now. Based on today's rents, price/rents for coops are around 18x using $45 psf (condos are way higher so I think these will come down more). If rents recover to what they were a decade ago on an inflation adjusted basis, they'll be around $50 psf, then you're at 17x ... the national average is 15-17x, that's kind of why I see 15-17x.

For sure I think real estate will profoundly underpeform inflation over the next decade ...

sorry, I meant to say, that's why I see another 15% down or so, but not necessarily more

kspeak
>> For sure I think real estate will profoundly underpeform inflation over the next decade

Most likely yes, but the mortgage debt you've taken will be paid for in dollars that were worth more at the time. So even in a flat market, you're kind of winning because you borrowed dollars that were worth more at that time and get to pay back with dollars that are worth less.

UD:
I think we are experiencing deflationary forces, but the government stepped up BIG dollars to cushion the blow and protect confidence a bit. Personally I don't think we will have the deflation that some here expect. The government seems unwilling to let that happen, even at the cost of hyperinflation and destruction of USD.

"hyperinflation and destruction of USD."

when are we talking here? 2015? 2020?

Yes I agree, bailout nation prevented systemic collapse and the environment was engineered to recap our insolvent banking system. And there was a transfer of wealth and a transfer of junk assets from banks to feds balance sheet. I worry about the consequences of such actions. Its clear the intention of these efforts was to risk hyperinflation and prevent a depression.

jhochle

"The bear case for real estate is deflation not inflation. If you think there is going to be inflation, and that makes you not want to buy, then you are blindly bearish"

Absolutely, 100%. And yet I can't really find one bear on here who actually realizes that. They've created this scenario where interest rates rise completely independent of inflation, accompanied by a wholesale trashing of the $. They've been claiming this will happen since the bailouts began in '08, have been dead wrong on both counts, yet still insist it is true.

Gov't is very commited to the transfer of junk assets onto the government balance sheet. The reason we are not attacking the Fannie,Freddie,FHA problem is that if we did, we would investigate the loans and any fraudulenty originated loan (and there are more than a few in my humble opinion) would be put back to the lender/originator at par. This would be death to banks like Wells Fargo,Citi & Banc America amongst many others.

Jury's out if it will happen... i'm just saying we'll do everything we can to prevent it in the GREAT INFLATION EXPERIMENT rather than have the GREAT DEPRESSION 2.

If real estate crashes another 50%, then likely so will milk, oil, etc. I think it's more likely that milk, oil, and commodity prices will rise than fall.

In the end, it's likely that both the deflationists and inflationists will appear to be correct to a certain degree.

"if inflation is 9% , then mortgage rates will be 13% ...who in the world will be buying real estate?"

another answer to this question is that Rhino would

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There will be no rational if inflation is at 9%. People will be looking to buy anything they can with their dollars.

>>> Yes I agree, bailout nation prevented systemic collapse and the environment was engineered to recap our insolvent banking system. And there was a transfer of wealth and a transfer of junk assets from banks to feds balance sheet. I worry about the consequences of such actions. Its clear the intention of these efforts was to risk hyperinflation and prevent a depression.

Unfortunately this is correct... they are trying to inflate their way out of this mess. It's not right but the question of 1) whether it will work and 2) whether it was the worst of a bunch of bad alternatives still remains to be seen. Obviously if it works - this is still unclear - it's robbery of the responsible people, who saved their pennies, because you're making their savings worth less. The moral hazard is severe ....

I bought - we had substantial liquidity to render our downpayment less than 1/4 of our savings. It was partly a hedge against inflation, partly because my monthly costs were equal to rent all things considered, and partly because I could buy my lifetime home. It was 25% off peak (have a literally perfect comp from 2 years before).. so we'll see. I can see another leg down from here but think, barring a massive deflationary spiral, this will be 15% or less.

If inflation is 9% rents will rise 9% or close to it. Buy the asset today by borrowing at 5%, rents will rise, and you will make lots of $.

If you think that Inflation will be 9% yet incomes and or rents won't rise...well then there is no hope for you because you are blindly bearish.

I will grant that in a hypothetical situation where inflation is 9%, mortgage rates are 15% and incomes/rents don't rise, real estate would be a terrible investment. However that is an insane hypothetical that has no basis.

w67, if inflation is at 10%... then holding cash is -10% gain. At 0%, a lot of money went into stocks last year. Now think -10%.

"I would buy real estate if I believed that inflation was going to be 9%."

What you should do is buy stock in a company that has the ability to raise prices as fast as (or faster than) inflation and has comparably little in the way of capex expenditures. Think cigarette companies, for example. Assuming you don't overpay for the stock (P/E of 15 or under for a PM), your purchasing power will almost certainly increase over time. No such guarantee with RE.

If you read hyperinflation stories/anecdotes from google, you'll come across countless examples where on payday, "necessity" stores would have literally nothing on their shelves as ppl would run to go use their money to buy tangible assets.

Wouldn't the cigarette company's expenses rise at 9% too?

I would rather lock in a low long term borrowing cost, and let rental income rise with inflation. Your variable costs like RE taxes, and Maint fees are only about 25-35% of your total cost of carry so your effective expenses would rise at a fraction of inflation while your rental income would rise at the rate of inflation.

Situation A: You have 200k and you stay in cash. Inflation of 10% hits, your 200k is worth ~180k effectively.
Situation B: You have 200k, you put 20% down to buy a 1M property, you now have zero cash. Inflation of 10% hits, but for argument's sake let's say your property stays at 1M. Your 200k is "preserved".

If it gets to this point, for right or wrong there may be a FEAR rally for real estate (rather than GREED) as many ppl will afraid of cash destruction.

>>> What you should do is buy stock in a company that has the ability to raise prices as fast as (or faster than) inflation and has comparably little in the way of capex expenditures. Think cigarette companies, for example. Assuming you don't overpay for the stock (P/E of 15 or under for a PM), your purchasing power will almost certainly increase over time. No such guarantee with RE.

Yes, that's right - real estate is never the BEST inflation hedge because it's correlated to rates .. but locking in a cheap home payment is helpful IF you can find a place you like where you can own for what it costs to rent right now. I think where deals are ACTUALLY getting done right now a lot of people can say this, so that's the argument. Or you can invest your downpayment in stocks like you said, and your upside is higher for sure, but there's a lot of downside there too potentially.

Then, when inflation kicks in, rents are rising like crazy ... rates are higher so maybe you have fewer buyers. But you have fewer sellers too - who wants to sell to rent when rents are spiking? So maybe prices are flat to down, but you're paying more in rent each and every year, and your monthly cost way more than the person who bought, even if they had a little negative carry.

The bottom line is who knows. Since you live there, and you have to live somewhere, it's an okay inflation hedge, though not the best. And certainly not somewhere to put ALL your liquidity since who knows if it will actually come.

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"Wouldn't the cigarette company's expenses rise at 9% too?"

No - b/c I said they had little in the way of capex. Thus, their overall expenses would not rise as quickly as inflation (b/c part of "expense" is depreciation and amortization, which stays constant). Their revenues would increase faster than their expenses, causing profitability to go up during an inflationary period.

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"I would rather lock in a low long term borrowing cost, and let rental income rise with inflation. Your variable costs like RE taxes, and Maint fees are only about 25-35% of your total cost of carry so your effective expenses would rise at a fraction of inflation while your rental income would rise at the rate of inflation."

jhochle, don't you realize that there is no scenario under any circumstance where it makes sense to buy? Renting is ALWAYS better.

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"your effective expenses would rise at a fraction of inflation while your rental income would rise at the rate of inflation"

The problem is that the value of your property may stagnate or decline during that period - and you will have bought using leverage, which magnifies the pain if there's a decline. If you own a stock (like PM), not only does your income (dividends) go up year-by-year, not only are you not leveraged if you prefer not being leveraged (safer), the PPS will also go up as the company's income rises [assuming the P/E multiple remains constant].

But note that this ONLY applies if you pick the correct company [little capex, lot of pricing power] - if you pick the wrong company [lots of capex, little pricing power], you will get killed during inflationary periods.

...so, whatever you do, don't invest in an airline!

BS - that makes no sense. Your 'income' from owning would go up (as rents rise faster than your costs), and the leverage would have a beneficial effect as it is fixed at low rates, which magnifies the increase in yield on your capital. Yes, it could be offset by decreasing P/R as the buyers demand a greater return to compensate for increased interest rates, but presumably that would affect the P/E of a stock as well.

I bought my current condo in 1998 at a cap rate of just under 7%, financed with a mortgage @7%. That was a great deal because rents outpaced costs and now the un-levered cap rate (adjusted for improvements) is 11%. Today, I don't see much opportunity in Manhattan real estate, but you can buy Lorillard "LO" (Newport, the leading domestic menthol cigarette company) to yield 5.5%, which just went ex-div today. My guess, is that based on their year to date earnings growth, their Aug dividend will increase to give today's buyers a 6% cost basis yield. As the earnings increase, your cost basis yield and share profits will grow. That is where I put new money today.

The inflation deflation thing is interesting. M3 has collapsed which may be the deflationists strongest argument.
--------------------------------------------------------------
The M3 money supply in the United States is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history.

http://www.telegraph.co.uk/finance/economics/7769126/US-money-supply-plunges-at-1930s-pace-as-Obama-eyes-fresh-stimulus.html

David Rosenberg from Gluskin Sheff said the White House appears to have reversed course just weeks after Mr Obama vowed to rein in a budget deficit of $1.5 trillion (9.4pc of GDP) this year and set up a commission to target cuts. "You truly cannot make this stuff up. The US governnment is freaked out about the prospect of a double-dip," he said.

"but presumably that would affect the P/E of a stock as well"

It depends on the stock. With a PM, the current P/E is 12. It is highly unlikely to go much lower than that [mainly b/c the dividend yield is already high and would entice additional buyers if it were to go higher]. If you are talking about AMZN, however, which is at a P/E of 40 , then yes, it is likely to go down over time.

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how are you guys defining inflation? lets start here? if oil and raw goods surge 100%, similar to what they did in mid 2008, causing costs to rise for all companies, is that inflation? is it a surge in money supply? credit expansion? rising wages?

i have a feeling what will happen in reality will NOT fit the definition of inflation that those that use real estate to hedge against inflation, define inflation as.

by the way, i admit for a while I thought commodity inflation were the beginning signs of something deeper that may have led our fed to at the very least, NOT cut rates. I was dead wrong, and so were many others. Of course in hindsight many changed their views and wont admit that. But I was dead wrong for a bit in late 2007 and early 2008...the only thing I got right was discussing commodity inflation with credit/housing deflation during these times...but I thought the commodity inflation would be devastating. Thing about that is its self defeating by nature...when it happens, usually its accompanied by sever demand destruction that balances it out; so its not long lasting. usually, that is.

Inflation will effect real estate only if it increases wages first. Do you think we are likely to see wage inflation any time soon? On the other hand, commodities like food and energy will increase in cost as the global market gains purchasing power vs. the dollar. Taxes will rise as the Govt finds it harder to find countries willing to buy depreciating dollars to fund our deficit.

How can real estate go up if wages are stagnant but food, energy, taxes and interest rates are increasing?

that is exactly the reality I think we are headed into

Some of you are too young to remember the stagflation of the 70s: unemployment, stagnant wages and commodity price hikes. The most notable price hike was for gasoline. We also experienced shortages and long lines. The cost of living increases resulted in unions demanding wage increases. Expectations for inflation started to grow, and soon people expected a cost of living increase in their wages. Today, I see health care as a budget buster, but unlike the need to feed yourself, to pay rent or (in suburbs) to fill your car with gasoline, people can do without health insurance.

exatly, pmg.

>>> On the other hand, commodities like food and energy will increase in cost as the global market gains purchasing power vs. the dollar.

Yes, but this is assuming we don't export anything or consume anything we produce domestically (yes, there is a huge trade deficit, but we still are still the world's largest exporter) . If we can start selling commodities like corn in Asia for more nominal dollars, that increases profit for the food manufacturers, etc. Inflation will not affect wages first, but inevitably it will trickle into wages.

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If the dollar depreciates against the Yuan and other major currencies. It will cost considerably more to purchase food an finished goods. We import a great deal from China including based on the latest Fairway visit "food". Further many agricultural comoddities, soy,wheat, etc are globaly priced.

If inflation does heat up, there are a lot of bond holders, including the general public that fled equities in 2008 for bonds, that will get caught with their pants down.

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Where are the bond vigilatnes? They seem to be napping

AR - I value your honesty and your obvious intelligence, but for the life of me I have no idea how you manage to get out of bed every morning. Often I find myself hoping for some sun from your end of the spectrum, but day after day you disappoint.

Listen my good sister, even when London was a nightly horror flick of death and hopelessness, even the most pessimistic of the pessimists had no choice but to grin widely and embrace the day, lest they find themselves cast into the burning pot of damnation. Our world needs models today, much more so than it needs critics. Any idiot can be a critic. Find some sun, even if the lid of the pot has been tightly sealed over your head.

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Look past the charts and your duty to accentuate the negative AR. The world needs you to be part of a solution, rather than a commentator on the problem.

>>>Today, I see health care as a budget buster, but unlike the need to feed yourself, to pay rent or (in suburbs) to fill your car with gasoline, people can do without health insurance.

Only if they want to write a big check every year to the IRS for failing to buy health insurance.

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Daunting prospects are what makes life worth living. Do it and thank me later. Aren't you writing? If so, continue. If not, do something almost as noble.

I rather like the idea of mandatory voting (see Australia). Though I could see it having some interesting effects here.

They had mandatory voting in the former communist block from what I understand. Very slipery slope.

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