Is Inflation Transitory?

Submitted by XBoxBoy on July 6, 2021 - 10:34am
Inflation falls back to under 2% before end of year.
0% (0 votes)
2-3% inflation in the coming years, nothing to be worried about
14% (3 votes)
3-4% inflation but drops after a year or two
23% (5 votes)
4-5% inflation that lasts longer than the fed thinks.
27% (6 votes)
5-6% inflation and the fed is well behind the curve
27% (6 votes)
6%+ Here come the 70's all over again.
9% (2 votes)
Total votes: 22
Submitted by deadzone on July 9, 2021 - 1:18pm.

The spending decisions of the USG are reliant on Fed support. Again, without the Fed and the manipulated low interest rates the USG could not service their debt. They are painted in a corner.

The stimmy checks were not intended to "help" the poor. They were to induce consumer spending. People making up to 200K were getting checks. My retired parents got checks. Basically a ridiculous amount of money was wasted by giving it to folks who didn't need it. You are a fool if you truly believe these checks were intended to help poor people.

Submitted by gzz on July 9, 2021 - 2:52pm.

Again, without the Fed and the manipulated low interest rates the USG could not service their debt.

Wrong. In fiscal year 2020, net outlays for interest were $345 billion, 1.6 percent of GDP.

You could double the interest rate, and it would still be the pittance of 3.2% of GDP. Oh wait it is fixed rate, so you can't double the interest rate except on new debt, so it would be maybe 1.7% of GDP.

There's just no evidence Fed purchases of debt caused long rates to decline. Nations with less aggressive monetary policy also saw rates fall.

All the Fed does is swap actual dollars for dollar-like bonds denominated in dollars. The effect is marginal compared to the bigger factors of demographics and business cycles and fiscal policy.

All the things people say about our monetary policy was said about Japan's 10-20 years ago, and proved wrong.

Submitted by Coronita on July 9, 2021 - 3:00pm.

deadzone wrote:

The stimmy checks were not intended to "help" the poor. They were to induce consumer spending. People making up to 200K were getting checks. My retired parents got checks. Basically a ridiculous amount of money was wasted by giving it to folks who didn't need it. You are a fool if you truly believe these checks were intended to help poor people.

Um. How were people making 200k+ getting checks? Please explain. I definitely would like to know.

The only stimmy I got was for a few months, I worked for 4 days, furloughed for the 5th, but was paid UI benefits from both the fed and state that ended up being more than how much if I worked that day...

Submitted by deadzone on July 9, 2021 - 4:54pm.

Coronita wrote:
deadzone wrote:

The stimmy checks were not intended to "help" the poor. They were to induce consumer spending. People making up to 200K were getting checks. My retired parents got checks. Basically a ridiculous amount of money was wasted by giving it to folks who didn't need it. You are a fool if you truly believe these checks were intended to help poor people.

Um. How were people making 200k+ getting checks? Please explain. I definitely would like to know.

The only stimmy I got was for a few months, I worked for 4 days, furloughed for the 5th, but was paid UI benefits from both the fed and state that ended up being more than how much if I worked that day...

Up to 150K income per family got 100% stimmy, gradually reduced amounts up to 200K

Submitted by Coronita on July 9, 2021 - 4:59pm.

deadzone wrote:
Coronita wrote:
deadzone wrote:

The stimmy checks were not intended to "help" the poor. They were to induce consumer spending. People making up to 200K were getting checks. My retired parents got checks. Basically a ridiculous amount of money was wasted by giving it to folks who didn't need it. You are a fool if you truly believe these checks were intended to help poor people.

Um. How were people making 200k+ getting checks? Please explain. I definitely would like to know.

The only stimmy I got was for a few months, I worked for 4 days, furloughed for the 5th, but was paid UI benefits from both the fed and state that ended up being more than how much if I worked that day...

Up to 150K income per family got 100% stimmy, gradually reduced amounts up to 200K

Ah, you are talking about the first round of stimmy.

Submitted by deadzone on July 9, 2021 - 5:00pm.

gzz wrote:

Again, without the Fed and the manipulated low interest rates the USG could not service their debt.

Wrong. In fiscal year 2020, net outlays for interest were $345 billion, 1.6 percent of GDP.

You could double the interest rate, and it would still be the pittance of 3.2% of GDP. Oh wait it is fixed rate, so you can't double the interest rate except on new debt, so it would be maybe 1.7% of GDP.

There's just no evidence Fed purchases of debt caused long rates to decline. Nations with less aggressive monetary policy also saw rates fall.

All the Fed does is swap actual dollars for dollar-like bonds denominated in dollars. The effect is marginal compared to the bigger factors of demographics and business cycles and fiscal policy.

All the things people say about our monetary policy was said about Japan's 10-20 years ago, and proved wrong.

If you say so. So why then is the Federal Reserve buying all this debt? To manipulate the interest rates and the ultimate goal obviously is to blow up the stock market, RE and other asset bubbles to create the wealth effect. When you say the economy is so great, well no it isn't. The economy is the Fed. The economy is the Stock Market and housing market. Just like the 2000s, the wealth effect is the only thing driving the economy. If the economy was truly great, or even healthy, you wouldn't need the Fed to keep printing money to buy debt. Fact is there is no organic market for this debt. Just like how the Fed bailed out all of their banking buddies in 2009 by printing money to purchase garbage mortgage securities. It is truly disgusting.

Submitted by deadzone on July 9, 2021 - 5:01pm.

Coronita wrote:
deadzone wrote:
Coronita wrote:
deadzone wrote:

The stimmy checks were not intended to "help" the poor. They were to induce consumer spending. People making up to 200K were getting checks. My retired parents got checks. Basically a ridiculous amount of money was wasted by giving it to folks who didn't need it. You are a fool if you truly believe these checks were intended to help poor people.

Um. How were people making 200k+ getting checks? Please explain. I definitely would like to know.

The only stimmy I got was for a few months, I worked for 4 days, furloughed for the 5th, but was paid UI benefits from both the fed and state that ended up being more than how much if I worked that day...

Up to 150K income per family got 100% stimmy, gradually reduced amounts up to 200K

Ah, you are talking about the first round of stimmy.

two rounds of stimmys had same rules as i recall and now there is another thing coming out for folks with children.

Submitted by Coronita on July 11, 2021 - 8:17pm.

another datapoint of inflation....

Back in August 2019, i bought a whirpool dishwasher model WDF520PADM from home depot for a rental for $277

(i added $95 for a 5 year extended warranty and $25 haul away for a total of $399 before tax.)

Today, the same dishwasher, that my parents want to buy for a rental, before extended warranty and haulway cost is....

https://www.homedepot.com/p/Whirlpool-24...

$566

less than 2 years...

Submitted by deadzone on July 11, 2021 - 9:01pm.

Coronita wrote:
another datapoint of inflation....

Back in August 2019, i bought a whirpool dishwasher model WDF520PADM from home depot for a rental for $277

(i added $95 for a 5 year extended warranty and $25 haul away for a total of $399 before tax.)

Today, the same dishwasher, that my parents want to buy for a rental, before extended warranty and haulway cost is....

https://www.homedepot.com/p/Whirlpool-24...

$566

less than 2 years...

There are clearly tons of examples of price appreciation in recent years.

I'm curious if there are any examples of anything that has gone down in price in the last two years. I can't think of any.

Submitted by Coronita on July 12, 2021 - 6:34am.

deadzone wrote:

There are clearly tons of examples of price appreciation in recent years.

I'm curious if there are any examples of anything that has gone down in price in the last two years. I can't think of any.

Mobil 1 0w40 synthetic motor oil

2017

$22.88

motor oilmotor oil

2021

$22.37

https://www.amazon.com/Mobil-120760-Synt...

i use to stock several gallons of motor oil. But at these prices, i don't bother and free up a lot of shelf space.

Also, Bridgestone RE-71R 215/45/17 tires.

$594 for 4 in 2017
$569 for 4 in 2018
$459 for 4 in 2021

To be fair, beidgestone discontinued the tire this year so it could be more to do with a clearance sale

tirestires

tirestires

Submitted by XBoxBoy on July 13, 2021 - 6:51am.

Rich Toscano wrote:

Here are the month-to-month changes in core CPI over the past 3 months:

Mar: .62% = 7.4% annualized
Apr: .77% = 9.2% annualized
May: .64% = 7.7% annualized

This is Core CPI, so commodities don't come into it, and these are monthly changes, so there are no base effects from last year.

The trend continues or maybe even accelerates:

June: 0.9% = 10.8% annualized

Submitted by deadzone on July 13, 2021 - 8:31am.

XBoxBoy wrote:
Rich Toscano wrote:

Here are the month-to-month changes in core CPI over the past 3 months:

Mar: .62% = 7.4% annualized
Apr: .77% = 9.2% annualized
May: .64% = 7.7% annualized

This is Core CPI, so commodities don't come into it, and these are monthly changes, so there are no base effects from last year.

The trend continues or maybe even accelerates:

June: 0.9% = 10.8% annualized

Amazing. At what point, if ever, will the USG recognize this inflation? You gotta feel bad for the retirees living of SS and other fixed income continuing to get their 2% COLA increase throughout all this, what a joke!

Submitted by sdrealtor on July 13, 2021 - 8:35am.

Current projections are in the 4% range similar to what government and public sector employees see.

Submitted by deadzone on July 13, 2021 - 9:01am.

sdrealtor wrote:
Current projections are in the 4% range similar to what government and public sector employees see.

What government employee has seen a 4% COLA raise, can you give one example? Just saw military is estimating a 2.7% increase for 2022. SS got only 1.3% in 2021, way below any reasonable estimate for inflation. Let's see what happens next year but up till now the USG has not been willing to recognize or admit the inflation reality.

Submitted by gzz on July 13, 2021 - 10:46am.

1. When people report uncritically 2020-2021 inflation figures, they are biased or uninformed. It is trivial to just report 2019-2021 figures to filter out the pandemic effect.

2. About a third of June’s inflation is from used car prices.

3. The media and sheeple love inflation stories. Not much evidence of expected long inflation when looking at TIPS v regular bonds. Today implied expectations is 2.33%. OMG!!!!!

https://fred.stlouisfed.org/series/T10YIE

Submitted by gzz on July 13, 2021 - 10:49am.

Lumber prices erase all of 2021 gain, and also are up far less than CPI over 25 years.

https://www.kitco.com/news/2021-07-13/Lu...

Submitted by sdrealtor on July 13, 2021 - 10:57am.

gzz wrote:
1. When people report uncritically 2020-2021 inflation figures, they are biased or uninformed. It is trivial to just report 2019-2021 figures to filter out the pandemic effect.

2. About a third of June’s inflation is from used car prices.

3. The media and sheeple love inflation stories. Not much evidence of expected long inflation when looking at TIPS v regular bonds. Today implied expectations is 2.33%. OMG!!!!!

https://fred.stlouisfed.org/series/T10YIE

Do you get out much? I see it everywhere. I'm sipping a coffee right now that went up 10% this year.

I'd love deflating building prices. Working on plans for a multi unit development right now. Would love to see costs drop in couple years when we are ready to go

Submitted by gzz on July 13, 2021 - 11:37am.

SDR, I am also drinking coffee now, an iced Nespresso. The capsules direct from Nestle are the same base 70c each they were 10 years ago. However, my most recent purchase was the best promo the entire time, and worked out to about 54c per capsule. Normally the promos are more like 10% off.

They have free overnight (to my address at least) shipping when you buy $50 worth.

We have the BLS so we don't have to rely on such anecdotes.

While I am having it black, if I wanted to add milk to it, the price would be about the same as it was when I first purchased it in the 1990s.

Submitted by utcsox on July 13, 2021 - 11:56am.

deadzone wrote:
sdrealtor wrote:
Current projections are in the 4% range similar to what government and public sector employees see.

What government employee has seen a 4% COLA raise, can you give one example? Just saw military is estimating a 2.7% increase for 2022. SS got only 1.3% in 2021, way below any reasonable estimate for inflation. Let's see what happens next year but up till now the USG has not been willing to recognize or admit the inflation reality.

Here is one example.

The San Diego Unified School District on Friday agreed to teacher salary and staffing increases as part of a plan to accelerate learning following unprecedented school closures brought on by COVID-19.

The proposal is part of a tentative agreement between San Diego Unified and the San Diego Education Association, effective through June 30, 2022 pending ratification by both parties.

To help retain teachers, the agreement calls for a 4% on-schedule salary increase effective July 1, 2021 . The district said some 86 teachers will be assigned to help reduce elementary school class sizes, as well as 12 school psychologist positions.

https://timesofsandiego.com/education/20...

Submitted by deadzone on July 13, 2021 - 12:59pm.

yes good point, I did read about generous raises going for San Diego teachers and firefighters I believe. Will wait to see if anything like this happens on the Federal level, I tend to doubt it.

of course inflation is way higher in San Diego county relative to the rest of the country. So 4% is certainly less than actual local inflation.

Submitted by sdrealtor on July 13, 2021 - 1:18pm.

gzz wrote:
SDR, I am also drinking coffee now, an iced Nespresso. The capsules direct from Nestle are the same base 70c each they were 10 years ago. However, my most recent purchase was the best promo the entire time, and worked out to about 54c per capsule. Normally the promos are more like 10% off.

They have free overnight (to my address at least) shipping when you buy $50 worth.

We have the BLS so we don't have to rely on such anecdotes.

While I am having it black, if I wanted to add milk to it, the price would be about the same as it was when I first purchased it in the 1990s.

Nespresso was a novelty premium product when it first came out and had premium pricing. Now its a commodity. The market for it has fundamentally changed. Not a good example

Submitted by brg654 on July 13, 2021 - 3:28pm.

gzz wrote:
About a third of June’s inflation is from used car prices

not only that, but when you exclude pandemic-related services (travel, event admission) and vehicles (new, used, parts, rentals), core inflation was .22% in june, a deceleration from .28% in may and .31% in april.
http://econbrowser.com/archives/2021/07/...
.22% for 1 month is a 2.67% annualized rate. looking more and more transitory with every data release.

Submitted by gzz on July 13, 2021 - 3:51pm.

BRG - thanks, I learned something from your link.

TIPS spread overstates expected inflation, because it includes three things: inflation expectation, inflation risk premium, and TIPS liquidity premium.

TIPS doesn't just pay you the inflation measure, it also insures you against inflation, moving the risk from the bond buyer to the bond issuer. That insurance has economic value on top of the expected payment for inflation.

Two market inflation expectation measures that do not have this problem are the an adjusted TIPS measure and a separate measure by the Cleveland Fed. The latter says expected inflation is about 1.6%.

https://www.clevelandfed.org/our-researc...

The second measure is 1.7% and based on TIPS and stated here:

http://econbrowser.com/archives/2021/07/...

Submitted by gzz on July 13, 2021 - 4:05pm.

Nespresso was a novelty premium product when it first came out and had premium pricing. Now its a commodity.

The type of coffee you buy goes up in price is a good example of inflation, the type of coffee I buy goes down but is "not a good example"?!?

I am not sure what you mean by "not a good example."

I think it is another example of someone saying the decline in the market price of something "doesn't count" as inflation "because reasons." And in general, of the bizarre cognitive bias people have of thinking inflation is higher than it really is and always accelerating.

Are there any items whose price has declined that is a "good example" of deflation? Clothing? TVs? Furniture? Long distance calls? Computers? Flash drives?

The fact there are reasons prices decline, such as they go from luxury to commodity, doesn't mean it isn't deflation. Also I don't actually agree that Nespresso was a premium item in 2011 and isn't now. Both years you could buy generic pods for less that were not quite as good as Nestle's, but fine if you mixed with milk or a chocolate protein shake.

Submitted by gzz on July 13, 2021 - 4:12pm.

Boy I wish I did live in the inflationista fantasy world. I think sustained 4% to 5% inflation would be a wonderful thing for economic growth and reducing inequality.

It would be great for me too! I also have $1M+ of fixed rate debt and more than 100% of my net worth is in inflation-resistant assets (mainly RE, secondarily stocks, plus some pretty 19th century gold coins).

Even my bond-ish high dividend value stocks like KHC would really benefit from inflation because they tend to have a ton of fixed rate long debt and pretty good pricing power.

Alas, my dream and the inflationista nightmare of 5% inflation will only sweeten and haunt our sleeping nights, never to see dawn's early light.

Submitted by sdrealtor on July 13, 2021 - 8:51pm.

gzz wrote:

Nespresso was a novelty premium product when it first came out and had premium pricing. Now its a commodity.

The type of coffee you buy goes up in price is a good example of inflation, the type of coffee I buy goes down but is "not a good example"?!?

I am not sure what you mean by "not a good example."

I think it is another example of someone saying the decline in the market price of something "doesn't count" as inflation "because reasons." And in general, of the bizarre cognitive bias people have of thinking inflation is higher than it really is and always accelerating.

Are there any items whose price has declined that is a "good example" of deflation? Clothing? TVs? Furniture? Long distance calls? Computers? Flash drives?

The fact there are reasons prices decline, such as they go from luxury to commodity, doesn't mean it isn't deflation. Also I don't actually agree that Nespresso was a premium item in 2011 and isn't now. Both years you could buy generic pods for less that were not quite as good as Nestle's, but fine if you mixed with milk or a chocolate protein shake.

You are too funny. My cup of brewed coffee goes up but because you find a way to buy a product with discounts (which by the way may not continue to be available) my example of inflation doesn't count. You just did exactly what you accused me of.

Submitted by sdrealtor on July 13, 2021 - 8:54pm.

gzz wrote:
Boy I wish I did live in the inflationista fantasy world. I think sustained 4% to 5% inflation would be a wonderful thing for economic growth and reducing inequality.

It would be great for me too! I also have $1M+ of fixed rate debt and more than 100% of my net worth is in inflation-resistant assets (mainly RE, secondarily stocks, plus some pretty 19th century gold coins).

Even my bond-ish high dividend value stocks like KHC would really benefit from inflation because they tend to have a ton of fixed rate long debt and pretty good pricing power.

Alas, my dream and the inflationista nightmare of 5% inflation will only sweeten and haunt our sleeping nights, never to see dawn's early light.

So just there you admitted that basically your entire net worth is invested in hedges against inflation yet you wonder why you don't feel or see inflation. Of course you don't

Submitted by scaredyclassic on July 13, 2021 - 9:16pm.

Shitty motel room was $200, think it was 140 ish not long ago.

200?

Jeeeeeeeez

Submitted by Reality on July 13, 2021 - 9:48pm.

gzz wrote:

It would be great for me too! I also have $1M+ of fixed rate debt and more than 100% of my net worth is in inflation-resistant assets (mainly RE, secondarily stocks, plus some pretty 19th century gold coins).

Explain to me how stocks are inflation resistant. Inflation goes up, interest rates are raised in response (one would think), which causes stocks to go down.

Submitted by XBoxBoy on July 14, 2021 - 7:43am.

Reality wrote:

Explain to me how stocks are inflation resistant. Inflation goes up, interest rates are raised in response (one would think), which causes stocks to go down.

If inflation is caused by an overheated economy that is good for stocks. Business is booming, people are buying things, companies are making profits. When the economy is in a deep recession, inflation is likely to be non-existent. Maybe even deflation is present. Times like that are bad for stocks.

Currently we are hearing talk in the news that if inflation goes up, the fed will allow rates to go up and that is bad for companies that need to borrow money which means falling stock prices. (Exactly what you describe) While I don't disagree with this narrative, I suspect that often the forces of booming business outweigh the forces of rising interest rates. Just depends how those two balance out. Inflation with little to no rising rates is probably good for stocks. Small amounts of inflation with rapidly rising interest rates would probably be pretty bad for stocks.

And looking at all the recent times data indicating we are entering a period of inflation has been release, if there has been a fall in stocks it has been temporary and quickly recovered from.

Submitted by XBoxBoy on July 14, 2021 - 7:45am.

gzz wrote:
Boy I wish I did live in the inflationista fantasy world. I think sustained 4% to 5% inflation would be a wonderful thing for economic growth and reducing inequality.

Gzz, can you explain why you think high inflation would cause reducing inequality?

Submitted by deadzone on July 14, 2021 - 8:41am.

XBoxBoy wrote:
Reality wrote:

Explain to me how stocks are inflation resistant. Inflation goes up, interest rates are raised in response (one would think), which causes stocks to go down.

If inflation is caused by an overheated economy that is good for stocks. Business is booming, people are buying things, companies are making profits. When the economy is in a deep recession, inflation is likely to be non-existent. Maybe even deflation is present. Times like that are bad for stocks.

Currently we are hearing talk in the news that if inflation goes up, the fed will allow rates to go up and that is bad for companies that need to borrow money which means falling stock prices. (Exactly what you describe) While I don't disagree with this narrative, I suspect that often the forces of booming business outweigh the forces of rising interest rates. Just depends how those two balance out. Inflation with little to no rising rates is probably good for stocks. Small amounts of inflation with rapidly rising interest rates would probably be pretty bad for stocks.

And looking at all the recent times data indicating we are entering a period of inflation has been release, if there has been a fall in stocks it has been temporary and quickly recovered from.

Of course higher interest rates will crush the stock market (and ultimately housing market). However, the Fed is in control with the printing press. Powell and the Fed have made no indication that they are going to take their foot off the gas. In fact it is quite the opposite. As long as they deny inflation, call it transitory, they will not stop. I'm not sure they will ever stop, they've been doing QE non-stop since 2009.

Submitted by sdrealtor on July 14, 2021 - 9:24am.

If you truly believe what you said why don't you buy the best hedge out there?

Submitted by deadzone on July 14, 2021 - 10:04am.

sdrealtor wrote:
If you truly believe what you said why don't you buy the best hedge out there?

Not sure if this is question to me. I'm not predicting the Fed keeps the foot on the gas forever, or if they will be forced to stop QE but it sure looks possible they will keep this up for a long time. Obviously the big money investment firms are buying up a lot of real estate, even now with it at all time highs, so this clearly indicates they believe the Fed is not going to stop.

For sure RE is a great inflation hedge. But at these prices? Serious question to sdr, if you just inherited say 5 million bucks, would you invest it all in RE at today's prices? Or some portion? There is serious risk at these prices. Yes if inflation goes ballistic it would work out. If there is a market crash you could lose your shirt. In my mind it is about 50/50 between those two scenarios.

Submitted by The-Shoveler on July 14, 2021 - 10:18am.

IMO the FED is kind of trapped with "pedal to the metal".
Having a long term stock market crash would put most pension plans into BK.
And probably end a lot of 401K millionaires dreams.

(not that a million will go very far in 5-10 years IMO).

Submitted by deadzone on July 14, 2021 - 10:29am.

The-Shoveler wrote:
IMO the FED is kind of trapped with "pedal to the metal".
Having a long term stock market crash would put most pension plans into BK.
And probably end a lot of 401K millionaires dreams.

(not that a million will go very far in 5-10 years IMO).

Exactly, they are definitely trapped and I think that is the biggest reason RE is going ape-shit right now. Everyone is desperate for inflation hedge. But on the other hand, our Fed controlled Fiat financial system by definition results in booms and busts. You can't have a perpetual boom. At some point there needs to be a bust so you can re-inflate another bubble in the future for a new boom.

Submitted by sdrealtor on July 14, 2021 - 11:32am.

deadzone wrote:
sdrealtor wrote:
If you truly believe what you said why don't you buy the best hedge out there?

Not sure if this is question to me. I'm not predicting the Fed keeps the foot on the gas forever, or if they will be forced to stop QE but it sure looks possible they will keep this up for a long time. Obviously the big money investment firms are buying up a lot of real estate, even now with it at all time highs, so this clearly indicates they believe the Fed is not going to stop.

For sure RE is a great inflation hedge. But at these prices? Serious question to sdr, if you just inherited say 5 million bucks, would you invest it all in RE at today's prices? Or some portion? There is serious risk at these prices. Yes if inflation goes ballistic it would work out. If there is a market crash you could lose your shirt. In my mind it is about 50/50 between those two scenarios.

You don't have to invest here. There are plenty of places where it's not nearly as crazy. To answer your question I would invest a good portion in income producing real estate. Rents will follow inflation. I'm actually in the early stages of a rather larger investment along these lines. I'd rather play golf and drink wine then work.

Submitted by sdrealtor on July 14, 2021 - 11:36am.

deadzone wrote:
The-Shoveler wrote:
IMO the FED is kind of trapped with "pedal to the metal".
Having a long term stock market crash would put most pension plans into BK.
And probably end a lot of 401K millionaires dreams.

(not that a million will go very far in 5-10 years IMO).

Exactly, they are definitely trapped and I think that is the biggest reason RE is going ape-shit right now. Everyone is desperate for inflation hedge. But on the other hand, our Fed controlled Fiat financial system by definition results in booms and busts. You can't have a perpetual boom. At some point there needs to be a bust so you can re-inflate another bubble in the future for a new boom.

The smartest guy in the room doesn't dictate the real estate market, the stupidest one with a lot of money does. You remind me of a lot of smart people I've run into who think real estate prices don't make sense and miss opportunities they talk themselves out of. The most successful real estate investors I see look at current math and don't over think things.

Submitted by deadzone on July 14, 2021 - 11:49am.

sdrealtor wrote:
deadzone wrote:
The-Shoveler wrote:
IMO the FED is kind of trapped with "pedal to the metal".
Having a long term stock market crash would put most pension plans into BK.
And probably end a lot of 401K millionaires dreams.

(not that a million will go very far in 5-10 years IMO).

Exactly, they are definitely trapped and I think that is the biggest reason RE is going ape-shit right now. Everyone is desperate for inflation hedge. But on the other hand, our Fed controlled Fiat financial system by definition results in booms and busts. You can't have a perpetual boom. At some point there needs to be a bust so you can re-inflate another bubble in the future for a new boom.

The smartest guy in the room doesn't dictate the real estate market, the stupidest one with a lot of money does. You remind me of a lot of smart people I've run into who think real estate prices don't make sense and miss opportunities they talk themselves out of. The most successful real estate investors I see look at current math and don't over think things.

You are right about that. But then again I have also been burned by market crashes in the past and understand that history usually repeats itself.

Obviously SD RE at these prices there is no way you could be anywhere close to cash flow positive by renting. I take it there are other parts of the Country you like for income producing RE?

I so own some rentals South of the border, thinking about expanding down there if anything.

Submitted by gzz on July 14, 2021 - 12:23pm.

I think that is the biggest reason RE is going ape-shit right now. Everyone is desperate for inflation hedge.

That's not what the bond market shows.

Relative TIPS pricing does not show any "desperation" for inflation hedges. Nor does the classic hedge of gold.

Moreover, most investments are fairly protected from inflation. it isn't just RE. The main ones that are not are fixed rate long term debt instruments themselves and companies that hold a lot of them, such as mortgage REITs.

Obviously SD RE at these prices there is no way you could be anywhere close to cash flow positive by renting.

Depends on your cost of funds. If you have a lot of cash sitting around making 1.35% in ten year treasuries and then taxed, your money would certainly do better in RE.

Moreover, "cash flow positive" is certainly nice, but also arbitrary. An investment that qualifies with a 30 year mortgage may not with a 15.

Nominal RE prices and rents both tend to go up, and even very slow appreciation of 1% nominal produces large equity gains, even if there is no "cash flow positive" benefit in the first year.

Frankly if you require a RE investment to immediately cash flow out, maybe you shouldn't be investing so aggressively.

Submitted by sdrealtor on July 14, 2021 - 12:50pm.

deadzone wrote:
sdrealtor wrote:
deadzone wrote:
The-Shoveler wrote:
IMO the FED is kind of trapped with "pedal to the metal".
Having a long term stock market crash would put most pension plans into BK.
And probably end a lot of 401K millionaires dreams.

(not that a million will go very far in 5-10 years IMO).

Exactly, they are definitely trapped and I think that is the biggest reason RE is going ape-shit right now. Everyone is desperate for inflation hedge. But on the other hand, our Fed controlled Fiat financial system by definition results in booms and busts. You can't have a perpetual boom. At some point there needs to be a bust so you can re-inflate another bubble in the future for a new boom.

The smartest guy in the room doesn't dictate the real estate market, the stupidest one with a lot of money does. You remind me of a lot of smart people I've run into who think real estate prices don't make sense and miss opportunities they talk themselves out of. The most successful real estate investors I see look at current math and don't over think things.

You are right about that. But then again I have also been burned by market crashes in the past and understand that history usually repeats itself.

Obviously SD RE at these prices there is no way you could be anywhere close to cash flow positive by renting. I take it there are other parts of the Country you like for income producing RE?

I so own some rentals South of the border, thinking about expanding down there if anything.

property is in San Diego and rent more than covers the carrying cost. However the upside is the lot and it’s zoning which is developable into multiunit in a gentrifying area with a great future over the next 5 to 10 years.That’s as much as I’ll say

Just went back and had an OMG moment. You think investing here is crazy but you invest south of the border? Thats a serious wtf for me

Submitted by gzz on July 14, 2021 - 12:32pm.

On the cash flow point, take this recent closing:

https://www.sdlookup.com/MLS-210007626-4...

I know this market, this would rent for about $2400/mo to a long term renter. If it can be AirBNBed much more but let's put that aside.

HOA + tax + ins would be $827/mo. So net rent would be $1573, or $18876 a year.

That's an immediate return of 3.97% on the purchase price, and far better than bonds. And in my view about as safe, if not as liquid. And RE is far more tax advantaged.

Assume only a 1% appreciation, however, and the 3.97% becomes 4.97%. Add in 1% rent growth and it goes up to 5.03%. And 1% increase in price and rent is being IMO unreasonably conservative if you are doing long term planning, though of course it could be that low for a few years.

Submitted by deadzone on July 14, 2021 - 1:13pm.

How can you take the bond market seriously when the Fed is buying nearly half of all treasuries issued in the last yaer? This market is totally manipulated.

Submitted by deadzone on July 14, 2021 - 1:23pm.

gzz wrote:
On the cash flow point, take this recent closing:

https://www.sdlookup.com/MLS-210007626-4...

I know this market, this would rent for about $2400/mo to a long term renter. If it can be AirBNBed much more but let's put that aside.

HOA + tax + ins would be $827/mo. So net rent would be $1573, or $18876 a year.

That's an immediate return of 3.97% on the purchase price, and far better than bonds. And in my view about as safe, if not as liquid. And RE is far more tax advantaged.

Assume only a 1% appreciation, however, and the 3.97% becomes 4.97%. Add in 1% rent growth and it goes up to 5.03%. And 1% increase in price and rent is being IMO unreasonably conservative if you are doing long term planning, though of course it could be that low for a few years.

Seriously there are people paying $2400 for 1 bed 1 bath long term? I guess I'll take your word for it.

Submitted by sdrealtor on July 14, 2021 - 4:23pm.

A 1 br place in La Costa is $2k. A lot more in Carmel Valley

Submitted by deadzone on July 15, 2021 - 8:43am.

sdrealtor wrote:
A 1 br place in La Costa is $2k. A lot more in Carmel Valley

But who would rent that long term at that price? What is your definition of long term? May as well buy the place but 1/1 condos are about the worst/riskiest investment to make at all time market highs.

Submitted by an on July 15, 2021 - 9:14am.

If I win a $5m lottery today, I'd spend about 80% of it in SD RE right now.

Submitted by sdrealtor on July 15, 2021 - 10:08am.

deadzone wrote:
sdrealtor wrote:
A 1 br place in La Costa is $2k. A lot more in Carmel Valley

But who would rent that long term at that price? What is your definition of long term? May as well buy the place but 1/1 condos are about the worst/riskiest investment to make at all time market highs.

To the contrary they are like government backed bonds. They are the cheapest thing for a person who just wants to live alone and they stay for years. My clients own some in La Costa. They have never had a tenant stay less than 3 years. There are lots of older folks, working away at the median income with stable jobs who just want a nice safe place to live by themselves.

Submitted by deadzone on July 15, 2021 - 10:57am.

sdrealtor wrote:
deadzone wrote:
sdrealtor wrote:
A 1 br place in La Costa is $2k. A lot more in Carmel Valley

But who would rent that long term at that price? What is your definition of long term? May as well buy the place but 1/1 condos are about the worst/riskiest investment to make at all time market highs.

To the contrary they are like government backed bonds. They are the cheapest thing for a person who just wants to live alone and they stay for years. My clients own some in La Costa. They have never had a tenant stay less than 3 years. There are lots of older folks, working away at the median income with stable jobs who just want a nice safe place to live by themselves.

I assume your clients purchased those 1/1 after the housing crash so of course they are doing good.

Submitted by deadzone on July 15, 2021 - 11:00am.

an wrote:
If I win a $5m lottery today, I'd spend about 80% of it in SD RE right now.

Obviously a lot of people share your sentiment which is why the market is going ape-shit right now. That's what super low interest rates and expectation for endless Fed support will do. As long as everyone thinks prices will go up in perpetuity, there is no perceived risk. For now at least, the Fed has taken risk out of the equation since they have been and continue to buy everything (including mortgage backed securities).