Prices, Inflation/Deflation, Interest Rates & The Fed

budoslavic

Owl
Gold Member
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NoMoreTO

Ostrich
Good article from Zero Hedge.

Inflation Is Sticky


Consider the dynamic of Fed-inflated bubbles raising rents. The house that once sold for $200,000 is sold to a pool of investors for $800,000, and the property taxes, insurance and debt service rise accordingly: even though the house didn't change, thanks to the Fed's bubble, the entire cost structure is higher.

So what happens next? The investors jack the rent up to cover the higher costs. As for refinancing to lower the monthly mortgage payment--that trend has reached the end of the line. As inflation gathers steam, mortgage rates can only go up, not down.



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Max Roscoe

Pelican
One option is to refinance them to pull the money out when the time comes and just have a property management company manage them. This would defer any capital gains. Ultimately if you can refinance 50-75% of the equity, then perhaps no need to sell.

I spoke with a pricey accountant who does tax strategy recently, and it was well worth it. I'm in Canada though so lots more tax to hide from here.
I make about 20x (yes, TIMES) as much money on my rental property as I did when a property manager was managing it. Also: Property managers report all cash income to the government.

I also saw plenty of people go bankrupt around 2007. The ones who did were the ones who had tons of debt. Beware of borrowing money when you do not need to, or out of greed for how much you could make reinvesting the profits.
 

NoMoreTO

Ostrich
I make about 20x (yes, TIMES) as much money on my rental property as I did when a property manager was managing it. Also: Property managers report all cash income to the government.

I also saw plenty of people go bankrupt around 2007. The ones who did were the ones who had tons of debt. Beware of borrowing money when you do not need to, or out of greed for how much you could make reinvesting the profits.

Yeah I used a property manager to find tenants one year when I was in Colombia. Bunch of duds.

I agree with you on unnecessary loans, but unnecessary taxes are pretty bad too.
 
I make about 20x (yes, TIMES) as much money on my rental property as I did when a property manager was managing it. Also: Property managers report all cash income to the government.

I also saw plenty of people go bankrupt around 2007. The ones who did were the ones who had tons of debt. Beware of borrowing money when you do not need to, or out of greed for how much you could make reinvesting the profits.

To add to this: I also saw several millionaires I'm friends with lose everything during the same time. They went from living big to living in trailer parks. After ten years they still hadn't built back (and some are getting wiped out again today).
 

cosine

Sparrow
32% of all dollars ever printed have been printed since March 2020.

I'm up plenty in terms of raw $, but not 32% since then. I even managed about a 30% raise, which would be fantastic if the currency wasn't being wrecked.

I finally have a salary that's high enough that I can consistently add material investments; unfortunately it seems like the walls could be closing in rather quickly on salaried people without major assets, real estate empires, etc.

There are ~47 million millionaires in the world, but only 21 million BTC total. It does seem like quite the plausible solution, even if you only have a fraction one. I am buying assets as quickly as I possibly can before the USD erodes further.
 

Monty_Brogan

Woodpecker
Gold Member
32% of all dollars ever printed have been printed since March 2020.

I'm up plenty in terms of raw $, but not 32% since then. I even managed about a 30% raise, which would be fantastic if the currency wasn't being wrecked.

I finally have a salary that's high enough that I can consistently add material investments; unfortunately it seems like the walls could be closing in rather quickly on salaried people without major assets, real estate empires, etc.

There are ~47 million millionaires in the world, but only 21 million BTC total. It does seem like quite the plausible solution, even if you only have a fraction one. I am buying assets as quickly as I possibly can before the USD erodes further.

Assets such as…?
 

cosine

Sparrow
Assets such as…?
cryptocurrencies, tech stocks, real estate in desirable locations with the intention of renting out. I think countries like Switzerland or Singapore would be ideal but I don't have that capacity yet.

Companies like UI Path are beginning to automate white collar jobs now, I believe those will be automated much more quickly than blue collar ones. Getting a robot to actually weld a pipe or lay a brick nicely is difficult, but repetitive form-filling tasks, customer service, etc is quickly automated.

I don't know if UI Path will "win" or if Google or Amazon for example will begin selling automation products at a large scale. Or, individual industries will automate their needs away, for example Lemonade is insurance all done with chat bots and very few humans.
 
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cosine

Sparrow
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I think with any prediction like this, the question "is it right/wrong?" is not as good as "to what extent is it accurate?" -- I don't personally see these technologies all happening quite in the time period they outline by 2025. If that were the case we'd end up with flying cars tomorrow, whereas the rollout of automated cars is happening, albeit much more gradually than these charts suggest.

But, I think the general argument that there are massive technological changes currently underway(much larger than 1990s or 2000's or 2010s) seems valid, and if you don't get on the bandwagon then you will miss out.
 

NoMoreTO

Ostrich
Fed announcement was today at 2pm.

It's a shift up of when interest rates are expected to rise. It's hard to imagine where we'll be in 2023, after another 18 months of this insanity.

Fed policymakers expect to make two interest rate increases by the end of 2023, the central bank’s updated summary of economic projections showed Wednesday. Previously, the median official had anticipated that rates would stay near zero — where they have been since March 2020 — at least into 2024. The Fed now sees rates rising to 0.6 percent by the end of 2023, up from 0.1 percent.
Mr. Powell acknowledged that “inflation has come in above expectations” but suggested it was largely because of robust consumer demand coupled with shortages and bottlenecks as the economy reopens.

“Our expectation is that these high inflation readings that we’re seeing now will start to abate,” he said, adding that if prices moved up in a way that was inconsistent with the Fed’s goal, central bankers would be prepared to react by reducing monetary policy support.

NYT: Federal Reserve Now Projects Rate Increases in 2023 as Economy Heals
 

Max Roscoe

Pelican

NoMoreTO

Ostrich
This guy has about 5 videos explaining his experience with inflation (5-10%) then hyperinflation in Romania. He's a little slow in his speech (like someone we know) but he really lays things out well.

I've really found this video along with another video on Argentina to be helpful to mentally get my head around what might happen, and how to prepare.

We don't know where we are going with respects to this inflation, but it doesn't seem to be slowing down. I was at the grocery store for the first time in a few months as others had been helping out with groceries, it was easy to see the price changes. I looked at the prices and thought "this ain't right".

 
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C-Note

Ostrich
Gold Member
Fed announcement was today at 2pm.

It's a shift up of when interest rates are expected to rise. It's hard to imagine where we'll be in 2023, after another 18 months of this insanity.




NYT: Federal Reserve Now Projects Rate Increases in 2023 as Economy Heals
They may raise interest rates earlier than that and will say something like, "Because inflation, which is nothing to worry about, really, went up a teensy bit more and earlier than expected, we're increasing the rates a year earlier. Don't worry, this means we likely won't have to increase them again in 2023." I assume behind the scenes that the Democrats are putting intense pressure on the Fed not to raise the rates before the 2022 election, but they may not be able to hold off that long.
 

NoMoreTO

Ostrich
They may raise interest rates earlier than that and will say something like, "Because inflation, which is nothing to worry about, really, went up a teensy bit more and earlier than expected, we're increasing the rates a year earlier. Don't worry, this means we likely won't have to increase them again in 2023." I assume behind the scenes that the Democrats are putting intense pressure on the Fed not to raise the rates before the 2022 election, but they may not be able to hold off that long.

Agree totally. In my mind they are just trying to gradually manage the markets mindset over to higher rates without the whole house of cards coming down. For Canadians who have to renew their mortgages every so often depending on term, well all I can say is I'll be locking mine in.

Uneducated Economist is calling for an adjustment to the composition of the Balance Sheet of the Fed prior to increasing interest rates. They would have to fix this. eg. $700 Billion goes into reverse repo everyday. Prior to 2008, entire fed balance sheet was $800Billion. We are in the twilight zone.

 

NoMoreTO

Ostrich
The Federal Reserve can simply scare deflation into effect. They can print money at infinitum, but just warn of rising interest rates and the prices will crash. Just like yesterday.
The Fed Says they will do something two years from now and the markets flip out.


 
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