Hi Elmat, You are right about the boats and the tides, and you are right, technically, about the inflation premium of capital lent.
We had the profitless prosperity 500% reflected through smoke and mirrors in the financial markets, and now we have a recession that never was but went away 500% reflected in the sunlight by way of accounting and downgrades, and if the recession that never was indeed leave/left us, then we may see a profitable prosperity fully and already discounted by the froth left behind from the previous episodes resulting in a flat/channeled market. Given the need to save, consumption decrease eventually, and W economy, or given inflation, wild flight to all things physical.
Why? I believe just because the system did not get flushed in a recession that never was.
Concerning the burgers, I was making fun with the fact that the capital-backing requirement for 1.5 hamburgers per week has now been inflated to USD 1 mm in HK. In Japan, it is even higher:0)
An observation: I am not sure that the RY (rental yield) + I (inflation) + TB (tax benefit) - MCC (mortgage carrying cost) = 'buy real estate" everywhere in the world.
In HK, the answer is no, not yet, but can start accumulation. RY is 5-6.8%, I is negative 3%, TB is 0%, MCC is 3-3.5%.
This, BTW, is why Uncle Greensputin must fight deflation, because it kills, fast, especially in places where leverage is a popular past time.
In the US, if inflation is actually zero, and folks are buying bigger homes, it must be because either (a) the yield + tax benefit + inflation (0) - mortgage carrying cost = 'buy now' and/or (b) psychological peace from bigger home ownership = 'buy now'. Perhaps RY + I + TB - MCC = 5% + 2% + 5% - 6% = 6% and a resounding buy, but now, buy before it is too late.
If so, then I thunk further.
RY is dropping due to vacancies, economy minus outrageous consumption and housing consumption, existing debt load down grades, and rise in prices.
'I' will pick up due to reversion to mean of USD, and all the paper flooding the market place, and popular expectations of 0%, and oh, do not mention the WAT (War Against Terror).
TB? As tax rates come down, so does TB as percentage of income/NAV.
MCC will rise due to any number of issues we can imagine.
So, when (not if, never if) the popularity of housing subsides, will the pool of funding be directed at stocks again? Will the pool even be there at all?
I do not know the answer but also do not like the possible answers, especially when compared to alternative uses of savings at hand.
Nope, do not challenge the precise math, because it will collapse in on itself. The equation is only a method by which I thunk about the naughty things cousins Fanny and Freddie are doing with Uncle Greenspudnick, successfully delaying the cleansing by using up an awful lot of rate ammo, now gone and needs to be restocked, concurrent with inventory restocking in the absence of rise in capital investment, and on the cusp of consumer spending pull back due to whatever forcing them to.
The key is the USD and the twin catheters of trade and fiscal deficits pumping away at gabillions per day, and so J6P must be sacrificed to save J6P, W3C, H4P, and S2B, and for that sacrifice, J6P gets a new SUV, made by S2B and H4P, out of small parts supplied by W3C, who hopefully will eventually buy stuff from J6P or continue to hoard J6P paper.
Chugs, Jay |
