Hi GZ,
It will be interesting to see this "In the fullness of time:
I remember the late 70's.Inflation ran 12-14% per year.
At the time I worked for GM as a just graduated college student.
The UAW had negotiated COLA "Cost of Living Allowance.
It was an extra paycheck that came quarterly.
I had just married Jan and she too worked for GM.
When that COLA came it was pay down the car note time.We always pursued being debt free.
The thought process then was - quick buy a home - they're going up faster than you can save your down payment - WE REALLY DID THINK THAT WAY !!
Now on the far end of a real estate collapse - I do not see that thought process coming until all of the foreclosed properties have been absorbed.
Much like the dot.com bomb these are mega trends and take years to work out.Tech is now recovered and growing past the 2000-2001 levels ,some ten years later.
Real Estate peaked in 2006,and we have endured 5 years of deflating prices -with most say 2-3 years left - I think 1-2 is close and I'm always early.
In December of 2008,as GM saw their cash shortage about to freeze them,they with a panic sold off a huge fleet of rent cars that had been built and promise to be repurchased after the rental fleets used them.
As they flooded the market with new like used cars it took used vehicle prices to ridiculous lows never anticipated.As an example I bought uplanders (Chevrolet minivans) with 13-18,000 miles for $9500. A year and half later I was paying 10,500 for the same model year with 30,000 miles on it.
The price deflation was at its peak in December 2008.Now that the low in sales has been endured and the American fleet of vehicles is aging,the new unit sales rate is reluctantly growing ,but the average transaction price has sky rocketed.
Trade magazines marvel at the never before senn anomoly of used vehicle values going up for 18 months.Used vehicle prices go down -not up.Not true for over 18 months - it is a lack of (used vehicle) supply facing strong demand for used cars (since new vehicle transaction prices have escalated up so high.
All this to say we do not see inflation like we've seen it in the past primarily because the overbuild of housing continues to cause deflation.
When it digests the oversupply of foreclosures, I expect housing will skyrocket and all hell will be paid if you are not the owner of the home you want to retire in.Here in Houston our real estate went up 1.8 % year over year.In texas second mortgages were illegal for much of the boom years and our housing never experienced the bbig increases in value -we have been and were blessed with stability in that market.
The other infaltionary force we do not see is wage growth.Unions have been busted oth companies have gone broke and then busted the unions.Wage inflation is not seen as every one now knows if you strike - you lose your job to over seas outsourcing or relocation to a right to work state.
We have the ingredients for inflation going on out there.
Infaltion to a degree is what is needed to accelerate the housing problem.
I don not expect to see wage inflation to the degree we did in the 70's - we've learned that lesson.
As the stay in debt mentality back in the 70's worked it way into recessionary forces (price deflation) realities.we then learned that paying for what you wan and staying out of debt is the long term answer to wealth creation/maintenance.
This was a brutal lesson for us to learn and as a young couple it took us years to recover.
So the much talked about inflation has some big headwinds that will slow its arrival.
Uniquely the emerging world markets that were the solutions to wage pressures are now in fact the breeding grounds of inflation and are leading before our markets experience inflation.
It will be interesting to see if we move to the next low cost nations - that is leave China as it grows its own inflation history - Viet Nam or Africa,and give the Chinese a lesson on recessions.
My Chrystal ball does not go out that far, but I believe the entire world must be developed,it is not an always in China forever scenario.
No doubt they will import wage infation to our consumer markets as wage inflation takes a grip on their middle class workers and unions.
When our lagging inflation does finally creep into our economy,we'll need to be very liquid and commercial paper paid 13-15 in the early 80's,that is it kept up with inflation.
Needless to say the only winner was the government, as wage creep and inflation moved every one up our progressive taxe creep system.
Government and its growth and redistribution od wealth scams and schemes is the source of many problems.
Perhaps this is the best lesson for us to learn.
I do think thast realestate and farm land in particular can be a great way to preserve ones wealth.
The fact is our planet is getting crowded with overpopulation.
One thing for sure we all need to eat and will pay what we must to exist.
Farm land provides that and America is once again one of the wealthiest lands for tillable crop growing farm land.
Farmland,of which thousands of acres are not being used,because it is cheaper to pay the farmer to do nothing with it vs storing an excess crop.
Another government program whose time has come for termination.
I rant,but those are my thoughts on why inflation seems elusive, but in fact, will be just delayed and somewhat muted vs our past history.
Have a great weekend.
Bob |
