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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Jim McMannis who wrote (81201)	7/15/2007 1:26:30 PM
From: saveslivesbyday	Read Replies (1) \| Respond to of 306849

"Assets don't get counted in inflation numbers" I was just pondering the same thing today. Somehow home price appreciation, and the "wealth effect" it creates, and the spending that in turn stimulates - aren't accounted for in the measurements. Yet the "inflation" of the stock market in 2000 appeared to have had a more direct effect on the economy than any other indicator. And the "deflation" of the stock market in 2002 led to marked lowering of interest rates.

To: Jim McMannis who wrote (81201)	7/15/2007 2:32:51 PM
From: GraceZ	Read Replies (2) \| Respond to of 306849

Assets don't get counted in inflation numbers. Assets have values based on future cash flows which are discounted according to inflation expectations. Since the promise of cash in the future is always worth less than cash in hand (even without inflation) asset prices will always rise in response to falling inflation expectations and fall in response to rising inflation expectation (because you have to discount the future cash flows more). Houses are a pretty emotionally charged asset class because everyone needs to live somewhere and they are a basic necessity, so to really understand the concept that asset prices rise in response to lower inflation expectations it is better to look at an asset class which is purely financial in nature like bonds. If bonds rose in price in response to a falling rate of inflation (attendant with falling interest rates) would you see those rising prices as indicative of monetary inflation?

To: Jim McMannis who wrote (81201)	7/15/2007 2:50:19 PM
From: Les H	Read Replies (1) \| Respond to of 306849

What we need to do is set up the oil pumps to distribute non-voting shares of an oil etf each time they pump gas? Increase the price of gasoline by 25 percent to fund the purchase of oil shares. Then no one will complain about high oil prices again...