Beware of Inflation (from Forbes Magazine of all places)

[AX10]

http://www.forbes.com/home/investmentnewsletters/2006/03/10/inflation-bearish-janjigian-in_vj_0313soapbox_inl.html

-snip-
"I'm very concerned about a lot of things, but I’m most concerned about energy prices. I'm amazed that $60 to $70 oil hasn't had a bigger impact on our economy than it has. I believe it's just a matter of time before it does. Then we will see a slowdown in economic growth. I don't believe we're going to have a recession, but I do believe that housing appreciation is coming to an end, and I believe the growth in consumer spending is going to slow down tremendously."
-snip-

[EVDebs]

1. Soooo. Stagflation or a depression. Some choice, huh ?

[applegrove]

3. Or Latino workers who never get to stay long enough to get higher

wages...

[Vincardog]

2. we're going to have a recession the start of the recession was in 2000

And Iraq "IS GOING TO HAVE" a civil war. All old news.

[Warpy]

4. I guess this bozo doens't do the food shopping

and just grumbles about what the wife is wasting every month on household expenses when the credit card bill comes in and doesn't make the connection to the fact that she's paying inflated prices.

Inflation is already at double digit levels for those of us who spend our money on the necessities of food, clothing, transportation and healthcare. It's only flat for those lucky folks who spend on stocks, bonds, annuities, and the latest technology from the far east.

Runaway inflation is already here. It really never left, they just changed the items in the CPI market basket.

Most brokerages think there's a recession coming, something the slightly inverted t-bill yield curve would suggest.

If the housing bubble pops quickly, we may yet see a depression instead of a recession. If it just loses a little air with unsold houses sitting there waiting for a bigger fool to pay an inflated price, we'll see a recession.

[Sammy Pepys]

5. I gotta be honest...

I kind of hope housing prices come down...maybe I'll finally be able to stop renting afford something! Obviously, I don't want anyone to take a bath or get majorly screwed (though that's bound to happen), but it's kind of disheartening to save up enough for what you think is a pretty decent down payment, and then watch prices shoot up another 20-30% and get priced right out again.

[Warpy]

7. Everybody but the people who got conned into buying

during the last two years agrees that prices have to come down. The only question is whether it will be a slow slide or if the speculative real estate market will crash and provoke panic selling and a quick deflation.

If it's the latter, then I'm afraid it'll take the whole house of cards with it for the same reason the stock market crash in 1929 did--it's where the most people with the least means have the most debt based on paper profits.

We never know what will provoke a panic selloff or when one will happen. Let's just hope it doesn't happen NOW.

[Sammy Pepys]

8. Real estate doesn't quite "panic sell" in the same way though

It's not as liquid as stocks or bonds.

[Warpy]

9. No, but a panic sale will be just as ugly

with half a dozen "for sale" signs on every street, soon to be replaced with "foreclosure" signs.

Don't kid yourself. It may not be as liquid, but it does represent just as much debt as the market of 1929 did, and it is exactly the same kind of paper profit that people are borrowing against.

Being left with worthless stocks or a foreclosed house will have the same effect. The money will simply disappear overnight, and with it the consumer base and at least 50% of the jobs.

[Sammy Pepys]

12. Mortgage debt and margin debt are not even close to being the same thing..

Terrible comparison.

[ArmHayseed]

10. "Panic selling" of real estate is slow motion panic

A buyer for stock can usually be found within minutes, for some price, and only a commission of maybe $25 to pay.

Trying to sell real estate when no one can/wants to buy is agony in slow motion. Not only does the price keep falling and it still won't sell there are still mortgages, taxes, upkeep, and if it's empty, vandalism. To add a final straw, if you sell through a realtor you have a 6-7% commission.

In the sixties I bought a repossessed middle class house from a developer who had financed the first mortgage for the buyer. Less than four hundred dollars down and a promise to make the payments and I was a homeowner. Before I could get out of his office he was trying to sell me 10 more with the same terms.

That’s a "Panic Seller".

[Warpy]

11. In 1929 people were holding stock certificates

that they'd gone into debt to purchase and that had generated enough paper profit for them to go into more debt. That stock became worthless practically overnight due to panic, leaving them with just the debt.

Now people will find themselves holding property that has depreciated below the mortgage value, the second mortgage value, and nothing is left to them but the debt. If they're well employed, they may choose to pay off the debt and keep the property. More will try to sell as property prices start to decrease below their comfort level. With few buyers (nobody wants to buy in a declining market, they want to wait until it starts to go back up), many of them will get into such a negative cash situation that foreclosure is their only way out from under. Again, it has the potential of making a great deal of consumer market money disappear overnight and it won't take a dramatic drop in home prices to do it.

That's what causes recessions to turn into depressions, the reluctance of consumers to part with what little money they have because their paper profits are disappearing. A housing bust combined with 30+ years of downward pressure on wages and upward pressure on working class taxes and unsecured and secured debts may just do it.

[ArmHayseed]

6. What are the odds?

Since the dust settled after World War II there have been:

Fourteen presidential terms, eight Republican & six Democrat.

Nine recessions.

Eight of those recessions started during a Republican presidency.

Seven of the eight Republican terms had at least one recession.

Does that mean that, given we are in another Republican term, the odds for another recession are seven to one?

[Orrin_73]

13. Welcome to DU ArmHayseed

:hi:

[teryang]

14. A home hasn't sold in my neighborhood this year

A friend who had to move to retire, was forced to reduce the price on his home 15 percent from 2005 prices of equivalent homes sold in the same neighborhood to sell it.

[dcfirefighter]

15. I wish home prices would drop 15% around here

then maybe I could afford to stop renting. But, god forbid home values decrease. Apparently that particular pyramid scheme is OK by people. For the record, MOST of the real estate is owned by a tiny fraction of the people. Artificially inflating their asset values merely enriches them at our expense.

Homes shouldn't be an investment. They should be a place to live.