61–70 of 223 posts
I'm not familiar with a world where interest rates and inflation aren't low. What should I expect?
For this reason they wouldn't.
I thank myself for making a decision in my teenage years to keep half of my savings in metals. It was unbelievably wise for a 15 years old me.
I am not buying that inflation is low. Property taxes and housing cost (especially rent) has doubled in last 10 years in New York. I think so has the medical costs. Just because gas prices are low dose not mean inflation is low
Just because housing prices in NYC and healthcare costs have risen fast doesn't mean inflation is high. This is why we calculate these numbers using a broad basket of various goods and assets.
The criticism isn't "inflation should be based on NYC rent." The criticism is "the basket of goods weighs nice-to-haves too highly, and important needs like rent/healthcare/education too low".
So while inflation (as officially defined by the consumer price index) is technically low, "real" inflation (as experienced in impacts to citizens cashflow) is significantly higher across the board.
Earlier quoted context omitted.
Loans cost more. The interest rate on my first mortgage (in the 90's) was 7%.
Back in the 1970's a 12% interest rate on your mortgage was considered pretty good! It basically reduces buying power for real estate. Using the google mortgage calculator and assuming a $1500 max monthly payment. At a 3.92% (today) rate you can borrow ~$320K At an 8% rate you can borrow ~$200K A 38% decrease in buying power. It's already happening in Canada as the gov't is trying to slow down the real estate market…
But real estate is unlike a lot of other goods in that it's value is significantly driven by what other people are willing to pay, rather than what it intrinsically costs to produce. Thus, as your buying power goes down, so does everybody else's.
Earlier quoted context omitted.
Much higher mortgage payments. Run the math on a mortgage with 4% interest vs 8%.
My intuitive sense is that it should destroy the real estate market. Anything that I'm missing in that analysis?
People will often say gold. Which I guess is a proxy for any fixed supply asset. But weve seen price inflation in many things other than gold, such as houses and land, art, stock prices. Most things of lasting value ie not consumables. Does a precious metal have some other special qualities that make it behave poorly relative to other limited valuable assests, and then well?
What say you HN? Whats the play to protect ones assets? Or does one just need to avoid cash and bonds?
Earlier quoted context omitted.
Much higher mortgage payments. Run the math on a mortgage with 4% interest vs 8%.
My intuitive sense is that it should destroy the real estate market. Anything that I'm missing in that analysis?
In the late 1970s you could get 17% return on your savings account and mortgage rates were well above 10%. People still bought houses.
Earlier quoted context omitted.
It's almost guaranteed we are not leaving a world of low interest rates (vs historical norms of the past 30 or 50 years). Most of the global economy is loaded up on debt: Japan, China, the US, large parts of Europe. These days it's the exception when a country has a modest debt context, whether at the government level, corporate level, or household level. Countries that we normally think of as very well off, such as…
Isn't QE just injecting more money into the system? How can that not result in inflation, eventually and if done excessively? It's the classic "more money chasing fewer goods." It's not just where the fed pegs the discount rate that drives inflation, it's also the money supply.
Only things like housing do not as they can't be easily provisioned to meet demand as quickly.
I'm not familiar with a world where interest rates and inflation aren't low. What should I expect?
We live in weird time. If rates were to hit 80ies era level, 1 out of every 3 countries will default. For this reason they wouldn't. I thank myself for making a decision in my teenage years to keep half of my savings in metals. It was unbelievably wise for a 15 years old me.
Huh? Are you saying 1/3 of mortgages are variable rate?
I'm not familiar with a world where interest rates and inflation aren't low. What should I expect?
Much higher mortgage payments. Run the math on a mortgage with 4% interest vs 8%.
I'm not familiar with a world where interest rates and inflation aren't low. What should I expect?
It's almost guaranteed we are not leaving a world of low interest rates (vs historical norms of the past 30 or 50 years). Most of the global economy is loaded up on debt: Japan, China, the US, large parts of Europe. These days it's the exception when a country has a modest debt context, whether at the government level, corporate level, or household level. Countries that we normally think of as very well off, such as…
And many other countries as well.
The very few ones who can "afford" high rates are, ironically, the frontier markets. Gulf kingdoms, *stans, banana republics, Vietnam, and much of Africa. And yes, ... Germany.
Frontier market bonds has never looked so attractive in my lifetime.