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The Era of Very Low Inflation and Interest Rates May Be Near an End

nytimes.com

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Re: The Era of Very Low Inflation and Interest Rates May Be Near an End

#171

Post by rohit2412 »

arkona3 wrote: post #98
rmrm wrote: post #65

In a world where inflation is going to go up, what should one invest in? 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 va…

... if I mention that very obvious deflationary fixed supply asset I will get downvoted into oblivion on Hacker News.

I think its inflationary actually (beyond the current speculation).

Consider that the miners will always produce a selling pressure on cryptocurrency (because equipment+electricity+labor costs), it stands to reason that cryptocurrencies will always have more sellers than buyers (again no new speculatary buyers for store of value, just pure currency as it was intended initially). This constant selling pressure will add inflation (increasing supply, decreasing price) to Bitcoin. Actually, once a stable price is reached for a long enough time, this constant inflation should make it a viable currency, and unsuitable as a store of value.

Re: The Era of Very Low Inflation and Interest Rates May Be Near an End

#172

Post by shostack »

Retric wrote: post #31
refurb wrote: post #16

Earlier quoted context omitted.

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…

It also made the idea of a starter home more meaningful. Your monthly payments quickly became meaningless especially if you got any kind of a promotion. At 5% inflation if you pay 1000$/month in year 0 it feels like 614$ / month in year 10 and 377$ / month in year 20. At 1-2% inflation the loss of the interest tax deduction over time as you pay more principle and less interest means home lone feels about as expensive…

Right, but isn't the distinction that you are paying principle, which in essence buying equity? It isn't free cash flow, but there's a big difference between putting money towards principle and paying a bank interest.

Re: The Era of Very Low Inflation and Interest Rates May Be Near an End

#173

Post by HillaryBriss »

cs702 wrote: post #134
matte_black wrote: post #3

I'm not familiar with a world where interest rates and inflation aren't low. What should I expect?

For starters, the present value of all long-lived assets will come down -- stocks, bonds, real estate, you name it. As Warren Buffett explains: "[Interest rates] act on financial valuations the way gravity acts on matter: The higher the rate, the greater the downward pull. That's because the rates of return that investors need from any kind of investment are directly tied to the risk-free rate that they can earn from…

> the present value of all long-lived assets will come down

we can consider 'value' but also recognize that actual market price is another thing. real estate prices can continue to go up and at times actually have gone up in environments where interest rates were rising.

as Buffet points out, there are additional important variables.

Re: The Era of Very Low Inflation and Interest Rates May Be Near an End

#175

Post by fatbird »

lotsofpulp wrote: post #152
kazinator wrote: post #121

Earlier quoted context omitted.

No such thing as fixed rate: fixed rate just means "variable, but in 3 or 5 year (or whatever) increments". The interest is a bar graph with bars that are several years wide, instead of a graph with one-month-wide bars. Fixed rates are not free; you pay extra for the fixing. The longer the fixing, the more you pay. It only makes sense to go fixed rate if you're very sure that the interest will climb over the next ter…

If the interest rate goes down, you can just refinance. The fixed rate protects you from upward movement, and being able to refinance protects you from downward movement. What am I missing?

There are fees and process time to refinancing that acts as a disincentive to do so; and for several decades the fixed rate (by design) has been higher than what the variable rate incurs over the term (at least in Canada, where the term and the amortization period aren't the same).

Re: The Era of Very Low Inflation and Interest Rates May Be Near an End

#176

Post by graeme »

neilwilson wrote: post #174

They've been saying that about Japan for decades. Still waiting.

I think some people have predicted that Japan's rates might rise in the long run. Has anyone serious made predictions of a near end to Japan's current period?

Re: The Era of Very Low Inflation and Interest Rates May Be Near an End

#177

Post by montecarl »

umeshunni wrote: post #127
kazinator wrote: post #121

Earlier quoted context omitted.

No such thing as fixed rate: fixed rate just means "variable, but in 3 or 5 year (or whatever) increments". The interest is a bar graph with bars that are several years wide, instead of a graph with one-month-wide bars. Fixed rates are not free; you pay extra for the fixing. The longer the fixing, the more you pay. It only makes sense to go fixed rate if you're very sure that the interest will climb over the next ter…

From another comment below: In the US, fixed rates are for a 30 year term. Countries like Canada and Australia have 10 year terms as a max, with most people electing for something shorter as the rate goes down.

You can get fixed rates on shorter mortgages in the US. I have been quoted fixed rates on 15 and 20 year mortgages in the past month.

Re: The Era of Very Low Inflation and Interest Rates May Be Near an End

#178

Post by autokad »

ahartmetz wrote: post #43
adventured wrote: post #27

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…

"Collapse of the housing market" is a funny way to talk about affordable housing. It assumes that everyone already owns a house and will have a problem if / when the value drops below the remaining debt.

funny?

when housing markets collapse, the economy goes down and people loose jobs. when you dont have a job, you cant buy a house. one of the many reasons why housing market collapses are not refered to as affordable housing.

don't need to look further than 2007-2009 to see an example of this.

You can see here that home ownership did not go up: https://en.wikipedia.org/wiki/Home-ownership_in_the_United_S...

Re: The Era of Very Low Inflation and Interest Rates May Be Near an End

#179

Post by Taniwha »

matte_black wrote: post #3

I'm not familiar with a world where interest rates and inflation aren't low. What should I expect?

people who have leveraged themselves to the hilt to buy expensive real estate and are just managing to pay the mortgage will be screwed, when their monthly payment doubles or triples they'll have to unload, at the same time as everyone else in the same position depressing the market - there will be crying, the gnashing of teeth, and bankruptcies among those who don't sell quickly enough.

Remember your parents bought their house and paid these higher interest rates, house prices were lower than now partly because people could only afford so much of a mortgage.

If you live in the US, where you can lock in a 30yr rate, and you haven't you need to do it now, if you live in the rest of the world where mostly you can't you're screwed

Re: The Era of Very Low Inflation and Interest Rates May Be Near an End

#180

Post by adrianratnapala »

cs702 wrote: post #134
matte_black wrote: post #3

I'm not familiar with a world where interest rates and inflation aren't low. What should I expect?

For starters, the present value of all long-lived assets will come down -- stocks, bonds, real estate, you name it. As Warren Buffett explains: "[Interest rates] act on financial valuations the way gravity acts on matter: The higher the rate, the greater the downward pull. That's because the rates of return that investors need from any kind of investment are directly tied to the risk-free rate that they can earn from…

While this make sense, I must put my skeptical-of-all-economics hat on when I see this:

> People can see this easily in the case of bonds, whose value is normally affected only by interest rates. In [other cases], other very important variables are almost always at work, and that means the effect of interest rate changes is usually obscured.

In the case of bonds, it is just a mathematical identity, since the the interest rate can be nothing other than a relation between the face value and current price.

In all the non-tautological cases, Buffet admits that the effect is "obscured". Which is to say that it is just another reasonable sounding humanities-theory that is difficult to check empirically.

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