Wednesday, July 23, 2014

I guess I'm not the only one who thinks so.

Inflation is about to fall—and fall hard.

"I will make a bet with this country's leading inflationistas, who continue to warn that inflation is about to surge, that they are dead wrong.

I'll bet a truckload of scarce limes, or a couple bushels of wheat, that inflation is about to fall, and fall hard."
Read more.

I think we are all looking at interest rates declining and coming to the same conclusion. When interest rates fall like they are - it doesn't scream hyper inflation. It tells you the opposite. Today it was a little easier to get a mortgage under 4% or slightly above like 4.03%. This combined with earnings where tons of companies are trimming their outlooks, and store sales being dismal tells the story.

Outside of food, energy, and housing - there isn't much inflation as I wrote yesterday in Hello deflation. And the housing element - well...

Yesterday I swept through the price reductions in my town. Who can predict anything based on one town right? Well, one of the cities next to me was named the second fastest growing city in California in this year. There is a lot of spillover. Even when I was up in Tahoe I was actually pretty shocked the agent knew how crazy the prices had become.

Maybe I shouldn't be shocked. If I'm checking prices in their town - maybe they do the same. Almost every town I roll into I look at the prices. Sometimes I'm just charmed by the city and think I'm going to sell all of our crap and move there. Sometimes I see a ton of for sale signs and have to see what is going on. Sometimes I'm just curious.

I think housing is turning much quicker than people realize. Just one month ago I was finally able to get PMI off my rental. So, last night when I traveled the price reductions - one really stood out because it was two blocks from the rental. It was going at auction for 1/3rd of the price my rental just appraised for. Not really news. Auctions always list like that. But this house had a price reduction on the auction price. That's the thing that struck me. It's already at an amazing price without the price reduction. It will probably be a couple of weeks before I know what it actually sold for. But that isn't a good sign.

This house would be a new comp for my rental. Which made my eyes grow wide and I murmured - just in the nick on time.


  1. Missing from this whole equation are the labor costs. This is what will drive everything higher. If the things you buy everyday go up, people start asking for raises. Just wait until the employment price index gets updated next thursday and it will put to bed any talk about disinflation. All of these news articles about lower jobless claims and more people quitting equals more pay. DF

  2. I hope you are right. I always enjoy getting your perspective because right now I don't see any real wage pressure. Most of the new jobs being created are part time which have absolutely no wage
    pressure at all.

    Even techland has to find a way to absorb those 18 thousand plus Microsoft employees that no one yet knows where they are coming from. Probably everywhere as Microsoft has a building pretty much everywhere. Even the Microsoft
    perma temps are being cut back. Who knows what that number
    will eventually be when it trickles through the whole stream.

    Stuff you buy every day is getting more expensive, but that doesn't mean an employer will be under any pressure to raise wages. Their labor costs are increasing too making it so they have less money to give in raises. I can see most analysts are leaning more in your direction though. I do hope you are right because wages have been stagnant for a really long time. And deflation feels like death for someone who owns property. I want you to be right.

    Remember companies are figuring out their Obamacare costs for the next year - right now. Open enrollment comes very soon. This will inflate labor costs for this period.

  3. The labor #'s came in and it's just the tip of the iceberg, we'll see this number spike higher and higher for at least the next two quarters. Once wage inflation catches up we see interest rates rise next. Who knows what that means for housing, but it seems to me that it's better to own income producing properties that you can increase prices on then to own the companies who are going to have to digest these additional costs. My guess is 5% mortgages 12 months from now and 6.5% a year later.


  4. Good talk. I don't think those numbers have anything to do with wages. I think that all is Obamacare. Open enrollment is Oct. Companies are settling their health plans. And that is locked for another year. If the index goes for more than 1 quarter you are more likely right. If it only goes one quarter, the answer is more likely Obamacare.

    And there are a lot of stealth layoffs going on right now.