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2021 - Is inflation finally back in the conversation?


Reagan1k

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7 hours ago, Wally Fairway said:

Hey, quit putting CR posts in the inflation thread (and you didn't even predict an ice cream flavor)

My last post in here was a straight shot about PCE, before Cum Rocket and bernorange brought CR into it.
Also IDGAF about the manly cries and shrieks of CR in an inflation thread.

and he's clearly a vanilla bean soft serve guy

Edited by StassneyHorn
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7 minutes ago, Snake Diggity said:

My guess is that 20-25% decrease is coming from the homes in the $900k-$2M range.

The decrease is because a greater proportion of home sales than 2021 is coming from new construction in the $500k or below range.  Builders need to move inventory.  Everyone else has a 30 year note at 3% they don’t want to lose.

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1 hour ago, LCHorn said:

The decrease is because a greater proportion of home sales than 2021 is coming from new construction in the $500k or below range.  Builders need to move inventory.  Everyone else has a 30 year note at 3% they don’t want to lose.

Do you think that isn't having an effect on existing home pricing?  

I wasn't trying to make some grand statement, I was just using very coarse data to seed a conversation.  That said, if supply has increased and demand has dropped (for reasons listed previously), then downward price pressure makes sense, even on existing houses.  Maybe not that 22% number, but significant, regardless.

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3 hours ago, jimmyjazz said:

Do you think that isn't having an effect on existing home pricing? 

I don't think the effect can be explained as easily as "my house was worth X, now it's worth 80% of X", which is typically where your interest lies on the real estate/mortgage thread. I know you're weren't making that claim, but I wanted to clarify in case someone else might benefit from the reassurance their home's value hadn't fallen to that degree.  When you have a decline in values that's broadly effecting everyone it'll make lenders risk averse and that hasn't happened in Austin (with the exception of Citibank). 

To your point, I'm sure downward price pressure exists, even on the new construction side but it's not being revealed in sales prices (this is an exaggeration, but a builder would rather give you $50K in incentives than reduce the sales price by $10K, that's how hard-wired they are on fighting for sales price).  The place to tease that out is on profitability and I haven't seen that data. 

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5 hours ago, Snake Diggity said:

Anecdotally I can confirm this.  I have 3 homes in Austin.  The 2 in the $350k-$500k range have recent comps that show their prices are continuing to go up or are at least stable.  My other property is in the $600k-$900k range and the asking prices for similar homes has come down a bit, but not 20% down from peak.  My guess is that 20-25% decrease is coming from the homes in the $900k-$2M range.

jim carrey monocle GIF

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On 3/15/2024 at 4:35 AM, Biff Tannen said:

All I know is god damn chicken wings went up to like $19/10 pieces right after covid and somehow are never coming back down again, despite everything saying there are no supply chain issues.  It's almost as if people keep paying inflated prices instead of using their consumer habits to force corporations to capitulate.  But that couldn't be.

show me the divergence in producer vs consumer pricesfredgraph(4).thumb.png.3ea37f1ae871994ae1863f1dbf6f26a4.png

and the pre-vs-post profit margin of the largest chicken producer in the world

tyson.thumb.PNG.1a40a290102e21878169d128e0d6a2d2.PNG

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On 3/18/2024 at 7:57 PM, Trey3216 said:

So now every home owner in America getting the price they ask when they sell their home is gouging?   Jesus Tapdancing Christ bro.   

 

When will the government step in and stop the collusion!!!!!!??????  

 

lol 

i feel like this is the kind of people we run into on this website.. (from nber)

image.png.093169dbcfefb6b8f8940b72ba0d2c6e.png

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on the housing discourse and particularly its effect across the covid period:

-home ownership rate continued to increase, and sits at/above long term national average; the majority of households are homeowners

-"net housing values grew substantially for families across the usual income distribution, reaching their highest levels on record"!!

-this has the effect of increasing net worth, in real terms, for aggregate households -- the highest ever in 31 year history of the fed's survey of consumer finance (scf).

quote: "with respect to changes between the 2019 and 2022 surveys, increases in both median and mean net worth were near universal across different types of families"

(the increase was positive for every single family demographic whether by income, age (head of hh), education, race/ethnicity, geography, etc!)

image.png.99f45b7b3b24be1d34b62048a3aab624.png

-the inverse effect is that measures of "financial vulnerability" kept decreasing!! some measures of debt level (vs asset/income) were lowest on record!

image.png.0b4b2fc148f78661a1f325e02c09d68b.png

 

now, if you are in the minority of people who didn't already own property, the entry price for buying property went up.  [cue the usual whiners here]. and if the prices had gone down... that wouldve dragged down the net worth of the majority of households, and the usual whiners wouldve whined even harder. 

the only sure thing is that whiners gonna whine, and will blame anything and everything on nefarious external forces. 

image.png.96e6d216aa8976f7bf38c5491c888ffb.png

in summary, the majority of families owned property, and as property value went up, it was a large financial boost for them. but regardless, everybody in the country also did well! and if you want cheaper houses... build more houses. 

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25 minutes ago, 52-80 said:

in summary, the majority of families owned property, and as property value went up, it was a large financial boost for them. but regardless, everybody in the country also did well! ...

It's a reflection of the value of the dollar diminishing via inflation.  Properties did not become more valuable.  The dollar became less so.  This is the immorality of the 2% inflation targeting writ large.

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26 minutes ago, bernorange said:

It's a reflection of the value of the dollar diminishing via inflation.  Properties did not become more valuable.  The dollar became less so.  This is the immorality of the 2% inflation targeting writ large.

housing value rose more quickly than inflation, as measured by typical basket of expenditures.  in real terms it went up.

we're both opposed to current profligate fiscal policy and agree fed was too accommodating/lax with their rate policy, but the net effect on country (so far!!) is that  total net wealth, already adjusted for inflation, also went up.  thats a good thing.

 

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Quote

If you want an idea of how the current fiscal and asset bubble in the US might end, pay close attention to Bernard Connolly, esteemed consigliere to hedge funds and central bankers across the world for the last quarter century.

It will not end in a soft landing – a “chimaera” – and will certainly not end in another leg of accelerating economic growth. Nor will it end in soggy stagflation.

The invidious choice facing the Federal Reserve, he warns, is either to allow a deep economic slump to unfold, or slash rates to the bone before inflation has fallen back to target. The latter course will send the dollar into free fall and destabilise the world’s dollarised financial system, an outcome already being sniffed out by the reawakening gold market.
...
“There can be little doubt that there will be a US recession unless the Fed loosens hard and soon. The labour market is weakening and ‘excess savings’ from the pandemic-era handouts are exhausted,” he said.

“The likeliest near-term outcome is that, as in 2000 and 2007, the Fed holds off cutting interest rates just yet, citing worries that inflation is not convincingly and sustainably moving to target. By mid-year the weakening of the economy will have become evident even to the Fed’s modellers. But they will not cut far enough or fast enough,” he said.
...
This points to an initial rate cut in June, followed by cascading cuts in rapid succession, though still too little, too late. The Fed Board is already preparing for a hand-brake U-turn. Governor Adriana Kugler recently reminded everybody that the Fed has a “dual mandate”: jobs as well as inflation.

Days earlier, New York Fed chief John Williams said the supply-side shock of the pandemic had blown over and that US inflation had carved out a near perfect round trip, “like the Apollo missions to the moon and back.” He said three-year inflation expectations are now below their 2014-2019 average. This is a Fed preparing its alibi.

As I wrote last week, the US economy has lost a net 900,000 workers since November, based on the US household survey. This has lifted unemployment from 3.4pc to 3.9pc. The jump is close to triggering the Fed’s ‘Sahm Rule’ recession indicator.

The US economy is not as strong as widely assumed. The latest US financial accounts show that gross domestic income (GDI) grew by just 1.2pc last year. This measure has been consistently weaker over recent quarters than the GDP figure, which ought to give pause for thought.

A Fed study found that GDI is more accurate when the economy rolls over. It foretold a recession in 2007 at a time when the GDP figures (revised down later) were still signalling clear blue sky.
...
The Wicksellian theme running through Mr Connolly’s book is that central banks have created a chronic ‘intertemporal’ misalignment in the western economies, starting with Alan Greenspan in the 1990s.

They have let asset booms run unchecked but have always stepped in to prevent the economy coming back into balance during downturns. But you cannot pull consumption from the future forever without consequences. The future catches up with you.

“The real difficulty with the Greenspan maxim – that a problem deferred is a problem solved – is that you have to keep on deferring, via ever-bigger bubbles that ultimately threaten to destroy both capitalism and democracy,” he said. Furthermore, this reflex obstructs the Schumpeterian cleansing process of creative destruction.

As Joe Biden’s budget boom deflates this year it will become clear that the US economy cannot handle interest rates anywhere near the current level of 5.33pc. America and the West will discover that they are on the same conveyor-belt towards “ever-lower real interest rates”, requiring drastic cuts to refloat the next bubble in equities and credit.

My angle is slightly different. Deflation will keep coming back to haunt us with each cycle – requiring zero rates and crazy money – because of ageing demographics, digital technology, and above all the Asian saving glut.

The cardinal fact is that China produces 31pc of global manufactured goods but accounts for 13pc of total consumption. Xi Jinping’s regime is dumping massive excess capacity on the rest of us. It is reverting to the worst practices of Leninist capitalism. This is the elephant in the global rowing boat.

Whether Mr Connolly is right or savings glut theorists are right, both imply a secular collapse in the natural rate of interest and the subversion of western free market system.

The central banks and the academic priesthood are floundering because their canonical DSGE model – new neoclassical synthesis – assumes that the economy comes back into equilibrium when it patently does no such thing. The model is self-evidently defective but all other voices – Wicksellian, monetarist, Austrian, or old Keynesian – have been shut out of the debate.

The priests were badly wrong in 2007-2008. We will find out who is badly wrong this year soon enough.

https://www.telegraph.co.uk/business/2024/03/19/central-banks-face-horrible-choice-warns-bernard-connolly/

@52-80- Real Estate valuations are affected by credit/debt markets and other factors that act as multipliers on the inflation base.  If the Fed continues QT through the coming storm, real estate is going to crash hard.  $.02

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7 minutes ago, bernorange said:

https://www.telegraph.co.uk/business/2024/03/19/central-banks-face-horrible-choice-warns-bernard-connolly/

@52-80- Real Estate valuations are affected by credit/debt markets and other factors that act as multipliers on the inflation base.  If the Fed continues QT through the coming storm, real estate is going to crash hard.  $.02

that's the job walking the tightline that we dont want.  i would think that the fed recognizes property as one of the cornerstone of wealth and wouldnt want to shock that market/asset class.  note that there have been few real estate 'crashes', and that they were not fed-induced.  e.g. 2007 was due to action of lenders, while FFR was around a reasonable 5%

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Yeah, total net worth may have increased, but if you are young and have an expanding family you are actually worse off. Say you owned a Home worth 200k in 2019. It's now worth 300k. Cool. But you've had a couple of kids since then. So you need the kind of house that was worth 300k in 2019. That house is now 450k. And you haven't seen enough salary increases to quite keep up with inflation. And interest rates now make that house even less affordable. The mortgage payment on a 200k loan at 3% is $843 per month. Assuming you have no other equity in your home other than the discrepancy in the price, you need a mortgage for 350k. That's gonna run you $2329 per month at 7%. And your making less real money than you were at the start of it all. With more mouths to feed and more bodies to clothe. Your really on top of the world. 

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11 hours ago, NotActuallyALonghorn said:

Yeah, total net worth may have increased, but if you are young and have an expanding family you are actually worse off. Say you owned a Home worth 200k in 2019. It's now worth 300k. Cool. But you've had a couple of kids since then. So you need the kind of house that was worth 300k in 2019. That house is now 450k. And you haven't seen enough salary increases to quite keep up with inflation. And interest rates now make that house even less affordable. The mortgage payment on a 200k loan at 3% is $843 per month. Assuming you have no other equity in your home other than the discrepancy in the price, you need a mortgage for 350k. That's gonna run you $2329 per month at 7%. And your making less real money than you were at the start of it all. With more mouths to feed and more bodies to clothe. Your really on top of the world. 

That's using a single-sided view of the market.  But it takes 2 sides to make a market.

The marginal new participants are shopping entry level houses.  The larger houses are discretionary.

IF the larger houses become more unaffordable, lower demand will reduce its price.  New buyers still want want your entry level house, AND its existing occupants want to stay in place (because they cant afford the larger one), so it will command higher relative value.

"Salary increases have not kept up with inflation" is simply untrue.

Family house ownership rate is the same it has been for decades.  House ownership rate by age bracket is the same as it has always been.

Latest Housing Affordability Index is above 100.  100 =  median family earns enough for a mortgage on a median home.

If you have more children, yes you have to feed and clothe them.  Is that somehow a uniquely unsolvable problem now compared to any time and place in history.  In the past, were larger houses discounted for families and children given free food vouchers or something?

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5 minutes ago, 52-80 said:

If you have more children, yes you have to feed and clothe them.  Is that somehow a uniquely unsolvable problem now compared to any time and place in history.  In the past, were larger houses discounted for families and children given free food vouchers or something?

Bravo, sir

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2 minutes ago, Neonmoon said:

It’s Cum Rocket aka GRHorn. He’s a cancer the mods will not excise. 

It’s ridiculous that users are allowed to get banned multiple times and just create another account and immediately continue doing the same shit that got them banned in the first place.  It renders the ignore feature useless.  A cancer on the site is a very good metaphor.

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45 minutes ago, Snake Diggity said:

... just create another account and immediately continue doing the same shit that got them banned in the first place...

Posting a tweet from CNBC Squwkbox is the sme shit that got him banned previously?  That's the bar for Surly pitchforks?

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11 hours ago, Snake Diggity said:

It’s ridiculous that users are allowed to get banned multiple times and just create another account and immediately continue doing the same shit that got them banned in the first place.  It renders the ignore feature useless.  A cancer on the site is a very good metaphor.

 

10 hours ago, bernorange said:

Posting a tweet from CNBC Squwkbox is the sme shit that got him banned previously?  That's the bar for Surly pitchforks?

Snake Diggity was not referring to the CNBC post. 

8 hours ago, FirstTimeCaller said:

Yeah, y'all that are bitching about that post are insane. 

Hence the confusion 

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19 hours ago, Snake Diggity said:

It’s ridiculous that users are allowed to get banned multiple times and just create another account and immediately continue doing the same shit that got them banned in the first place.  It renders the ignore feature useless.  A cancer on the site is a very good metaphor.

Wouldn't herpes be a better analogy?

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I laughed. We really going to get worked up because we have to pay $0.15 more for a cheeseburger? Gladly pay it.

Now do a post on how much I'm paying for self-employed health insurance. That's the real inflation that hurts.
 

 

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1 hour ago, FirstTimeCaller said:

I laughed. We really going to get worked up because we have to pay $0.15 more for a cheeseburger? Gladly pay it.

Now do a post on how much I'm paying for self-employed health insurance. That's the real inflation that hurts.
 

 

Now do McDonalds, Burger King...etc.  

It's commonly known that fast food labor is about 25% of sales.  Cheeseburger was $4. (which is low comparatively)  Labor was $1.  Labor went up 25%.  Labor is now a $1.25.   They will have to charge more than $.25 more per Cheeseburger to maintain margins.

They are choosing to boil the frog and not jump the price all at once.  It will get there.

 

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6 hours ago, FirstTimeCaller said:

I laughed. We really going to get worked up because we have to pay $0.15 more for a cheeseburger? Gladly pay it.

Now do a post on how much I'm paying for self-employed health insurance. That's the real inflation that hurts.
 

 

Cheeseburger, fries and shake at In-and-Out - $9.25 before tax

Same thing at Whataburger or McDonalds - at least $13-$15

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On 3/31/2024 at 4:28 PM, Thetexashammer said:

image.png.818ab4d837814b57594b6148f2b9eec3.png

1.6 trillion in interest by the end of the year. Buckle your seat belt Dorothy.

$35T, $50T, $75T… what’s the difference? Just take control of the fed and put interest rates at 0%

Calculating Oh No GIF by MOODMAN

 

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On 3/31/2024 at 4:28 PM, Thetexashammer said:

image.png.818ab4d837814b57594b6148f2b9eec3.png

1.6 trillion in interest by the end of the year. Buckle your seat belt Dorothy.

Well when you put it that way, it’s obvious why we’re raising the inflation target. Need to justify lowering rates. 

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Here’s a worst-case scenario for investors, according to economists at Bank of America: “Job growth of 250k+, stronger-than-expected wage growth, and a fall in the unemployment rate would likely further price out the chance of a June cut,” they wrote in a research note this week.

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8 hours ago, BeardIP said:

Here’s a worst-case scenario for investors, according to economists at Bank of America: “Job growth of 250k+, stronger-than-expected wage growth, and a fall in the unemployment rate would likely further price out the chance of a June cut,” they wrote in a research note this week.

Your idea of worst case is weird.  Continued growth and no rate cut is probably 1a from best, but that’s ridiculously narrow view of the market.  I would say contraction would be significantly worse all around.

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