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2021 - Is inflation finally back in the conversation?


Reagan1k

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On 4/11/2024 at 1:32 PM, washparkhorn said:

This is ignoring the amount of people (and money) on the sidelines in the housing market because they don't like the interest rate environment. A decrease in interest rates without an economic slowdown is going to lead to an increase in home prices - and a significant one at that - because we are still structurally undersupplied.

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4 hours ago, Bozo_Casanova said:

Easy credit got us into this, it won’t get us out, and if sectors of this economy don’t work with very normal 5% interest rates it’s the sector that needs change only tighter credit can provide.

BTW @UTPhil2006 and others in the real estate biz: I’m aware this is not a fun time for y’all and it has probably impacted your lifestyle. Sorry if my post seemed flip.

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I think they are going to have to cut rates massively to avoid out of control deficits. To be fair, this is what I am hoping for anyway.

When this happens, I want to get massively long on some personal real estate. It will be the last time we see low cost mortgages, and just like the inflation from the 1980's, if you held on to your home the mortgage cost inflated away and the home value (driven by nominal wages) just kept going up. 

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On 4/11/2024 at 11:32 AM, washparkhorn said:

This is dumb as fuck. If you want to curb housing price growth rates, build units at the rate the population grows. Cutting interests rates would massively inflate home prices as dry powder sitting on the sidelines rushes in to buy at low interest rates.

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6 hours ago, TheFlyingBoat said:

This is dumb as fuck. If you want to curb housing price growth rates, build units at the rate the population grows. Cutting interests rates would massively inflate home prices as dry powder sitting on the sidelines rushes in to buy at low interest rates.

The problem is there is not a lot of fat between construction costs and retail pricing right now. Small time custom home builders (like myself), are pretty much sitting on the sidelines, or building for clients at cost plus a percentage. The cost of building, right now in our area, is from $190-195sqft. 1450sqft. starter homes with single car garages, sitting on $10k lots in mixed housing (stick built homes and mobile homes) are $250k. We are closing on one today. It's a young couple with a combined income of a little over $100k, and it was still tough to get them qualified.

I paid $117/yard for concrete in 2020. It is hovering around $200/yard currently. Until material costs come down, building will lag behind, and the units that are being built are still unobtainable to most young families at current interest rates. Doubling interest rates basically halved what potential home buyers are able to qualify for. 

CHIEF

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I ain’t mad at all. I appreciate your commentary. 

I’m annoyed af at the rates, and the long cycle projects I have that were conceived at lower rates. I happy to build in any rate environment as long as costs and rents/prices are adjusted to reflect reality (which they aren’t right now).

Just because I’m annoyed doesn’t mean Bozo was wrong though.
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I think they are going to have to cut rates massively to avoid out of control deficits. To be fair, this is what I am hoping for anyway.
When this happens, I want to get massively long on some personal real estate. It will be the last time we see low cost mortgages, and just like the inflation from the 1980's, if you held on to your home the mortgage cost inflated away and the home value (driven by nominal wages) just kept going up. 

This is really the only true actual solution.
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9 hours ago, CHIEF said:

The problem is there is not a lot of fat between construction costs and retail pricing right now. Small time custom home builders (like myself), are pretty much sitting on the sidelines, or building for clients at cost plus a percentage. The cost of building, right now in our area, is from $190-195sqft. 1450sqft. starter homes with single car garages, sitting on $10k lots in mixed housing (stick built homes and mobile homes) are $250k. We are closing on one today. It's a young couple with a combined income of a little over $100k, and it was still tough to get them qualified.

 

See this is a symptom of the structural problem: we used low rates to paper over:
1) Regulatory restraints on the market, especially at the local level
2) Increased materials scarcity
3) Labor supply issues 
4) Poor product-demand match at the population level

and other stuff

Like any dysfunctional complex, it became entrenched because we enabled it, because dealing with the problems underneath was too hard. Now not dealing with it is too hard. It's not fun for anybody. 

Edited by Bozo_Casanova
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16 minutes ago, Bozo_Casanova said:

See this is a symptom of the structural problem: we used low rates to paper over:
1) Regulatory restraints on the market, especially at the local level
2) Increased materials scarcity
3) Labor supply issues 
4) Poor product-demand match at the population level

and other stuff

Like any dysfunctional complex, it became entrenched because we enabled it, because dealing with the problems underneath was too hard. Now not dealing with it is too hard. It's not fun for anybody. 

Nailed it

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40 minutes ago, tbone_ said:


This is really the only true actual solution.

Last time I looked, the VA removed maximum limits on its loans. They had been around $450k. I am still having trouble believeing I can do a million dollar VA loan, but holy shit if I can it's gonna be awesome.

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13 hours ago, Thetexashammer said:

Last time I looked, the VA removed maximum limits on its loans. They had been around $450k. I am still having trouble believeing I can do a million dollar VA loan, but holy shit if I can it's gonna be awesome.

I’ve originated several of these and they are indeed AWESOME.  Even better if you are eligible to have your funding fee waved.  
 

Of note, I’ve not seen an investor (the entities to which we sell the loans on the secondary market) willing to go above $1.5m on the loan side (so effectively that’s the max loan amount), and bear in mind these loans are particularly valuable in an improving rate environment because of how cheap and easy they are to refinance for a lower rate.


Its such a great option that when I talk to veteran borrowers we spend a good bit of time mapping out their long term purchase plans-if you have $200k of your housing benefit locked up on an investment property you won’t be able to take advantage of this because you need your full benefit available to go $0 down at prices exceeding the conforming loan limit.  In other words, if you are a boot Lt or lance corporal buying a first home in Killeen, it might be prudent to wait to use your VA home loan benefit and use a different loan for an early career purchase (if the intention is to hold onto the property).

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5 hours ago, Incredulity said:

why don't you want to discuss the current economic data?

I’m fine with discussing it.  It’s just odd (and telling) that you run to this thread with your peepee wagging every time something bad happens.

I have a hard time seeing unemployment rise to the point of stagflation.  What’s it called when there’s moderately high inflation, moderately low economic growth (not recession), and low unemployment?

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17 hours ago, Snake Diggity said:

I’m fine with discussing it.  It’s just odd (and telling) that you run to this thread with your peepee wagging every time something bad happens.

I have a hard time seeing unemployment rise to the point of stagflation.  What’s it called when there’s moderately high inflation, moderately low economic growth (not recession), and low unemployment?

the Fed is stuck in “monetary policy purgatory,” said KPMG’s chief economist, as it deliberates if and when it will cut rates. All options are on the table, including a dreaded rate hike.

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53 minutes ago, BeardIP said:

the Fed is stuck in “monetary policy purgatory,” said KPMG’s chief economist, as it deliberates if and when it will cut rates. All options are on the table, including a dreaded rate hike.

I will be very surprised if they raise rates again this year.  They don’t want to tank the market before the election.  Raising rates is far more likely to do that than letting inflation stay higher than desired.

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1 hour ago, Snake Diggity said:

I will be very surprised if they raise rates again this year.  They don’t want to tank the market before the election.  Raising rates is far more likely to do that than letting inflation stay higher than desired.

Who is they? The Fed? The alleged non-political, election-agnostic agency?

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31 minutes ago, BeardIP said:

Who is they? The Fed? The alleged non-political, election-agnostic agency?

I really don’t want to CR this, but the Fed’s rate decisions have political implications, one way or the other.  Whether or not the Fed is actively trying to assist the incumbent, or just trying not to help the challenger, or just doing their best to have as minimal impact on politics as possible, the closer we get to November, the less likely I think it is that the Fed does anything outside of what they’ve already announced they’ve planned.

Edited by Snake Diggity
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21 minutes ago, Snake Diggity said:

I really don’t want to CR this, but the Fed’s rate decisions have political implications, one way or the other.  Whether or not the Fed is actively trying to assist the incumbent, or just trying not to help the challenger, or just doing their best to have as minimal impact on politics as possible, the closer we get to November, the less likely I think it is that the Fed does anything outside of what they’ve already announced they’ve planned.

I agree that there are political ramifications and that it's a nearly impossible, gordian knot ask of the Fed to not impact or influence political sentiment (and thereby elections, potentially) one way or another. 

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I thought about not posting this here because of the recent epidemic of vagina sand about political content outside the cloak room. Since it’s on the table at this moment, however- inflation is first and foremost a monetary phenomenon. Should the president be directly consulted on monetary policy if otherwise be able to put their thumb on the scale? Because a certain candidate’s advisers are drafting proposals. I’m sure that’s fine and would definitely not return us to the free cocaine monetary era. 

WSJ

 

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8 hours ago, Bozo_Casanova said:

I thought about not posting this here because of the recent epidemic of vagina sand about political content outside the cloak room. Since it’s on the table at this moment, however- inflation is first and foremost a monetary phenomenon. Should the president be directly consulted on monetary policy if otherwise be able to put their thumb on the scale? Because a certain candidate’s advisers are drafting proposals. I’m sure that’s fine and would definitely not return us to the free cocaine monetary era. 

WSJ

 

 

7532c66b-f7be-4908-8e25-da4c53281f25_tex

 

Quote

[The disgraced former president's] allies are quietly drafting proposals that would attempt to erode the Federal Reserve’s independence if the former president wins a second term, in the midst of a deepening divide among his advisers over how aggressively to challenge the central bank’s authority.

Former Trump administration officials and other supporters of the presumptive GOP nominee have in recent months discussed a range of proposals, from incremental policy changes to a long-shot assertion that the president himself should play a role in setting interest rates. A small group of the former president’s allies—whose work is so secretive that even some prominent former Trump economic aides weren’t aware of it—has produced a roughly 10-page document outlining a policy vision for the central bank, according to people familiar with the matter.

 

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14 hours ago, Bozo_Casanova said:

... Should the president be directly consulted on monetary policy if otherwise be able to put their thumb on the scale? ...

Let gold compete with the Fed's fiat as unpegged legal tender (no capital gains or sales taxes and let it have full legal tender status in parallel with the USD at market rates) and that wouldn't matter.  Short of that, the answer is obviously fuck no.

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On 4/25/2024 at 3:04 PM, Snake Diggity said:

I’m fine with discussing it.  It’s just odd (and telling) that you run to this thread with your peepee wagging every time something bad happens.

I have a hard time seeing unemployment rise to the point of stagflation.  What’s it called when there’s moderately high inflation, moderately low economic growth (not recession), and low unemployment?

Bullshit.  The thread topic is inflation.  A phenomenon the economy hadn’t dealt with for about 40 years.  Yes, its a bad thing.  

Maybe the forum isn’t for you if your fe-fes get hurt when anyone discusses the economy.

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16 minutes ago, lucious leftfoot said:

That will be a problem. Rates where there are means $1.7T dollars in interest over the next 12 months. 
 

IMG-1704.png

 

Total tax revenue was $4.44T in 2023. 

Massive deficits for the foreseeable future.  Or rate cuts.

Nobody has the political will(probably rightfully so, political suicide) to raise enough taxes to deal with the issue.

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19 minutes ago, Incredulity said:

Bullshit.  The thread topic is inflation.  A phenomenon the economy hadn’t dealt with for about 40 years.  Yes, its a bad thing.  

You don't post when the print is good.  You post with a massive inflation boner when the print is bad.  It's not hard to figure out where you stand.

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2 hours ago, Incredulity said:

Massive deficits for the foreseeable future.  Or rate cuts.

Nobody has the political will(probably rightfully so, political suicide) to raise enough taxes to deal with the issue.

There’s a recent proposal to increase the capital gains tax, which would also include unrealized gains. 

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16 hours ago, jimmyjazz said:

I know you struggle with math and graphs and whatnot, but operating at the lower end of that range is a problem.  DM for details.

I actually would appreciate seeing how much of the current deficit is due to reduced revenues and his much is due to increased borrowing costs. If you feel like nerding out a bit 

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56 minutes ago, B00M said:

I actually would appreciate seeing how much of the current deficit is due to reduced revenues and his much is due to increased borrowing costs. If you feel like nerding out a bit 

Cliffs:

it’s not a revenue problem.  It’s a spending problem which is being amplified by higher rates.

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2 hours ago, B00M said:

I actually would appreciate seeing how much of the current deficit is due to reduced revenues and his much is due to increased borrowing costs. If you feel like nerding out a bit 

 

18 hours ago, jimmyjazz said:

I know you struggle with math and graphs and whatnot, but operating at the lower end of that range is a problem.  DM for details.

US deficit fiscal year 2023 was $1.7T. 
 

Raising revenue from 16.2% of GDP to 18%, the top of the range, would gain $500B. 
 

51 minutes ago, Brisketexan said:


So, this is an important question: when you say “the” economy, what economy do you mean?
Because the insane thing to me is that all of these types talk and act like inflation is a thing in the US…and only the US. Instead of it being a fucking GLOBAL issue. Inflation is and has been worldwide, triggered by the cascade of economic fallout from the pandemic, and the waves that set off.
So, if you want to talk about how US inflation is, the intellectually honest discussion to have is how we’re doing relative to our peers.
But you’ll see that none of these folks want to have that conversation. Nope. Inflation is only happening here, and it’s entirely on Biden. Don’t look at the inflation everywhere else, at even higher rates, in countries where Biden ISN’T POTUS.
It’s all so stupid. But stupid is our national ethos.

Projected inflation  in G7 countries in 2024. From the IMF

Uk 2.6

USA 2.9
Italy 1.7

France 2.4

Germany 2.4

Canada 2.6

Japan 2.2

https://www.imf.org/external/datamapper/PCPIPCH@WEO/WEOWORLD/VEN
 

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