How much inflation?

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m@ver1ck
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How much inflation?

Post by m@ver1ck »

With 3T being pumped into the market, there is talk of inflation. Can this be quantified?
Can this be thought of similarly to new stocks being issued diluting existing stock holders?
alex_686
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Re: How much inflation?

Post by alex_686 »

No and No.

It is a complex question.

There is hard money, like what you are referencing. Then there is broad money, which is very hard to quantify.

Money could slosh around the economy. Or we could have a balance sheet recession, where money gets trapped on banks as they deleverage.

I tend to think that things we be like Japan. Lots of money being pumped into the economy and they get zero inflation.
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chassis
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Re: How much inflation?

Post by chassis »

Inflation is quantified monthly by the Fed. It's edging into the upper 1's percent now. Data shows over 2% inflation in portions of the economy.

The Fed will let inflation run for "a while" above its 2% long range target.

@ m@ver1ck What investing decisions are you intending to make based on knowledge of inflation?
Topic Author
m@ver1ck
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Re: How much inflation?

Post by m@ver1ck »

I was trying to rationalize the crazy housing market with prices going up 35% over last year, presumably in expectation of inflation - or folks just got rich on stocks/speculation/BitCoin/TSLA/RSUs. If inflation is going to go from 2.5% to 5%, maybe the 35% increase in real estate is not that big a deal..
JBTX
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Re: How much inflation?

Post by JBTX »

m@ver1ck wrote: Fri Apr 16, 2021 10:15 pm With 3T being pumped into the market, there is talk of inflation. Can this be quantified?
Can this be thought of similarly to new stocks being issued diluting existing stock holders?
Total annual US GDP is around $25 trillion. But where 3T goes makes a difference.

1. If it is used to make up slack capacity from the pandemic economy, inflation impact will be less
2. If money is used for investment or paying off debt, inflation impact will be less.
3. If velocity of money decreases, inflation will be less.
4. There are still structural forces holding down inflation - automation, technology, foreign labor, etc.
5. House prices do not directly effect consumer price inflation as they are considered investment. Consumer prices are affected by rents. While housing prices have risen, rents have mostly not.
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watchnerd
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Re: How much inflation?

Post by watchnerd »

m@ver1ck wrote: Fri Apr 16, 2021 10:15 pm With 3T being pumped into the market, there is talk of inflation. Can this be quantified?
Can this be thought of similarly to new stocks being issued diluting existing stock holders?
There is talk in the media.

Yet the 5 YR Breakeven Inflation rate is 2.57%.

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Re: How much inflation?

Post by oldcomputerguy »

This topic is now in the Investing - Theory, News & General forum.
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JoeRetire
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Re: How much inflation?

Post by JoeRetire »

m@ver1ck wrote: Fri Apr 16, 2021 10:15 pm With 3T being pumped into the market, there is talk of inflation. Can this be quantified?
You can attach any number you like. So from that sense, it can be quantified.
But if you are asking if you can predict future inflation rates now, with any real accuracy - no.
Can this be thought of similarly to new stocks being issued diluting existing stock holders?
No. The two are not at all comparable.
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alex_686
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Re: How much inflation?

Post by alex_686 »

2 points.

Inflation is about the cost of living, not the value of assets. Lower mortgage rates mean you can buy more house for the same monthly payment. This is a asset bubble.

Next, housing prices are not skyrocketing. Low interest rates & mortgage rates have inflated the value of the assets that wealthy people own. Wealthy people buy large single family homes. The value of these have increased.

However, the majority of people, in particular lower income, are still in recession. There are eviction moratoriums, etc. The housing market is not great here.
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KlangFool
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Re: How much inflation?

Post by KlangFool »

OP,

In my opinion,

when you asked the wrong question, you would never get the right answer!

It is the wrong question to ask how much inflation and/or deflation. Unless we can predict the future, the answer would be we do not know.

The correct question is are you prepared for

A) Inflation

B) Deflation

C) Hyperinflation

Is your portfolio diversified enough to handle any possibility?

If the inflation is running at 9% to 10% per year, what will happen to you? Or, we have a short-term deflation. Are you prepared?

I know that I know nothing. Hence, I choose to be prepared and diversified.

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
Scooter57
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Re: How much inflation?

Post by Scooter57 »

m@ver1ck wrote: Sat Apr 17, 2021 12:00 am I was trying to rationalize the crazy housing market with prices going up 35% over last year, presumably in expectation of inflation - or folks just got rich on stocks/speculation/BitCoin/TSLA/RSUs. If inflation is going to go from 2.5% to 5%, maybe the 35% increase in real estate is not that big a deal..
Housing prices are going up for three main reasons:

1. Extremely low mortgage rates are allowing people to pay more for a house. Ironically, they are paying more for the same house they could have gotten at a lower price with a higher mortgage two years ago.

2. Very, very few homes are on the market due to the pandemic.

In our region, where this time of year is usually the peak of the Real Estate season, with 30-40 properties on sale, there are only 13 listed right now. There was an article in our newspaper reporting hat inventory is lower than it has ever been in recent memory. People don't want to deal with moving given that there are still some pretty bad COVID numbers in our state.

3. Privileged middle class people from high cost of living areas whose employers now will let them work from home are snapping up properties a longer distance from cities that previously they would not have bothered with since those distant homes still allow them to commute in once or twice a week at non rush hour times. We are seeing people from our nearest HCOL city coming to our area, though it can be a 2.5 hr drive each way at rush hour to that city. Their salaries are far higher than any paid in our region, so they are paying prices that very few people in the region could afford for homes. This is pushing up the price of those homes even further, to prices that will come back to bite them when they decide to sell, since they can only sell to another person with a high paid city job or a trust fund. That limits the pool of potential buyers considerably.

That said, these well-heeled urbanites are concentrating on a few towns which they (erroneously) believe are the best places to live here, and ignoring everywhere else. I follow all the closings in our newspaper and all the high ticket closings I've seen this year are in one school district that realtors tell them is considered the best, though as a parent who sent two kids through that system I can assure you they are very wrong, and one town that is supposed to have "wonderful cultural offerings" though a year's residence will teach the urbanites that "wonderful cultural offerings" in a town of 28,000 people, half of whom are indigenous working class, are nothing like what they are used to in the city. Similar Urbanite-drivien housing bubbles are popping up all over New England according to what I am reading.

I've been an observer of real estate for decades, with very good instincts. They tell me that the current real estate boom is not likely to persist once the market normalizes and those work from home urbanites realize what it is really like living here. Not to mention the challenge of maintaining a long-term WFH lifestyle. I've done it for 34 years and my partner for 15 and we have both realized it really changes a person, not always in good ways.
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watchnerd
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Re: How much inflation?

Post by watchnerd »

Scooter57 wrote: Sat Apr 17, 2021 9:27 am I've done it for 34 years and my partner for 15 and we have both realized it really changes a person, not always in good ways.
I'm curious -- what do you see as the negative changes to your persona that you've experienced?
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GoneOnTilt
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Re: How much inflation?

Post by GoneOnTilt »

KlangFool wrote: Sat Apr 17, 2021 8:51 am OP,

In my opinion,

when you asked the wrong question, you would never get the right answer!

It is the wrong question to ask how much inflation and/or deflation. Unless we can predict the future, the answer would be we do not know.

The correct question is are you prepared for

A) Inflation

B) Deflation

C) Hyperinflation

Is your portfolio diversified enough to handle any possibility?

If the inflation is running at 9% to 10% per year, what will happen to you? Or, we have a short-term deflation. Are you prepared?

I know that I know nothing. Hence, I choose to be prepared and diversified.

KlangFool
Klangfool -

How are you prepared for each?
KlangFool
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Re: How much inflation?

Post by KlangFool »

bck63 wrote: Sat Apr 17, 2021 9:34 am
KlangFool wrote: Sat Apr 17, 2021 8:51 am OP,

In my opinion,

when you asked the wrong question, you would never get the right answer!

It is the wrong question to ask how much inflation and/or deflation. Unless we can predict the future, the answer would be we do not know.

The correct question is are you prepared for

A) Inflation

B) Deflation

C) Hyperinflation

Is your portfolio diversified enough to handle any possibility?

If the inflation is running at 9% to 10% per year, what will happen to you? Or, we have a short-term deflation. Are you prepared?

I know that I know nothing. Hence, I choose to be prepared and diversified.

KlangFool
Klangfool -

How are you prepared for each?
I am diversified across multiple asset classes

A) 60/40 portfolio with 27X annual expense and international exposure

B) 3X annual expense in CASH as my emergency fund

D) 30 years fixed interest rate mortgage

E) A house

F) A few thousand in physical Gold/Silver

G) Enough food and water in my pantry to last me a few weeks.

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
GoneOnTilt
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Re: How much inflation?

Post by GoneOnTilt »

KlangFool wrote: Sat Apr 17, 2021 9:50 am
bck63 wrote: Sat Apr 17, 2021 9:34 am
KlangFool wrote: Sat Apr 17, 2021 8:51 am OP,

In my opinion,

when you asked the wrong question, you would never get the right answer!

It is the wrong question to ask how much inflation and/or deflation. Unless we can predict the future, the answer would be we do not know.

The correct question is are you prepared for

A) Inflation

B) Deflation

C) Hyperinflation

Is your portfolio diversified enough to handle any possibility?

If the inflation is running at 9% to 10% per year, what will happen to you? Or, we have a short-term deflation. Are you prepared?

I know that I know nothing. Hence, I choose to be prepared and diversified.

KlangFool
Klangfool -

How are you prepared for each?
I am diversified across multiple asset classes

A) 60/40 portfolio with 27X annual expense and international exposure

B) 3X annual expense in CASH as my emergency fund

D) 30 years fixed interest rate mortgage

E) A house

F) A few thousand in physical Gold/Silver

G) Enough food and water in my pantry to last me a few weeks.

KlangFool
Thanks. What else do you use for fixed income?
KlangFool
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Re: How much inflation?

Post by KlangFool »

bck63 wrote: Sat Apr 17, 2021 10:08 am
KlangFool wrote: Sat Apr 17, 2021 9:50 am
bck63 wrote: Sat Apr 17, 2021 9:34 am
KlangFool wrote: Sat Apr 17, 2021 8:51 am OP,

In my opinion,

when you asked the wrong question, you would never get the right answer!

It is the wrong question to ask how much inflation and/or deflation. Unless we can predict the future, the answer would be we do not know.

The correct question is are you prepared for

A) Inflation

B) Deflation

C) Hyperinflation

Is your portfolio diversified enough to handle any possibility?

If the inflation is running at 9% to 10% per year, what will happen to you? Or, we have a short-term deflation. Are you prepared?

I know that I know nothing. Hence, I choose to be prepared and diversified.

KlangFool
Klangfool -

How are you prepared for each?
I am diversified across multiple asset classes

A) 60/40 portfolio with 27X annual expense and international exposure

B) 3X annual expense in CASH as my emergency fund

D) 30 years fixed interest rate mortgage

E) A house

F) A few thousand in physical Gold/Silver

G) Enough food and water in my pantry to last me a few weeks.

KlangFool
Thanks. What else do you use for fixed income?
It is in my post's signature

A) Bond inside my Wellington Fund

B) VBTLX -> Total Bond Index

C) VSIGX -> Intermediate-Term Treasury

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
GoneOnTilt
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Re: How much inflation?

Post by GoneOnTilt »

KlangFool wrote: Sat Apr 17, 2021 10:15 am
It is in my post's signature

A) Bond inside my Wellington Fund

B) VBTLX -> Total Bond Index

C) VSIGX -> Intermediate-Term Treasury

KlangFool
Thanks very much. Always appreciate your posts.
Scooter57
Posts: 2019
Joined: Thu Jan 24, 2013 8:20 am

Re: How much inflation?

Post by Scooter57 »

watchnerd wrote: Sat Apr 17, 2021 9:33 am
Scooter57 wrote: Sat Apr 17, 2021 9:27 am I've done it for 34 years and my partner for 15 and we have both realized it really changes a person, not always in good ways.
I'm curious -- what do you see as the negative changes to your persona that you've experienced?
Both of us were pretty sociable people before we built our home-based businesses, but after years of working at home very happily, we noticed that our patience with the kind of empty chit chat that fills so much of the time when you work with other people dropped dramatically. This made hanging out with people who weren't close friends seem much more boring than it used to be, which in turn, made us more and more avoidant of social occasions we would have participated in the past. After a decade or so of living that way, you find you have a very limited circle of friends. Way too many of our "friends" now are people we interact with online. But experience has shown that those kinds of friends, even those who correspond a lot, very rarely develop into true friends who a person can be themselves with and turn to for companionship and mutual support.

We also tend to become more workaholic as there is no "going home from work" or "scheduled vacation days." We each love what we do for work, but in retrospect I wish we had been forced to take more time off.
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watchnerd
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Re: How much inflation?

Post by watchnerd »

Scooter57 wrote: Sat Apr 17, 2021 12:06 pm
watchnerd wrote: Sat Apr 17, 2021 9:33 am
Scooter57 wrote: Sat Apr 17, 2021 9:27 am I've done it for 34 years and my partner for 15 and we have both realized it really changes a person, not always in good ways.
I'm curious -- what do you see as the negative changes to your persona that you've experienced?
Both of us were pretty sociable people before we built our home-based businesses, but after years of working at home very happily, we noticed that our patience with the kind of empty chit chat that fills so much of the time when you work with other people dropped dramatically. This made hanging out with people who weren't close friends seem much more boring than it used to be, which in turn, made us more and more avoidant of social occasions we would have participated in the past. After a decade or so of living that way, you find you have a very limited circle of friends. Way too many of our "friends" now are people we interact with online. But experience has shown that those kinds of friends, even those who correspond a lot, very rarely develop into true friends who a person can be themselves with and turn to for companionship and mutual support.

We also tend to become more workaholic as there is no "going home from work" or "scheduled vacation days." We each love what we do for work, but in retrospect I wish we had been forced to take more time off.
Thanks for sharing that.

I've only been WFH full time for a year, my wife as well, but I can see those seeds already being planted.
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Topic Author
m@ver1ck
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Joined: Fri Sep 14, 2018 2:18 pm

Re: How much inflation?

Post by m@ver1ck »

Scooter57 wrote: Sat Apr 17, 2021 9:27 am
m@ver1ck wrote: Sat Apr 17, 2021 12:00 am I was trying to rationalize the crazy housing market with prices going up 35% over last year, presumably in expectation of inflation - or folks just got rich on stocks/speculation/BitCoin/TSLA/RSUs. If inflation is going to go from 2.5% to 5%, maybe the 35% increase in real estate is not that big a deal..
Housing prices are going up for three main reasons:

1. Extremely low mortgage rates are allowing people to pay more for a house. Ironically, they are paying more for the same house they could have gotten at a lower price with a higher mortgage two years ago.

2. Very, very few homes are on the market due to the pandemic.

In our region, where this time of year is usually the peak of the Real Estate season, with 30-40 properties on sale, there are only 13 listed right now. There was an article in our newspaper reporting hat inventory is lower than it has ever been in recent memory. People don't want to deal with moving given that there are still some pretty bad COVID numbers in our state.

3. Privileged middle class people from high cost of living areas whose employers now will let them work from home are snapping up properties a longer distance from cities that previously they would not have bothered with since those distant homes still allow them to commute in once or twice a week at non rush hour times. We are seeing people from our nearest HCOL city coming to our area, though it can be a 2.5 hr drive each way at rush hour to that city. Their salaries are far higher than any paid in our region, so they are paying prices that very few people in the region could afford for homes. This is pushing up the price of those homes even further, to prices that will come back to bite them when they decide to sell, since they can only sell to another person with a high paid city job or a trust fund. That limits the pool of potential buyers considerably.

That said, these well-heeled urbanites are concentrating on a few towns which they (erroneously) believe are the best places to live here, and ignoring everywhere else. I follow all the closings in our newspaper and all the high ticket closings I've seen this year are in one school district that realtors tell them is considered the best, though as a parent who sent two kids through that system I can assure you they are very wrong, and one town that is supposed to have "wonderful cultural offerings" though a year's residence will teach the urbanites that "wonderful cultural offerings" in a town of 28,000 people, half of whom are indigenous working class, are nothing like what they are used to in the city. Similar Urbanite-drivien housing bubbles are popping up all over New England according to what I am reading.

I've been an observer of real estate for decades, with very good instincts. They tell me that the current real estate boom is not likely to persist once the market normalizes and those work from home urbanites realize what it is really like living here. Not to mention the challenge of maintaining a long-term WFH lifestyle. I've done it for 34 years and my partner for 15 and we have both realized it really changes a person, not always in good ways.
Thank you!
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