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Before You Empty Your Cash Deposit for Investment to fight Inflation...

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Kevin88660

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It is all over social media these days about the inflation narrative on why you should be heavily invested in the financial market or Fed printing will kill your wealth.

The Inflation Narrative
1) Too much Money is printed
2) Asset price will sky rocket for sure
3) Cash is trash
4) Time in the market beat timing in the market

Well I think there are several issues to consider before you empty your bank account and buy Tesla Stocks.

While I think the long term thesis of inflation and asset price going up is correct there are much more nuisances into this, before you rush to take a huge gamble on Tesla Stock to “protect from inflation”.

1) Very few people I know of are heavily weighted in cash from a net-worth perspective. Having a few years of emergency fund is nothing compared to the house on mortgage or compulsory retirement scheme mandated by the government. It seems that the inflation narrative is pushing everyone to see their money in bank as some forms of sin

2) Inflation has not been as bad as what many think. We all know that the 2 percent inflation government number is a joke. But in all seriousness your cash is not turning into thrash anytime soon for two reason.
-Technological improvement. Good phones and gadget are getting cheaper when you factor in quality.
-There is an overcapacity issue globally for low to mid end manufactured goods or basic material needs. if you are not too fussy about using branded goods or eating the best food there is hardly any price increase for everyday item in your mall or super market. Globally there are massive inventories of stationaries, clothes and grains that have no customers to consume.
-QE induced supply glut. Money printing can be deflationary too. When shale gas companies get easy money and can continue to operate at loss oil price will remain cheap. When private equity get access to easy money to produce the next uber our taxi fares just get cheaper.

I do think that inflation has mainly occurred on the service side when you need to hire someone to fix your leaking pipe at home or paying for tuition fee for your kids. We havn’t seen technological forces pushing the price down even though it could be in the future.

3) Not all assets will run equally in the each cycle. In the decade of 2010-2020 if you didnt bet on US Tech stocks you actually missed much of the US stocks gain. If you betted on commodities (which was the most common sense answer against inflation) you actually performed very badly compared to putting cash in the fixed deposit. No one knows what will pump in the next decade.

4) Money Printing does not mean market cannot crash very badly for a period of time

Most people visualize this way. QE means freshly minted papers handed out to people. Because there is a limited supply of financial assets and the continuous in-flood of money will surely push price higher.

There are much more nuisances about QE.

QE is not literally “handing money to people to buy investment assets”. It is the Fed buying assets to prop up asset market prices, usually in a crisis to prevent the downward spiraling forces of asset prices.

These days financial institutions are very over leveraged with derivates. They can and actually do hold assets (mainly liquid securities) that are way above their net assets. This means when sheet hits the fan they get margin called just like retail players.

So when Fed intervened and prop up asset prices . Money enter the system and the Fed hold the assets in their book. But the financial institutions/ investment parties on average remain over leveraged. The money comes in the form of extra buying power. If your portfolio net asset value (before QE) used to be worth 80 million and you can buy up to 160 million, and you were holding 140 million worth of assets (on the verge of margin call, and now after qe your net asset is worth 120 million, you are holding 210 worth of assets and you can buy up to 240. The first thing you want to do is not to use up the remaining extra buying power (which increased from 20 to 30). This is assuming one dollar of nav give you two dollar of buying power.

You can see that after the initial QE boost on price level investors didn’t get much of the dry powder to continue to push price higher, given how over leveraged they are. When you have rumors about rate hike or any negative event things can south very quickly.

Thats why you hear about “liquidity drying up” as an explanation on why prices capitulated when asset prices fell. You means we had years of QE and still liquidity can dry up? Yes it can for reasons explained above.
 
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MJ DeMarco

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I bought this a day after the election.

It tracks commodity prices and is a nice inflationary hedge. As you can see, the chart reflects inflation, and on a % basis, quite disturbingly, not to mention the meteoric rise in housing pricess here in the states, not to mention a shortage on labor, and rising construction materials costs, as well as shortages (lumber, etc.)

1614817584988.png
 

WJK

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Cash is king in a crisis.
Real estate values and most rental incomes float with the market.
Debt can quickly make you a dead duck.
Good habits and living within your means will keep you going when the going gets tough.
 

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Housing and wages is what you wanna watch.

And yeah, housing seems to be affected. Can’t wait to see more real estate digital playboys selling me seminars on social media. :rofl:
 

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thechosen1

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Inflation? Naw...

But hey, you can at least buy a Dodge truck for just under $100,000.

We were picking out a new car for my mom (well my dad was and I tagged along for fun) - she was driving a new Lincoln Navigator for a long time, but now it's old...

We went to the dealership and the new Navigators are over $80,000!!!

She ended up getting a Subaru that cost as much as the old navigator was when it was new, maybe 10 years ago. Talk about inflation.
 

socaldude

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Lol every time Powell speaks and says the word “inflation” the market doesn’t like it.

Fun trading days like this. :rofl:


We went to the dealership and the new Navigators are over $80,000!!!

But hey at least it’s 0% APR and monthly payments. But even used cars are more expensive. My old car probably has an inflation premium. Lol
 

MJ DeMarco

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Lol every time Powell speaks and says the word “inflation” the market doesn’t like it.

Yea, that only cost me $12,000 in the span of 15 minutes.
 

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You know those moments when you “imagine” something is gonna happen then it actually happens? Lol I said to myself utilities are gonna go up and sure enough look what I get in the mail not even a few days later lol.

A5717120-CFD6-46B0-863F-2A748A3BDCAC.jpeg
 

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I bought this a day after the election.

It tracks commodity prices and is a nice inflationary hedge. As you can see, the chart reflects inflation, and on a % basis, quite disturbingly, not to mention the meteoric rise in housing pricess here in the states, not to mention a shortage on labor, and rising construction materials costs, as well as shortages (lumber, etc.)

View attachment 37035
I was looking at several commodity indexes recently... I was shocked to find that a SHIT LOAD of them hold US treasuries... If I wanted a guaranteed negative return as part of my investment, I'd buy a Maserati. At least then I would have a cool car to show for it.

I ended up buying a nice chunk of XOM the day after the election. That went well despite my gold getting hammered.
 
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Kak

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socaldude

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I was shocked to find that a SHIT LOAD of them hold US treasuries

The best tip I’ve gotten in life is don’t buy TIPS bonds(pun intended). Lol those CPI indexes are rigged. :rofl: Maybe that’s why they lie about inflation. Our whole system would collapse if they told the truth. LMAO
 

krich1512

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This coming inflation is complex because of many different factors.. This mostly stems from US Govt printing money and how the world reacts in the US bond markets.. If other countries are not sold on the US economy due to a bad balance sheet (and bad demogrphics)... bonds will be sold.. bond interest rates will rise.. and America's debt will be expensive to manage.

Another scary thing.. is if inflation does pick up quickly.. the govt's only real options are to let inflation run wild OR.. to SELL Bonds, jacking up interest rates which would hurt debtors (which is almost everybody).

In terms of investments.. REIT prices will drop.. Growth stocks will drop..Commodities and real estate will continue to rise (until there is a glut or once 3D printing takes over the real estate scene. Emerging markets equities will also rise.
 

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thechosen1

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This coming inflation is complex because of many different factors.. This mostly stems from US Govt printing money and how the world reacts in the US bond markets.. If other countries are not sold on the US economy due to a bad balance sheet (and bad demogrphics)... bonds will be sold.. bond interest rates will rise.. and America's debt will be expensive to manage.

Another scary thing.. is if inflation does pick up quickly.. the govt's only real options are to let inflation run wild OR.. to SELL Bonds, jacking up interest rates which would hurt debtors (which is almost everybody).

In terms of investments.. REIT prices will drop.. Growth stocks will drop..Commodities and real estate will continue to rise (until there is a glut or once 3D printing takes over the real estate scene. Emerging markets equities will also rise.

This is what I'm afraid of...

Rampant inflation a la the Weimar Republic or Venezueala, or...

Mass economic collapse as debtors cannot pay back their loans.

I think the second would be worse, because it could set the stage for complete government takeover of all private assets... potentially the REAL "great reset."

Yikes!!
 

WJK

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This coming inflation is complex because of many different factors.. This mostly stems from US Govt printing money and how the world reacts in the US bond markets.. If other countries are not sold on the US economy due to a bad balance sheet (and bad demogrphics)... bonds will be sold.. bond interest rates will rise.. and America's debt will be expensive to manage.

Another scary thing.. is if inflation does pick up quickly.. the govt's only real options are to let inflation run wild OR.. to SELL Bonds, jacking up interest rates which would hurt debtors (which is almost everybody).

In terms of investments.. REIT prices will drop.. Growth stocks will drop..Commodities and real estate will continue to rise (until there is a glut or once 3D printing takes over the real estate scene. Emerging markets equities will also rise.
What they did in 1980 was let the interest rate go wild over inflation. Before Christmas (1979), mortgage interest rates were 12.5%. They had crept up over the 5 prior years from about 9.5%. After Christmas, it suddenly went to 21% and 22%. Everything stopped. The economy choked. Since we just went through a year of lock-downs, what are they going to do this time?
 

krich1512

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This is what I'm afraid of...

Rampant inflation a la the Weimar Republic or Venezueala, or...

Mass economic collapse as debtors cannot pay back their loans.

I think the second would be worse, because it could set the stage for complete government takeover of all private assets... potentially the REAL "great reset."

Yikes!!
I think you're right in terms of the Weimar style inflation..I think the govt will choose the option to keep printing instead of trying to combat inflation by increasing interest rates, and selling bonds which would end in the debtor collapse you mention.

The latter would be too painful and creditors would be left holding the bag.. so instead they'll keep printing.. which gives us the $$ to pay the debts.. BUT those $$ will just be worth less and less of purchasing power
 

krich1512

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What they did in 1980 was let the interest rate go wild over inflation. Before Christmas (1979), mortgage interest rates were 12.5%. They had crept up over the 5 prior years from about 9.5%. After Christmas, it suddenly went to 21% and 22%. Everything stopped. The economy choked. Since we just went through a year of lock-downs, what are they going to do this time?
Yikes... we have soooo much more oustanding debt now compared to the 80s.. those type of rates would bury us now.. we can't even increase interest rates to 2-3% without the economy collapsing..
 

mat287

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It is all over social media these days about the inflation narrative on why you should be heavily invested in the financial market or Fed printing will kill your wealth.

The Inflation Narrative
1) Too much Money is printed
2) Asset price will sky rocket for sure
3) Cash is trash
4) Time in the market beat timing in the market

Well I think there are several issues to consider before you empty your bank account and buy Tesla Stocks.

While I think the long term thesis of inflation and asset price going up is correct there are much more nuisances into this, before you rush to take a huge gamble on Tesla Stock to “protect from inflation”.

1) Very few people I know of are heavily weighted in cash from a net-worth perspective. Having a few years of emergency fund is nothing compared to the house on mortgage or compulsory retirement scheme mandated by the government. It seems that the inflation narrative is pushing everyone to see their money in bank as some forms of sin

2) Inflation has not been as bad as what many think. We all know that the 2 percent inflation government number is a joke. But in all seriousness your cash is not turning into thrash anytime soon for two reason.
-Technological improvement. Good phones and gadget are getting cheaper when you factor in quality.
-There is an overcapacity issue globally for low to mid end manufactured goods or basic material needs. if you are not too fussy about using branded goods or eating the best food there is hardly any price increase for everyday item in your mall or super market. Globally there are massive inventories of stationaries, clothes and grains that have no customers to consume.
-QE induced supply glut. Money printing can be deflationary too. When shale gas companies get easy money and can continue to operate at loss oil price will remain cheap. When private equity get access to easy money to produce the next uber our taxi fares just get cheaper.

I do think that inflation has mainly occurred on the service side when you need to hire someone to fix your leaking pipe at home or paying for tuition fee for your kids. We havn’t seen technological forces pushing the price down even though it could be in the future.

3) Not all assets will run equally in the each cycle. In the decade of 2010-2020 if you didnt bet on US Tech stocks you actually missed much of the US stocks gain. If you betted on commodities (which was the most common sense answer against inflation) you actually performed very badly compared to putting cash in the fixed deposit. No one knows what will pump in the next decade.

4) Money Printing does not mean market cannot crash very badly for a period of time

Most people visualize this way. QE means freshly minted papers handed out to people. Because there is a limited supply of financial assets and the continuous in-flood of money will surely push price higher.

There are much more nuisances about QE.

QE is not literally “handing money to people to buy investment assets”. It is the Fed buying assets to prop up asset market prices, usually in a crisis to prevent the downward spiraling forces of asset prices.

These days financial institutions are very over leveraged with derivates. They can and actually do hold assets (mainly liquid securities) that are way above their net assets. This means when sheet hits the fan they get margin called just like retail players.

So when Fed intervened and prop up asset prices . Money enter the system and the Fed hold the assets in their book. But the financial institutions/ investment parties on average remain over leveraged. The money comes in the form of extra buying power. If your portfolio net asset value (before QE) used to be worth 80 million and you can buy up to 160 million, and you were holding 140 million worth of assets (on the verge of margin call, and now after qe your net asset is worth 120 million, you are holding 210 worth of assets and you can buy up to 240. The first thing you want to do is not to use up the remaining extra buying power (which increased from 20 to 30). This is assuming one dollar of nav give you two dollar of buying power.

You can see that after the initial QE boost on price level investors didn’t get much of the dry powder to continue to push price higher, given how over leveraged they are. When you have rumors about rate hike or any negative event things can south very quickly.

Thats why you hear about “liquidity drying up” as an explanation on why prices capitulated when asset prices fell. You means we had years of QE and still liquidity can dry up? Yes it can for reasons explained above.
Long term - stocks are better than cash. You are essentially buying a business. That business will sell goods or services priced in inflated dollars. Meaning their nominal profits and revenue will increase, thus increasing their stock value that is also priced in inflated dollars.

There is 0 chance that there is not high inflation. Yes, consumer goods and food may not see price increases due to their massive supply and technological advancements. However, housing has not increased in supply and is staying artificially low due to obscure govt policies. Discretionary spending on things like vacations and entertainment will skyrocket due to 0 increase in supply and pent up demand for the past year. If every human is dying to attend a sporting event or concert and the arena only fits 30,000 people, what happens to the price? Thats where you will see the most rampant price increases. Season tickets and real estate in vacation hubs may be solid investments if you have extra money lying around to invest with
 

krich1512

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Long term - stocks are better than cash. You are essentially buying a business. That business will sell goods or services priced in inflated dollars. Meaning their nominal profits and revenue will increase, thus increasing their stock value that is also priced in inflated dollars.

There is 0 chance that there is not high inflation. Yes, consumer goods and food may not see price increases due to their massive supply and technological advancements. However, housing has not increased in supply and is staying artificially low due to obscure govt policies. Discretionary spending on things like vacations and entertainment will skyrocket due to 0 increase in supply and pent up demand for the past year. If every human is dying to attend a sporting event or concert and the arena only fits 30,000 people, what happens to the price? Thats where you will see the most rampant price increases. Season tickets and real estate in vacation hubs may be solid investments if you have extra money lying around to invest with
Stocks may be better than cash LT.. but they can also crash a lot fast as well..Charlie Munger and some other investors have a negative outlook on stocks in US this decade.. Don't buy the "pent up demand" narrative.. it's a lie.. PPL will not buy more of "Product ABC" just due to the pandemic... you won't go buy 2 cars... extra meals... more clothes than normal.. or spend more than usual on a vacation.. It will probably be the opposite as ppl are still holding their breath for stimulus checks. Be very selective if you're going the stock route.. be sure to also look at overseas, emerging equity markets.. based on demographics that's where most of the gains will be
 

WJK

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Long term - stocks are better than cash. You are essentially buying a business. That business will sell goods or services priced in inflated dollars. Meaning their nominal profits and revenue will increase, thus increasing their stock value that is also priced in inflated dollars.

There is 0 chance that there is not high inflation. Yes, consumer goods and food may not see price increases due to their massive supply and technological advancements. However, housing has not increased in supply and is staying artificially low due to obscure govt policies. Discretionary spending on things like vacations and entertainment will skyrocket due to 0 increase in supply and pent up demand for the past year. If every human is dying to attend a sporting event or concert and the arena only fits 30,000 people, what happens to the price? Thats where you will see the most rampant price increases. Season tickets and real estate in vacation hubs may be solid investments if you have extra money lying around to invest with
I have some questions & comments as to your conclusions:
1. There are fewer stocks available with more money chasing them -- which pushes up the prices.
2. Investors have been pushed into the stock market by artificially low-interest rates. They can't even keep up with inflation rates or make a reasonable return dollar-for-dollar on their available cash.
3. The ratios between profit and price are in some cases scary.
4. The stock market goes in cycles. Trump seems to have held off the bear market. Is it THAT time now?
5. A lot of corporations did a lot of stock buy-backs over the last few years. How does that affect the overall price and availability?
6. The stock market and bond market hold most of the commercial real estate paper this time around. Whole segments of that market have been totally disrupted over the last year. And it's been moving in that direction for years. The Saving & Loan and the Thrift industries totally collapsed under the last major downturn in that market during the 1990s. What's gonna happen this time?

As far as housing goes...
1. Has housing been staying "artificially low"? Prices of SFR have been shooting up in some areas.
2. The governmental influence in that market has more to do with the types of financing available rather than the actual physical properties. Creative financing coupled with artificially low-interest rates has allowed those housing price increases without pushing the payments out of reach.
3. The CDC has not allowed lenders to foreclose on tons of borrowers in default for the last year. When the flood gates open, what is going to happen?

And the beat goes on, and the best goes on...
 

krich1512

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I have some questions & comments as to your conclusions:
1. There are fewer stocks available with more money chasing them -- which pushes up the prices.
2. Investors have been pushed into the stock market by artificially low-interest rates. They can't even keep up with inflation rates or make a reasonable return dollar-for-dollar on their available cash.
3. The ratios between profit and price are in some cases scary.
4. The stock market goes in cycles. Trump seems to have held off the bear market. Is it THAT time now?
5. A lot of corporations did a lot of stock buy-backs over the last few years. How does that affect the overall price and availability?
6. The stock market and bond market hold most of the commercial real estate paper this time around. Whole segments of that market have been totally disrupted over the last year. And it's been moving in that direction for years. The Saving & Loan and the Thrift industries totally collapsed under the last major downturn in that market during the 1990s. What's gonna happen this time?

As far as housing goes...
1. Has housing been staying "artificially low"? Prices of SFR have been shooting up in some areas.
2. The governmental influence in that market has more to do with the types of financing available rather than the actual physical properties. Creative financing coupled with artificially low-interest rates has allowed those housing price increases without pushing the payments out of reach.
3. The CDC has not allowed lenders to foreclose on tons of borrowers in default for the last year. When the flood gates open, what is going to happen?

And the beat goes on, and the best goes on...
1.There are fewer stocks available with more money chasing them -- which pushes up the prices.

THIS IS A NEW ECONOMY.. STOCKS, BONDS ARE NOT THE ONLY GAME IN TOWN NOW.. SMART MONEY IS INVESTING IN ALTERNATIVE ASSETS, CRYPTO, PRIVATE BUSINESSES , REAL ESTATE, ETC. SO THE MONEY WILL NOT NECESSARILY PUSH UP THE BROAD STOCK MARKET

2. Investors have been pushed into the stock market by artificially low-interest rates. They can't even keep up with inflation rates or make a reasonable return dollar-for-dollar on their available cash

YES, THEY HAVE BEEN PUSHED INTO STOCKS BECAUSE OF LOW RATES.. BUT IF RATES BEGIN TO RISE, COMPANIES WON’T BE ABLE TO BORROW AS MUCH $$ FOR BUSINESS GROWTH.. SMALL INTEREST RATE INCREASES MAKE SOME LARGE BUSINESS PROJECTS UNFEASIBLE WHEN WE’RE TALKING 100 OF MILLIONS $$.. SO THOSE GROWTH STOCK VALUATIONS WILL DECREASE AS.. IF COMPANIES CAN’T BORROW AS EASILY.. THEIR GROWTH WILL BE SLOWED AND PRICE REDUCED.. SO INVESTORS WILL LOOK TO OVER GROWTH OPPORTUNITIES OUTSIDE OF THOSE EQUITY ASSETS.


3. The ratios between profit and price are in some cases scary.

P/E IS HIGH.. WHICH IS ANOTHER REASON STOCK PRICES WILL FALL BROADLY SPEAKING (LESS UPSIDE, BIGGER CORPORATE DEBT LOADS).. WHEN INTEREST RATES RISE… WE’LL SEE WHAT’S REAL


4. The stock market goes in cycles. Trump seems to have held off the bear market. Is it THAT time now?

TRUMP CUT TAXES AND FORCED POWELL TO KEEP RATES LOW… SO THAT’S NOT BAD FOR BUSINESS… BUT HE RAN HUGE GOVERNMENT SPENDING DEFICITS EVERY YEAR WHICH ISN’T GREAT LONG TERM..


5. A lot of corporations did a lot of stock buy-backs over the last few years. How does that affect the overall price and availability?

STOCK BUY BACKS ARE EASY WHEN MONEY IS CHEAP AND YOU CAN BORROW, BUY BACK STOCK TO PUSH UP EPS OVER ANALYST EARNINGS ESTIMATES AND GET RICHER WITHOUT PRODUCING ANY REAL VALUE…

WHEN INTEREST RATES INCREASE IT WILL BE MORE EXPENSIVE FOR THEM TO CONTINUE THE FINANCIAL WIZARDRY.. BUFFET JUST BOUGHT BACK $25 BILLION IN BERKSHIRE STOCK IN 2020.. BECAUSE HE MAY KNOW THE GRAVY TRAIN IS OVER SOON (Buffett is buying back more Berkshire stock this year after record $25 billion repurchase in 2020)


6. The stock market and bond market hold most of the commercial real estate paper this time around. Whole segments of that market have been totally disrupted over the last year. And it's been moving in that direction for years. The Saving & Loan and the Thrift industries totally collapsed under the last major downturn in that market during the 1990s. What's gonna happen this time?

BAILOUTS?


7. Has housing been staying "artificially low"? Prices of SFR have been shooting up in some areas.

HOUSING MARKET IS GREAT IF YOU’RE A SELLER.. IN ATLANTA HOUSES ARE GETTING SOLD WITHIN DAYS.. INVESTORS ARE BUYING THEM UP.. BUT IN THE NEXT DECADE HOUSING PRICES MAY DROP AS BOOMERS PASS..AND THE KIDS SELL THE HOUSE ALL AROUND THE SAME TIME.. 3D PRINTED HOUSES MAY ALSO BE GOING UP AROUND THAT TIME, INCREASING SUPPLY, PUTTING DOWNWARD PRESSURE ON HOUSING PRICES.

8. The governmental influence in that market has more to do with the types of financing available rather than the actual physical properties. Creative financing coupled with artificially low-interest rates has allowed those housing price increases without pushing the payments out of reach.

THE REAL ESTATE MARKET IS KINDA FUNNY BECAUSE THE SUPPLY DRIED UP.. WITH MORTGAGE FORBEARANCE WE CAN’T SEE WHAT THE REAL SUPPLY SHOULD BE.. THE GOVT CAN TRY TO DO THEIR PART BY KEEPING RATES DOWN…. BUT DUE TO INFLATION CONCERNS.. INVESTORS ARE BUYING UP REAL ESTATE/IN CONJUNCTION WITH THE ARTIFICIALLY LOW SUPPLY IS PUSHING UP HOUSING PRICES RIGHT NOW


9. The CDC has not allowed lenders to foreclose on tons of borrowers in default for the last year. When the flood gates open, what is going to happen?

MORE SUPPLY WILL BE AVAILABLE.. IT’LL BE A BATTLE BETWEEN DEMAND (INVESTOR’S) AND HOW MANY PPL WANT OR NEED TO SELL THEIR HOMES.. PERSONALLY.. I’LL BE SELLING


And the beat goes on, and the best goes on...
 
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WJK

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9. The CDC has not allowed lenders to foreclose on tons of borrowers in default for the last year. When the flood gates open, what is going to happen?

MORE SUPPLY WILL BE AVAILABLE.. IT’LL BE A BATTLE BETWEEN DEMAND (INVESTOR’S) AND HOW MANY PPL WANT OR NEED TO SELL THEIR HOMES.. PERSONALLY.. I’LL BE SELLING
Why would you sell if the supply goes up? I always try to go counter the market.
 
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krich1512

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Why would sell if the supply goes up? I always try to go counter the market.
Short term (until the government lift forbearances, which keep getting pushed back).. It's a sellers market.

Real estate interest rates are still very low... demand is very very high relative to supply.. so short term sellers are cashing out right now.

Once mortgage forbearances are lifted.. there will be more supply.. but rates will still be relatively low and there will still be investors looking to buy up properties as an inflation hedge. It will be a supply/demand war.. and I think even with close to normal real estate inventory (6 months supply)RE prices would still go up for some time.. Right now were around 1-2 months supply for real estate.

5-10 Years from now when boomers start selling and 3D printed houses become more of a thing.. THAT'S when the downward real estate price pressure will really come
 

WJK

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Short term (until the government lift forbearances, which keep getting pushed back).. It's a sellers market.

Real estate interest rates are still very low... demand is very very high relative to supply.. so short term sellers are cashing out right now.

Once mortgage forbearances are lifted.. there will be more supply.. but rates will still be relatively low and there will still be investors looking to buy up properties as an inflation hedge. It will be a supply/demand war.. and I think even with close to normal real estate inventory (6 months supply)RE prices would still go up for some time.. Right now were around 1-2 months supply for real estate.

5-10 Years from now when boomers start selling and 3D printed houses become more of a thing.. THAT'S when the downward real estate price pressure will really come
I see a whole new nitch for RE investors with the Trump changes to the tax laws. According to the Congressional study, about 93% of taxpayers cannot itemize due to the higher standard deductions. That means no deduction for home-owner interest payments. And homeownership is head to head with renting. In the short term, renting is cheaper than owning. It's taking a few tax cycles for homeowners to figure out this change.

And young people aren't buying a home as their parents did. But, they need homes for their developing families.

So, there's a whole new renters' market shaping up out there -- ripe for the investor's picking. I see it as including basic 2 or 3 bedroom houses -- especially tract houses. It will NOT include big homes or fancy homes -- they cost too much to turn around when they become vacant.

The danger in all of this is IF you get a concentration of rentals in the same neighborhood. When the preponderance of homes is rentals, then the market values stop going up. (I have done statical analysis studies on some situations for court cases where that happened.) The homeowner buys for his family with his heart. The investor buys with his calculator and his spreadsheet.
 

krich1512

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I see a whole new nitch for RE investors with the Trump changes to the tax laws. According to the Congressional study, about 93% of taxpayers cannot itemize due to the higher standard deductions. That means no deduction for home-owner interest payments. And homeownership is head to head with renting. In the short term, renting is cheaper than owning. It's taking a few tax cycles for homeowners to figure out this change.

And young people aren't buying a home as their parents did. But, they need homes for their developing families.

So, there's a whole new renters' market shaping up out there -- ripe for the investor's picking. I see it as including basic 2 or 3 bedroom houses -- especially tract houses. It will NOT include big homes or fancy homes -- they cost too much to turn around when they become vacant.

The danger in all of this is IF you get a concentration of rentals in the same neighborhood. When the preponderance of homes is rentals, then the market values stop going up. (I have done statical analysis studies on some situations for court cases where that happened.) The homeowner buys for his family with his heart. The investor buys with his calculator and his spreadsheet.
Good point on the tax piece.. these politicians are so spiteful they may undo the previous presidents tax laws.. Eventually. they'll have to raise taxes to pay for all this "free money" we're getting..I'm sure they'll come up with a lot of new wealth taxes.. maybe carbon tax? It should be interesting to see lol.

With housing.. Most lenders have raised downpayment requirements to 20% cash down.. and average ppl are getting bid out of real estate right now.. which may or may not continue. I assume it'll be more and more investors owning these homes to rent.. Like you said.. there will be a big renters market with avg younger families priced out of buying homes and possibly some older folks downsizing.

Multifamily commercial real estate (5+ units) could be a good investment because those valuations aren't driven by comps or the Fed.. but by the renters market, which will remain strong.
 

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I have 3 SFR's (2 paid for, small mortgage on the 3rd) in Northern Colorado, plus an apartment in my basement. I feel like I've got too much of my net worth tied up in local real estate, and I thought about lightening up a bit. But this area has been a goldmine for holding real estate since, basically, forever. The Denver area has seen one or two modest pullbacks, nothing like in many other markets, but the market I'm in (an hour north) has basically NEVER seen more than a 5-10% drop in values. I don't see cash-on-cash returns anywhere close to what e.g. @JScott gets, but my properties have been appreciating about 6-10%/yr for years. Rents are increasing at about the same rate.

Meanwhile the supply is pinched. A realtor friend just posted that in my town (about 175k population, maybe 250k when you include the nearby area) there are currently only 87 single-family homes on the market! So prices won't be coming down any time soon.

My houses fit the model @WJK mentioned -- 3-5 BR family homes, and one 2BR condo. With the rent demand coming up, maybe I should hang onto them ...
 

thechosen1

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I have 3 SFR's (2 paid for, small mortgage on the 3rd) in Northern Colorado, plus an apartment in my basement. I feel like I've got too much of my net worth tied up in local real estate, and I thought about lightening up a bit. But this area has been a goldmine for holding real estate since, basically, forever. The Denver area has seen one or two modest pullbacks, nothing like in many other markets, but the market I'm in (an hour north) has basically NEVER seen more than a 5-10% drop in values. I don't see cash-on-cash returns anywhere close to what e.g. @JScott gets, but my properties have been appreciating about 6-10%/yr for years. Rents are increasing at about the same rate.

Meanwhile the supply is pinched. A realtor friend just posted that in my town (about 175k population, maybe 250k when you include the nearby area) there are currently only 87 single-family homes on the market! So prices won't be coming down any time soon.

My houses fit the model @WJK mentioned -- 3-5 BR family homes, and one 2BR condo. With the rent demand coming up, maybe I should hang onto them ...

Sounds like maybe you should sell the paid off homes and 1031 into something bigger, especially at the low rates we have now that likely will go up.

Or, cash out refinance 1 or both of the paid off ones.
 

krich1512

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I have 3 SFR's (2 paid for, small mortgage on the 3rd) in Northern Colorado, plus an apartment in my basement. I feel like I've got too much of my net worth tied up in local real estate, and I thought about lightening up a bit. But this area has been a goldmine for holding real estate since, basically, forever. The Denver area has seen one or two modest pullbacks, nothing like in many other markets, but the market I'm in (an hour north) has basically NEVER seen more than a 5-10% drop in values. I don't see cash-on-cash returns anywhere close to what e.g. @JScott gets, but my properties have been appreciating about 6-10%/yr for years. Rents are increasing at about the same rate.

Meanwhile the supply is pinched. A realtor friend just posted that in my town (about 175k population, maybe 250k when you include the nearby area) there are currently only 87 single-family homes on the market! So prices won't be coming down any time soon.

My houses fit the model @WJK mentioned -- 3-5 BR family homes, and one 2BR condo. With the rent demand coming up, maybe I should hang onto them ...
Home owners are in the driver seat right now.. the only question is.. would you rather have some that equity as liquid cash to maybe diversify... or do you just want to enjoy the rental income? I can't remember rent prices ever going down
 

MJ DeMarco

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Meanwhile the supply is pinched. A realtor friend just posted that in my town (about 175k population, maybe 250k when you include the nearby area) there are currently only 87 single-family homes on the market! So prices won't be coming down any time soon.

It sounds like this is happening everywhere. I know it is here in AZ. It also is occuring in the 5 different states I've been shopping.

I can't fly anywhere to look at houses because by the time I plan the site visit and book a flight, the house is already under contract.
 

WJK

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Good point on the tax piece.. these politicians are so spiteful they may undo the previous presidents tax laws.. Eventually. they'll have to raise taxes to pay for all this "free money" we're getting..I'm sure they'll come up with a lot of new wealth taxes.. maybe carbon tax? It should be interesting to see lol.

With housing.. Most lenders have raised downpayment requirements to 20% cash down.. and average ppl are getting bid out of real estate right now.. which may or may not continue. I assume it'll be more and more investors owning these homes to rent.. Like you said.. there will be a big renters market with avg younger families priced out of buying homes and possibly some older folks downsizing.

Multifamily commercial real estate (5+ units) could be a good investment because those valuations aren't driven by comps or the Fed.. but by the renters market, which will remain strong.
But, on multi-family, the lending is held in check with the comps -- because the loans must have an appraisal. And comparable sales is one of the approaches to finding value. That data is broken down into different points of comparison -- ie. price per SF, the price per room, the price per unit, and so on... It's all present in grid form. Market trends are woven throughout the whole appraisal process. The income approach also using a type of market-driven approach in choosing the capitalization rate. The income stream from the renters (PGI -- potential gross income) and NOI (net operating income) are only one consideration.

You're right about the Feds. Their chokehold is playing with the interest rates and money supplies. Multi-family lending is a segment of the commercial market. Some of the loans go to the secondary market and some go into securities on Wall Street.
 

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