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HOT TOPIC Where the Economy is Heading (Follow-Up on "The Coming Recession")

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lewj24

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Why? People are starting to get desperate for cash right now and are willing to sell their items or assets at a discount to get cash. It’s going to be a buyers market. This will make dollars more valuable......at least in the short term.

My whole premise is based off of the old definition of inflation. Nowadays everyone defines inflation as, "An increase in prices." 50 years ago and earlier it wasn't defined that way. The definition back then was, "An increase in the money supply that causes prices to rise."

If you use the old definition that means the government printing money IS inflation. The effect of that inflation is higher prices.

A business owner raising his prices isn't inflation. That's just him changing his price. Inflation is what caused him to raise his prices.

People are getting desperate for cash so instead of letting those people lose money the government is going to print it and give it to them.

They are printing insane amounts of cash and I don't see it stopping anytime soon.
 

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JScott

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My whole premise is based off of the old definition of inflation. Nowadays everyone defines inflation as, "An increase in prices." 50 years ago and earlier it wasn't defined that way. The definition back then was, "An increase in the money supply that causes prices to rise."

If you use the old definition that means the government printing money IS inflation. The effect of that inflation is higher prices.

We can certainly disagree about whether we'll see inflation short-term (we're all just speculating), but the definition you quote above ("An increase in the money supply that causes prices to rise.") has never been the definition of inflation...at least not in any macroeconomics book/class that I've ever seen.

Even if your definition were correct ("An increase in the money supply that causes prices to rise."), government printing money doesn't have to be inflationary. Government can print money and prices can fall. There are lots of inflationary and deflationary pressures, and you can't look at any single one in a vacuum.

Last thought: There is really only one question when it comes to inflation from an increase in money supply -- does productivity outweigh the monetary expansion and aggregate demand? If the answer is yes, there will not be inflation. If the answer is no, there will be.

At the end of the day, pretty much everything in the economy (including inflation) boils down to the increase or decrease in productivity.

Here's a picture I really like (AD is aggregate demand, LRAS is long-term aggregate supply, PL is price level):

32291

Without an increase in money-supply (and productivity) adjusted aggregate demand, we won't see inflation.

Of course, we generally DO see an increase in AD when more money is printed, which is why printing money *generally* leads to inflation. But again, there are a whole host of other factors, so printing money in and of itself doesn't imply that inflation *must* follow.
 
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Lyinx

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We can certainly disagree about whether we'll see inflation short-term (we're all just speculating), but the definition you quote above ("An increase in the money supply that causes prices to rise.") has never been the definition of inflation...at least not in any macroeconomics book/class that I've ever seen.

Even if your definition were correct ("An increase in the money supply that causes prices to rise."), government printing money doesn't have to be inflationary. Government can print money and prices can fall. There are lots of inflationary and deflationary pressures, and you can't look at any single one in a vacuum.

Last thought: There is really only one question when it comes to inflation from an increase in money supply -- does productivity outweigh the monetary expansion and aggregate demand? If the answer is yes, there will not be inflation. If the answer is no, there will be.

At the end of the day, pretty much everything in the economy (including inflation) boils down to the increase or decrease in productivity.

Here's a picture I really like (AD is aggregate demand, LRAS is long-term aggregate supply, PL is price level):

View attachment 32291

Without an increase in money-supply (and productivity) adjusted aggregate demand, we won't see inflation.
So, if we have a lot of people not working, that would be a loss of productivity... so prices will go up if people are just sitting at home?
 

lewj24

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WJK

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Sounds contradictory. People selling at a discount was the deflationary shock. That might almost be over. We might see some more of that during the next stock market decline, but I suspect not as much as we have seen weeks ago.

People have been selling like crazy and when you look through the forums everybody seems to be prepared to buy cheap soon.

Right now nobody is producing, though. Limited production and a lot of cash ... I am not sure that we will see a deflationary buyers' market when the economy opens up again.
You seem to be talking about the stock market. I agree with you on that. That moment has passed unless something else goes sideways in a sudden jolt. It also depends on the long term health of the overall US GDP. BUT, in the short term, there's going to be a whole lot of goods and assets that are going to be available for discounted prices and an avalanche of business and personal bankruptcies. The jury is still out on real estate prices in different locations and market segments. And disruptions there can reflect in the banking segment and the stock markets.

All of this depends on how long this shut down goes on. The longer it goes, the harder it will be to rebound. Is this going to be a dip with a quick bounce-back? Or, is this going to create a recession that lingers on and one? Japan has never recovered from its downturn that happened around 1990. Is this our Japanese 1990 event? How is the US economy going to handle this jolt? Are we positioned to pick up where we left off and get back to boom times?

No, I'm not all doom and gloom. I believe this will be our Industrial Revolution #2. I believe that manufacturing will come back to the US. It fled because of cheap human labor in China and other markets. Now with AI and robotics, we no longer need that cheap human labor. (And, that's not to mention that human labor in those markets has become much more expensive making our own labor markets more competitive.) When these new manufacturing plants are built, they will use the AI and robotics to enhance our GDP. They will have a much smaller footprint environmentally and a huge upside on us nationally. They will NOT employed unskilled laborers. I believe that the tide has turned...

Yes, I'm saying that China has shot herself in the foot. IF her leaders had shown some concern for the rest of the globe, it would be playing out differently. Even a hint of humility would have helped. Instead, they have used this virus to gain a tactical advantage over all the other countries. Yes, I'm saying it. Accident or not, if they had wanted to use it as a bio-weapon, they would have done things the same way as they did them. I talked about Japan and its ongoing economic problems. Now the same thing is going to happen to China. I know they're going to go down kicking and screaming, but the end result won't be good for them. I don't know how far they will play this hand that they've dealt the world, but they have sure lost face in all of this.
They've gone from being the favorite, upcoming son to being a hated, rabid, cur dog. They've already admitted a dip in their GDP for the first time since the 1970s. And they've poured 5 trillion dollars into their economy. We too have had a dip in our GDP, but we started with half of their money infusion. And they still have banking problems on their books from 2008 that they have never written off.

We're starting from a healthier place. We can take our dollies and go home. Yes, it will be temporarily painful, but this virus will reconfirm our role on the globe and hopefully mobilize our people to get going again on our own interests.
 

Kid

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For me? Business as usual
Sorry to rain on everyone's parade.
 

JScott

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So, if we have a lot of people not working, that would be a loss of productivity... so prices will go up if people are just sitting at home?

Not necessarily...

I expect that in 10 years, we'll have a many-fold increase in productivity with a many-fold drop in people working. All driven by automation...

And the nice thing is, as long as productivity is increasing, it doesn't matter if people are working or not -- the economy will expand, and inflation will be kept in check.
 

JScott

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Maybe we're talking about two different things here, but that second link basically says the exact same thing that the picture I posted above shows -- that all things being equal, it's the aggregate demand that will drive inflation.

Without an increased aggregate demand (money supply and productivity adjusted), there will be no inflation.

In other words, printing more money doesn't necessarily mean inflation. You have to take AD into account as well.

At least that's what the second link above says. I haven't looked at the second one yet.

EDIT: Just read the first link, and it's just a bunch of definitions that can be interpreted lots of different ways. None in there clearly agree with you or me. Though I'm sure we could both cherry-pick the ones we like the best.

EDIT 2: Just to clarify, are you saying that printing more money *must* -- by definition -- lead to price inflation? That's what I thought you were saying, but now I'm wondering if I misinterpreted something.
 
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ChrisV

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That's because you've only read books on Keynesian Economic Theory.
Yea, I have some issues with Keynesian Economics. I think the focus is too much on the paper currency side as opposed to the consumption/value side.

Regardless of income, the quality of life for your average American has gone up way more than increases in GDP or even Income per capita would suggest, mostly due to technological advancements. Not just Electronics, but cars, food, appliances, home, medicine, sanitation... everything

technology-adoption-by-households-in-the-united-states.png

In 1950s only the absolute wealthiest homes had television. Black and white with 13 channels, none-the-less. Now we couldn't even fathom a family in the United States so poor that they couldn't afford a Black and White television. A family is considered 'poor' if they only have an iPhone 7 rather than an iPhone 11. Imagine if someone working a minimum-wage job went back in time to the 1950's to live with an upper 1% wealthy family. It would be an absolute shock to their quality of life. Even if the family had private drivers, it would be a downgrade from Uber. The ride would be bumpy and uncomfortable even if they had a very expensive car.

Also note that the inflation-adjusted per capita GDP since 1950 has increased by 5X, and I still think that doesn't account for quality of life increases.
 

lewj24

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EDIT 2: Just to clarify, are you saying that printing more money *must* -- by definition -- lead to price inflation? That's what I thought you were saying, but now I'm wondering if I misinterpreted something.

Yes and No. Let me try to explain my thoughts.

I'm saying that printing money is inflation and that inflation causes prices to go up.

This price increase may not be noticeable. The price could even go down.

Example: one widget sells for $1.00 and lets say inflation is at 10% but the widget company found a way to be more efficient allowing them to cut the price by 20%. The price for one widget will then be $0.90 going down 10 cents. This is not deflation. This is inflation because it should have decreased to $0.80.

Inflation is very hard to see because of things like the example above.

This being said I think we will have massive inflation (money printing) in the future causing massive price increases.
 

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WJK

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Yea, I have some issues with Keynesian Economics. I think the focus is too much on the paper currency side as opposed to the consumption/value side.

Regardless of income, the quality of life for your average American has gone up way more than increases in GDP or even Income per capita would suggest, mostly due to technological advancements. Not just Electronics, but cars, food, appliances, home, medicine, sanitation... everything

View attachment 32298

In 1950s only the absolute wealthiest homes had television. Black and white with 13 channels, none-the-less. Now we couldn't even fathom a family in the United States so poor that they couldn't afford a Black and White television. A family is considered 'poor' if they only have an iPhone 7 rather than an iPhone 11. Imagine if someone working a minimum-wage job went back in time to the 1950's to live with an upper 1% wealthy family. It would be an absolute shock to their quality of life. Even if the family had private drivers, it would be a downgrade from Uber. The ride would be bumpy and uncomfortable even if they had a very expensive car.

Also note that the inflation-adjusted per capita GDP since 1950 has increased by 5X, and I still think that doesn't account for quality of life increases.
When I took the state test for my real estate license in 1976, we couldn't use calculators -- only scientists used them. The math was done with a pencil and paper. We still had typewriters with carbon paper for multiple copies. Personal computers, fax machines, cell phones, car phones, digital cameras and much else that we use today hadn't been invented. Copy machines were rare and very expensive. We still had everything printed on off-set printing machines. What a difference these few years have made!
 

WJK

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Yes and No. Let me try to explain my thoughts.

I'm saying that printing money is inflation and that inflation causes prices to go up.

This price increase may not be noticeable. The price could even go down.

Example: one widget sells for $1.00 and lets say inflation is at 10% but the widget company found a way to be more efficient allowing them to cut the price by 20%. The price for one widget will then be $0.90 going down 10 cents. This is not deflation. This is inflation because it should have decreased to $0.80.

Inflation is very hard to see because of things like the example above.

This being said I think we will have massive inflation (money printing) in the future causing massive price increases.
Part of the problem that you are referring to is also clouded by the fact that a lot of value and money in our system now goes for intangible items. Inflation used to be simple. For example -- You had 5 pencils and you had 5 dollars. Each was worth 1 dollar. Then you printed an extra dollar and still had 5 pencils. Now each was worth $1.20. How do you do that when you mix in digital assets as well as the value of ideas and intellectual properties? How do you monetize and quantify our ever-changing and evolving society? It's like trying to put and keep shoes on a two-year-old! This new economy just doesn't cooperate with being counted and qualified.
 

biophase

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JScott

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Yes and No. Let me try to explain my thoughts.

I'm saying that printing money is inflation and that inflation causes prices to go up.

This price increase may not be noticeable. The price could even go down.

Example: one widget sells for $1.00 and lets say inflation is at 10% but the widget company found a way to be more efficient allowing them to cut the price by 20%. The price for one widget will then be $0.90 going down 10 cents. This is not deflation. This is inflation because it should have decreased to $0.80.

Inflation is very hard to see because of things like the example above.

This being said I think we will have massive inflation (money printing) in the future causing massive price increases.

Got it, and fair enough... At the end of the day, a very reasonable definition of inflation is the devaluation of currency. Sounds like we completely agree...

But, we should be careful not to let cloud definition with judgement. Specifically, despite the definition that inflation devalues currency, there's nothing that says that inflation is inherently bad. If printing money (devaluing currency) provides some value to society, and that value is not outweighed by the negative effects of inflation/printing money, then in that case, the inflation was a reasonable trade-off.

My belief is that too much devaluation of currency -- and devaluation without significant benefit from that devaluation -- is bad (I'm sure you agree), but I also believe that there are situations where the benefits can outweigh the downside risk.

Kinda like saying, "Killing someone is bad." Yup, I agree with that. Though I also agree that there are situations where killing someone has an overall positive benefit to society (killing in self defense, for example).

Along the same lines, devaluing currency is generally bad, but in specific circumstances, the benefits outweigh the detriments.
 

JScott

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this feels like a good will hunting moment. Lol

how do you like them apples!

Economic models are like physics models -- they can disagree with each other but all be correct in a certain context. For example, physicists would all agree that Einstein's Theory of General Relatively is a true representation of the universe when it comes to really big things. They would also agree that certain theories of quantum mechanics are a true representation of the universe when it comes to really small things.

But, if you apply General Relativity to small things (or quantum mechanics to big things), you start to get all the wrong answers.

Same with economic models. Keynesian economics is really good for some things. As is classical economic theory. As is Austrian economic theory. And perhaps even Modern Monetary Theory has some good models to add to the repertoire.

Are any of these models right or wrong? Yes. And no. Just like physics, you have to apply the models in the right context to get good results. If you try to apply the rules of any of these models in a situation that it wasn't built for, you'll get bad results.

Keynesian economics has been pretty good for modeling how things work in capitalistic systems that are controlled through a central bank. (At least in my opinion.) Which is why this is the model I typically speak in when talking about US economics.

But, it's reasonable to not agree with that -- unlike with physics, we can't easily do double-blind testing of economic theory. At the end of the day, the best we can do is to try to apply the right model for each situation, and hope we get good results. Sometimes we do, sometimes we don't, and sometimes we learn something that helps us revamp the model.
 

NewManRising

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I'd like to ask just one question: what happens if China says it won't sell anything to the US anymore?
No facemasks
No food processing
No pharma drugs
No cheap plastic children's toys
No homeowner tools that you see in Home depot (paint brushes, knockoff tools, etc..)
Nothing - absolutely nothing.
What would that do to the American Economy?
Moves like these cause wars.
 

NewManRising

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You seem to be talking about the stock market. I agree with you on that. That moment has passed unless something else goes sideways in a sudden jolt. It also depends on the long term health of the overall US GDP. BUT, in the short term, there's going to be a whole lot of goods and assets that are going to be available for discounted prices and an avalanche of business and personal bankruptcies. The jury is still out on real estate prices in different locations and market segments. And disruptions there can reflect in the banking segment and the stock markets.

All of this depends on how long this shut down goes on. The longer it goes, the harder it will be to rebound. Is this going to be a dip with a quick bounce-back? Or, is this going to create a recession that lingers on and one? Japan has never recovered from its downturn that happened around 1990. Is this our Japanese 1990 event? How is the US economy going to handle this jolt? Are we positioned to pick up where we left off and get back to boom times?

No, I'm not all doom and gloom. I believe this will be our Industrial Revolution #2. I believe that manufacturing will come back to the US. It fled because of cheap human labor in China and other markets. Now with AI and robotics, we no longer need that cheap human labor. (And, that's not to mention that human labor in those markets has become much more expensive making our own labor markets more competitive.) When these new manufacturing plants are built, they will use the AI and robotics to enhance our GDP. They will have a much smaller footprint environmentally and a huge upside on us nationally. They will NOT employed unskilled laborers. I believe that the tide has turned...

Yes, I'm saying that China has shot herself in the foot. IF her leaders had shown some concern for the rest of the globe, it would be playing out differently. Even a hint of humility would have helped. Instead, they have used this virus to gain a tactical advantage over all the other countries. Yes, I'm saying it. Accident or not, if they had wanted to use it as a bio-weapon, they would have done things the same way as they did them. I talked about Japan and its ongoing economic problems. Now the same thing is going to happen to China. I know they're going to go down kicking and screaming, but the end result won't be good for them. I don't know how far they will play this hand that they've dealt the world, but they have sure lost face in all of this.
They've gone from being the favorite, upcoming son to being a hated, rabid, cur dog. They've already admitted a dip in their GDP for the first time since the 1970s. And they've poured 5 trillion dollars into their economy. We too have had a dip in our GDP, but we started with half of their money infusion. And they still have banking problems on their books from 2008 that they have never written off.

We're starting from a healthier place. We can take our dollies and go home. Yes, it will be temporarily painful, but this virus will reconfirm our role on the globe and hopefully mobilize our people to get going again on our own interests.

No kidding. Lately I am only buying products that say Made In The USA. How many other people are going to change their attitudes? I'm thinking these people that have businesses built of cheap chinese products are going to be going out of business while the Made In USA folks will be prosperous.
 

JScott

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Moves like these cause wars.

Imagine getting upset and starting a war because another country -- that you've actively started a trade war with -- says they won't sell you their stuff anymore...

The irony...
 

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Silverfox148

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Those of you expecting to buy real estate on the cheap ala 2008 are may have to wait quite awhile, it's a different time and a different government response this time around, they will not let the RE market both residential or commercial fall, this is not 2008.

The nation at this point given the character of its people and its reserve currency status(unlimited money printing) has no true other option than to go socialist, taxes may be going up on RE and RE may not be the investment it once was in the future.

If you want to get ahead you are going to have to think differently and act so for the next decade, a contrarian strategy towards wealth may have a good return overall.
 

WJK

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Those of you expecting to buy real estate on the cheap ala 2008 are may have to wait quite awhile, it's a different time and a different government response this time around, they will not let the RE market both residential or commercial fall, this is not 2008.

The nation at this point given the character of its people and its reserve currency status(unlimited money printing) has no true other option than to go socialist, taxes may be going up on RE and RE may not be the investment it once was in the future.

If you want to get ahead you are going to have to think differently and act so for the next decade, a contrarian strategy towards wealth may have a good return overall.
I sure hope that you are wrong. The protests against the shut down are getting stronger all the time.
 

Andreas Thiel

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Really tried to get excited about the prospects of less dependence on other countries and another industrial revolution, but I come across so many points that really challenge that hope.

It seems that pretty much all the bull markets in the past depended on a war ... and the further those wars were in the past, the harder it was to keep the GDP gains up.
Take away globalization and you just take away markets. Corona-Damage will offer potential for some economic stimulus, but how much will our lives change?
A zero growth economy with great margins for business owners due to efficiency and everybody benefits? I don't think capitalism works that way.

Even if there are incentives to modernize all city centers and replace most peoples' cars with more modern ones ... would that really provide such a boost to the GDP that the rising debt levels are worth it?

Am I looking at the wrong metrics here?
 

Andreas Thiel

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I feel like RE has been covered well ... but the overall utility of this thread feels ... limited.

Is anybody interested in a competition-style aspect to this thread? Mostly as a summary for what has been written so far.

How do you think things will play out and where will we stand a) 6 months and b) 2 years from now?
Main focus: what kinds of bets will backfire and which will pay off.

Insane bragging rights for the winner!
 

WJK

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I feel like RE has been covered well ... but the overall utility of this thread feels ... limited.

Is anybody interested in a competition-style aspect to this thread? Mostly as a summary for what has been written so far.

How do you think things will play out and where will we stand a) 6 months and b) 2 years from now?
Main focus: what kinds of bets will backfire and which will pay off.

Insane bragging rights for the winner!
I think that there will be major changes. The US has found out that the drug cartels in Mexico and Columbia were buying their chemicals to make their drugs from China. One of their biggest suppliers was in Wuhan. The drug trade coming over the Southern border has slowed to a crawl due to the supply chain disruptions. It's going to get interesting...
 

JScott

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Those of you expecting to buy real estate on the cheap ala 2008 are may have to wait quite awhile, it's a different time and a different government response this time around, they will not let the RE market both residential or commercial fall, this is not 2008.

The nation at this point given the character of its people and its reserve currency status(unlimited money printing) has no true other option than to go socialist, taxes may be going up on RE and RE may not be the investment it once was in the future.

I would argue that these two statements contradict each other...

If it's true that we get more socialist, and there is more government control over investors and landlords, it's almost certain that we'll see real estate prices fall dramatically.
 

Bigguns50

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I've been looking in Sedona, AZ for 2-3 years now. In Sedona, it is reported that 40% of the homes are short term rentals. Like JScott, I feel that many of the people purchased there with the reliance on the short term rentals to cover their mortgage. These homes would not cashflow with a traditional renter.

I also bet that many of their short term rental investors own multiple properties there. A property management company told me that during Oct-March, their peak season, they get almost 100% occupancy and not much in the summer. So I don't think owners there experienced huge income drops yet. However, we will see what happens next fall.

I have noticed alot of properties came onto the market in the past 30 days there. But the pricing is still the same. I think I'll have to wait another year to see the prices drop once people start to miss a few mortgage payments. I'm looking to buy as an unrented vacation home so the cashflow aspect doesn't matter to me.

My Wife and I live here in Sedona now. We moved in about a month ago...right before the lockdown. I've been watching this area for 4 yrs. Let me know if I can do anything for you here. PM me.

I have noticed an increase in props for sale also. It's pretty easy to identify which ones were short term rentals (the decor gives it away). I haven't seen much in price reductions but I think, maybe, depending on how long the economy remains in the shitter, they will fall (total speculation).
 

JScott

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My Wife and I live here in Sedona now. We moved in about a month ago...right before the lockdown. I've been watching this area for 4 yrs. Let me know if I can do anything for you here. PM me.

I have noticed an increase in props for sale also. It's pretty easy to identify which ones were short term rentals (the decor gives it away). I haven't seen much in price reductions but I think, maybe, depending on how long the economy remains in the shitter, they will fall (total speculation).

A friend of mine owns Orchard Canyon Resort in Sedona (along with about a billion dollars in syndicated real estate around the country) -- he's very bearish on the market right now, especially short-term/vacation rentals...
 

Joe Cassandra

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Jul 25, 2013
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A friend of mine owns Orchard Canyon Resort in Sedona (along with about a billion dollars in syndicated real estate around the country) -- he's very bearish on the market right now, especially short-term/vacation rentals...

Is he short-term or long-term bearish?

Those rentals going belly up would then definitely have to ripple to SFH
 

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