Monday, March 3, 2014

New "Stagflationary Mark" Posts

  • Here we go again: "[R]eal personal consumption expenditures growth per capita (excluding food and energy). If you have your party hat on, then you better hope that the trend reverses soon."
  • Acceleration of MZM Money Stock: "I believed and continue to believe that it will be harder and harder to make money off of money. There's already so much of it trying to earn interest as it is. I don't believe that the Fed can create inflation adjusted prosperity over the long-term. I don't believe the Fed can prevent the next recession."
  • The Bond Yield Bubble of 2013: "The Fed cannot force me to spend more with ZIRP. The lower interest rates go, the less I spend in order to compensate (lest my nest egg run dry before I die). The Fed cannot permanently prop up the stock market. Pent-up demand will eventually become pent-down demand."
  • Once Again, This Is Not 1982: "We're pretty much back to 'as good as it gets' yet again. I seriously doubt the next 'unexpected' surprise will be to the upside."

15 comments:

Stagflationary Mark said...

I can't figure out how we can keep doing this without people seeing the risks.

Perhaps it is because there are 9.6 million search results in Google for "pent-up demand" but only 327 results for "pent-down demand" (my blog being the #1 result, keep the quotes for an exact match).

Pent-down demand is like the crazy aunt in the attic that nobody wants to talk about, lol. Sigh.

Nathan said...

It seems more people are wondering "Who will buy houses from the Boomers"?

Globe and Mail: Think Gen Y will prop up Canada’s housing market? Think again

Heard about all the struggling members of Generation Y who wonder how they’ll ever afford a house? Steve’s not one of them. He graduated with an engineering degree in 2012, landed a full-time job several months later and has been saving aggressively.

Now, he’s thinking about home ownership. He wonders, is it wise for a young person like himself to buy now, or is the market headed for a fall as baby boomers unload their family homes? “I’m curious who they think is going to buy their houses at the prices they expect to get,” Steve said.

Steve, who lives in Mississauga, has done all the right things financially. He worked and saved hard in his student years and, with help from his parents, he graduated from university with no debts other than a small balance of a few hundred dollars on his credit card.

“I’m very fortunate in my situation,” he said. “But I feel like I’m a bit of an outlier. How many young people out there are swimming in debt and can’t even start saving up for a house down payment until their mid-30s?”


Anecdotally, I know a fair number of people like "Steve" and feel the same way myself. We are all Steves now :)

There's also a lengthy thread on
Patrick.net about the same question.

Nathan said...

It also occurred to me that with an increasing share of income going to people with technical backgrounds, who tend to be more skeptical than others, housing will benefit from less dumb money going forward.

John said...

As a 66 year old baby boomer who has benefited by being at the leading edge of that baby boom (1946-1964) I will continue to exploit that advantage by being at the leading edge of the next trend, namely, downsizing my housing consumption before the rush.

As president of a Texas homeowner's association I know first hand that virtually all members of that association consider their home to be a significant asset to finance their retirement. Those that wait for additional price appreciation will find that their large suburban home will underperform almost all other assets over the next 15 years.

Those who wait are liable to be caught in a vise of rising utility (energy) costs and rising real estate taxes as demand for large houses collapses under the weight of baby boomer supply.

The Toll Brothers McMansion will be the undoing of many boomers dreams of comfortable retirement.

Joe Nelson said...

I'm never going to be able to retire

Watch the video. It's short and there are a ton of "teaching moments" in there. Nancie, age 60, has $200K in student loan debt and doesn't think she'll be able to pay it back. No kidding.

Here's the money quote from the article

"At age 58 and less than a decade away from retirement, Nancie Eichengreen, found herself having to start over from scratch.

It was 2012 and she had been laid off for the second time in 10 years from her job as a legal secretary. She spent a few years collecting unemployment benefits and dipping into her meager 401(k) savings to fill in the gaps.

“It’s kind of scary because I don’t envision a retirement for myself,” Eichengreen told Yahoo Finance. “I’m just going to have to keep working.”

Two years ago, she decided to start over completely, going back to school for a Masters degree in social work at Yeshiva University in New York. Today, Eichengreen now 60, is living off of student loans and says it’s unlikely that she’ll be able to pay off her $200,000 student debt, which includes what she borrowed for her first Masters studies in broadcast management.

“I don’t think social workers make much money so I’ll probably be dead before I pay that off,” she said.


As an aside, I have relatives in their 60s getting offers from banks to refinance their homes on 30 year terms. Incredible.

CP said...

Great comments everyone.

What's amazing about a house as a retirement asset is that it presupposes that you will sell and move to a smaller house at some point.

That being the case, why not do it now and beat the rush?!

eah said...

who tend to be more skeptical than others

Describes me to a tee.

I felt the same way about buying a house in Silicon Valley 30 years ago. A little premature, I guess - there was plenty of time to have bought and unloaded for a profit. Then I moved to San Diego just in time to watch the same thing happen: tremendous house price inflation. I've been a renter my entire life. During that time I've been occasionally plagued by the thought that I ought to be more 'normal' and buy a house like (nearly) everyone else. Somehow I just could never do it though. After a while I taught myself to play the markets and since then have concentrated on building my capital. Probably will not buy a house until I retire, and then I'll do it only very selectively.

CP said...

Eah - I didn't know you were a California gentleman of leisure?

What do you like right now?

John said...

"What's amazing about a house as a retirement asset is that it presupposes that you will sell and move to a smaller house at some point.

That being the case, why not do it now and beat the rush?!"

I am selling a 4400 sq ft house and looking for a 2200 sq ft house, at half the taxes, half the utility cost. half the upkeep expenses and half the cost of dead capital invested in an asset destined to decline in value relative to other more liquid investment choices.

I have seen the first signs of boomer downsizing demand in our HOA and I am going to hop on the trend early, just as I bought my first house back in 1974.

CP said...

John - That sounds like a smart trade. What signs of boomer downsizing demand are you seeing?

I just bought a zero coupon 30 year treasury STRIP yielding 3.9%.

Baby boomers are now terrified of owning bonds and are insanely overweight stocks that don't match the duration of their expenditures.

There has been a nonstop propaganda campaign to convince people that interest rates are going to rise, real soon now:
https://www.google.com/search?q=%22when+interest+rates+rise%22

Speaking of duration, the S&P 500 at a dividend yield of 1.9%, or the R2K at a dividend yield of 1.3%, have more duration risk than my treasury 0s AND economic risk to boot!

What happens when S&P earnings revert to the mean (based of profit margin % of GDP) and people demand a dividend yield higher than the 30 year treasury?

You're talking a Prechter decline there.

Anonymous said...

"I am selling a 4400 sq ft house and looking for a 2200 sq ft house, at half the taxes, half the utility cost. half the upkeep expenses and half the cost of dead capital invested in an asset destined to decline in value relative to other more liquid investment choices"

John, "half" off on all these costs ain't necessarily so -- totally depends. Prop 13 in CA almost guarantees older folks can't trade down and lower their taxes, especially if they've been in their house for more than 10 years...

Anonymous said...

Anon, no offense but most of the people reading this blog and commenting on personal strategy are smart enough to have left CA already.

Clearly the maintenance, insurance, utilities, furnishing, and opportunity costs of capital are going to scale with the size.

And if you're in a normal state with fair market valuation property tax, then the property taxes will scale too.

It's a no brainer.

Anonymous said...

While baby boomers were reaching their peak spending years, the smart trade was to move your family every 5 years, capturing your gains tax free, leveraging them to the max and buying the biggest house you could afford. It paid to start out house poor every time you bought a new bigger house.

Now it's the reverse! Because the value of the asset is going to decline, you're going to want the smallest tax footprint, maintenance and utility drain, and so forth.

John said...

"Prop 13 in CA almost guarantees older folks can't trade down and lower their taxes, especially if they've been in their house for more than 10 years..."

Although I live in Texas now I lived in Newport Beach during my working career.

California is so broke that it will have to repeal Prop. 13 at some point and then house prices will crater. They will crater even if current owners are grandfathered for political purposes because new buyers, fully subject to 3% taxes at full FMV, will not be able to afford anything like pre-prop 13 prices.

Anonymous said...

John raises a good point. The prices in CA assume that Prop 13 will stay in place but the demographics and debt commitments won't allow it. Who is going to pay for the insulin pumps of 250 lb Hispanic 14 year olds? Elderly white shut-ins, that's who.

That's another reason to get out of CA before Prop 13 repeal is priced in.