Inflation or deflation & your finances

[Singuy]

Ok...

"All of that debt is being used by corporations to buy back stocks and pay dividends. That keeps their stock prices high. This benefits corporate officers whose total comp is determined by earnings per share and stock price. That's why most corporations aren't investing their cash for growth or paying their employees, they are propping up their stock price."


We are finding that companies not investing in growth are dropping like a rock. We are seeing dividend paying stock dropping like a rock. So I don't see how QE explains the current market prices. Because it's not "keeping their stock prices high", and those are not investing their casth for growth is getting slaughtered, not "propping up their stock price".

So were you explaining why stock prices used to be high? I thought you were using unlimited QE to explain why sp was high before, and why it recovered today.

[Scallywag]

"All of that debt is being used by corporations to buy back stocks and pay dividends. That keeps their stock prices high. This benefits corporate officers whose total comp is determined by earnings per share and stock price. That's why most corporations aren't investing their cash for growth or paying their employees, they are propping up their stock price."


We are finding that companies not investing in growth are dropping like a rock. We are seeing dividend paying stock dropping like a rock. So I don't see how QE explains the current market prices. Because it's not "keeping their stock prices high", and those are not investing their casth for growth is getting slaughtered, not "propping up their stock price".

So were you explaining why stock prices used to be high? I thought you were using unlimited QE to explain why sp was high before, and why it recovered today.

Unlimited QE does help prop up the markets. The Feds pumped 500 BILLION dollars into the repo markets beginning in Sept 2019 to help banks / hedge funds with liquidity issues by keeping repo rates stable and to prevent liquidity-challenged affected banks / hedge funds from selling off their shares en masse. The markets appear to be recovering today in hopes of states reopening sooner than anticipated.

[LivingAlmostLarge]

i wonder if all this pumped up fed cash will cause rampant inflation

[Scallywag]

i wonder if all this pumped up fed cash will cause rampant inflation

Of course. There is a GDP contraction & simultaneously the Feds are printing cash AND pushing that cash into the "real economy" via stimulus payments & small business loans.

More money + reduced supply = inflation.

FML (pardon my French, I am just really mad that my downpayment account is likely going to be devastated by this nasty turn of events).

[LivingAlmostLarge]

Of course. There is a GDP contraction & simultaneously the Feds are printing cash AND pushing that cash into the "real economy" via stimulus payments & small business loans.

More money + reduced supply = inflation.

FML (pardon my French, I am just really mad that my downpayment account is likely going to be devastated by this nasty turn of events).

maybe unless housing prices deflate because people go into foreclosure because of extended or prolonged job loss. At least where i am it looks like housing is piling up. And realtors admit to housing staying on market longer....maybe prices need to come down.

[disneysteve]

I am just really mad that my downpayment account is likely going to be devastated by this nasty turn of events.

Why is your down payment affected? Housing prices are likely to fall if we have a prolonged recession and high unemployment. That should make it better for buyers, not worse.

[corn18]

The Fed does not print money. They loan money. The Treasury prints money.

[Scallywag]

maybe unless housing prices deflate because people go into foreclosure because of extended or prolonged job loss. At least where i am it looks like housing is piling up. And realtors admit to housing staying on market longer....maybe prices need to come down.

If there's inflation the cost of buying a house will go up. Thus, a larger downpayment may be required to meet the margin requirement.

Why is your down payment affected? Housing prices are likely to fall if we have a prolonged recession and high unemployment. That should make it better for buyers, not worse.

As above. If the VALUE of housing stays stable the cost of housing will go up in an inflation situation, not down.

The Fed does not print money. They loan money. The Treasury prints money.

I am still screwed, either way, semantics be damned.

[Singuy]

I still don't understand why you think inflation will happen with housing. Just because the fed is giving out 1200/ month in stimulus money doesn't mean all of a sudden everyone is eligible to buy a house. People are not exactly lining up to buy right now and inflation is not arbitrary. It is caused by too much demand and not enough supply. How will printing 1200/person change that?

[Scallywag]

I still don't understand why you think inflation will happen with housing. Just because the fed is giving out 1200/ month in stimulus money doesn't mean all of a sudden everyone is eligible to buy a house. People are not exactly lining up to buy right now and inflation is not arbitrary. It is caused by too much demand and not enough supply. How will printing 1200/person change that?

It's not just the $1200/person stimulus checks. As i mentioned before the Feds have majorly QE-ed by flooding repo markets with green backs since Sept 2019. You can't keep printing currency without a corresponding increase in production of goods & services without seeing devastating resulting inflation. There's trillions pumped in to support small businesses as well, not to mention generous unemployment checks. This is all newly minted money floating around in the "real market" right now, when the GDP is shrinking and is likely to continue contracting at least well into the second quarter (and highly likely into the third quarter) of this year. So, unfortunately, inflation is definitely in the future with the Treasury printing green backs like there's no tomorrow.

Housing is a product just like anything else - even if we assume constant demand, the fact that a post-inflation dollar has *less purchasing power* than a dollar during stable economic periods means that you have to pay *more* to secure the *same value* in goods / services. If the dollar loses 1/2 it's current purchasing power in an inflationary period then you would need to pay twice as much to buy the same product then as now. That is my fear.

[Singuy]

It's not just the $1200/person stimulus checks. As i mentioned before the Feds have majorly QE-ed by flooding repo markets with green backs since Sept 2019. You can't keep printing currency without a corresponding increase in production of goods & services without seeing devastating resulting inflation. There's trillions pumped in to support small businesses as well, not to mention generous unemployment checks. This is all newly minted money floating around in the "real market" right now, when the GDP is shrinking and is likely to continue contracting at least well into the second quarter (and highly likely into the third quarter) of this year. So, unfortunately, inflation is definitely in the future with the Treasury printing green backs like there's no tomorrow.

Housing is a product just like anything else - even if we assume constant demand, the fact that a post-inflation dollar has *less purchasing power* than a dollar during stable economic periods means that you have to pay *more* to secure the *same value* in goods / services. If the dollar loses 1/2 it's current purchasing power in an inflationary period then you would need to pay twice as much to buy the same product then as now. That is my fear.

I have seen two type of hyper inflation.

1. Government printing money and giving it to the people, but just not any money..but ridiculous amounts of money. Not barely enough to pay rent kind of money.

2. Or supply chain issue of important goods which leads to scarcity

So as long as there are no major supply chain issues of goods, if the entire world still use USD as an equalizer as the currency, many critical infrastructure jobs are still ongoing while the government is only helping people pay rent for a month or two, then I really don't see hyperinflation. The amount of money printed vs our usual GDP and total wealth of the country is PEANUTS. Venezuela printed so much money that it was used to pay off all its debts and then flooded people with massive amounts of money while their main good of export tanked. That's like us printing 80 trillion dollars overnight. Their president also just made up arbitrary numbers deeming how much their money is worth. Due to poor exportation, no one wants their money as well. Remember currency also has a demand to deal with, and with unstable political climate, no one wants to touch your currency which decreases import dramatically..in would start a negative feedback loop.

So yeah some stock buy backs, some ultra 1% gets some QE, people gets to keep their retirement without value tanking too much, etc etc wouldn't cause the hyper inflation you are talking about. There's just so much at play and the amount of money we printed doesn't make a dent.

[bjl584]

Why is your down payment affected? Housing prices are likely to fall if we have a prolonged recession and high unemployment. That should make it better for buyers, not worse.

Maybe.
I heard some commentary from a real estate "expert" who said that there is going to be a lot of pent up demand for housing (people can't view houses right now), but there is going to be a problem where would be buyers are not going to be able to secure financing once this is over.
People who have lost their jobs and may have used credit cards to get by have just changed their debt to income ratio enough that they no longer qualify for a mortgage.

So, it depends how it plays out as to whether or not prices rise, fall, or stay stable.

I can see a lot of starter type homes being scooped up by all cash investors.
Would be home buyers will be renting......

[Scallywag]

Maybe.
I heard some commentary from a real estate "expert" who said that there is going to be a lot of pent up demand for housing (people can't view houses right now), but there is going to be a problem where would be buyers are not going to be able to secure financing once this is over.
People who have lost their jobs and may have used credit cards to get by have just changed their debt to income ratio enough that they no longer qualify for a mortgage.

So, it depends how it plays out as to whether or not prices rise, fall, or stay stable.

I can see a lot of starter type homes being scooped up by all cash investors.
Would be home buyers will be renting......

Yes, investors, esp those from abroad. Homes are already unaffordable in California. And now banks are starting to require 20% down (JPM already is).

I am just frustrated at the idea of having to potentially rent forever.

[Scallywag]

I have seen two type of hyper inflation.

1. Government printing money and giving it to the people, but just not any money..but ridiculous amounts of money. Not barely enough to pay rent kind of money.

Of course the govt is printing and giving away ridiculous amounts of money. 6 months of unemployment for 20 million people isnt a ridiculous amount of money? On top of the stimulus checks and the small business bailout loans (that may eventually be forgivable) ?

[Singuy]

Of course the govt is printing and giving away ridiculous amounts of money. 6 months of unemployment for 20 million people isnt a ridiculous amount of money? On top of the stimulus checks and the small business bailout loans (that may eventually be forgivable) ?

Many countries give out UBI that is more than what our government is coughing up right now and you don't see their currency gone haywire.