Stock market on fire

[Medic!]

Markets on fire. All that newly created money from the Fed needs some place to go. When the virus hit, the government turned on the taps very quickly. Faster than "usual." So a fast response in the markets might not be such a surprise. There is fire and there is dumpster fire. A new car I looked at in 2010 was $40K for the fully equipped model. This year, the same car is $70K. There are consequences to debasing our currency.

A self perpetuating down turn may already be inevitable.

The reason there printing money is to provide liquidity.
When people and corporations save money preparing for hard time. That money is taken out of circulation.

You need money in circulation producing a decent money velocity [Spending] to heat up an economy.
So you provide lots and lots of money at really low interest rates to promote borrowing and spending.

But the reality isn't that all that money is looking for a place to go.
It's more like the Fed hopes it finds a place to go!

They want to push money. But it's like pushing on a string. Who want's it? People are fearful and saving. Or debt saturated.
Those that do want to take on the debt? They will need to qualify for this money with harder borrowing standards.


As to inflation?

Maybe after a period of deflation. When everything people own like houses, cars, and toys are sold of in a panic to get cash, and get out from under debt. This everybody selling everything will drive prices into the dirt as their things are all competing for the same few available dollars.

 

[ma96782]

Just plan for it.....

INFLATION will be coming.

Aloha, Mark

PS.....I can remember back when I was going to school and the question on the test was.

Who benefits from inflation? Explain.

 

[Medic!]

Just plan for it.....

INFATION will be coming.

Aloha, Mark

[This is not financial advice. I am always 100% wrong]




Yes after deflation.

The plan would be to save cash and use that cash to buy cheep things [Property for instance] during the deflationary period. And before inflation kicks in.

In this time period you can get more of a commodity at a cheeper price.
And whey the purchasing power of your cash is gone? You will be holding on to something tangible that goes up with inflation.

 

[gmerkt]

No one debates that. All the more reason to be out of debt.

Actually, debtors are the beneficiaries of inflation. They borrow money that is worth more at the time of initial borrowing than the money they pay back.

Under given and very likely future conditions, 30 year bonds are lunacy. Particularly at current very low interest rates. I wonder how many of those actually see maturity in the same hands as when taken out. But for the sake of discussion, say someone holds a 30 year bond to maturity. At the going rate of real debasement, the holder is gonna lose a big chunk of real purchasing power. The true value of his principal will be much less than when he actually invested in the bond. Low interest rates won't make up the difference in loss of value of principal. I've heard discussion about 50 and even 100 year bonds. That is surely a time horizon long enough to allow for a lot of change in circumstances.

 

[Medic!]

Actually, debtors are the beneficiaries of inflation. They borrow money that is worth more at the time of initial borrowing than the money they pay back.

On something like a 0% car loan sure.
But not on most loans.

Paying 20.9% on a Credit Card. Or even 3.25% on a house is just burning up thousands you could have save, invested, or bought something else with. Interest free.

 

[The Heretic]

Actually, debtors are the beneficiaries of inflation. They borrow money that is worth more at the time of initial borrowing than the money they pay back.

True. And a LOT of businesses are borrowing as fast as they can to get that cheap money.

I paid $350K for my property. Mortgage was $280K after down payment. Been paying 4% interest, approx. 1% taxes on value, insurance and some principle. I've sold $120K of timber, property devalued by about $100K from that sale, but also appreciated by a bit more than that. A rental with the same SF for the house alone would have cost about the same as my monthly mortgage payment. In short, when I sell, I will have lived here for free, including improvements I made to the property, not including sweat equity.

As for inflation and deflation. It depends on the commodity. Supply and demand. I have sold goods that were in high demand currently for twice what I paid for them. While I had them stored they served a security purpose, but now I am going to take those funds and buy something that gives me more security. Sure, I could have invested what I spent on those goods and probably got a better return, but then I would not have had the commodity which itself provided physically security.

Other things, buyers market, so either hold onto it or sell it for little to no profit (not including inflation, lost opportunity cost, etc.) or even a loss.

 

[gmerkt]

Maybe after a period of deflation.

Maybe not. The reason the Fed and the government push liquidity is to avoid deflation. Which causes destabilization. Which doesn't allow the economy to deflate and self-adjust. So we keep riding on a cloud. The constant expansion of liquidity is what debases the currency. It takes more and more money to buy the same thing. No doubt there will be a day of reckoning, the whole US financial shell game will have run its course, and some form of deflation and privation will occur. But that's probably still down the road a ways. The status of the US Dollar as world exchange currency slows the process. Our currency still has room for further debasement. But the process could always speed way up due to some unforeseen event.

Look at Argentina as an example of this process.

 

[gmerkt]

Paying 20.9% on a Credit Card. Or even 3.25%

Conditional yes to the CC debt, no to the 3.25% home loan. At 3,25%, most people are gonna be ahead every year under "normal" circumstances. The CC debt, the principal that they borrowed is still gonna be worth less at the end of the term in question. The fact that stupidly high interest rates were applied and agreed to doesn't change that fact.

 

[The Heretic]

On something like a 0% car loan sure.
But not on most loans.

Paying 20.9% on a Credit Card. Or even 3.25% on a house is just burning up thousands you could have save, invested, or bought something else with. Interest free.

The thing about a house is that you have little choice - most of us have to pay something for shelter.

Of course, you can rent cheap (I paid $650/mo for a cheap duplex half for ten years) or if you have the down payment and income, you can take out a mortgage. If you buy wisely, at the right time, even with a 4.1% interest rate (my rate), when you go to sell, the property will have appreciated enough that it covers not just the interest, but the principal/tax/insurance paid - and you will have lived there for free - in the long run, maybe even made more money than if you invested in something else and lived in a tent.

Doesn't always work out that way, but if you are careful it can. And again, most of us have to pay for some kind of roof over our heads.

 

[USMC1911]

On something like a 0% car loan sure.
But not on most loans.

Paying 20.9% on a Credit Card. Or even 3.25% on a house is just burning up thousands you could have save, invested, or bought something else with. Interest free.

Not always true. We all need housing... If I had the cash to pay outright for a 250k house is that really a smart move? I can borrow the money for 3.25%

 

[ma96782]

Will the fear of Coronavirus finally curb the social gatherings/riots?
Aloha, Mark

Nope, their health is protected by PC Righteousness.

Maybe?
It's just estate planning.
You know.... the younger generation's idea of how to speed up the Wealth Transfer effect.

Transfer of wealth at death
Wealth Transfer is the transfer of wealth or assets to beneficiaries upon the death of the owner through financial planning strategies that often include wills, estate planning, life insurance, or trusts in a tax efficient manner.

Aloha, Mark

 

[Medic!]

Maybe not. The reason the Fed and the government push liquidity is to avoid deflation. Which causes destabilization. Which doesn't allow the economy to deflate and self-adjust. So we keep riding on a cloud. The constant expansion of liquidity is what debases the currency. It takes more and more money to buy the same thing. No doubt there will be a day of reckoning, the whole US financial shell game will have run its course, and some form of deflation and privation will occur. But that's probably still down the road a ways. The status of the US Dollar as world exchange currency slows the process. Our currency still has room for further debasement. But the process could always speed way up due to some unforeseen event.

Look at Argentina as an example of this process.

I read the unfolding of events a bit differently. But also are with you.
I just believe there will be deflation first. Soon everything will be for sale as I described above.


Then we get some money velocity as a result of buying in on all the cheep goods available. This will give us our inflation thanks to the massive expansion of the Fed balance sheet. And all that printed money they made available pouring out and chasing fewer things.

As was earlier stated. ''There are consequences to debasing our currency''.

 

[Medic!]

Not always true. We all need housing... If I had the cash to pay outright for a 250k house is that really a smart move? I can borrow the money for 3.25%

Is that a smart move!


It's always better to buy outright. Interest is a self imposed tax. After you already got taxed on the money you made.
If you want to pay twice as much for the house [500k] when all is said and done? And maybe the house will double in value to 500k? Thats not smart.

When you buy it with cash. And put $2000 [Your payment ] a month for 30 years in the bank?
In the end you have the house paid [500k] an $720,000 cash! Or $1,220,000 total. Minus your original 250k that's 970,000k.

And that's not even investing the money!
Paying out 3.25% instead of making 7% -12% again is not smart.

The only interest People need to have in there lives is interest they earn.

 

[ma96782]

I figure that it's never an EXACT science (with/when it comes to the economy and with politicians/economists predictions).

Sure.....you could draw a simple diagram like: the supply and demand curves. In concept...it makes it look nice and cozy.

So, if the Govt injected more money into the economy?

But..... Why do it?

You know, to keep the economy moving up, keeping the natives calm so they won't throw a revolution, keeping unemployment low, we're in a crisis now, etc....

Noble goals of keeping the status quo or just protecting the interest of the rich and powerful?

Or, hell with this.....this system is corrupt, I get all the $h8^^y jobs cause I'm _____., it needs burning down/change, I need more FREE stuff, Govt programs, etc.....

Keeping it easier to see....example: the $1200 stimulus check......
I might spend more. While someone else, might save/invest more. Some might pay off an old debt. Some may make new debt. Some may just be happy to go to McDs (or wherever) cause they're really hungry. Etc...etc.....

Not mentioning that some people get checks....others didn't. And....since the "Govt money" is actually the taxpayer's money. Of course there are consequences down the line. Just like with social security. Awww....who cares?

Well maybe it's MY rant.....or maybe it just shows us that....

You can't satisfy all of the people, all of the time.

Yeah..... I was even angry when OBAMA injected money into the economy and I predicted INFLATION back then too.

Rrrrright.....no more $1 hamburger at McDs for me. Currently, it's about $1.39. OMG....39% inflation.

Not to mention that America's debt grew.

But this time...... Yeah, I've been frequently seeing the message.....



Aloha, Mark

 

[SUPER X]

When buying a house or car .The borrower is at they mercy of the lender. With out a fixed rate it can change with out your consent ,The intrest rate can change which ,changes the payment amount at the wrong time this could be the straw that breaks tne camels back .They can sale the loan to someone you my not want to do biz with that has different so called policys ,Some do stuff that is unjust and illegal .Ive seen this happen to freinds and it took years of BS to straighten it out and most dont make it through the storm. Just before This whole mess started, I had a few offering (out of the blue ) to loan me easy money . They appeared to be Shocked when I responded No Thank you
Most financial institutions are not there to help you.They want you under their thumb .To bleed you dry then auction off the bones to the highest bidder .The banks will have a large amount of assets in property by the time this boondoggle is over.

Thats not freedom.or the AMERICAN DREAM.

 

[Mark W.]

As of today my 401K has recovered and is almost as much ahead of where it should be based on my contributions recently. I am maybe down by 1% of where I should be. Wish it had stayed in the hopper about 3 more months I like buying when its low. And yes I know Monday the movers and shakers could pull a bunch of profit and I could be down 3% But I have 5 more years until retirement and As long as its floating along I'm good with it.

 

[gmerkt]

If I had the cash to pay outright for a 250k house is that really a smart move? I can borrow the money for 3.25%

Yes and no, I'd say. Depends on your situation, your outlook, what you want to do with your money. One theory is, "Why tie all your money up in one piece of property when you can use a fraction of it toward a down payment, then put the rest of your money to some other use." So I was told when I bought our place 34 years ago. Likely makes more sense for some when interest rates are at historic lows.

BUT: Not everyone thinks that way. What's the quotation, "Neither a borrower nor a lender be." I've been happy not to be an interest slave for all those years. My wife and I are very old fashioned about debt. We don't like to have any. And we don't. There are both mental and tangible security in being debt free.

And all that printed money they made available pouring out and chasing fewer things.

Yes, we are in the same church, just a different pew. The latest round of liquidity is already at work chasing equities, that's why the market looks so good. With interest rates so low, hard assets of any type too expensive, for many it's the only choice. The equities markets are made up of only about 30% private investors, the rest of it is from institutional investment. Which in some ways represents private citizens by way of 401k and similar holdings. But mostly there is corporate money in the market, and some of that was free or nearly free liquidity from the government or Fed.

When the Fed buys assets, what do they buy? Some US Treasury debt. Which is just a paper swap. The Treasury gives them paper, the Fed issues currency/electronic credits out. Looks legit, right? Because now the Fed has something to back their issuance of currency. Wrong, that Treasury paper was created out of thin air. The swap is a smoke screen.

The other stuff the Fed takes in are various kinds of securities from the financial world. The Fed doesn't get "the good stuff" debt in return for the liquidity they fork over to the banks. More like "toxic assets" that under perform, don't perform, or dogs of some other kind. The very reason that new liquidity needed to be created is because the "old liquidity" was no longer liquid. It was money created out of nothing in large part (creative financing) that subsequently disappeared. When people and institutions won't pay on mortgages and loans, when highly leveraged financial schemes go south, money just goes away.

Work and industry create wealth. Speculative and creative manipulation of finance eventually results in tears.

 

[Provincial]

The argument between buying a house with cash or using the cash elsewhere and taking out a loan often overlooks the fact that you have to live somewhere, so if you buy for cash, you are getting the equivalent of rent each month that you own it outright. That is a pretty good return.

 

[gmerkt]

you are getting the equivalent of rent each month that you own it outright.

There is the idea that when you are paid off, you own the place "free and clear." Or "outright." This is a myth to the extent that you wind up paying rent of a sort to the county and the state in the form of taxes forever.

The argument between paying in full vs. a mortgage on a house. In either case, you are getting your rent in the bundle. If you pay with cash, you are in essence prepaying the rent. You are using your money to buy future rent payments. When you take out a mortgage, you can consider those rent payments and you still wind up owning the house at the end of the mortgage.

What some people argue against is tying up your money in "rent prepayment" when you could be doing something else with it, and paying your mortgage as a form of rent during the while. Buying a house for cash is like a reverse annuity. You are paying the whole thing up front, but you have guaranteed housing for life.

Let's say two parties start off with X amount of money, enough to buy a house. The people who pay up front have money every month left over for other stuff. The people who have a mortgage, they pay their mortgage payment every month but have money left to invest (or whatever) from making only a down payment out of their initial amount available. So maybe they use their left-over money to make a down payment on an income property. Meantime, the people who paid cash for their house have left-over money every month. They save up for a while, then make their down payment on an income property. You can get there both ways.

The trick is wise management and discipline. Too often, people don't stick to a plan, things go wrong, somebody wants toys rather than investments, etc.

When you pay rent and don't have any ownership interest, it's just rent, gone money. These days with hard assets of all kinds priced to the sky, it's hard to get out of that situation. Housing (and real estate in general) didn't used to be so costly in relation to other living expenses. An unskilled worker used to be able to buy a small tract home, raise a family there, and if he wanted live out his life in it. These days, unskilled workers can't even afford rent. The inflation in housing has multiple causes. One, population growth that has outstripped housing supply. Two, general inflation which includes land, labor and materials. Three, restrictions on development.

 

[USMC1911]

Is it smart to pay cash? No it sure isn't in this climate of ultra cheap loans. Not all credit is bad.