Investors Shocked
Inflation concerns have analysts worried the Fed is behind the curve and the economy is overheated. Bloomberg asks How Worried Should You Be?
For almost a decade, investors have waited patiently for any hint of inflation in the U.S. economy, a sign the recovery can sustain itself without emergency stimulus from the Federal Reserve. Now they’re getting it, and many are shocked at the reaction.
“It’s kind of a strange time and we seem to be driven by a fear of what everyone wants, and that’s higher rates,” said Joe “JJ” Kinahan, the chief market strategist at TD Ameritrade. “Higher rates confirm a stronger economy, and the market was very afraid of that all week long. And that’s been a big reason for selling.”
Strategies that worked for years buckled in the rout. So-called short-volatility, in which traders bet that share turbulence will remain restrained, reversed, as Friday’s 29 percent spike in the Cboe Volatility Index triggered a 13 percent plunge in the ProShares Short VIX Short-Term Futures exchange-traded fund. About 27 million shares changed hands, the most since the Brexit vote.
Wrong Fear
Inflation is the wrong fear. Sure we might be in a temporary bout right now. But collapsing asset prices will quickly turn fears of inflation to fears of deflation, and the next round of QE likely will not help.
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Mike “Mish” Shedlock
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@Kidhorn
For all practical purposes, real estate is just as unlimited as silicon. Heck, you’d probably run out of sand-like substances to make concrete-like mass to build them out of, long before you ran out of space on which to place the 100-200-300-…….. story towers you could fit there.
There’s nothing innately weird nor scarce about “real estate.” Just as there’s nothing innately weird nor scarce about cocoa leaves, education nor medicines. It’s just that a totalitarian band of worthless thugs and their expendable hangers on benefit, at least short term and relatively, from pretending thus.
@KidHorn
Yes, real estate – if you’re talking about raw land – is “fixed”. What it is *not* is “fixed” to the point where there is so little left that the value for it should be rising the way it is. There is more than enough usable land in the US for at least double, perhaps triple the current population – maybe more.
However, through regulation, zoning, and/or outright ownership, the government prevents much of this land from being used. Or it prevents it from being used in a manner consistent with what most people want. Much of it can be “homesteaded” but with no or little creature comforts, that’s a cross most people aren’t willing to bear. Government actions in these areas creates scarcity.
Because of that artificial scarcity, asset values in real estate are escalating. But are the values escalating? Or is a better explanation that there was so much money added to the system (through QE) and that this money has to go somewhere. And because everyone “knows” that real estate is such a good investment – guess where it goes? And as people have more money to bid for property, the “value” of that property – relative to what they’re using to buy it – goes up.
Or – you could see it the way I do. The property value hasn’t increased at all. It is still the same property. What has happened is that the value of the currency used to purchase it has *decreased* to the point where it takes more of it to buy the property.
Higher prices are not inflation – they are a *symptom* of it. Inflation is nothing more than an increase in the supply of currency relative to what it can purchase.
You’re comparing real estate to silicon? Seriously? Unless you think humans are about to colonize the universe, there is certainly a cap of available real estate and none on available sand.
Oh, we cannot escape it, TPTB need inflation to short the dollar and put support under the debt piles. The market crashers only have to raise rates to reverse equities. It’s the same old thing all over again, as the fed meeting nears, equities make a sell off. The question should be .. what is really going on here, who are these sellers, what are they doing with the profits, where did they come from. We know they’ll be back, no sooner than the fed announces what will happen with the interest rate they come piling back into equities, right back into the drivers seat.
@KidHorn
There is no more fixed amount of “real estate” than there are fixed amounts of silicon to make chips, and petroleum to make plastics, from. Improved technology in all cases result in improved utilization of what is there. Rendering it cheaper, hence available to more.
The only reason “real estate,” to the naïve, may appear different, is due to government involvement. Effectively banning more competent and efficient producers from effecting the same cost reduction / utilization efficiency improvement that is evident in some other fields. All for no other reason than to keep demand for old junk; conveniently owned by the idle, incompetent, useless but well-connected; high enough to keep those guys in relative splendor. Never mind the deleterious effect on anyone else, nor the country, nor “the economy,” nor humanity.
“Real estate” prices are high for the same reason cocaine prices are. And many prescription drug prices, and medical services, and “education services” are: Government crassly stealing from everyone else, for the benefit of a few well connecteds, so that those can live and consume way above the level of their meager competence and contribution.
There were talking heads that feared the FED would repeat 1937, where it was claimed they raised rates too soon. The FED kept rates suppressed this time, so nobody should be complaining now.
230+ trillion global debt bubble and counting.
We have or will have inflation in things that have a fixed amount like real estate and equities and have deflation in things that are produced due to better technology.