Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Saudi Arabia Eyes Total Dominance In Oil And Gas Markets - 7th Jul 20
These Are the Times That Call for Gold - 7th Jul 20
A Reason to be "Extra-Attentive" to Stock Market Sentiment Measures - 7th Jul 20
The Beatings Will Continue Until the Economy Improves - 6th Jul 20
The Corona Economic Depression Is Here - 6th Jul 20
Stock Market Short-term Peaking - 6th Jul 20
Gold’s Major Reversal to Create the “Handle” - 5th July 20
Gold Market Manipulation And The Federal Reserve - 5th July 20
Overclockers UK Custom Build PC Review - 1. Ordering / Stock Issues - 5th July 20
How to Bond With Your Budgie / Parakeet With Morning Song and Dance - 5th July 20
Silver Price Trend Forecast Summer 2020 - 3rd Jul 20
Silver Market Is at a Critical Juncture - 3rd Jul 20
Gold Stocks Breakout Not Confirmed Yet - 3rd Jul 20
Coronavirus Strikes Back. But Force Is Strong With Gold - 3rd Jul 20
Stock Market Russell 2000 Gaps Present Real Targets - 3rd Jul 20
Johnson & Johnson (JNJ) Big Pharma Stock for Machine Learning Life Extension Investing - 2nd Jul 20
All Eyes on Markets to Get a Refreshed Outlook - 2nd Jul 20
The Darkening Clouds on the Stock Market S&P 500 Horizon - 2nd Jul 20
US Fourth Turning Reaches Boiling Point as America Bends its Knee - 2nd Jul 20
After 2nd Quarter Economic Carnage, the Quest for Philippine Recovery - 2nd Jul 20
Gold Completes Another Washout Rotation – Here We Go - 2nd Jul 20
Roosevelt 2.0 and ‘here, hold my beer' - 2nd Jul 20
U.S. Dollar: When Almost Everyone Is Bearish... - 1st Jul 20
Politicians Prepare New Money Drops as US Dollar Weakens - 1st Jul 20
Gold Stocks Still Undervalued - 1st Jul 20
High Premiums in Physical Gold Market: Scam or Supply Crisis? - 1st Jul 20
US Stock Markets Enter Parabolic Price Move - 1st Jul 20
In The Year 2025 If Fiat Currency Can Survive - 30th Jun 20
Gold Likes the IMF Predicting a Deeper Recession - 30th Jun 20
Silver Is Still Cheap For Now - 30th Jun 20
More Stock Market Selling Ahead - 30th Jun 20
Trending Ecommerce Sites in 2020 - 30th Jun 20
Stock Market S&P 500 Approaching the Precipice - 29th Jun 20
APPLE Tech Stock for Investing to Profit from the Machine Learning Mega trend - 29th Jun 20
Student / Gamer Custom System Build June 2020 Proving Impossible - Overclockers UK - 29th Jun 20
US Dollar with Ney and Gann Angles - 29th Jun 20
Europe's Banking Sector: When (and Why) the Rout Really Began - 29th Jun 20
Will People Accept Rampant Inflation? Hell, No! - 29th Jun 20
Gold & Silver Begin The Move To New All-Time Highs - 29th Jun 20
US Stock Market Enters Parabolic Price Move – Be Prepared - 29th Jun 20
Meet BlackRock, the New Great Vampire Squid - 28th Jun 20
Stock Market S&P 500 Approaching a Defining Moment - 28th Jun 20
U.S. Long Bond: Let's Review the "Upward Point of Exhaustion" - 27th Jun 20
Gold, Copper and Silver are Must-own Metals - 27th Jun 20
Why People Have Always Held Gold - 27th Jun 20
Crude Oil Price Meets Key Resistance - 27th Jun 20
INTEL x86 Chip Giant Stock Targets Artificial Intelligence and Quantum Computing for 2020's Growth - 25th Jun 20
Gold’s Long-term Turning Point is Here - 25th Jun 20
Hainan’s ASEAN Future and Dark Clouds Over Hong Kong - 25th Jun 20
Silver Price Trend Analysis - 24th Jun 20
A Stealth Stocks Double Dip or Bear Market Has Started - 24th Jun 20
Trillion-dollar US infrastructure plan will draw in plenty of metal - 24th Jun 20
WARNING: The U.S. Banking System ISN’T as Strong as Advertised - 24th Jun 20
All That Glitters When the World Jitters is Probably Gold - 24th Jun 20
Making Sense of Crude Oil Price Narrow Trading Range - 23rd Jun 20
Elon Musk Mocks Nikola Motors as “Dumb.” Is He Right? - 23rd Jun 20
MICROSOFT Transforming from PC Software to Cloud Services AI, Deep Learning Giant - 23rd Jun 20
Stock Market Decline Resumes - 22nd Jun 20
Excellent Silver Seasonal Buying Opportunity Lies Directly Ahead - 22nd Jun 20
Where is the US Dollar trend headed ? - 22nd Jun 20
Most Shoppers have Stopped Following Supermarket Arrows, is Coughing the New Racism? - 22nd Jun 20

Market Oracle FREE Newsletter

AI Stocks 2020-2035 15 Year Trend Forecast

What the Looming Inflation Tsunami Means for the U.S. Housing Market and Commodities

Stock-Markets / Inflation Feb 24, 2011 - 07:19 AM GMT

By: Money_Morning

Stock-Markets

Best Financial Markets Analysis ArticleKerri Shannon writes: A few weeks ago, Money Morning Contributing Editor Martin Hutchinson warned readers about the looming inflation tsunami threatening the United States.

Easy money policies like those of the U.S. Federal Reserve and other central banks have helped raise prices in emerging markets, as well as the United States, and sent the commodities sector surging.


"[W]e can expect inflation to be with us for several years, too," said Hutchinson. "In fact, expect it to get worse for the next three to four years, while Ben S. Bernanke remains at the helm of the nation's central bank."

As inflation threatens to eat away at the value of stocks and bonds and cut into investors' returns, Hutchinson said one of the best investments to make ahead of rising prices actually is a house.

The housing market is at or near its bottom and rates on 30-year mortgages are desirable for buyers. Investors who find the right neighborhood, strike a good deal and don't financially overextend themselves could find a sound housing investment as the best store for their money.

While Hutchinson thinks owning a house offers a good balance to inflation - and is in the process of buying a home right now - he is not ignoring the real estate's pitfalls. He warns investors to not commit all of their wealth to the "treacherous and illiquid sector" that has left many investors badly burned in the past. But since everyone has to live somewhere, and renting is essentially a short position, a one-house investment with a mortgage fitting the buyer's finances is a smart way to play real estate.

Hutchinson's analysis prompted many reader comments like this one from reader Robin: "Awesome article! 1982 to 2000 also coincided with the secular bull market for stocks at that time. In essence, your article basically explains the basis for the secular bulls and bears - great!"

Other readers wrote in with questions regarding inflation and its effects on homes, gold and silver. Hutchinson took the time to answer those questions and more.

Will Prices Go Even Lower?
Question: I understand that housing prices have come down and interest rates are historically low, but houses still are not selling well. It would seem that if interest rates go up, the price of the house would have to go down, or else the monthly payment would be too high to be affordable. I bought my first house in 1982 and was 'lucky" to get a 30-year 12% fixed-rate mortgage at the time. Home prices did not increase until the interest rates fell. What is your opinion?

- Mark L.

Martin Hutchinson: I think house prices have further to fall, and mortgage interest rates have further to rise. Whether you buy now, or wait for both to happen, depends on how much prices fall and how much rates rise. I suspect that in many areas, the future fall in prices is less than the future rise in rates (because if we get inflation, both prices and rates will rise!).

All I suggest is that if you think the future fall in prices is modest in your area, and you agree with me that the future rise in rates may be substantial, it may be a good time to lock in the current deal.

Do I Sell Now?
Q: I own a house in Washington, D.C. that I am currently renting for 33% above the monthly mortgage payment. I bought the house in 2004 with a 7-year adjustable rate mortgage (ARM) and refinanced in 2009 with a 30-year fixed 4.75% loan. I currently have about 35% to 40% equity in the house at today's prices.

After reading your article, I'm not sure if I should sell the house when the current lease expires in June or continue to rent? I agree with your projections that the Washington area will see "downsizing" as the budget crisis is resolved and this could mean falling house prices for the area. However, Washington being Washington, a new group of players usually replaces the previous group, thereby maintaining the status quo in some respects. Your thoughts?

- Jeff J.

M.H.: Nationally, I think rents are about to start rising fast, because over the last 10 years they haven't risen much. Rents rising will be one of the factors limiting the future fall in house prices. Washington, D.C. is tricky though, because it depends on whether government is expanding rather than the overall economy - the local housing market had a lousy 1980s! Your guess is as good as mine as to where you think politics is going over the next 5 - 10 years, but if you think President Obama will be re-elected, you should probably hang on to your Washington, D.C. house. However, if this is your only retirement savings, sell it and put the proceeds into stocks, preferably though a 401(k).

Keep Buying Silver?
Q: I see your point on gold, but I don't understand you coupling it with silver. It would seem to me that silver is an excellent investment going into a potential inflationary cycle. Am I missing something?

- Steve L.

M.H.: Silver and gold are very closely linked; the speculative demand exceeds the industrial demand for both. Your precious metals investments should be spread between the two, and should not exceed 20% - 25% of your net worth (including mining shares).

What About Real Return Bonds?
Q: During the late 1970s inflation, metals and oils also increased in tandem with inflation until interest rates really jumped up. Can you look into buying real return bonds now? If inflation goes up, the bond will pay more and move up in value. Double action possibility?

- Charles C.

M.H.: Commodities generally have had a hell of a run, pulled both by inflation and by emerging-market demand. I think they have further to go, but more at the industrial end than at the precious metals end. If by "real return bonds" you mean Treasury Inflation Protected Securities (TIPS) and the like, they will protect you against inflation, but their yield won't necessarily drop as inflation rises. Since I expect current sloppy money policies to end, pushing real interest up as well as nominal interest rates, I would expect the real return on TIPS to rise somewhat - and prices to decline.

[Editor's Note: Analyzing the housing market and the global effects of inflation are just a couple areas in which Money Morning Contributing Editor Martin Hutchinson excels.

You see, he's a numbers man. And he successfully applied his mathematical knowledge - as well as his financial expertise - to his 37 years as an international banker.

Now Hutchinson is using those same skills to help investors multiply their wealth by uncovering outstanding quality stocks with consistent high cash payouts. Just click here to read a report on how you too can pull enormous amounts of money out of the markets, or subscribe to his advisory service Permanent Wealth Investor.]

http://moneymorning.com/2011/02/24...

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules