And the Growing Threat From Inflation
Welcome to your Sunday digest…my weekly breakdown of the things we’re thinking about and talking about in the Global Intelligence world.
First up this week, regrets…British homebuyers have a few.
According to a new survey by insurance provider Aviva, half of the people who bought a home in the U.K. during the coronavirus pandemic regret how much they paid. That’s compared to just 12% who bought before early 2017.
The survey also found that “some 94% of people who had purchased a home since March 2020 said they’d felt under pressure to buy quickly, typically taking just 46 minutes to view their property.”
That figure startled me…46 minutes. I’d bet dollars to doughnuts that most people take longer than that to choose a fridge or sofa.
And this problem is not confined to the U.K. Over in the States, the situation may be even worse.
A Bankrate survey released in May found that 64% of people aged 25 to 40 are facing regrets after buying a home. Again, one of the reasons given was the feeling that they’d been rushed into a purchase…and that as a result, they’d overpaid.
Of course, none of this is surprising. In both the U.S. and the U.K., property prices have set repeated highs since the start of the pandemic…inspiring people to get into panicked bidding wars and spend tens of thousands or hundreds of thousands of dollars above asking price.
I can’t help but wonder how all this plays out.
My thinking is that, during the boredom of lockdown, people were willing to commit far too much of their salaries to housing costs…since they had literally nowhere else to go but their own homes.
But once the economy fully reopens and they realize their large mortgage payments mean they can’t afford vacations, hobbies, or new cars, their buyer’s remorse is only going to grow.
Or people will absentmindedly return to their pre-pandemic spending patterns, despite their large mortgages, and end up in serious debt.
I fully expect this whole pandemic-inspired housing boom to end badly.
We may not see a property crash like 2007-2008, but I won’t be surprised if there’s a major housing market correct in the not-too-distant future.
Next up…the Fed’s poker face on inflation is starting to crack.
Recently, Federal Reserve Chairman Jerome Powell spent two days testifying before the Senate, during which he sounded decidedly less confident in dismissing the recent rise in inflation.
To date, the Fed’s line is that the spike in inflation is transitionary…a temporary blimp that will soon pass once all this economic-reopening/COVID-uncertainty business passes.
I think you know my feelings on the subject. This is not a blip. Nor is it temporary. It is, in fact, the beginning of a new era of high inflation.
Thing is, I’m sure the Fed knows this too. It’s just trying to hoodwink us, since it has limited scope to raise interest rates—the antidote to high inflation.
That’s because Uncle Sam has tons of debt (130% of gross domestic product), and is using new debt to pay back old debt. If the Fed raises interest rates, it means the U.S. government would have to pay back its older, cheaper debt, with newer, more expensive debt. And that only ends one way…badly.
So, the Fed is pretending the current broad-based price pressures and faltering economic reopening are absolutely fine. Nothing to see here.
Or at least it’s trying.
Powell let the mask slip slightly when testifying before the Senate, conceding there is “a shock going through the system associated with reopening of the economy, and it has driven inflation well above 2%. And of course, we’re not comfortable with that.”
I would imagine not.
The consumer price index increased 5.4% in June from a year earlier. And even when you exclude the highly volatile food and energy categories, prices still increased 4.5%…the most in 30 years.
So, our money has lost around 5% of its purchasing power in a year. That’s insane.
This is even more insane: I would not be surprised if we see hyperinflation in America. I don’t mean Venezuela-style hyperinflation. I mean the textbook definition of 10% or greater. It’s coming.
Maybe this kind of persistently high inflation will force the Fed to raise interest rates sooner than its current 2023 timeline. Though I doubt it, which is why I own gold, silver, and the investments I recommended in the March issue of our monthly Global Intelligence Letter.
Speaking of rising prices…iron ore.
Now, I know. Iron ore pricing is a truly droll topic…a gold-medal caliber athlete in the Olympic discipline of most boring subject in existence. But give me just a couple of paragraphs and I’ll end with a particularly nice picture of Prague I captured this week.
OK. Iron ore pricing.
Iron ore, as I’m sure you’re aware, is a key global industrial commodity since it goes into steel and steel products. As such, the price of iron ore affects sectors like construction, aviation, machinery, auto-manufacturing, etc. etc. It’s one of those things that filters throughout the entire economy.
Well, this year iron ore prices have set record highs…and this run of very high prices is set to continue, likely for years. That’s according to recent statements from Goldman Sachs’s head of base metals research.
The reason is that demand is expected to remain very strong, while suppliers have been disciplined in not increasing production.
Sustained high iron prices are yet another indicator of the commodities super-cycle I’ve been writing about for months. Read more about that, including how to profit from it, in the May issue of the Global Intelligence Letter.
There. All done with iron ore. Now, here’s that picture I took of Prague.
That’s Prague photographed from Letna Park, just across the Vltava River from the center of the city. Glorious. There’s nothing like staring out across Prague’s red-tiled roofs in summer.
With that, I’ll bid you farewell. Many thanks for being a subscriber. And if you have any feedback or questions, please reach out through the contact form on the Global Intelligence website here. I’d love to hear from you.