as I’ve been beating the drum on my blog, inflation is what we’re in for, not deflation. Look at what the U.S. government and the U.S. Federal Reserve (not the same thing by the way, as the Federal Reserve is privately owned) are doing — today they announced over a TRILLION dollars MORE of “quantitative easing”. Folks, the writing’s on the wall. The government WANTS inflation to occur. That’s the ONLY way they’ll ever start to tackle the outrageous deficits they’re creating, and the insurmountable national debt. The ONLY way to reduce it is to debase the currency so that the debt is destroyed. The government claims to want to fight inflation, but it’s the secret tax they implement to steal from every citizen. I know this sounds like koo-koo stuff, but it’s just the fact. By cranking the printing presses up and driving inflation, the U.S. government intends to debase its currency, and ultimately devalue the incredible debt that it’s racking up. Some people say that the inflation that we’re seeing (visible in such things as the price of gold shooting up lately) has nothing to do with the printing of all the money, because the destruction of capital around the world far outweighs the new money being introduced to the system. While to some extent this is true, the fact remains that inflation occurs when the MONEY SUPPLY increases. That is the total of both cash in the system, as well as credit available. Wealth destruction is certainly having a contractionary effect on the monetary system, but the combined efforts of the Fed, the Treasury and all of the efforts to pump up the lending system is what’s offsetting the deflationary effects, and overwhelming the system. I continue to strongly believe that inflation is what lies ahead of us, not deflation. I predicted gold would hit $1,000 this year (it already did, and it’s headed back there again in the next couple of weeks), oil jumped over the $50 mark yesterday and shows continued strength, and the Canadian dollar is up an incredible 4 cents in a matter of days. Timing on some of my calls is difficult to pin down perfectly, but things are starting to move ultimately in the directions that I anticipated. Time will tell whether this is a short-term blip, or whether the trends will hold (as I think they will). This weekend, I head to an incredible conference with the likes of people like Peter Schiff, Doug Casey, Frank Holmes, Rick Rule, John Mauldin, and the who’s who of the economic/investment expert world. It’ll probably make my brain hurt, but I’m excited to bring some powerful views to my blog following that event! So stay tuned as I report from the front lines of some of the greatest minds in the economy today.]]>
5 Responses
Hi Greg, thanks for your great posts. I’m curious when you speak about an inflationary period if it’s from a U.S. or Canadian perspective. I see the writing on the wall, like you’ve been saying, for the U.S., what are your thoughts on Canadian inflation?
I find it interesting after the coalition government attempt how the Conservatives came back and really started spreading money around. Obviously a certain amount of it was to save their hide, but it seems, on the surface, they put together a very similar stimulus package as the U.S. That being said, it doesn’t appear to be to the same scale as what’s happening south of the border.
If the U.S. were to have significant inflation (or significantly more than Canada) the Canadian dollar would likely gain strength over the U.S. dollar. If that’s true, this would likely be a big problem in terms of trade for Canada and especially in the East for manufacturing.
To me, it seems like Canada would need to suppress the Canadian dollar’s strength to remain close in value to the U.S. dollar for trade reasons.
Does this suggest that Canada will have to have a whopper of an inflation period as well? Maybe unrestrained inflation – where the government does little to control it – like raising interest rates? As a real estate investor, I’m okay with inflation, but I’m on guard when it comes to interest rates.
Hi Troy:
First, when I speak of massive inflation, it is primarily from a US perspective. Having said that, Canada will see inflation as well, but, nothing like the U.S., and it will not be anything nearly as probematic.
Canada’s manufacturing will not benefit since it will hurt exports specific to things like vehicles. But we’ve already had that effect up until the last several months. I believe oil is going to surge in price again in the next 12 months, which will push Canada back into a trade surplus, possibly as quickly as this year, but certainly in 2010.
Notwithstanding everyone piling on Carney’s rosy views, I do believe Canada’s economy will recover much faster than the U.S. They’re in for several years of sluggish growth and muddling through, as John Mauldin would say. Our recession will be shallow and short, while the U.S. has significant problems still ahead.
Canada will begin to rely more on exports to China and India, and I see the Canadian dollar rising to at least par with the U.S. again in the next year or so.
Obama is making things worse by what his administration is doing. He’s doing more of what Bush started, just with bigger numbers. The inevitable outcome will be a significant decline of the US dollar, because that is the ONLY way they can avoid defaulting on the debt they’ve run up.
For us in Alberta, I believe we’re ideally situated. I think the energy sector is going to gain strength as the year goes on. Energy will lead the stock market out of its collapse. When is the question. Likely in the next 12 months or so. I believe we’ll see $100 oil again in the next 12 months, and possibly much faster if the holders of US treasuries all head for exits. And that WILL happen, it’s a matter of when.
See my next post for more information and views from several world class experts I met this weekend at the Casey Research Summit in Las Vegas.
Greg,
Great blog! You’ve really been banging the drum for an upcoming inflationary period. I definitely see the possibility that this will happen. The reason I’m commenting is that I’m at a bit of a crossroads with my investments (I’m a relatively young guy and not too experienced- but enthusiastic!). I’ve recently purchased another home with my girlfriend that is a place we’ll really enjoy living for the next 10-15 years or so. She still owns her former house that she’s renting out at a profit and I still have my house that I WAS planning on renting out (It should be cash flow positive).
I’m looking for a wise opinion. I have a lot of equity built up and believe I could sell my place and make a decent amount of money. It would make me feel a bit more secure in the short term financially (given the state of the economy and all). Plus, I have a hunch that coming off a record bull market in real estate, that in spite of the threat of inflation, we are headed into a long bear market (I’m in Calgary). With that said, I gather that the coming inflation will favorably influence real estate- but how might high interest rates, and a potentially sluggish economy, impact housing prices? It all sounds like a potential repeat of the 70’s except I wasn’t old enough to remember the impact on real estate then.
We can afford all three properties comfortably but I’ve been in a similar predicament in the past with stocks. You know the story, looking at a great potential profit on a stock that’s made a good run, and you get stuck in the long term hold mentality because there’s mixed signals and you get greedy. Instead of making a break for it with a decent profit you sit on it and watch it all the way down.
What would you do in my situation? (Remember I’m not exactly bursting with cash and am getting my feet under me). I’d appreciate your two cents! Thanks! Chad
Hi Chad:
Well first of all, there are different factors at play that make today different than the 70’s. As well, I do think we’ll see inflation in Canada, but nothing to the extent that the U.S. is going to see.
I don’t anticipate that Calgary’s real estate market is going to collapse or drop a lot more than where we are today. We may see some fluctuation of a few percentage points, but we will not experience anything like what’s happened in the U.S.
If you’re concerned about inflation and interest rates, the simple solution to that is to lock into a 5 year fixed mortgage. Rates are as low as they’ve ever been, and you can get a fixed 5 year mortgage for just over 4% (a broker recently told me the best rate was 4.05%). You could even look at longer terms such as 10 years if you really wanted to lock in, as longer terms can be found as well.
If you look to sell now, you’re going to be selling into a soft market, plus you’ll incur the selling expenses. If the market doesn’t decline more than a few percent more, you’re actually better off holding the property because it will cost you more to sell than any downturn in the value.
There really IS no right or wrong answer with something like this. The key question is, what is your better alternative? If you have somewhere to place the capital that will provide strong gains with limited risk, then you could consider that.
But if your only reason to sell is because you’re afraid of a downturn and you don’t have anywhere else better to put the money, I’d think carefully whether selling makes sense.
For me personally, I’ve pruned my portfolio a little bit, but we’re holding onto most of our property in Alberta because we believe we’re going to see stability return to the market by next year.
Real estate is a long-term investment, so you can’t really have a trader mentality with it. That’s when real estate gets dangerous.
If your properties are cash flowing and you can perhaps look at locking in some financing so you’re not up at night worrying about inflation driving up interest rates, that might be the best path to take.
Also remember that real estate, unlike stocks, will not drop 50% or more in a matter of weeks or months. I’d say a lot of the decline is now behind us here in Calgary, and we’ll see a relatively flat market going forward. If you’re getting positive cash flow, then that’s a good reason to hold the property becausee that provides a positive return, plus the mortgage paydown. And over time, it’s very likely it will rise in value, because Calgary has positive long-term fundamentals going for it.
Hope that helps,
Greg
Hi Greg,
I wanted to say thank you for the great value you provide to me personally in your blogs posts as well as the RRSP Secrets program.
I receive John Mauldin’s newsletter, as well as Harry Dent’s newsletter.
If you are familiar with Harry Dent, I would really appreciate your thoughts in regards to what Harry Dent teaches.
Thanks!
Lynn