Soaring inflation is going to be around for a while.
June 15, 2022, the Fed will almost certainly announce another rate increase to fight against it.
After May’s half-point hike, many are expecting another one. But increasingly, more expect three-quarters of a point on June 15th. (Update: The FOMC indeed raised 0.75%)
Higher interest rates decrease demand. There’s another name for substantially decreased demand. It’s called a recession.
Capitalism is not inherently inflationary.
Sure, as employers’ demand for labor rises, that’s inflationary.
But as businesses compete to offer goods and services at the lowest price, that’s deflationary.
Libertarians are quick to point out that America has too much government intervention to be considered a truly capitalist economy anymore.
Some have speculated that politicians are plotting another stimulus check drop on American citizens so that they can deal with inflation.
Sheesh, this policy blunder would be like shooting a man that’s already dead.
This absurd approach of “printing up currency” is to help people deal with the consequences of… well, “printing up currency”.
Think it’s preposterous?
Well, Quebec is actually doing this. They’re issuing $500 stimulus checks to help the Canadian province’s residents deal with inflation.
In any case, a look at history tells us that we could be in for high inflation for a full decade.
Make financial decisions accordingly.
With the rate hikes, major markets are faltering so much that some stocks’price-to-earnings ratios have actually returned to historically justifiable levels for some.
But not around here. Stocks don’t build wealth; here’s my explainer video on why.
Major stock indices are as directionless as a thought leader locked out of Twitter.
Cryptocurrencies are in an all-out historic meltdown. More volatile than stocks, many have lost 50%-60%+ of their value just this year. In recent days:
- Crypto trading platforms halted withdrawals
- Companies cut jobs
- Panicked investors dumped their holdings
The public is finally dismissing promoters’ claims of “I made $50k on doodoo coin. So you can you!”.
Let’s Go Brandon Coin, now worth $0.00, makes Dogecoin look like some sort of respectable family heirloom.
Each of these “risk assets”, tech stocks and crypto, are more sensitive to Fed interest rate hikes than real estate.
Then where to look?
Well, some feel that the “true rate of inflation” is 20% today. That’s how much prosperity one loses by storing cash.
(I believe it’s wise to hold at least 3-5% of your real estate portfolio’s value in cash.)
Follow the money. Big institutional buyers like American Homes 4 Rent keep plowing money into real estate, especially single-family rental homes.
Though the institutional share is increasing, the overwhelming majority of homes are still bought by individuals like you.
In the fourth quarter of 2021, institutional buyers comprised 18% of home purchases.
As affordability clamps down on wannabe first-time homebuyers, unfortunately, many of these fine people never make it to the closing table.
Instead, they’re increasingly your renter.
Rent price growth is predicted to outpace home price growth this year.
Though some measures are lower, Rent.com’s Rent Report shows an astounding 26% annual national rent increase.
While many major markets are struggling with a streak of Fed rate hikes that could drag on longer than the final two minutes of an NBA game…
…for real estate investors, the rent just keeps flowing in.
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