Summer Time Blues
It seems to be too hot in all directions.
I have seen recent polls, which say we are in the worst economic situation in our nation’s history.
They must have polled citizens under 50, who didn’t experience the 70’s and early 80’s stagflation.
Unemployment is 3.6%, and there are over 11million job openings and roughly 5million job seekers.
This is a follow up to the Spring letter that discussed how Global Supply issues have caused inflation, and how the FED’s plan is to create Demand Destruction to curb inflation. So far, “it Ain’t workin!” As mentioned, the lack of the supply of goods is not something the FED can control.
Raising interest rates, causes borrowing costs to go up, which is INFLATIONARY!
They are hoping that unemployment only goes from 3.6% to 4.5%, which they say is acceptable. Is it acceptable to the Americans that lost their jobs last month?
They are using the same playbook as the 70’s to “fight inflation.” Let’s raise borrowing costs, workers will lose jobs, demand less goods and services, and prices will come down. Spectacular demand destruction game plan!
Congress new bill: The Inflation “Reduction” Act highlights
- Medicare in future years will negotiate/Fix prices on pharmaceuticals. The savings here will go to more spending somewhere else. Neutral for government spend, possibly additive to Medicare participants in future years, but not immediately.
- Tax incentives to spend on energy efficient appliances, and more efficient homes, solar panels, etc. This encourages more spending, so doesn’t that add fuel to the inflationary fire?
- Tax hikes on business. Taxes are inflationary. Businesses will pass additional tax costs on to their consumers. Again Higher Costs!
- Hiring thousands of IRS auditors. How does this reduce inflation?
Stock Market
Many Large companies have outperformed low expectations the past two quarters. Their executive teams are paid to work the problems: logistics, inflation, worker shortage, economy, and tax law changes. Some are better than others. Some companies are simply more dynamic. Some are just lucky to be in the right place at the right time, when their industry is in favor. Example would be Energy, when oil and gas double in price.
Real Estate
Income producing residential (multifamily, single family, private dorms), as well as industrial properties perform well in an inflationary environment. They pass along higher costs to renters, and the business value increases. The Rent vs Buy decision for a median priced home has the largest gap in favor of rent in history. $1,000/month less to rent vs buy!
The FED and Congress are fanning the flames of inflation, and it’s already too HOT out there!
Stay Cool!