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Inflation favors Real Estate

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[sri121212d]

Your basic assumptions of inflation and disinflation are absolutely incorrect. Do you mean there was no inflation b/w 1982 - 2002? This is not even worth my time for commenting!

[MrAlanKendall]

@sri121212d

These are just broad generalizations about decades that are inflationary or deflationary. Gold fell from $850 per oz to $250 per oz, Silver from $20 to $40 per oz and Oil from $40 per barrel to $12 per barrel over a 20 year period. The deflation in energy and building materials helped the US stock market go on a 20 year bull market.

[jedfa987]

Seriously? Because something happened one time in the past you are certain it is going to the exact same thing again?

Or are you just not showing the previous 5 times real estate and inflation/deflation have done the same thing?

[MrAlanKendall]

@jedfa987

I see major depressions in Real Estate in 1890's, 1930's, 1970's and 2010's so it is repeating 4 times, not just once. In the 1890's Mckinley went on the gold standard and printed dollars to "Inflate" out of depressed prices. FDR started 35 Govt programs between 1933-35 to spend and "inflate" out of depressed prices. Nixon went off the gold standard in 1971 to justify printing and "inflating".  Today between 3 and 4 billion is printed each day to "inflate" out way out.

[wesleytarbuck]

would i be correct in saying that steady inflation will give your property an increase in value, whereas hyperinflation, would do the reverse? or not so?

[MrAlanKendall]

@wesleytarbuck

Yes, and many people feel that the US is going to face hyperinflation. The scare is premature because the contraction in jobs and construction is holding inflation down. Zimbabwe faced a gradual trasition from inflation to hyperinflation. Zimbabwe had 4 years of double digit inflation, then 4 years of tripple digit inflation then 2 years of quadruple digit inflation, then the collapse. The US is still in the low single digits because the Banks are buying stocks, not lending.

[sweatykev01]

wow, this proves a graph can show anything.

[sang3Eta]

You can time it with the dow/gold ratio. Real Estate is hard to move so you are better using gold as it's asset proxy.

[FortNikitaBullion]

From '62 to '82 we had two decades of inflation followed by two decades of deflation. So badly phrased! Say, starting in '62, we had two decades of inflation, followed by two decades of deflation starting in '82. Or something like that. Saying 62-82 is misleading if you're really talking about 1962 all the way till 2002.

[Cinemalogue]

@MrAlanKendall (cont'd) lastly, and most importantly, are these words which I have memorized from Buffett's mentor, Benjamin Graham, and I suggest you do the same: "An investment operation is one which, upon thorough analysis, promises SAFETY OF PRINCIPAL and an ADEQUATE return. Operations not meeting these requirements are speculative." Buffett wouldn't advocate it because of the risk, timing (which is baloney) and volatility. 5-10% is adequate, 20% is possible but unrealistic.

[Cinemalogue]

@MrAlanKendall (cont'd) The DJIA average since inception is 5.3% annually compounded. The real estate market? 7/10ths of a percent accounting for the erosive effects of inflation. A house is not an investment is what Buffett will also tell you. He purchased his in 1958 for $31,000, never plans to sell it, but wishes he had instead put the money into the markets for a better return.

[Cinemalogue]

@MrAlanKendall I don't know your background, Mr. Kendall, but I am a financial/business analyst. I know what Mr. Buffett has said. What he also says, and what his mentor Graham has said, is that those earnings are unrealistic and the product of aggressive research. It is possible to outperform the S&P but not in the hokey ways in which you propose... and any professional is improper to guarantee such returns as Berkshire has averaged (which Buffett concedes are unsustainable due to scale).