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Deflation – How a Mortgage Can Destroy Your Real Estate Wealth

Inflation Monitor, Real Estate / By Kirk Chisholm / 10/25/2019

“Thus inflation is unjust and deflation is inexpedient. Of the two perhaps deflation is, if we rule out exaggerated inflations such as that of Germany, the worse; because it is worse, in an impoverished world, to provoke unemployment than to disappoint the rentier. But it is necessary that we should weigh one evil against the other. It is easier to agree that both are evils to be shunned.” – John Maynard Keynes

This is the 3rd in a series of 4 posts about investing in real estate. The last post, Inflation – The Secret To Building Wealth in Real Estate, is about how inflation is essential to building wealth via your real estate investments. While most people subconsciously understand that real estate has all of the features listed in that post, they may not be sure why real estate has those features. The key is inflation.

This week I will be discussing the other side of the coin, and what happens when there isn’t inflation to make your real estate the wealth building tool that it has been for over 50 years.

This week I will be discussing deflation and how it would affect your real estate investments. Many notable economists have made deflation the economic boogieman. They have claimed that it is the worst possible outcome in an economy. When you hear someone talking about deflation, it is highly likely that Japan will also be mentioned in the same sentence.

Deflation is rare in the global economies of today. This is primarily because central banks around the world have engaged in a campaign to create a consistent inflationary environment for their own economies. This has worked for a few decades without hyper-inflation or persistent deflation in developed economies. Except for Japan.

Japan is one notable example of deflation which has taken hold in an economy and created a deflationary spiral. This is the essence of what economists fear. While this may sound scary, it isn’t, or doesn’t have to be. This week I will be discussing how deflation affects real estate, and why you should understand this if you want to protect your wealth.

Are Negative Interest Rates in America’s Future?

Inflation Monitor / By Kirk Chisholm / 07/01/2019

“ “Risk-free return” is the standard tag attached to the government’s solemn obligations. An investor I know, repulsed by prevailing government yields, has a timelier description – “return-free risk”.” – Jim Grant

How absurd are negative interest rates?

Two weeks ago in Denmark, news spread about the first person to get a business loan and get paid by the bank to do so. Eva Christiansen, and entrepreneur, earns about 1$ a month from a business loan she took out to grow her business. Let that sink in for a few minutes. She took out a loan, and instead of paying interest to the bank, gets paid interest each month just for taking the bank’s money. What a great deal. Where do I sign up for one of these loans? If you are interested in what type of business she is running, that makes the story even better.

If you are asking the question of why would the bank pay this woman money each month to take their money, you wouldn’t be alone. I’m fairly certain that it has nothing to do with the type of business she runs, but it is mind-boggling to understand why a bank would pay someone to borrow money. Unless of course you understood what was happening in Europe with interest rates.

Inflation Monitor – April 2016

Inflation Monitor / By Kirk Chisholm / 04/28/2016

Inflation Monitor Summary – Composite Ranking

* The Inflation Equilibrium is a quick summary for the whole data series of the inflation monitor. If you don’t like statistics, this is the chart for you.

Inflation Monitor – April 2016 – Introduction

April Fool’s… every year people use this day to play practical jokes on others. This year it was the Fed’s turn to make fools of us all. Janet Yellen made a strong point early in her tenure as Fed Chair that she believed in more transparency with communications to the public about Fed policy. She must have a new years resolution this year that we are not aware of, because her transparency has taken a back seat to settling the market gyrations. The Fed has always claimed that their decisions are not driven by the stock market, however their recent actions might suggest otherwise.

Inflation Monitor – March 2015

Inflation Monitor / By Kirk Chisholm / 03/23/2015

Inflation Deflation Composite Ranking

* The Inflation Equilibrium is a quick summary for the whole data series of the inflation monitor. If you don’t like statistics, this is the chart for you.

Inflation Monitor – March 2015 – Introduction

It is March and as of today spring is finally here. It doesn’t feel like spring. I only hope that the weather warms up so I don;t have to wear a winter parka in April.

Boston finally broke the record for snowfall this year with 108.6 Inches. The prior record was 107.9 inches in 1872. This broken record was no reason to celebrate since the Governor had to call in the National Guard to help with the snow. Having experienced prior large snow storms in the City of Boston, I can tell you that the situation this year was mismanaged. There was no reason to call in the national guard.

Boston’s lack of preparedness is much like the financial markets with deflation. Deflation has caught a lot of people off guard. A number of European countries currently have negative interest rates, Germany and Switzerland rates are negative out to 6 and 10 years. What the future holds with negative interest rates is anyone’s guess, but the idea of negative interest rates is a dangerous one if the trend continues lower.

Is the US stock market safe from global deflation?

The S&P 500 and US Treasuries are an anomaly in the global equity and bond markets. The US Treasury has the highest interest rate compared to any other developed country. The S&P 500 continues to rise despite the global deflation effecting countries and equity prices around the world.

Inflation Monitor – February 2015

Inflation Monitor / By Kirk Chisholm / 02/14/2015

Inflation Monitor – February 2015 – Introduction

It is now February and it is off to a good start with the New England Patriot winning the Super Bowl… Sorry the big game. Even if you were not a fan, it was a great game to watch up until the last play. The win helped warm the city from the cold chill of deflation setting in around the US. It has been a few months since I have started the Inflation Monitor and each of those months has been marked with deflation. I have been saying for the past few years that deflation is in our future despite all the money printing by the Federal Reserve. It appears as if this is now become apparent to everyone else. Although there are many deflation deniers out there who think it cannot happen and wont happen.

I just got back from the TD Ameritrade conference in San Diego. One of the keynote speakers was Craig Alexander, the Chief Economist at TD Bank. Normally this is one of my favorite speakers at the conference each year, however this time I noticed something different…

Why Does Deflation Scare the Federal Reserve and Economists Alike?

Inflation Monitor / By Kirk Chisholm / 02/10/2015

Nothing to see here.

I just got back from the TD Ameritrade 2015 annual conference in San Diego. They always put on a high qualify event. At this event was a luncheon hosted by TD, where keynote speaker, Craig Alexander, Chief Economist at TD Bank spoke about his view of the world. I make a point to listen to him each year at the conference and I am always impressed. He is a very smart and accomplished economist. However this year was a bit different. I am still trying to make sense of it. The majority of Craig’s speech was about how the US does not have deflation and will not have it in the foreseeable future.

The first thing that popped into my mind was this clip from the movie Naked Gun. There is nothing to see here. Move along.

Inflation Monitor December 2014

Inflation Monitor / By Administrator / 12/13/2014

Inflation Monitor December 2014 – Introduction

This is the third issue of the Innovative Advisory Group Inflation Monitor. As you will notice, we have made some additional changes to the inflation monitor based on your feedback. Keep the feedback coming, since this will ultimately benefit you. As always, please contact me to send your feedback on how I can make this monthly Inflation monitor a better tool or resource for you.

This month I have added the following indicators:

US Population

In this month’s issue I will be discussing interest rates, gas prices, Gold and Silver, and more. Given the recent sell off in the price of oil and drop in interest rates, I think it would be a good time to discuss the effects on the US economy.

Thank you for reading and I hope you enjoy this month’s issue of the Inflation Monitor.

Kirk Chisholm

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