Fiscally Fit: A check-up for your financial fitness
1) When is the monetary expansion going to cause inflation to hit?
a. Never . . . monetary inflation is a myth
b. By the end of the year, if not sooner
c. By the end of next year, because of lag effects
d. It’s very difficult to tell exactly, but when it starts it will unfold very quickly
2) How has the stock market changed since the ‘buy and hold’ strategy became popular?
a. Buy and hold is still the best strategy
b. The stock market has become much more volatile
c. The stock market only goes down these days
d. Corporate earnings are now fueling a sustained growth market
3) What event will cause rents to increase in the coming years?
a. Inflation will push up rents
b. Increases in mortgage rates from monetary tightening will make mortgages more expensive and create more renters.
c. Trick question, rents aren’t going up
d. Both inflation and monetary tightening can push up rents, but the Federal Reserve decisions will determine which one it is.
4) When is the best time to make your real estate investments?
a. 10 years ago . . . all of the best deals are gone
b. The best deals are still coming, since the market is going to crash again
c. Right now . . . interest rates are extremely low and inflation hasn’t started to hit yet
d. In a few months, since interest rates will probably come down some more
Answers: d, b, d, c
Explanation of Answers:
When is the monetary expansion going to cause inflation to hit?
It is impossible to tell exactly when the monetary expansion will manifest itself in price inflation. The reason for this is because credit markets must normalize before the expanded money supply moves out into the economy. However, when this process begins, it will sure move rapidly as bondholders make dynamic adjustments in their buying and selling patterns in reaction to the new market reality.
How has the stock market changed since the ‘buy and hold’ strategy became popular?
Recent years have seen an extreme increase in stock market volatility, with bubble booms and busts occurring at shorter and shorter intervals. This is making a ‘buy and hold’ strategy much more difficult since the timing of your buys is now a critically important variable in your long term financial success.
What event will cause rents to increase in the coming years?
Rents can be impacted by both inflation and reductions in the home buyer pool that are driven by higher interest rates from monetary tightening from the Fed. In either event, the number of renters will be increased as bond rates move upward and reduce the affordability of housing. When the number of renters increases relative to the supply of rental housing, it will inevitably result in higher rent rates.
When is the best time to make your real estate investments?
Now is truly the best time to make a decision to invest in your future through income properties. The specter of inflation has not yet hit, and interest rates are extremely low by historical standards. Some people are waiting on the sidelines in anticipation of more price reductions or further reductions in interest rates. The danger of this strategy is that if the price inflation cycle starts, the window of opportunity to act will already be closed.
The Solomon Success Team
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