Weekly News & Capital Markets Perspective

This week’s perspective is provided by Jim O’Connell:


Do We Hear the Footsteps of Inflation???

I don’t fancy myself as the Chicken Little type but I also do not want to be so myopic that I walk around with my head in the sand.  (I think Yogi Berra said that first?)

As I read about different segments of the economy and how some sectors are reacting as we move into the new year, post fiscal cliff, it occurs to me and some others there may be some very subtle signs that some inflationary elements are beginning to show signs of themselves.  Attached are a few articles that say maybe and some that say I’m overreacting at the very least, but then again, nobody questioned Manti Te’o’s story a month ago either.

By definition, Wikipedia says: “inflation is a rise in the general level of prices of goods and services in an economy over a period of time”, or in another way, “an erosion in the purchasing power of money – a loss of real value”.

Don’t get me wrong, I don’t think we are anywhere near having that word start coming out of the mouths of any cable news commentator’s any time soon, but who wants to wait for that?  Nevertheless, I am hearing about increasing chances of excessive growth in the money supply needed to deal with our progressing debt problem.  And I do read about rising prices for food, healthcare, education and other staples.  Are those jumps only temporary?  And as we face the probability of increasing governmental control over more elements of supply and competition, are we being set up for the next crisis to be dealt with?

So what does that mean to us in the world of commercial real estate?  Well, on the “positive” side, at least for current owners, it could be increases in rental rates and prices due to growing supply shortages of quality rental spaces and sale offerings.  On the “negative” side, it would be increasing demand for the same shortages, thereby creating the classic supply vs. demand imbalance.  Consequently, inflation.

So maybe you didn’t hear it here first, but keep your eyes open and keep an ear to the ground and look for the possibilities.  What do you think?

Jim O’Connell

ARTICLES OF INTEREST___________________________

Why is inflation so low?
With liquidity soaring and the economy still growing, why isn’t the rate of inflation higher?

It is far from breaking news that the Federal Reserve’s monetary policy is extremely easy and has been so for close to five years. During this time, the M1 measure of money supply has gone up by over 70%, the monetary base has tripled, and bank reserves are 16 times as great as they were in 2007! Read more…

Inflation, Still Not Taking Off Anytime Soon
A few years ago, amid exceptionally large federal budget deficit and extraordinarily accommodative Fed policy, a number of pundits warned of impending hyperinflation. Instead, inflation has stayed low. That hasn’t stopped the inflation worrywarts. It’s just a matter of time, they say. Inflation “has to show up at some point.” That’s not an argument. There are a number of reasons to expect inflation to stay low.  Read more…

Exposing Paul Krugman’s Low Inflation Propaganda
Economists who hold the popular view that expanding the money supply will provide the best medicine for our ailing economy dismiss the inflationary concerns of monetary hawks, like me, by pointing to the supposedly low inflation that has occurred during the current period of rampant Fed activism. In a recent blog post aimed specifically at me, Paul Krugman noted that the sub 2.5% increases in the Consumer Price Index (CPI) over the past few years are all that is needed to prove me wrong. Read more…

Tighten Your Belts!
A new year always prompts hope for a better tomorrow and better performance from investments. But given our continued slow-growth economy, debt as far as the eye can see, and our fiscally-challenged government, what can investors expect from the capital markets in 2013? Read more…

What’s Ahead For CMBS And Commercial Real Estate In 2013
Why did CMBS perform well in 2012 and what lies ahead

In 2012, the CMBS (commercial mortgage-backed securities) market had a significant rally as is evident from the table below showing bond spreads over swaps. Read more…

Office Sector Records Best Quarter Since 2007
U.S. office markets achieved pre-recession numbers in 4Q12 as markets absorbed 20.1 million square feet of office space, 13 msf more than the previous quarter, according to Cassidy Turley’s preliminary 4Q12 office report. Despite the economic uncertainty caused by the looming fiscal cliff, all four U.S. census regions reported decreased vacancy. Overall, office vacancy rates dropped 40 basis points from the previous quarter to 15.3 percent. Average asking rents increased 1 percent year over year to $21.70. Read more…


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