Inflation

[FlyerInHi]

Losers?
They are very creative people. If there were some technology to channel their energies, they would contribute a lot.

They maybe working as store associates too. They could be making more but need flexibility to pursue dreams. Many of them have masters.

[Coronita]

With higher minimum wages, I think what you will end up having is a gradual trickle up.

Min wage workers will get more pay. It will cost more for businesses to run, businesses will pass the cost onto consumers, who in turn (if they work in the services business) will raise their costs to make up for the difference. Gas, housing, medicine, legal, every service industry… And from all this increased costs, local,state,federal will get increased revenue from taxes. So almost everyone will benefit who provides services.

The only ones I can think of that will get totally screwed are tech workers. Because only in the tech industry will you have a situation in which while everything else around them is going up in price/cost, tech is getting cheaper even in today’s (non-inflation adjusted dollars)…And since every other thing that goes into producing tech (minus labor) will cost more, and since you can’t really raise prices on tech, that will put downward pressure on the cost of labor….

I mean, just look at what happened to TurboTax. Intuit tries to raise prices by making features that were once available in TurboTax Deluxe now only available in TurboTax Premier, to force people to pay more the features…and they get an earful for it such that they have to backpeddle and give a bunch of customers that feature for free….Absurd. I mean, people can’t complain when a gallon of ice cream is now 3 quarts for the same price…Or when a small box of Cheerios is now the same price as once a large box… But ohhh no.. Take out schedule D from turbo tax deluxe and make customers pay an extra $20 to upgrade turbo tax premier… That’s heresy! (Ok, I shouldn’t be one to talk because as an ex-Intuit guy, I still get my turbotax for 1/3 retail cost from friends, or for free for the ones that don’t bother to ask me to pay them back)…

Anyway, that why engineers and tech workers should take note. While your compensation might be great, you shouldn’t count on it all your life. There will be a point in time when others in other service industries will make more than you, simply because their wages adjusted for inflation while yours stayed stagnant….There will be some point in time in which that cashier register clerk at McDonalds will make more than you trying to write sql statements and enterprise java beans… Or even Android!

HA!

That’s why this engineer is also an aspiring slumlord….Because my rent prices will most likely rise much faster than my salary + bonus + stock grants.

[Coronita]

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[FlyerInHi]

The cpi just came out. Inflation is almost nil.
Pay raises will go a long way in improving the economy and getting rid of debts.

[Anonymous]

[quote=FlyerInHi]The cpi just came out. Inflation is almost nil.
Pay raises will go a long way in improving the economy and getting rid of debts.[/quote]

Who is getting pay raises? Not me or FLU. At best we may get a raise adjusted to CPI. But if government is claiming no inflation, no pay raise for most working stiffs.

Oh and by the way, take a look outside to the real world. No inflation my ass. Cost of most everything I spend money on has been going up dramatically in the last couple of years.

[Coronita]

[quote=deadzone][quote=FlyerInHi]The cpi just came out. Inflation is almost nil.
Pay raises will go a long way in improving the economy and getting rid of debts.[/quote]

Who is getting pay raises? Not me or FLU. At best we may get a raise adjusted to CPI. But if government is claiming no inflation, no pay raise for most working stiffs.

Oh and by the way, take a look outside to the real world. No inflation my ass. Cost of most everything I spend money on has been going up dramatically in the last couple of years.[/quote]

I think other industries (service industry that is more based on commissions and bonuses) are doing much better than typical engineering, because that seems to be the norm in most economies. Medical is probably also doing much better too, I’m guess due to obamacare. I haven’t seen UCSD so busy ever before.

As far as engineering, I don’t think comps have gone down. They just haven’t gone significantly up. That or I’m hitting the magical ceiling…In Jan, I got a 3.4% salary raise, which was about average in recent times for me. There was a 17% RSU grant that vests over 4 years(which is about 4.4% per year), 6% cash bonus, which is better than nothing. (I guess with the rising stock price, they’d rather hand out cash instead of stock grants). Anyway, I didn’t really notice it as is the case every year, because after taxes on a W2, it ends up being noise. The bonus ends up being 1/2 withheld, for instance.

That said, folks in the stock market did well last year. This year, it’s probably ok for most people..Except me, which even with my bonehead moves, I’m doing about 5% YTD (which sucks compared to what most people are probably getting). Still 5% is better than 1%CD’s lol..

Lesson I’ve learned and emphasize repeatedly is counting on a W2 alone stinks.

[spdrun]

FlyerInHI – why would you want your tenants to be debt-free? So they can think of buying a place vs renting?

[FlyerInHi]

[quote=spdrun]FlyerInHI – why would you want your tenants to be debt-free? So they can think of buying a place vs renting?[/quote]

It’s not about me. It’s about analyzing, the economy in general.

cpi just released was 0.1%. The PCE will be release in June. The Fed looks at the core PCE.

I personally don’t see any inflation. Food and energy are volatile. For food, you can substitute. I do that all the time.

The point is that in a low inflation environment, policies to increase the minimum wage do a lot of good — higher growth, more consumer spending, paying down of consumer debt, etc…

[spdrun]

I’m all for low inflation. It’s predictable, and doesn’t destroy MY money.

As far as the economy, why should I care about the economy as long as it doesn’t affect me and mine? I don’t personally know any min-wagers who work at Mickey Dee’s in LA.

Growth I view mostly as an environmental and social cancer. Stagnation is better for the environment.

[FlyerInHi]

We need to understand the economy so we can support policies that make sense and make us better off as society.

Not good to be too focused on the self, though nothing wrong with taking care of opportunities when you see them.

Spd, sounds like you’d do well as an oligarch while everyone else is suffering. I like to be well off, but I like it more when others live well also.

[Coronita]

[quote=spdrun]I’m all for low inflation. It’s predictable, and doesn’t destroy MY money.

As far as the economy, why should I care about the economy as long as it doesn’t affect me and mine? I don’t personally know any min-wagers who work at Mickey Dee’s in LA.

Growth I view mostly as an environmental and social cancer. Stagnation is better for the environment.[/quote]

I thought on another thread you were all for economic “diversity” and even went as far as saying it’s far better to friends with different “diverse” economic backgrounds, versus some of us with friends with less “economically diverse” people. Is that not the case?

Seems like you are contradicting yourself…

[spdrun]

I’m for diversity so long as the lower echelons rent and don’t bid prices up 🙂

[FlyerInHi]

Economists are saying that in low inflation environment, where there’s lots of slack in manufacturing and production, you wanr to encourage higher wages and spending to absorb the slack. That’s just good policy. Even china is doing it.

[flyer]

Here’s one opinion from Dr. Housing Bubble. . .

“The most widely used measure for inflation is the Consumer Price Index (CPI) put out by the Bureau of Labor and Statistics (BLS). Nearly a decade ago I discussed how poorly a job the CPI did in measuring home price increases while they were happening. In fact, during the raging housing bubble the CPI only measured moderate increases in home prices.

Why? The measurement looks at something called the owners’ equivalent of rent (OER) that essentially considers what your home would rent for versus your actual housing payment. So you could be paying $3,000 in a mortgage, taxes, and insurance but the actual rent would be something like $2,000. That is a massive differential.

In the LA/OC market, this measurement did a horrible job. The argument of course is that rents eventually catch up and we are seeing some of that now. Yet Fed policy and other government decisions are made on the basis of the CPI and miss big changes by years. The latest CPI report is now showing this inflation creeping in but of course, it is late once again. And this is important to address because the largest component of the CPI is housing costs.

Housing makes up over 40 percent of the CPI tool which is a by far, the biggest component. So wouldn’t you want this instrument to accurately measure home value changes? We now have plenty of tools that can give a better indicator of home price changes like the Case-Shiller Index.

There has been large pressure on home prices recently thanks to many years of slow home building and a lack of inventory. We also had the interesting phenomenon of investors diving into the market since the crash and being a dominant force.

Even looking at three categories in housing, education, and healthcare we know that costs are soaring. Yet the overall CPI has showed only tiny increases in prices. This is completely off base nationally and doubly so in bubblicious markets like California where people need to move into apartments with roommates as if they were crowding into clown cars to make the rent.

Housing is a whopping 42 percent of the CPI measure. Most people in the US own their homes (not in places like L.A. County). The measure looks at the nation overall. From 2013 to 2014 home prices went up by double-digits but the OER went up 2 percent!

You might as well set the OER at the proverbial 2 percent and forget it. How useful is that? Sure, it serves the Fed’s purpose of keeping monetary policy lax and money flowing. Yet this also fuels the mad speculation we are living through. Housing bubble 1.0 was a nationwide affair while housing bubble 2.0 is being driven by investors. In the end prices are going up for unbalanced reasons. Rents are going up strongly while wages are stagnant. What this means is more money is funneled into the banking, financial, REIT, and investor class. Not a good thing in our consumerist economy.

In many areas, people can’t even afford the local area rents, let alone buy. This is why we have 2.3 million adults (and counting) living at home with parents in California. So of course the Fed continues to push forward with negative interest rates and continues this current trend. They keep talking about rate hikes but this has been going on for two years – like the boy calling wolf, no one is really listening anymore.

In many ways, the Fed has backed itself in a corner. Yet they are using the CPI as reference that all is well on the inflation front. Just look at your monthly bills and see how accurate this. Better yet, take a look at your budget from 2000 and see where things are today.

One thing that does happen though is that rents do increase after a boom in home prices but lag the trend by a few years. That is why the recent CPI was a “shock” because now the rental increases are filtering into the CPI after a few years of solid price gains in home prices. The reality is now filtering even into juiced up metrics. Just take a look at the Case-Shiller annual changes versus the OER index changes. One looks like a boring flat line and the other looks like a wild tech stock. Easy money in the housing market is definitely the name of the game.”

As far as CA goes, it will be interesting to see if the desirable areas ever become “affordable” again. I doubt it, but time will tell.

[an]

Desirable areas of CA was affordable not too long ago after every crash. Real estate in CA is cyclical, so I think it will be affordable again.

[Author]

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