Inflation (aka: gouging) has peaked . . . .

[errolanderson]

The fallout has begun . . .

Global commodity prices now coming under pressure. Even fertilizer took hit this past week, led by nitrogen declines. Copper wanes, gold and silver appear slipping back into a lower trading window. Natural gas breaking lower/ WTI crude appears to have key support around $93.50 per barrel. The housing market simply looks like a sitting duck by mid-summer in my view. Lumber has already broken. Used car prices sliding, to name a few . . . .

And equities, well, the collapse of Netflix may have been just the sound of the starter's pistol. FAANG stocks and cryptos, a lot of quiet investors right now.

Markets have a way to tame inflation on-their-own without the help of central bank dickering. Not a terrific time for central banks to threaten markets with rate hikes. Heavy price discounts coming. And cash on-the-sidelines may actually be king . . . .

[foragefarmer]

Major housing shortage in Canada and USA.

Prices may stabilize at best, pent up demand, new builds can't keep pace, and immigrants coming over. Not to mention investors gobbling it up.

You somehow didn't mention the invasion of Ukraine by Putin as being the big current driver of inflation world wide.

And just what do you think will happen to raw commodities and lumber when the world will have to rebuild Ukraine?

Did you forget about Ukraine or decide to leave it out of the equation?

[Taiga]

100% agree with you Errol, there will be big drops this year, this current inflation is rapidly consuming cash at an incredible pace. Have several large purchases planned but holding up, doubt I am alone. Ukraine is a smokeshow.

[FarmJunkie]

I can’t see things dropping too much. Production of grains is gonna trump anything else. If we don’t produce bigger crops than last year and I mean world wide we won’t see our costs drop a lot. The criminals are always one step ahead of us bottom feeders

[wheatking16]

To add to Errol's points...

I have a thesis that the recent rise in inflation is attributed to supply-chain issues rather than increased demand.

We are likely aware of the port backlogs inhibiting supply with the associated increases in supply.

Approx 500 ships waiting in Shanghai this past week.

Ships leaving with empty containers, etc.

I listened to a podcast the other day and learned that the US homeowner has withdrawn $413B from home equity and spent it.

It is gone.

It reminds me of a conversation with a banker who has wage-earning customers using the home equity to buy expensive rec vehicles.

XHB, the SPDR Homebuilders ETF has experienced a substantial retracement and appears to have further go.

While not devastating, it is not exactly healthy and will likely experience another 20-25% drop.

I will post the linear chart for dramatic effect.



Perhaps this foreshadows lower house prices.

Increased interest rates will certainly lower home values.

I understand that US mortgage payments have risen 38% in the past year or two.

We know that will result in lower home values.

So now the consumer has less disposable income and the value of their home is likely to drop with less equity to draw from.

This could lead to the demand destruction that Errol has been forecasting.

Grain is a bit of a different animal; however, I understand that China has an estimated 1.5 years of inventory.

If true, I anticipate this will be used to gain influence with other nations, primarily African.

Similar to what I believe was the primary focus of the CWB.

I have an idea of how food and resource security concerns will be addressed in the future.

That is a discussion for another time though.

[errolanderson]

Consumer demand destruction is now sweeping across many markets. The so-call housing shortage can turn into a buyer’s market within weeks as foreclosures pick up. Canada doesn’t have a housing shortage as promoted politicians and builders. Rather demand has been skewed by central bank policy, that has failed.

The housing market is now at the tail end of buyers rushing in to secure mortgages holding prices up artificially. Then this real estate bag will go pop when the piper has to be paid. It’s already in early stages.

[Sodbuster]

The central bank policy should ever of been allowed to drop rates to essentially 0% and because of that everyone will pay somehow. This policy is what allowed house and land prices to soar to unbelievable prices.

[jazz]

Inflation may peak, but it can stay at that level for a long time yet.

Whats the consumer going to do if inflation sits at 8% for the next year and the fed trying to cool it every couple months? Probably triggers a pretty good recession to reset it all. Thats how these things always end - never do they engineer a soft landing.

But the problem comes after that. What stimulus will they use to get the economy rolling again? The debt binge is tapped out in most western countries.

[Old Cowzilla]

Forget housing market the real money was made buying rock pickers 2 years ago !!!!!!! Immigration numbers are less than 1/2 since 2020 and did all those folks who passed away the last 2 years live in tents ? Numbers never seem to add up always see the places that build RTMS busy . Lots of for sale signs in town take your pick. Real Estate agents enjoying the 24 hr hype while cashing big cheques. Air b and b distorting market but for how long ?

[bucket]

The central bank policy should ever of been allowed to drop rates to essentially 0% and because of that everyone will pay somehow. This policy is what allowed house and land prices to soar to unbelievable prices.

Where does that leave guys that bought inflated land and increased interest and dropping commodity prices?


In the backroom of the lender getting a write down, while careful borrowers get a foreclosure notice.

History will repeat , the guys in the back rooms are good at what they do. The guy on the lending side is wet behind the ears.

I doubt there is one lending manager still in the business from the 1988 - mid 90s

[Sodbuster]

If you bought a house or land based on 2% interest rates than your game plan sucks. I don’t think we will ever see 20% interest rates like the 80’s but it’s not unreasonable to pay 8% mortgage rates, no way we will ever get to double digit mortgage rates unless of course our Canadian peso collapses. It would be a good for the market if we could get 5% on GIC’s instead of everyone investing in the stock market because there is no other game in town.

[Grahamp]

To add to Errol's points...

I have a thesis that the recent rise in inflation is attributed to supply-chain issues rather than increased demand.

We are likely aware of the port backlogs inhibiting supply with the associated increases in supply.

Approx 500 ships waiting in Shanghai this past week.

Ships leaving with empty containers, etc.

I listened to a podcast the other day and learned that the US homeowner has withdrawn $413B from home equity and spent it.

It is gone.

It reminds me of a conversation with a banker who has wage-earning customers using the home equity to buy expensive rec vehicles.

XHB, the SPDR Homebuilders ETF has experienced a substantial retracement and appears to have further go.

While not devastating, it is not exactly healthy and will likely experience another 20-25% drop.

I will post the linear chart for dramatic effect.

[ATTACH]10483[/ATTACH]

Perhaps this foreshadows lower house prices.

Increased interest rates will certainly lower home values.

I understand that US mortgage payments have risen 38% in the past year or two.

We know that will result in lower home values.

So now the consumer has less disposable income and the value of their home is likely to drop with less equity to draw from.

This could lead to the demand destruction that Errol has been forecasting.

Grain is a bit of a different animal; however, I understand that China has an estimated 1.5 years of inventory.

If true, I anticipate this will be used to gain influence with other nations, primarily African.

Similar to what I believe was the primary focus of the CWB.

I have an idea of how food and resource security concerns will be addressed in the future.

That is a discussion for another time though.

I don’t know how to snip out a line but the key thought I think is

“ I listened to a podcast the other day and learned that the US homeowner has withdrawn $413B from home equity and spent it.”

This money has been consumed, perhaps it represents retained earnings on amazon and macdonald’s balance sheet, but regardless of that it most likely is now a floating interest rate liability on the homeowners mortgage which is already highly inflated.

It reminds me of a story Peter Grandich(Us Gold Bug) told in 2007 just before the housing collapse in the US. He explained that in the highest price zip code in New Jersey (where he was from) there was an extraordinary high refinance rate, he then further explained that of the refinancers, the highest percentage ever had borrowed more then was originally owed on the mortgage before the refinancing. Finally the cherry on top was in that same zip code they had a record number of building permit applications for self storage units. I can still see Peter standing at the podium as he said in his thick New Jersey accent, “ So what is going on here? People are mortgaging their futures, taking unrealized equity out of their inflated house and buying stuff that not only do they not need but that won’t fit in their house!” lol.

The housing market collapsed 6 months later. I don’t think we are out of the inflation woods yet but definitely food for thought.

[AlbertaFarmer5]

Thanks for the reality check, Errol and others. Always needed.

But before we get too bearish, Central banks/ Policy makers, desperately need/want to keep adding money to the system to keep it from collapsing. Events conspired lately to cause big inflation, so at least on paper, they need to slow down the easy money policies to tame the inflation. Which, will inevitably be too much, and too late, and deflation will result.

Which is exactly that they need, so they can continue the party of easy monetary policy for another decade or two. Putting a very definite bottom in the markets, much sooner, and much higher than any pessimists think possible. It doesn't solve anything, and there will eventually be a day of reckoning, but positioning yourself for it has been a disaster for the past few decades.

Don't worry about deflation, we have all the tools we need to combat that. And as a farmer, we benefit from inflation, so don't worry about that. It is just the brief violent corrections inbetween that we need to fear.

[foragefarmer]

[QUOTE=Taiga;53872 Ukraine is a smokeshow.[/QUOTE]

In what way?

Let hear it.

[furrowtickler]

It was a matter of time, whenever things go too far they always swing back. There is no way the average Joe can handle the current inflation, it has to blow up something soon.
Time to lock up what a person can, get this crop in and hold tight for the next year on spending.
This will not be pretty.
Errol you finally may be vindicated. Not sure about ag inputs and machinery, they will hold us ransom as long as they can.