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Inflationary Deflation Thunder Road Report December 2012

Inflationary Deflation Thunder Road Report December 2012

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Published by Gold Silver Worlds

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Published by: Gold Silver Worlds on Dec 10, 2012
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03/30/2014

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Given its status as a “real” asset, housing/real estate normally outperforms during the
inflationary (Summer) period of a long wave. An obvious conclusion, therefore, is that
when inflation picks up in this “abnormal” Winter phase, housing/real estate is certain
to outperform. However, my sense is that it could be slightly more complicated.

Real estate/housing is (generally) a leveraged asset. During previous Summer
phases of a long wave, the economy was much less leveraged than it is now. We are in
the midst of Winter and economies are overleveraged, hence even a relatively modest
rise in interest rates could risk a significant volume of defaults in this asset class. A
period of economic hardship could also limit credit availability with a knock-on effect
on the ability of housing/real estate markets to clear.

Commercial real estate could also face further challenges from a new round of crisis
in the financial services sector and the cannibalisation of the retail sector from the
rising share of on-line sales. In summary, I expect housing/real estate prices to rise,
but to lag the increase in CPI measures of inflation. In my opinion, prime and near-
prime real estate are likely to outperform the sector.

It’s not just the PIIGS

It might be a real sset…

….but it’s also a leveraged one

Seymour Pierce equity research

13

Introduction – a long wave framework

Thunder Road Report | December 2012

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