Download REISA 2009 convention presentation slides

Robert Smith and Brian Ackroyd, Oregon 1031 Investments
Real Estate as a Hedge Against Inflation
Stagflation
The worst of all possible economic
worlds: A stagnant or slow growth
economy coupled with increasing
inflationary pressures.
Stagflation of the 1970s
•
Mid to late 1970s was the last time the U.S. experienced a stagflationary economic cycle
(double digit inflation coupled with double digit interest rates) .
•
This was the economic legacy of Presidents Johnson, Nixon and Carter.
•
The historical antecedents for stagflation of the ’70s was pursuing an economic policy of
both guns and butter during the ‘60s.
•
- Prosecution of a very expensive war in Vietnam during the ‘60s/ early ‘70s
coupled our by our last great failed social engineering experiment “the war on
poverty.”
•
We had a then democratic President and congress that were spending money hand over
fist fighting communism in SE Asia while embarking on a huge domestic spending
program to rid the U.S. of poverty as we knew it.
1970s - The Facts
•
Inflation averaged 7.4% through the 1970s and peaking at 18% 1974 (inflation in
the 60s averaged 2.5%).
•
The S&P returned a compounded annual 5.9% from 1970 to 1979, 1.5
percentage points lower than the inflation rate.
•
Long-term U.S. Treasury bond for the decade was 4.8%, 2.6 percentage points
lower than the inflation rate.
•
Unemployment topped 10% in 1975.
Sound Familiar?
Why Stagflation is Coming
•
This was all predicated on a robust ‘60s economy propelled forward by the
Kennedy tax cuts.
•
A somewhat different situation than we enjoy now; an anemic economy
anticipating significant tax increase.
•
Historically, economies can pursue one policy or the other successfully. However,
it is impossible to do both for any period of time without creating unsustainable
levels of debt.
Why Stagflation is Coming
•
We began pursuing a policy of “guns and butter” analogous to the ‘60s under
George Bush when we went to war eight years ago and had a then republican
congress spending money hand over fist in the name of “Big Government
Conservatism.”
Our current Democratic
President and congress have
turbo charged this
The Facts
•
The collapse of the housing market bubble and credit markets has provided
government with the cover it needs to intrude into our lives and businesses with
a historically unprecedented trillion + dollars in “stimulus spending.”
•
The fed increased the money supply by almost $1 trillion dollars in the last 12
months (increasing at a rate 12 times the average since 1981).
•
Federal taxes currently are barely covering half of Federal spending. Taxes
would have to double to just cover the current levels of Federal spending.
•
Unemployment rate is 9.8% and rising.