Inflation is Here

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“Fed’s Kaplan sees risk of inflation gaining a foothold in U.S. economy.”
msn.com

Inflation is no longer a laughing matter (as all MHP owners know from the cost of building decks!).

What started as a whisper has now reached deafening levels. It’s on everyone’s minds. Google searches for ‘Inflation’ have surged recently– reaching their highest levels since 2020.

While inflation is catching much of the investing public by surprise – leaving many scrambling for the stock market and crypto exits – sophisticated investors are not shocked. 

They saw all this coming last year – starting the release of the first stimulus checks in response to the Covid (and continually exacerbated by the regime change at the White House) -induced recession. There have been two more stimulus checks since then. Trillions of “printed” money have flooded the markets as a result – making inflation inevitable.

Think of inflation this way. Imagine there are ten people in your town with the financial means to buy a car. There’s one car available. Current supply and demand sets the price of the car at $1,000. Now imagine 90 other people suddenly getting free money and can now afford to buy the same car. Instead of ten people vying for the car, you have 100 people vying for it – driving up its price. This is what happens when the government prints free money. It puts more buyers in the market and makes everything more expensive – eroding buying power in the process.

Now think of the scenario above, but scaled to trillions of dollars, and you have what’s going on in the economy. There’s no such thing as a free lunch, and it’s no different with printed money. 

All the free money is driving the prices of goods up. In the short term, all the free money stimulates the economy, but the high prices eventually come home to roost because a dollar today will buy less in a year. The dollar in your pocket devalues with every passing day, and with less buying power, consumers will start to cut back.

Inflation impacts consumers in two ways: 1) their buying choices, and 2) their investment choices. 

Decreased buying power forces consumers to prioritize their buying choices – with necessities taking precedence over luxuries. And as demonstrated in the stock and crypto markets in the past weeks, many investors divest their holdings to hold onto cash. The result is extreme volatility in the markets.

The fed typically responds to inflation by increasing interest rates to slow the economy to rein in rising prices. The hope is that short-term pain will prevent a long-term disaster.

However, the higher cost of borrowing due to higher interest rates slows business spending and expansion, reducing consumer spending and impacting a company’s bottom line.

This is why stock prices and the stock market as a whole tank during inflationary times.

When all the free money runs out, the damage to the economy would have already been done. Savvy investors knew this, and they started preparing last year. How? The way they always have – by investing into tangible assets. And what type of tangible assets did they turn to? Necessities like shelter, food, fuel, etc… As consumers prioritize their spending to necessities, savvy investors double down on these assets.

The ideal asset is one where not only the income produced from the asset but its underlying value rises with inflation as well. Thus, recession-proof tangible assets are the ideal counter to inflation, and it’s why one such particular asset attracted the attention of institutional investors like Blackstone last year – mobile home parks (MHP).

In 2020, while most commercial segments saw increased vacancies and declines in rents, the MHP segment saw decreases in vacancies and increases in rents. As consumers allocate resources to necessities, MHPs fill the one necessity – affordable housing – that is resistant to downturns and rising prices. That’s because affordable housing is in short supply, and despite their name, mobile homes aren’t particularly mobile – costing thousands of dollars to move.

Inflation is here. Plan now for its impact on the economy. Instead of being held captive by inflation, if done right, a reassessment and reallocation of your portfolio can turn inflation in your favor, just as many investors did last year by picking up MHPs.

Ferd Niemann IV

Ferd Niemann is a mobile home park owner, operator, and lawyer, as well as a real estate investor, financial analyst, entrepreneur, and attorney whose career has focused on a myriad of areas of real estate. His experience includes mobile home park investments and turnarounds, retail development and redevelopment, residential investments, and real estate law.

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