Weekday Wrap-Up: Wealth (Inequality) Effects, Deflationary Shocks, and the Housing Market

Charles Hugh Smith from OfTwoMinds.com says Fed policy and its direct influence on wealth inequality in the US has now become a mainstream issue; Russell Napier says to expect another deflationary shock in the next couple years followed by a massive reflation by China; Rich Sharga from Auction.com says double-digit real estate price growth in 2012-2013 wasn’t sustainable and now we’re returning back to more normal levels; and Jim O’Sullivan at High Frequency Economics thinks the US recovery has another two years to go.

Here are a few excerpts from this week’s set of interviews, which recently aired to our subscribers (click here for more info).

Charles Hugh Smith on Fed driving wealth inequality becoming a mainstream issue:

There's a sea change going on…the Wall Street Journal just came out with a piece that said…Fed policy is directly increasing wealth inequality—they're the cause. And so for this to come out in the Wall Street Journal means that it's gone mainstream. So I think the Fed is going to encounter political resistance to QE4, 5, 6. In other words, they are now seen as the enemy of the bottom 95%. And that's sort of seeping into the political dialogue…where now politicians are seeing that the Fed is not a positive element; that they may be the primary cause of stagnation of the middle class. So that's going to limit the Fed's ability to unleash another trillion or two trillion dollars...(click here to listen)

Russell Napier on another deflationary shock, followed by more inflation in the long-run:

I'm basically a deflationist and think we are going to see another deflationary shock. In terms of people investing their money today, they should be investing for deflation and protecting themselves for deflation. The inflation bet, ultimately, I think if we are sitting here in ten years and we talk about inflation and why we have it and where it came from, we'll probably very clearly be talking about China. It won't have been the Federal Reserve that reflated the world. We'll find that it was China that reflated the world... So, the next couple of years is deflation and a deflationary shock, but I think financial history teaches us...that they will do everything they can to generate inflation in the long run...(click here to listen)

Rick Sharga on real estate coming back to more normal levels:

We're back to about 2004 prices across the country. So a lot of the acceleration we saw from '03-'04 through about '07-'08 still hasn't come back to the market, so we're still off the market peaks. We did hit probably an affordability problem in some of the higher priced markets like CA and NY where prices came back really quickly and outpaced people's wage growth...but it's important to note that we're still seeing home prices appreciate in most markets; they're just doing it at a much slower pace and we're heading back to a more normal rate of appreciation. Historically, you're looking at about 3-4% home price appreciation a year on average. The double digit growth we were seeing in 2012 and 2013 wasn’t sustainable and I think the fact that we've backed off significantly from those growth rates is actually a sign of healthiness in the market and something I actually expect to see continue into 2015...(click here to listen)

Jim O’Sullivan from High Frequency Economics on 2 more years of US recovery:

The big driver continues to be incredibly accommodative monetary policy...monetary policy is like a time release capsule where the effects accumulate and kick in over time. Meanwhile, of course, the amount of stimulus that's been put in the capsule this time has been extraordinary and again the Fed was easing until last week and they haven't started tightening yet...You can never say never about a recession of course but historically you tend not to get recessions in the US without a significant tightening of monetary policy first, and it's going to be a while before the Fed is tight in any absolute sense. They'll probably start tightening around mid-2015 so they're going to be starting from a point of extreme accommodation. So, monetary policy is still going to be accommodative for a long time after they start… (and) I think the US recovery continues for the next two years...(click here to listen)

Our market technician this Saturday is Gary Dorsch. Then, on the Big Picture, Jim Puplava and Erik Townsend will be having an in-depth discussion on the oil market, which will also air on the Newshour Podcast page this Saturday. Be sure to tune in through our site or in iTunes!

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