The Hidden Inflation and the Coming Titanic Event
By Lawrence
Talking to a friend the other day, he mentioned that vegetables have doubled or even several times higher in price in just half a year. We are not talking about exotic food here. His observations include basic vegetables like celery and carrots. We can partly blame this development on the weak Canadian dollar and that Canada is a net importer of US vegetables. But the problem goes much deeper than that.
As the world economy turning down, it does not imply that everything will drop in price. Deflation from such economic slow down gives us lower labour cost (i.e. lower wages) due to overall shrinking business activities. But as production of necessities decreased and that quality necessities becoming scare resources, their price goes up. In other words, food cost goes up, essential healthcare service price increases and people with lower income suffers.
Originally, these past 10 years the hidden inflation was on the income front only for which majority of people are stuck with no income improvement. That makes everything costs more relative to the staled income level. Now that economies worldwide are doing poorly, the hidden inflation is hitting home on the cost of the necessities. At this stage, even middle class income families will be pressured which further reduce their ability to spend money on non-essential items.
The implication from this points to further spiral down effect on the overall economies as businesses offering products and services that are not essential will see huge impact on their business soon. The obvious businesses affected includes middle end luxury like clothing, jewelleries and restaurants. From what I see, there is nothing these businesses can do to handle this situation at all.
The reason is simple – the hands of these business operators are tied. They cannot reduce the scale of their operations easily. They cannot sell their operations to someone else as anyone who has done their proper due diligence will not be interested in acquiring these businesses at the current high evaluation level.
On the real estate front, there is also very interesting development here in Canada. My friends who deal with commercial properties have seen a wave of buying from foreigners. They are mainly coming from China and Middle East. This type of buying is in line with the past few times for which foreigners going into a buying spree on Canadian commercial properties. And for the past few times, these buying sprees all lead to major top in the real estate markets for many years.
We can tell that bad things are about to happen soon. Yet, there is really nothing we can do to stop the inevitable outcome. As a trader, all I can do is raising cash, reduce exposure in real estate and cutting down on long term investment in the stock market. Until this economic Titanic event is over, I guess we will not be able to assess the potential impact on us all.
