Thursday, November 30, 2006

Absolute Prices

This is pretty much a non scientific but useful perspective of Price as viewed from the eyes of Joe Six pack.

The price of a new Car --------------1 years wages

The price of a new Home----------- 5 years wages (with two wage earners)

The price of a high end TV---------One months wages

The price of one ounce of Gold---- One weeks wages.

Notice that when you go through the list and try to mentally justify or discredit an item, you have to get to Joe Six pack's perceived level of income. It's different for each area of United States. But, you get the idea; there is a frame of reference for cost.

What we need to figure out is the inflation factor, which is well hidden. The prices that Joe Six pack has to pay seem to be rising. Is it time for gold and housing to drop in price, or is it time for Joe's wages to increase? We are at a point here, where we either get used to the new values or clamp down and say no to the increase in prices.

Is it going to be inflation or deflation? Most of us probably won't know until after the fact, but that table up above that I gave you at the start should still be valid.

The thing to be realized is that there will be a major change. I tend to believe that its deflation that we will be embracing. It will be a time where everyone is trying to sell assets to raise cash. The retail stores will have competition from their customers.

Sadly, it looks like desperation could be the factor that determines price in the new market. You won't be trading two, million dollar homes in Carlsbad for a hotel on the Riviera, it will be two Swiss watches for a tank of gas and 20 pounds of dog food. Louis Carrol mixed reality with dreams and ended up with "Alice in Wonderland," Berneke is going to mix Freddy and Fanny Mae, and end up with "Bankrupt in the US of A." It could be a best "dunner!"

No comments: