I am sure glad we bought our camper when we did. If we hadn't, I wouldn't be buying one today!
People are sheep, that's for sure. We all like to follow the herd, as we think it is safe and the herd knows what it is doing. But at the center of the herd, the grass is all trampled down and pooped on, and at the trailing edge of the herd, well, really trampled down and pooped upon - and the edge of the herd is never a safe place to be. The leading edge is just as dangerous, but the grass is a lot more lush - and no poop!
But it is a funny thing that we as species, all want to do the same things at the same time. Right now, we are seeing staggering inflation, because of pent-up demand, and because of artificial shortages caused by an artificial labor shortage and chip shortage, all of which are inter-related and short-term. No, there will not be a perpetual shortage of cars or trucks - not with the world's auto manufacturing capacity exceeding even the highest demand by 50-100% or perhaps more.
It's like the so-called toilet-paper shortage, which never really existed (did you run out? Neither did I. Those big packages from the wholesale club - that I bought before the pandemic - lasted me through the entire pandemic). Like I said at the time, there will never be a shortage of toilet paper - or any paper product - if Georgia-Pacific has anything to say about it. But people are sheeple.
I have several friends right now who are desperate to buy a new camper or car or truck, even though prices are through the roof and today, dealers are paying more at wholesale than what some used vehicles sold for, brand-new, just two or three years ago. I could sell my pickup truck that I bought used, three years ago, for more than I paid for it. It is insanity - or "temporary insanity" as they say in the law.
Given all that, why would anyone in their right mind buy a car, truck, RV, or other big-ticket item right now? With the lumber shortage (which is apparently abating and prices are in free-fall, according to some sources) and the labor shortage, why spend tens or hundreds of thousands of dollars remodeling your house right now?
A lot of it is pent-up demand. People have been doing without for so long and they want out of the house, a new car, a new RV, a Disney vacation, a cruise trip and they want it NOW. My two (separate) friends who are desperate to buy a Class-B Motorhome (the kind on a Mercedes-like van chassis) have owned RVs in the past and hated it. For some reason, they are convinced that this time it will be different, and what's more, they need to - have to - buy one right now, at top price. And we're talking about a $100,000+ purchase. One friend has gone through four RVs already, each one being unsatisfactory to his spouse. But this time, for sure!
OK, fine. But why not wait until next year, when the "shortage" abates and prices drop - and many of the "CoVid Campers" who ran out to buy RVs discover that they really don't like RVing and sell these land-yachts for cheap? I mean, in terms of strategy, you want to buy low, sell high, not buy high, sell low - right?
Same for cars and trucks and SUVs. If dealers are paying more for a three-year-old used truck than the sticker price it sold for, new, there can't really be many bargains out there, can there? We're talking thousands and thousands of dollars in excess charges for what is a commodity item. Why would anyone in their right mind be buying now? Granted, there are those who might need a car, as theirs was wrecked or stolen or caught fire. But on the other hand, if you are merely trading-in, why not wait a year?
Oh, right, leasing. Another reason leasing sucks - it forces you to buy and sell your car (and you are buying and selling, not "renting") at a time and place not of your choosing. During the height of the pandemic, when car dealers were closed, they weren't accepting lease turn-ins, and lessees were being charged late fees (!!) by the car companies. Nice Folks. If your lease expires today, well, expect to be bent over the desk if you want to lease a new car (nice try finding one!). Buying the car you are turning in (at the inflated residual price) may actually be a better deal - but not a good deal in any normal market. Leasing sucks, on so many levels.
But I think there are other things driving the market. One friend is desperate to buy an RV as they want to go on a trip this summer and forgot what happened a few summers ago, when their previous RV trip turned into disaster. I think one factor is FOMO - fear of missing out. This is a bubble market with bubble prices, and by this time next year, the bubble will burst, as manufacturers ramp-up production and people get tired of buying. But my friend has this nagging feeling that maybe the bubble won't burst and they will be left behind! If they don't buy NOW, well, maybe next year they will regret not buying! Here, Mr. Dealer, take all my money, please!
It is the thinking that drives all bubbles. We saw this in Ft. Lauderdale in 2005 or so. "Buy now, before you are priced out of the market, forever and ever amen!" the Real Estate Agents all said. And Mr. And Mrs. Homebuyer, decided to wait-and-see. But after two or three years, prices were still going up! Maybe the naysayers were wrong - they should buy now, before prices go so high they will be renters for life! So they wait, and wait, and wait, and then finally "pull the trigger" in 2007 or so, with a funny-money payment-optional, adjustable ARM, toxic explody-o-do mortgage guaranteed to take them out financially. But hey, all their friends are doing it, so it must be good, right?
Classic trailing edge of the herd mentality. It's like getting to Nome, Alaska, just as the gold rush ends, having spend your very last dime getting there and buying all shiny new mining equipment.
Well, you know what happened to Mr. and Mrs. Homebuyer. They lost that house to foreclosure, and if they bothered to think about it for ten minutes, would have realized that the monthly cost of buying that house was double that of renting it. But they became so obsessed about changing their last name from "Homebuyer" to "Homeowner" so that some bitchy friend of theirs won't make snide remarks about them renting anymore.
And yes, people really think this way.
Whether inflation is here to stay or will abate is anyone's guess. My gut reaction is that we will see more inflation, because we are printing more money. The idea that the inflation today is high only in comparison to the low inflation of this time last year might have some merit. The idea that the inflation due to shortages is also temporary is also sound. But I think so long as we keep handing out free money, we will see wages rise, and that will feed the inflation monster.
That doesn't mean, though, that this idea that cars will appreciate in value will go on forever. In the 1980's, for a few brief years (or year) you could buy a new Honda Accord and sell it the next year for more than you paid for it. But that was a one-off anomoly. The Honda became wildly popular around that time, and we had some inflation issues as well. The Honda people also started to raise prices - that was about the time when Japanese cars went from being "cheap" to costing more than American cars.
The Japanese realized they could raise prices, as people now perceived their cars as a greater value because they lasted longer. A whole generation has been raised thinking that Japanese cars were always more expensive than American cars. At one time, however, they were dirt cheap - and the wily early adaptors raked the benefits of the FUD being spread by the "buy American!" set, who dismissed those early Japanese cars as "crap".
But I digress. People said the same things about Korean cars - some still do. I always love it when some doofus in a Buick says something like "KIA? Doesn't that mean killed in action? Haw Haw!" And he's driving a 1996 Buick. But the joke is on him, even Buicks are made in South Korea now, So howabout that?
But I digress yet again.
If prices are through the roof, why buy? And by buying today, you only ensure that prices will go even higher. Again - and this is fundamental - prices are not determined by taking the cost of production, labor, materials, and shipping and then adding on a "reasonable profit." Rather, the law of supply-and-demand determines prices. If there is a shortage of product, there is no point in putting it on sale. In fact, you should raise the price until market equilibrium is achieved.
With every hurricane or natural disaster, some blowhard governor (are there any other kind? Particularly in Florida?) gets on the TeeVee and promises to clamp down on "price gouging." But of course, he never promises to go after the hoarders who are buying gallons and gallons of gas and storing it in their garage (as we saw in the DC area during the brief pipeline shutdown - leading to shortages in that panicked area only). If you just raise prices - as cruel as it may seem - people will stop buying, or at least cut back on buying, and prices will come back down. Trying to artificially control markets is about as effective as trying to hold back the hurricane. There is no such thing as "black markets" - just markets. "Black" is just a pejorative label (and maybe another example of subtle racism? Who knows?).
We have some home improvement projects that we will need to do, but don't need to do them now, fortunately. Our roof is getting old and will have to be replaced in a few years. But not today - not with every roofer booked for a year out and shingles in short supply. Our dishwasher will have to be replaced, but not today - not at today's prices, anyway. I will keep nursing it along and treat it gently and it may last a few more years. I am not worried about "missing out" right now, or that they will stop making dishwashers. And in fact, I can wash dishes in the sink, if I had to.
So we are making the conscious choice not to consume, now more than ever. It never pays to buy more crap than you really need. It pays even less to buy things during these boom times. And we see this during even "normal" times (whatever that is anymore - I guess when there is not a worldwide pandemic and people storming the Capitol). The cycle of car buying, for examples, goes in ups and downs. It seems some years, everyone has to have a new car. Then a year or two later, the car dealers are hurting for business. If you can spoof this cycle and buy during the off-year, you can snag a bargain. On the other hand, if you follow the herd....
Investing is the same way. We see, over and over again, how people buy a stock or a commodity because they read about it in the newspaper (or today, online). The media reports sudden events - a major car accident, a plant explosion, a major storm. They don't report long-term or slow-moving trends. This is why the guy who puts a gun in your face and demands your money goes to jail, while the guy who embezzles for 20 years gets away with a slap on the wrist. We don't see long-term trends, only sudden changes. Or at least that is all that seems to interest us.
So people hear about gold going up in price and then buy gold at the higher price. Don't want to miss out, right? Some tech stock goes up in price after a big product announcement, and Joe Plebe decides to buy-in after the big gains. It is human nature, and it is one reason why buy-and-hold and "blind investing" in mutual funds, often out-performs, in the long-run, stock-picking based on the news of the day.
The real worry to me is that we are seeing and hearing all the same noises we heard in 2009 and in 1988 with regard to houses. "Buy now before you are priced out of the market!" was the mantra of those two previous bubbles. It is what we are hearing today. People are just panic-buying properties. I get phone calls and letters from individuals asking me if I want to sell or if I know anyone who wants to sell. A friend reads the obituaries, trying to find a family who wants to unload Mom and Dad's house.
But what's worse, is we are seeing this same behavior with cars, trucks, RVs, and even lumber for chrissakes. Buy that 2x4 before you are priced out of the market forever! Or maybe not. Prices are dropping, but still higher than before the pandemic. We'll just have to see. A lot of Trump's trade wars still need to be unwound, and recall that it was trade wars and restrictive tariffs that really made the Great Depression, great.
And sadly, tariffs are quick and easy to enact, but can take years - decades even - to remove, if they are ever removed at all. The "Chicken Tax" from the 1960's on imported trucks is still in effect. Ford imports vans from Turkey with windows and seats, and then at the port of Baltimore, rips the seats and windows out and shreds them, to avoid the 25% import duty on cargo vans. It makes no freaking sense, and is wasteful. It's been decades now, and no one in Congress has the balls to even propose removing this tariff. When even the domestic automakers are doing an end-run on this, you have to ask yourself why. And not one penny in tax has been collected, ever, from this tariff.
Expect it to take years, not months, for Biden to ease us away from these tariffs. And if you think lumber is going to get even cheaper, well, you need to pay attention to the softwood lumber wars going on between the US and Canada - that have been going on for over a decade now, fought out at the International Trade Commission at 4th and D streets.
And don't let that first article confuse you - tariffs always raise prices to consumers. When you slap a tariff on imported goods, it means that domestic suppliers can safely raise prices, as evidenced by the spike in tire prices during Obama's tire wars. And God forbid, it Trump was re-elected in 2024 and starts the tariff wars all over again.
But hey, that's not interesting, is it? Not the stuff of click-bait news, even if it is just right out there in the open, if people bothered to look for it.
