Is Inflation a Problem?

Over the past 6 months, the US government has been pumping liquidity and new cash into the economy. In the 4th Quarter of 2008, consumer prices were deflationary which reflects the drop in demand as shown in the 4Q GDP growth rate of -6.4%.

So here is the issue, at what point will inflation become a problem?

Obviously, there are many other people out there who understand these issues better than me. All I need to know is what to look for to see when inflation comes back.

First, what is the fed doing with the fed funds rate? They have it at 0% to .25%. There is no where to go but up. When they start to raise this rate, it means they are trying to slow the growth rate (demand) and control inflation.

Second, what is the 10 Year Treasury doing? Right now, it is yielding around 2.6%. When the yield gets back above 3.5% and stays there, you can expect more normal inflation to return. It will jump everytime the Treasury prints money but it is the longer term that I am interested in.

Finally, what are the commodities doing. We cannot avoid inflation if oil gets too high. Right now it is in the $45-$55 trading range. If you see this get up into the $60-$70 range, then that will move into the rest of the economy and push up core consumer prices.

I look at inflation for a number of issues:

1. I have lots of money borrowed at Prime + which is tied to the fed funds rate and therefore, tied to inflation.

2. I own lots of commercial land. I need that land to keep increasing in value over the long haul for my equity to grow.

3. Finally, inflation will let me know how the overall economy is looking. (Except in the case of stagflation where the economy stalls and inflation spirals up.)

Dealing With Dirt

Since I work with dirt quite a bit in developing commercial land and buildings I have learned a few things about it. Here are the major lessons learned in dealing with dirt, excavation and site work:

1. Try to get your dump, fill or storage sites as close to where the dirt is coming from in the first place. It will save you money on the hauling.
2. Include all the seeding and stabilization work in the originial contract with your site contract.
3. Be sure the RLD (Responsible Land Disturber) is the site contractor and not you.
4. Retain at least 5% until the erosion and sediment permit is closed by the governing body.
5. When dealing with rock, it is always better to blast it than to hammer it since you generally do the hammering at an hourly rate. If you can get the rock removed based upon the cubic yards for a flat price, take that. In my area it is typically $60 for mass rock.
6. Watch how much top soil is put down in the finish grading. I have been ripped off by contractors who put only 1-2" down when the plans called for 6". You need at least 6" to grow grass in all seasons.
7. Finally, sell your excess fill dirt. Don't just give it away. Clean, compactable fill is hard to come by. You should be able to recoup those costs.