But that is THE question. Look at the sugar that is winding its way through Congress right now. Do you believe that is the end? What if the new normal is perpetual government sugar? Does that change your view? If there is a never-ending flow of freshly printed dollars chasing goods that are being produced at a (much) slower rate than dollars are being printed?

We have had 40 years of deflation. Interest rates have never been this low in recorded history. Many smart people believe that we have turned a corner and are now entering an inflationary regime. This changes the math for nearly everything we do.

Of course, there are many smart people on the other side that see the deflationary forces of aging demographics, improvements in technology, etc that will reassert after the current bout of transitory inflation.

I don't know which way it will break and we could certainly have a bout of deflation in financial assets in the short term and then inflation or vice-versa. But I am slowly moving my assets to bet on the first one, mostly because I have exactly zero faith in government any more. Spending has skyrocketed regardless of the party in power. I don't see that changing any time soon. This path has been walked by every empire in the history of humanity and it always ends the same way. We seem immune to learning from the past.

Chip, can you put a number on the price premium today vs 12 mos ago? Judging by Controller, inventory certainly very tight. Total market supply (new + used) certainly squeezed by both increased demand as well as new supply limited by production cutbacks in 2020, and ramp up issues in 2021. Am guessing that in most instances the premium is only 10%-15% vs 12 mos ago. Bigger difference is limit in supply and velocity of supply, (i.e., fewer Days on Market).

But what is the real premium? Is it 10%, is it 30%?
Does it vary by platform or class of aircraft?

Sorry, but zero chance of that. Watch how fast the airplane prices drop when the easy loans and real estate drops. It's already happening in RE, planes are closely tied.

I would not be surprised. In fact having rooms full of cash is exactly why the market is what it is.

My deflation comment was related to the cost of money (interest rates). The direction of interest rates has been down for the last 40 years. Governments, Companies, and Households have been able to simply "turn the crank" by refinancing existing debt at a lower rate. This then allowed them to continue to increase their debt loads for the same monthly payment. This is directly responsible for the asset inflation that you reference above in spite of real wages stagnating.

As an example, people don't buy houses based on the price, they buy based on the monthly payment. Lower interest rates have allowed people to pay more for houses while keeping the monthly payment the same.

If this regime changes and we are in a a period of increasing interest rates, all of that will go in reverse. People will not be able to pay as much for houses with the same monthly payment. That could be offset by a wage-price spiral where people demand higher wages in order to pay the higher prices for goods. Add in the govt throwing out free money for everyone and you get too many dollars chasing too few goods.

As I said in my previous post, I can see both sides and have listened to very well-reasoned arguments on both sides. But I think the wild card is the Federal Government. They seem hell-bent on spending more and more money that we don't have, regardless of the party in power. The only question is the rate.

My deflation comment was related to the cost of money (interest rates). The direction of interest rates has been down for the last 40 years. Governments, Companies, and Households have been able to simply "turn the crank" by refinancing existing debt at a lower rate. This then allowed them to continue to increase their debt loads for the same monthly payment. This is directly responsible for the asset inflation that you reference above in spite of real wages stagnating.

As an example, people don't buy houses based on the price, they buy based on the monthly payment. Lower interest rates have allowed people to pay more for houses while keeping the monthly payment the same.

If this regime changes and we are in a a period of increasing interest rates, all of that will go in reverse. People will not be able to pay as much for houses with the same monthly payment. That could be offset by a wage-price spiral where people demand higher wages in order to pay the higher prices for goods. Add in the govt throwing out free money for everyone and you get too many dollars chasing too few goods.

As I said in my previous post, I can see both sides and have listened to very well-reasoned arguments on both sides. But I think the wild card is the Federal Government. They seem hell-bent on spending more and more money that we don't have, regardless of the party in power. The only question is the rate.

I’ve been in sales for over 50 years & 99% of people are payment buyers . That’s the wrong way to purchase anything .

Not necessarily. I get Dave Ramsey's philosophy, and spending beyond your means is unfortunately endemic in the modern first world. But, leverage is a useful tool. The key to any tool is understanding its uses and limitations.

The tax system of any government is a means of not only revenue collection but also manipulation. In our structures borrowing is incentivized with interest deductibility. Sometimes the productivity (as measured by financial returns) created with leverage is greater than the cost of the leverage. Then buying on payments is the right way to purchase.

The interest rate environment itself, modified by current tax policy, is a integral part of almost all markets for consumer and business goods and assets. One of the risks people are running in the current price inflated markets, including aircraft (and real estate) is the additional price volatility potentially created when rates change.

Jerome Powell indicated yesterday that the Fed, in his view, will continue to stay the course with respect to interest rates but that they may try to begin backing off of bond buying. He doesn't seem particularly concerned about inflation at the moment though many of his colleagues apparently don't agree. And he may or may not be with us much longer. So, there is uncertainty in the rate market despite assurances to the contrary. That will have an impact on demand and prices but it may not be obvious for a while.

If rates go up in the near term (I'll define that as 3 years) then the values of airplanes and real estate will be negatively impacted at the turnover point for many of today's purchases. That may not happen of course. But the risk is there and users of debt need to be mindful as they calculate their utility and returns in a period of uncertainty.

What I'm seeing in our bank is a very small and gradual increase in rates and a shortening of terms but no move yet to variable rates. This is being driven somewhat by financial markets and rate matching work is picking up. We will probably start reintroducing some variable rate products later in the year.

One thing all banks have seen in the last six months or so is a decrease in loan demand and more frequent payoffs coupled with increased liquidity (deposits). That is the impact primarily of PPP lending, SBA loan payments, Main Street Loan funding and other government money handouts. So, loans are easier to get right now. It will be interesting to see how long that lasts but I suspect that it is also fueling sales (though I think Chip's observation about cash is consistent with what I'm seeing here).

Bottom line is borrowing is useful when it pays for itself but it pays to be aware of the macro situation and factor all that into your planning.

For the vast majority of Americans, making payments on major purchases is the only way they can afford to buy them. Houses, Cars, Health Care, Durable Goods, Emergency Spending etc are all purchased with lines of credit. Without lines of credit, they simply could not afford to buy these things. And that’s exactly what we’re seeing right now. The Middle Class is being priced right out of home ownership across the country. We are becoming a nation of renters. Wages have been in an absolute free fall over the last 40 years. While at the same time the cost of living has done nothing but skyrocket. This is destroying the Middle Class and wiping poor people off the map entirely. This simply isn’t tenable. The Middle Class is the backbone of American Democracy. Without it, we will revert back to Feudalism.

Nick Hanauer did an excellent Ted Talk on precisely this issue a few years back. I encourage everyone to watch it and I’ll link it below. As business owners, executives and leaders, we need to be doing everything in our power to change the status quo. The current trajectory is not only untenable, it’s also completely Unamerican and morally wrong. A thriving and successful Middle Class is absolutely vital to our success and survival as a Nation. Watch Nick’s Talk here: https://www.ted.com/talks/nick_hanauer_ ... anguage=en

Major thread drift, but I could not agree more. Big problem in this country is the polarization of earning power. Look at any study of CEO pay vs average employee pay from 1960s to now. Trend is troubling and smacks of immorality. (Full disclosure, I believe in a capitalist system, but it requires an ethical underpinning, like any system.)

Problem is that the market has not reined in this trend. Public Co CEO compensation has skyrocketed, along with other professionals. Average American comp has stagnated, in large part due to off-shoring and globalization. Same clowns who are pulling in huge "heads I win, tails you lose" pay packages are, or had been, off-shoring and outsourcing the livelihoods of their fellow citizens.

Other problem is that the left wants to level the playing field with taxation and gov't spending. That has its own set of huge issues....

Academic hypocrites have not helped as the cost of college attendance (I refuse to say education, because am not sure how much educating is taking place) has outpaced nearly any other good/service in the economy in terms of inflated pricing.

Not sure what the answer is, but not the current course...
'
Back on track somewhat.... use of debt generally good when purchasing productive assets that can create value in excess of the capital and carrying cost. Use of debt for consumer items debatable, particularly when it creates a form of permanent debt capital.

“I’ve been in sales for over 50 years & 99% of people are payment buyers . That’s the wrong way to purchase anything .”




Guess I wasn’t clear enough. Everyone needs credit , you need to worry about how much you are paying for something before you worry about how much the payment is.

Chip MaClure:

"Cheap money is definitely a factor, but you’d be surprised how many of our clients pay cash. Especially in the $2M - $5M range."

Another way to launder drug money

We had a well known airplane dealer in California that was selling planes to the cartels for cash, and got caught when it was discovered that he was using 13 bank accounts to stay under the $10,000 reporting limit. He was busted by undercover IRS agents who posed as representing someone trafficking in drugs and wanted a discrete buy.

That was tail dragger Joe , he also sold cars.

Paul, I can assure you none of our clients are laundering money.

I should have mentioned that many will roll the airplane into financing, the point wasn’t that you should pay cash for airplanes, it was that companies have been tight fisted and sitting on piles of cash since being stung in 2008.

You named one broker caught laundering money… I know at least a dozen people who have been caught, some are still incarcerated. I am much better versed than most in what to avoid. The beauty of what I do is that I can be very picky in regards to whom I do business with.