If you’ve got big vacation plans this summer you may need to scale them back. The service industries are expected to raise their rates this coming season, and the markups are going to make a mark on your wallet. There’s nothing surprising about hotels, restaurants, and airlines having higher summer rates- but there’s something else to this.
In February, the Dollar was soaring. It received a 23% boost during the previous 18 months in comparison to a wide range of other currencies. All the signs seemed to indicate that it was going to continue to improve. Just when the talking heads started commenting about how well our currency is doing, the ship started springing leaks.
The Dollar has lost about .5 percent of the strength it had in January. According to projections, there isn’t anything that can stop the current downward trend, and if the models hold up- it will drop steadily another 30% over the next six years.
What does a falling dollar have to do with your summer vacation plans? Everything.
Air Fares
You can expect fares to go up by about 2 to 3 percent. That may not seem like a huge slump, but if you were planning with confidence you might need to scale back. The massive influx of new airline mergers hasn’t helped. Consolidated airlines have fewer seats, and I don’t have to explain supply and demand to you. The best thing to do is to book as early as possible if you haven’t already.
Car Rental Rates
Rental cars are going to be about 2 percent higher this summer. Fortunately, if you avoid renting a car near an airport you can expect to pay about 25 percent less. Once again, you can blame over-excited corporate mergers for needing to be extra careful in this area.
Hotel Rates
Business travel is going to be up this year, which means hotels are going to charge everybody more. You can expect a rate hike of around 2 to 3.5 percent. It may help to avoid business hotels as they don’t distinguish between vacationers and business travelers.
So what’s behind all this? As stated, we’ve just popped over the edge of a 14-year peak and we’re headed into a predictable trough. If projections hold, we will dip down to 2008 levels around 2022. That means things are actually pretty good right now- just ever so slightly worse than they were in February.
As usual, there is more than one explanation for this. On one hand, there’s the well-patterned timeline, which remains the same, more or less, over decades. It’s the kind of thing that people working the markets have a way of forgetting. Then every once in a while someone rediscovers it and becomes a kind of financial guru for a year or two.
One of the best examples of this kind of economic narcolepsy is the 18-year real estate cycle. Every 18 years every real estate market goes through a recovery, a surplus, and a recession- in that order. Of course, extraordinary outside influences can shake it up, but otherwise- it’s entirely predictable. If you know a real estate agent, ask them about Henry George’s economic cycle theory. Chances are they won’t know what you’re talking about- and that is the real problem.
You see, as the markets move from recovery to surplus to a recession, everyone is acting as if they don’t know what’s happening. During the surplus phase, developers keep on developing right up to and beyond the end of the surplus period. They overshoot the life span of demand and now with demand low and supply high- prices tank.
A good way to visualize the problem might be to imagine a ship at sea during a large storm. The waves are high but very predictable. But everyone on this ship is so fascinated with the way all the furniture is sliding around that no one is keeping an eye on the waves. So as they travel up to the crest of a wave, the sun comes out, the wind calms down and everything is stable for a moment. The crew opens all the hatches- and then boom- they fall into another trough- totally unprepared. Deck chairs get washed overboard and the dining hall gets flooded.
The same thing is happening now. The value of the dollar is dropping slightly more rapidly than it should because people are panicking. Between 2008 and 2012, we were blaming speculators. Now, it’s commentators speculating about how high interest rates will rise that’s getting those who actually set the interest rates feeling jittery.
It all comes down to widespread shortsightedness, and that is a market force which never seems to be in short supply.
Regards,
Ethan Warrick
Editor
Wealth Authority
