Follow The Bottom Violation
-
Feb
4
New Rate Adjustments Threaten Economy Further
ARMS due to reset again.
Here’s the problem: in 2007 and 2008, mortgage rate-adjustments caused massive foreclosures. But remember, relatively speaking, rates were historically low already.
I know what you’re going to say. Rates are even lower now. The velocity of money is almost at zero. Upward adjustments aren’t realistic at this point. But you’re not looking ahead. Global central banks and governments are printing money and easing rates at a pace we’ve never seen before in history. Ever.
Yes, the velocity of money may be low. And yes, rates might be low at this minute. But if I’m right about coming inflationary price pressure (which I am), and if I’m right about the fact that we will be facing double- or even triple-digit inflationary price increases (which I am), then adjustable rate mortgages are precisely the place not to be!
There is absolutely nothing pretty about this chart.
Having trouble with RSS? Click here.
Disclosures: Paco is long TBT, UCO, and gold. He also holds U.S. dollars by necessity, pending the advent of private gold-backed currencies.
You can buy his novel Discipline wherever books are sold.
13 Comments so far
Partners
It certainly looks like the dollar is going significantly HIGHER right now….The only reason I can figure is that it's back as the currency of choice REPLACING gold…Everyone was long gold, and now the schmucks are paying the piper….I also can't figure out why the bond market is making a major rally….everyone seems to believe that interest rates are going significantly LOWER….How do you rationalize that Paco??
I'm not sure what you mean… bonds have lost considerable value in the last year, and yields are slowly rising. The short end of the curve is a lot easier to hold down than the long end, and that's what I'm watching.
..
[...] to face some of the challenges in our economy today — namely massive credit card debt, and adjustable rate mortgages. In the 1970s, the primary source of consumer debt was in the form of fixed-rate mortgages; when [...]
I still see a long period of deflation before inflation moves in with the killer combo punch.
Paco, you are obviously confident about your prediction of triple digit price increases. You must also believe that it will happen within the next 2 years, otherwise it is irrelevant to the reset schedule that you were discussing. So, come on, it's time to put it on the line. What's your prediction of a time by which we will see a 100% reading on CPI? Then you will be able to refer to it in 2 years time and show the world how right you were (or not, as the case may be).
I can't tell you the precise location and time a hurricane will hit Florida. But I can tell you this: a hurricane WILL hit Florida.
With $24 trillion in credit and currency sloshing around, waiting to flood the economy. I don't think so…
the threat is deflation not inflation. debt levels are extremely high and the unwillingness of banks to get rid of bad loans means less lending and thus little velocity of money which you need for inflation. you are completely wrong and will take the opposite side of that trade. short commodities gold etc…
Deflation; perhaps in certain areas. What matters most to Americans, however, are prices at the grocery store. They are going up, a very subtle creeping, but definitely up. I'm figuring gas may be $3 before the normal summer increases, regardless of inventory, peak oil, or actual demand issues, which seem to be all counterintuitive.
As far as housing is concerned, the bottom in the most affected areas of the country (CA, FL, NV) is not visible and may be as much as 15 years out. It took 8-9 years for Houston to totally recover after the S&L fiasco in the 80s, which was relatively benign compared to what are are now facing
Helicopter Ben is if nothing else…gutsy. I do believe it is deflation in the short run. Banks are less accustomed to managing risk than they used to be. This is due to the wholesale application of Our Lady of Keynesian policy whose skirt has been lifted to the squeels of guys named barney and christopher. The result is very predictable and is out for public display in the mortgage business.
The question for Gentle Ben will be how to coerce the banks, flush with cash reserves, to not lend this money when the signs and symptoms of inflation begins to rear its ugly head. Given the choice of "doing the right thing" or making more than the carry trade could fathom, I'm counting on the latter. Here's to hoping we are on the right side of the trade when that giant snapping sound occurs.
Deflation; perhaps in certain areas. What matters most to Americans, however, are prices at the grocery store. They are going up, a very subtle creeping, but definitely up. I'm figuring gas may be $3 before the normal summer increases, regardless of inventory, peak oil, or actual demand issues, which seem to be all counterintuitive.
As far as housing is concerned, the bottom in the most affected areas of the country (CA, FL, NV) is not visible and may be as much as 15 years out. It took 8-9 years for Houston to totally recover after the S&L fiasco in the 80s, which was relatively benign compared to what are are now facing
My recent post Ayrılık Acısını Unutma
Studying the economic trending will help you predict what might happen in the next few years. However that shouldn't be the only basis because there are a lot of unpredictable factors that might affect change. My point is, he may be right in his prediction but investors and businessman are confident that the economy will become stronger in the next few years.