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30 Year Fixed Mortgage Yield Plumbs Fresh All Time Lows
For the few, the proud, the stuck in the 19th century, with an "originate to hold" business model (such an anachronism when originate to distribute by hedge funds, pardon, banks is all the rage), the latest data by Freddie Mac, in which the 30 Year Fixed just dropped to a new fresh all time low of 4.56%, down 1 bp from the last two weeks, is about the worst news possible. While the short end is still cheap (and in the case of 2 Year, near record), the ongoing flattening is a death knell for anyone who still relies on funding curves to a some profit. As the Bloomberg article pointed out earlier today, the 60 bp tightening in the 2s10s is a huge impact to P&Ls, which is now actively reverting profits afforded to financial companies in 2009 and early 2010. Soon enough, the Fed's active management of the yield curve will force banks to come up with new and improved ways to pinch pennies from US consumers now that the profitability margin on the curve has been cut by 25% in a couple of months. Alas, that would mean the risk of inflation would have to be taken seriously. In its absence, look for flattening to continue as all on the wrong side of the trade continue capitulating, and making the future for JPM, Wells and BofA uglier by the day.
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What happened to gold??
Stay up to date on the PMs with Ed Steer and you'll feel better:
http://www.caseyresearch.com/displayGsd.php
Links to related stories as well for some good reading.
The normal beat down before options expiration scheduled for tomorrow, I think.
(un)usually (un)certain
Aug. options last trade today, Aug. futures tomorrow
4.5% plus neg 15 % per year (house price decline) = 19.5% real rate.
Fastest way to the poor house.. Levarage and a declining mkt.
This boggles the feds mind.. declining prices .
yeah - that 15% is a constant... got any other figures to drop out of your ass?
Correct me if I'm wrong but the gap between the long and short dated instruments despite the recent declines is still as wide as it's ever been i.e. banks still make lots of money. Also from a historic point of view buying the banking sector when the yield curve has been this steep has always made lots of money. I guess this time is different though.....
100% correct when you're talking about the overnight and short-term bills to the 10 yr or the long bond. i think the avg is 250bps between fed funds and the long bond yields.
of course, we've got zero percent rates now so not every historical figure can be expected to hold now as it did previously...
but this is one of a few reasons i'm short long-end yields.
The average is 210 bps from 3mos. to 30yrs. (per Rosie). Only a matter of time until it reverts to the mean.
All time lows but still not low enough, it's called THE END.
It is fun to watch all these people beg for the Helicopters to come and save them.
"Alas, that would mean the risk of inflation would have to be taken seriously"
Inflation is dead.
RIP
Inflation
Born 1945 Death: 2007
Here lies inflation, it collapse due to it's own weight.
Please be so kind to tell that to my local supermarket and petrol station.
The monopoly will set the price wherever they want. The free market price of assets has a problem with lack of demand and lack of demand for credit.
I can rebuy my old condo for 1/3rd what I sold it for in 2006.
Inflation is the increase of the money supply, you use credit as money. Federal reserve Z1 report shows a decrease in the rate of expansion and basically the start of a collapse of the whole system since 2007. Whether or not you pay an extra $0.05 for a coke is irrelevant.
Inflation is dead, that is a fact jack.
I know there is so many dollars around, well I wonder why they are not paying their mortgage.
No, it is not a fact. Just ask anyone earning Euro's.
When the the Euro went from 1.5 to 1.2, everything from oil to pork to weat to propane to lumber got more expensive for people earning Euro's.
Same thing will happen when its the dollars turn to get trashed.
Why is such a simple principle so hard to understand by so many?
Our monetary system is a composite aggregation of credit (virtual) & money (real). Due to the recent period dating from, as Mako states, 1945 until 2007, the credit component increased to something like 99% of the total.
The credit component is used to finance major asset purchases like housing & education, whereas the monetary component is used to purchase consumables such as food & gas.
With the exception of education, overall credit deflation is occurring due to the lack of bidding activity for housing, resulting in stagnant & declining prices.
On the other hand, consumables are increasing in price as a direct result of the increase in money supply, which can be easily verified by any measure of M1, 2 & 3 (discontinued).
For some reason, which I admit I don't understand, people seem to fail to recognize this very simple construct. Just bifurcate the money system - view it as two completely different animals.
Credit is a function of human sentiment - the herd's WILLING desire to contract for credit (ie go into debt) in the (mistaken) belief they will benefit either from rising asset prices (housing) or income levels (education).
Monetary tools are merely a function of government control & coercion - the power-elite's OVERRIDING desire for the sheep to once again contract for credit (ie go into debt) in the (mistaken) belief they will benefit either from rising asset prices (housing) or income levels (education).
What is the ratio of wealth destroyed relative to dollars created?
Until the coordinated wealth destruction ends, there will be no inflation.
It's just a massive redistribution of wealth. Without a single shot being fired.
What about when people start exiting the dollar ? does that not count as weath destroyed ?
Think about what the world will look like when the dollar is on its death bed. Think about how many headstones of currencies will already be in the graveyard. Unless you're suggesting that some other reserve currency exists, you're talking about the end of any semblance of the markets as we know them. If you're suggesting some type of remotely sudden move to an alternative reserve currency, it carries the same risks... no institutions are properly positioned for such a contingency. THE WHOLE WORLD IS ALL IN ON THE UNITED STATES REFLATION.
Yes, there will be wealth destroyed by the dollar's demise... but first we'll have massive deleveraging, which will lead to deflation.
Reminds me of the story of when I was getting my MBA (me and the rest of the free world at the degree factory). They told us that we needed to learn leadership and teamwork because that's what wallstreet wants... OK... to this end, we all had to get up at the ass crack of dawn on a saturday morning to do a ropes course. Unfortunately for me, the groups had already been picked. My group was comprised of around 6 people. One of these was an ORCA FAT woman way north of 350lbs. Our first obstacle? Getting the whole group over a 10 foot wall. We tried, in vein, for half an hour trying to get her fat ass over that wall. We were completely unsuccessful. Well, in this analogy, Ben is me and the fat woman is the economy.
Mako,
Just to let you know, I'm pretty sure EscapeKey is a Brit.
Cheers -
Demand pull inflation is dead.
Currency crisis inflation, ready for a breakout.
Just look at the Euro. Was there any demand pull inflation when the Euro was falling ? No but oil, commodities and gold got more expensive for people earning Euro's. That is classic currency inflation.
Let me get this straight. Over the last 20 years the average Sheep has seen their buying power collapse at an astronomical rate. Income, 401K and house values down as well as debt rising. Whatever you want to call it, this is inflationary.
dup
95% of all home loans in the past year were orginated by Fannie/Freddie aka Frannie the Tranny
spark a doob and think about that for a minute.
95 fucking percent!
(prebubescent girl voice): I mean seriously you guys!
And what happens if interest rates rise - house prices decline (all other things being equal) and all of those new subprime, no-down, tax-credit fueled mortgages will be underwater. Yes, we really don't learn anything from experience.
Not only when interest rates rise, but when property taxes rise to cover the budget shortfalls at the local levels, home prices will fall again.
Just imagine where home sales today would be if interest rates were 7%.
(prepubescent valley girl voice circa 1985): "Like, gag me with a spoon!"
Just locked (last Thursday) a 5.125% refi under Well Fargo's "Three Step Refinance" program. This is a "no cost" refi (no points and no closing costs), so I can't get the lowest market rate (unless I were Chris Dodd or Barney Frank or some kind of Friend of Angelo). Effectively, it's an interest rate swap transaction. I traded in my current 5.250% for 5.125% and extended my payoff date by 1 year (current loan was refi'd last year under the same program). Will save $26 a month. Those savings will come out of someone's pocket, be it Wells Fargo or some MBS tranche.
Extend and pretend?
Customers waiting for ninja loans to come back in fashion...
Anyone else notice that Gold (1164) has broken the uptrend going back to late 08? Or that Oil (77.34) dropped 2$ to 77 in 2hrs to set up a potential reversal day on close below 78. Also, US$ has reversal day potential. Look at USD/CAD (10355), above 103.85 is a reversal.
ZIRP is starting to put the squeeze on the very entities Bernanke is trying to rescue - the financial institutions. Sweet...
Banks don't care they're making too much money with their HFT trading desks.
And yet the Fed balance sheet has expanded - so money was created, and there as an increase in the supply in money...yes or, no?
When rates snap up violently in coming years it should do wonders for home sales. The word perplexed is an understatement for what must be going on in the Fed's mind and the administrations "economic" advisers who have crafted together the perfect recipe for delicious home buyer cake with extended stimulus, unprecedented low rates (After we all witnessed the inherent danger of low rates unchecked), dramatically lower home prices when compared to 2-3 years ago and the encouragement of banks to withhold inventory across the nation in order to keep as much pressure as possible off current home prices and nobody wants to eat their cake.
So what is next?? These guys are out of their mind and egotistical to boot and they are a complete failure in regards to leadership, responsibility and a few individuals continue to set us on this insane path and than it all becomes so crystal clear that you begin to realize they have succeeded. They have succeeded in being permitted to continue these measures under the guise of "the betterment of the citizens of America" when any rational person can see that the goal of the Federal Reserve was extreme protectionary measures of the assets of the top percentile with the purchased political chess pieces providing cover by guarding the moat. Evil is the only word I can muster and pleading ignorace at this point is an excuse.
ZIRP should have gone straight to the consumer 3 years ago. Every filer can refi one primary residence, up to USD1MM, @ 0.00% for 30 years. The monthly interest expense on families is killing the country, depressing job growth, evicting the unemployed and for what? Only to have the banks take a loss after foreclusre and charge back the taxpayers for the difference? At least a mortgage ZIRP would have allowed better price discovery without the shadow inventory games and given some folks that could stay in their homes an a fighting chance to fail. What percentage of your monthly household budget is spent on interest?
The only way to put more people in to a house IS to lower the cost. Let the cost go to zero. The rig was set up entirely to benefit the lending industry. Let the banks collapse. Let people who work at the banks find real jobs--in health sciences, per Alan Greenspan.
The US needs MORE bedpan cleaners stat!
Also look at TNX, breaking downtrend from April. Lots of things happeneing today.
The trend looks fine, maybe not from April till now, but the 1 year is nice for TNX, IMHO. It could be bottoming, but based on the data, I doubt it. Nothing moves in a straight line. Plus, the Fed, US government needs to place many billions in paper, it goes lower, no worries. Bonds are THE place to be, IMHO, but I like corporate paper best, BB and above. I also like covered call strategies, high income with some equity exposure. Lot's of great opportunities if you look, but the market, overall, looks like shit, IMHO, but strong dividends from firms with great balance sheets and bonds, ding, ding, ding that is a winner in my book. Add gold, silver to the mix you are all set. Fuck it, just buy solar stocks...
Any takers on guessing how long these mortgage rates remain at these levels?