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TIPS Breakevens Indicate Inflation Expectations "Double" From Two Months Ago
Today the Fed monetized $1.6 billion in TIPS from across the entire curve, with purchases as recent as bonds due 2012 all the way back to 2040. Curiously, the most remarkable TIPS issue ever, the MY3 of 2015, issued this October which came at an unprecedented negative -0.55% yield, was not bought back. Actually, we take that back: that particular Issue is now trading at a huge loss to everyone who was so sure deflation was inevitable as recently as two months ago... Which judging by the entire TIPS curve is everyone. Below we present a compare and contrast from the TIPS breakeven as of October 13, which did not anticipate inflation for about 7 years, to today: the current breakeven is at about 4 years, as the herd has panicked and from all out deflation is now sensing that despite the Viceroy of the Printers 100% confidence that he will not blow up the world, it may be prudent to take the other side of the bet. In the meantime, the collapse in rates continues.
First, here is how the TIPS curve looked on October 13:
And here is how it looks today.
...And this is based on the deranged and highly manipulated Core CPI. Oops.
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So long as people think of inflation as rising consumer prices, they are doomed to never understand. Check out this XtraNormal video talking about inflation, prices, credit expansion, booms and busts, etc.:
http://www.youtube.com/watch?v=v76PM6-4yGk
Inflation is an increase in the money supply. We've got that check marked at all time highs. Only question is where that money goes, in this case it doesnt go to the people (wheelbarrows of cash to buy a loaf of bread) no in this present case it goes directly into nothing but supporting artificially bubbled up valuations of stocks, funds (MBS) and bonds.
I'm actually quite surprised that equities aren't taking off here. Maybe we'll get a jolt after the auction.
On rates rising, you are going to see, as I mentioned here a few weeks back, that as mortgage rates start to rise, existing home sales will surge as everyone tries to get in at lower rates. Two things can come from this; a false belief that home sales have bottomed, or a stimulus/wealth effect created by demand. We'll see.
LOL good one! 'As mortgage rates rise parabolic, bankrupt, unemployed, foreclosed on negative FICO score americans will jump in a new McMansion'! DEFINITELY!!
Just junk him and ignore him. eventually, he'll go away.
LOL! You f'n kill me, Dog.
LOLOLOLOLOL!!!
Actually, Harry would be right if
a) they had jobs,
b) they had savings
c) they had hope
So, hows that "research" into the "mind of the permabear" coming?
I can't believe it. An honest to God paid troll. I know people bleat on about this kind of thing all the time. I've been accused of it myself by rabid nationalists who believe in protectionism. But here we have someone actually building a career on it.
Madness.
Are you aware that locking in at lower rates is the dumbest thing anyone can do ? because as they lock in a low rate, they also lock in a high price
Excellent point.
It also makes your mortgage go to the top of the forcelosure list if you get behind. You accrue equity faster and they make less cash off of your interest...
Your assumptions are that Americans are moving and job shifts are fluid like they were in 2006. This is not the case. People aren't leaving their jobs for better ones and moving. they cannot unload their existing home at a profit in order to purchase another. The only thing that may spike are refi's due to panic, but that is it. Sure there will be a small portion that will panic buy...but very few people have the capital to get in at good rates. If anything this will cause people to 'hunker down' even more. Refi's for the most part are done and the buying binge was earlier in the year for the tax break.
I don't think home sales will surge, but they will pull in the marginal buyer. Numbers seem to support that, but comes at a bad time (winter), plus lingering economic malaise not helping.
I agree with your assumption. Perhaps "surge" was a bad choice of words. But sales will be "stronger" and that could lead to the two possible outcomes I mentioned above.
Harry,Harry,Harry.....
Home sales are not going to surge because the interest rates are rising? People have now gotton use to the 3.9% mentality on mortgages and the 0% mentality on car buying. We have created a monster, that being a consumer that wants everything for nothing. What's going to happen when the FED is forced to raise rates in 15 minutes? Complete halt to their economic experiment, people will not stand for it. We are really screwed because the mind set has been changed and the consumer expects more not less. Don't forget that most sales are either bank owned or distressed inventory selling to investors. The average person is lucky if they can even qualify for a mortgage these days. There is little if not any move up sales so every transaction is usually a one and done, unlike the boom times when usually one sale led to 3 more. Lets not forget that there is the highest rate of foreclosures happening now! People are squatting for years before then even get a notice. The shadow inventory has reached an 18 month supply and will get larger as banks back off to try to keep prices stabalized. They are forced to because we all know the 5 TBTF Banks would be insolvent if they had to mark their losses to true value. Then we got Fannie and Freddie? Another 3 billion dollar loss last quarter, just keeps piling up. And what about foreclosuregate? Oh that's right, that happened last month so it is no longer a problem. I don't know what you smoke everyday but I would recommend you stop because it warps your perception of the facts. Tyler has the best link on his side bar already if you want to educate yourself on the true situation of housing. I would advise you to spend some time and educate yourself on the true crisis housing is facing in the years to come.
http://www.doctorhousingbubble.com/
So far your theory proves to be utter BS...
http://cr4re.com/charts/charts.html?Housing#category=Housing&chart=RefiMortgageRatesDec2010.jpg
We shall see next month.
Actually, the exact same source you just posted, supports what I said about home sales rising on fear or higher rates.
However purchase activity is picking up a little, possibly because some buyers are accelerating purchases because they are afraid of future rate increases.
Keywords: "little" & "Possibly"
The latest data does not support that nor is it sustained reason why CR is making an "educated guess". You on the other hand, give out deceptive facts and opinions but one must wonder why...
You post a link to a multiyear chart which masks the most recent data point: "Highlights
Purchase applications extended their gains, rising 1.8 percent in the December 3 week and making another post-stimulus high."
How is that BS? I hate to risk the abuse to be seen jumping to Harry's defense (and since I'm bearish) but the number is up. Overall, I think rising rates can only pull in so many folk before it pushes home prices lower (as people focus on the monthly payment, which will be higher).
Assets are only worth what people/businesses can afford to pay for them, so rising interest rates erode asset values. It's common sense, really.
Imagine a world in which BB can do the perpetual cramdown on UST but cannot control Mortgage rates, and as banks tighten lending requirements, homeowners carry their own paper, and are able to keep the value of their home when they sell. Just as homeowners did the ReFi, during the 00's, they will do the OutFi in the 10's. To be fair banks probably won't mind being out of the mortgage lending business, they didn't care much for it in the first place, of they wouldn't have passed off the paper so easily. CU's should benefit, and homeowners who do their own deals. US Zombie banks will be content to pad their phony assets, while the real economy will adjust. In the final conflagration there will be a battle royal between the rating agencies, who won't recognize bank lending done at the real rates, and the Zombie banks rates and rules, most of which come under the Feds charter. This should make the old paper look a lot better, call me incredulous, but I thought the Fed would raise rates ahead of the financial crisis, to stabilize the economy, now they hold a ton of this MBS crap, and if official rates go higher that stuff won't look so bad, and if nobody is really lending at that rate, then there is no pass through to the UST market.
the housing market is like the grocery supermarket. i notice some of the homebuilders catching a bid, but that is definitely premature, as the buyers of new homes will have to go to the Zombie banks for financing, and pay more.
What doesn't make any sense is why monetize TIPS when there are BUTTLOADS of notes and bonds due in 2011 which are going to require a massive refinancing effort?
The Fed is up to something diabolic besides monetizing the debt and you have to begin to ask yourself just what it is.
Haven't they been up to something diabolical for a while now?
since christmas 1913 if you want to be exact
Inflation in the things we need:
Deflation in the things we want to sell:
Anyone that thinks that stocks in general or even houses will rise with incipient hyperinflation are in for a rude awakening.
You may wanna remove equities from your list of things you want to sell.
I know you goldbugs think its a 'sin' to own paper assets but, hell, own 'em now and you can buy more precious gold later on.
Agreed.
Every company that uses the items on the list will have pricing power after the initial margin squeeze. It is cash that is toast and will continue to be toast as long as Ben's at the wheel and GS can orchestrate Euro-panics whenever the dollar dives.
Hey, ZH: You may want to add this site to your side bar. It's something I've been reading for a while and would be beneficial here to many, mortgagenewsdaily.com. Here's a commentary from the site:
http://www.mortgagenewsdaily.com/mortgage_rates/blog/187013.aspx
They have hard data and commentary updated frequently from the world of RE.
Ladies....Heli-Ben's money printing won't create inflation. How much of his bond purchase $'s are making it into the pockets of average Americans? Answer: None. Commodities have skyrocketed on speculation. Just wait until the massive corn and wheat crops come in. Who will take all the grain? Answer: Nobody. Prices will plummet. Easy to push prices on commodities higher with a futures account. Harder to sustain such prices when somebody has to take delivery of a commodity that has no end demand. LMAO!!!
I dont see 'massive crops' coming in, weather in the US has produced crop warnings, and half of Russias wheat burned over the summer, Canada couldnt even plant in the spring due to their farmland being swamps. I think the shortages are real, and the US has been giving every grain in reserve to China, along with all the water out of Lake Michigan.
Russia's crop burned LAST YEAR. They have planted another crop for harvesting NEXT YEAR. Canada has planted a huge crop for harvest NEXT YEAR. Turn your head around and look to the FUTURE. LMFAO!!!
You sound "100% sure"....hmmmmm.
yes, i can't imagine why anyone would have use for corn or wheat. give me that paper though
Bingo. And look at copper.
Every ounce of commodities that are bought must be sold to consumers ultimately. So speculators can bid them up, but then they crash back down.
Anyone who thinks it's a guaranteed one-way trip is going to take losses.
Heavy-weight title match...
INFLATION vs DEFLATION
featuring Gary Shilling & Peter Schiff eyeball-to-eyball
http://www.planbeconomics.com/2010/12/08/inflation-or-deflation-gary-shilling-vs-peter-schiff/
two months ago inflation expectations on 5yr breakeven were neagtive... still a low 31 bps over a long term perspective.
"that particular Issue is now trading at a huge loss to everyone who was so sure deflation was inevitable as recently as two months ago"
This will be a recurring theme for a while methinks. Deflation ain't gonna happen.
...and fuck tips.
...And this is based on the deranged and highly manipulated Core CPI. Oops.
I think tips are based on the even more deranged and highly manipulated CPI-U.
dupe