If you're willing to listen to audio this analyst interview gives a pretty sensible overview of the May retail sales data.

He seems concerned about the slowing trend, and the effect from housing in particular (but of course he says everything will be fine in the end).

And this was for May retail sales - those heady days of low interest rates and soaring stock prices.

Bill Gross turns negative on bond market. No word yet on whether he has changed his view on the housing market - which was a major reason for his prior forecast of lower rates:

"NEW YORK, June 7 (Reuters) - Long-time bond bull Bill Gross, just a year after declaring the end of the bear market for U.S. Treasuries, on Thursday conceded the snappy pace of global economic growth will likely keep bonds on their heels.

Furthermore, Gross forecast that benchmark Treasury yields will range higher than previously thought, prompting him to acknowledge he is now a "bear market manager" after a quarter of a century as the global bond market's most powerful bull.

Gross, chief investment officer for Pacific Investment Management Co. and manager of the world's largest bond fund, said solid global growth and a mild acceleration of inflation in the United States and abroad will drive 10-year U.S. Treasury note yields to top out at 6.5 percent over the next three to five years as opposed to the 5.5 percent ceiling previously forecast and 5.1 percent seen on Thursday.

Gross's comments were included in a note summarizing an annual gathering of Pimco investment managers, a copy of which was obtained by Reuters.

Over the next three to five years, Pimco expects the global economy to continue to grow at a pace between 4 percent and 5 percent as well as a mild acceleration of inflation, which together are "not necessarily bond-friendly," Gross said."

With rates going UP do you think some recently announced LBOs would fall apart ?

Gross, chief investment officer for Pacific Investment Management Co. and manager of the world's largest bond fund, said solid global growth and a mild acceleration of inflation in the United States and abroad will drive 10-year U.S. Treasury note yields to top out at 6.5 percent over the next three to five years as opposed to the 5.5 percent ceiling previously forecast and 5.1 percent seen on Thursday.

So the rate of core inflation and the median CPI have begun to decline since the beginning of the year with the 10-year averaging around 4.65%.

I wonder what will happen now at 5.15% and possibly higher.

By now you all know there is no spillover beyond subprime because chairman Ben has been telling you that since the start of the year. Just the same, Greenpoint, an Alt-A lender, riffed 440 people today and closed a bunch of offices.

Alt-A Lender GreenPoint Mortgage Closes Multiple Offices

via Blown Mortgage

Higher mortgage rates mean existing home sellers are going to absolutely slaughtered, and I mean butchered, this summer. The builders are gonna capitulate on price faster than the French. Once the homies figure out that they need to move spec fast to stay out of BK court, they will be merciless.

A 600K McMansion for $300K, anyone?

Isn't it old-fashioned to pay back loans?

Sounds downright negative.

ac,

I don't know if it is that easy (your theory on Bill Gross). The peircing affect caused by a quick rate spike at the long end could be catastrophic to the consumer. Literally making the E in PE go the wrong way much quicker than would otherwise be the case if the Fed tried to manipulate the front end of the curve. Just a thought though.....

The key here is that the US economy is bifurcated - rapid growth and hyperinflation in the financial sector, but a slowing real economy showing signs of outright deflation.

Until this dislocation is resolved, no monetary policy is going to be productive.

The bubble in the financial sector has to be popped whatever the cost to the consumer because the cost of letting it go on is far worse.

Once the financial sector returns to reality Fed policy becomes productive again.

This might manifest as a dramatic interest rate spike that precipitates a recession followed by aggressive rate cuts.

Problem number one is that the financial sector is separating from the real economy.

This is not a new phenomenon - it's been cataloged and analyzed repeatedly throughout history.

And there are no mysteries about the outcome.

Every day it goes on the ending gets worse.

But it the interim it does make life interesting - every morning you wake up you get to choose between today and tommorrow.

Making the wrong choice day after day ends in disaster.

That much we know.

Anybody got a clue as to the accounting impact associated with the sell-off in treasurys on a company like Countrywide?

I was guessing that the big Q1 increase in loans held for sale was done to wait for some sanity in the CMO market, and that CFC would rather hope prices would rebound before selling their loans (rather than take a hit and be forced to mark to market in a sale).

Given the 5%+ drop in the price of 10 year treasuries over the last couple of weeks, if it's sustained through the end of Q2 would CFC and other lenders be forced to recognize the drop in their portfolios, which are generally indexed to 10 year treasuries? Or would they be able to hold the loans at face value on the books until forced to either sell or mark to market by their auditors?

Thanks for any guidance people have to offer.

Home Sellers Do Better Without Agents, Study Says

In One City, Home Sellers Find It Pays to Cut Out Middleman - NY Times

The conclusion, in a study to be released today based on home-sales data from 1998 to 2004 in Madison, Wis., is that people in that city who sold their homes through real estate agents typically did not get a higher sale price than people who sold their homes themselves. When the agent’s commission is factored in, the for-sale-by-owner people came out ahead financially.

I am puzzled by Bill Gross's forecasts of the 10yr Treasury at 6.5% and global growth at 4-5%.

I was too. He's a really smart guy and all the sudden he starts saying really stupid things.

The only explanation I can come up with is that the Fed hiked rates on Thursday using Bill Gross as a proxy.

That explanation sits well with me, because that's exactly what I'd do if I were a Fed chairman faced with an exploding credit bubble on Wall Street, but fearful of the political consequences of bursting the bubble directly (with an official rate hike).

See my previous posts...

I don't really believe this because I don't have evidence, but it fits.

I'm waiting for someone else to offer an explanation as to why interest rates should rise to 6.5% when core inflation is on the decline and the foundation of consumer finance, and the bulk of the U.S. economy, is being eviscerated by the housing bust.

One is foreign central banks are raising rates and the US has to match or the dollar will fall off a cliff. I believe the catalyst yesterday was the ECB hiking rates 25 bp, not what Bill Gross said.

That doesn't help the dollar if it causes the economy to fall off a cliff.

Also, by that logic the Yen should be completely worthless.

ac said: "...I'm waiting for someone else to offer an explanation as to why interest rates should rise to 6.5% when core inflation is on the decline and the foundation of consumer finance, and the bulk of the U.S. economy, is being eviscerated by the housing bust."

Me, too. It doesn't make any sense even if you do believe the "housing bust" story. The Fed would be responding by easing to stimulate the economy.

Nothing "informational" is going on in the markets, it's just noise. Ten-year rates spiked-up and the stock market had some big down days this time last year, too.

Meanwhile, recession looks less and less likely.

Sebastia

Meanwhile, recession looks less and less likely.

Years from now we'll be telling our grandchildren about the horrors of the "Great Mid-Cycle Slowdown".

arun, to get "deep" negative MEW you basically need a number of things to all happen at once:

1. People stop taking cash out
2. People take new amortizing loans, or refi their IOs and OAs into amortizing loans
3. People stop lengthening their loan terms (go back to 15s and 30s instead of 40s and 50s; the longer the term the slower the principal paydown)
4. New home sales fall relative to existing home sales (new home sales add to the outstanding mortgage balance because they are "paying off" a commercial RE/development loan with a residential mortgage loan)
5. First-time homebuyers exit the market
6. RE values fall or flatten
7. People put disposable income into paying down mortgages instead of investments

Yes, we could certainly get all of that at once, although I for one wonder how much disposable income homeowners have to pay down mortgages with, or how many can afford to "retrench" into a shorter-term amortizing loan. In any case, several of these things at once can and I suspect eventually will bring MEW to zero or negative for at least a quarter before this is over, but it will take a while to happen and it's not the sort of thing that goes "deep" negative without a perfect storm.

revro said: "its sad to say, but there are two kinds of people, clever and not so clever, and sadly there are too many not so clever people, who as i already said are "not so clever" and tend to end up in debt which they cant pay off..."

Considering that we're living in the largest and wealthiest economy on Earth, where even a lot of our "poor" have automobiles, color TVs and microwave ovens, I believe that the activity of the more-clever overwhelms the activity of the less-clever on a net basis.

The bears here don't seem to think so, apparently choosing to believe that our people, country and economy are defined by the stupidest, greediest and most-irresponsible among us.

Sebastia