"Fool me once: shame on you. Fool me twice...UH...fool me you can't get fooled gain.

Every month or so BB gets out and says he is worried about inflation until he lowers rates again and again. We'll see...

That's because politicians are getting their butts kicked in the approval ratings due to exploding gas prices. Don't think he wouldn't be handing out dollar bills on every street corner if if it weren't for the flight to commodities.

There has been and will be no "printing" as I've said (and just about every credible source) for some time now. The money supply has actually decreased over this as money and credit has been destroyed far faster then the Fed can put it into circulation. That was the central problem. I have no idea why you or other obsess on thinking this way when, clearly, it has never happened.

Also if you think any of this is going to turn around now, you're mistaken. My tin foil hat input says that oil/commodity prices are only likely to come down in time to save the Republicans in the fall and keep the white house. That way with things on the upswing and problems easing, people will be less likely to want to change administrations over to the other party. That has been the driver behind ALL of my thinking and my predictions about interest rates, the stock market, and everything else.

The credit crisis is contained, as the Fed has stepped in and created these facitilites. The FFR has bottomed, and will rise at least 1/4 point this year, if not a full 1/2. Inflation will be tamed, and oil will magically start its decline in time for the elections.

Get with the program.

Clinton,

I have been hearing a lot of rumbling about how increased interest rates on fixed-rate mortgages a year from now will offset any decline in house prices. Don't believe it. Because houses are rarely purchased with cash (especially in this economy), a house is worth what someone is able to pay per month on the note. That means that the 400k house at 6% has to come down once the rate moves up to 8%. Either the house gets sold or it doesn't. The seller can't control the interest rates any more than he/she controls the entire market. The seller can only control the price.

FWIW, 8% interest would be the nail in the coffin for sellers. This whole frenzy was fueled by people 'moving up' from a small bax into a big box, and selling the small box to afford the down payment on the big one. If people can't borrow the money for the big box, they'll stay right where they are.

Lurker, if you've lurked on this place for a while now you know...a house is NOT an investment. It's a house. You buy for a lot of reasons, and not all of them purely financial. If you choose wisely and buy what you can afford in a place you like, you'll never have to worry. No matter what the timing or interest rate.

if you need more space, RENT IT.

I whole heartedly agree with tj. If you are NOT planning on staying somewhere for a while, rent. I have no idea why anyone would buy without a longer than 5 year timeframe on the transaction. Rather old fashioned way of thinking about it, but the transaction costs alone don't justify the purchase.

There's nothing wrong with renting at all! You buy when you want to toss down stakes only. And sometimes not even then if it doesn't make any sense.

Bernanke is merely following the market. When the market took bond rates down, the Fed followed, and now that rates are rising...

The problem is that rates are rising across the globe, as is inflation. So standing pat on rates, or even raising them slightly, does not get the Fed "ahead of the curve". A reactive Fed will not get the job done -- they need to be proactive to hurt the speculators.

Today, Bernanke ran a risk. As CR and others have pointed out, the Fed almost never comments this much on the dollar. If speculators do not markedly retreat in the face of his dollar defense, they become emboldened. Given the lukewarm retreat today, I suspect this is likely.

Question: why didn't BB make his comments in conjunction with coordinated intervention by Treasury and other G-7 countries? Seems like a missed opportunity.

"The US has been the main culprit behind the destabilising global imbalances of recent years and its massive current account deficit absorbs about 75 per cent of the world’s surplus saving"

It takes two to tango, man.

Our trading partners have been happy to sell to us even though they knew they were getting nothing particularly valuable in return. Just like the "vendor financing" scams of the dotcom era.

Now China is sitting on a pile of dollars that stretches to the moon, and everybody wonders why crude costs $130.

There may well be a bubble in commodity prices but many backs will be broken before it bursts.

Why must everybody always think "buy". Why buy when you can rent? Get a bigger HOME for your family. You need a HOME not real estate.

Why risk the downside? Financially it's crazy!!! "

Do it for the tax write off" said the realtor.

Don't listen to them. Get your family a nice HOME and avoid the sleepless nights and stress.

Just to clarify, I have also had child number 2, own a twin I live in, and need more space.

I have been a saver all my life and am definitely looking to plunk down the stakes and get the nice house we are going to stay in.

The rental.... is delay, children go to different school. (wife not like that)
Also, I own another house -duplex- that is rented. I like being the LL rather than the tenant. I could move back into the 2fl of the NOO but, I think I'm too old for that.

Anyway, kids, permanency, schools, roots, all those other things have been considered and the decision is to buy a 4BR house we can call home. Not sell for 25 years...

So, question is -- where will rates be in a year. I hear the comment, later is better, b/c if f prices drop and rates go up... prices will come down more.

crystal ball not working....

So, question is -- where will rates be in a year.

Here's what I think, which could be worth something or nothing...rates have been disconnected from what the Fed did for quite a while now. The Fed has nowhere to go but up. But does that mean mortgage rates will climb proportionally? Most likely not. The need for return is greater here, and as soon as there is any sign of a stabilization in the housing situation, lending will unstick.

That does not mean that we'll go back to badly underwritten loans with no docs, but what it does mean is that rates will flux in the high 5's to high 6's for 30 year notes for the foreseeable future, and accordingly for other mortgage products. I just don't see a rise to anywhere near 8% because of market forces.

"It unusual for a Fed Chairman to comment so directly on the dollar, and this probably means rate cuts are off the table for now - even if the economy weakens further."

Yeah, but it's not unusual for the Fed to jawbone inflation expectations. A further weakening economy come Fall and these guys will cut in a second. They just hope like hell that oil and inflation comes down by then due the slowdown. Fat chance, as the idiotic stimulus will only prolong fake economic health.

This is especially true now as the Republicans don't want to watch an October stock market crash just before the election.

They'll cut in Sept.

Clinton: do you have to BUY a house right now? Why not just rent for a while?

continuing to call it a "credit crisis" is shockingly unaware too.

Ciao
MS

if bernanke chooses to tighten 4th qtr 2008 (which i doubt), how will he do it? in increments of 25bps? i turly think this tightening to which he and the mkts are now referring is in no way similar to volcker's of 1979-1980. the mkt will laugh at the 25 bps in december..inflation will accelerate then and there..the tightening that is required to salvage the usdollar is massive, nasty...going from 2% to 6% in one move, that kind of thing..however, i remain a guy who is in the dollar-is-doomed camp no matter what the fed does, short of raising rates to 15% overnite in the next 6-9 months. the cake is baked on this one..it cooked for 37 years (bretton woods, nixon). its time is up..there are too many us dollars out there, whether on the streets of beijing, moscow or on our computer screens. the world is drowning in them as nearly 70% of world's currency supply is in us dollars. this whole credit crisis hinges upon the dollar's performance going forward.if she weakens, rice and flour and oil and wheat and lumber and nat gas and silver and etc...they all go up, causing suffering for 98% of the world's population. if the dollar holds and stabilizes here, we can continue this ponzi scheme for perhaps another 5 years..

Well if Bush and Israel and the Neocons attack Iran, things will get really bad. Of course what do they care? They haven't cared one whit for all the damage they have inflicted on the US (much still to surface in the future) already. And of course the public is too ignorant and duped to understand much if any of what is going on. Being glued to Israel is a deadly embrace for the US that may yet take us down to the depths of disaster.

"Bernanke Concerned about Weak Dollar, Inflation"

It's unanimous.

For Clinton/others:

I'd guess rates will be around the same level they are now in a year, for what it's worth. There will be immense political pressure not to put further constraints on the housing market as it continues to decline, and the Fed is interested in controlling inflation expectations, which is very different than actual inflation. Higher rates slow the economy, and no matter how tough BB talks about the dollar, his actions are still helicopter Ben, Congress has been cheering him on, and that's unlikely to change while the country is in a recession.

What the other people are saying is that it's far easier to refinance if you buy something for 20% less with a 8% financing rate, than to get the lender to write down 20% of the principle later, if the payments are the same. However, if the value drops 20% and the rate stays around 6%, it's pretty much a no-brainer (from an investment perspective). OTOH, from an intangibles perspective, if you want to own something, and you can afford it, feel free to buy now; better to feel good about your life than just save money (even if it's a lot of money).

That's my opinion.

Northern Trust enters ETF business with single-country funds

Sweet , I'll take two helpings double short USA please, and a side short UK. And a little short australia for desert.

what you say is not true by my understanding.>>

I do not need evidence to know that the tooth fairy is made up. Reliance on "official stats" is where you believe that the tooth fairy (and the easter bunny) are alive and well.

Good luck with whatever your reality is. It certainly is not shared or observed by many people in this thread and in the real world.

Ciao
MS

Clinton and other lookers:

I don't have a crystal ball regarding rates. But consider that if you tighten your belt a bit and put more into the principal, that will go a long way towards mitigating the effect of a higher rate. I understand your other motivations, I have a youngish kid myself, so I don't blame you for looking. I'd rather wait a bit and get in closer to the bottom in market price than get a great rate on a ridiculous valuation that I'll then be paying on for 20 years.

Thomas

Don't worry Ben, congress will take care of old Bucky, it gonna take a lot of printing to pay them boomer's.

My rent reductions and what I am looking at spending on housing when I purchase more than makes up for any inflation in commodities.

Exactly chris, which is why I stick with my definitions. Right now we have massive asset price deflation while we have increases in prices of commodities. these two things do NOT live in isolation, which is why the CPI is calcualted as it is.

What people do here is take their political agenda and fit whatever facts they like to make it so, instead of looking at reality and trying to figure out what is actually happening. And right now there are two opposing forces to reckon with...asset price deflation and commodity price inflation. And actually, on balance, asset price deflation is greater.

I also am concerned about the weak dollar.

Best regards,
kett82 | 06.03.08 - 12:57 pm | #

88888888888888888

A lower dollar is necessary to begin to balance our trade account.

In regards to the inflation/deflation debate all I can say is "wow".

You're both right and you're both wrong. "It's not a stock market, it's a market of stocks."

While the above phrase or analogy isn't perfect (becuase stocks exhibit much higher correlations) it should still help illustrate the point. You can have both inflation and deflation at the same time.

I'm sure you're arguing about the net summation of inflation/deflation across all the various markets, but you don't necessarily talk about it as such.

I respectfully disagree. Americans could spend less, and save/invest more.

And how do you suggest this happen? What if I said "fat chance". Then what? Again, you have to deal with reality, not with your way of thinking or even mine, but with what is likely. This is about as likely as a comet hitting you today.

Americans could spend less, and save/invest more. Also, too many foreign currencies are held artificially low. This really distorts trade.

One needs to be realistic. Americans are not going to save and invest voluntarily and foreign currencies that are "too low" are not going to revalue just to suit our needs. The only way to balance the trade is to do it AUTOMATICALLY and that is via a depreciated dollar. That is the ONLY way the balance will be corrected.

To those that say the Fed is not printing, you are correct but are also missing the point. Many key foreign central banks ARE printing like mad, and buying treasuries and agencies with the printed money. Still think this printing has no effect on the US just because the Fed isn't printing? Wake up!

The massive bond bubble is a direct result of all of this printing/recycling as is $4/gal gas and GSE propping. These distortions are neither stable nor sustainable. The crack-up-boom and commodity hoarding rages on in these hyperinflated currencies and this impacts the US in direct and powerful ways. Once the FCB's are forced to stop printing and recycling (which they inevitably must) then you will get to see what the true interest rates are.

ipodius-

"Petey, i've said this before. We studied this in grad school and we all thought the same thing. "

hahahahahhaah

grad school? grad school?

hahahahahahahhha

No, angry. Our imports are declining and our exports rising. The depreciating dollar is having an effect. But there is a long way to go and a lot more depreciation needed before balance will be restored. You have NO idea how low the dollar may (will) go.

Sebasstion-

You can loan me a billion dollars at 1% and tell me it' a great rate, but if I can't make the payments and I'm completely dependent on asset to go up so that I can re-fi, then it doesn't matter if I got a "great rate".

Take the above fundamental and apply it to large swaths of population. You say "it's only California. That's 15% of the US population!!! Why do you think they have so many electoral votes??? "It's only Florida". Again, look at electoral votes and dollar-weight the risk.

Who gives a fuck if Iowa real estate or Tennessee real estate is unchanged. Get a clue man. Here's a headline - North Dakota real esate up 50% - .... would it matter? North Dakota has a population of 600,000 people in the whole state! And... you can buy a home for $60k up there. Those real estate gains would pale in comparison to the wealth destruction of where 75% of the US population lives.

We then appreciated the thought that went into it and realized that we couldn't do any better. So there you go.
ipodius | 06.03.08 - 1:18 pm

I'm not talking about how inflation is measured, I'm talking about why the measurement of inflation has been changed (if, as you say, none is any good, or none better than the other, there would be no reason to change in the first place).

There's a big difference between how and why.

The "official stats" have been redefined for reasons of political expediency, and no other. The "official stats" are propaganda.

I'll bet that if one were to measure the current rate of inflation using the numbers Paul Volker was subject to, there wouldn't be such a disconnect between the "official stats" and the reality on the street.

ipodius-

even more funny that you resort to the W2 to "prove" your schools worth. I'm sure plenty of Bear Stearns MBA's in the CDO department would have given similar logic a year ago. Only adds to my point.

really Interesting Times? is that "trolling" to take exception with the premise that because a bunch of MBA students say something is good, that it is?

Byzantine_Ruins

Thanks.

let's go ahead and add LTCM and Global Alpha to the proof that MBA's aren't all that they're cracked up to be.

My favorite quote was from one of the two head Global Alpha managers in early 2007 regarding the lumps they had taken - they said "leverage is not a parameter that we use when evaluating risk".

sssssssssssssssseriously?

let's go ahead and add LTCM and Global Alpha to the proof that MBA's aren't all that they're cracked up to be.

OK, so GWB is from CT, so that means everyone from CT is incompetent. He also lives in TX, so everyone that lives in TX and is not originally from there is also incompetent. Some doctors make diagnosis mistakes so, therefore, all MDs are worthless.

Perhaps some of you can use a logic course...

Ipodius,

C'mon man. You used that very logic by implying that "we did it in grad school and therefore it is so".

I don't believe that I said anywhere or anytime that every MBA grad is worthless. My point is more that their worth is generally completely uncorrelated to their having gone to grad school.

I have friends who have gone to Columbia, Berkeley, U.Chicago (tons), Darden, etc.

The ones that were great going in were great on the way out, the ones that were average on the way in were average on the way out, and a few that were below average... are worse off, because they drink too much of the Koolaid (like EMT).

Point is, I don't think grad school is well correlated to a person's aptitude. Let me add that the great minds I know that haven't gone to school are still great minds. The 20 wealthiest people I know... not one of them finished grad school (3 went), and the rest never even attended.

OK, so GWB is from CT, so that means everyone from CT is incompetent. He also lives in TX, so everyone that lives in TX and is not originally from there is also incompetent. Some doctors make diagnosis mistakes so, therefore, all MDs are worthless.

Perhaps some of you can use a logic course...
ipodius | 06.03.08 - 1:50 pm

Logic course? Me? Huh?

The original premise was more like, "I'm from Kansas, and everyone from Kansas is smart, therefore I'm smart."

My logic is more like this: GWB has an MBA from Harvard, and not many wits about him, leading me to the conclusion that an MBA (from Harvard or elsewhere) isn't much to go on when trying to determine the veracity of someone's statements.

BTW: What's your IQ?

Peter W,

Bush is obviously a special case. His Yale undergrad education and Harvard MBA were both provided care of the dynasty. On his own merits, he'd have attended community college. (And he'd have been drafted.) We can't judge run-of-the-mill Harvard MBAs based on an exceptional case.

ipodius | 06.03.08 - 2:14 pm

I asked why the measure had been changed, and offered my opinion as to why. My opinion was not political, it was that the measure had been changed for political (not accuracy of measurement) reasons.

Byzantine_Ruins was kind enough to provide charts to illustrate my point.

My other point wasn't about IQ, per se.

Petey, those chart posts were from some source other than official government numbers. Nice, but I choose to play with the cannonical set of numbers that the big boys use to set policy.

That's what I mean by leaving the agenda at the curb. I have no agenda other than reality. And the nice thing is you can get all that data just from the official sites, pop them into your own spreadsheets that you've developed and draw your own conclusions based on your own analysis, not based on someone's else's interpretation of what the nubmers ought to be. That's what I meant by IQ.

Individual situations differ, so it is pointless to comment on whether it's a bad time to buy a house for someone whose situation is an unknown. I'm looking to buy because my rent keeps rising, especially with the rising "pet rent". I'm paying over $1.5K monthly rent, but I can't rent a house because almost all SFH landlords don't allow pets. Rent of a SFH in the area I'm looking is in the $2.2K range, where mortgage (P+I) assuming 20% down, 30yr fixed, is $2.3K.

Angry. Brad Setser who knows as much as anyone about the trade balance opines that the main reason for the improvement is the drop in the value of the dollar. Imports cost more with a weak dollar and thus decline. Exports cost less with a weak dollar and thus increase. It is virtually inevitable.

Re: inflation and dollar depreciation. It is virtually impossible to make an entire nation change its habits voluntarily. That is why economic adjustments have to come from changes that have nothing to do with individual wishes. Hence governments solve deficits via inflation and they solve international imbalances via currency depreciation. The US thus faces in the future a cheapening dollar and higher inflation, with no doubt about it.

Can't wait to see BB react when the currency market plays a little game of chicken with the dollar.Slim odds that he would raise rates much to defend the $.Let the game begin.

"And here's the thing: Current capacity utilization numbers aren't inflationary. If anything, inflation is going to start falling, regardless of what J6P knows or thinks he knows.:)"

So, Sebastian, if Joe Six-pack cannot understand your Wright Model B or whatever other model you enjoy using, then inflation doesn't exist?

Let's spell it out in simple terms for you: prices are going up, salaries are not keeping up = people are becoming a lot poorer.

Plug that into your Wright Model B and see if that yields inflation!