How far will mortgage rates fall?
Submitted by
CalculatedRisk on Thu, 03/19/2009 - 10:45am (162 comments)
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The Fed is now interfering all across the yield curve, so predictions based on historical trends are probably not useful.
We're gettin' pretty close.
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This comment thread has been HALO-IZED by CRbot.
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Since the Fed has gone to the last bullet, that bullet has variations.
The Fed can Go to Fannie and Freddie, and offer to buy up mortgages at 2%. This will force the mortgage rates down regardless of other long term rates.
typo.
2% Yikes what will that take? 2 trillion dollars in treasury purchases?
The Latest from Ritholz:
The Multiplicity and Complexity of Phenomena
Hey CR --
Typo: You meant to say the 10-year yield is 2.58%, not 4.58%.
Also note that they are intervening directly in the MBS market and in quantity. So again historical data may not tell us much.
If Bill Gross wants mortgage rates at 4.0%, the government will arrange for mortgage rates of 4.0%. That's my prediction.
Hey UB,
Re: If the Fed buys Ten Year treasuries with the goal of 4.0% mortgage rates, they might have to push Ten Year yields down under 2.0%, maybe close to 1.5%.
That also means the 3-month will be in sub zero territory for a long fucking time! :-$
Con-eeche-wa, Barking San.
print, print, print....
all i can tell you is that my ARM is resetting on May 1 to 4% and my payments are dropping over $450/month. so much for the ARM reset doomsday scenario.
well, the ARM reset doomsday scenario involved popping the housing bubble. Since the bubble has already popped, the housing market is in the toilet and it triggered a sever global recession, yes you ended up with lower rates. But doomsday came anyway, just earlier than expected. And worse.
Nemo+1
diminishing returns
Banks "need" to make more money. That means widening spreads. Any evidence recently of widening spreads? Well then, why does anyone think mortgages will be any different? Mortgages tend to track the trading value of the 10YT.
Calculated Risk: 30 Year Mortgage Rates vs. Ten Year Treasury Yield
We just don't have any data for the curve down at 1.5-2%.
As many will reall:
Although division by zero is undefined with real numbers and integers, it is possible to consistently define division by zero in other mathematical structures, for instance on the Riemann sphere. See also hyperreal numbers and surreal numbers where division by non-zero infinitesimals is possible. If a number system forms a commutative ring, as does the integers, the real numbers, and the complex numbers, for instance, it can be extended to a wheel in which division by zero is always possible, but division has then a slightly different meaning
dreadloard
once the Fed does that it will chase everyone else out of the market and the fed will be left as the only buyer... making it harder to keep rates low.
flex
here comes the US hyperinflation(?) scenario. Enjoy the savings...
Edgewood 2 log cabin kit: about $50k from Appalachian Log Homes, that includes windows doors, dry roof, etc.
Who gave the Fed authorization to print all of this money?
DUH! The US Govt.
Same old stuff going in circles again:
the typical difference between mortgage rates and the 10-year treasury yield—known as the spread—has been roughly 1½ percentage points.
Our Brave New World in pictures.
Scenes from the recession - The Big Picture - Boston.com
> Con-eeche-wa back at yah man, how's it going? This system almost works again and is a great past time, when you have time ....
50% of americans only have one month's savings, posted by another yesterday
http://www.marketwatch.com/news/story/Fears-grow-more-consumers-just/story.aspx?guid={504D22FD-CC66-4FC1-BF8D-2F199C2AD042}
Doesn't that mean that if these 50% americans lose their jobs, they're probably gonna have to sell their houses/walk away from their mortgage? That means a flood of houses will enter the market, making current $4000 detroit houses and $20k florida houses seem expensive
If the mortgage rates get too low, doesn't that make the interest deduction basically worth nothing? DONT_KNOW
BTW, the rally in the 10 year really peetered out today. Please tell me, BB, that debased our currency doesn't get you just a one day rally.
I've been meaning to go back to that story of the brokers daughter that had to wait for her nose job, because Daddy wanted to save some bread ... hmmm, now where is that? :-[
The only benefit of lower mortgage rates is to the refi industry and current home owners. Home sales will not make a real difference. People payment buy. High rates mean houses go down in price. Low rates mean prices will go up. X amount dollars a month. Bubble is the example on steroids. True mortgage cost hidden from the buyer made prices skyrocket! :-$
The Latest from Mish:
Bullish $HUI Count
Are you afraid of hyperinflation yet enough to buy a house? What else are you going to do with your savings?
A couple of trillion more and Ben is going to win. He is INSANEEEE. You wanna test him? Well do you... punk?
"all i can tell you is that my ARM is resetting on May 1 to 4% and my payments are dropping over $450/month. so much for the ARM reset doomsday scenario."
Recast and reset are two separate issue. There are a significant number of ARM mortgages that won't be saved from default regardless of what they reset to.
The Latest from Denninger:
FED: Collateral for TALF Expanded
I guess horse & cow manure is too useful to be purchased for this purpose. We wouldn't want to tie up anything of value.
Also.. the yields on long bonds are going back up. I need to just start trying to make money on things completely irrationally overshooting on the day of an announcement.
"50% of americans only have one month's savings, posted by another yesterday "
A lot of these guys are renters; they don't get the 6-18 month free rent while the servicer gets around to foreclosure. If they can't make the rent, they're out on the street immediately. See, there are advantages to homeownership DONT_KNOW.
My wife and I bought some items recently off a single, older woman who was desperately trying to make her rent. A used bookseller pal routinely has people coming in with treasured, collectible books that they're selling to make the payment or make the rent. It's bad out there, among the people who make no noise. Nearer breaking point that ever before.
"50% of americans only have one month's savings, posted by another yesterday "
""A lot of these guys are renters; they don't get the 6-18 month free rent while the servicer gets around to foreclosure.""
isn't ownership rate like 68% or something? Bush wanted to have a ownership society
I don't care because stupid me paid off two mortgages, while losers get free government cheese.
Bob: "Hey Joe, check it out... mortgage rates are at 4.2%!"
Joe: "I miss electricity and running water."
Oh yes, here it is, but damn, that took too long:
As Times Turn Tough, New York's Wealthy Economize
As Times Turn Tough, New York's Wealthy Economize - WSJ.com
The financial markets were simply more out of whack than her 16-year-old's proboscis.
"The other noses were more prominent," the stay-at-home mother from a tony New York City suburb in Westchester County told her 16-year-old daughter. She could get hers done when things settled down.
See also: Nose job nosedive: Cosmetic surgery business sags with the economy
404 Not Found
=-X
goadam, you should consider a home equity loan and a yacht... do it for america. Ben can't inflate credit all on his own. Somebody has to borrow money so that the banks can securitize the loans and sell it to Ben. Its in your hands. Don't be a lousy saving renter. You might as well join Al Qaeda.
Yes we shopped for America in 2002. I was thinking of buying a third house and burning it down.
[If the Fed buys Ten Year treasuries with the goal of 4.0% mortgage rates, they might have to push Ten Year yields down under 2.0%, maybe close to 1.5%]
Or... there's an extended period of panic in the markets pushing all capital into the ten yr.
Wow, 4% would be a stretch. According to an awesome chart on energyecon's blog, US Treasury has to roll over $1.25T debt in the 2nd, 3rd, and 4th quarters this year. Add in this years budget deficit borrowing of $1.5T, and... Wow. Lotta supply out there. Not to mention that the Chinese, if they had ANY brain, should be selling US assets and buying commodity-related currencies and companies.
...Gross (and GS) might get a beatdown eventually, exploiting the system works only so long.
P.S. If prime mortgage charge-off rates hit 10% by the end of this wretched cycle, those 4.5% mortgage loans are going to be a pretty bad trade -- and I don't want to pay for them as a taxpayer.
10 Year @ 2%...a reward for savers!
Please publish the data set.
LUXEMBOURG (Reuters) - A U.N. panel will next week recommend that the world ditch the dollar as its reserve currency in favor of a shared basket of currencies, a member of the panel said on Wednesday, adding to pressure on the dollar.
Currency specialist Avinash Persaud, a member of the panel of experts, told a Reuters Funds Summit in Luxembourg that the proposal was to create something like the old Ecu, or European currency unit, that was a hard-traded, weighted basket.
mortgages: the new government cheese.
"isn't ownership rate like 68% or something? Bush wanted to have a ownership society"
So did Clinton!
OT-
There's a bet on whether TimG gets to stay at Treasury:
Bespoke Investment Group: Geithner Gone Chatter
Maybe BHO should should take the bet and then keep him; That's one way to help pay down the debt;-)
here we go...home ownership graph for 2008
Housing Vacancies and Homeownership - Fourth Quarter 2008: Graph of Homeownership Rates
looks like around 68% average. So if 50% of 68% have a one-month savings, and have to sell their house if they lose their job.....that's alot of houses to come online in the next few months.
Don't be a Bottom Spoiler, ScroogeMcDuck.
"Don't be a Bottom Spoiler, ScroogeMcDuck"
lol. But it does make those 4k detroit houses and 20k florida houses look awfully risky
The Fed is now interfering all across the yield curve, so predictions based on historical trends are probably not useful.
Some of those right wing nutter blogs suddenly don't seem so nutty now.
It's a conspiracy by the central banks to create an integrated global economy run by the bankers.
One gigantic 3rd world economy.
Think of the the Federation in Star Trek.
Except the Enterprise is a 40 year old Winnebago that nobody's been able to start for 6 years.
goadam, thats the spirit. but only if you get a mortgage for the house you are about to burn down. paying in cash is for terrorists.
I want one of those 110% mortgages they used to give out. With the other 10% I'll buy crap and throw it in the Hudson.
Low 10-year Treasury yield is important to the Fed for the very reason CR mentions. But anything over 10-year not only isn't important but will basically be abandoned.
Look, already, only one day later the yield on 30-year and 10-year is starting to diverge. 30-year yield will soon be 4.5% to 5.0%.
You know what this country needs? More prisons. You can never have enough prisons.
Ahead of a major bond sale next week by California, Fitch Ratings on Thursday cut its "A+" rating on $47.4 billion of state general obligation debt to "A" with a stable outlook, citing falling revenues and the weak economy in the most populous U.S. state. =-X
UPDATE 2-Fitch downgrades California GO bonds to 'A'
| Reuters
Help. Anyone have an idea how much a 2-story custom log home structure with a standing seam metal roof might cost to build new, in dollars per square foot?
Need a location. Probably $200/ftsq in NE.
You'd have to be nuts to buy California bonds.
rich, it isn't just mortgage rates they are trying to drive down. they are trying to cut yields across the curve to force people out of the treasury market and into something more risky... like stocks or corporate bonds or absolutely anything else. Using that logic there isn't any reason why they wouldn't intervene in the 30yr bonds.
Two-ply going on a single.
I also disagree with those who say the Fed's strategy is backfiring on them by weakening the dollar and driving up commodities.
Slow, non-confrontational currency devaluation is exactly what the Fed wants. Promote exports. Impede imports. Prop up housing prices. Devaluate debts. Little by little. Like Argentina on slow burn.
Silver Wheaton, which started the day at around $7, and Alcoa, which started around $5.50, both just hit the $1 up handle for the day.
What does that tell you about inflation, eh?
What if every American worker decided to make it their goal to save 2 thousand dollars in cash in their home safe? What would be the result of this campaign.
Here's how we can fight Bernanke.
I'm announcing here on CR for the first time;
The "Save to Save America" Campaign.
Save only cash money in your home safe or a safe place in your house, not in a bank.
Uncle Sam wants you to start saving money now, to help Save America. My new bumper sticker; Save to Save America! Will be free to anyone who requests one, while supplies last.
You Can help Save America by participating in this campaign locally. Just have these bumper stickers printed up with the slogan; "Save to Save America", and distribute them free of charge if you have the means. Thank You.
Historical data should be taken with a grain of salt since, as others pointed out, intervention in markets changes the game.
Also, the period from 1971 until now could be viewed as a continuous economic regime. As far as economic analysis goes, the predictive accuracy of current models outside of that regime are slim to none.
Finally, lower rates will cause real deflationary pressure. Stick with me here people. Our wealth has been a measured of the rate at which money changed hands not the absolute level of real money in the world. That is painfully clear. It wasn't just the 30 mortgages for $X that were written that generated $30X on the balance sheet. It was that ownership of that 30X was changing constantly.
Example - You and I stand on a street corner to sell candy bars. We each have 100 candy bars but only one dollar bill between the two of us. So I buy a candy bar for $1 and now you have 99 candy bars and $1 of revenue. I have no money but 101 candy bars. So you buy a candy bar from me for $1. We both have $1 of revenue and 100 candy bars each. Continue this 100 times and we each have $100 revenue and 100 candy bars.
We measured the change, not the absolute number. Even if the printing presses hit critical mass and hyperinflation occurs the real value of goods is coming down. It has to. Inflation and deflation are man made - they are tools of finance.
The analogy of selling each other candy bars is flawed; you forgot that Beavis & Butthead ate all the candy bars, so there's $200 of candy "sold" but no assets.
I wish I could find the YouTube clip to demonstrate this.
I wonder if Ms Obama will continue her love affair with herself and provide some leadership like The Fords back in the day:
FYI: White House chefs have long documented their years working for various presidents. “The Centennial White House Cook Book,” written by Grover Cleveland’s chef, Hugo Ziemann, in 1890, described the elaborate 10-course dinners served on a regular basis during Cleveland’s administration, mirroring the Victorian customs of the times.
Later first families have reflected their times in their eating habits as well. White House chef Henry Haller, in his “White House Family Cookbook,” writes approvingly of the thrifty menus Betty Ford gave him while her husband was grappling with runaway inflation and a difficult economy.
“Raising four children on a Congressman’s salary, Mrs. Ford had learned to stretch her food dollars,” Haller writes and includes her recipes for a dressed-up tuna noodle casserole and homemade cereal.
Also see: Ford's decision to undertake such a project followed on the heels of her own battle with alcohol dependence and opioid analgesic addiction[1], and after her release from the U.S. Naval Hospital, she pursued the goal of creating a treatment center that emphasized the needs of women.
>> First you see the glossy fashion magazine covers and TV shows, then a sudden interest in isolation and then, the heart of darkness and YouTube - Apocalypse Now - Helicopter Attack- Kilgore
Morocco Bama says:Today, 12:06:26 PM PDT
Who gave the Fed authorization to print all of this money?/i>
Just two groups; those who pulled the lever last November and those that did not.
I hope this shuts up all the folks who have been shorting long term USTs for the past 6 months. Why anyone would try and short a security that is both issued and purchased by the US Gov while it has an incentive to keep the price high is beyond foolish.
Michael,
a whole lot more home robberies.....
That's what guns are for. A deterrent.
Dust Bowling for Dollars says:Today, 12:27:47 PM PDT
You'd have to be nuts to buy California bonds.
That's really bad advice IMO. Double, sometimes triple tax exempt, high yields, short call dates, growing assumption of Federal support. I won't say Cali Munis are a good deal but there's growing evidence that old metrics are no longer valid.
What if every American worker decided to make it their goal to save 2 thousand dollars in cash in their home safe? What would be the result of this campaign.
A field day for crack and meth addicts?
I'm hearing some chatter that banks (specifically countrywide, but others as well) have finally decided to start foreclosing again and to start selling their shadow inventory of reo properties. The logjam may finally be coming undone.
Like...something changed within the last 48 hours...
Has anyone else heard anything?
"I hope this shuts up all the folks who have been shorting long term USTs for the past 6 months. Why anyone would try and short a security that is both issued and purchased by the US Gov while it has an incentive to keep the price high is beyond foolish."
It just gives me a more attractive entry point. Your faith in your incompetent leadership is misguided.
Gavshire - so the Japanese economic leadership for the past 20 years was competent? Give me a break and brush up on your history. The buffoons in Japan managed to keep rates declining for 20 years and they ended up well below where we are today pretty quickly and went much lower - remaining there today. Wake up and stop with you pompous arrogance. Competent or not, you cant fight City Hall, and if they want rates low then they're going lower. Its not that complicated. it only stops when we have asset inflation and if you want to bet on that buy stocks or RE.....
Silver Wheaton, which started the day at around $7, and Alcoa, which started around $5.50, both just hit the $1 up handle for the day.
What does that tell you about inflation, eh?
It tells me that speculators THINK there will be inflation. Check back in a month.
The Latest from Denninger:
Actions Have Consequences
That's definitely not the first time I've heard of that lame campaign from Michael. Someone stop him.
I saw Watchmen last evening. The premese of the movie is as follows;
The Watchmen are the Bilderberg Group in disguise, playing God.
Rioters need to have this;
Thor Shield Anti-Taser/Anti-Microwave
http://www.youtube.com/watch?v=Y__ZmYhtbzo
America: Freedom to Fascism - Director's Authorized Version
America: Freedom to Fascism - Director's Authorized Version
The new Alex Jones video;
The Obama Deception
The Obama Deception
Clear and concise. The taxpayer is prepared to exercise their 7th amendment rights in a tax revolt for government failure of it's fiduciary responsibility to the tax payer. Send BO this link;
Red Beckman - Fully Informed Jury
Growing assumption of Federal support I did not consider. Is this a general assumption - they'll bail out anything these days - or a specific news item?
Buy the 10 yr. now on the assumption that Bernanke is going to buy.
Your 10 yr. will sell for more than tomorrow's 10 yr.
Rich:
I understand what you're saying about TBT but have been burned...so, are you walking the walk?
briwerk,
you gotta love his passion....gonna be honest and say when I was at stop the fed rallies it would have been better to have more bodies like him....
Thanks cd.
Wow is the Dow doing the kind of jaggy needle-moving-for-no-reason I was taught to associate with markets reacting to no news in the shadow of incipient disorderly trade.
Guest says:
Today, 3:41:58 PM
Gavshire - so the Japanese economic leadership for the past 20 years was competent? Give me a break and brush up on your history. The buffoons in Japan managed to keep rates declining for 20 years and they ended up well below where we are today pretty quickly and went much lower -remaining there today.
You think we'll have 20 years?!?!?!
Guest -- I've looked behind the curtain, and what I saw isn't pretty.
Our situation is far worse than Japan. I'm not even saying that now is a good time to buy TBT. I believe that at some point our government will either inflate, or default. And at that time, there will be a mass exit from treasuries.
In the short term, I'm still in the deflation camp.
Think of the the Federation in Star Trek.
Except the Enterprise is a 40 year old Winnebago that nobody's been able to start for 6 years.
ac | Thu, 19 Mar 09 14:25:37
So you mean like SpaceBalls?
What a ride. I was just thinking about collapse and its initial inconceivability, followed by rapid inevitability. Who in 1983 thought the USSR had less than 10 years to live? How about Germany 1942?
FWIW, the writing was on the wall for Germany in 1942; While the Battle for the Atlantic was in full swing, they'd already had 2 disastrous campaigns into Russia, expending enormous amounts of men and material. Even though their U-Boats were destroying vast amounts of allied supplies, Germany was essentially cut off from outside supplies, and since their campaign to capture the Caucasus was a failure, they were already beginning to run out of supplies. Rommel's defeat at el Alamein was a major turning point, as was their failure to capture Stalingrad.
Thus, the Allied commanders, if not the general populace, knew it was only a matter of time.
Slow, non-confrontational currency devaluation is exactly what the Fed wants
Slow isn't what i would call this move!
Bernanke's put is becoming worhtless.
.....BAD BANK! BAD, BAD BANK!
"FDIC Criticizes Massachusetts Bank With No Bad Loans for Being Too Cautious"
"....the FDIC recently criticized his bank for not lending enough, slapping it with a "needs to improve" rating under the Community Reinvestment Act, the Journal reported."
FDIC Criticizes Massachusetts Bank With No Bad Loans for Being Too Cautious - Local News | News Articles | National News | US News - FOXNews.com
(don't shoot the messenger)
BSR... interesting article.. but are there any legit sources? Fox news is completely unreliable.... not saying it isn't true... but fox news regularly prints outright lies
Gavshire - wow! you looked behind the curtain? They let you do that? You are the man!
God I admire you....
Please, stop taking yourself so seriously. If you think the US will default then you should forget about making any trades because all of your counterparties are going to default.
You guys are loony tunes. Thank God I got out of all my short positions a couple weeks ago.
Guest -- I exited my short positions 2 weeks ago as well. And unlike you, I posted it on this board.
I will not argue further with you.
I've seen conforming rates earlier today at 4.125%, but it would cost that well qualified borrower 4% to get it.
It seems like a lot of the smack talkers on this board post as Guest or Anonymous.
"FDIC Criticizes Massachusetts Bank With No Bad Loans for Being Too Cautious"
Clearly this bank is doing something right. We can't allow a shining example of prudence, then the all the big failed banks can't say they couldn't see it coming and that everyone had the same problem. Disgusting.
"FDIC Criticizes Massachusetts Bank With No Bad Loans for Being Too Cautious"
Consider the source - Fox News. This is pure politics - a continuation of the attempt to blame the recession on the Community Redevelopment Act (Liberals helping Blacks is the coded message). This rant has been discredited by the FDIC the Fed and at The Big Picture. Go to Barry's blog and search on CRA to be informed. And stop taking Fox seriously.
Really!
Jim
eilsen survey...
Nielsen: Financial ads boost consumer confidence - MarketWatch
everybody wants a piece of tarp or the damn bailout...
Check this out:
"suppose that deflation is proceeding at a clip of 10 percent per year. Then someone who borrows for a year at a nominal interest rate of zero actually faces a 10 percent real cost of funds, as the loan must be repaid in dollars whose purchasing power is 10 percent greater than that of the dollars borrowed originally. In a period of sufficiently severe deflation, the real cost of borrowing becomes prohibitive. Capital investment, purchases of new homes, and other types of spending decline accordingly, worsening the economic downturn."
Credit contraction and deflation make borrowing prohibitive...that is from BB's famous speech in 2002.
http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm#f
Guest says:
Today, 3:59:21 PM
If you think the US will default then you should forget about making any trades because all of your counterparties are going to default.
This is going to end with either the dollar or the Treasuries market dead, and you wont have to wonder "when" for very long.
You guys are loony tunes. Thank God I got out of all my short positions a couple weeks ago.
Too bad you weren't short bucky today, huh?
Guest--what is your problem? heck I wish would have followed some of gav's picks, I would have been hanging out with mitchell brother chicks and drinking belvedere tinis out of their navels...alas I didn't..but still keeping above water....
FDIC-shut up you friggin despicable ingnorant commies...
Have you seen this?
House votes to recoup bonuses from bailed-out firms
House votes to recoup bonuses from bailed-out firms
| Reuters
Now, how about an excise tax on swaps profits? I mean, God bless the hedgies and everyone else who bet correctly on the mortgage crisis, but since the average taxpayer didn't know he was on the other side of those trades (thanks AIG), maybe the IRS could get some of our money back.
I'd love to refi my vacation home (primary is paid off) but the appraisal came in too low for me to meet the max LTV (75% for USAA) without putting more cash into it. Grumph.
Just goes to show that rates are only half the equation...
There's only asset (housing) deflation, we'll see inflation of consumables very soon!
Like Japan only worse!
That's the idea; inflate the economy to level out the housing bubble. Well, it's the idea- not sayin' it's gonna work;)
So, the stock market has been turned back at 800 (S&P).
It would seem that there is more money for the brokers/exchanges
(commissions/fees) by going down from here rather than going up,
unless some bankster or gov't official has some new magic words
for the market.
Every treasury holder with a brain will want to hit Ben's ridiculous bids. China will probably be first in line. They've been looking for an out and Ben just crossed the market up. Numbnutses.
there seems to be one company a day making comments that would lead you to believe everything is okey-dokey. these releases don't give all the details and paint a good picture on the company. wells just released Wells Fargo arranged $51 billion in loans in January - MarketWatch that they made 51b in loans in january and 144b last 4 months. i am not sure what this says since they don't say if they are new loans, refi'd loans, or what. just loans. and not sure what it means just that they say that is 6 times the 25b the treasury invested (hehe) in wells last fall. so what is it everyone is saying?
From Reuters
MOSCOW -- China and other emerging nations back Russia's call for a discussion on how to replace the dollar as the world's primary reserve currency, a senior Russian government source said on Thursday.
"Mortgage rates fall to -3%. FRE,FNM up 60%. FED's plan is working, says Bernanke. Bernanke is a total idiot, says Marc Faber."
Bloomberg Kind of News
CR, what are the implications of such low mortgage rates ?
Cheers
the bonus issue is a canard
AIG
DitchTheDollar says:
Today, 4:18:20 PM
From Reuters:
MOSCOW -- China and other emerging nations back Russia's call for a discussion on how to replace the dollar as the world's primary reserve currency, a senior Russian government source said on Thursday.
I'll put this on the list of threats just around "Nassirite Pan-Arabist Muslim League" and "UN-Led Global Government". There's two things you can trust the international community to do, talk and eat expensive dinners.
Arg. This bothers me so much. Today's currency movements were so obvious yesterday and I didn't go with it. I have gold and udn but still this was an obvious chance to 2x short the dollar.
There is always tomorrow?
We want our money back and we want it now -- Pelosi
Unfortunately, the bonuses are just a drop in the bailour bucket.
Instapoll: America is becoming ...
[ ] Japan (with nukes)
[ ] Mexico (with nukes)
[ ] France (with bad food)
[ ] Zimbabwe (with nukes)
chinese factories get desperate
Business Week Online > File Not Found
and here I thought that desperate was a guy at the bar 10 minutes before close with beer goggles..the horror...
Instapoll: America is becoming ...
[ ] Japan (with nukes)
[ ] Mexico (with nukes)
[ ] France (with bad food)
[ ] Zimbabwe (with nukes)
You forgot "[ ] All of the above
If js-kit allow deleting comments, it should also allow editing of comments, to correct typos, clarify, etc.
Gavshire, cd and Anonymous -
I didnt give Gavshire a hard time, he started it by responding to my comment implying that he had somehow more knowledge on this topic than I. I'm not the one saying "I've seen behind the curtain" to justify my position - thats him. I'm merely agreeing with CR's post. I have no idea what Gavshires trades or advice have been historically - I couldn't care less. Anyone who has been shorting USTs in the face of deflation and the Gov's stated goal of reducing mortgage rates is foolish and/or ignorant IMO.
I am not shorting USDs because I think ultimately every currency faces the same issue. My currency hedge is now oil but was gold until MC Hammer and Ed McMahon started pitching it during the Super Bowl. Thats when I got out of gold and starting buying the much cheaper dollar hedge - oil. Not that it matters but I've stated those trades on this board in the past as well as my shorts and subsequent covering. I've also been posting on this blog for over 2 years. There was some balance back then.....
"I've also been posting on this blog for over 2 years. There was some balance back then....."
i doubt that. Why no handle? And the confrontational tone suggests you just arrived here. Chill, you might learn something.
Past correlation was probably based on a more historical 'average' assessment of two things: risk of default and risk of decreased asset value. The fact that house prices have not had such a widespread decline since the GD is a pretty strong argument that something is different now.
The cost of money may be cheap for the mortgage originator, but the risk premium has clearly moved up. Unless Bernanke puts Fed guarantees on all mortgages, of course.
"Past correlation was probably based on a more historical 'average' assessment of two things: risk of default and risk of decreased asset value."
Wrong. MBS spreads are not based on the credit risk of the underlying mortgages. They are based on prepayment risk, and the counterparty risk of those guaranteeing the mortgages, FNM/FRE. Historically, the spreads have been 100 - 150 bps (today they are 130bps), which is a pretty appropriate range for the prepay risk.
Before the Treasury/Fed started buying, they widened as high as 230bps: the extra spread being the risk of FNM/FRE defaulting (remember, these securities have an expected life of 10 years, and no one knows what the fate of FNM/FRE will be in 10 years).
So the Fed stepped in and lowered the spread.
The strange thing is, before yesterday's announcement, the spread was only 130bps, about what it is today (i.e. the decrease in mortgage rates was ENTIRELY due to the drop in the 10 year). So why would the Fed announce they are buying more? Spreads were behaving nicely.
Because they ARE the MBS market now. Very few other investors are buying MBS because the government refuses to put the full faith and credit of the government behind FNM/FRE. The only other buyers are servicers to hedge their MSR assets.
And of course the government doesn't want to put FNM/FRE's liabilities on the government balance sheet.
So you get what we have today: the Fed is basically helping keep the FNM/FRE liabilities off-balance-sheet buy supporting their debt directly and their guaranteed MBS.
It is going to end very, very badly.
Guest-my bad! the issue with email and comment sections is always going to be interpretation of content...thus my bad interpretation...I enjoy your take on things...cheers!!!
New Thread: Fed Expands TALF to include more Securities
http://www.calculatedriskblog.com/2009/03/fed-expands-talf-to-include-more.html ( 0 comments ...You could be FIRST! )
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"But the need to find these causes is inherent in man’s soul."
When Tolstoi used the term 'soul' (dusha, accent on last syllable)), I don't think he used it lightly or carelessly. You have a soul. Perhaps you can even mortgage it. Not a wise thing to do.
Just ask Bart Simpson
Many, many, many people applying for a refi have too little equity, not enough income, etc to qualify. This adds to the cost of originating a mortgage, meaning mortgage originators increase their spreads. On top of that, fraud attempts are increasing, meaning originators have to spend a lot of time and money rooting out fraud in underwriting.
The lower the MBS prices go, the worse the problem, and the more originator spreads increase.
Also, the Fed can only drive down the MBS/10Yr spread so far, unless they buy up the entire MBS market - no one will pay more for an MBS than a 10 year, due to prepayment risk.
So, although spreads can come in, ultimately a floor is set by the 10 year.
Thus, even today, the FNMA 30 par rate is still higher than on 1/12/09, when spreads were higher, but the 10 year was lower.
Price controls NEVER work for any length of time.
'MOSCOW -- China and other emerging nations back Russia's call for a discussion on how to replace the dollar as the world's primary reserve currency, a senior Russian government source said on Thursday.
I'll put this on the list of threats just around "Nassirite Pan-Arabist Muslim League" and "UN-Led Global Government". There's two things you can trust the international community to do, talk and eat expensive dinners.'
Perhaps, but it is a symptom of tensions which should not be ignored.
"Community Reinvestment Act, the Journal reported."
BSR,
I have a friend who owns a bank in Small Town,USA.
Those letters are much more common than you know...
Most bankers really fear releasing them. My friend won't.
Oh he has 1 bad loan,but it was made with 40% down(farmland). He shouldn't lose much on it...
Where's the farmland located? My be an opportunity to buy-
MOSCOW -- China and other emerging nations back Russia's call for a discussion on how to replace the dollar as the world's primary reserve currency, a senior Russian government source said on Thursday.
As the Nike ad says "Just Do It."
I still don't care for the use of the quadratic fit here. I can't think of any fundamental reason the relationship should be quadratic, so it becomes quite dangerous to start adding higher order terms to the curve fit.
Just eyeballing the data, it appears that if you had stuck with a linear extrapolation - and this is indeed an extrapolation from the data set - the result predicted by Mr Gross would not seem so improbable.
One thing to think about...
Primary dealers were the primary transmission mechanism between the Federal Reserve and Main Street. When Treasury rates went down the primary dealers would borrow Treasuries from the Fed, sell them on the open market and use the proceed to buy mortgage securities.
Treasury rates would go up while mortgage rates would go down.
When the spreads started to widen the primary dealers were caught in the middle. Primary dealers started to reduce their portfolio which made matters worse. Bear Stearns blew up and so did Lehman. The crisis left the primary dealer network in tatters.
The transmission mechanism is probably broken and won't come back on our lifetime.
The Federal Reserve put in place programs to bypass the primary dealers. The Fed sold Treasuries in the system open market account and bought other securities on the open market. Treasury rates went up while rates for what the Fed was buying went down.
Another reason why historical trends may no longer apply.
Got so lucky on Wed...almost choose TBT then went with GDX--- Now i want some TBT
voluntary debt slave says:
Today, 3:11:38 PM
“I'd love to refi my vacation home (primary is paid off) but the appraisal came in too low for me to meet the max LTV (75% for USAA) without putting more cash into it. Grumph.
Ever consider refinancing you primary home and paying off the vacation home? Lower rate to for owner occupied. :-$
Re: the stats analysis
1. 10-year yield at 2.58% is in the tail. Prediction for tail events is always fraught with more uncertainty, there isn't much historical info to leverage on.
2. Is the left tail is hitting a plateau that the quadratic model fit may be underestimating?
test
so much for the ARM reset doomsday scenario.
The doomsday is OptionARM recasts, not ARM resets.
Dude, this is truly phenomenal analysis. Thank you.
Why doesn't the government just give everyone a house, a luxury car, a yacht, and just get it over with, instead of jumping thourgh loops just to preserve good PR.
Obama's campaign promise was of hope. How does the Fed's action give hope to the savers and responsible of this country?
Instapoll: America is becoming ...
[ ] Japan (with nukes)
[ ] Mexico (with nukes)
[ ] France (with bad food)
[ ] Zimbabwe (with nukes)
Like this comment? [yes] [no] (Score: 0 by 0)Community assigned karma score: 0 by 0Mark as offensive replydeleteeditmoderate
What about all of the above? After all, isn't America a melting pot?
Interesting chart showing the correlations. Should be interesting to see if they are successful in driving down yields. The Fed buying Treasuries in such quantities is a massive intervention effort. I have written an article about the risks of intervention, that can be found here:
Prosperity By Pen - Intervention's Potential Blindspots
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test 2 asdf
spam spam spam
more tests, sorry for poluting the dead thread
blah blah blah ignore me
blah blah blah ignore me also
When are people going to learn about significant digits? .51110783452352X? I dont think so.
Cackle Pies!
Watch the mortgage back securities to see where mortage rates are going. The treasury market is very misleading on the direction of rates. The Feds and Treasury are buying the 4.00% coupon but also buying 4.5,5.0,5.5 and 6.0%. The 4.00% coupon gets you a rate of 4.75% to 4.875%. Banks and Lenders can not handle this volume and will keep rates up until the volume decreases.
Bill Nickerson
ACton MA