‘The Fed Is Going To Get Exactly What It Was Hoping For’
Some housing bubble news from Washington. “An index of U.S. leading economic indicators fell in May by the most in nine months. The Conference Board’s index last fell in consecutive months in February and March 2001. ‘The Fed is going to get exactly what it was hoping for, but unfortunately the inflation numbers are just not helping,’ said Haseeb Ahmed, an economist at JPMorgan Chase Bank.”
“Building permits, a sign of future construction, subtracted 0.06 percentage point from the index. The Commerce Department said this week that permits dropped in May to the lowest level since November 2003.”
“‘The builders have known that the boom market we’ve been in is not going to last forever,’ Mick Pattinson, CEO of Barratt American Inc., said. Carlsbad, California-based Barratt builds homes in the western U.S. ‘We have cut back our building a little bit, but not tremendously.’ Pattinson said there has been an increase in order cancellations at Barratt, though ‘not on a massive scale.’”
“U.S. home construction rebounded in May from a 13-month low as builders filled backlogged orders and offered incentives such as free landscaping to woo buyers. ‘The message the Fed’s going to take away from this starts report is that the roof’s not caving in on housing and they can keep raising interest rates,’ says economist Stuart Hoffman. ‘Housing is in a downturn, but it’s the orderly downturn the Fed wants.’”
The Milwaukee Journal Sentinel. “The U.S. economy is slowing, but is strong enough to avert a recession if the Federal Reserve Board acts responsibly, Anthony Chan, chief economist for JPMorgan Private Client Services, said. A slowdown in the housing market and a relatively flat yield curve are signs of a weakening economy, he told clients.”
“Both are consequences of the Fed having aggressively raised the short-term rates it controls from 1% to 5% since June 2004.”
“But Chan said that according to his research of historical trends, the weakness in the housing market is not large enough to indicate a recession will follow, while the interest rate inversion is also small historically.”
“Based on the public statements of Fed officials, Chan said he believes the Fed will raise rates by another quarter-point when it meets next week. Another increase in August may also be in the cards, Chan said. Neither increase is really needed based on his reading of the economy, Chan said.”
“The Fed ‘has to raise rates because there is a new Fed chairman (Ben S. Bernanke), and they have to establish credibility’ as inflation fighters with the financial community, Chan said.”
“However, Chan said that should the Fed push rates over 6%, ‘I will be talking about what kind of a recession we will have.’”
‘However, Chan said that should the Fed push rates over 6%, ‘I will be talking about what kind of a recession we will have.’
Some will call those who believe homes are over-valued ‘doom and gloomers.’ But a return to historically normal interest rates means recession?
IMO, the Fed is targeting home prices at this point.
‘In the past month, the California Association of Realtors has announced both the creation of a ‘Defense Litigation and Claims Repository’ and also the association’s endorsement of an error’s and omissions insurance carrier and broker. These two announcements represent the second and third parts of a plan designed to enhance the ability of California Realtors® to defend themselves in the ever-increasing litigious climate of the Golden State.’
‘In putting together this defense plan, the California Association of Realtors has provided a significant service to its members. When you come to think about it, that’s what a trade association is for. How nice.’
“IMO, the Fed is targeting home prices at this point.”
IMO, they have already succeeded.
I agree. The clock is ticking on many ARMs–the board is set. It’s really just a waiting game, regardless of what the Fed does going forward.
Friend with ARM resetting next year (and $60,000 in credit card debt at 1.9%fixed) has decided to put in a patio and landscape for $17k from their cash reserves. He does get paid in the six figures I think, but she did make the comment that they’re hoping nothing breaks in the house. Consumerism is a powerful force!
“…and $60,000 in credit card debt at 1.9%fixed”
Just one hiccup, and the “Universal Default” clause kicks-in!
Yes and the clock is connected to a nuke bomb. You really don’t need terrorist in the US to blow up the place. You the real estate bubble that will do the trick. Ben Laden is a wimp compared to all these real estate and finance terrorists with their ARM’s-amants.
IMHO, however, the drop will not be symmetric with the rise. Drop will be much lower. My napkin forecast is twenty percent real decline over the next 5-6 years here in Cali, about half of that nominal and the other half inflation.
There’s simply too much real demand (not speculative) for housing here in Cali, given the population growth, legal and illegal. And people are now trained and willing to pay a greater proportion of their income for housing.
A general economic meltdown could change things, but that is unlikely. And contrary to many people, I think Cali will become relatively more desirable, not less, over the 10 to 20 years.
“And contrary to many people, I think Cali will become relatively more desirable, not less, over the 10 to 20 years.”
Please explain. I would really like to believe this, but I am not finding many reasons to do so right now. Need more Prozac….
skip intro u must be a realtor or a giddy newly rich homeowner watch your wealth disappear in the next few years and your job too
If that’s so, then prehaps you can explain why rents are still at 50% of mortgages?
20% decline won’t make up the imbalance. Rents would have to rise over 30% to make up the imbalence, and that is very unlikely to happen, isn’t it.
At some point in a declining housing market, it gets cheaper to buy than rent, and that’s when people buy again. So a balance will be found.
I’m thinking 30% declines, nominal, with about a 10% rise in rents. Unless the job market tanks for tech, in which case, look out below.
skipintro should rechristen himself skiplogic.
That legal defense fund is telling.
They knew it was a bubble, they knew there were lots of bad acts and bad actors and paid their shills to deny it.
Now that it is no longer deniable with a straight face, create legal trust fund and lawyer up.
I hope AG’s with a backbone are listening. Spitzer where are you in this housing bubble.
Sunsetbeachguy-
Dude, come on. Don’t you think you are stretching it a bit. The defense is a one liner. “Our people were reporting what the conditions were at the current time no more no less”. The defense fund has always been there along with the E & O insurance. People in California have made a sport of sueing Real Estate people no matter bear/bull market. In retrospect it probably is a good idea to shore up these funds for the simple fact that entitled whiners will probably spend big money trying to sue Realtors for their f*** ups when this episode gets really really nasty. It’s coming you can smell it in the air.
The problems arise not with “reporting the conditions at the current time” but in misreporting conditions, failing to report conditions that they knew about, and colluding together with shill bids and failing to adequately represent the fiduciary interests of their clients.
Believe me when I tell you that you don’t need to be a legal genius to apply these facts to existing law to show a jury that some realtors (or realtors as a profession?) were not acting in their client’s interests.
The judiciary, as a co-equal branch of government, hasn’t been discussed quite as much on this blog. It’s effect should not be underestimated in the unwinding of this bubble.
In short, I think your wrong. You need to be more than a legal genius. Houdini comes immediately to mind. In the state of California and you should know this if your a California Lawyer. The fiduciary responsibility always fall to the Seller. Even if a Realtwhore brings a buyer to the table his fiduciary responsibility lies with the seller. Now many try to hit you with pompous a$$ lawyerspeak and other rhetoric to explain their position and why it should’nt be this way and the Realtor should have done this and that or said this. But at the end of the day all contracts all representation leans towards the seller especially since he’s paying the commission. So with that being said how were sellers wholly misrepresented during this run-up. Buyers are to do their due dilligence. If they don’t do their due dilligence then the fault is theirs. If they are priced out and need a suicide loan to get in a property and they inherit that risk then they need to suffer their consequences. As far as the talking heads in the MSM. Not to excuse their actions but they are paid to report on the data given to them. Most of it lags the market by at least 30 days. I would venture to say no analyist, economist or any other speaking head is as informed as the people who read and participate on this blog. Even if they read here they can’t use this information because it’s not a commonly recognized source of data nor is it data presented to them by their employers. As far as the information on this blog it’s all hearsay or an interpation of third party information. Ben as good a job as he does on this blog at the end of the day is a bear period. All information here that’s posted will have a bear slant no matter what the rest of the article says. I’ve caught that a few times nothing wrong with it. It’s a bubble blog for chrissake. We are in unchartered waters which I personally think is going to come back and bite quite a few in the a$$. But to give a buyer the ability to sue for something he perceived was wrong based on him inserting his head up his aSS and not doing his due dilligence and protecting himself is horrible.
“you APOSTROPHE re”
Come on, try it. Just once. You may like it!
MR IS:
OK maybe not lots of bad acts and bad actors, but a fair number.
However, I stand by my original post.
This is similar to the criminal defense insurance policies Enron took out for their Sr. Execs.
CAR knew it was a bubble and denied it. Just like Enron Execs saying the stock was a steal in October 2001. (BK is Dec 2001)
CAR is now preparing for the bubble’s aftermath, so should RE buyers and sellers.
Public pronouncements and private actions that don’t jive certainly smell of negligence or worse.
I can’t say I blame them for preparing, the issue I have is holding bubble deniers accountable as this thing unwinds.
mrincomestream is correct that the sellers will be the first to be sued as they have the direct liability. IANAL, but what’s to stop the sellers from turning around and sueing their brokers? Or sueing their builders? Or anyone that may have contributed?
“Where’s Eliot Spitzer in all this?”
Here’s a blurb from a local paper:
“NY State Attorney General Eliot Spitzer is on a mission to stop predatory lending practises, but he faces some opposition from lawyers of the financial institutions and federal regulators.”
there’s got to be more info on this somewhere out there.
“The U.S. economy is slowing, but is strong enough to avert a recession if the Federal Reserve Board acts responsibly”
Oh give me a break, we were due a recession a long time ago and delayed it wth easy money. Time to get it over with and clense the system of this network of parasites that has risen to feast on the stupidity and greed of the american consumer.
Yes, yes, yes. I’m glad you said it. We should’ve taken our lumps back in ‘01. The Fed should have allowed a recession that would have led to balancing of the mess perpetrated by the so called “Maestro”. Instead, we’re sitting in a worse position today. What’s hilarious is that some think a recession is avoidable.
No. You are due for depression.
I hate that these ‘experts’ are taking the line ‘we could avoid a recession if only Bernanke doesn’t tighten too much’….BB is going to get blamed as though he has a choice, as a poster stated above, the table is set, it was set before Bernanke, he’s just trying to get this over with.
bernanke and the fed can’t pause. they’re protecting the value of the dollar and fighting inflation. if you pause you lose. nothing to do with anything else.
Remarks by Governor Donald L. Kohn
At the Federal Reserve Bank of Boston’s 51st Economic Conference, Chatham, Massachusetts
June 16, 2006
…the United States can draw upon world capacity, the inflationary effect of an increase in aggregate demand might be damped for a time. But we are also subject to inflationary forces from abroad, including those that might accompany a shift to a more sustainable pattern of global spending and production, or those that might emanate from rising cost and price pressures. Moreover, a smaller response of inflation to domestic demand also implies that reducing inflation once it rose could be difficult and costly. …”
http://tinyurl.com/m9vle
Hate the U.S.A much ? We go into a depression and we’ll drag down a lot of other countries. How much business does your country do with us ?
I think he was just stating his opinion or fact as he sees it. I also see a deflationary depression coming and hope for chaos. Good times!
You hope for chaos?
Please tell me how that works out as a plan.
I *fear* chaos.
I am in this country and i think Marc has some indicators to back him up. I hope he is wrong. My crystal ball only works on certain subjects, and this is not one of them.
How does stating a fact equate with being unpatriotic? Please enlighten me. I’d love to know.
He’s not wishing for a depression, he said there will be a depression. Get it straight.
Now, if you don’t think that the highest level of personal debt as a percetage of GDP since the ’20’s is going to lead to depression, please let me know how. Also, if you don’t think that the biggest use of ARMs since the ’20’s is going to lead to depression, please lem me know how. Also, if you don’t think the biggest trade imbalance EVER, as a percentage of GDP, is going to lead to depression, please tell me how.
Sheesh.
It’s not like I want it - my grandma told me all the stories, and I’ve no desire to see it first hand. I’m just at a loss of how to avoid it.
Here’s a hint, moron - little people like us don’t get to pick if they have a depression, or a recession, or a boom, anymore than we can pick high tide or low tide. The best we can hope to do is float with the current.
It seems that a 25 bps increase is baked into
the cake for 29th Jun FOMC meeting.
What are the odds for a 50 bps increase?
I’m giving 50bp’s a 50/50 at the next meeting, and 25bp’s more in August.
Actually, 25bp’s has already priced in for July and August. I’m just watching for the 50bp’s at the meeting.
I say 50bps could happen but I doubt the chances are very good with reports of economic cooling and lousy job creation numbers. BB will weight these two factors together and opt for a quater point raise and a “wait for more numbers” stance. However, I do think we will hear the strongest “We’re tough on inflation” talk from the Fed and it’s minions to date.
They will continue the cheap “We’re tough on inflation” talk, but hint around that recent drops in the index of leading economic indicators as evidence of an incipient slowdown. If I were a gambler, I would bet on a 25 bps hike at the next meeting, followed by a pause. I would also gamble on a 200pt+ move in the DJIA on the day of the next Fed meeting, as Wall Street celebrates the birth of the Bernanke put.
GS - Posting this because you will appreciate more than many.
from the Philadelphia Inquirer 6/18/2006
A book Review
Bubble Man: Alan Greenspan and the Missing 7 Trillion Dollars
By Peter Hartcher, Norton
Greenspan has stated publicly that central banks shouldn’t meddle with asset prices. Hartcher uses Fed meeting records to show that Greenspan started with a different opinion, and mulled increasing the amount of money investors must set aside to cover stock-market bets. The central charge is guilt by omission: Had Greenspan done more to restrain the stock market, the trashing of retirement savings in the collapse would have been limited.
On Sept. 24, 1996, Fed Governor Lawrence Lindsey suggested that the U.S. central bank might consider trying to rein in stocks “while the bubble still resembles surface froth.” The previous day, the Standard & Poor’s 500 Index had closed at 687 points for a gain of 18 percent in 12 months…a pointer to the future. “Asset price inflation is the new inflation for central banks, one that is becoming more virulent, not less, and one for which there is not yet an agreed treatment,” he writes.
The conclusions to that argument among the world’s guardians of monetary policy may yet provide Hartcher with another book.
Wow! Lindsey was talking about “froth” and “asset price inflation” as problematic all the way back in 1996??? Where did the lack of an “agreed treatment” to that problem leave us as of the end of January 2006?
I will have to check out that book…
GS the Fed meeting in 1994, when AG proposed the easing of credit standards.
“”When we moved on February 4th, I think our expectation was that we would prick the bubble in the equity markets. What in fact occurred is that, as evidence of the dramatic shift in the economic outlook began to emerge after we moved and long-term rates began to move up, we were also clearly getting a major upward increase in expectations of corporate earnings. While the stock market went down after our actions on February 4th, it has gone down really quite marginally on net over this period. So what has occurred is that while this capital gains bubble in all financial assets had to come down, instead of the decline being concentrated in the stock area, it shifted over into the bond area. But the effects are the same. These are major capital losses, which have required very dramatic changes in the actions and activities on the part of individuals and institutions.”
- Alan Greenspan, Federal Open Market Committee meeting, March 22, 1994
I wouldn’t be surprised to see a 50 bp move with a change in language that made the Street think that the Fed might rest for a bit. This would tighten credit even more for the inflation hawks, but hopefully dampen the downward market shock of the higher rate.
IMHO, the uncertainty of how high the Fed will push things is making many people uneasy, and a change in language with a “knockout punch” will help make people sleep better, if indeed they are getting close to completion of this tightening cycle.
If they are not close to the end, then they should go with 25bps, steady as she goes–
That 50 bp with soft language would have been my guess, too, - don’t bet on 25.
“The U.S. economy is slowing, but is strong enough to avert a recession if the Federal Reserve Board acts responsibly,”
Now there would be a switch…If being the operative word.
No, the question is: Can the Fed keep it confined to a recession and avoid a depression?…….we’ll see.
nnvmtgbrkr - I agree with you on that point.
From Forbes
The Fed’s Big Fallacy
Stephen Todd, Todd Market Forecast 06.20.06
Look around the world today. Venezuela has 31% inflation. Iran has 17%. Zambia 22%. Ghana 27%. Haiti 39%. It might be added that these nations also have very high unemployment rates. Low inflation is reserved for the strong economies. Japan has 0.3% inflation. In Germany, it’s 1.0%. By the Fed’s reasoning, Africa should have the world’s strongest economies, since they produce such high inflation…
http://tinyurl.com/rkj2d
and from the Washington Post
Facing Up to Inflation
By Robert J. Samuelson
Wednesday, June 21, 2006
…The job of the Federal Reserve is “to take away the punch bowl just when the party gets going,” William McChesney Martin Jr., the Fed chairman from 1951 to 1970, once famously said. As business cycles mature, inflationary and speculative pressures build. Demand begins to overtake supply….They argued that a bit more wouldn’t hurt or that increases reflected “temporary” pressures. In the resulting political and intellectual climate, the Fed pursued easy money and credit policies for too long. It tried to drive economic growth up and unemployment down. The results were perverse: double-digit inflation, four recessions from 1969 to 1982 and higher unemployment.”
http://tinyurl.com/npkyc
Welcome to stagflation! Interest rates which should be coming down, have to be increased to keep foreign purchasers of US Debt. Interest rates have to be increased to slow inflation. The economy is slowing, but personal expenditures are higher than last year. I would be very happy to get out of this mess with a recession! That is what I would call a soft landing.
Actually, my friend just bet me her (smaller) currency trading account that there will not be a 50 point increase. I feel there will be for a variety of reasons, not least of which is the slowly rippling effect of energy increases, housing increases, wage increases, etc. I think Bernake will smack it hard with 50, while at the same time stating clearly that he expects that will finish the job so nobody freaks out too badly. This will shore up the dollar and should be a substantial pin in what’s left of the housing balloon. I can see why she expects a more conservative approach, but in light of the split in the governors last time, I think 50 will be it.
I’ll match your 50 with another 25 in August.
I agree, he still has a way to go IMO.
.50 will put a lot of things in a tailspin add another .25 and all of a sudden I hear Tina Turner blaring in my ear something about a Thunderdome
Two banks enter, no bank leaves?
This focus on the overnight rate is too much. It’s been steadily climbing for a couple of years now and the rest of the curve has stayed put. Mtg rates are still historically low.
It’s the one 1yr-30yr rates that need to come in focus. As one reader commented last week. How about they come out and say, “looks like we’re in for some inflation, but we’re not going to do jack about it. It’s up to you guys [meaning the market]“. The result being the 10yr and 30yr jump up and we have a nice sloping curve again.
The problem with historical lowness is that productivity has grown massively which means rates could be far too high at this point (lower rates without inflation are possible thanks to productivity gains). If that’s the case then we’re probably looking at deflation as this credit bubble unwinds.
IMHO the Fed will keep going in “measured paces”. The dilemma is not placing us in a recession (between 30 to 45% of America believe we are currently in a recession) - it is being able to get 2.7 Billion dollars invested into US Government securities everyday. With the rest of the world experiencing inflation and correspondingly raising interest rates, to stay competitive the Fed must raise rates.
An excellent essay by Mr. Bill Gross at PIMCO from Feb 2004
http://tinyurl.com/hashm
I do not agree with him about directions of rates - but it is well thought out.
Just thought I would post Bill Gross’s current thoughts.
“Still, the strong growth that this cozy arrangement has engendered is by itself threatening its own sustainability in current form. Having encountered mild but accelerating inflation, Japan, the ECB, and perhaps still our own Fed are embarked on a path of uncertain interest rate hikes, which pressure U.S. yields, which threaten the housing boom, which augurs for slowing consumption, which more than likely will then negatively impact Asia and Euroland economies. Talk about dominoes! In addition, as Alan Greenspan warned us just a few months ago, BRIC and BRIC-like nations at some point will reach saturation or perhaps satisfaction levels in terms of their U.S. Treasury and even global bond holdings. …. Inflation targeting lies ahead for the U.S. and perhaps Japan which in combination with those old bond market vigilantes (yours truly for sure) should enforce a non-threatening tint to overall inflation. We believe as well that sometime within the next several years, a U.S. recession is likely, due to currency, commodity, and housing related influences. If so, and if the global economy slows in reaction, then moderate inflation is the most reasonable forecast….”
http://tinyurl.com/mpybm
If anyone is interested, I just posted a lengthy example to the Bits Bucket which shows that a 1-Year ARM at today’s rates would buy 26% less house compared to what a buyer could have purchased on the same monthly payment at the ARM rate of one year ago. I would argue that this is a conservative estimate of the drop in market value, because
1) Interest rates are steadily increasing; even today, we saw maybe a 5bps increase from 6mos out to 30yrs. The published mortgage rates are backward-looking.
2) Many transient factors (mentioned in the other post) helped to push demand one year ago over the top.
And I would add:
3) Many of those ARMs should have never been lent, and as people are more fearful of higher interest rates, they will tend toward fixed rate financing, reducing their purchasing power even more.
“they will tend toward fixed rate financing,…”
This is one of the reasons my 26% drop in latent market values is conservative. The reason many bubble-market buyers went for the ARMs last year was that they could buy more house for the same monthly payment than if they had used a fixed-rate (traditional) mortgage. Now that interest rates are up from 6mos out to 30yrs duration, the effect of higher rates plus avoidance of ARMs in a rising rate environment represents a double-whammy for home prices, in the form of a sharp drop in the typical prospective buyer’s purchase budget constraint.
Getstucco — I like your reasoning on the 26%. It has added calcium to my backbone re a buying offer. Hope you continue to post about it dynamically, as conditions evolve.
Disagree. What I think you guys are missing: the fixed-rate, 30-year mortgage is gone, extinct. People only care about payment now; peoples’ values really have changed. We Americans want it all and we want it now. Damn the torpedoes.
I disagree on the fixed rate being extinct. That may be what the bank wants you to believe. But once this downturn kicks into full whoop aSS mode. You going to see a very high demand for fixed rates for a very long time to come.
skipintro u must be a mortgage broker rot in hell
The fixed-rate mortgages will be extinct when nobody offers them anymore (as it is the case in most countries). Until then, many people in the US appreciate the built-in insurace against increasing interest rates.
What I think you are missing is that my example assumed the budget limit was based on the 1-year ARM rate, not the 30-year fixed. Nonetheless, the 30-year fixed rate mortgage is not extinct, merely hibernating. After we have thoroughly relearned the lessens of the 1920s about the problems of buying assets on margin with no money down, fixed rate financing will once again come into vogue.
“The Fed ‘has to raise rates because there is a new Fed chairman (Ben S. Bernanke), and they have to establish credibility’ as inflation fighters with the financial community, Chan said.”
No, the Fed has to do this because they have no friggin’ choice. Sad part about it is the ignorant masses will villainize Mr. Bernanke and not realize that all he was trying do was salvage what he could of a jacked-up economy. God forsaken job indeed! Well, at least he’s dropped the “helicopter” the was attached to his name…..for now.
That reminds me…..Since the M3 has stopped being published this Spring, has there been any other way to monitor the “printing presses” this summer.
Yes go to Economagic.com and look up the MZM. MZM (Money at Zero Maturity) is the same as M3.
May I offer a brilliantly-conceived equivalent which has a 0.9999946 correlation to the “retired” M3 number?
Great stuff!!
I agree, much easier to read than plotting out economagics numbers and gives better results!
Cabinbound — great link — thanks.
From the St Louis fed 6/16/2006
MZM WEEKLY CHART
http://tinyurl.com/m9fv4
Hoz — ditto (thanks).
That reminds me…..Since the M3 has stopped being published this Spring, has there been any other way to monitor the “printing presses” this summer.
The repos (FOMC printing press) are published.
Well even if the rates do go up, can the US afford the interest? Pushing up rates will prop up the USD in the short term, but with ensuing recession, how is the US economy going to support the payments on treasuries? Ultimately there is gonna be USD pain, recession, stock market losses. The question is whether it is with major inflation or w/o, the 50 pt move may avert some of the inflation, but the hasten the downturn. Not exactly news, but housing is gonna take a hit either way.
Ah yes, with all this talk about credit bubbles people often forget about the largest, most reckless borrower in the world. Also carrying the largest ARM in the world as 30 year bond sales were suspended for a few years. For those of you in the “starve the beast” camp your theory is going to be put to the test as interest payments eat up more and more of the federal budget.
And don’t forget the coming SS and Medicare budgetary crisis that is about 15 years out. This is a real problem, not an imagined one. It will quickly, and painfully, force America to get real. Interesting times ahead.
Medicare yes, but there’s no SS budgetary crisis; it’s a general fund crisis. Bruce Webb goes on and on about this in the comments on prudentbear.com; he sounds just like we do regarding the RE bubble :D.
SS does have a political crisis coming when it starts to draw down on the trust assets and interest it has already paid into the general fund, because the Congressweevils (from both parties) are going to balk at raising the necessary money.
We’re going into a recession anyway, so why not fix all your ills while you’re at it? A single 50 bps raise would cause many to soil their pants and change their ways. Heck, another 25 might not even be necessary with the quake 50 bps would cause. Right now, the speculators are out on their feet. Sure, we could jab them twice but maybe they’ll retain their balance. 50 bps though, is the haymaker, and they in no shape to dodge it.
Bernanke might do a ‘half and half’, meaning raise 25 bps but word the statement that goes along with it in such a way as to dash all hopes that this was the last of it, has a lot of effect as raising 50bps.
Both good arguments, but I side with MazNJ as to what will happen. Great week coming up! No boring summer, this one.
I agree with the .50.
It’ll give all those silly people on the floor of the stock exchange an excuse to think “that’s it, they won’t raise anymore now”, the stock market will settle down for two months.
And these silly buyers will have a chance to relax because they too will think “okay, that’s it, rates won’t go up anymore, no rush to buy before rates rise”. (I think they really WANT housing to slow now that they see how foolish Americans have been).
Stocks will be okay til August, housing will slow even more.
In August the Fed will shock everyone by raising another .25 and housing and stocks will crash.
.50 gives everyone 2 month relaxing breather, before the sh#t hits the fan.
That’s my scenario and I’m sticking with til whatever happens next week!
Stocks are not going to be OK until August, IMO. The Bear is back now.
Banks and mortgages:
http://www.xanga.com/russwinter
Russ — good stuff. I particularly like your analysis of the BOJ action, on the 20th. Small, small recommendation — rounding numbers to significant digits, such as 4.6 trillion instead of 4.627.2 trillion, would make reading much easier. Not sniping on that, as in, forfeiting the opportunity.
Chip (IQ 87 on the RussMeter)
Well even if the rates do go up, can the US afford the interest? Pushing up rates will prop up the USD in the short term, but with ensuing recession, how is the US economy going to support the payments on treasuries?
The U.S. and China will destroy a lot of money with the asset bust. They will further take money out of circulation with higher rates on savings. Then they monetize the deficit somewhat which will give Dubya the two years he needs to get the heck outta Dodge. tinfoil hat off
many people in decision making positions are seriously underestimating the volatility of the housing market.the total lack of underwriting standards and widespread use of short term,high risk i/o and option arm loans has made a huge difference in how risky this market is.and no one has any way of gauging the risk.the models being used to gauge appropriate risk premiums are laughable to anyone who makes even a cursory examination of market,but are used to invest trillions of dollars,this will be very ugly indeed and looks like it will be playing out much differently than the corrections of the ’70’s,’80’s and ’90’s.
Tom — as I do, consider yourself blessed to have tuned in to Ben Jones’ blog. It can, or will, be your financial salvation, IMO.
What say you all?
If Fed is either (a) going to do 50 BP, or (b) at least 25 BP, *plus* some hawkish inflation comments, would it be good idea to sell GLD now, with modest expectations of a sharp buying dip after results of Fed meeting (hike + comments)?
Not looking for investment advice! …just opinions
This is an interested link for info on gold.
http://www.usagold.com/analysis/doldrums.html
Gentle Ben will take his sweet a$$ time raising rates to 6%. Maybe even a pause or two on the way up. Steady as she goes cap’n.
I am a buyer of Gold at these prices and at this time. The Fed in the last 26 years has never lied about what they were going to do. This time BB has said he is going to bust inflation. He just did not say what kind of inflation. I believe he would like to crush “Asset Inflation”. I do not believe that is likely, so I believe there is a greater likelihood of a run on the dollar and will continue to invest in Gold until there is reduced volatility in international markets.
I do not advise anyone else to either buy Gold or any other investment. What works for me may be entirely unsuitable for your investment plans.
AnoninCA — when I sold out / cashed out a year ago, to become a super-smalltime vulture capitalist waiting for my next home-buying opportunity, I parked 95% of my money in short-term cash (CDs) and 5% in gold. I bought the gold not as speculation, but as a hedge against having bet wrong (by cashing out)in the worst possible way. If I were single, I’d have tended toward 10% gold. I look at it strictly as catastrophic insurance — a personal hedge relative to the housing market, FWIW.
“If I were single, I’d have tended toward 10% gold. I look at it strictly as catastrophic insurance — a personal hedge relative to the housing market, FWIW.”
That’s my situation, but I’m underinvested in gold for now. I’m at 5% of my portfolio. Got a lot of cash and government bonds, and yes gold is my hedge. I don’t have real estate, so I use gold as my hedge for my municipal bonds, CDs, stock mutual funds, and Treasuries.
In the 70’s, inflation was rampant, interest rates were higher than they are now (eventually going REALLY high), and gold was doing quite well.
they’ve raised the rates like 15 times in a row and nary a blip in the pace of borrowing and spending. what’s a few more hikes going to do at this point?
Amen, brother.
50 more bps could be the staw that breaks the camels back or the rate that breaks the FBs.
Marketwatch on the homebuilders.
With the traditional spring-selling season a “much bigger flop than virtually anybody had imaged,” he commented, the speed of the cooling process “surprised even the more bearish industry watchers.”
“I don’t know. I can imagine quite a bit.”
I’d just as soon kiss a wookie than buy a house this year.
The Fed does not set interest rates. They set the lending rates to banks. Interest rates are set by the market, at Treasury auctions.
Yeah, and the Treasury auctions ain’t goin’ too swuft right now.
Exactly. That’s why rates are going up, regardless of what BB does.
We’re on the same page.
Good thing for the “share buyback” program (UK and Caribbean bank purchases of T-bonds).
Do I need to put my tinfoil hat back on?
I guess it depends upon what you think of the Mogambo Guru’s sources’ credibility
I personally know of no way to verify or refute his rants…
http://news.goldseek.com/RichardDaughty/1150902130.php
I hope that someday, someone writes a detailed, authenticated piece on how the Caribbean banks really worked, relative to the trade in US Treasuries. My amateur guess was that they were the funnel for U.S. and Gulf (Saudi, U.A.E.) money to buy Treasuries, but I would really like to know who really was behind all that money.
this is nice to know.
Goldman is now world’s largest hedge fund manager
Performance of bank’s Global Alpha fund lures institutions, wealthy investors
the answer? probably yes.
The boomer bust
Will aging boomers pull their money out of the market and cause an asset meltdown on their way to retirement?
Rydex to launch six exchange-traded currency funds
Fed Rumors Roil Markets
By Marc Chandler
RealMoney.com Contributor
6/22/2006 3:32 PM EDT
URL: http://www.thestreet.com/p/rmoney/marketanalysis/10293272.html
There is talk in some quarters, following an informal meeting of several primary dealers with Fed Chief Bernanke, that a 50-basis-point rate hike next week is possible. It seems unlikely on the face of it that Bernanke, after seemingly having lapsed from his clear and transparent communication goal in late April, would convey private information to bond traders.
Nevertheless, the fed funds futures are under pressure again today.
Here is what we know for sure: Thus far this month, the fed funds effective average, counting Fridays as three days as is necessary, is just below 4.98%.
Assuming that the Fed would have reached its target on average over the month, fair value for the June futures contract on a 25-basis-point rate hike next week is 94.99, or 5.01% yield. However, given that the average effective rate has been below target, fair value is probably closer to 4.99% or 95.01 in terms of price.
The June contract is changing hands near 5.035% or 94.965. This would suggest pricing is consistent with about a one-in-five chance of a 50-basis-point rate hike on June 29. We can further fine-tune our analysis by looking at the July contract. Again, for all days in the future, it is only reasonable to assume the Fed reaches their target on average.
Assuming a 25-basis-point rate hike next week, fair value for the July contract would be 5.25% or 94.75 in price. The contract is currently trading at 5.28% or 94.72%. This implies about a one-in-eight chance of a 50-basis-point move.
I do not believe the Fed will move by 50 basis points, though we can see a case for it and suspect that all those traders looking for another 25-basis-point hike in August (which is pricing in about a 90% chance of a 25-basis-point hike at the August FOMC meeting) can also see a case for 50-basis-point move in July.
If the Fed does deliver a 50-basis-point rate hike, I suspect it would likely signal a pause, the dollar and the long end of the U.S. curve might move higher in response, and U.S. shares would likely fall. Then, given the correlation of global equity markets, a drop in the U.S. would likely weigh, to varying degrees, on other equity markets as well.
LaLawyer said; The judiciary, as a co-equal branch of government, hasn’t been discussed quite as much on this blog. It’s effect should not be underestimated in the unwinding of this bubble.
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Exactly! I’m no legal expert but have recently been on jury duty and was once again reminded how the game get’s played. It’s all about the “perception” and proving to a jury that someone was not acting in one’s best interest despite a fiduciary duty to do just that. Once a few Realtors get sued along with their brokers for misrepresenting buyers, this will get interesting.
Yeah, a jury full of FBs and it’s not going to go too good for that crowd.
Don’t get your hopes up.
Another increase in August may also be in the cards, Chan said. Neither increase is really needed based on his reading of the economy, Chan said.”
“The Fed ‘has to raise rates because there is a new Fed chairman (Ben S. Bernanke), and they have to establish credibility’ as inflation fighters with the financial community, Chan said.”
Translation
(Waaaaaa,aaa) Ben dont do that. (Snif, snif ) Cant you see it’s hurting? Do you really need to raise rates? You are making me cry. All my bonds and derivatives will blow up. Please stop.
What a crybaby! This is just wailing and whining to stop raising rates, only it’s in code.
I guess that the Fed pauses. Housing is crashing without any help from the Fed raising rates. Surely BB knows this (?)
OT: Got a call from HR Block about a mortgage today. The idiots at the credit reporting agencies think I own a home. Can’t remember the last time I recieved so many offers for credit - by mail, email and phone. One bank keeps trying to loan me 90% of my income, with no collateral. My credit is good, but not that good, IMO. More new restaurants (which tend to fail pretty quickly here) keep opening up. Credit seems fairly loose still.
No leader generators are just desperate.
They are employing a spray and pray approach to generating sales leads.
Chan is not one of my favorite Wags on Wall Street- I hope BB raises again in late August- to protect the economy from a further uptick from inflation. As for Chan I hope as a writer above said……
‘All my bonds and derivatives will blow up. Please stop.
What a crybaby! This is just wailing and whining to stop raising rates, only it’s in code.’