THE HOUSING MELT-DOWN IS JUST STARTING

[(former)FormerSanDiegan]

jg – I’m not gonna predict where rates will be five years from now. It’s too hard to even predict what the GDP will be each quarter. But, the market is guessing that over the next 2-10 years rates will be the same or lower than they are now. Why else would one accept a lower interest rate on a 2, 5 or 10-year note than a 3 or 6 month T-bill ?

That said, the major issue for the second wave of ARMs is (as 4plexowner alluded to) whether or not at that point these folks are significantly under-water on their mortgages. A combination of higher rates and being underwater would likely make that second wave as devastating as the first. Other potential outcomes would be less devastating (lower rates and underwater, lower rates and above water, higher rates and above water).

I think we’ll have a pretty good idea in 24 months which way that second wave will head. For now, I’d consider all potential scenarios equally likely.

[PerryChase]

FormerSanDiegan, you make a very good point. Interest rates are hard to predict.

One thing that we need to keep in mind is that the foreclosure losses haven’t yet been fully reflected on the portfolios of MBS and CDO holders. Can investor aversion to MBS lead to higher mortgage rates? We’ll see.

May we live in interesting times, indeed.

[blahblahblah]

jg, I worry about our dollars too, but there are a few differences between the US of the early 21st century and the old Weimar Republic. First, we’re still the world’s most powerful country by a long shot. Our manufacturing base has eroded, that’s true, but we still have a huge, growing population (unlike Western Europe which is pretty stable population-wise), and we have a great deal of influence worldwide via our network of military bases and a huge deep-water navy. The Weimar Republic was a crippled, broken country hobbled by the Versailles Treaty and the aftereffects of a lengthy, expensive war.

Our government’s foreign debt obligation is big and worrisome, however, it is comparable to the foreign debts of other western countries when adjusted for population size. We as a country need to get serious about rebuilding our manufacturing base and exporting high-value-add goods again and we can start reducing that debt. Imagine a presidential candidate promising to rebuild the US as the world’s leader in energy-efficient technologies! Republican or Democrat, he’d win by a long shot.

I have seen a lot of folks get burned (including myself!) investing for these “worst-case” bearish armageddon scenarios and I’ve sworn off of them for good. These are once-in-a-lifetime or possibly even rarer events, so they’re nearly impossible to time correctly. Also, a lot of very powerful people with a lot more money than you and I have a vested interest in preventing financial armageddon from happening, so it’s a fair bet that they will succeed.

Inflation is a worry, however the fed will be forced to raise interest rates if it becomes a problem; that’s good news for those with cash in short-term CDs. You’re not going to get rich but you won’t lose too much of your money either. IMO, gold and stocks are gamed too much by the Wall Street Pig Men to be suitable for small fry like me…

[Wiley]

Concho,

Since 2001…

HUI up 700%
Gold up 145%
Silver up 190%

Now the “ungamed” stuff…

$INDU up 15%
QQQ down 24%

I think the smart money IS speaking about the future. Also the only time the FED will raise rates will be after the market does and as such will always be behind which is inflactionary. Respectfully I think your trusting the wrong people at the wrong time. That is what the market is saying.

[Anonymous]

Fair points, Concho. Great datapoints, Wiley.

Population growth in the upcoming depression will be low: average population growth by decade from 1900 to 2000 was 14%; growth from ’30 to ’40 was 7%.

Gold and guns, people!

[Anonymous]

FSD, I take no guidance from the market in regard to interest rates or prices. Not many think a recession is probable nor do many think SoCal real estate has a big dive ahead. So, I give no credence to the lack of support for the much greater leap that the Feds will have to print their way out of a box given plummeting tax receipts and skyrocketing demand for services.

The consumer is toast, now, if you look at today’s BEA report: real spending, month-to-month, on durable goods is down as it is for non-durable goods; only spending on services is holding up.

I feel VERY comfortable ignoring ‘conventional’ wisdom, i.e., the market, and feel VERY comfortable betting my money that way.

[Author]

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