Trouble at the Treasury Auction

[afx114]

Couldn’t this be a function of the stock market’s increase since mid-March?

Stocks up = bonds down
Stocks down = bonds up

[patientrenter]

[quote=davelj]

If you go back and look at the data from the late-70s and early-80s when inflation was really raging… housing prices went way up… despite the fact that interest rates went way up as well. Rents were going up at the same time.

Don’t get me wrong, I think it’s important to have sub-6% mortgage rates for the next 12-18 months as we clear out most of the foreclosure detritus, but I don’t think higher rates are going to have much impact on prices 2+ years out. May keep them from going up, but I think prices will be largely stabilized by then. And while some may say that buying now in anticipation of higher rates later is a “buying panic,” it’ll sure clear out a lot of inventory. Rightly or wrongly, anyone with a long-term view is more “payment sensitive” than “principal-balance sensitive.”[/quote]

You may be right. My answer was to a hypothetical question. As I mentioned, I don’t think 8% interest rates will be tolerated, so I am not predicting that any of the consequences of an 8% rate will actually occur. I don’t think they will, because I don’t think we’ll see the 8%.

Things change if the Fed etc can get inflation up to a high enough level, because then house prices will not be reduced by 8% interest rates, and that will enable the Fed to tolerate 8% rates. It would be the 1970’s all over again. I think we are likely to see a repeat of the 1970’s in inflation and growth rates, but my expectation was that it would take more than 2 years to go from where we are now to near-10% CPI inflation.

[patientrenter]

[quote=davelj]

If you go back and look at the data from the late-70s and early-80s when inflation was really raging… housing prices went way up… despite the fact that interest rates went way up as well. Rents were going up at the same time.

Don’t get me wrong, I think it’s important to have sub-6% mortgage rates for the next 12-18 months as we clear out most of the foreclosure detritus, but I don’t think higher rates are going to have much impact on prices 2+ years out. May keep them from going up, but I think prices will be largely stabilized by then. And while some may say that buying now in anticipation of higher rates later is a “buying panic,” it’ll sure clear out a lot of inventory. Rightly or wrongly, anyone with a long-term view is more “payment sensitive” than “principal-balance sensitive.”[/quote]

You may be right. My answer was to a hypothetical question. As I mentioned, I don’t think 8% interest rates will be tolerated, so I am not predicting that any of the consequences of an 8% rate will actually occur. I don’t think they will, because I don’t think we’ll see the 8%.

Things change if the Fed etc can get inflation up to a high enough level, because then house prices will not be reduced by 8% interest rates, and that will enable the Fed to tolerate 8% rates. It would be the 1970’s all over again. I think we are likely to see a repeat of the 1970’s in inflation and growth rates, but my expectation was that it would take more than 2 years to go from where we are now to near-10% CPI inflation.

[patientrenter]

[quote=davelj]

If you go back and look at the data from the late-70s and early-80s when inflation was really raging… housing prices went way up… despite the fact that interest rates went way up as well. Rents were going up at the same time.

Don’t get me wrong, I think it’s important to have sub-6% mortgage rates for the next 12-18 months as we clear out most of the foreclosure detritus, but I don’t think higher rates are going to have much impact on prices 2+ years out. May keep them from going up, but I think prices will be largely stabilized by then. And while some may say that buying now in anticipation of higher rates later is a “buying panic,” it’ll sure clear out a lot of inventory. Rightly or wrongly, anyone with a long-term view is more “payment sensitive” than “principal-balance sensitive.”[/quote]

You may be right. My answer was to a hypothetical question. As I mentioned, I don’t think 8% interest rates will be tolerated, so I am not predicting that any of the consequences of an 8% rate will actually occur. I don’t think they will, because I don’t think we’ll see the 8%.

Things change if the Fed etc can get inflation up to a high enough level, because then house prices will not be reduced by 8% interest rates, and that will enable the Fed to tolerate 8% rates. It would be the 1970’s all over again. I think we are likely to see a repeat of the 1970’s in inflation and growth rates, but my expectation was that it would take more than 2 years to go from where we are now to near-10% CPI inflation.

[patientrenter]

[quote=davelj]

If you go back and look at the data from the late-70s and early-80s when inflation was really raging… housing prices went way up… despite the fact that interest rates went way up as well. Rents were going up at the same time.

Don’t get me wrong, I think it’s important to have sub-6% mortgage rates for the next 12-18 months as we clear out most of the foreclosure detritus, but I don’t think higher rates are going to have much impact on prices 2+ years out. May keep them from going up, but I think prices will be largely stabilized by then. And while some may say that buying now in anticipation of higher rates later is a “buying panic,” it’ll sure clear out a lot of inventory. Rightly or wrongly, anyone with a long-term view is more “payment sensitive” than “principal-balance sensitive.”[/quote]

You may be right. My answer was to a hypothetical question. As I mentioned, I don’t think 8% interest rates will be tolerated, so I am not predicting that any of the consequences of an 8% rate will actually occur. I don’t think they will, because I don’t think we’ll see the 8%.

Things change if the Fed etc can get inflation up to a high enough level, because then house prices will not be reduced by 8% interest rates, and that will enable the Fed to tolerate 8% rates. It would be the 1970’s all over again. I think we are likely to see a repeat of the 1970’s in inflation and growth rates, but my expectation was that it would take more than 2 years to go from where we are now to near-10% CPI inflation.

[patientrenter]

[quote=davelj]

If you go back and look at the data from the late-70s and early-80s when inflation was really raging… housing prices went way up… despite the fact that interest rates went way up as well. Rents were going up at the same time.

Don’t get me wrong, I think it’s important to have sub-6% mortgage rates for the next 12-18 months as we clear out most of the foreclosure detritus, but I don’t think higher rates are going to have much impact on prices 2+ years out. May keep them from going up, but I think prices will be largely stabilized by then. And while some may say that buying now in anticipation of higher rates later is a “buying panic,” it’ll sure clear out a lot of inventory. Rightly or wrongly, anyone with a long-term view is more “payment sensitive” than “principal-balance sensitive.”[/quote]

You may be right. My answer was to a hypothetical question. As I mentioned, I don’t think 8% interest rates will be tolerated, so I am not predicting that any of the consequences of an 8% rate will actually occur. I don’t think they will, because I don’t think we’ll see the 8%.

Things change if the Fed etc can get inflation up to a high enough level, because then house prices will not be reduced by 8% interest rates, and that will enable the Fed to tolerate 8% rates. It would be the 1970’s all over again. I think we are likely to see a repeat of the 1970’s in inflation and growth rates, but my expectation was that it would take more than 2 years to go from where we are now to near-10% CPI inflation.

[CA renter]

[quote=davelj]

If you go back and look at the data from the late-70s and early-80s when inflation was really raging… housing prices went way up… despite the fact that interest rates went way up as well. Rents were going up at the same time.

Don’t get me wrong, I think it’s important to have sub-6% mortgage rates for the next 12-18 months as we clear out most of the foreclosure detritus, but I don’t think higher rates are going to have much impact on prices 2+ years out. May keep them from going up, but I think prices will be largely stabilized by then. And while some may say that buying now in anticipation of higher rates later is a “buying panic,” it’ll sure clear out a lot of inventory. Rightly or wrongly, anyone with a long-term view is more “payment sensitive” than “principal-balance sensitive.”[/quote]

But in the 70s and 80s, there was wage inflation, and the Baby Boomers were in their peak buying years. They were also more likely to have more stable jobs and healthcare/pension plans.

People today have to factor in job instability (making it less likely they can “hold on” through a downturn) and the increased need for savings for retirement and health problems.

I’m not sure we’re seeing any wage inflation in the near term, or do you think I’m missing something?

Also, if rates weren’t important, why is the govt willing to destroy our currency in order to get interest rates down to “save the housing market”?

[CA renter]

[quote=davelj]

If you go back and look at the data from the late-70s and early-80s when inflation was really raging… housing prices went way up… despite the fact that interest rates went way up as well. Rents were going up at the same time.

Don’t get me wrong, I think it’s important to have sub-6% mortgage rates for the next 12-18 months as we clear out most of the foreclosure detritus, but I don’t think higher rates are going to have much impact on prices 2+ years out. May keep them from going up, but I think prices will be largely stabilized by then. And while some may say that buying now in anticipation of higher rates later is a “buying panic,” it’ll sure clear out a lot of inventory. Rightly or wrongly, anyone with a long-term view is more “payment sensitive” than “principal-balance sensitive.”[/quote]

But in the 70s and 80s, there was wage inflation, and the Baby Boomers were in their peak buying years. They were also more likely to have more stable jobs and healthcare/pension plans.

People today have to factor in job instability (making it less likely they can “hold on” through a downturn) and the increased need for savings for retirement and health problems.

I’m not sure we’re seeing any wage inflation in the near term, or do you think I’m missing something?

Also, if rates weren’t important, why is the govt willing to destroy our currency in order to get interest rates down to “save the housing market”?

[CA renter]

[quote=davelj]

If you go back and look at the data from the late-70s and early-80s when inflation was really raging… housing prices went way up… despite the fact that interest rates went way up as well. Rents were going up at the same time.

Don’t get me wrong, I think it’s important to have sub-6% mortgage rates for the next 12-18 months as we clear out most of the foreclosure detritus, but I don’t think higher rates are going to have much impact on prices 2+ years out. May keep them from going up, but I think prices will be largely stabilized by then. And while some may say that buying now in anticipation of higher rates later is a “buying panic,” it’ll sure clear out a lot of inventory. Rightly or wrongly, anyone with a long-term view is more “payment sensitive” than “principal-balance sensitive.”[/quote]

But in the 70s and 80s, there was wage inflation, and the Baby Boomers were in their peak buying years. They were also more likely to have more stable jobs and healthcare/pension plans.

People today have to factor in job instability (making it less likely they can “hold on” through a downturn) and the increased need for savings for retirement and health problems.

I’m not sure we’re seeing any wage inflation in the near term, or do you think I’m missing something?

Also, if rates weren’t important, why is the govt willing to destroy our currency in order to get interest rates down to “save the housing market”?

[CA renter]

[quote=davelj]

If you go back and look at the data from the late-70s and early-80s when inflation was really raging… housing prices went way up… despite the fact that interest rates went way up as well. Rents were going up at the same time.

Don’t get me wrong, I think it’s important to have sub-6% mortgage rates for the next 12-18 months as we clear out most of the foreclosure detritus, but I don’t think higher rates are going to have much impact on prices 2+ years out. May keep them from going up, but I think prices will be largely stabilized by then. And while some may say that buying now in anticipation of higher rates later is a “buying panic,” it’ll sure clear out a lot of inventory. Rightly or wrongly, anyone with a long-term view is more “payment sensitive” than “principal-balance sensitive.”[/quote]

But in the 70s and 80s, there was wage inflation, and the Baby Boomers were in their peak buying years. They were also more likely to have more stable jobs and healthcare/pension plans.

People today have to factor in job instability (making it less likely they can “hold on” through a downturn) and the increased need for savings for retirement and health problems.

I’m not sure we’re seeing any wage inflation in the near term, or do you think I’m missing something?

Also, if rates weren’t important, why is the govt willing to destroy our currency in order to get interest rates down to “save the housing market”?

[CA renter]

[quote=davelj]

If you go back and look at the data from the late-70s and early-80s when inflation was really raging… housing prices went way up… despite the fact that interest rates went way up as well. Rents were going up at the same time.

Don’t get me wrong, I think it’s important to have sub-6% mortgage rates for the next 12-18 months as we clear out most of the foreclosure detritus, but I don’t think higher rates are going to have much impact on prices 2+ years out. May keep them from going up, but I think prices will be largely stabilized by then. And while some may say that buying now in anticipation of higher rates later is a “buying panic,” it’ll sure clear out a lot of inventory. Rightly or wrongly, anyone with a long-term view is more “payment sensitive” than “principal-balance sensitive.”[/quote]

But in the 70s and 80s, there was wage inflation, and the Baby Boomers were in their peak buying years. They were also more likely to have more stable jobs and healthcare/pension plans.

People today have to factor in job instability (making it less likely they can “hold on” through a downturn) and the increased need for savings for retirement and health problems.

I’m not sure we’re seeing any wage inflation in the near term, or do you think I’m missing something?

Also, if rates weren’t important, why is the govt willing to destroy our currency in order to get interest rates down to “save the housing market”?

[Arraya]

[quote=afx114]Couldn’t this be a function of the stock market’s increase since mid-March?

Stocks up = bonds down
Stocks down = bonds up[/quote]

It’s not quite that simple and I can’t quite wrap my head around the whole process, but here it goes. You have foreign and internal purchasers of treasuries. Traditionally, they have been considered the safest place to park you money in times of uncertainty. Last fall when stocks tanked there was a huge internal flight to safety where domestic money flowed into treasuries. Concurrently, foreign purchasers have been decreasing there purchases. I actually ready somewhere that we used to have 16 and it is not down to 6 foreign buyers. So, basically domestic demand made up for foreign. Now that the domestic buyers are more risk tolerant they are going back into equities. The problem is foreign buyers are still decreasing there holdings including China which is our biggest holder. This is happening when we have a huge budget deficit because of the stimulus and other increased spending which means we need to sell more to keep the party going.

[Arraya]

[quote=afx114]Couldn’t this be a function of the stock market’s increase since mid-March?

Stocks up = bonds down
Stocks down = bonds up[/quote]

It’s not quite that simple and I can’t quite wrap my head around the whole process, but here it goes. You have foreign and internal purchasers of treasuries. Traditionally, they have been considered the safest place to park you money in times of uncertainty. Last fall when stocks tanked there was a huge internal flight to safety where domestic money flowed into treasuries. Concurrently, foreign purchasers have been decreasing there purchases. I actually ready somewhere that we used to have 16 and it is not down to 6 foreign buyers. So, basically domestic demand made up for foreign. Now that the domestic buyers are more risk tolerant they are going back into equities. The problem is foreign buyers are still decreasing there holdings including China which is our biggest holder. This is happening when we have a huge budget deficit because of the stimulus and other increased spending which means we need to sell more to keep the party going.

[Arraya]

[quote=afx114]Couldn’t this be a function of the stock market’s increase since mid-March?

Stocks up = bonds down
Stocks down = bonds up[/quote]

It’s not quite that simple and I can’t quite wrap my head around the whole process, but here it goes. You have foreign and internal purchasers of treasuries. Traditionally, they have been considered the safest place to park you money in times of uncertainty. Last fall when stocks tanked there was a huge internal flight to safety where domestic money flowed into treasuries. Concurrently, foreign purchasers have been decreasing there purchases. I actually ready somewhere that we used to have 16 and it is not down to 6 foreign buyers. So, basically domestic demand made up for foreign. Now that the domestic buyers are more risk tolerant they are going back into equities. The problem is foreign buyers are still decreasing there holdings including China which is our biggest holder. This is happening when we have a huge budget deficit because of the stimulus and other increased spending which means we need to sell more to keep the party going.

[Arraya]

[quote=afx114]Couldn’t this be a function of the stock market’s increase since mid-March?

Stocks up = bonds down
Stocks down = bonds up[/quote]

It’s not quite that simple and I can’t quite wrap my head around the whole process, but here it goes. You have foreign and internal purchasers of treasuries. Traditionally, they have been considered the safest place to park you money in times of uncertainty. Last fall when stocks tanked there was a huge internal flight to safety where domestic money flowed into treasuries. Concurrently, foreign purchasers have been decreasing there purchases. I actually ready somewhere that we used to have 16 and it is not down to 6 foreign buyers. So, basically domestic demand made up for foreign. Now that the domestic buyers are more risk tolerant they are going back into equities. The problem is foreign buyers are still decreasing there holdings including China which is our biggest holder. This is happening when we have a huge budget deficit because of the stimulus and other increased spending which means we need to sell more to keep the party going.

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