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September 20, 2007 at 1:19 PM in reply to: Subprime Borrowers to Lose Homes at Record Pace as Rates Rise #85321September 19, 2007 at 5:36 PM in reply to: How to protect against massive inflation and upcoming fall of dollar #85231
(former)FormerSanDiegan
Participantbsrsharma –
I agree. I would not hold a huge portion in UDN. The dollar has been on a decline for a significant period. At some point it may turn around. That’s why it is a fraction (less than 5%) of my portfolio. The Euro-zone is at a different point in the business cycle. The US is in slow-down/recession mode well ahead of Europe. Consider what happens when the US is recovering from recession as Europe heads into one. What happens to the Dollar vs Euro when that happens ? US rates going up while Euro rates going down means a strong dollar vs Euro. It will happen again …
September 19, 2007 at 12:58 PM in reply to: wow, the dollar is getting hammered. at this rate… #85207ParticipantI thought I heard that before about England. I guess that’s why “Everybody wants to live there!”
September 19, 2007 at 12:56 PM in reply to: How to protect against massive inflation and upcoming fall of dollar #85205ParticipantIs there a simple method to short the US dollar like ETF or a mutual fund.
Yes. UDN is an ETF that shorts the dollar.
However, foreign stocks may offer more upside because you presumably get both the growth in the company, plus a boost from a declining dollar.September 19, 2007 at 9:59 AM in reply to: How to protect against massive inflation and upcoming fall of dollar #85183ParticipantAs for US companies, I like the large, dividend paying companies with significant foreign sales. These tend to benefit somewhat from a weaker dollar. Examples … PG, GE, JNJ.
September 19, 2007 at 9:47 AM in reply to: Looks likethe short squeeze is continuing this morning. #85179Participant“Just curious. How great does your portfolio look if you index it to the Euro?”
How do home prices look when you index them to the Euro ?
ParticipantHoly cr@p! Shiller is predicting a housing downturn?
Next thing you know, women will get the right to vote.🙂
ParticipantI have callers who insisted that a cut by the fed will be a half point cut to their rate. I sure that many people agree with them.
HLS – I agree that you are dead on that the vast majority of the general public is clueless about the impact of federal funds rate on mortgages, particularly 30-year fixed rates.
I think your reaction in the first page of this thread reflects that.Piggingtonians tend to be a bit better edumacated about interaction of changes in short term rates and how they relate to ARM resets and HELOCs. A general trends towards lower short-term rates (which began prior to this rate cut, in anticipation) does historically tend to improve the environment for ARMs. However, as you correctly point out, the devil is in the details. People need to understand the terms of their loan (and also the terms of the loans sitting out there getting ready to re-set) to understand the impact. These things include the Index, Margin, Periodic Cap, Lifetime Cap, etc.
I am merely guessing (based on historical trends)that reduction in short-term rates will improve the environment for some fraction of debtors as their loans re-set.
An interesting issue will be whether the 12-month LIBOR and short-term Treasuries remain as correlated as in the past.
That said, I still think a large chunk of those experiencing re-sets in the next few months are headed for foreclosure.ParticipantAre non-LIBOR ARMs really that rare? My 5/1 is tied to the 1-year Treasury index.
No. Currently, 1-year Treasury index is becoming more common. 3-4 years ago, they were primarily tied to the 6-month and 1-year LIBOR.
ParticipantWhen translated to the housing market it means:
1. People with resetting ARMs get a huge bailout-like break.
2. People who are on the market for a home will hardly notice any difference (other than generally better mood at lender’s office)I would agree. Though I think break people might get on their ARM resets will be more like a life-preserver than a “huge bailout-like break”.
I may be in the minority opinion on this, but this is why I think the initial wave of resets which peaks in October and last throughout the first part of 2008 is more important than the second wave (which is spread out for several more years). The second wave will have the presumed benefit of short-term rate declines precipitated in part by the damage to the economy done by the first wave which we are currently experiencing.
ParticipantD’oh !
You may be right in the long run, but I think a weaker dollar in the near-term means higher oil (with respect to the dollar). I would rather time this trade when the other Central banks start easing rates, which would take some pressure off the dollar. But, I don’t like to short too often (though I am currently short the dollar via UDN).
ParticipantBank of America Corp. has lowered its prime-lending rate to 7.75 percent from 8.25 percent, effective Tuesday.
One would be naive to think BofA is the only one to have done this. All the major institutions have done this or soon will.
I am as ignorant on these topics as the next guy, but isn’t prime rate the rate at which the bank lends short-term money to credit cards and such rather than mortgage?
The prime rate is typically used DIRECTLY to set HELOC rates, and usually contractually tied to the rate for a HELOC.
Credit card rates are not strictly tied to prime rate and are not set in stone. Banks may change the rate unilaterally, with some restrictions regarding notice to the customer. However, CC rates tend to track the prime rate as well.
ParticipantIt’s pretty clear that Fed Funds rate correlates with short term rates as shown above. The reason is that it correlates strongly with the 1-year LIBOR, an index commonly used for ARM loans.
Below is a hack job on a chart (no time to find data and do my own excel job).
HLS – Your statement is true regarding FFR being a poor indicator or predictor for 30-year fixed rates. However, ADJUSTABLE rates are strongly affected by FFR. And I think we have found over the past few years that adjustable rate mortgages can have a profound impact on housing.
[img_assist|nid=4846|title=Crappy chart|desc=Do Fed Funds rate correlate with indexes commonly used in Mortages ? They sure do.|link=node|align=left|width=466|height=349]
ParticipantFlat Profit
Analysts currently expect that Bank of America’s third- quarter profit will be flat compared with last year and earnings per share from continuing operations will rise 3 percent, according to the average estimates in a Bloomberg survey.
I’d say that flat profits in the current environment is fantastic performance. Couple that with a 5+% dividend in a declining interest rate environment and you have what I would consider a good value.
ParticipantFSD, you said that the return was 7.2% compounded annually. Assuming a nominal 2.5% CPI (actually it was more 10 years back). over the 10 years, the inflation adjusted return would be 4.7%. If you look at Siegels book, “Stocks for the long run”, you’ll see that the long term compound real returns of the stock market have been 6.6%. So, Greenspan was right. The problem is that he didn’t take any action. If he had, we could have averted many bubbles.
Yes, the past decade has been a period of under-performance for stocks. It also included the worst bear market in 30 years. However, even at the depths of that bear market, stocks were always above the point where Greenspan uttered the words irrational exuberance.
If in 1999 I said that housing is due for a correction because the market is irrational, would you think I made a good call.
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