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Incredibly, ultra long-duration Treasury bonds have now lost more in % terms than stocks did during Great Financial Crisis.
The drawdown in extended duration Treasury ETF (🔻58.3%) now exceeds PEAK-TO-TROUGH losses in S&P 500 during stock market crash of 2007 – 2009 (🔻56.0%) pic.twitter.com/nlXZH5xOUY
— Jack Farley (@JackFarley96) October 2, 2023
T-Bills are not risk free. Hedge funds are actively shorting treasuries. Weird times all around.
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$2.5 trillion to borrow in the next 12 months. What’s the FED going to do?
Interest rates go up or they capitulate on shrinking the balance sheet and feed the inflation monster.
Rock meet hard place.
Any guesses on what path they choose?
Here's a toast with one last pour, may it last forever and a minute more;
Good fortune seems to you have sung, to live and love way past long -
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I don’t know how many young people can buy a house with the cost of lumber and the current rates.
It has ever been thus. I remember reading an advice column in 1987 when I was a newlywed and renting a house in Palo Alto. A reader complained that “young people today only want to buy stereos and BMWs and they’re not interested in buying houses and planning for the long term.” It was signed “Jack in Palo Alto.”
Well, Jack old sock, old man…we probably live less than a mile apart. If you want to sell me your $600k Palo Alto house whilst I am making $26,800 a year, I’m happy to buy it…but I don’t have the down payment or qualify for the monthly payment.
Just as true 35 years ago as it is today.
Audaces fortuna iuvat
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I know a little about construction and I know that no one could build my house today (or most any other house I know of) any where close to what it will sell for.
My first home (50k, 1000/sq ft) was cheap to build. Could have easily done it myself. Lumber was cheap. Labor cheap. But that same house now would be far tougher for a new buyer to either buy or build. Lumber is sky high and so is labor if you can even find anyone. It’s out of reach for a first time buyer on both price and interest rates. Most young guys today don’t have the skills. to build a house.
So, I do believe rates have to drop and they will do it soon.
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Lower rates, higher inflation. Not good for bidenomics.
Here's a toast with one last pour, may it last forever and a minute more;
Good fortune seems to you have sung, to live and love way past long -
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Government needs are going to crowd out private financing needs. Leviathan must be fed.
Mortgage rates now near 8%
Mortgage rate heads toward 8% (cnbc.com)
Audaces fortuna iuvat
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Had lunch yesterday with someone close to the situation at the Fed. I had the same discussion with him as this thread and he addressed the housing part as well.
His feeling was that they would raise rates 25bp twice more and stand pat. He pointed out that Powell does not want to be another Arthur Burns. Too long to discuss here. But he said Powell is hell bent on getting inflation to 2% and it’s not going to happen.
He felt that housing is a big problem. I asked if he thought the Fed would cut rates, provide more liquidity, or move towards more lenient borrowing a la 2007. His comment was that they don’t think that way. They are not concerned about what is happening in the sector and my question was why.? He said they were all academics and look at data all day. It’s all they do. Housing was someone else’s problem. Go figure.
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I believe what neo is writing. Rates are going to go up more short term; and the term premium is going to continue to escalate so that long term rates compensate people for true risk of default.
borrowing makes the whole thing go, and right now borrowing is getting really expensive. The consumer will tap out, companies will default, and then we will be right back to stimulus and loose money before ever mopping up all the loose money that was released during the last 15 years.
Powell is in a really tough spot but I have no sympathy for him and for Yellen’s “transient inflation” crowing. They made their own bed. They should have been tightening from the pandemic rate lows during 2021 and instead just left the punch bowl spiked with ever clear.
Wait until Congress gets a load of long treasuries at 7-8 percent. Gonna be hard to ignore deficits at that point when debt service projections start to have a “T” on them.
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Sic transit gloria mundi (so shut up and get back to work) -
“He said they were all academics and look at data all day. It’s all they do. Housing was someone else’s problem.”
This IS the problem. Decisions made in a bubble, with out regard to the ripple effect of those decisions. Makes one wonder if looking at data all day makes for better decision making.
IMO, the Fed should be embracing a greater role in policy making. Lord knows the idiots in the WH can’t even spell policy, let alone formulate one.
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“IMO, the Fed should be embracing a greater role in policy making. Lord knows the idiots in the WH can’t even spell policy, let alone formulate one.”
Perhaps not? I am concerned about the introduction of political concerns into monetary policy. That hasn’t worked so well at the FBI, the DoJ, Homeland Security, the DoD or the CIA.
I think I’d prefer a single target role for the FED. Keep inflation at 2% and stable. Political decisions by policy makers keep our deficit at $2 trillions annually and has our deficit at $34 trillion. Absent a focused and uncompromising effort to stability the stupidity of fiscal policy will not be challenged. People in DC should lose their jobs. There should be a very public policy conflict between the FED and elected policy makers so the debate comes front and center. (Look at Biden’s confused statement today.)
In my memory, the only time policy “cooperation” between political leadership and the FED benefited the nation was Volker/Reagan. Political leadership had the stones to take the heat for misguided policy and declare, “Let’s roll”. We don’t have Reagan types in DC.
Here's a toast with one last pour, may it last forever and a minute more;
Good fortune seems to you have sung, to live and love way past long -
Good news. Celebrity chef, er, I mean economist Paul Krugman says that inflation is over…if you just eliminate, you know…most of the things that most people buy, like food, energy, housing and used cars.
Audaces fortuna iuvat
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I’d like to point out that Krugman is an academic and probably has more than one sinecure. That being said, inflation is over if you don’t eat, heat your home or need any kind of transportation. But it’s sky high for Taylor Swift concerts and pro golfers.
But Krugman may be right. I bought some flea powder for my dog last week and it has not gone up a penny.
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The flea powder recession is likely overstated.
Inflation remains WAY above acceptable levels, and it’s just political spin to say anything otherwise. We have halved the inflation rate and we have politicians declaring victory, but it’s the absolute level of inflation that’s a really big deal.
3.7 percent inflation is nearly double the traditional target rate.
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Sic transit gloria mundi (so shut up and get back to work)
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