Inflation Peaks/Real-gdp Peaks/Interest Rates Peak

[zoog]

Re: Bartus Maximus

My current favored scenario is for a somewhat choppy run back up to around 1500-1515 on the S&P to re-establish the right shoulder of a head & shoulders pattern and then down again to new lows...

As you know I seldom post specifics like that, partially since I'm an active futures trader (average trade length is about 3-4 days) and I don't want to encourage anyone to go there, and also since I don't want to be any kind of guru.

I feel really smart when my ideas about what's upcoming are even vaguely similar to what guys like you, Finster, etc. say. Gurus or not.:cool: I'd feel smarter if I actually managed to make money on such predictions.:rolleyes:

[flow5]

Re: Inflation Peaks/Real-gdp Peaks/Interest Rates Peak

Commercial Paper Has Biggest Weekly Drop Since 2000 (Update1)

By Darrell Hassler
Aug. 23 (Bloomberg) -- Outstanding U.S. commercial paper fell 4.23 percent, the biggest weekly drop in almost seven years, as investors fled asset-backed debt and opted for the safety of Treasuries.
Short-term debt maturing in 270 days or less fell $90.2 billion to a seasonally adjusted $2.04 trillion in the week ended yesterday, according to the Federal Reserve. Commercial paper outstanding has fallen by $181.3 billion in two weeks. The most recent decline is the biggest by percentage since at least November 2000, according to data compiled by Bloomberg.
The retreat may indicate that the Fed's decision to lower the discount rate last week failed to instill enough calm to draw back investors. Commercial paper backed by assets led the fall as buyers fled debt linked to subprime mortgages. Outstanding paper may slump by a total $300 billion, representing the entire amount of debt backed by home loans, said Tony Crescenzi, chief bond market strategist at Miller Tabak & Co.
``The shrinkage of the commercial paper market will force companies to obtain money elsewhere,'' Crescenzi, who is based in New York, said in e-mailed comments today. ``Some will be unable to obtain funding and will shut or scale back their operations.''
The decline in outstanding commercial paper was driven by a 6.8 percent fall in asset-backed commercial paper, which represents about half the commercial paper market and has been used to finance purchases of subprime mortgages.

[Jim Nickerson]

Re: Bartus Maximus

As you know I seldom post specifics like that, partially since I'm an active futures trader (average trade length is about 3-4 days) and I don't want to encourage anyone to go there, and also since I don't want to be any kind of guru.

I put this very rough chart together a while ago to shows how the H&S top developed in 2000 - it may be helpful for those who pay attention to technical analysis.

Lest you forget, like it or not, you are iTulip's chart guru.

And that right-hand shoulder was a wonderful point to sell if not done previously, or it was a real sucker trap to keep hope alive to the upside--color me the latter.

[flow5]

Re: Inflation Peaks/Real-gdp Peaks/Interest Rates Peak

Who'd of thought it?
Rates on 30-Year Mortgage Rates Sink
Thursday August 23, 12:36 pm ET
By Jeannine Aversa, AP Economics Writer Rates on 30-Year Mortgages Sink to Lowest Point Since Late May

WASHINGTON (AP) -- Rates on 30-year mortgages sank this week to their lowest point since late May, providing a little ray of sunlight for would-be home buyers.
Freddie Mac, the mortgage company, reported Thursday that 30-year, fixed-rate mortgages averaged 6.52 percent. That was down from 6.62 percent last week and was the lowest rate since the week ending May 31, when rates stood at 6.42 percent.
The moderation provides a dose of welcome news for prospective homebuyers, some of whom also may be facing a situation of harder-to-get credit. In mid-June, rates on 30-year mortgages climbed to 6.74 percent, the high for this year.
Other mortgage rates also went down.
Rates on 15-year fixed-rate mortgages, a popular choice for refinancing, averaged 6.18 percent, down from 6.30 percent last week.
For five-year adjustable-rate mortgages, rates dipped to 6.34 percent, from 6.35 percent last week. Rates on one-year adjustable-rate mortgages fell to 5.60 percent, compared with 5.67 percent last week.
Mortgage rates eased following last week's decision by the Federal Reserve to slice its lending rate to banks, a move designed to calm recent turmoil on Wall Street about a spreading credit crunch.
"Interest rates on conforming long-term fixed rate mortgages and one-year adjustable-rate mortgages trended down by about one-tenth of a percent in the past week," said Frank Nothaft, Freddie Mac's chief economist. "This is as a result of yields on Treasury securities coming down, and the Fed's decision to cut the discount rate," he explained.
The mortgage rates do not include add-on fees known as points. Thirty-year mortgages carried a nationwide average fee of 0.4 point. Fifteen-year mortgages had a fee of 0.5 point. Five-year and one-year ARMs each carried an average fee of 0.6 point.
A year ago, rates on 30-year mortgages stood at 6.48 percent, 15-year mortgages were at 6.18 percent, five-year ARMS averaged 6.14 percent and one-year ARMs were at 5.60 percent.
After a five-year boom, the housing market went bust last year. Sales turned weak as did home prices. The slump has gotten worse this year as lenders have made it more difficult for some people to obtain mortgages. Lenders have tightened standards amid soaring foreclosures and late payments by subprime borrowers -- those with blemished credit histories. Problems have spread, affecting more creditworthy borrowers. Against this backdrop, Wall Street investors have been gripped by fears that the credit crisis will turn into an economic crisis. Stocks have careened wildly in recent weeks. The Fed has taken a number of steps aimed at stabilizing the situation

[bart]

Re: Bartus Maximus

Lest you forget, like it or not, you are iTulip's chart guru.

And that right-hand shoulder was a wonderful point to sell if not done previously, or it was a real sucker trap to keep hope alive to the upside--color me the latter.

Thanks Jim, but that honor and title belongs to EJ & Co and there are quite a few others who have created decent charts.

Live & learn... and if you think I haven't ever fallen into a trap then I have some ocean front property in Idaho in which you will be interested. ;)

[Finster]

Re: Bartus Maximus

Yes, it was the Burn's Fed that originally created the concept of the core rate, apparently due to a request from the Nixon administration to find a way of making inflation appear lower.

My current favored scenario is for a somewhat choppy run back up to around 1500-1515 on the S&P to re-establish the right shoulder of a head & shoulders pattern and then down again to new lows... and today we're testing the down trend line from 1550+ high last month. A solid close above about 1470 will put my 1500-1515 estimated pivot point into play.

The hot money pumps of TIOs etc. will bear close watching as usual. Both the Fed & Treasury have been comparatively light for the last 6-8 weeks, contrary to the opinions of many.

Sounds plausible to me! Have you, by the way, seen today's Federal Reserve balance sheet release? Supposedly the latest came out at 4:30 PM today. Thomas Keene on Bloomberg was making a big deal about it. I think he might have said H.3 or H.14 or something like that, but didn't catch the exact number.

Thoughts?

[bart]

Re: Bartus Maximus

Sounds plausible to me! Have you, by the way, seen today's Federal Reserve balance sheet release? Supposedly the latest came out at 4:30 PM today. Thomas Keene on Bloomberg was making a big deal about it. I think he might have said H.3 or H.14 or something like that, but didn't catch the exact number.

Thoughts?

There's H.4.1, which is factors affecting reserve balances - maybe that was it?

If so, yes there were very "interesting" elements. The biggest was a $25 billion outflow of Treasuries from the Fed's custodial account, and a $7 billion inflow for Agencies... for a net outflow of $18.4 billion. That's a record high outflow since 2000 and does not augur well for the dollar.

What was Keene going on about?

[Finster]

Re: Bartus Maximus

There's H.4.1, which is factors affecting reserve balances - maybe that was it?

If so, yes there were very "interesting" elements. The biggest was a $25 billion outflow of Treasuries from the Fed's custodial account, and a $7 billion inflow for Agencies... for a net outflow of $18.4 billion. That's a record high outflow since 2000 and does not augur well for the dollar.

What was Keene going on about?

Thanks! Keene was basically just talking about how the release was going to be very closely watched in light of the recent Fed activity. It sounded like he was talking about a balance sheet type release showing the Fed's assets and liabilities. I tried to sift through the stuff on the Fed's site and the best I could come up with was the H.3 release. It's a balance sheet thing, but on the other hand it doesn't cover activity in the past few days, so it's not clear. It would take a veteran Fed watcher like you to understand its implications anyway.

[bart]

Re: Bartus Maximus

Thanks! Keene was basically just talking about how the release was going to be very closely watched in light of the recent Fed activity. It sounded like he was talking about a balance sheet type release showing the Fed's assets and liabilities. I tried to sift through the stuff on the Fed's site and the best I could come up with was the H.3 release. It's a balance sheet thing, but on the other hand it doesn't cover activity in the past few days, so it's not clear. It would take a veteran Fed watcher like you to understand its implications anyway.

To the best of my knowledge, there is no such thing as a Fed balance sheet with weekly or even monthly releases. I wish I would have heard Keene - maybe I could be more help.

H.3 is about bank reserves, required reserves and monetary base and they're pretty much all under the Fed's direct control. Monetary base has been on a slight uptrend in the last few months and may have bottomed - too soon to tell.

[raja]

Re: Inflation Peaks/Real-gdp Peaks/Interest Rates Peak

Who'd of thought it?
Rates on 30-Year Mortgage Rates Sink

Does anyone have any idea if mortgage rates will drop during the post-Ka disinflation? Seems to me they should . . . .

I was thinking of taking some money out of my house with an equity loan (I have no mortgage now), then reinvesting it in high paying T-bonds during the Poom inflation run up.

It would work like this:
1) Borrow from the bank at 6+% fixed (deducting mortgage interest yearly)
2) Keep the money in 3-month T-bills, wait 6 months or a year
3) Buy a T-bond at 15% interest.

My own mini-carry trade earning 8% for 30 years using the bank's money.

Only risk I can see is if inflation rates don't rise. Then I'd pay off the loan and take a small loss from the differential between the T-bill and the loan cost for the year that I held it.

Hence, my question above: Should I wait, expecting morgage rates to drop during the post-Ka disinflation, or get the mortgage now? Any one got any idea where mortgage rates would go?

[Finster]

Re: Bartus Maximus

The data was available...

Thanks, Flow. Were there supposed to be numbers with that? Maybe you could post a source link. In any case, we'd need a little help from you or Bart or someone else familiar with the lingo for interpretation...

[Finster]

Re: Inflation Peaks/Real-gdp Peaks/Interest Rates Peak

Does anyone have any idea if mortgage rates will drop during the post-Ka disinflation? Seems to me they should . . . .

I was thinking of taking some money out of my house with an equity loan (I have no mortgage now), then reinvesting it in high paying T-bonds during the Poom inflation run up.

It would work like this:
1) Borrow from the bank at 6+% fixed (deducting mortgage interest yearly)
2) Keep the money in 3-month T-bills, wait 6 months or a year
3) Buy a T-bond at 15% interest.

My own mini-carry trade earning 8% for 30 years using the bank's money.

Only risk I can see is if inflation rates don't rise. Then I'd pay off the loan and take a small loss from the differential between the T-bill and the loan cost for the year that I held it.

Hence, my question above: Should I wait, expecting morgage rates to drop during the post-Ka disinflation, or get the mortgage now? Any one got any idea where mortgage rates would go?

You'd have to assess the risk on your own terms, but I wouldn't try it. The part that produces the most indigestion here is 3), the assumption of 15% yielding TBonds within a year. That would be about six sigmas out on the standard deviation scale. If the bond market - which is famously efficient - saw even a small probability of 15% long bonds a year out, yields would already be a lot higher today and you wouldn't have access to a ~6% mortgage to begin with.

[jk]

Re: Inflation Peaks/Real-gdp Peaks/Interest Rates Peak

Does anyone have any idea if mortgage rates will drop during the post-Ka disinflation? Seems to me they should . . . .

I was thinking of taking some money out of my house with an equity loan (I have no mortgage now), then reinvesting it in high paying T-bonds during the Poom inflation run up.

It would work like this:
1) Borrow from the bank at 6+% fixed (deducting mortgage interest yearly)
2) Keep the money in 3-month T-bills, wait 6 months or a year
3) Buy a T-bond at 15% interest.

My own mini-carry trade earning 8% for 30 years using the bank's money.

Only risk I can see is if inflation rates don't rise. Then I'd pay off the loan and take a small loss from the differential between the T-bill and the loan cost for the year that I held it.

Hence, my question above: Should I wait, expecting morgage rates to drop during the post-Ka disinflation, or get the mortgage now? Any one got any idea where mortgage rates would go?

You'd have to assess the risk on your own terms, but I wouldn't try it. The part that produces the most indigestion here is 3), the assumption of 15% yielding TBonds within a year. That would be about six sigmas out on the standard deviation scale. If the bond market - which is famously efficient - saw even a small probability of 15% long bonds a year out, yields would already be a lot higher today and you wouldn't have access to a ~6% mortgage to begin with.

how many sigmas was the recent move in tbills?

2 different takes on raja's idea:

1. raja could try his idea as a SPECULATION. putting the money into tbills means the only risk is the loss of the interest differential plus any costs associated with obtaining the mortgage, assuming there is no prepayment penalty.

2. another take on raja's idea is that he is paying the spread in order to be LIQUID. if a significant part of his assets are tied up in the home, he has not got much flexibility. if home prices drop significantly and credit continues to tighten, he might not the opportunity later to get liquid. there may be investment opportunities in a year or two, other than 15% tbonds, which he might want to pursue. or alternately, he could suffer a financial reverse of some kind, and appreciate having cash on hand.

[bart]

Re: Bartus Maximus

Thanks, Flow. Were there supposed to be numbers with that? Maybe you could post a source link. In any case, we'd need a little help from you or Bart or someone else familiar with the lingo for interpretation...

You actually *want* to subject yourself to a Fed balance sheet?!?!



They're only yearly to the best of my knowledge and only contained in the annual report to Congress.
2006 Annual Report to Congress (start around page 300 of the PDF)

Keep in mind that the accounting rules for a central bank are *very* different than normal ones... and have plenty of coffee on hand... and also note that I had almost a full head of hair before I started studying the Fed and Central Banks, and I'm well on the way to bald now...

[Finster]

Re: Inflation Peaks/Real-gdp Peaks/Interest Rates Peak

how many sigmas was the recent move in tbills?

Probably quite a few, JK, but that’s exactly why you don’t bet on such things in advance.

1. raja could try his idea as a SPECULATION.

You say this as if it were not a SPECULATION to begin with. Holy cow, JK…

2. another take on raja's idea is that he is paying the spread in order to be LIQUID. if a significant part of his assets are tied up in the home, he has not got much flexibility. if home prices drop significantly and credit continues to tighten, he might not the opportunity later to get liquid. there may be investment opportunities in a year or two, other than 15% tbonds, which he might want to pursue. or alternately, he could suffer a financial reverse of some kind, and appreciate having cash on hand.

You are reading waaay tooo much Hussman or something. Whilst living in a cave, no less. Millions of people just got themselves in deep doo-doo trying to get cute with mortgages, and your prescription is … ? Holy cow, JK…

;)