patrick.net

FortWayne says

I sometimes wonder what the consequences in a long run will be.

Logan will indicate that because of the "king dollar" there won't be any consequences. For the foreseeable future he is right. At some point the dollar will be replaced by the BRICSIZ and that will change things very quickly. This is because it is unlikely that there will be two competing reserve currencies, i.e. it has not happened in history. The other is that reserve currencies do not go on forever.

For now the inflation is exported, meaning that other countries currency does not float as the dollar does with the US. So the other countries debase their currency to keep even. But there is always a time lag (margin) that gives the country who first receives the inflated dollars (the US) an advantage

In effect the US does not have price discovery which is true with communist countries as well. The problem with this is that price discovery is the benchmark of value. So we see graphs like this:

Logan Mohtashami says

mell says

Yet, gas prices are higher than they should be

While there are many factors at play, we have now the same oil prices as 2004 where gas was roughly 90 cents cheaper on average (correct me if I'm wrong). That's a 50% markup. Not many can say that for their wages since 2004.

indigenous says

replaced by the BRICSIZ

BRICS

China, Demographics issues, big time ... it's just starting for them as well

Russia, Toast.... another demographic bad county that has been destroyed with the crash of oil

Brazil, Inflation, Inflation, Inflation

South America and India are the only decent players left and they're under-performing considering how good their demographics are

The U.S. is sitting very pretty for the next 30 years against the BRICS

mell says

Not many can say that for their wages since 2004.

Uneducated, unskilled, those on disability, non high school, non college, non trade show, drug users and criminal active Americans are struggling big time yes, but America is doing fine, we have a concentrated poverty problem for sure but as a country there is a reason why the U.S. has the best domestic economy in the world for a mature country.

Yup but Rome was replaced.

indigenous says

Yup but Rome was replaced

sickness, in fighting , too much expansion and the Huns hated them big time

Logan Mohtashami says

sickness, in fighting , too much expansion and the Huns hated them big time

No sign of that is the US...

I would add the predominant factor was lack of production

Logan Mohtashami says

So, they can't ever say anything good really because their followers would leave them. This is the Zero Hedge game plan.

Yellow Journalism, Or Bubble and Crash talk is very popular this century so it makes sense for them to be very down beat on humanity itself.

Marc Faber is another one in the group

He he, funny. I left Bloomberg years ago because of the sensational nature of articles. Half the articles on Zero Hedge provide better insight than Bloomberg. Otherwise, just read FT.

Logan, in 2005-2008, what was the total volume subprime loans did you originate?

Logan Mohtashami says

The U.S. is sitting very pretty for the next 30 years against the BRICS

China started a clean up and will come out much stronger eventually, probably in five years. Making statements with 30 year horizon does not make you any better than Dent or anybody else that peddles sensationalism.

tr6 says

Logan, in 2005-2008, what was the total volume subprime loans did you originate?

Zero Sub Prime Loans I did outside of 1 Sub Prime refinance from 7.5% 30 year fix to a 6% 30 year fix with a person with 53% LTV

Zero foreclosures on my record since I have been working and yes even through the entire housing bubble start and finish . I admit I am super conservative ;-) tr6 says

China

They're trying to diverse their economy to a more consumption economy which is a plus, but I believe their issues are more demographic in nature, their stock market is meaningless and what a ride they had in 2015

indigenous says

No sign of that is the US...

We have 2 oceans protecting the U.S. and 2 friendly neighbors

It really has been a interesting century so far, you have to admit

A lot has happened since 1790

Logan Mohtashami says

We have 2 oceans protecting the U.S. and 2 friendly neighbors

I was being sarcastic, there is infighting, sickness (mental), and hate from many countries I.e. the US has a military presence in 140+ countries.

Thank you for that explanation Logan

indigenous says

I was being sarcastic

I know :-)

Another 2013 Buying Chance for the Builders! :-)

Strategist says

Strategist

If you want to start a position in TOL or XHB you have my blessing today since TOL is at 32.70 you can stop loss 29.70 because below 30 has some more downside

indigenous says

True, but come 2020-2024 according to Logan's stats there will be inflation

I can't wait until years 2020-2024 come around because their is going to be a stand off on inflation and rates

Does the 35 year trend stay and yield fall lower those year

Or does the demographic larger story of world deflation keep the 10 year under 4% in those years...

Which even a 10 year in 3%-4% core CPI inflation running at 3%-4% means that the 35 plus year cycle of 2% lower mortgage rates in each new economic cycle has stopped

Only time will tell!

The definition of inflation by the much respected Austrian(and rational) view is an increase in the money supply. coupled with demand.

There has been an increase in the money supply with QE and ZIRP, however in the bigger picture the increase is dwarfed by the 60 trillion total credit market.

War creates inflation by an increase of the money supply, we have had non stop wars for 15 years now.

The missing ingredient will come with with the millennials and it will change the trend as it did on your graph starting in the 60s coincident with the Vietnam war

This is my understanding-> QE is simply a means to get to ZIRP, which then feeds an increase in the overall credit market. The $2.4T in assets that the Fed bought (as part of QE), was only a means to reduce interest rates by keeping that money as excess reserves for "member banks" only. Because there was so much in their reserves, the member banks lowered their interest rates which then influences all other lending institutions to follow suit because borrowers won't borrow from them at a higher rate when there's competition from member banks at lower rates.

So, it's true that the $2.4T is small in comparison to the overall credit market and probably isn't being lent out, but that doesn't matter because that money was only a means to an end...not the end itself.

Logan Mohtashami says

Strategist says

Strategist

If you want to start a position in TOL or XHB you have my blessing today since TOL is at 32.70 you can stop loss 29.70 because below 30 has some more downside

No stop loss for me. It's a question of how much profit I want to make. If you like home builders, ITB is more appropriate, as XHB contains retailers like Bed Bath & Beyond.

Strategist says

ITB is more appropriate,

Well, if you wanted to buy TOL ever, yesterday was your day in the $32 area, not the $39-40 all the firms were touting, but the ITB is much better than the XHB even though the XHB gets more of the headline

Logan Mohtashami says

Strategist says

ITB is more appropriate,

Well, if you wanted to buy TOL ever, yesterday was your day in the $32 area, not the $39-40 all the firms were touting, but the ITB is much better than the XHB even though the XHB gets more of the headline

I have TOL. I'm fully invested right now. Overweighted in real estate and home builder stocks.
It's easy to predict these stocks will go up because we have a shortage. "When" will they go up is the hard part.

Strategist says

"When" will they go up is the hard part.

We have had this conversation for 3 years now. This is what I found interesting when I went to the UCLA Anderson Housing Conference in 2013. Everyone was using old model metrics to count for the builders expansion.

April 2013, All I heard for analyst in other conferences ( they are funny bunch too) is that because sales are low, strong demand will lead to higher profit margin sales price with rising volume. Fair enough

But It's 1/5/2016

Today TOL is where it was in 2012 ( What Happened)

This is why I have been trying to tell people to be cautious on TOL but it's a better buy at 2012 levels than it was last year when everyone was hyping the hell out if

All #QE did was create excess reserve, they couldn't lend it out.

QE was a horrible experiment, thankfully the Fed's recent paper said it didn't do much for the economy.

This was my main thesis against Bernanke poor #QE velocity thesis due to tight lending, that was a horrible economic thesis , back in 2013

http://loganmohtashami.com/2013/03/27/will-be-on-bloomberg-financial-talking-about-bernankes-myth-on-tight-lending-standards-the-real-housing-story/

Logan Mohtashami says

QE was a horrible experiment, thankfully the Fed's recent paper said it didn't do much for the economy.

I don't disagree, but all those cash reserves are only for banks that participated in the QE program. The point wasn't just to lend out reserves on that graph you posted, but to influence all other lenders to lower interest rates in alignment with the banks that participated in QE. So to be fair, we can't judge QE's effectiveness based solely on that graph, which is what makes it difficult to determine the success of the program.

hope says

to lower interest rates in alignment

When ever #QE ended yields went lower every-time, in fact it had the opposite effect on long term rates.

It was the biggest waste of time and $ ever, it had no velocity and yields even today are now where close to where it was when the last $10 Billion ended.

Also, on MBS securities, purchases, that had a mute impact too

We will never see such a waste as #QE, it did nothing, this is why American didn't crash when #QE ended in 2014 as many as predicted.
If something didn't cause a boom, it can't create a bust either .

The only saving grace is that the Federal Reserve finally got it that it was waste and we will never see #QE again in this cycle, because the velocity was dreadful. That at least is the one positive sign

Logan Mohtashami says

It was the biggest waste of time and $ ever, it had no velocity and yields even today are now where close to where it was when the last $10 Billion ended.

Also, on MBS securities, purchases, that had a mute impact too

We will never see such a waste as #QE, it did nothing, this is why American didn't crash when #QE ended in 2014 as many as predicted.

If something didn't cause a boom, it can't create a bust either .

Now you are getting your head right.

indigenous says

Now you are getting your head right.

Your name isn't Pat isn't by any chance? ;-)

Logan Mohtashami says

When ever #QE ended yields went lower every-time, in fact it had the opposite effect on long term rates.

I'm playing devil's advocate now. Was QE only meant to affect long term rates or mortgage rates? What about short term rates such as those applied in money market accounts or shorter-term loans? If the Fed could influence lower short term rates, that should (in theory) spark more short-term borrowing, less short-term investing (e.g., CDs) in order to chase higher yields such as those in the stock market or long term bonds, and more activity in the adjustable rate mortgage business. This is why long term yields are so low and why the stock market has seen all these investment dollars chasing it.

hope says

What about short term rates such as those applied in money market accounts or shorter-term loans

Short term rates are more driven Federal Funds rate

Rates and inflation have moved hand to hand since 1960

2 year and the dollar both rose much higher than long term rates which is in line to what has happened before in economic cycles
as the Dollar makes it's biggest % move before the first rate hike

Which is short is that we have milked the rate cow as much as we can, but we could have another cycle where 10's comes with a 0 handle to it

Which means mortgage rates with a 2% handle, even a 1 handle to it, just going with the 35 year trend

On another item, look how pesky the 5 year has held on this line,

Logan Mohtashami says

2 year and the dollar both rose much higher than long term rates

Look at the 2-year you posted in that graph. It drops significantly and continues to drop all throughout QE 1, 2 and 3. When QE3 stopped in late Oct 2014, the 2 year starts to rise again. Doesn't that insinuate that QE affected the 2-year?

hope says

Doesn't that insinuate that QE affected the 2-year?

None what so ever, It shows the total opposite.

Shorter term yields and the Dollar all move before any rate hike happens... the Fed Funds rate drove all short term rates down and since we are working from #ZIRP the move up in short term yields which has been happening

1 month
3 month
6 month
1 year
2 year
Have all worked in style with the rising Dollar

#QE did nothing but inflate inflation expectation at best... then when #QE ended 10 year dropped every time Q2 and on...

If they could put an idea into prison ... it would have been the thesis that #QE velocity would lead banks to lend out...

We will never see in our lifetime a wasted attempt for inflation that #QE

Forget PCE and Headline CPI, a good track is CPI core and it's been moving up this year, yet to only 2%, but still, it's a first step

PCE and CPI has been moving away from each other for decades.

In fact PCE inflation has been below 2% 50% of the time for 20 years now even when the Fed Funds rate was much higher

Logan Mohtashami says

Which means mortgage rates with a 2% handle, even a 1 handle to it, just going with the 35 year trend

the ARM is back, baby!

landtof says

Logan Mohtashami says

Which means mortgage rates with a 2% handle, even a 1 handle to it, just going with the 35 year trend

the ARM is back, baby!

This year will be bad for both the stock and housing market. Not a crash year, but frustrating for quite a few. The housing market may cling onto a bit longer but once the stock gains go, so will the neighborhood. Just about the right time to bring back a good lending frenzy ;)

mell says

Just about the right time to bring back a good lending frenzy ;)

The one good thing about this cycle, is that all the semi exotic loan structure are so out of the reach of most Americans that the debt leverage will be small on semi non capacity owning debt

For example one lender has a Interest Only loan but you need 20% down and need to qualify on a 20 year amortization payment to get the IO, which really means you can't qualify on the interest only payment for the loan.

Very little velocity on this loan so far, a "Rich Man's Loan"