patrick.net

And the paradox is that by then, with mortgage rates going up (monthly cost for all but cash buyers going up just on the change in mortgage rates alone), real estate may be steady to actually declining in price, in spite of the inflationary expectations.

At least that's how it worked last time. I'm sure that most people recall that inflation hit real estate (and the stock market) last, as inflationary expectations and long term interest rates finally came down.

But as I said before, we all know it's not going to be the exact same movie this time.

Well considering they're offering them at the lowest rates ever, in the largest quantities ever and they're being gobbled up.... awhile...

I've read that property prices stayed nominally flat in Argentina even as the currency devalued, because there were opposing forces at work which were approximately equal: a great fall in purchasing power and large unemployment, opposed by people desperate for somewhere to store their wealth who were buying property.

But also, a reader of this blog told me that there are no mortgages in Argentina so interest rates are irrelevant. Property deals are accomplished with suitcases of cash in the bank lobby. You pay cash - not even a check, real cash - or you don't buy at all. Probably a good thing too, given this crazy interest rate swing:

http://www.latin-focus.com/latinfocus/countries/argentina/arginter.htm

More history of Argentine property:

http://www.globalpropertyguide.com/Latin-America/Argentina/Price-History

https://archive.ph/6Qq4U

Rising Interest Rates Will Crush the Federal Budget
The interest costs of Treasury debt are about to soar while revenue from capital-gains taxes will plunge.
By Red Jahncke
June 29, 2022 6:21 pm ET

https://notthebee.com/article/here-are-the-online-savings-accounts-paying-the-most-interest-right-now

If you're not earning at least 4% on your savings, you're losing out on free money. Here are 13 online savings accounts paying between 4.25% and 5.07%.

💰 Upgrade - 5.07%
💰 Bask Bank - 5.00%
💰 Laurel Road - 5.00%
💰 EverBank - 5.00%
💰 BMO Alto - 4.85%
💰 CIT Bank - 4.65%
💰 SoFi - 4.50%
💰 Lending Club - 4.50%
💰 Synchrony Bank - 4.50%
💰 Barclays - 4.35%
💰 Discover - 4.30%
💰 Capital One - 4.30%
💰 Citi - 4.25%

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Interesting article about how 10 year bonds dropped 46% since mid 2020.

This makes sense as the general rule is for every 1% increase in the Fed Funds rate there is generally a 1% increase for each year of a bond's duration.

So when the Fed Funds rate increased about 5.0% since 2020, that would result in about a 50% drop for a 10 year bond.

https://markets.businessinsider.com/news/bonds/treasury-bond-yields-market-selloff-market-crashes-dot-com-bubble-2023-10

Another asset being housing, the rule generally is a 1% increase in the 30 year mortgage rate equates to a 10% drop in housing prices.

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Since last year, I've been buying T-bills, mostly from TreasuryDirect: https://www.treasurydirect.gov/

Current 3-month and 6-month T-bills rates are close to 5.5% https://www.wsj.com/market-data/bonds

Also, I live in CA, so I don't have to pay state tax on the interest earned in T-bills. Interest income in CDs and savings/money market accounts is taxable by state.

If and when the yield curve starts to flatten (vs inverted as we have currently), I may start dabbling into T-notes and T-bonds. My gut feeling is that the short term rate will remain well above 5% till sometime in 2024.

Patrick says

Rising Interest Rates Will Crush the Federal Budget

marcus says

The feds adding long term securities to their balance sheet is highly unorthodox, and everyone knows they are doing it only because these are such unusual times. The credit markets still aren't even functioning normally.

Where has Marcus been ? He stated the above back in 2010 and it is prophetic. Fed has lost money and I wonder how much they will continue to lose money as they continue Quantitative Tightening. They are selling Treasuries at depressed prices due to the increase in interest rates.

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Patrick says

Rising Interest Rates Will Crush the Federal Budget

No they won't. The Fed will just print more money. It will crush the economy.

richwicks says

Patrick says

Rising Interest Rates Will Crush the Federal Budget

No they won't. The Fed will just print more money. It will crush the economy.

You are both right.

What Patrick said will happen first. Then when Congress' ass is up against the wall, what richwicks said is likely to happen in some form.

Whether that is LBJ/Nixon/Ford/Carter limited currency debasement or full on Weimar Germany hyperinflation is yet to be determined.

ad says

marcus says

The feds adding long term securities to their balance sheet is highly unorthodox, and everyone knows they are doing it only because these are such unusual times. The credit markets still aren't even functioning normally.

Where has Marcus been ? He stated the above back in 2010 and it is prophetic. Fed has lost money and I wonder how much they will continue to lose money as they continue Quantitative Tightening. They are selling Treasuries at depressed prices due to the increase in interest rates.

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The Fed is not selling the longer term Bonds they hold. They are holding 'em to maturity and letting them roll off their balance sheet that way, but yeah if they marked to market, they lost about $1 trillion.

Misc says

They are holding 'em to maturity and letting them roll off their balance sheet that way,

True that the Fed is still losing money and they'd lose a lot more money (almost Silicon Valley Bank style) if they did sell off their long duration bonds.

.

Misc says

The Fed is not selling the longer term Bonds they hold. They are holding 'em to maturity and letting them roll off their balance sheet that way, but yeah if they marked to market, they lost about $1 trillion.

The Federal Reserve can make up as much funny money as they want. They'll never go bankrupt.

richwicks says

The Federal Reserve can make up as much funny money as they want. They'll never go bankrupt.

What is interesting is that QE and ZIRP back in 2008 to 2016 did not cause annual inflation over 3% based on government reported statistics.

Thanks Obama ?
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ad says

What is interesting is that QE and ZIRP back in 2008 to 2016 did not cause annual inflation over 3% based on government reported statistics.

Inflation is a political event.

If I give you a trillion dollars, and you just bury it, no inflation. Inflation is caused when there's either a panic, or stupid people are given money.

richwicks says

If I give you a trillion dollars, and you just bury it, no inflation. I

There was a huge hole to fill in 2008 to 2012 and they did not overfill it resulting in hyperinflation.

This time I think because Birdbrain Biden came in January 2021 and having to pay back his voters (Green Party types, AntiFa, etc), he spent a lot more than what was needed and the hole was overfilled.

And the Fed should have started to raise rates by mid 2021 a few times instead of essentially waiting to March 2022.

But you are right as this time (2020 to 2022) they did a lot more of a helicopter drop of money to the masses with extended unemployment, stimulus checks and free rent (essentially) as well as PPP loans.

Down here in Florida panhandle the short term vacation rentals went normally for $200 a night to $350 a night with people using all that extra COVID money.

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Obama also did not fight back against the Republican rhetoric. The Republicans went all "fiscal responsibility" and Obama caved. He had the smallest increase (as a percent) in the overall Federal debt than any other president in recent memory. This lack of fiscal stimulus from the Federal government left the Fed as the only game in town and they only lowered rates enough to bail out the banks not to get the economy moving again. This along with other policy errors caused the country to have the weakest bounce back from a recession ever.

Misc says

This along with other policy errors caused the country to have the weakest bounce back from a recession ever.

So you wanted more Keynesian economics and this is why Obama's two terms only average about 1.8% annual GDP growth ?

Debt to GDP ratio still increased from around 55% in January 2009 to 106% in January 2017 :-/

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Yep, more Keynesian economics. 100% of the job gains under Obama were part time jobs. Yes, fiscal stimulus like spending on infrastructure was needed then. Give people full time jobs and they can have some financial gain. Don't get anything to show for only being able to work part time 'cept garbage freebies from the government.

https://twitter.com/WallStreetSilv/status/1722960100569104862

Yesterday, the US government tried to borrow $24 billion by selling a bunch of 30 year debt.

It was a huge disaster. In order to get enough people to buy, the rate had to dramatically increase. Even then, then primary dealers had to buy 25% of the debt. The primary dealer are the buyers of last resort who have to buy.

China, Japan, Saudi Arabia, Russia ... none of them are buying our debt. In fact, most are selling what they already have.

With few buying, the US government is borrowing more than ever. $1.5 trillion in the past 4 months and they announced another $1.5 trillion in the next 6 months. The US government will have to offer higher and higher rates to attracted lenders.

Tdameritrade has fixed income area, cds high as 5.5 for short n long term

Patrick says

The US government will have to offer higher and higher rates to attracted lenders.

I think Russia has only about $40 million in US Treasuries as they had sold off their holdings since around 2013 like China did.

I am surprised Japan is selling off US Treasuries and are not just holding to current levels.

Schwab has 1 and 3 month CD's at around 5.4%. That beats inflation which is around 3.7%.

Impossible to attract a lot of demand for +15 year bonds in this type of environment.

I want at least an annual real gain of 1.5% if I am going to buy a 1 year bond or CD, and 2.5% for 5 year bond.

The federal government might as well as just issue all its debt at no more than a 10 year bond.

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I'd LOVE 15% 30YR treasuries again. Bring it on, you globohomo bitches.

There is always going to be room for US treasuries in Global portfolios. If the rate goes up in the US, it'll go up for other countries as well. If the other countries' rates don't climb, then their currency declines.

ad says

Schwab has 1 and 3 month CD's at around 5.4%. That beats inflation which is around 3.7%.

I've been buying US treasuries that have 6 months to a year until maturity. They yield about the same as the CD. One difference is that US Treasuries are a very standardized thing, so you don't have to read the fine print, which is different for every different CD. For example, I know that I can sell my treasuries into an enormous market without issue, whereas a CD, if not held to maturity, may have penalties and fees.

If you buy treasuries directly from the government, you are probably more safe from financial catastrophe compared to the limits of FDIC and SPIC (or whatever it's called for stock broker insurance).

ETrade, which was purchased by Morgan Stanley, is a total shittshow with their low yield sweep accounts (no MMA for you!). I've been putting extra cash in CLIP (which is an ETF composed of 1-3 month Treasuries). Easier than building your own bond ladder -- which you can't do with ETrade anyway as they don't have auto-roll. Perhaps we need a Treasuries thread...