patrick.net

So what do regular posters think a 'good' rate would be? From a strictly personal level, ridiculously high levels sounds good to me, as my large downpayment becomes even larger as housing prices crash from the high interest rate... but really high rates, say above 10%, is pretty indicitive of serious problems in the economy, right? 8% sounds high, but not high enough to be scary to the general population.

Interest rate is not the main problem. Loose lending is. In short, any financing product that requires the assumption of housing appreciation is a culprit.

Then interest rates are going to explode. Bye bye 6.25

You mean bye bye 5.25 ? I think we'll go below 5 before we see 6.25.

So what do regular posters think a ‘good’ rate would be?

It is a relative measurement. I'm surprised you think 8% is high. 8% was considered low in the 80's. Correct rate in my view is 2-3% above true inflation.

Ozman,

The reason I say 8 sounds high is it implies core inflation of about 5% (and real inflation of higher!). I'm assuming that high rates would be because of inflation, not just some whim of the the FED. High interest rates might drive down prices of houses, but it implies eating up savings through inflation, meaning more stringent inflation hedging would be required.

What's a respectible level of inflation? What happens to rates if we get deflation (unlikely as they really will print physical money to avoid that.)

What’s a respectible level of inflation?

Inflation is by definition hedonized to 2.0%. What do you mean by respectable? :)

Also, we're seeing 6.25 right now. That's what I'd been quoted on a 20% down 30 year Fixed with half a point. 6.325 for no points.

2% sounds fine, but how is it being measured? ISTR seeing mention of different rates in the UK, broken down by age group.

off-topic: mortgage points? I understand the what, but not the why; is it just a way to tie the interest rate to the downpayment size without forcing people to do math?

Also, we’re seeing 6.25 right now. That’s what I’d been quoted on a 20% down 30 year Fixed with half a point. 6.325 for no points.

SFBB,
You're talking about mortgage rates (FRM in fact), while ozman is talking about Fed rates. There seems to have been a miscommunication...

@ Peter P,

Everyone is looking for the unwinding of the yen carry trade but I'm not clear on what causes that other than an appreciation in the yen/usd rate. Why would that happen when the bank of Japan doesn't want it to happen? All of these central banks have printing presses so I can not figure out why they can not manipulate currencies indefinately.

The only lasting reason for sustainable yen appreciation as far as I can figure is that the interest rate differential narrows substantially.

Please correct me where I'm wrong on any of these points because I've been scratching my head on this for years.

Paul

Inflation is by definition hedonized to 2.0%. What do you mean by respectable?

Exactly. What inflation rate do you mean anyway? The Fed seems to like core CPI, which excludes energy and food, considered volatile in price. Let's not even get into the recent elimination of the publication of M3...

"Interest rate is not the main problem. Loose lending is. In short, any financing product that requires the assumption of housing appreciation is a culprit."

I agree, you can have higher interest rates which makes the fed appear tight but if money supply is increasing substatially, that is still an easy money policy.

Everyone is looking for the unwinding of the yen carry trade but I’m not clear on what causes that other than an appreciation in the yen/usd rate.

What about the appreciation in the JPY/GBP rate? Don't you think the Yen-Sterling carry trade had been very lucrative, much more so than than Yen-Dollar pair?

I agree, you can have higher interest rates which makes the fed appear tight but if money supply is increasing substatially, that is still an easy money policy.

Exactly, a 10% mortgage with a 3% interest-only introductory rate over the next 10 years will not help the correction much.

We could have a whole blog on inflation. It is actually a myth. It takes the same amount of gold to buy a house as it did 100 or even a thousand years ago. Inflation is a tool of debtors/powerful to oppress the masses. By debtors I don't mean JBRs, I mean the big boys.

It's my theory, and I welcome it to be challenged.

"What about the appreciation in the JPY/GBP rate? Don’t you think the Yen-Sterling carry trade had been very lucrative, much more so than than Yen-Dollar pair?"

I'm sure it's very lucrative but my question still stands; what it is the catalyst for a signifigant sustainable end to these carry trades?

ou’re talking about mortgage rates (FRM in fact), while ozman is talking about Fed rates.

Thanks Skibum for the clarification.

SP,

If Chinese slow purchases of treasuries won't Japan step in as the buyer of last resort just like in 2003?

Paul

What’s a respectible level of inflation?

A level that will force people to invest their savings and not park it a Bank account :)

Gee let's lower interest rates some more, and adjust inflation upwards. Ozman, you're on the right path IMO. Let's also tax gold as a captial gain. (Bastards)

I might be a little biased :)

Paul said:
what it is the catalyst for a signifigant sustainable end to these carry trades?

- A Black Swan in the financial markets (maybe several HF's crashing)
- US Government default
- Oil price denomination changed to Euro
- Another war

What was the catalyst for the Russian debt crisis back in 1999?

Reflexivity can create its own catalyst and/or tipping point.

- A Black Swan in the financial markets (maybe several HF’s crashing)

Investors turn to USD in times of crises

- US Government default

Won't happen, the USA has the printing press

- Oil price denomination changed to Euro

How does this impact the carry trades?

- Another war

Investors turn to USD in times of crises

It seems that we have one 10+ sigma event every ten years or so (e.g. 1987, 1998). It is about time. :)

Maybe black swans ain't that special after all.

Ozman,

Good start, but you missed:
- major oil supply disruption (see "another war")
- Smoot-Hawley protectionist legislation against the Yen/Yuan
- avian super-flu or ebola variant that mutates into human-transmissable form
- asteroid/comet strike

Investors turn to USD in times of crises

In a black swan event, anything can happen. Perhaps a 10-sigma euphoric event (e.g. world peace) will bring down the market. :)

RE: asteroid/comet strike

I thought NASA will simply fly a pair of space shuttle, land them on the heavenly object, and blow it up right before it passes some critical point.

Malcolm said:
We could have a whole blog on inflation. It is actually a myth. It takes the same amount of gold to buy a house as it did 100 or even a thousand years ago. Inflation is a tool of debtors/powerful to oppress the masses. By debtors I don’t mean JBRs, I mean the big boys.

It’s my theory, and I welcome it to be challenged.

I agree with your theory.
However, low Inflation probably has a good purpose in society. It is an incentive to take risk and invest in new businesses which create new jobs etc..
Inflation nourishes meritocratic societies and probably helps in the transfer of wealth to lucky/successful Entrepreneurs.

Peter P,

How naive of you. You really think the government would risk sending Bruce Willis on a mission that dangerous?? Ben Affleck... maybe, but Bruce? No way.

Paul said
Investors turn to USD in times of crises

History is no guide of future reaction. It is dangerous to assume this.

History is no guide of future reaction. It is dangerous to assume this.

Yep, that is the most important lesson from History itself.

But again, I am a naive little boy. :)

1998 - Russian debt crisis -- LTCM debacle -- Greenie bailout

87 I get. What 10-Sigma are you referring to that happened in ‘98?

WHen did LCT happen ?

Sorry, I meant LTCM, anyways Peter clarified it :)

I am most fearful of the Russian Debt Crisis of 2007.
I found the link above to be a good summary of the wonderful world of Casey. They even got quotes from the FBI (as well as Rob "Silent Spring" Dawg.. errr... Cote).

Is it time to buy?

This house is renting for $1800

http://sfbay.craigslist.org/sby/apa/330734097.html

But houses for it (it’s at 535 Fenton St, San Jose) are clearing for about $580k.

Let’s assume that this is $500k.

Using this calculator, if you assume that the downpay is only 10% and that the appreciation is 4% (same as appreciation over the long term), then according to the details tab it would be equivalent to $1098 in rent.

The calculator is at: housemath.us [protecting from moderation]

Could it be? This is cheaper to own than to rent? Is this The Sign?

D'oh! My bad on the mort vs. fed rate.

I think if the Fed was going to lower the rate to try and save housing's butt, it would have done so by now. I think the only reason they aren't raising the rate is to try and keep the crash as slow as possible.

A friend of mine just sold his Burlingame home for $200K over asking price. ($1.4M) sold for $1.6M. WTF? the house is a 30 year plus 2200 sq. ft. rancher. I give up.

Why rule out a potential depression GC?