This is THE meeting, and I think the vote will be close to 50/50. If they pause, expect a sucker's stock rally, followed by the continued decline. If they raise, expect a faster selloff. Either way this market keeps going down, Gold keeps going up and the dollar keeps getting weaker and weaker (ugh!).
Here's some interesting commentary on Tuesday in the Post, and a trader's prediction below of what's to come regardless. Get your predictions for Tuesday in now - use the "other" function when posting to make up a name - only chickens post as anon.
My guess being a contrarian is that Ben raises again, showing he's the man. And no, Bush and the incumbents running for re-election will not be pleased.
Once this prop is removed by a Fed pause, despite a knee-jerk bond rally, I expect both bonds and the dollar to be sold
A surge in long-term rates will immediately translate into higher mortgage rates, putting the final nail in real estate's coffin. The bubble is finally dead, may it rest in peace.
Unfortunately the same can not be said for those who bought into it, and those who financed the speculation. For them, and the entire nation for that matter, the real estate nightmare is just about to begin.
Despite the strong likelihood that the hoped-for soft landing for the economy will more resemble a crash and burn, consumer price increases will only accelerate. This will come as a shock to most economists and Wall Street strategists who naively expect slower growth to cool inflation.
Unfortunately, when it comes to inflation's effects on consumer prices, they ain't seen nothing yet. When the stagflation scenario is finally embraced as fact, things will really start to unravel for the U.S. dollar, bonds, stocks, and real estate
38 comments:
Long term rates are going down, not up. Mortgage rates are trending down, not up.
http://www.bankrate.com/brm/default.asp
I'm not saying we're not in for some trouble, but reality does intrude now and then. Let's not ignore those inonvenient FACTS...
wrong. if/when the fed pauses (impacting short term rates) long term rates go up fast. Why? Because the market knows that the Fed blinked and inflation will roar
short term buying spree, followed by long term decline
Cooling economy will not put an end to rate rises
IRWIN STELZER
American Outlook
THE Federal Reserve Board chairman Ben Bernanke and his monetary policy committee should allow some time at their meeting on Tuesday for a round of self-congratulation. They have been raising interest rates at every meeting, continuing Alan Greenspan’s programme of putting paid to the era of low interest rates and cheap money. Their goal: to slow the economy, in part by taking the housing sector off the boil.
That, they have done. The government reported that sales of new homes fell 3% in June. And the National Association of Realtors reported that sales of existing homes fell in June by 1.3%. Perhaps even more significant, mortgage applications are at a four-year low, and building permits, another indicator of future construction activity, fell 4.3% in June to a level almost 15% below a year earlier.
Some economists say the housing market is on a glide path to a soft landing, others see in the data an early indication of a collapse in prices and sales. But nobody doubts that the market is cooling.
http://www.timesonline.co.uk/article/0,,2095-2300364,00.html
ben blinks
Unfortunately, I think The Fed is going to pause through the election. The first hard economic cooling numbers have been published and their plan is working. So, I think they will wait until after the election and start raising rates at a rate determined by where the economy is headed at that time.
they will raise the rates, imho.
They will hold off on raising the rates because the Real Estate, Developer, Mortgage, and Homebuilding cartel has been writhing, flailing and squealing to every politician they own. Which is of course all of them except for Ron Paul of Texas.
I think they will raise 1/4 on Tuesday. No way will they not.
Short term rates have no effect on long term mortgage rates? What is the truth.
Short term rates go up Long term rates go down.
Short term rates go down Long term rates go up.
What effect do Short term rates really have on long term rates.
Someone please explain.
Yakity black flim flam zoom, watch Ben flip flop from every room, told you no a month ago, faked you out to make more dough.
+1/4%
I really hope the Fed pauses, because then we can all run out and buy those still overpriced homes!
Remember what happened during the early '90s bust: 30-yr. rates fell from ~10% to below 7%, and the Fed cut the funds rate from just under 10% to 3% and the discount rate from 7% to 3% from '89-'90 to '93. The 10-yr. Treasury yield fell from 9.25% to 5.25%.
The point is that lower rates following the bubble of the late '80s did not revive the bubble. In fact, we had the greatest real estate bust, bank failures, and financial system stress since the Great Depression (the years 1931-33 and 1938-39).
The Taylor Rule implies that the funds rate should be at ~6%. The Fed historically raises rates until it hurts, but we have only seen a deceleration of real GDP from a post-Katrina spurt to long-term trend of ~3.5% yoy, with core inflation above the Fed's target range. And, recall, the latter stages of a Fed rate hike actually contributes to inflationary pressure as businesses scramble to beat price hikes by increasing production and demanding more intermediate goods (and imports).
Payrolls are growing at only ~1% yoy, which is historically consistent with the economy having already entered recession. Just as the economy "actually" entered recession in late '89 and late '00 in the past two cases (contrary to the "official" statistics showing recessions beginning in Q3 '90 and Q1 '01), I suspect that when all of the benchmarks are completed in '07-'08, the data will show that the US economy entered a recessionary trajectory in Q2-Q3 '06 with the bursting of the "global" real estate bubble.
My guess is that the Fed raises rates once more to 5.5% and then pauses, cutting the funds and discount rates as early as late Q1 or Q2 '07. Nonie of this matters much, however, as the bust is baked into the economic cake, and the fallout will last 5-7 years, including a "hard landing" in China and the likelihood of another 2- to 3-yr. "global" stock bear market and a crash in commodities prices.
Hereafter, collapsing money velocity (despite the Fed growing the monetary base at double digits to fund gov't deficits and banks to shore up their balance sheets) and "deflation" are the growing risk, which means US Treasuries will likely outperform all other assets for the next couple of years.
The long-term bad news for the US is that inflation (after the risk of debt-deflationary episode) will exceed 4.5%/yr. from the early to mid-'10s through the late '20s.
kid you not he or his governors might be reading blogs like this
really
ben - be a man, have the balls, and raise rates to the moon!
The Federal Reserve buys and supports the long bond. Long rates are being held low artificially.
The yield inversion is fake so the Fed isn't too worried about this. Federal reserve is on record by stating unconventional methods to support economy if needed (this means buy the long bond).
I am willing to bet when you take into account actual inflation, REAL interest rates on the long bond are negative still.
Does anyone here honestly think deflation is in the cards with all of this war debt and 30+ trillion in obligations cmoing home to roost in the next couple of decades?
The government will not default. They will continue to buy the long bond to keep rates manageable.
I believe it's another 1/4 point. He may want to hold back in order to thank the president for his selection to the post, but with the local radio still touting interest only ARMS, there is still to much capital sloshing around. He needs to tighten until its more certain its having an effect on the mortgages. The people who buy the ARM paper need a higher yieldng alternative to their folly...
I think a .25 bp hike will rid BB of his "dovish" label and make it clear that he is an inflation fighter first and foremost. Our economy is not in that bad of shape (yet), and there's no question that the full force of years of increasing oil prices have yet to filter all the way down. I think if he pauses, Keith is correct (as is Roubini and others) of a sucker's rally followed by a major pullback. Incoming inflation data are not going to be kind in the coming months, and even with slowing growth, if this Fed pauses for a while or even cuts, it's bye-bye to the dollar and watch LT rates soar. I don't see a slowing US economy reducing its own inflationary pressures, so stagflation followed by deflation is what we're staring at.
I say no change
Cheney is positioned for a crash in the dollar - Cheney is also an oil guy who knows Ghawar is dead and the price of oil is going to go through the rough. The dollar has been falling in spite of rate raise. And as I said before those in the know ...know the dollar is toats. The ruskies, syrians, venezula, china, the world over has been buying up gold - gold should and will be at $1650 by year end - There is nothing anyone is going to do about the melt down of the dollar [.]. And that is because we are out of cheap oil [.]
Anon 2:10:16 said:
"They will hold off on raising the rates because the Real Estate, Developer, Mortgage, and Homebuilding cartel has been writhing, flailing and squealing to every politician they own. Which is of course all of them except for Ron Paul of Texas."
Ron Paul. Ha! What a dinosaur! An honest politician who doesn't accept bribes from lobbyists. Where's he been lately? Doesn't he know how the system is supposed to work?
Richard you are right on!
When people realize the connection between cheap oil and gas and our whole economy and the housing bubble, all hell will break loose.
It's all connected.
Until then, keep buying gold and get out of debt.
There have been many posts here regarding what is certain to happen in the future. Let's examine them one-by-one.
1. "I'll wait for the crash and swoop in and grab my dream home at a bargain price."
Maybe. Maybe not. If the economy tanks so badly because of a real estate crash, then the ripple effect of a shutdown in consumer spending will cause massive layoffs in ALL industries. If you find yourself without a job, you won't be able to swoop up anything at any price, unless you have lots of savings, which you will suddenly need for living expenses.
2. "Many homeowners will be forced into default when their ARMs adjust upward."
Maybe. Maybe not. The banks do not want to have to foreclose on massive numbers of properties. The FRD does not want to see a disaster unfold that might threaten their influence. Mortgage lenders are in business to make money, not to hold title to vast inventories of real estate. If the FED were to lower interest rates, that would be inflationary. Inflation eventually translates into higher nominal prices and to higher wages. So, even though real estate may lose value in real terms, in nominal terms those values may actually rise. And since debts are repaid with nominal dollars, any wage increases will enable repayment on those ARMs to be easier for many. Of, course, the value of the dollar would plunge, causing an entirely different set of challenges, but housing values and mortgage payment ability would not be among them at first.
Of, course, the value of the dollar would plunge, causing an entirely different set of challenges, but housing values and mortgage payment ability would not be among them at first.
Yeah---at first.
What happens, when due to Peak Oil hitting and dollar plunging at the same time, gasoline is $10-$20 a gallon?
People will have trouble making their mortgage for different reasons.
1st anon poster is a 100% COMPLETE IDIOT.
Gotta agree with Keith. If these jackasses pause, then the market will roar upward and people will pile in, then the big players will exit and leave the little guy buying in at the top because they will HAVE TO RAISE in the future to stop the inflation, putting us in recession bigtime.
I see that scenario as most likely.
If they raise, then the market tanks out of the shoot and the big players don't rake in as much as they short the turd markets sub DOW 10000.
"Does anyone here honestly think deflation is in the cards with all of this war debt and 30+ trillion in obligations cmoing home to roost in the next couple of decades?"
I dont think we will see deflation for at least 4 years. We will never pay off these obligations, just as history repeats inself.
Come on, there's an election in November! BB won't raise rates anymore. The economy will continue it's nose-dive trajectory and the Dems will recapture congressional majority in November. Bush's remaining 2 years in office will be lame duck and his approval rating will fall lower than Calvin Coolidge's.
The Alaskan pipeline is shutdown, and with hurricane season about to peak, we will see $100/bbl oil soon. Our economy can't take it, and Bernanke knows all too well what has to be done.
The Fed will have to start cutting rates before the end of the year. Look for record low mortgage rates by Summer '07, and a U.S. dollar worth about 30% less. If you need to buy a foreign car, now might be a good time to make that purchase.
With oil through the roof, inflationary pressures have never been stronger. Rates should rise. However, as many here have pointed out, the political situation may pressure the Fed to hold off on rate hikes, at least for a while. Let’s just take our medicine and get it over with. Go Ben Go!
I believe Mr. Bernanke will pause.
What's the rush? Middle-class and poor Americans on the ground are screwed either way. If rates are hiked, he just assures a "crash and burn" result in real estate and ancillary industries and a head-first acceleration into recession. If he pauses, inflation will continue to erode US dollar-based investments around the world and at home. Cheap money may have been good when you have to pay back crap loads of foreign and national debt, but not when there's no end in sight to government spending (Iraq war, military spending, 1 bill veto by Bush in 6 years, etc.). Fiscal conservatism in this country is dea-yad!
Anon-
"The Fed will have to start cutting rates before the end of the year. Look for record low mortgage rates by Summer '07..."
Wrong, see Keith's response the second posting of this thread.
"wrong. if/when the fed pauses [cuts] (impacting short term rates) long term rates go up fast. Why? Because the market knows that the Fed blinked and inflation will roar."
Oh Nikki, surely you understand supply and demand? The Fed can push so much liquidity into the system, banks will be going door to door begging people to refi mortgages or buy houses.
The last time this happened in '03, they paid me $12 to refi my mortgage. That's how desperate they were to flood the market with cash. I receive unsolicited, SBA-guaranteed, $100K-$200K loan offers in the mail every month. Where do you think this is coming from, Santa Claus? Hell no, the Federal Reserve, through the money center banks, is trying desperately to pump up the economy and avert a crash by pushing money into various parts of the system.
If they want mortgage rates to come down, they will come down.
Even if rates do come down in 07, it won't matter, people still need jobs to pay off the loans, and those will not be as plentiful as they are today. It won't matter.
" Even if rates do come down in 07, it won't matter, people still need jobs to pay off the loans, and those will not be as plentiful as they are today. It won't matter."
Oh yes it will. Just give inflation a few years to work its magic and those loans will all be paid down very nicely.
That said, I wouldn't be too surprised to see loan agreements with an inflation clause (that scales the principal to offset inflation) in the near future.
he will pause.. and pump a couple trillions. then after elections, raise rates again.
I bet the Fed stops raising rates! Only unless they raise them! :)
Fed Rate unchanged, Dove Economy rules the day.
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