Thirty year mortgage rates are at a new 52 week low, 4.93%, and home builder stocks are being poleaxed due to a record amount of fucked up loans. I understand what the ECB and Fed are trying to accomplish, via inflation, but to me the main threat is still deflation. It’s hard to argue for deflation, amidst record gold and high oil prices; but I’m gonna do so anyway.
All of the fucked up toxic loans on the banks balance sheets are being masked with insidious accounting standards. On top of the mortgage debt, banks are now crippled with massive sovereign debt threats, which will undoubtedly make them tighten the screws on lending. While it’s true, it’s rather easy to modify your loan if you are a dead beat. It’s rather difficult to get a new mortgage, if you are an honest tax paying citizen. So, my question to you is this: aside from stock market reflation, how is the liquidity getting into the system? Tell me. From my vantage point, the liquidity is being used to plug holes at the banks, enabling them to enjoy record spreads, while sacrificing the baby boomer at the altar of artificially low interest rates.
They are trying to do something that is unprecedented and I am not sure it will work, due to the mounting risks.
If inflation was truly a risk, wouldn’t [[TLT]] be a lot lower by now?
I will be the first one to tell you, I am confused. If anyone tells you otherwise, they are either too naive to see things in 3-d or are lying to you.
Back during the dot com era, when I was pissing on the old guys in the boardroom for warning me of imminent collapse, I thought the run up would last forever. When the shit hit the fan, my assets under management were at all time highs and I was booking my biggest commission month of my career. The moral of this short story: shit always looks the best when it is about to die sans organic creatures and shit.
Don’t wait for doom to smack you in the face with a bag of cocks; use some protection against said cocks.
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“If anyone tells you otherwise, they are either too naive to see things in 3-d or are lying to you.”
Long IMAX
Long Imax. LMFAO!
Zing!
Jake never seems confused when it comes to inflation vs. deflation. So which of those is he?
I keep thinking the answer may be both – a severe deflation of some assets and a whopping inflation of others. Looking at China their property market has gone up in grand bubble style but their stock market is back in bear territory.
that’s like being a shemale
Insurance companies are OTB degenerates over there. Look at investments as a proportion of GDP.
As I understand it Mr. Sikander, China does not tax real estate, that’s why the speculators THINK they can wait out the downturn and cash out when it resumes. I don’t think they taxed tulips in Holland either. That did not stop a bulb deflation. That is all. Carry on.
US did tax RE.
Did that stop US RE speculators?
Ahhhhh Yogi……That could be changing soon on multi homes http://www.china.org.cn/business/home_sweet_home/2010-05/13/content_20032143.htm
Everyone wants a nice clean world: black & white, right & wrong, boom & bust, even male & female.
Even in sex there are degrees from extremely male to extremely female – and everything in between. It’s a continuum. I don’t like it. But I wasn’t asked about the design. There’s lots of grey in the world.
zirp 4evah.
“Slope of Fly?”
(chortle)
______
Well put.
I was playing hookie back then. When I came back in April and crashed the markets, the looks on everyones face. Priceless.
video games anyone?
Bang on. Did we not just have massive inflation, with homes tripeling in price, oil at $150, ship a container from Asia to North America was $4,000 in 08 , now it’s $2,500.
Is gold the shit that currently looks the best right now? or is it just getting started.
Hmmm..
Awesome!
BIDU is about to get smacked. look at the Put volume today, blowing out OI big time.
I agree. I just saw that chart and couldn’t believe what they did over the last week. China is about to get fucked hard. I have a feeling the Chinese are ready to let their currency inflate.
It’s blowing out OI because the options have been open for a whopping 2 days.
While getting a mortgage from a private lender is difficult for a homebuyer because of the large downpayments and tack on fees, getting one through the FHA is much easier. In some cases you only need 3.5% down with proof of manageable positive cash flow and steady tenure as an employee at your job.
I’d have to look at numbers more thoroughly to back my hypothesis but right now the Fed is extending cash on swap terms to liquidity-deficient creditors in Europe in exchange for wine bottles or Parthenon snow globes (actually cocaine). They are paying US banks interest on all cash reserves that they keep at the Fed incentivizing them to earn the “free” yield. In addition, the Fed performs repurchase agreements with any willing bank whereby they swap cash for treasuries/MBS/etc which has the effect of decreasing credit expansion. The banks can earn their fat spread on T-Bills and reinvest the remaining. Therefore, the Fed becomes flush with cash that they are willing to extend to fuck faces like Europe while appetites for treasuries remain strong.
People are increasingly walking away from their upside-down houses. The only downside is a lower credit rating.
Not only that. “Our” increase in “savings” & spending has partly funded by mortgage payments that are not being made.
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/4/16_Mark_Hanson.html
Anyone buying Gold as an inflation-hedge are buying for the wrong reason. It is a fallacy that GOLD only does well during inflationary periods. Gold does extremely well during deflationary periods and as we currently have, as a “safety” play in periods of global crisis.
How so. Deflation means money is really fucking tight. Why would you buy gold if money is tight and assets prices are falling. We saw what gold does during a deflationary pull in 08/09 and it ain’t a pretty sight.
Gold is going up because people are really getting scared about future inflation and the potential trashing of fiat currencies. There definitely is asset allocation going on.
You got me confused now too, Fly.
Thirty year mortgage rates are at a new 52 week low, 4.93%, and home builder stocks are being poleaxed due to a record amount of fucked up loans. I understand what the ECB and Fed are trying to accomplish, via inflation, but to me the main threat is still deflation. It’s hard to argue for deflation, amidst record gold and high oil prices; but I’m gonna do so anyway.
That is shit is true. Look at this stuff as it confuses you more..
Broad money is still going up.
http://research.stlouisfed.org/fred2/series/BOGAMBNS?cid=124
Total credit did fall at the beginning of the year but it has just now started to uptick. It needs to be watched and it up-ticked possibly on account of the sizable increase broad money stock as seen in the first link.
http://research.stlouisfed.org/fred2/series/TOTBKCR?cid=101
But I really don’t freaking know where how credit increased as it’s not coming from here:
http://research.stlouisfed.org/fred2/series/CIBOARD?cid=100
As this was a big fucking drop and it possibly explains why the Fed panicked with the additional increase in broad money. So is this the fucking consumer coming out of his rabbit hole again and nibbling away? Is there any bond issuance as that is also credit being extended but not directly from banks but it still impacts credit extended in the economy.
You’re confused because your theory of how things are supposed to work is not matching reality.
Mine’s wrong too.
I said I was confused. Why repeat what I said.
They are trying to do something that is unprecedented and I am not sure it will work, due to the mounting risks.
I’m sure it won’t work.
Remember the Depression generation, keep you money in a mattress, no debt… They were imprinted with those concepts. They were wrong for the last 20 yrs.
Those who did the opposite for the last 20 yrs, got filthy rich. They were imprinted with those concepts.
They will be wrong for the next 20 yrs.
If inflation was truly a risk, wouldn’t (TLT: 92.83 +0.19%) be a lot lower by now?
TLT doesn’t know shit
Getting a mortgage isn’t that hard. FHA has products available for as little as 3% down and a minimum FICO of 620 which is a lousy FICO. And the 3% can come from a relative in the form of a gift. Back in the day this would have been a sub prime loan, today it’s an FHA insured mortgage. Nothing has changed. It’s the same monkey business that got us into this mess.
3.5% dipshizzle…but treu, very easy these days. Most states have bond programs for fuktards without that 3.5%, usually reserved for 1st time homebuyers with certain max income limits.
5% conventional if you dont live in NY, NV,CA AZ, NM. The only ‘difficult’ thing is getting the MI carriers to sign off on these muppets, though if less than ~50% dti, smooth sailing.
This is a brilliant post Fly.
I think 2002 makes this example even better as it resembles 2010 better. I did really well in 2000 and by 202 became convinced that the worst was over-kinda like people currently believe and I got my cock handed to me worse than most people got treated in their 2000 rape.
I know that we will indeed end up with a serious inflation but as you aptly noted; ” aside from stock market reflation, how is the liquidity getting into the system?”
Econ 101 tells you that you need the velocity of money in addition to base money to create gdp/inflation. While the base money is ape shit crazy high, there’s no liquidity getting into the system.
Eventually we will get it and will see hyperinflation, the time is not here yet. This leaves the door open for a sharp disruption in the markets due to: inability of eurozone to actually come up with their 750 Billion Euros, Even if they do come up with the money, the timing is crucial, if they miss (due to political bickering)it they could be fucked,, God forbid you throw in Spain in this mix it will become far more un-doable and necessitate the need for more QE…other things that can light up the global illiquidity issues; China bubble bursting, UK, US States, Regulatory reforms which can push banks away from mark-to-whatever!, US housing could see another 15% drop and possibly take WFC with it…
There are way too many landmines left for anyone to believe that none of these materialize.
My bet is that we see a serious disruption this year and the QE in earnest begins, globally. This will be the time to ‘assume’ that hyperinflation has begun!
My bet: Short term severe deflation, long term hyperinflation.
Joe
Velocity is bullshit in a way. Velocity is just a recession of growth marker that’s all. In other words vel will slow down in a recession and gain momentum when things are moving quickly.
I agree with this “In other words vel will slow down in a recession and gain momentum when things are moving quickly.”
but there’s a lot more to it
http://paul.kedrosky.com/archives/2010/03/mauldin_the_vel.html
Go through these and you get a sense that something is happening but it’s all pretty uneven on the lending side. Perhaps industrial and commercial loans com later.
http://research.stlouisfed.org/fred2/categories/100
Who the fuck knows.
But one thing I do know is this. If the Fed catches an inkling there is any deflation they will add more money.
Where I think Hugh Hendry is wrong is that he is confusing de-leveraging with outright deflation. It’s not the same thing and Hendry is confusing himself this way. De-leveraging is basically cleansing of the system of bad loans etc. as a result of past mal-investments which could show up as as a fall in commercial lending seeing banks are still writing off that shit. that could be disguising the new lending that going on, as the Fed numbers don’t show the exact flow of funds.
The de-leveraging is actually not necessarily a bad thing either by the way.
I think Hughey baby is confusing himself here.
Why is TLT higher?
Well the long bond is yield much higher than it did before and the curve is also very steep.
Again I just thinking out aloud like we talk in a trading room. Dunno if I’m right or wrong.
“De-leveraging is basically cleansing of the system of bad loans etc. as a result of past mal-investments”
which is inherently deflationary (less liquidity in the system) In a strong enough economy this would always be a good thing. In an econemy in the verge of collapse, not so much. This is where the battle is being fought. The Fed/Treasury know these are bad loans and would love to clear the sysstem off of but they know that this would sup up more liquidity so they are doing all they can to keep these loans on the books and kick the can down the road till inflation erodes a large portion of the debt.
” the Fed numbers don’t show the exact flow of funds.”
That’s right. There could be less lending going on than we believe!
I don’t know either how this ends but I am sure the FED would love to light up the inflation and they are finding that they are going to print far more than they already have since, as FLY noted, all the QE till now has gone onto plugging the holes. What they need is another severe disruption in the market in order to have a prayer of being able to justify more QE!
Where do you see the euro going and at what point are high yielding euro-based stocks a safe buy … now or more blood to run in the street creating an even better buying op?
I see euro going to parity with the $ within a year, but while this is a good thing for Germany and France, its horrible for the suffering countries in the E-zone.
j – Thanks for talking out loud. It really helps especially in markets like these. It doesn’t surprise me that these are really confusing markets, especially since we are trying to unwind a housing bubble, bubble, bank wrecks, flasher crash, etc.
I’d like to see banks write down these underwater mortgages and take an equity stake in the write down rather than giving underwater homeowners an incentive to walk away. My fear is if walking away becomes popular we’ll have more pressure on prices (DUH!), and a more difficult time de-leveraging. I don’t see any leadership on this now, and by the time it hits the politician’s radar it will be too late.
WTF is going on with FTK? What PPT score on this MF?
aside from stock market reflation, how is the liquidity getting into the system?
Fannie and Freddie, the hidden bailout! They are still buying shit mortgages from shit banks, when they stop, more banks will go into the toilet.
market down. VXX down. ?
Really catches you off guard, doesn’t it?
Market isn’t really down. This is peanuts.
Long term, fiat currency is always undergoing devaluation. Stick $1000 in your mattress today. 10 years from now you’ll be using it as toilet paper.
Stick 1000 RMB in your mattress today. 10 years from now you won’t be using it as toilet paper.
Lotta cock talk lately…
ha…
that is funny.
Here’s a question. If we’re going to have deflation or are in a deflationary pull why is the yield curve so freaking steep?
You could argue liquidity preference.
B/C most market participants are betting that we have entered into the inflationary environment (baring “any” incidents they are probably right) while the FED is keeping rates artificially low.
My bet is that of all them land mines we are negotiating through, one or more of them is going to go off and given the precarious economic conditions, it will have profound diflationary effect and neccessitate MORE QE.
The whole system rides on this: How we deal with the next serious event which I believe with happen this year. If not enough…depression…If enough/too much, the start of hyperinflation.
My bet is that there will be too much and at this point we begin a several year hyperinflationary journey.
Maybe confusing is better than one or the other.
Dear Mr. Fly,
Your problem is that you are using binary thinking — Inflation vs. Deflation, 1930’s vs. 1970’s — when you need to be thinking more three-dimensionally.
What have we had over the past ten years? High inflation in the form of rising commodity prices combined with falling interest rates. It’s an inflation-deflation cocktail, courtesy of our friends from the East.
The question you need to be asking yourself is: what is the endgame we are moving towards? That question — what is the endgame? — will tell you where we are going.
We are in a quandary: all the world’s industrialized nations (sans Germany) have already hit the point of no return, debt-wise. Debase or default are the only options.
This is the endgame the markets are slowly pricing in: Yen, Dollar and Euro all collapsing against commodities (inflation, but not wage-price inflation), slowly, then all at once, leading to an eventual lock-up in credit markets, leading to a sudden “cardiac arrest” in the global economy. Enjoy!
Best,
Hugh Hendry
Yet all of this Commodity inflation is not based on Demand at all, just speculation……China Govt last year was just pissing money to anyone who wanted it to borrow and play the LME/Shanghai spread…..now China, I hope. is slowing down, stopping the loans for pure speculation…..I read a piece by a 40 yr plus Copper Trader who said that with the build up in inventory, Copper would need to come down to about a dollar to get the demand in line…..China should have had the balls to stop it last summer and not let it get it into the mess it is in…but just like our USA Govt and 2007 housing, if it works why touch it….that was a very good lesson about the Chinese Govt for me.
Give the squire a tab.
Tony Boeckh new book “The Great Reflation” is very timely in this regard and if you have the time it is a very good read, imo.
Hey fly, my iphone canno get cheesnwine as a blogger to select at settings. Any suggestions?
Update coming soon
hi everyone,
i read something a while ago by James Grant in “Mr. Market Miscalculates” that i thought was actually pretty insightful regarding gold.
to paraphrase, the price of gold is a reflection of the competence of central bankers. when people think central bankers are deemed as competent, people don’t hold gold. when they think central bankers have lost control of the situation, gold spikes.
to me, this seems to be the most useful context for analyzing gold prices. i think that gold-bugs aren’t really buying gold because of an inflation scare, but rather because they think that monetary policy is tending toward idiocy.
of course, as i read james grant’s book, he pointed out to me that gold really defies analysis.
note: in his book, grant has a chapter on why he recommended buying AIG back in ’07, for whatever that’s worth. that is, i don’t think this guy is any smarter than anyone else, and he’s definitely not worth his damned $1,000 per year subscription rates.
stephen
You all, think waaayyyy tooooo much.
FLY- Thanks for turning me on to VXX – In this market it’s working out for me to hedge my longs. This yeng and yang method works 🙂
Countries have controlled their people by fear for generations.
Fear is an emotion…Ya, maybe there is some bad shit out there,
but there is also some bullshit too.