"It's going to get worse before it gets worse."

[FRED]

Re: "It's going to get worse before it gets worse."

Swapped some of my GLD for GTU at 36.60 a few days ago.

Now I feel kind of dumb. (GLD up 1%, GTU zero)

Oh well, at least my physical PMs are good.

Time to short us treas approaching?

Long term, strong correlation between the 30 year Treasury and 30 year mortgage rates.

But recently that correlation broke down.

Won't stay that way for long.

[phirang]

Re: "It's going to get worse before it gets worse."

Long term, strong correlation between the 30 year Treasury and 30 year mortgage rates.

But recently that correlation broke down.

Won't stay that way for long.

That's where Ben comes in...

[rogermexico]

Re: "It's going to get worse before it gets worse."

Long term, strong correlation between the 30 year Treasury and 30 year mortgage rates.

But recently that correlation broke down.

Won't stay that way for long.

I would think the mortgages would follow the 30-year, but the govt. or TARP ver. x backed by the taxpayer could be buying mortgages to keep those rates lower. The ARM rates coming up they want to cap are related to shorter rates and libor, etc. right?

So they are buying mort and 10 year and the 30 is leading the way? Widening 30-10 year spread I see.

Or you expect the 30 to be bought and brought into line so he message is "not yet" ?

Usually I enjoy your cryptic responses, Fred

Somebody smarter help me out.

[metalman]

Re: "It's going to get worse before it gets worse."

I would think the mortgages would follow the 30-year, but the govt. or TARP ver. x backed by the taxpayer could be buying mortgages to keep those rates lower. The ARM rates coming up they want to cap are related to shorter rates and libor, etc. right?

So they are buying mort and 10 year and the 30 is leading the way? Widening 30-10 year spread I see.

Or you expect the 30 to be bought and brought into line so he message is "not yet" ?

Usually I enjoy your cryptic responses, Fred

Somebody smarter help me out.

my read... they will recorrelate. but how? 30 yr treas yields down or mortgage up?

[flintlock]

Re: "It's going to get worse before it gets worse."

Probably a little of both? I guess mortgage rates they want to hold down at least until some recovery in housing. Wishful thinking.

[rogermexico]

Re: "It's going to get worse before it gets worse."

my read... they will recorrelate. but how? 30 yr treas yields down or mortgage up?

For sure they want the resets to keep RE in reflation mode.

This seems to be part of the "are they stupid or evil?" theme

I know it is some of both, I guess the optimist in me thinks more stupid.

As metalman himself once asked, "do you think they crashed it on purpose"?

The dilemma:

A) US govt playing "whack a mole", manipulating various markets and thieving the populace, has allowed the 30 year to start to "escape" - the 30 year market is much smaller than the 10 year, is it not? Maybe the fed is leaning hard on the 10 year now and less so on the 30 but they will both start to escape more soonr.

or:

B) The recent selloff in the 30 and the 10 year is just green shoots enthusiasm and increased risk appetite and we are in for a last deflationary downdraft that will drive gold to $700, oil back down to $40, copper back to $1.75 and the ten year back to 2 %.

Phirang says he is going long TLT and sees the yield going to 2.6%, so I guess he is voting for B)

Have I got that right Phirang?

[JKD]

Re: "It's going to get worse before it gets worse."

Long term, strong correlation between the 30 year Treasury and 30 year mortgage rates.

But recently that correlation broke down.

Won't stay that way for long.

Did the correlation break down or did the spread just adjust violently (in comparison to the historical ebbs and flows)? Not overnight but over a reasonably short period of time during which Fannie Mae and Freddie Mac were brought under the conservatorship of the Federal Housing Finance Agency?

I do not think there is much of a mystery here.

What was an implicit guarantee became very close to an explicit guarantee and the spreads collapsed. The spreads came in again when the Fed announced its intent in March to purchase massive amounts of MBS. Eventually the guarantee may end up outright explicit, where all Fannie Mae and Freddie Mac debt are reclassified as direct Treasury debt. With 95% of recent new mortgages backed by these two agencies, a comparison between Treasury yields and mortgage rates will become a moot exercise.

Until then, mortgage rates will move up and down with Treasury yields at the new, ever tighter, spreads.

John

PS What's with the "Participating iTuliper" tag? I seem to still have full access to 'Select' content but I see the tag and get the nagging sensation I am missing out on something.

[WildspitzE]

Re: "It's going to get worse before it gets worse."

(cool graphs...)

Who's the tail and who's the dog? It changes from time to time... in 2000 (I think) we saw Mortgage debt surpass US Public Debt.

US Public Debt (outstanding) was about 9.2B in Q4-07, and at Q4-08 it was 10.7B. (Today, 11.26B)

Mortgage Debt (outstanding) was about 14.5B and 14.7B for the same dates.

Govie picking up steam baby.

I remember times when lower treasury rates would spur large numbers of mortgage refinancing, which would flow as prepayments to MBS investors, which would then park those funds in US Treasuries (further driving rates down) while they invested in new MBS issuances.

[d_limiter]

Re: "It's going to get worse before it gets worse."

I used to have more compassion for the homeless, downtrodden, less fortunate, etc., but I'm sorry, the older and more experience I gain, the more I believe in personal responsibility and the more I see that many, many people are homeless and downtrodden as a result of bad personal choices.

I believe in taking personal responsibility, and I largely agree with your stance. However as mental health professional, I would caution that many people who are chronically homeless are living with mental disorders that are going untreated. Some of this is institutional - there is not enough funding to go around to threat them. Some of this is endemic, as certain mental disorders unfortunately come with a health dose of paranoia which interferes with treatment. Many of them self-medicate with substances of choice which adds lots of misery all around.

Sorry to derail your post, but I would like to make the distinction that some (likely most) homeless are not just suffering the consequences of poor decision making - but they are going to be joined by hordes of new homeless who are!

It's going to be hard for a lot of folks before this is out.

[jtabeb]

Re: "It's going to get worse before it gets worse."

For sure they want the resets to keep RE in reflation mode.

This seems to be part of the "are they stupid or evil?" theme

I know it is some of both, I guess the optimist in me thinks more stupid.

As metalman himself once asked, "do you think they crashed it on purpose"?

The dilemma:

A) US govt playing "whack a mole", manipulating various markets and thieving the populace, has allowed the 30 year to start to "escape" - the 30 year market is much smaller than the 10 year, is it not? Maybe the fed is leaning hard on the 10 year now and less so on the 30 but they will both start to escape more soonr.

or:

B) The recent selloff in the 30 and the 10 year is just green shoots enthusiasm and increased risk appetite and we are in for a last deflationary downdraft that will drive gold to $700, oil back down to $40, copper back to $1.75 and the ten year back to 2 %.

Phirang says he is going long TLT and sees the yield going to 2.6%, so I guess he is voting for B)

Have I got that right Phirang?

Count me in for B) as well, but not necessarily with falling rates. I'm thinking more Bonds down, housing down, stocks down, yields up. A true "worst of all worlds".

So, I would call it asset deflation in a rising rate environment. That's exactly what I think is going to happen. (An inflationary depression if you will, with concurrent nominal asset price deflation) Or, the "mother of all depressions".

[MarkL]

Re: "It's going to get worse before it gets worse."

For 42 Billion dollars (at an asp of 250k) the government could buy 1 house for every 4 homeless. I expect that in even the smallest houses, 4 people could find better shelter life in them. While moral hazard, along with the realities of the proximity of the purchases to the homeless surely wouldn't cause the homeless problem to "vanish", this would take 41 billion in houses off the REO of the banks, make a huge dent in the homeless problem, and potentially give some of them enough of a leg up to pursue jobs. I live in California, one of the most expensive housing markets in the country and I've seen decent foreclosed REO going for 150k!
Of course the issue of maintenance comes up... but do you think there are any charities that would accept ownership of these homes?
Would I want one of these homes next to mine? Absolutely. What an easy and minor way for me to give back to society!

[ax]

Re: "It's going to get worse before it gets worse."

For 42 Billion dollars (at an asp of 250k) the government could buy 1 house for every 4 homeless. I expect that in even the smallest houses, 4 people could find better shelter life in them. While moral hazard, along with the realities of the proximity of the purchases to the homeless surely wouldn't cause the homeless problem to "vanish", this would take 41 billion in houses off the REO of the banks, make a huge dent in the homeless problem, and potentially give some of them enough of a leg up to pursue jobs. I live in California, one of the most expensive housing markets in the country and I've seen decent foreclosed REO going for 150k!
Of course the issue of maintenance comes up... but do you think there are any charities that would accept ownership of these homes?
Would I want one of these homes next to mine? Absolutely. What an easy and minor way for me to give back to society!

Nice thought, Mark, but what would they do for food, utilities? Would you want a group of homeless people suddenly being sheltered next door to you free of charge?

[ThePythonicCow]

Re: "It's going to get worse before it gets worse."

There's a lot of blame to go around on all fronts. But practically no one who lost their home is "blameless".

There seems to me to be a false dichotomy in several posts on this subtread between:

• individual responsibility, and
• socialized support by"we", the (implicitly federal) government.

For one thing, there are (I'm speaking as an American here, of America) multiple levels of government, such as state and local. It used to be that responsibility for social support lay more or less exclusively with these more local governments, as well as with private and religious social organizations, and friends, neighbors and family, in addition to the individual himself.

For another thing, more substantial, we're dealing with a cultural, economic, commercial, industrial, political, religious, media, educational, ... complex of systems. The ant colony is more than a bunch of individual ants. It is an organization, a structure, a system. That system can have strengths and weaknesses. It can evolve and adapt, or not. The human system is quite a bit more complicated than the ant system.

If an ant dies, is it the sole personal responsibility of that ant that it died, or the sole responsibility of the colony's central "government", whatever that be, the queen perhaps?
Well, neither answer is particularly illuminating in most cases.

When the tin-foil-hat conspiracy sites I frequent make claims such as "the Illuminati are going to reduce human population to a sustainable half billion" (with images of genocide on a scale never before contemplated :eek::eek then perhaps what is being said, unconsicously, is that by our current limited and out-moded understanding of how to organize humans on a planet, we've outgrown the size we can sustain.

My guess is that human civilization will take a few courses in the School of Hard Knocks and learn how to organize itself in numbers as large as, if not larger, than we currently have on this planet.

The history of human civilization prior to the printing press is a tad sketchy and unreliable, so the rise and fall of ancient civilizations is not something we necessarily understand correctly. Since the beginnings of the Rennaiscance and the invention of the printing press (which leaves enough copies of contemporaneous documents around that Big Lies have more difficulty prevailing), human civilization has been on a rip roaring tear.

We're still a bit new at this game, and it shows. We're probably not done making some big time screwups.

[metalman]

Re: "It's going to get worse before it gets worse."



The average North American, call him Joe, living in the era of Mr. U.S. Economy walks into a bank to get a loan to fix up his falling apart house, rather than add another thousand square feet to make room for the Made in China, Bose branded Home Entertainment center. A dour looking loan officer, call him Ed Noway, sits behind a laminate faux walnut desk facing the nervous applicant. Prominently displayed on the edge of Ed’s desk, a brass nameplate on a wood block that reads “Ed Noway, Loan Officer.” While Joe fidgets, Ed pours over a pile of paperwork that Joe dutifully spent until midnight filling out with his wife the night before. They did not cuddle afterwards. She’s not sure Joe can close the loan with Ed. Joe's not sure he wants the extra hours he’ll have to work to make the additional payments.

Ed finally looks up to grill Joe about his employment and credit history, his assets, his attitude about saving. Ed wants to know if Joe is likely to pay the loan back or not. He, Ed, the loan officer, is responsible for the decision. He doesn’t want the bank, nor he as its representative, left holding the bag if Joe punts on the loan. Ed will look bad. He might even lose his job. Ed’s ass is on the line. So is Joe’s.

Here we have the basis for a sound business transaction. But those days are over. The Frankenstein Economy is here.

[ThePythonicCow]

Re: "It's going to get worse before it gets worse."

The Frankenstein Economy is here.

An interesting blast from the past - thanks.

Here's a link to the commentary birthing this monster: Frankenstein Economy (March 2006).