TIPS yield curve predicting near-term disinflation

[astonas]

Re: TIPS yield curve predicting near-term disinflation

I do find it amusing that somehow your paying $48,913 is somehow construed as your additional profit.

There is additional profit, but it isn't yours.

Even your example - you're cheating again. The actual difference between a $200,000 price at 4% vs. the price at 8% interest rates is not $40,000 - it is over $70,000.

If you persist in arbitrarily choosing numbers to confirm your own bias, then of course you're always going to be 'right'.

The actual difference between correctly equalized prices is far larger, and in a far different direction, than your false numbers.

The correct difference would be: $343k in both cases for the loan representing identical ability to pay, but property taxes on the $200K price would be $150K and on the other property would be $101K - which is 100% opposite to what you created.

C1ue, I suspect that your argument is not relevant to the root of the conversation. His point was in the end, as it was in the beginning: "I'm right, EJ is wrong." Note that the structure of the rest of the argument further emphasized a total lack of interest in learning anything, but only in declaring he was "right" and EJ "wrong."

Since the objective is to declare victory, rather than gain understanding, there is little point in discussing reality. That is irrelevant to matters of ego. Or, put better:

"To argue with a person who has renounced the use of reason is like administering medicine to the dead."
– Thomas Paine

He's let the argument go, it's time for people of reason to do so as well.

[c1ue]

Re: TIPS yield curve predicting near-term disinflation

C1ue, I suspect that your argument is not relevant to the root of the conversation.

I'm sure you're right, but allowing flawed examples to stand is a disservice to others who come to this thread later.

[astonas]

Re: TIPS yield curve predicting near-term disinflation

I'm sure you're right, but allowing flawed examples to stand is a disservice to others who come to this thread later.

Fair point. Objection withdrawn.

[raja]

Re: TIPS yield curve predicting near-term disinflation

I won't re-engage on this thread, except to point out math errors:

Even your example - you're cheating again. The actual difference between a $200,000 price at 4% vs. the price at 8% interest rates is not $40,000 - it is over $70,000.

You didn't subtract the $30,000 in property tax.
The difference before doing the subtraction IS $78,931. But after subtracting the $30,000 differential for property tax, it is $48,913 . . . as I said.

By the way, decarrig's observation about property tax is correct, and something I missed in my initial calculations. However, including it did not disprove my original assertion.

. . . property taxes on the $200K price would be $150K and on the other property would be $101K - which is 100% opposite to what you created.

I wrote:

$160,000 home . . . . Property tax at 2.5% = $4,000/year or $120,000 over 30 years.

How do you come up with $101K ?

[c1ue]

Re: TIPS yield curve predicting near-term disinflation

The difference before doing the subtraction IS $78,931. But after subtracting the $30,000 differential for property tax, it is $48,913 . . . as I said.

You're trying to say that since you've paid less out of pocket and wound up with a higher priced home, that you're better off when in reality this is far from clear.

For one thing you'd have to take into account all of the other things that should be accounted for: mortgage interest deduction. Devaluation of the dollar. Maintenance costs.

And as can be seen in the previous sentence, a higher interest rate pretty much guarantees a higher implied inflation rate. A 4% difference in inflation rate expressed over 30 years is a huge impact - even using the simple rule of 72 yields 1.5 halvings of dollar value with 4% vs. 3.5 halvings of dollar value with 8%.

Or in other words, the principle dollars being repaid on the $210K mortgage are reduced in purchasing power by 65% in the 4% scenario and 91% in the 8% scenario.

I wrote:

$160,000 home . . . . Property tax at 2.5% = $4,000/year or $120,000 over 30 years.

How do you come up with $101K ?

The $160,000 price you arbitrarily chose is wrong.

If you choose a $200K price home with a 4% interest rate, the equivalent home with an 8% interest rate is not $160K, it is more like $130K.

That's why the total mortgage payments are identical in both cases: the monthly payment is what matters.

An identical monthly payment, but with 4% or 8% interest rate, this is what yields equivalent properties for comparison purposes.

[Finster]

Re: TIPS yield curve predicting near-term disinflation

TIPS yield curve predicting near-term disinflation

This usually happens after I've already recorded it (chart below). This shows the global market value of the US dollar (FDI). When it falls, more dollars are needed to buy the same stuff (rising prices). When it rises, fewer dollars are needed to buy the same stuff (falling prices). The CPI, upon which the TIPS adjustments are based, is a lagging indicator. Consequently TIPS yields often register changes after they've already begun to appear in the FDI.

For further confirmation, watch this chart for reversion to a downwardly sloping (inflationary) pattern. If I am right, TIPs yields will not record this return to inflation 'prediction' until that happens.