Extraordinary Popular Delusions And The Madness Of Markets

[LargoWinch]

This presentation is from Grant Williams of Things That Make You Go Hmmm...

Runtime: 29min.

[don]

Re: Extraordinary Popular Delusions And The Madness Of Markets

Good post. Sheeple mania, an expanded, low brow version of investors' bubble-mania, preys especially on the inherent acquisitiveness of women, keepers of the hearth, yearning for granite countertops. Or have 'we' moved on to the next must-have commodity . . .

[LargoWinch]

Re: Extraordinary Popular Delusions And The Madness Of Markets

Good post. Sheeple mania, an expanded, low brow version of investors' bubble-mania, preys especially on the inherent acquisitiveness of women, keepers of the hearth, yearning for granite countertops. Or have 'we' moved on to the next must-have commodity . . .

Thanks don. I must add that EJ doesn't think Government Bonds are a Bubble (lack of incentives, no one is buying Gov. Bonds to be Rich etc.) and I must say that makes a lot of sense.

Of course EJ doesn't mean Bonds are not overpriced simply that they are not a government-sponsored bubble such as Nasdaq, Housing etc.

[don]

Re: Extraordinary Popular Delusions And The Madness Of Markets

Thanks don. I must add that EJ doesn't think Government Bonds are a Bubble (lack of incentives, no one is buying Gov. Bonds to be Rich etc.) and I must say that makes a lot of sense.

Of course EJ doesn't mean Bonds are not overpriced simply that they are not a government-sponsored bubble such as Nasdaq, Housing etc.

That sounds right. Of course much depends on what level of government you're looking into. One rule of thumb is a 15% equity loss for every 1% rise in interest. This is a very raw rule of thumb but do you essentially agree. I'm not suggesting any rate increase soon, with ZIRP now pegged for 2015 (and beyond).

[LargoWinch]

Re: Extraordinary Popular Delusions And The Madness Of Markets

One rule of thumb is a 15% equity loss for every 1% rise in interest. This is a very raw rule of thumb but do you essentially agree.

Don, using a calc. amortizer, it seems that a 1% decrease in rate is a bit south of a 15% drop in equity; more like 11%.

I.e. one can carry a 30 year $500K mortgage at 4% for $2,630 or a $450K 30 year mortgage at 5% for $2,617.

The delta between 450 and 500 is 11.11%.


Now I assume that all of this depends on the nominal interest rate i.e. 4% vs. 5%... In a high rate environment 15% vs. 16% the impact is obviously not the same due to compounding i.e. the i-rate gap widens to achieve the same effect.