Wrate's rants... and predictions

Someday

Fri, 30 Jul 2010 18:42:14 GMT

I was reading 'Someday' to Olivia the other night. Maddie protested, but still allowed it and climbed into her bed under the covers. When I had finished, Maddie looked up and she was sobbing. She continued to cry for another 15 minutes. Apparently, the concept of leaving home is too much for this five year old.

Little House on the Prairie Series

Fri, 30 Jul 2010 18:40:30 GMT

Last night we finished book 4, 'On The Banks of Plum Creek'. The girls couldn't even stay in the room while I read about the winter blizzards that stranded Pa in a snow cave when he got caught between town and home.

The summer before, the girls were equally upset to hear about the locusts that devoured their wheat crops, and the prairie grass leaving the animals thin with ribs sticking out.

Jongy fun!

Fri, 30 Jul 2010 18:35:12 GMT

When the girls jump on the bed, Maddie calls it 'Jongy Fun'.

Economy Update

Fri, 12 Mar 2010 17:38:04 GMT

The only people who really should be buying are those that think we are in the midst of a dramatic v-shaped recovery. Of course, I don’t think that is true, but the Fed and government has clouded the issue by being willing to do virtually anything to prop things up. In the process, they’ve moved the housing/debt bubble onto their balance sheets and created a much bigger bubble of government debt. To make the payments on that debt manageable, they’ve continued to push the maturity to shorter and shorter periods. Currently, 40+% of our debt rolls over within a year. That makes the US very vulnerable to interest rate increases and limits some of the Fed’s options. My biggest fear was that they would try to inflate their way out of the debt, but that now seems unlikely. If the Fed does continue their MBS purchases after this quarter, I think the time would be right to get out of the dollar entirely.

The only way this whole mess can be fixed is to remove the moral hazard that has been created by the massive (and generally undeserved) bailouts of virtually every industry. That begins by allowing one of the big banks to fail. I don’t know that they have the balls to do it, but (the ironic thing) is that it wouldn’t even be noticed by 98% of the population. Deposits would be safe, stock holders would take a hit, and bond holders would get dinged, but the bad debts would get washed away and the pieces could be sold off separately to start fixing the ‘too big to fail’ problem.

Real Estate turning point...

Mon, 26 Oct 2009 17:10:04 GMT

I’ve been following the markets very closely. Real estate (especially high end) has a long way to come down. We won’t see the true state of the market until the government takes out all their props.

Namely

1) New home buyer $8K credit (probably will be extended)

2) FED buying of 10 year government debt (over $400b). This is supposed to stop this month. They are responsible for about ½ of all purchases and have kept the 10 year rate artificially low (likewise mortgage rates). The yield has been rising steadily over the past week. Right now it’s at 3.4%, but it should be at around 4.5% and could rise from there until we have another stock market sell-off and rush for safety.

3) FED buying of mortgages (over $1t). Scheduled to stop by the 1^st quarter of 2010.

4) FHA going bust. The government is currently providing financing for over 80% of new mortgages. The FHA has basically become the new sub-prime lender. No problems have actually been solved, things have just been pushed a little further into the future.

In the near term, I expect there to be some decent deals by distressed sellers as the realization hits that things are not going to get better any time soon. Although, ultimately I don’t see home prices turning around until 2012 at the earliest as that is when the bulk of Option-ARM recasts and alt-A resets will have occurred… of course, that is also the time when the baby-boomers will begin down-sizing in mass . Realistically, I don’t see houses being a good investment into the foreseeable future… as it should be!

Blogging is the opiate of the masses!

Sat, 22 Aug 2009 05:32:27 GMT

I'm pissed off!

Everyone is saying that the recession is over. That must mean that the economy is ready for interest rates to return to their (non-manipulated) historical levels of 7-9%? We've gotten so used to cheap money that we now take it for granted. My assumption is that the Fed cheerleading is getting so intense because they've run out of 'silver bullets' and their warchest (and credibility) is wearing thin. I will be shocked if they actually stop buying bonds in October...

Not buying it.

Is the recession over?

Thu, 13 Aug 2009 15:04:02 GMT

Talk about 'hope and a prayer.'

The government is expecting that the worst is over and that a consumer led recovery will happen in the face of
1) The highest unemployment since the Great Depression. The rate is only going down if you don't count people have been out of work for a really long time.
2) A commercial real estate crash that is arguably only in the 3rd inning.
3) A mortgage crisis that has been little affected by government programs and is just now beginning to jump to prime and jumbo borrowers.
4) The 7th largest economy in the world (California) essentially in a Chapter 11 reorganization.
5) Rising interest rates as the economic outlook 'improves' and the Fed stops purchasing 10 year bonds this October. (1/2 trillion purchased to date - these must be sold eventually)

What's really going on?

Wed, 15 Apr 2009 22:55:16 GMT

US consumers and businesses have become used to cheap credit; it's what helped get us into this current mess. The government response has been geared towards making credit even cheaper. They've done that by bailing out the banks, buying residential mortgages, buying consumer debt and buying long term treasuries. Current 30 year mortgage rates are below 5% and may fall to almost 4% by year end.

Regardless of whether the measures the government has taken will stem the economic collapse, the end result will be inflation. Unfortunately, their options to contain inflation will be limited as raising interest rates is always politically unpopular and would put an added strain on any housing market recovery. Additionally, the Fed will have incentive to keep rates low to finance the monstrous debt that is being built up.

It's unfortunate that the current economic crisis hasn't been used as an opportunity to modify our massive dependance on consumption. Obama-bashers should be relieved that he's as afraid of making any meaninful changes as our past president. The current economic policies are geared towards more of the same... only worse.

The Housing Bubble

Tue, 31 Mar 2009 17:57:17 GMT

Originally written 3-14-08 - In the process of researching the housing bubble, I've come accross several instructional charts and graphs. They basically speak for themselves, but I'll provide some additonal explanation. First and foremost, I'm a believer in the concept of 'reversion to mean'... more simply put, 'what goes up, must come down'.

Latest general prognostications

Mon, 09 Mar 2009 16:44:10 GMT

"Should I buy gold?"

It’s probably not a bad idea. I’m working on the right way to play all this. Right now, it’s ‘put everything in t-bills’ as it’s only a matter of time before Citi and B of A fail and there still is a lot of uncertainty as to exactly how that will play out.

Looking 1-3 years out, the end result of all these bail outs is going to be high (possibly hyper) inflation. At that point, government bond yields will go up so they might not be a bad place to park longer term [safe] money. That should also be a good time to be back in stocks, property and commodities. As to the exact timing of all this, it’s hard to say, but essentially we have a slow motion train wreck happening. The first thing I’m looking for is any sign of a recovery in housing. Currently, prices are slumping at over 2% a month. With the 1.5 trillion in option arms and alt-a loans starting to reset this year (through 2011), we could have a ways to go.