I'll Fight The Fed


Those who say “don’t” are delusional fools.  Witness the following chart:

10 Year Treasury Bond Yield

So the 10 year Bond has gone from 2.33% to 3.7% in less than four months.  30 year mortgage money, no points, has gone from about 4% to just over 5% (no junk fees) in the same time.

This is an immediate 11% reduction in the implied value of every home in America, and it is exactly the opposite of what Bernanke said he was going to do.

Here’s the math; don’t believe me, get out your HP12c and run it yourself.

$100,000 borrowed, 30 years, 4% interest rate = $475.83 P&I.

Same P&I, 30 years, 5% interest rate borrows only $89,007.56.

That’s an 11% loss of value and since 90% of the buyers purchase a payment in the housing market, not a price, this is an immediate 11% deflation in home values.

Now if I’m not supposed to “fight the Fed” then I should have believed that Bernanke’s policies were going to support home values.  That they would keep mortgage rates low.  And that the 4% 30 year money would become a benchmark for the intermediate term, allowing me to buy this coming spring.

This is what he stated he was not only capable of doing, but would do.

None of that happened.  Instead, what occurred is that Bernanke has lost control of the long end of the curve even though he explicitly stated that he could control it prior to initiating QE2.

He was wrong.  Again.  The same thing happened during QE1.  And yet you have had every fawner in the universe falling over themselves licking his shoes.

What they should be doing is kicking his ass from here to Toledo.

Of course that would require intellectual honesty.  That you will not find among the media.

So what’s likely here?  Well, pick one – if rates continue to back up, and they will if QE2 continues, housing will continue to get hosed.  At 6% we’ll be looking at a housing value loss of an additional 20% from November’s numbers and of course if it keeps going…. The other alternative?  Yank liquidity and watch the corporate leverage index come back to earth from it’s current level of 12.

“Earth”, incidentally, is somewhere between 2 and 4.  You do the math on that one.

Housing recovery? Not a snowball’s chance in Hell so long as the money printing continues.

How do you like the steel trap you set for yourself Ben?  You’re such a stupid bastard you not only constructed the damn thing while standing inside it but you welded the door closed with the last of the oxy-acetylene supply!

The Market-Ticker