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Buffett Says ‘No-Brainer’ To Get Mortgage To Short Rates

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http://www.bloomberg.com/news/2014-10-07/buffett-says-no-brainer-to-get-mortgage-to-short-rates.html

Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc. (BRK/A), said he was puzzled by the sluggish rebound in U.S. home construction amid near record-low interest rates and a broader recovery in the economy.

“You would think that people would be lining up now to get mortgages to buy a home,” Buffett said today at a conference hosted by Fortune magazine in Laguna Niguel, California. “It’s a good way to go short the dollar, short interest rates. It is a no-brainer. But so far home construction pickup has been slower than I had anticipated.”

Housing starts slumped in August from the highest level in almost seven years to a 956,000 annualized rate, Commerce Department data show. Slow wage growth and tighter lending standards have kept some would-be borrowers from buying a home.

Problem is clearly people don't think they can earn the dollars to pay back the loan. Billionaire with money fails to grasp basics most people struggle daily with.

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http://www.bloomberg.com/news/2014-10-07/buffett-says-no-brainer-to-get-mortgage-to-short-rates.html

Problem is clearly people don't think they can earn the dollars to pay back the loan. Billionaire with money fails to grasp basics most people struggle daily with.

buy buy buy!

meanwhile, 1/3 of the US cant afford food.

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“It’s a good way to go short the dollar, short interest rates. It is a no-brainer. But so far home construction pickup has been slower than I had anticipated.”

Is it a good idea to short the dollar, or to short interest rates?

As far as I can see, while I don't expect rates to rise quickly, I can only see interest rates rising in future... that seems obvious - so I'd expect people to want to go long on interest rates.

As far as the dollar - I've no idea if I want to go short or long over the sort of time-scales involved when it comes to houses... I'd be amazed if there was net confidence one way or the other.

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Is it a good idea to short the dollar, or to short interest rates?

As far as I can see, while I don't expect rates to rise quickly, I can only see interest rates rising in future... that seems obvious - so I'd expect people to want to go long on interest rates.

As far as the dollar - I've no idea if I want to go short or long over the sort of time-scales involved when it comes to houses... I'd be amazed if there was net confidence one way or the other.

I suspect what he meant was that since the US have long term fixes (let's say a 30yr fix), then by fixing today on a 30yr horizon you're effectively shorting long run interest rates.

Ditto long assets (house) = short dollar

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No mystery. the would be next generation of young homebuyers, saddled with $50-100k of debt, should they actually get an interview for a 'decent' (ie skilled) job, will find they are up against dozens of south or east Asian guest workers those nice guys like Bill Gates have decided are more deserving of jobs in America than people born in America. Now they will also find Obamacare means they have no choice but to be screwed by the health insurers, subsidizing their parents generation, who, coincidentally, are a lot richer than them, but, well, would rather someone else paid for them.

Its only a mystery to out of touch pre-boomer or boomer farts like Buffett.

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I suspect what he meant was that since the US have long term fixes (let's say a 30yr fix), then by fixing today on a 30yr horizon you're effectively shorting long run interest rates.

Ditto long assets (house) = short dollar

I always assumed that buying a thing when it is cheap, and holding it - expecting/hoping things like it become more expensive in future... is called "going long". Have we reached a stage when the words long and short can be used interchangeably?

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I suspect what he meant was that since the US have long term fixes (let's say a 30yr fix), then by fixing today on a 30yr horizon you're effectively shorting long run interest rates.

Ditto long assets (house) = short dollar

but that was always the case.

till they invented new financial products in their gleaming laboratories, eliminated risk so that no proof of income was needed, and if it all went wrong, at the end of the 2 year intro you could just sell up and walk away with the cash...homeless of course.

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I always assumed that buying a thing when it is cheap, and holding it - expecting/hoping things like it become more expensive in future... is called "going long". Have we reached a stage when the words long and short can be used interchangeably?

Its a long short.

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I always assumed that buying a thing when it is cheap, and holding it - expecting/hoping things like it become more expensive in future... is called "going long". Have we reached a stage when the words long and short can be used interchangeably?

You hold dollars,, you buy a house. You're going short dollars/long house

You borrow dollars to buy a house you're going short dollars/long house - effectively a dollar carry trade

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Long rates weren't always this low.

Fair point. But Buffet speaks as if it is even possible for the citizenry to take advantage.

For many its not.

So, yes, it may be a no brainer for a current market player, but its not for anyone else.

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You hold dollars,, you buy a house. You're going short dollars/long house

You borrow dollars to buy a house you're going short dollars/long house - effectively a dollar carry trade

That unifies the concepts of going short dollars, long real-estate.

I was questioning how it squares with going short "rates" - borrowing money to invest makes sense, relative to rates, only if they are going to fall further - because only if they fall further will the real-estate appreciate.

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Don't forget that this is the man who is down by over $400m on his Tesco investment. There is always something that you cannot anticipate. You can take a calculated risk, and that's it. If the trade isn't working out, there is something you have missed.

Unknown, unknowns.

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Was that Buffett's idea for the Japanese in 1990.

Typical land price chart for Japan - which is similar to the typical house price charts:

Land-Price-Fluctuation-for-Ginza-7chome.

The above chart from the link below.


http://

housingjapan.com/wp-content/uploads/2011/11/Land-Price-Fluctuation-for-Ginza-7chome.png

Considering the proportion of the Berkshire Hathaway portfolio invested both in the banking sector and in the construction/construction materials sector he seems to have a definite VI in persuading people to get a mortgage to buy housing.

He could be right for the US of course and he has the successful investment track record over time as well but if the Japanese experience is anything to go by then just quoting the level of the dollar and the level of interest rates (although accepted that Japanese interest rates didn't fall as quickly after 1990 as the U S rates have recently but Japanese interest rates along with the yen did fall a lot over time) doesn't seem enough justification in itself - or does it.

Berkshire Hathaway's portfolio filed in August 2014 - in the link below.


http://

www.cnbc.com/id/22130601

Edited by billybong

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