Greenspan's "conundrum" Unwinds As Long Term I R Rise

[Realistbear]

http://uk.biz.yahoo.com/09042006/323/conun...ields-rise.html

Sunday April 9, 12:04 PM

'Conundrum' winds down as US bond yields rise

WASHINGTON (AFP) - The "conundrum" of the bond market underscored by former Fed chief Alan Greenspan appears to be ending, as long-term yields are finally moving higher in response to a series of rate hikes by the US central bank.

The 10-year Treasury bond moved as high as 4.979 percent Friday, up sharply from 4.39 percent at the start of the year, and at its highest level since mid-2002.

For the 30-year bond, which was reintroduced by the Treasury this year, the yield topped 5.0 percent for the first time since December 2004, closing Friday at 5.038 percent.

But many analysts point out that higher rates reflect stronger economic conditions and that the low rates on the bond in recent months had reflected a weak economic outlook.

"The sell-off in the US bond market continues to catch many market participants off guard but has to be viewed as a stabilization in the (economic) outlook," said Robert DiClemente, an economist at Citibank.

John Shin at Lehman Brothers (NYSE: LEH - news) said he expects the

Fed to push up rates to 5.5 percent

.

"The economy is showing momentum in a number of sectors," Shin said. "Consumption is solid, there is room for a further recovery in inventories, and businesses seem more confident about capital spending. We look for growth in 2006 to be even better than in 2005."

Lehman expect to see the Fed rate at 5.50%. Where does that leave the $ in relation to the UKPound?

It seems that the strength of the US economy is such that it can weather much higher IR whereas the UK is on the knife edge unable to move rates either way. With the Fed headed toward an entire percentage point ahead of the B o E, Gordon is going to have to accept a sharp devaluation or the HPC he dreads--or both.

Edited April 9, 2006 by Realistbear

[Realistbear]

http://www.buffalonews.com/editorial/20060409/1027187.asp

By JAY HANCOCK

Baltimore Sun

4/9/2006

Millions of cheap, teaser-rate mortgages that people took out a few years ago, when interest rates were rock-bottom, are about to get much more expensive.

More than $1 trillion in mortgage debt costing only 4 percent or so - rates locked in three years ago - is about to soar in price to nearly 8 percent in some cases.

The UK is in the same boat with many cheap intro loans being adjusted to reality soon.

IMHO--this is THE trigger.

[the_duke_of_hazzard]

From a friend of mine's blog. His low interest rate period is over and he's shocked that ther's no easy way out of the deal:

Only last night I wanted to sob while reading a letter about how we are to pay for our flat, Mo and I. They come to you as friends but they will screw you every which way they can, and that's a lot of ways. Our lives are ok; our lives are fine. I could walk twenty minutes from home and find people who live in hell but we're alright, for now. I just got frightened at an inkling of the complexity of the many schemes we are led or pulled or prodded into, all for our money money money, things we didn't see because Mo is too busy and I am too ******ing simple. I remember Viz comic's pop at the Natwest bank: 'We'll Get Our ******ing Bit. Don't You Worry.'

[Time to raise the rents.]

The UK is in the same boat with many cheap intro loans being adjusted to reality soon.

IMHO--this is THE trigger.

Well congratu-fu***n-lations!

A bear works out that high IR's would be a reasonable trigger!

Slow, to say the least.

[Realistbear]

Well congratu-fu***n-lations!

A bear works out that high IR's would be a reasonable trigger!

Slow, to say the least.

You would be amazed at how many bulls do not think its time to sell their IR sensitive assetts in the face of higher IR. They forget the rule: buy low and sell high. The property market is at a high so its TTSell.

Slow? Those who are still hanging onto IR sensitive assetts are slow. They will be caught "off guard" when the increases come and will then face chasing a falling market down.

Edited April 9, 2006 by Realistbear

[Time to raise the rents.]

You would be amazed at how many bulls do not think its time to sell their IR sensitive assetts in the face of higher IR. They forget the rule: buy low and sell high. The property market is at a high so its TTSell.

Slow? Those who are still hanging onto IR sensitive assetts are slow. They will be caught "off guard" when the increases come and will then face chasing a falling market down.

How long have you been saying that for now?

[Realistbear]

How long have you been saying that for now?

I bailed out of the US market in late 2003. I bought low in 1998 and sold high. The operative word being "sold." My advice to bulls now is to admit that markets both rise and fall and now is the time to sell (if it is not already too late).

[Unexpected]

How long have you been saying that for now?

He's right you know RB. The fact that it hasnt happened yet while you've been saying it will, is proof that it wont.

[Realistbear]

He's right you know RB. The fact that it hasnt happened yet while you've been saying it will, is proof that it wont.

I get it! Because a correction has not happened means that it will not happen. I see where TTRTR is coming from--a believer in the "Miracle Economy." He clearly does not believe in "buy low-sell high" then.

I would have thought that he would be aware that property prices can fall as well as rise and that the economic cycle cannot be beaten, despite Gordon Brown's assertions to the contrary (no more boom and bust etc....).

[pyewackitt]

He's right you know RB. The fact that it hasnt happened yet while you've been saying it will, is proof that it wont.

Actually no...

The fact that is hasn't happened YET is a sign that the economic conditions making such an instance occur have actually increased. We're talking about a housing market which typically works in 15-20 year cycles, not day trading.

Its often stated that IR changes and the comparative effect on the economy has a significant delay of 2 or 3 years.

I expect its only over the next 18 months as everyone on low, low IR mortgages from 2003/2004 begins to remortgage that the real effects of IR changes will be felt.

There are admittedly both upwards and downwards influences on IR's at present but I don't think the rampant non-CPI indexed inflation in Gas, Electricity, Housing, Travel, Water, Council Tax services etc. cannot have an impact on inflation over the long term - the REAL cost of living has increased.

With cycles this long saying 'An HPC hasn't come yet so it never will' is much the same as giving up waiting for a bus about 30 seconds before three come rolling down the road (IMO).

- Pye (Property Speculation Ninja )

[Green Bear]

There is a story that might explain the behavior of the incumbent BTL's. It seems that a way to catch monkeys in Borneo, or some such place, is to wedge a bell jar into the fork of a tree with a piece of food in the bottom of the jar. In the morning, so they say, you just go over to the tree and collect the monkey, who has his hand jammed in the jar. The monkey’s fist, containing the food, is too large to remove from the jar, but he won’t let go. So he just stands there, waiting to be captured, rather than give up the food.

Maybe that’s how some BTL's act -- afraid to give up their legacy business, they wait by the tree.

But I wouldn’t know. These are just monkey stories.

[Guest The_Oldie]

LOL. Excellent

The difference is that the BTL Monkeys will not sell, because they do not want to pay

capital gains tax. Apart from that reason, the analogy is perfect

If they hold on for another couple of years, they may well not have any capital gains to pay tax on.

[since the beginning]

Actually no...

The fact that is hasn't happened YET is a sign that the economic conditions making such an instance occur have actually increased. We're talking about a housing market which typically works in 15-20 year cycles, not day trading.

Its often stated that IR changes and the comparative effect on the economy has a significant delay of 2 or 3 years.

I expect its only over the next 18 months as everyone on low, low IR mortgages from 2003/2004 begins to remortgage that the real effects of IR changes will be felt.

There are admittedly both upwards and downwards influences on IR's at present but I don't think the rampant non-CPI indexed inflation in Gas, Electricity, Housing, Travel, Water, Council Tax services etc. cannot have an impact on inflation over the long term - the REAL cost of living has increased.

With cycles this long saying 'An HPC hasn't come yet so it never will' is much the same as giving up waiting for a bus about 30 seconds before three come rolling down the road (IMO).

- Pye (Property Speculation Ninja )

Another person how can't spot sarcasm....

[Realistbear]

US defaults due to higher IR are climbing--a refreshingly honest appraosal of the serious situation in the US:

http://today.reuters.com/investing/finance...Y-MORTGAGES.XML

Economists are bracing for an onslaught of late payments and the inevitable worry among lenders and borrowers alike that

failed loans will cause a consumer or housing collapse

.

The mortgage delinquency rate rose to 4.70 percent at the end of the fourth quarter of 2005 from 4.44 percent in the third quarter, according to The Mortgage Bankers Association, an industry group that tracks loan repayments.

While at least part of the increase was due to Hurricane Katrina, the group said the rising share of adjustable and subprime loans was also driving up delinquencies.

THe US market is in as much trouble as we are here--there Mortgage rates are hitting 8% and there is more to come as the Fed continues its hiking--perhaps all the way to 5.25%. How many UK borrowers are "on the edge" where just a small rise of .25% will push them off?