There was just a teaser on CNBC for a segment that I thought some of you might be interested in ...
"How's your beach house? Still worth what you paid for it? Wait 'till you see what we found out. Today, on 'The Closing Bell'."
correction ... I believe it's 4:00pm ET
bdc63bdc63Beach FanaticMd for now, but dreaming of SoWal303 postsJoined View profileMessageBeach Fanatic
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redfisherredfisherBeach Fanatic374 postsJoined View profileMessageBeach Fanatic
redfisherBeach Fanatic374 postsJoined View profileMessageBeach FanaticI'm just curious Shelly, what business are you in?...Why don't you explain to us why the 10yr yield coming down is bad?...Wow me...
P.S...I love greed...
P.S...I love greed...
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SHELLYSHELLYSoWal Insider5,763 postsJoined View profileMessageSoWal Insider
SHELLYSoWal Insider5,763 postsJoined View profileMessageSoWal InsiderI'm just curious Shelly, what business are you in?...Why don't you explain to us why the 10yr yield coming down is bad?...Wow me...
P.S...I love greed...
LESSON #1: The Yield Curve
redfisherredfisherBeach Fanatic374 postsJoined View profileMessageBeach Fanatic
redfisherBeach Fanatic374 postsJoined View profileMessageBeach Fanaticwhat EXACTLY does that mean?...and again, what buz are you in?...
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SHELLYSHELLYSoWal Insider5,763 postsJoined View profileMessageSoWal Insider
SHELLYSoWal Insider5,763 postsJoined View profileMessageSoWal Insiderwhat EXACTLY does that mean?...
LESSON #2: The US government gets it money by taxing its citizens and businesses or by borrowing money from people who have money to lend.
Since the government likes to spend lots and lots of money, but doesn't want to hurt people's feelings by making them pay taxes, it must borrow money by issuing treasuries (bills, bonds, notes) and since no one is going to give the US government money for free the government must pay interest.
You would think that when someone lends you money, they would demand a higher interest rate if they weren't going to get their principle back for 10 years than if they were going to get it back in only 2 years. And if the economy were "normal" that would result in a "yield curve" that sloped upward (say an interest rate of 4% for 2 years and 4.5% for 10 years). Banks use this "spread" to profit by paying savings accounts 4% and making long-term loans for 4.5% and keeping the 0.5% as profit. Sub-prime mortgage lenders were making money hand-over-fist when they borrowed money when interest rates were down to 1% and lent it out at 12%.
But I digress. Currently the twos-and-tens yield curve is "inverted" meaning people are demanding a higher interest rate for 2-year notes (and shorter term products) than they are demanding for 10-year treasuries...why do you think that is happening? Why would you lend your money to someone for 10 years at a cheaper rate than lending it for only 2 years? :confused: I'll let you think about that for a while.
GaltsGulchGaltsGulchBeach Comber20 postsJoined View profileMessageBeach Comber
The degree to which people are upset at Shelly is directly proportional to the degree to which they are "up to eyeballs" in southwalton real estate, one way or another. No one likes to hear the viewpoint again and again, when they feel that her/his words are pushing values down further.. Her/His words are doing absolutely nothing to real estatevalues... market forces are at work...
remember always: don't follow the market down.... price aggressively now, and avoid the inevitable retracement to reality. Obviously this doesn't apply to those so wealthy they could care less whether the value on their 3rd row beach home goes from 500K to 1.4M, back to 500K... If that doesn't describe your situation, we're now in a situation where you need to price aggressively, before the majority needs to price aggressively... these people need to listen to Shelley's advice not to follow the market down, rather than wishfully agreeing with the majority on this board - who I continue to believe have a 'vested' interest in either transactions, or valuations. It's a beautiful place, no question, but my point (ever since I sold in early spring 2005) has been and continues to be the rents are way out of line (dirt cheap) vs. ridiculously rising cost of ownership.
remember always: don't follow the market down.... price aggressively now, and avoid the inevitable retracement to reality. Obviously this doesn't apply to those so wealthy they could care less whether the value on their 3rd row beach home goes from 500K to 1.4M, back to 500K... If that doesn't describe your situation, we're now in a situation where you need to price aggressively, before the majority needs to price aggressively... these people need to listen to Shelley's advice not to follow the market down, rather than wishfully agreeing with the majority on this board - who I continue to believe have a 'vested' interest in either transactions, or valuations. It's a beautiful place, no question, but my point (ever since I sold in early spring 2005) has been and continues to be the rents are way out of line (dirt cheap) vs. ridiculously rising cost of ownership.
PTWizardPTWizardBeach LoverColumbus, OH80 postsJoined View profileMessageBeach Lover
LESSON #2: ...why do you think that is happening? Why would you lend your money to someone for 10 years at a cheaper rate than lending it for only 2 years? :confused: I'll let you think about that for a while.
Wow!, thanks for the lessons Shelly, you are so smart. I'm waiting with eager anticipation for the answer. Can't wait for Lesson #3. You know it all. You are just so amazing! We "newcomers" sure lucky you are here to guide us. My 30 years as property owner and investor on 30-A pale in comparison to your wisdom!
(Just whistling...) Can't get enough of that doom and gloom, doom and gloom, doom and gloom, can't get enough of that doom and gloom early in the morning...:floor:
Bobby JBobby JBeach FanaticBlue Mountain beach4,041 postsJoined View profileMessageBeach Fanatic
Bobby JBeach FanaticBlue Mountain beach4,041 postsJoined View profileMessageBeach Fanatic:popcorn: This is a really good thread. I have always made money by following my gut. I never really analyze or worry about it. I could never look at anything the way Shelley does. Nothing personal Shelley but I would have to lock myself away if I had all that info. I guess that is what makes the world go round. Your comments make you appear to be happy about others misfortune... I find that odd and probably a good thing you remain anonymous.
redfisherredfisherBeach Fanatic374 postsJoined View profileMessageBeach Fanatic
redfisherBeach Fanatic374 postsJoined View profileMessageBeach FanaticLESSON #2:
But I digress. Currently the twos-and-tens yield curve is "inverted" meaning people are demanding a higher interest rate for 2-year notes (and shorter term products) than they are demanding for 10-year treasuries...why do you think that is happening? Why would you lend your money to someone for 10 years at a cheaper rate than lending it for only 2 years? :confused: I'll let you think about that for a while.
This is long-winded and doesn't answer my question..."What exactly does it mean"..."Why is it inverted"..."What do lower rates mean" ...and finally "What biz are you in?
SandcastleSandcastleBeach FanaticTallahassee, Florida342 postsJoined View profileMessageBeach Fanatic
SandcastleBeach FanaticTallahassee, Florida342 postsJoined View profileMessageBeach FanaticLESSON #2:Currently the twos-and-tens yield curve is "inverted" meaning people are demanding a higher interest rate for 2-year notes (and shorter term products) than they are demanding for 10-year treasuries...why do you think that is happening? Why would you lend your money to someone for 10 years at a cheaper rate than lending it for only 2 years? :confused: I'll let you think about that for a while.
Couldn't this simply mean that people are expecting inflation to slow? Maybe locking in a slightly lower rate for 10 years is better than receiving a higher rate for short-term money and waking up one day to find that your bond has matured and you interest income has disappeared.:idontno:
SHELLYSHELLYSoWal Insider5,763 postsJoined View profileMessageSoWal Insider
SHELLYSoWal Insider5,763 postsJoined View profileMessageSoWal InsiderLESSON #3: Inverted Yield Curve (Condensed :confused: )
An inverted yield curve is usually a sign that the market sees an economic slowdown looming...and in times past, this situation presaged a recession (except when the Fed created asset bubbles to ward it off).
Folks who think the Fed is going to lower interest rates to fight a recession rush to "lock in" long-term interest rates by buying (in this case) 10-year treasuries sending the yields lower. The bond's price and the yield are inversely related, so when folks "demand" more bonds, the price goes up and the yield goes down (or if they rush to unload them, the price goes down and the yield goes up -- same situation as stock prices and their dividends). Hold this thought for now.
This situation worked pretty well in the past, but here is the rub. Foreign countries are holding over $2.4 Trillion in US debt. The foreigners are feeding the US money so we can buy their oil to put in our SUVs, their plasma TVs and their plastic junk from the Dollar Trees. We take out HELOCs or use credit cards to buy their stuff, and most all of the money finds it way to Japan and China (the #1 & #2 holders of our debt) so they can pass it back to the US in return for treasuries where it ends up in banks for us to borrow so we can continue to buy their junk. Swell! But can you see the downside? Neither can the people who are in debt up to their eyeballs. And too much money chasing too few goods causes inflation--for those too young to know what this feels like, let's just say it blows!
The Fed would normally slow down the economy by increasing discount rates (the rates banks charge each other for overnight loans) which usually moves the prime lending rates higher. They want the citizens to stop spending like maniacs and put something into savings. Raising the rates is supposed to raise the long-term rates in tandem and make putting money into savings an attractive option. Unfortunately for Greenspan, it didn't work this time--he raised the rates in "measured" paces and too slowly so as not to upset the economy. The short-term rates increased, but the long-term rates held fast (the famous conundrum). Underestimating the greed of the nation, he kept going and going...people kept spending and spending. When mortgage rates got a little too high in one type of loan, they came up with other "exotic loans" to make the ever-increasing housing prices affordable to all the masses--"Don't worry about that 1-year ARM, you'll have this condo sold in the blink of an eye and have $50,000 profit with no risk at all--just sign here. GREAT! Psst...we've got another tower going up, how about a preconstruction--just take out an equity loan on your primary residence, you won't need to worry about a mortgage, when it's finished people will be lined up to throw money at you to take it off your hands....sign here."
Now the short-term yields are higher than the long-term yields (and the yield curve is inverted), foreigners are still buying up the US debt because they've got tons of US money laying around collecting dust to lend and 4%+ which is a pretty good deal. BUT...there is a problem, the housing market is toast and the businesses aren't picking up the economic slack like they were supposed to do. Corporations are FLUSH with cash from the economic boom, but instead of buying all sorts of capital goods and opening up new businesses to keep the economy humming along, they're using the cash to buy up their stocks, raising CEOs compensation and paying SEC fines. The market smells economic hard times are ahead--maybe a recession. The world is a troubled place and there is a flight to quality (read 10-year treasuries). At the same time, other central banks around the world are also starting to raise their interest rates as well.
What is the FED to do if there is a recession? Most people think that they'll ride to the rescue, as in the past, and lower interest rates and start the machine back up again. Now there is a problem though...globalization has happened. Foreign countries hold a good deal of their reserves in US dollars (our debt) and if they think the US is going to start dropping interest rates (which will cause their investments in US dollars to lose value) they will seriously consider diversifying out of US dollars and into other currencies (that pay higher interest) and/or into gold.
The US doesn't want them to do this, because if the likes of China starts "cashing in" its $639 Billion in US treasuries, the supply flooding the market will outstrip demand. And if we can't sell our future debt (which we use to pay off our current debt) we will be in worse shape...folks will demand ever higher yields which the US will be forced to pay or risk a default of US treasuries.😱
Now, do you remember the part of the lesson from above about the inverse relationship between the price and yield of bonds?--if China floods the markets with a slew of treasuries that outstrip demand...bond prices will drop like a rock, causing yields will soar (that inverse relationship) and the cost of borrowing money will skyrocket. If no one wants to buy our US debt because they can get better interest elsewhere, we've gotta raise the interest rates high enough to attract investors away from other bonds which will also cause the cost of borrowing money to skyrocket. So this is why the FED needs to walk a tightrope when considering lowering the interest rates again in the future. It's very different this time.
If people think "oh goody" the interest rates are dropping, so mortgage rates will drop and the real estate market will come roaring back bigger and better than ever...I'm here to say that it just isn't that easy. (IMO)
An inverted yield curve is usually a sign that the market sees an economic slowdown looming...and in times past, this situation presaged a recession (except when the Fed created asset bubbles to ward it off).
Folks who think the Fed is going to lower interest rates to fight a recession rush to "lock in" long-term interest rates by buying (in this case) 10-year treasuries sending the yields lower. The bond's price and the yield are inversely related, so when folks "demand" more bonds, the price goes up and the yield goes down (or if they rush to unload them, the price goes down and the yield goes up -- same situation as stock prices and their dividends). Hold this thought for now.
This situation worked pretty well in the past, but here is the rub. Foreign countries are holding over $2.4 Trillion in US debt. The foreigners are feeding the US money so we can buy their oil to put in our SUVs, their plasma TVs and their plastic junk from the Dollar Trees. We take out HELOCs or use credit cards to buy their stuff, and most all of the money finds it way to Japan and China (the #1 & #2 holders of our debt) so they can pass it back to the US in return for treasuries where it ends up in banks for us to borrow so we can continue to buy their junk. Swell! But can you see the downside? Neither can the people who are in debt up to their eyeballs. And too much money chasing too few goods causes inflation--for those too young to know what this feels like, let's just say it blows!
The Fed would normally slow down the economy by increasing discount rates (the rates banks charge each other for overnight loans) which usually moves the prime lending rates higher. They want the citizens to stop spending like maniacs and put something into savings. Raising the rates is supposed to raise the long-term rates in tandem and make putting money into savings an attractive option. Unfortunately for Greenspan, it didn't work this time--he raised the rates in "measured" paces and too slowly so as not to upset the economy. The short-term rates increased, but the long-term rates held fast (the famous conundrum). Underestimating the greed of the nation, he kept going and going...people kept spending and spending. When mortgage rates got a little too high in one type of loan, they came up with other "exotic loans" to make the ever-increasing housing prices affordable to all the masses--"Don't worry about that 1-year ARM, you'll have this condo sold in the blink of an eye and have $50,000 profit with no risk at all--just sign here. GREAT! Psst...we've got another tower going up, how about a preconstruction--just take out an equity loan on your primary residence, you won't need to worry about a mortgage, when it's finished people will be lined up to throw money at you to take it off your hands....sign here."
Now the short-term yields are higher than the long-term yields (and the yield curve is inverted), foreigners are still buying up the US debt because they've got tons of US money laying around collecting dust to lend and 4%+ which is a pretty good deal. BUT...there is a problem, the housing market is toast and the businesses aren't picking up the economic slack like they were supposed to do. Corporations are FLUSH with cash from the economic boom, but instead of buying all sorts of capital goods and opening up new businesses to keep the economy humming along, they're using the cash to buy up their stocks, raising CEOs compensation and paying SEC fines. The market smells economic hard times are ahead--maybe a recession. The world is a troubled place and there is a flight to quality (read 10-year treasuries). At the same time, other central banks around the world are also starting to raise their interest rates as well.
What is the FED to do if there is a recession? Most people think that they'll ride to the rescue, as in the past, and lower interest rates and start the machine back up again. Now there is a problem though...globalization has happened. Foreign countries hold a good deal of their reserves in US dollars (our debt) and if they think the US is going to start dropping interest rates (which will cause their investments in US dollars to lose value) they will seriously consider diversifying out of US dollars and into other currencies (that pay higher interest) and/or into gold.
The US doesn't want them to do this, because if the likes of China starts "cashing in" its $639 Billion in US treasuries, the supply flooding the market will outstrip demand. And if we can't sell our future debt (which we use to pay off our current debt) we will be in worse shape...folks will demand ever higher yields which the US will be forced to pay or risk a default of US treasuries.😱
Now, do you remember the part of the lesson from above about the inverse relationship between the price and yield of bonds?--if China floods the markets with a slew of treasuries that outstrip demand...bond prices will drop like a rock, causing yields will soar (that inverse relationship) and the cost of borrowing money will skyrocket. If no one wants to buy our US debt because they can get better interest elsewhere, we've gotta raise the interest rates high enough to attract investors away from other bonds which will also cause the cost of borrowing money to skyrocket. So this is why the FED needs to walk a tightrope when considering lowering the interest rates again in the future. It's very different this time.
If people think "oh goody" the interest rates are dropping, so mortgage rates will drop and the real estate market will come roaring back bigger and better than ever...I'm here to say that it just isn't that easy. (IMO)
Edited
goofergooferBeach Fanatic1,165 postsJoined View profileMessageBeach Fanatic
gooferBeach Fanatic1,165 postsJoined View profileMessageBeach FanaticSHELLY
You reduce your explanations to very simplistic and outdated economic logic. you are a big proponent of supply and demand.......think about that.
You reduce your explanations to very simplistic and outdated economic logic. you are a big proponent of supply and demand.......think about that.
goofergooferBeach Fanatic1,165 postsJoined View profileMessageBeach Fanatic
gooferBeach Fanatic1,165 postsJoined View profileMessageBeach Fanatic:popcorn: This is a really good thread. I have always made money by following my gut. I never really analyze or worry about it. I could never look at anything the way Shelley does. Nothing personal Shelley but I would have to lock myself away if I had all that info. I guess that is what makes the world go round. Your comments make you appear to be happy about others misfortune... I find that odd and probably a good thing you remain anonymous.
That about sums it up Shell.....Schandenfreud.......remember ????
SHELLYSHELLYSoWal Insider5,763 postsJoined View profileMessageSoWal Insider
SHELLYSoWal Insider5,763 postsJoined View profileMessageSoWal InsiderSHELLY
You reduce your explanations to very simplistic and outdated economic logic. you are a big proponent of supply and demand.......think about that.
Lots of slick folks with stuff to sell make money off of people who only know one side of the economic story (that being the side the seller wants them to hear).
The slick folks make the money, and those who are clueless in the ways of supply/demand and fundamentals end up betting their retirement on tech stocks and "dot condos" ...think about that.
redfisherredfisherBeach Fanatic374 postsJoined View profileMessageBeach Fanatic
redfisherBeach Fanatic374 postsJoined View profileMessageBeach FanaticI love it...which one are you? are you slick or uninformed?...I'm just now reading your "Lesson 3" - boy its sure concise - back in a few...Red
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