Rate Increase Retrospective
From 02/07/05 Quips & Questions:
The Fed will continue to raise rates until the fed funds rate reaches 3-4%. At that point spreads between 2-yr and 10-yr notes should narrow to within 20 basis points....the financial sector constitutes over 40% of the SP500....what will GM and the financial sector do without a carry trade?
In this kind of environment, what will happen to the bond market, high-yield "junk bonds" and emerging market debt, investment-grade debt, and the “refi trade” that has underpinned consumer equity extraction from increasingly overvalued homes?
Question of the day: What happens to the economy, when there is no more equity to be extracted from overvalued real estate??
The spread between 2 & 10 year is at 18 basis points within the range predicted. We underestimated at 4%, Fed funds should be at 4.25 with two 25bp bumps before Alfred E. Greenspun leaves and then theres 2006 for more increases.
From A Real Fannie Spanking
What if Fannie Mae sells $100 billion a year in mortgages over the next 12 months instead of adding $100 billion in mortgages? That could push mortgage rates from about 5.75% now to perhaps 6.25%.
If Fannie Mae scales back its purchases of home mortgages from lenders for resale as bonds on Wall Street, which could reduce the supply of home loans for prospective buyers....that would really drive up interest rates.
Fannie Mae FNMA and Freddie Mac FHLMC have both had their horns clipped by Congress and are just beginning to make the changes necessary to their portfolios. The latent effect of these changes will not be felt by the markets until well into 2006.
From Market Soapbox 09/28/05:
The fallout from Katrina & Rita will change logistics. This will result in awaiting cargo being moved by any available train, boat or intermodal rail with a fuel surcharge to cover $70 oil thrown in for good measure, expect the cost of goods to rise, substantially along with the PPI.
This increase will get passed on to the consumer and be reflected in the CPI. With a rising CPI & PPI this virtually guarantees the Fed will continue raising in 2006 and a yield curve inversion.
We see a confluence of disaster fallout from Fannie, Freddie, Katrina & Rita in 2006 that as we have maintained all along, could raise rates far beyond the markets and anyone's expectations.
The Fed will continue to raise rates until the fed funds rate reaches 3-4%. At that point spreads between 2-yr and 10-yr notes should narrow to within 20 basis points....the financial sector constitutes over 40% of the SP500....what will GM and the financial sector do without a carry trade?
In this kind of environment, what will happen to the bond market, high-yield "junk bonds" and emerging market debt, investment-grade debt, and the “refi trade” that has underpinned consumer equity extraction from increasingly overvalued homes?
Question of the day: What happens to the economy, when there is no more equity to be extracted from overvalued real estate??
The spread between 2 & 10 year is at 18 basis points within the range predicted. We underestimated at 4%, Fed funds should be at 4.25 with two 25bp bumps before Alfred E. Greenspun leaves and then theres 2006 for more increases.
From A Real Fannie Spanking
What if Fannie Mae sells $100 billion a year in mortgages over the next 12 months instead of adding $100 billion in mortgages? That could push mortgage rates from about 5.75% now to perhaps 6.25%.
If Fannie Mae scales back its purchases of home mortgages from lenders for resale as bonds on Wall Street, which could reduce the supply of home loans for prospective buyers....that would really drive up interest rates.
Fannie Mae FNMA and Freddie Mac FHLMC have both had their horns clipped by Congress and are just beginning to make the changes necessary to their portfolios. The latent effect of these changes will not be felt by the markets until well into 2006.
From Market Soapbox 09/28/05:
The fallout from Katrina & Rita will change logistics. This will result in awaiting cargo being moved by any available train, boat or intermodal rail with a fuel surcharge to cover $70 oil thrown in for good measure, expect the cost of goods to rise, substantially along with the PPI.
This increase will get passed on to the consumer and be reflected in the CPI. With a rising CPI & PPI this virtually guarantees the Fed will continue raising in 2006 and a yield curve inversion.
We see a confluence of disaster fallout from Fannie, Freddie, Katrina & Rita in 2006 that as we have maintained all along, could raise rates far beyond the markets and anyone's expectations.
Comments