Where is the Economic Recovery?
Ryan and Louis discuss the direction of mortgage interest rates. Ryan notes that Ben Bernanke admitted that the employment situation is not good. Louis notes that when the non farm employment data came out last week and the top line number was better than expected that the market would interpret that as a sign that the economy was improving and that the Fed would have justification to taper its QE program and bond yields would rise.
Louis noted that as predicted the jobs report probably contained a lot of part time jobs. Louis mentioned that Bernanke focused on the poor employment situation as a way of tacking back his taper talk.Louis notes that if Bernanke is not satisfied with the amount of part time employment which may be partially due to the upcoming implementation of Obama care, then monetary policy won’t change anything.
Louis predicts that Fed will taper but like always will bring QE back shortly thereafter.
Ryan notes the the US afford higher interest rates. Louis notes that rates are not rising because the economy is improving but rather because the Fed may shut down the QE program.
Louis notes when rates went higher mortgage applications dropped. Louis notes that there are those that believe that higher interest rates won’t harm the housing recovery. Louis refers to people who think this way as “recovery addicts”
Louis notes that Bernanke will remain accommodative by keeping rates low but may try to keep rates low without buying bonds which Louis predicts won’t work.
Louis notes the weakness in UPS’s earnings that were just released.Louis notes that we have not had a recovery, just a stock market surge and real estate bubblet.
Louis notes first quarter GDP was poor and that Q2 will be even worse.
Louis notes that inflation, part time jobs and higher interest rates in the current economy are not good.
Louis notes that part time jobs are less desirable not only because they pay less but because they provide fewer career opportunities.
Louis notes that higher rates might cause a short term rush to take out a mortgage. Louis notes that the the old selling point of buying a home was not the ability to extract equity but rather forced savings.
Louis notes that rising home prices are attracting sellers. Louis notes the trend of people moving from California to Texas due to the high cost of housing in California and lower cost in Texas.
Louis notes that there a no real safe havens and noted the recent large drops in price of gold and silver and notes that buy and hold no longer works as an investments strategy.
Louis notes that the last housing bubble of 2005-/06 wasnt based on QE -just low rates and wonders what could the Fed do if there is another housing crash. Triple QE probably is not an option.
Louis notes if there is no other buyers for US Treasuries there could be mandatory retirement accounts that would buy US Treasuries.
Louis notes that free markets do create imbalances but no where near the imbalances that a centrally planned economy creates. Louis also notes that government allocation of capital is not wise as it is politically motivated.
Louis notes that government intervention caused the housing bubble and then were called on to fix it. Louis notes that central planners try to fix stuff that they are ill equipped to fix.