Why Interest Rates are Rising – Podcast 8.2.13

Why Are Interest Rates Rising?

JM Bullion

Summary of the Podcast

Ryan reviews the ADP employment and the Bureau of Labor Statistics report the latter showing poor job growth while the former showed good job growth.

Louis notes that the BLS report was not good as half new jobs were in retail or restaurants and there was a decrease in hours worked and in wages. Louis notes that Quantitative Easing (QE) does not create jobs.

Louis notes that the unemployment rate is going down but that is solely due to people leaving the labor force. Louis notes that without improvement in the job market there is no real economic recovery.

Louis notes that QE will continue if the national statistics don’t show improvement.This would be a boon for people in areas where the labor market is strong.

Ryan notes that employers are scaling back on hiring full time workers due to the impending Obama Care employer mandate. Louis notes that once companies get used to hiring and managing part time employees that will become a permanent feature of their companies.
JM Bullion

Louis notes that the way Obama care is structured many will find it economical to not get insurance and pay the fine instead(which is lower the cost of the insurance) and then if they get sick apply for insurance because under Obama care they cannot be denied due to a preexisting condition.

Ryan notes that the Fed is now back peddling from the taper talk and may also increase QE. Louis notes that the Fed talks taper so that markets won’t think that QE is a permanent feature of the economy. Louis notes that the Fed uses conflicting data to play taper on taper off.

Louis notes that interest rates can not stay low with out QE because if the Fed is not buying bonds and mortgage back securities (MBS’s), demand for those securities will drop and rates will rise.

Louis notes that normally rising interest rates are a sign of an improving economy.

Today rising interest rates are a sign that the Fed is talking about not buying US bonds and MBS’s.

Louis notes that the only reason people are buying treasuries is because the Fed is buying them (90% of the newly issued bonds!)
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Louis notes that an inventory shortage is not the same as a housing shortage. Louis notes that without an improving employment market the housing market can’t really recover.

Ryan notes that lower rates mean nothing if people can’t get access to them.

Ryan discuss what higher home prices mean and its impact on household finances. Ryan notes the implicit trust markets have in the Fed.

Louis notes that most economists today presuppose the existence of central banks and government intervention in the economy.

Louis notes the absurdity of projections that homes will rise 32% without a corresponding increase in wages. Louis notes you can boost the stock market to higher valuations than the real estate market.

Louis notes that the housing recovery is based on higher prices, not higher sales.

Ryan discusses VA loan guidelines. Ryan discusses Kick starter.

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