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3.75% 30 year fixed rates & DOW 4200 coming
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2010 Oct 1, 4:05am 4,755 views 13 comments
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Finally some truth to what is going on. Deflation. Deflation happens when you lose trillions in fake equity from residential and commercial real estate.
It's a good time to be long US treasuries. I've made almost as much on LT (30 year) treasuries in the last 2 years as I have on gold.
Gold is a funny thing - its safe haven status makes it rise in times of inflation and deflation as well. With unemployment reaching 17 or 18% (U6) and huge property value write-downs that are not yet reflected because of FASB mark-to-market being lifted, we've still got a huge way to go.
Say hello to Japan's lost decade(s) - there were actually two decades - in the US.
Bond yields in Japan fell below 1%. That is like a 20 year bond rally. Equities are for chumps.
Cvoc13
2010 Oct 2, 9:25am
Essentially if the DOW hits 4000 and housing continues to drop, you will have “relative wage inflation†so long as salaries stay fixed.
In that climate, even someone on the dole will suddenly find himself well off.
In a world of the $200 a month mortgage, a $500 a week unemployment check is executive pay. Food prices have also been falling.
Only in backwards land. Food Prices? Where are you shopping? I disagree with that, and while I see much lower Dow, and SP and all equities markets, in fact. How low? Well E.W.T has his call at below 1,000 and lets face his track record is MUCH better then John Lekas, add E.W.T to Harry dent, and about 20 other well respected voices, and there is a growing audiance of those that are seeing that, I am in that camp, I feel as if we are going towards Depression
bubblesitter
2010 Oct 2, 9:58am
Essentially if the DOW hits 4000 and housing continues to drop, you will have “relative wage inflation†so long as salaries stay fixed.
In that climate, even someone on the dole will suddenly find himself well off.
In a world of the $200 a month mortgage, a $500 a week unemployment check is executive pay. Food prices have also been falling.
Only in backwards land. Food Prices? Where are you shopping? I disagree with that, and while I see much lower Dow, and SP and all equities markets, in fact. How low? Well E.W.T has his call at below 1,000 and lets face his track record is MUCH better then John Lekas, add E.W.T to Harry dent, and about 20 other well respected voices, and there is a growing audiance of those that are seeing that, I am in that camp, I feel as if we are going towards Depression
Food,gas,auto, health insurance etc has increased but not that much in the last decade, but home prices? What is sucking the income of new generations of buyers?
Cautious1
2010 Oct 4, 2:30am
What is sucking the income of new generations of buyers?
Student loans? Inability to land a job paying more than minimum wage?
Vicente
2010 Oct 4, 2:51am
The record of this guy is not very good.
I just don't see the Plunge Protection Team allowing Dow to go that low. They'll toss babies into a volcano on live TV by the truckload if they thought a big drop was imminent. Let millions of Boomer wake up to find their 401K has entirely imploded? Nope.
a4adam
2010 Oct 4, 7:04am
Why do renters and responsible people with no debt always get screwed? Is this the new American way?
Let millions of Boomer wake up to find their 401K has entirely imploded? Nope.
You think any of those guys gives a rat's ass about the middle class?
WillyWanker
2010 Oct 4, 4:05pm
Why do renters and responsible people with no debt always get screwed? Is this the new American way?
Because all of the 'Gibs Me Dat' has to be paid by someone. The guv'ment cheese costs MONEY. People with jobs and people who behaved responsibly have to foot the bill for everyone else. That's the Hope And Change, as promised.
Vicente
2010 Oct 5, 5:31pm
You think any of those guys gives a rat’s ass about the middle class?
Oligarchy may not care about individuals but is aware of need for wage slaves who are not burning down their mansions.
funny, don't recall Bush speaking of hope and change when the bubble years were occurring under his watch...
pkowen
2010 Oct 8, 3:06am
Getting there, I heard last night on the evening news that mortgage rates are at a 40 year low, 4.25%.
Not buying your prediction on the DOW. But I might do some more selling short term ...
The Fed is desperate to get inflation going again. The best way it knows how to do this is by putting $400 in the average American mortgage holder via 3.75% refinancings.
Either income goes up, or prices come down.
From Yahoo Finance :
After helping corporations issue over $1 trillion of debt a record-low yields, the Fed is now turning its attention to consumers' balance sheets, says John Lekas, senior portfolio manager at Leader Capital where he runs the Leader Short-Term Bond Fund.
"They're going to continue to buy" Treasuries until the yield on the 30-year bond hits 2.75%, Lekas predicts. That, in turn, will drive 30-year fixed rate mortgages to around 3.75%, which "reloads the consumer with a 30-year stream of income," he says, estimating savings of about $400 per month for the average U.S. household.
Of course, you have to be able to get a refi, but "they're setting this thing up to get the consumer refinanced, it is a critical piece of the puzzle," he says.
The bad news is Lekas' believes this "huge wave of refinancings" will be preceded by severe deflationary pressures that will batter the economy and financial markets. Among his dire predictions:
-- The Dow will fall to 4200 by the middle of 2011.
-- The VIX will rise back into the 80-90 range.
-- The "real" unemployment rate (U6) will hit 24%.
-- Housing prices will fall another 20%
"It's all about GDP," he says. "Either incomes go up or prices go down. We're going to see a lot lower prices."
Lekas attributes the stock market's robust September rally to short covering and the "reflation" in commodity pries, which he (naturally) expects to end soon.
"We'd be taking this opportunity to get off here and move into the credit markets," the bond fund manager says. "You're taking excessive risk in the equity market."
#housing