May

7

Chart of the Day- 30 Year Mortgage Rate

I, for one, do not share publisher's spin that this implies something down-trending at this junction. I view this chart better representing the fact that rates are way below historical norm. This is not to say how imminent the reversal is; but to say that once reversed, the rates have way more room to the upside than any remaining downside.

Jeff Sasmor writes: 

Two things:

1. that chart doesn't go back far enough for me. This one goes back to 1900

Assuming that that chart is roughly correct, one can see that for most of the last century mortgage rates were generally between 5 & 6 percent. Once out of that range it didn't return for about 30 years (except for a short blip).

2. Rates returning >= 5% will induce great hue and cry from many directions. I am not asserting that such a thing is armageddon-ish, but many will. It will be interesting to see if the Fed has the will to hold back from trying to influence the economy some more at that point.

Rocky's Ghost writes: 

Firstly, I would point out that the bond market (as it drops like a stone) is behaving like a bull market right now. Huh? How can that be? Yes, kids — bull markets are characterized by persistent grinding price gains and vicious pukoramas declines. Think about that statement very carefully before you disagree. Bear markets, in contrast, are characterized by grinding and persistent price declines and vicious price rallies. Again, think about that statement very carefully before you disagree.

But let us assume that Anatoly is correct as a thought exercise. Let us then note that the current bull market has lasted for 35 years. If you want to start setting secular (as opposed to cyclical and trading shorts), what's the hurry? I submit that one needs at least a few months to validate the secular bear market thesis. That thesis requires a lasting change in inflation expectations that break out of the 2-ish% range or a change in the perception of growth/capacity or a change in labor union/gov't policies or a change in the perception of sovereign risk/real rates or a war that changes the balance of investment/spending or deficit financing that exhausts savings or any other number of things that don't happen in a fortnight. Can they happen? Sure. Have they happened? Not yet. Heck, the Fed hasn't even tightened yet. A knock-down drag out cyclical bear market will the fed to be behind the curve on growth and inflation. Growth is still anemic. PCE inflation is still below the desired target.

All that has happened so far is that a bunch of people were on the same side of a multi month trend (bonds, dollar, crude oil, european QE) and those people are all exiting at the same time and moving prices to an equilibrium. This move is about positions. It's not about fundamentals. Yet. 35 years is 12,775 days. The high tick in the TLT was on 1/30/15. So we are about 125 days off the all time high.

Bottom line 1: DON'T SUFFER FROM THE RECENCY BIAS. Bottom line 2: TRADE IN THE TIME FRAME THAT MATTERS TO YOU.

P.S. Look at what has happened over the past few years when the 10-15 day moving average crosses below the 100ish day moving average in the TLT. People pay 2&20 for that nugget of advice. Hah.

anonymous writes: 

or perhaps the bear began in july 2012, when the 10-yr yield fell to 1.4% and cpi hit a low of -2.1%.

anonymous writes: 

You say this move is about positions.

From the cheap seats, this seems like the null hypothesis, for sure. Certainly, everybody didn't suddenly decide there's going to be a huge ramp-up in inflation. Or a default in bonds. More likely that many players are leveraged in the same direction(s), and recently enough have decided to "take profits", that others have decided to follow.


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