Jun

13

In my work, long rates do not matter to housing because everyone financed with short term ARMs. That is the reason others missed the bust whereas I caught the top on TOL's stock split in 2005. The central banks have tightened enough to address the immediate inflation issues, but are trapped by the structural inflation issue. I suspect the Fed will cut as the housing bust forces the issue.

The mistake the market made was to assume that Fed cuts would lead to lower long rates even though long term historical averages suggest 4.50% on overnight and 5.25% on long paper is a reasonable price, and a history of rates going to 6% during times of conflict. Five-year continuous bond futures charts since 2001 look like the Dow from 1998 to 2002. I believe we are on the tail end.


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