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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: philv who wrote (2239)11/16/2003 2:55:49 PM
From: mishedlo  Read Replies (1) of 110194
 
I don't think a small rise in interest rates would be the end of it all. It will be spun and sold as a positive and life will go on. Last time the housing bubble kept growing in the face of massive interest rate increases.

#1) They can spin whatever they want as positive but we are down to marginal homebuyers now and it is obvious.

#2) When did we have MASSIVE interest rate increases. We had a couple followed by 13 rates cuts. If you are talking about 1972 or whatever salaries were rising then and not now and this is not 1972 anyway.

#3) Interest expenses are a big cost to corporations. Many corporations are VERY heavy into short term financing. A rate increase from 1% to 1.5% is a 50% increase in interest rate expenses. No spin is going to affect this.

#4) Mortgage interst rates will affect the marginal buyer 100% guaranteed. I know this because they already have. 25% of recent loans have been adjustable if my understanding is correct. Some marginal buyers already can no longer afford anything but adjustable. Hmmm What happens 3 years down the road when the 3yr rate nees to be adjusted up to higher market rates.

#5) If the entire point is to get consumers to stop spending, there are easier ways than raising interest rates IMO. Just turn off the repos, the coupon passses, and other sources of liquidity and borrowing will dramatically slow whether interest rates are higher or not.

#6) If the point is to stop inflation, as caused by excess $ printing, then stop printing $. See #5. Mind you I think printing of $ is only one of the factors behind inflation and the other is China's demand for raw materials and that we do not have control over.

Mish
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