To: bond_bubble who wrote (69890 ) 9/17/2006 11:43:42 PM From: mishedlo Read Replies (1) | Respond to Mish, You are only looking at spot prices and jumping to conclusion. When the spot prices ($CRB) was higher, the prices did not rise immediately. Why? Because, manufacturers have futures contract similar to Option ARMs. When the futures contract expire (similar to optionArm expiration), rates kick in higher and at that time you will see the price increases!! Just like OptionArm borrowers EXPECT higher interest rate payment AFTER the expiration of the option period, manufacturers do too. Eventhough SPOT interest rates (10 year yield) are falling (like $CRB is falling), that does NOT mean OptionArm resets will be at lower price. The simple reason is that, even though 10 year yield is falling, it is still way higher than the 2004 low!! Similarly, eventhough CRB is falling, it is still higher than 2005 prices and if the manufacturers have to rollover the contracts, it will have to be at higher prices!!! If you are not inclined to give high weightage to the OptionArm - $CRB similarity, go and look at your early 2005 post on steel prices. At that time, steel prices were temporarily falling and you were predicting steel will fall like crazy in future as well. Unfortunately, it still continues to rise!! I also understand, you are not expecting the home owners to pay less interest inspite of 10 year yield fall.
