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Inverted/negative yield curve

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Inverted/negative yield curve

Old 03-22-06, 12:04 PM
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Inverted/negative yield curve

Bernanke Qualifies Message in the Yield Curve

To translate, while the narrowing slope of the yield curve historically has been a good harbinger of recession...

The flat or inverted yield curve suggests the central bank is holding its pegged rate too high relative to the rate set in the marketplace by borrowers and lenders.

In the old days, the Fed had to throw the economy into recession in order to bring down inflation. That isn't the case today. So the yield curve message should be particularly troublesome since the goal is only to normalize rates, not restrain growth to any significant degree.
Thoughts from the market gurus?
Old 03-22-06, 12:34 PM
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the fed is trying to stop the housing market since there has been so much free money in it lately that people are opening HELOCs just to go on vacation and bidding up homes to crazy values in some markets
Old 03-22-06, 12:38 PM
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I agree. Rates do need to rise to put a stop to the insanity. Otherwise - no one will be able to afford homes.

But what happens when millions go into foreclosure because they took out ARMs that they can no longer afford? Or HELOCs like you said?
Old 03-22-06, 12:39 PM
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While I appreciate the inverseness of the inverted one, the general negativity of the negative one is cause for concern.
Old 03-22-06, 12:40 PM
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Originally Posted by mosquitobite
But what happens when millions go into foreclosure because they took out ARMs that they can no longer afford? Or HELOCs like you said?
I make a lot of money.
Old 03-22-06, 12:41 PM
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Originally Posted by kvrdave
I make a lot of money.

My husband and I are sitting on cash waiting as well...
Old 03-22-06, 12:42 PM
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I've been watching the yield curves and it's been fluctuating in and out of negative and intensity for quite a while now. It's actually a bit better right now than it had been a little while ago.

I think it just means people have no idea what's going to happen with interest rates. It doesn't seem to be of much concern to the investment community other than making them a little cautious. And that's not really a bad thing given some of the alternatives.
Old 03-22-06, 12:43 PM
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Also Dave, inverted yield means the same as negative yield.


negative yield curve
Definition: An uncommon situation in which long-term interest rates have lower yields than short-term interest rates. This is often a sign that interest rates are expected to decline. also called inverted yield curve.
http://www.investorwords.com/3221/ne...eld_curve.html

I don't think rates will decline though. If they do, the fed is just putting off the inevitable imho.
Old 03-22-06, 12:46 PM
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Originally Posted by mosquitobite
My husband and I are sitting on cash waiting as well...
I won't actually bother buying any more places. I work with around 15 different banks selling their repossessions. They are one of the biggest pains in the ass to deal with (all the paperwork), but you know they will just keep dropping the price until they sell.
Old 03-22-06, 12:47 PM
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Originally Posted by mosquitobite
Also Dave, inverted yield means the same as negative yield.
I know, but it wouldn't have been funny that way. But maybe it wasn't anyway.
Old 03-22-06, 12:48 PM
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Originally Posted by mosquitobite
I agree. Rates do need to rise to put a stop to the insanity. Otherwise - no one will be able to afford homes.

But what happens when millions go into foreclosure because they took out ARMs that they can no longer afford? Or HELOCs like you said?
I think the whole idea is to get people buying homes on 30 or 15 year fixed loans and the housing cost is around 30% of gross income. If people can't afford a loan once it adjusts, then they will foreclose if they can't sell.

Whenever the fed raises rates, the governors know that a lot of people's financial lives will be ruined due to their poor decisions.

A lot of businesses will also go under. Many profitable businesses have to borrow to stay alive and for working capital. Higher rates means they need to raise prices, be more efficient, live with smaller margins or go under.
Old 03-22-06, 12:51 PM
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Originally Posted by al_bundy
I think the whole idea is to get people buying homes on 30 or 15 year fixed loans and the housing cost is around 30% of gross income. If people can't afford a loan once it adjusts, then they will foreclose if they can't sell.

Whenever the fed raises rates, the governors know that a lot of people's financial lives will be ruined due to their poor decisions.

Oh I agree with all that completely. I'm just wondering what genious in government will come in to "help" the poor people who made very STUPID decisions! I'm sure taxes will come into play some how.

S&L all over again... this time the governments doing. No wonder Greenspan retired...
Old 03-22-06, 12:54 PM
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doubt it

back in the 1990's housing crash they let values fall and people foreclosed
Old 03-22-06, 12:56 PM
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Originally Posted by kvrdave
I won't actually bother buying any more places. I work with around 15 different banks selling their repossessions. They are one of the biggest pains in the ass to deal with (all the paperwork), but you know they will just keep dropping the price until they sell.
Our rental was a foreclosure, and the home we're buying for our own use is a foreclosure. I've definitely seen the numbers of foreclosures rising in this area. Many houses I show are vacant. Which as you know means it's either a foreclosure, or some genius has bought another house without selling the old one first - probably on a bridge loan or some other special financing. The "I want it, and I want it NOW" problem. These are the ones I see being affected most. My best friend is in this situation and is renting her old house with negative cash flow because it's better than zero.
Old 03-22-06, 01:03 PM
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my favorite is people buying homes they can't afford with IO negative ammortization loans just to make the payment for a few years and plan on selling it with a profit.

Last year it seems every new member on fatwallet wanted to buy a home that they were only going to live in for 3-5 years. Suddenly no one had any plans to live in a home longer than 5 years.
Old 03-22-06, 01:08 PM
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I agree. Honestly, I really hope the worst outcome for this behavior. Why? Because people like this change the nature of the market and drive up prices for people like me.

About FW Finance forum, there's this guy Teplista or the like who posts there -- hate the guy, complete jerk.
Old 03-22-06, 01:13 PM
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Originally Posted by al_bundy
doubt it

back in the 1990's housing crash they let values fall and people foreclosed
This time around I can hear the campaign ads now:

"vote for us and we'll make sure the government fixes the problem and we'll increase federal funding to help you. We'll pass laws to stop banks from foreclosing on you."

Sadly, the state of politics today is all about buying votes. Doesn't matter the party.
Old 03-22-06, 01:45 PM
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it's not that simple this time since a lot more banks fund loans with investors' funds from bond funds and simply service the loans. Too much contracts to preclude laws like this since the bond funds will still want to be paid.
Old 03-22-06, 01:51 PM
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Al, you spend time in the politics forum. Do you think the average Joe Blow (you know what RedDog calls them) knows that or would understand? All he knows is Politician George says he'll fix it.
Old 03-22-06, 02:42 PM
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of course not, everything is the fault of the president for the last few decades. I think it's better this way than people realizing that their government is ruining their lives on purpose and playing the good of the many outweighs the good of the few or the one
Old 03-22-06, 03:30 PM
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Curves are fun, straight lines are boring.

Look...a. butterfly!

*chases after the butterfly*

-p
Old 03-22-06, 04:47 PM
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Originally Posted by al_bundy
the fed is trying to stop the housing market since there has been so much free money in it lately that people are opening HELOCs just to go on vacation and bidding up homes to crazy values in some markets
Interesting. I didn't know the Fed would target specific asset classes.

Learn something new everyday.
Old 03-22-06, 04:50 PM
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Originally Posted by mosquitobite
My best friend is in this situation and is renting her old house with negative cash flow because it's better than zero.
I see nothing wrong with renting a home with negative cash flow if you can afford it. Hopefully I'll be doing that myself in a few months. I don't want negative cash flow, but the market won't bear the rent that I'm asking for -- so I have to run it at negative CF for a few years.
Old 03-22-06, 04:53 PM
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Originally Posted by ChiTownAbs, Inc
Interesting. I didn't know the Fed would target specific asset classes.

Learn something new everyday.
why else would they be raising rates? to put an end to IO and other exotic loans.
Old 03-22-06, 05:05 PM
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Originally Posted by ChiTownAbs, Inc
I see nothing wrong with renting a home with negative cash flow if you can afford it. Hopefully I'll be doing that myself in a few months. I don't want negative cash flow, but the market won't bear the rent that I'm asking for -- so I have to run it at negative CF for a few years.
so what do you expect your ROI and ROE to be over say 15 years?

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