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How one fool got lucky

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August 22, 2010 – Comments (3)

Fools often get lucky. Case in point: Paul Krugman. An indomitable supporter of the speculative bubble fueled by low rates, he kept chanting "print, baby, print" and dismissing bond vigilantes, which was a bad call but turned out to be accurate. But Krugman did not understand that it was NOT because of the bad economy. GDP figures may be weak, but it doesn't mean that 2% 10-year Treasury bonds are popular with American investors. I am not buying bonds, are you? The actual reason for bonds' recent performance is threefold: 1) The Fed is buying treasuries, something that Krugman implies DID NOT happen, 2) Banks are practicing the Fed notes carry trade, and 3) the European Central bank DID NOT follow Krugman's "print, baby, print" advice, which made European debt ratings look closer to reality, and made the stupid money rush away from the real danger and toward imaginary security. The moral: bond vigilantes are still as vigilant as ever, but they cannot do anything because they've been outshouted, outprinted, and, finally, outsourced.

http://krugman.blogs.nytimes.com/2010/08/21/bond-madness/ 

"Bond Madness

Things are looking bleak for the economy; Goldman Sachs (no link) is predicting that 2nd quarter GDP growth will be revised down to 1.1%, and it’s downhill from here.

Yet from late 2009 until just the other day, all the Very Serious People were mainly concerned about the possibility of surging interest rates. Why?

I was looking back at some of my own notes about what happened last fall. At the time, there was serious consideration among the Obama people of pushing for some kind of second stimulus; what its chances might have been is hard to say. But the point is that they backed off. Why? My understanding is that they bought into the big scare of the time, which was that there was a “carry trade bubble” in the bond market, and terrible things would happen when it burst.

No, this never made sense. Anyone who looked at recent Japanese history should have realized that with a depressed economy, low rates could and did last a very long time.

And some of the scenarios being proposed were just plain bizarre: the bond bubble will burst, and this will plunge us into recession, and the Fed will have to buy up government debt, and this will mean inflation too. Really.

And then the whole story shifted: suddenly it wasn’t the carry trade, it was sovereign debt risks, we’re all Greece.

And now there’s a new one: you see, low interest rates will cause deflation.Really (near the end).

And though the story shifts, the moral is always the same: the little people have to suffer."

3 Comments – Post Your Own

#1) On August 23, 2010 at 2:19 PM, portefeuille (99.62) wrote:

well, at least we don't have to read the "live coverage" of the bond markets in the "caps" game blogs like last year ...

(with "heated discussion" on whom could get what interest rate ona loan andon who had the "fresher" quotes ...)

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#2) On August 23, 2010 at 2:19 PM, portefeuille (99.62) wrote:

on whom

on who

ona loan andon

on a loan and on

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#3) On August 23, 2010 at 2:31 PM, portefeuille (99.62) wrote:

#1 an arbitrary episode.

#1) On May 27, 2009 at 2:53 PM, ChrisGraley (99.92) wrote:
Ouch! The beginning of the end.
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#2) On May 27, 2009 at 2:55 PM, WeenTang (76.77) wrote:
Where are you getting these mortgage rates?
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#3) On May 27, 2009 at 2:56 PM, goldminingXpert (99.97) wrote:
http://www.erate.com/six_month_libor_index.6-months-libor.htm
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#4) On May 27, 2009 at 3:01 PM, givmeabreak (80.45) wrote:
That is Libor, which would affect ARMS, but the refi/purchase rates are still as low as 4.375 for a 30 yr fixed.
So, where is the problem for new home purchasers or refis that use the standard 30 yr fixed rate?
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#5) On May 27, 2009 at 3:05 PM, WeenTang (76.77) wrote:
thanks
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#6) On May 27, 2009 at 3:05 PM, DeerHunter73 (70.62) wrote:
30 Year Fixed  5.00%  4.99%
15 Year Fixed 4.69%  4.63%
1 Year ARM 4.60%  4.63%
30 Year Fixed Jumbo 6.32%  6.27%
5/1 ARM 4.62%  4.56%
3/1 ARM 4.72%  4.67%
Today's rates are 1st last weeks rates are 2nd.
source bankrate.com
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#7) On May 27, 2009 at 3:06 PM, goldminingXpert (99.97) wrote:
Look at the whole site... it is mortgage rates/libor rates/and even stock quotes there. That said, I'm hearing from other sources that 30-years are only up .25% to .5% at other banks (i.e. what was 5% yesterday is 5.4% today for example). Still, this isn't good news if you need a mortgage or if your are Merisucky Homes Corp. (MTH)
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#8) On May 27, 2009 at 3:06 PM, goldminingXpert (99.97) wrote:
Trollhunter... go back to the wild man, quit posting old crap.
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#9) On May 27, 2009 at 3:09 PM, goldminingXpert (99.97) wrote:
Here's an updated chart of Fannie Mae bonds... clearly they aren't unchanged.
http://www.mbsquoteline.com/images/charts/homechart1243450480.png

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#10) On May 27, 2009 at 3:09 PM, ati2ud (21.24) wrote:
dude enough already... we all see that you dont like what GMX has to say, so start your own blog and get off his
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#11) On May 27, 2009 at 3:11 PM, DeerHunter73 (70.62) wrote:
#10 i did start my own blog he got on and shouldnt have now its fair game.
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#12) On May 27, 2009 at 3:12 PM, DeerHunter73 (70.62) wrote:
Those rates are current for ALL of florida per bankrate.com Bank atlantic. Bac Wamu, and 3 local reailtors. Go back on vacation, Wait you have been on one for 2 months
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#13) On May 27, 2009 at 3:16 PM, goldminingXpert (99.97) wrote:
You frickin moron
From bankrate's site:
mortgage Bankrate.com Averages By Bankrate.com

Bankrate's site displays two sets of rates that are produced from two surveys we conduct: one daily and the other weekly. They're both useful, but they're samples of different groups and they serve different purposes.
You will see daily rate averages on the site in boxes labeled "overnight averages" (these calculations are run after the close of the business day).
Read it. There. Old data. Has the business day closed? No.

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