few more arguments about interest rates direction

[Winetalk.com]

here some more evidence that the rates will not go sky high...

1) Bank called CD maturing in 2018, which was paying a meager 5.25% a year.

2) ETF I have with very small average maturity and consisting of Government paper ONLY made a new 52 weeks low last week (KGT),
while ETF's with average 15-20 years weighted maturity have not
(MFL, PTY, PHK)

what the heck bankers and investors smell????

[pushpills]

it's not going to go sky high, just highER and considering the rates, people still don't have much to complain about.

[Rolo]

I´m more worried about economic pessimists who try to constrain the sense of optimism that drives economies forward... as long as these "naysayers" are not controlling the agenda, then interest rates will not go sky high.

Faster access to information, more travel, more world trade, new democracies with marked economies etc... overall I think we will never see high interest rates again - the world has evolved.



Last edited by Rolo at Apr 18 2004, 04:25 PM

[RawAlex]

Interest rates need to slowly climb back up to a more normal range. Low interest rates are good for a while, but over time, they lose their effectiveness as all other countries just adapt and play the same game.

Slowly easing the rates back up will give the fed some space to play in the future. Leave them low, and there is nowhere to go when the bottom falls out next time.

Alex

[Mike AI]

Originally posted by RawAlex@Apr 18 2004, 07:49 PM
Interest rates need to slowly climb back up to a more normal range. Low interest rates are good for a while, but over time, they lose their effectiveness as all other countries just adapt and play the same game.

Slowly easing the rates back up will give the fed some space to play in the future. Leave them low, and there is nowhere to go when the bottom falls out next time.

Alex
What does other countries lowering their interests rates have to do with anything?

[RawAlex]

Mike, interest rates are dropped to stimulate the economy. A major (and most often intended) side effect is that the currency drops when compared to others. With the US dropping interest rates, the value of the US currency has dropped when compared to other major currencies (yen, euro, etc).

This difference makes imports more expensive, makes internally produced goods a better "value" in the market place, and drives job growth and economic activity within the country. The lower interest rates make it easier for companies to borrow to finance expansion of factories to support this new internal demand.

Once other countries also drop their rates, it makes it harder for these benefits to occur, as all things stablize back to their more natural levels. Japan has attempted to play this game for years, with interest rates approaching zero percent. Like any stimulant, it runs out over time...

Alex

[Winetalk.com]

Originally posted by Rolo@Apr 18 2004, 06:33 PM
I´m more worried about economic pessimists who try to constrain the sense of optimism that drives economies forward... as long as these "naysayers" are not controlling the agenda, then interest rates will not go sky high.

Faster access to information, more travel, more world trade, new democracies with marked economies etc... overall I think we will never see high interest rates again - the world has evolved.
Rolo,
I don't think you know cause/effect of interest rates and economy...

Good economy puts preasure on interest rates,
recession eases the preasure.

Interest rates are the PRICE of borrowing money,
in booming economy the demand for money is high,
in recession the demand is low.

if what you call "naysayers" prevail-
we'll have recession and LOW interest rates.

[Vick]

Originally posted by RawAlex@Apr 18 2004, 07:49 PM
Interest rates need to slowly climb back up to a more normal range. Low interest rates are good for a while, but over time, they lose their effectiveness as all other countries just adapt and play the same game.

Slowly easing the rates back up will give the fed some space to play in the future. Leave them low, and there is nowhere to go when the bottom falls out next time.

Alex
Alex - low interest rates support a strong housing market

That in term helps support a fair economy

Part of the American Dream is owning a home

Low interest rates encourage and enable more people to become home owners

.... and you know all the advantages of being a home owner :biglaugh:

[Winetalk.com]

Originally posted by Vick+Apr 18 2004, 09:40 PM--></span><table border='0' align='center' width='95%' cellpadding='3' cellspacing='1'><tr><td>QUOTE (Vick @ Apr 18 2004, 09:40 PM)</td></tr><tr><td id='QUOTE'><!--QuoteBegin--RawAlex@Apr 18 2004, 07:49 PM
Interest rates need to slowly climb back up to a more normal range. Low interest rates are good for a while, but over time, they lose their effectiveness as all other countries just adapt and play the same game.

Slowly easing the rates back up will give the fed some space to play in the future. Leave them low, and there is nowhere to go when the bottom falls out next time.

Alex
Alex - low interest rates support a strong housing market

That in term helps support a fair economy

Part of the American Dream is owning a home

Low interest rates encourage and enable more people to become home owners

.... and you know all the advantages of being a home owner :biglaugh:[/b][/quote]
Vick,
Alex has a good points there....

also...fed doesn't control LONG terms rates which are used in calculation of morgages,
it can ONLY control SHORT term rates

[pushpills]

all i know for sure is that all your mortgage belong to me.

[Vick]

Originally posted by Serge_Oprano+Apr 18 2004, 09:42 PM--></span><table border='0' align='center' width='95%' cellpadding='3' cellspacing='1'><tr><td>QUOTE (Serge_Oprano @ Apr 18 2004, 09:42 PM)</td></tr><tr><td id='QUOTE'>Originally posted by -Vick@Apr 18 2004, 09:40 PM
<!--QuoteBegin--RawAlex@Apr 18 2004, 07:49 PM
Interest rates need to slowly climb back up to a more normal range. Low interest rates are good for a while, but over time, they lose their effectiveness as all other countries just adapt and play the same game.

Slowly easing the rates back up will give the fed some space to play in the future. Leave them low, and there is nowhere to go when the bottom falls out next time.

Alex
Alex - low interest rates support a strong housing market

That in term helps support a fair economy

Part of the American Dream is owning a home

Low interest rates encourage and enable more people to become home owners

.... and you know all the advantages of being a home owner :biglaugh:
Vick,
Alex has a good points there....

also...fed doesn't control LONG terms rates which are used in calculation of morgages,
it can ONLY control SHORT term rates[/b][/quote]
Ok Serge, you know more about investing that I so I can't (winably) argue that

In my ignorance I see a strong housing market seemingly supported by low interest rates and many buying houses who might be renters in other situations - which in term puts more $ in more pockets

Where can I find out more about who controls which term rates?

[Winetalk.com]

Vick,
all true, you are NOT wrong in your assesment,
but what you don't put in concideration is inflation and it's preasures on the economy.

also...Fed likes to use interest rates as a safety valve, meaning:
it likes to stimulate economy when signs of recession appear and slow down economy when signs of inflation appear.

now imagine the money rain falls with valve FULLY open and..economy stil takes down turn for various reasons like...aging, high price of oil, etc..
Fed can't open the valve more, the valve which is open already at full.

when interest rates are higher,
fed has FLEXIBILITY and this is I beleive is what Alex was reffering to

[Winetalk.com]

Originally posted by Vick@Apr 18 2004, 09:48 PM


Where can I find out more about who controls which term rates?
you can find it here and from me....

Fed controls short interest rates.

Inflation/MARKET controls long term rates.

[RawAlex]

Serge, you are correct. Japan is a perfect example of a system where interest rates have been so low for so long that their "fed" can no longer use that level to make things go... and nobody wants to be the one to push them up (for fear of even more recession...).

Keep going down, and you run out of room to go... the US rates are getting VERY close to that level (as are the rates in Canada, I should mention).

Vick: Low rates create new home buyers, and in the long run create wealth for everyone. However, when the rates do go up, there is a correction in the value of homes when those rates start to move people back out of the market. Right now there are way more buyers than sellers, which drives the new construction market. If the rates go back up over 7 or 8%, the reverse tends to happen, and the resale prices tend to drip as sellers have to work to find buyers. Right now I could put my home on the market today and have a buyer by Friday, with a very nice gain in value in the two years I have been here. In a couple of years from now, with higher interest rates, I might have a harder time to find a buyer for the same property, so I might not make the same return in the next two years that I have made in the last two years.

The housing market, because of the large values involved, tend to drive the economy strongly. Construction jobs pay reasonably well, and they tend to make things go. But like any situation with a false subsidy, once that subsidy is removed, the market changes dramatically. I haven't looked, but I suspect the economy (with housing removed) in the US and Canada hasn't been all that good the last couple of years.

Alex

[Winetalk.com]

Originally posted by RawAlex@Apr 18 2004, 10:28 PM
In a couple of years from now, with higher interest rates, I might have a harder time to find a buyer for the same property, so I might not make the same return in the next two years that I have made in the last two years.


and this si what scares me...ask ANYBODY and ALL will tell you that interest rates will be much higher 2-3 years from now.
Since when EVERYBODY were right in the markets directions????

NEVER happens, majority is ALWAYS wrong. Fed, meanwhile, has no worries about inflation and they are MINORITY, the body which controls the money has minority opinion...what's wrong with that picture?

Fed is wrong and every dick and harry is right???

I just can't accept it....

[RawAlex]

Serge, election year politics in the US create very strange situations. The fed is being very "non partisan" right now by doing nothing. They are sending out very mixed messages, including "don't expect to do anything before fall"... these guys don't want to be seen playing favorites for anyone!

If they raised rates now (half point or more at one time) there would be some short term negative financial impact (exchange rates, return on bonds, government borrowing, etc) but would probably not be all that negative (because of the current historical low rates). However, if it had even a slight effect, it could be seen as an attempt to undermine Bushboy and put him out of office.

As a result, unless there is a overwhelming need in either direction, I would not expect to see motion before mid november. After that you folks are signed up for 4 year of whoever is in there, and the fed will have no issue shitting on their parades early in the game.

I am starting to suspect that there will be some hush hush international deal made to have interest rates rise up in all g8 countries a bit, to give everyone some breathing room.... maybe 2005.

Alex

[Rolo]

Originally posted by Serge_Oprano@Apr 18 2004, 06:30 PM
if what you call "naysayers" prevail-
we'll have recession and LOW interest rates.
Well, I was not trying to say that interest rates will never rise, I was refering to the double digits interest rates and/or fast climb in interest rates - that IMHO will never happen again... (well atleast not in our lifetime ;-)))

Ofcourse inflation is the "beast" with low interest rates, however higher productivity, more business competition, and increased employment could keep inflation low - even in a fast-growing economy. But surely at somepoint interest rates will rise, but it would be to "let out steam", and not too combat another double digits inflation crisis as in the 1970s...