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Old 04-09-2012, 02:34 AM
 
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For several years the radio airwaves have been crowded with commercials from mortgage lenders. After years of refinancing, the commercials continue. Take advantage now of record low rates!

But there is a broad consensus that inflation is ahead, and many people expect that inflation to be substantial or worse.

So where is all this cash coming from that allows mortgage lenders to lend at rates of 2-4 percent?

I presume the lenders are getting their cash back by selling into the secondary market, but that just kicks the inflationary-interest can down the road. Somebody is going to get caught paying cash for an annual return of 2-4 percent when inflation hits, so I wouldn't want to be in this loop.

Who is putting up all this cash for an annual return of 2-4 percent when inflation is looming? Am I missing something here?
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Old 04-09-2012, 06:28 AM
 
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Federal Reserve
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Old 04-11-2012, 03:13 PM
 
Location: Albuquerque
5,548 posts, read 15,046,585 times
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Quote:
Originally Posted by freemkt View Post
Who is putting up all this cash for an annual
return of 2-4 percent when inflation is looming?
People are parking their cash where they can earn "something." It's better than just keeping it in cash - for them.

Lots of people are putting their cash in places that earn far less.

All of these people are betting that they can get out before the inflation that is "looming" appears.
People make all kinds of similar bets with all kinds of assets. Cash is just an asset as a T-bill is just an asset.

Some people buy stocks to protect themselves against inflation, but good investors always have some cash.

If there is an inflation report that shows 4-5% inflation, yields might rise a bit.
If such a report is repeated a couple months in a row - then more.
Maybe, after three months, people will want to bail on T-bills and they will crash.
...
... or not. People will still make bets about inflation.
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Old 04-12-2012, 09:35 AM
 
5,077 posts, read 12,983,209 times
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Quote:
Originally Posted by freemkt View Post
For several years the radio airwaves have been crowded with commercials from mortgage lenders. After years of refinancing, the commercials continue. Take advantage now of record low rates!

But there is a broad consensus that inflation is ahead, and many people expect that inflation to be substantial or worse.

So where is all this cash coming from that allows mortgage lenders to lend at rates of 2-4 percent?

I presume the lenders are getting their cash back by selling into the secondary market, but that just kicks the inflationary-interest can down the road. Somebody is going to get caught paying cash for an annual return of 2-4 percent when inflation hits, so I wouldn't want to be in this loop.

Who is putting up all this cash for an annual return of 2-4 percent when inflation is looming? Am I missing something here?
Fannie and Freddie sell bonds to investors. So it is the investors that buy the bonds that have the interest rate risk.
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Old 04-13-2012, 05:48 AM
 
Location: Wake Forest, NC
835 posts, read 3,816,781 times
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Quote:
Originally Posted by TimtheGuy View Post
Fannie and Freddie sell bonds to investors. So it is the investors that buy the bonds that have the interest rate risk.

Which in effect could be all of us to some extent through 401k, pension, IRA's, mutual funds or other broad based investments you may have.
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Old 04-13-2012, 07:21 AM
 
Location: Union County
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um... inflation is already here - don't you see the prices of every day things?

The "lenders" borrow it from The Fed at zero interest - that's how they can turn around and lend it out so low.

Zero interest rate policy - Wikipedia, the free encyclopedia
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Old 04-13-2012, 07:49 AM
 
3,457 posts, read 3,375,485 times
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Quote:
Originally Posted by freemkt View Post
For several years the radio airwaves have been crowded with commercials from mortgage lenders. After years of refinancing, the commercials continue. Take advantage now of record low rates!

But there is a broad consensus that inflation is ahead, and many people expect that inflation to be substantial or worse.
there is "broad consensus that inflation is ahead," in the same sense that there is "broad consensus that rain is ahead." That observation is meaningless without knowing when, where, and how much.

Personally I don't share your inflationary fears in the short term, or even medium term. I think we can look toward Japan as a general expectation of how this "credit event" will play out.

Quote:
So where is all this cash coming from that allows mortgage lenders to lend at rates of 2-4 percent?

Who is putting up all this cash for an annual return of 2-4 percent when inflation is looming? Am I missing something here?
UNDERSTANDING THE MODERN MONETARY SYSTEM | PRAGMATIC CAPITALISM

knock yourself out.

Last edited by Cletus Awreetus-Awrightus; 04-13-2012 at 08:03 AM..
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Old 04-13-2012, 01:18 PM
 
Location: Albuquerque
5,548 posts, read 15,046,585 times
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Quote:
Originally Posted by Cletus Awreetus-Awrightus View Post
I think we can look toward Japan as a general
expectation of how this "credit event" will play out.
You don't mean the Japan where the personal savings rate is many times that
of citizens of the US do you? That doesn't sound like a very good predictor.

If enough money is created, you will have inflation.
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Old 04-13-2012, 03:04 PM
 
Location: Mokelumne Hill, CA & El Pescadero, BCS MX.
6,958 posts, read 20,774,261 times
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The average home loan doesn't survive it's 30 year life. I think the last time I looked it averaged about 7 years.

The old saw in the '50's about loans was the 3-6-3 rule. Pay depositors 3%, lend at 6%, be on the golf course at 3. It's probably now defined as 1-4-3.

Checked into how much CD's are paying?
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Old 04-13-2012, 04:13 PM
 
3,457 posts, read 3,375,485 times
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Quote:
Originally Posted by mortimer View Post
You don't mean the Japan where the personal savings rate is many times that
of citizens of the US do you?
yes, that japan.

Quote:
That doesn't sound like a very good predictor.
it's pretty good, i think. it's not perfect.

Quote:
If enough money is created, you will have inflation.
well, it has to circulate for there to be inflation.

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