Fed can't keep the rates low

[muscleman]

1 hour ago, no_free_lunch said:

We are looking to upgrade our home and will be getting a mortgage.  Curious peoples thoughts on variable vs fixed rates and this thread seemed relevant. These are my options, keep in mind I'm in Canada so no 30 year mortgages, I wish.

 

5 year variable 1.3% rate.

5 year fixed 2.2% rate.

 

The variable is very tempting but I'm concerned what happens if rates start spiking. They would have to raise 100 bp before we lose with variable but who knows we are at historical lows.

 

no one knows the future, but right now it looks like rates will be raising by a full 100 bp and tops out mid next year.

[maplevalue]

1 hour ago, no_free_lunch said:

We are looking to upgrade our home and will be getting a mortgage.  Curious peoples thoughts on variable vs fixed rates and this thread seemed relevant. These are my options, keep in mind I'm in Canada so no 30 year mortgages, I wish.

 

5 year variable 1.3% rate.

5 year fixed 2.2% rate.

 

The variable is very tempting but I'm concerned what happens if rates start spiking. They would have to raise 100 bp before we lose with variable but who knows we are at historical lows.

 

Really depends on risk preferences. I would lean fixed mainly because the scenario where the government runs a big deficit and you get inflation with little growth -> higher rates, would be so incredibly painful for Canadian economy. In that scenario you really don't want your mortgage payment going up materially. 

[muscleman]

46 minutes ago, maplevalue said:

 

Really depends on risk preferences. I would lean fixed mainly because the scenario where the government runs a big deficit and you get inflation with little growth -> higher rates, would be so incredibly painful for Canadian economy. In that scenario you really don't want your mortgage payment going up materially. 

I just realized.... Is he talking about a 5 year mortgage, or a 30 year mortgage with the first 5 years being fixed rate?

If it is a 5 year mortgage, then the monthly payments could be pretty insane right?

[Libs]

<I have put on all of my TLT LEAP put positions>

 

Wabuffo- such a great thread. Thanks. Regarding this - I've dabbled in these previously and they seem pretty expensive considering how little volatility there is in TLT. Are you going out to 2023 or 2024, if I may ask?

[wabuffo]

Going out to 2024 - 110 and 120 strikes.   They're not cheap and I basically don't know what I am doing with options so don't follow me in this.

 

wabuffo

[no_free_lunch]

4 hours ago, muscleman said:

I just realized.... Is he talking about a 5 year mortgage, or a 30 year mortgage with the first 5 years being fixed rate?

If it is a 5 year mortgage, then the monthly payments could be pretty insane right?

 

Thanks for the feedback.  It is a 25 year mortgage.  In canada you generally only lock in terms for 5 years.

 

I find it hard to believe they will be able to raise rates by 100 bps but I guess certainly possible.

[ERICOPOLY]

8 hours ago, no_free_lunch said:

We are looking to upgrade our home and will be getting a mortgage.  Curious peoples thoughts on variable vs fixed rates and this thread seemed relevant. These are my options, keep in mind I'm in Canada so no 30 year mortgages, I wish.

 

5 year variable 1.3% rate.

5 year fixed 2.2% rate.

 

The variable is very tempting but I'm concerned what happens if rates start spiking. They would have to raise 100 bp before we lose with variable but who knows we are at historical lows.

 

That's brutal that you can't lock in longer than 5 yrs.  This summer I took $375,000 cash-out by refinancing to a 30 yr fixed at 2.8% and $880,000.

 

I have an Aunt in Australia who lost her property when her rate reset in the 1980s.  It's sad and she was never able to buy again.  They don't have 30 yr fixed rate mortgages either (or she wouldn't have lost it).

 

 

[no_free_lunch]

At what rate could you have got a variable mortgage?

 

It is strange that the mortgage market is so different between two countries that are neighbors and similar economically.  Maybe it is the legacy of fannie mae or perhaps Canada just has an oligopoly of a banking sector.

Edited October 29, 2021 by no_free_lunch

[SharperDingaan]

17 hours ago, no_free_lunch said:

We are looking to upgrade our home and will be getting a mortgage.  Curious peoples thoughts on variable vs fixed rates and this thread seemed relevant. These are my options, keep in mind I'm in Canada so no 30 year mortgages, I wish.

 

5 year variable 1.3% rate.

5 year fixed 2.2% rate.

 

The variable is very tempting but I'm concerned what happens if rates start spiking. They would have to raise 100 bp before we lose with variable but who knows we are at historical lows.

Most would go fixed - if only because it is virtually certain that over the next 5 years the floating rate wll rise by > 90bp. Obviously, the sooner the rise occurrs the greater the benefit to you.

 

Most don't realize it, but for a fee - it is also possible to issue yourself a mortgage out of your own/closely related RRSP. Pay yourself the extra 90bp, and if you can't repay for some reason - the shortfall is taxable income. Lots of possibilities 

 

SD

Edited October 29, 2021 by SharperDingaan

[Spekulatius]

7 hours ago, no_free_lunch said:

At what rate could you have got a variable mortgage?

 

It is strange that the mortgage market is so different between two countries that are neighbors and similar economically.  Maybe it is the legacy of fannie mae or perhaps Canada just has an oligopoly of a banking sector.

It's Fannie Mae / Freddie Mae. Uncle Sam basically underwrites the risk of interest moves for a 30 year mortgage. No private lender would do that for the small amount one is paying especially considering that there is no prepayment penalty. The US is the only country where the 30 year fixed mortgage exists as far as I know, due to the unique structure of the US mortgage market.

[muscleman]

12 hours ago, ERICOPOLY said:

 

That's brutal that you can't lock in longer than 5 yrs.  This summer I took $375,000 cash-out by refinancing to a 30 yr fixed at 2.8% and $880,000.

 

I have an Aunt in Australia who lost her property when her rate reset in the 1980s.  It's sad and she was never able to buy again.  They don't have 30 yr fixed rate mortgages either (or she wouldn't have lost it).

 

 

 

May I ask which lender you are using to get this kind of cash out refi loans? As I understand, you are no longer on a salaried job. I am surprised that you can still get loans, and at such low cost.

[LearningMachine]

2 hours ago, Spekulatius said:

It's Fannie Mae / Freddie Mae. Uncle Sam basically underwrites the risk of interest moves for a 30 year mortgage. No private lender would do that for the small amount one is paying especially considering that there is no prepayment penalty. The US is the only country where the 30 year fixed mortgage exists as far as I know, due to the unique structure of the US mortgage market.

Foreign investors willing to buy U.S. dollar denominated long-duration treasuries and mortgage backed securities at low interest rates so far has been helping too, but agreed, even with that, it wouldn't be at current rates without Uncle Sam's purchases. 

[wabuffo]

it wouldn't be at current rates without Uncle Sam's purchases. 

 

The real story in 2021 is the relative lack of Treasury security issuance (reduced supply) - which I calculate is 3-4x the factor that Fed open-market buying is.   As I've documented here and elsewhere is all due to the US Treasury drastically running down its account balance at the Fed.

 

That's gonna change in 2022 - maybe bigly.

 

wabuffo

Edited October 29, 2021 by wabuffo

[ERICOPOLY]

4 minutes ago, muscleman said:

 

May I ask which lender you are using to get this kind of cash out refi loans? As I understand, you are no longer on a salaried job. I am surprised that you can still get loans, and at such low cost.

 

Chase.

 

My wife works a salaried job and the reason the loan wasn't larger is because of that very issue (I don't have an income).  So we could not qualify for more.

[Libs]

17 hours ago, wabuffo said:

Going out to 2024 - 110 and 120 strikes.   They're not cheap and I basically don't know what I am doing with options so don't follow me in this.

 

wabuffo

Thanks. Looks like the 10- year would have to crack 3% to make money on this. Seems reasonable.

[muscleman]

8 hours ago, ERICOPOLY said:

 

Chase.

 

My wife works a salaried job and the reason the loan wasn't larger is because of that very issue (I don't have an income).  So we could not qualify for more.

 

Thank you! Wow I thought big banks tend to be much more expensive than smaller banks. But in your case it isn't bad at all.

I almost forgot that you already married again. Hope you and your family are happy in your new house and enjoy it!

[fareastwarriors]

49 minutes ago, muscleman said:

 

Thank you! Wow I thought big banks tend to be much more expensive than smaller banks. But in your case it isn't bad at all.

 

 

See: Refinance Mega Thread

and see: Relationship mortgage discounts for moving a million assets

[Pedro]

@wabuffo

 

Does MMT have a playbook for struggling third world countries to follow the MMT  ways to get off the IMF/USD tit and find a way to become more in control of their monetary future?

 

 I would love to read anything about this if you know it exists. 

[Spekulatius]

35 minutes ago, Pedro said:

@wabuffo

 

Does MMT have a playbook for struggling third world countries to follow the MMT  ways to get off the IMF/USD tit and find a way to become more in control of their monetary future?

 

 I would love to read anything about this if you know it exists. 

MMT only really works for reserve currency cues like Euro, Yen, or USD. It does not work for third world currencies where capital flows can cause severe currency depreciation. Just look at Brazil, Turkey or Mexico. They have to stay somewhat disciplined fiscally or they’re end up like Argentina.

[Pedro]

So how can a third world country use MMT principles to get out of their powerless situation? The IMF/USD are going to continue to hurt them long term. Does a solution for them under MMT exist? 

 

I'm assuming this country has their own currency. How do you create more demand for their currency without having citizens flock to USD. Close the economy? 

Just freeballing here to see if MMT  principles have any way to help these nation get out of a spiral. 

[KJP]

56 minutes ago, Pedro said:

So how can a third world country use MMT principles to get out of their powerless situation? The IMF/USD are going to continue to hurt them long term. Does a solution for them under MMT exist? 

 

I'm assuming this country has their own currency. How do you create more demand for their currency without having citizens flock to USD. Close the economy? 

Just freeballing here to see if MMT  principles have any way to help these nation get out of a spiral. 

 

Some papers that may interest you:

 

Bonizzi, Kaltenbrunner, and Michell, Monetary Sovereignty Is A Spectrum:  Modern Monetary Theory and Developing Countries  (2020)

 

Tcherneva, Money, Power And Monetary Regimes (2016)

[bizaro86]

On 10/29/2021 at 6:52 AM, SharperDingaan said:

Most would go fixed - if only because it is virtually certain that over the next 5 years the floating rate wll rise by > 90bp. Obviously, the sooner the rise occurrs the greater the benefit to you.

 

Most don't realize it, but for a fee - it is also possible to issue yourself a mortgage out of your own/closely related RRSP. Pay yourself the extra 90bp, and if you can't repay for some reason - the shortfall is taxable income. Lots of possibilities 

 

SD

 

My returns in my RRSP have been much, much greater than the interest rate on my mortgage.

[LearningMachine]

On 6/18/2021 at 2:58 PM, Spekulatius said:

I kind of like the yellow metal here and bought more today. I regard it as a better alternative to cash basically. Sure, it could go down, but there is also a chance that if inflation kicks in with negative interest rates, that it goes up a lot. Gold has been a store of value for more than 5000 years and I think it will be for a while in the future as well. my vehicle of choice is IAU since it had lower fees than GLD. I wasn’t aware of GLDM so maybe that’s a better alternative.

 

Gold miners are tricky and it isn’t clear that it works well in and inflationary environment. When buying a miner, you are basically making a bet that the mining costs go up less than the price of Gold, which isn’t necessarily a given.

 

In the depression in the 30’s gold miners did well, because the price of gold was fixed and their input costs (labor, materials ) were falling significant, so their margin improved. That’s unlikely to repeat itself however.

 

On 6/18/2021 at 10:41 AM, wabuffo said:

There are quite a few gold bullion ETFs.   PHYS, IAU, SGOL, BAR, GLDM, OUNZ, AAAU.

 

Never looked at any others except for GLD - perhaps I should look at all of them to see if they might be a better fit for what I'm trying to do.  It would also be helpful if they have listed LEAP Call options.

 

Thanks,

wabuffo

 

@Spekulatius, @wabuffo, and anyone else putting more in Gold as the inflation prediction is starting to become a reality?  What medium are folks using?  Anyone consider GLDM now?   Anyone considering GOLD (Barrick Gold)?

Edited November 1, 2021 by LearningMachine

[johnpane]

Felix Zulauf mentions the TGA in today's Barron's:

 

Quote

Beyond the Federal Reserve’s massive securities purchases since March 2020, which the central bank said this past week will be reduced and wound up more quickly than previously planned, Zulauf points to the largely unrecognized impact of the Treasury’s sharp drawdown in its balance at the Fed, which reflects the federal government bumping up against its debt ceiling. This reduction, from $1.8 trillion to under $400 billion, has injected liquidity into the private economy. That is about to reverse, with the rebuilding of the Treasury’s balances following congressional approval of a debt-ceiling hike. At the same time, China isn’t recycling its U.S. dollar holdings as it used to, further reducing global dollar liquidity.

 

Yet, he predicts lower long-term rates:

Quote

... he also likes long-term U.S. Treasury bonds, which he sees rallying strongly in price. That would lower the yield on the 30-year maturity from 1.86% back to about 1% to 1.20%, near the nadir touched during the 2020 market crisis.

 

Edited December 18, 2021 by johnpane
Correct spelling of Feliz Zulauf's name.