Wednesday, June 8, 2016

Funny Money

June 8, 2016
Mortgage applications jump 9.3% as rates fall

From the comments:

Current home valuations are based upon funny money and bogus interest rates. Once oil turns and the global economy recovered we are going to get crushed. Interest rates will rise and we will have significant inflation. They will have to print money like McD's coupons just to service the debt cost. Say bye bye to home values.

In this economy I want to be liquid, mobile, and nimble.

This comment got 9 thumbs up and only 1 thumbs down.

If I had voted, I'd be in the thumbs down camp.

1. It does not seem rational to me to declare our currency "funny money" and yet opt to be liquid. Holding "funny money" is how one becomes liquid.

2. If you truly believe that interest rates will rise, and not just may rise, then there are ways to play that to increase the amount of "funny money" you have. You can short long-term treasury bonds, just as many others have unsuccessfully done over the years.

3. If you truly believe that we will have significant inflation, and not just may have, then there are ways to play that too. For example, you could dump all your "funny money" and buy hard assets, or you could use your "funny money" to buy inflation protected treasury bonds so that your "funny money" could grow with inflation.

4. Hoarding "funny money" in an attempt to be nimble is a poor strategy for significant inflation scenarios. Why do you need to be nimble? Why are you waiting for lower prices if you know prices will go up?

The rising interest rate unicorn has done so much damage to savers over the last decade. Stay on the short end of the curve they said. Rates will rise any day they said. Once the Fed normalizes rates, savers will be rewarded they said. Fortunately, I've never had much faith in unicorns or the opinions of those they people.

Want real funny money? Not a problem!

March 9, 2011
Gross Dumping Treasuries Leads Managers Calling Rally’s End

Gross has said he may buy Treasuries again if yields rise.

30-year Treasury yield on 3/9/11: 4.60%

November 13, 2012
Bill Gross buying Treasuries again

Bill Gross is jumping back into U.S. Treasuries.

30-year Treasury yield on 11/13/12: 2.72%

Nothing says funny like the clown horn!

No comments: