Morning Report – Warren to investors: Short the bond market, get a mortgage 10/8/14

Markets are higher after yesterday’s bloodbath. Bonds and MBS are rallying.

Fears over global growth are beginning to worry the markets. One other thing to keep in the back of your mind is that third quarter earnings season is upon us as Alcoa reports after the close tonight. The rally in the dollar could end up crimping earnings for the big multinationals – something to keep in mind.

Today, we get the FOMC minutes around 2:00 pm. We could see some bond market volatility around that. LOs be aware.

Mortgage Applications rose 3.8% last week. Purchases rose 2.4% while refis rose 5%. During the week, bonds yields fell 4 basis points.

Job openings hit a 14 year high last month, according to the JOLTS survey. It looks like a lot of the growth was in health care and social assistance. Retail also reported a big increase in openings.

Home prices rose 6.4% annually in August, according to CoreLogic. Excluding distressed sales, they rose 5.9%.

Warren Buffet is perplexed by the lack of mortgage demand. Taking out a mortgage is the easiest way for a normal investor to short the bond market. Locking up money for 30 years at 4% is a no-brainer, considering that inflation has averaged about 4% over the past 60 years or so. Basically it is free money, and if we ever get another burst of 70s style inflation again, you are borrowing at a negative real rate. Warren has also been surprised by the lack of housing starts. As have many of us.

2 Responses

  1. I suspect that new grads in labor market can’t get a decent mortgage qualifying job. We’ve impoverished at least one of not two generations with loose Fed money and wealth transfer from the young (and poor) to the old (and wealthy).

    Yeah us.


  2. Why interest rates won’t rise.


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