tag:blogger.com,1999:blog-5880610.post112092962868382778..comments2024-01-13T18:57:18.243-05:00Comments on Information Processing: Bond bullsSteve Hsuhttp://www.blogger.com/profile/02428333897272913660noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-5880610.post-1121034261634855552005-07-10T18:24:00.000-04:002005-07-10T18:24:00.000-04:00Professor, I agree ... that possible vicious cycle...Professor, I agree ... that possible vicious cycle I outlined probably wouldn't last very long (maybe a year or so) ... then we might see lower rates again and possible deflation. <BR/><BR/>But I don't think those lower rates will help housing. Once the housing bust starts, I think we will see lower housing prices for a number of years (5 to 10 years like previous down cycles).<BR/><BR/>I am Calculated Riskhttps://www.blogger.com/profile/08664541332908374389noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-1121018829329945522005-07-10T14:07:00.000-04:002005-07-10T14:07:00.000-04:00CR,It was my fear that the virtuous cycle you desc...CR,<BR/><BR/>It was my fear that the virtuous cycle you described might turn vicious that kept me away from long bonds over the last 2 years. (BTW, nice figures :-)<BR/><BR/>But the alternative thesis relating to overcapacity and deflation suggests other reasons for low rates. Admittedly, if there is a run on the dollar interest rates will spike, at least temporarily. But perhaps there is a long Steve Hsuhttps://www.blogger.com/profile/02428333897272913660noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-1120961619023991452005-07-09T22:13:00.000-04:002005-07-09T22:13:00.000-04:00Oops, bad link in the previous comment, try THIS.h...Oops, bad link in the previous comment, try <A HREF="http://calculatedrisk.blogspot.com/2005/03/housing-and-trade-virtuous-cycle-about.html" REL="nofollow">THIS</A>.<BR/><BR/>http://calculatedrisk.blogspot.com/2005/03/housing-and-trade-virtuous-cycle-about.htmlCalculated Riskhttps://www.blogger.com/profile/08664541332908374389noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-1120961441492349862005-07-09T22:10:00.000-04:002005-07-09T22:10:00.000-04:00Last year I seemed to be one of the few bond bulls...Last year I seemed to be one of the few bond bulls around. I wasn't being a contrarian, I thought: 1) the economy was weaker than the headline numbers suggested, and 2) the foreign CBs would continue buying US treasuries and MBS.<BR/><BR/>I suggested the possibility that interest rates wouldn't break the housing market ... it would be the housing market that breaks interest rates! I know that Calculated Riskhttps://www.blogger.com/profile/08664541332908374389noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-1120942645945580242005-07-09T16:57:00.000-04:002005-07-09T16:57:00.000-04:00Chris,I think the bond bulls are forecasting that ...Chris,<BR/><BR/>I think the bond bulls are forecasting that we will be flirting with deflation in the future, due in part to excess labor capacity from 2 billion Indians and Chinese joining the world economy.<BR/><BR/>As you note, the nominal yield is less important than the real value. You might have a 3% nominal yield and a 1% inflation rate, which would mean a real yield of 2% (compare to Steve Hsuhttps://www.blogger.com/profile/02428333897272913660noreply@blogger.comtag:blogger.com,1999:blog-5880610.post-1120933430796464452005-07-09T14:23:00.001-04:002005-07-09T14:23:00.001-04:00I forgot to mention, excellent, excellent post!I forgot to mention, excellent, excellent post!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5880610.post-1120933406656322832005-07-09T14:23:00.000-04:002005-07-09T14:23:00.000-04:00What about inflation? A 3% 10-year is barely above...What about inflation? A 3% 10-year is barely above inflation.Anonymousnoreply@blogger.com