Posted on 04/10/2008 6:44:06 PM PDT by shrinkermd
Alan Greenspan may be correct that a glut of global saving pumped up the housing bubble by keeping long-term interest rates low.
If so, then watch out, because the situation has gotten worse: Foreign stockpiles of U.S. dollars are fatter and interest rates lower than at housing's zenith in 2005.
Global central-bank reserves surged to a record $6.4 trillion in the fourth quarter of 2007, according to the International Monetary Fund, up from about $4 trillion in 2005. Those reserves are pouring into U.S. Treasury bonds for safekeeping. Foreigners held $2.32 trillion in Treasurys in the fourth quarter, compared with $1.98 trillion in 2005, according to Federal Reserve data. Bond yields move in the opposite direction of prices, so that demand has helped keep yields low.
Now there's even more demand for safe Treasurys because investors are running for cover from the credit crunch. The 10-year Treasury note now yields 3.5%. In the summer of 2005 it yielded more than 4%.
Super-low rates helped inflate housing, but aren't likely to pump that bouncy castle back up again, because investors' cockeyed optimism about housing is severely shaken.
Thirty-year, fixed mortgage rates today average about 6%, according to HSH Associates. That's still low, but not as low as 10-year yields suggest they could be. Gun-shy lenders are mindful of credit risk again.
But with so much cash on hand and low rates again providing an incentive to make it magically multiply, investors could find other bubbles to inflate. That might explain crude oil rising to $110 a barrel, even as the U.S. seems to be falling into recession.
(Excerpt) Read more at online.wsj.com ...
1,999,848th post on FR
so what will the next big thing be?
The stock market. The Dow will easily drop 3,000 more. Guaranteed.
I meant the next bubble.
Greenspan is the most overrated economist to ever live. He had a reputation as a good Fed chairman because he’s so great at BS.
FR post bubble about to burst? Should I buy or sell or post a duplicate thread!?
Pimco is betting heavily that rates will move up sharply (biggest bet by them in that direction ever).
Speaking of treasury rates there.
You’re experiencing it right now. Commodities. Just about all of them. Metals, ag, certainly energy.
Maybe when all the gold bugs lose all their money?
Guaranteed? LOL.
I would bet $10K that we see 15K DOW before we see 9K DOW.
Maybe when all the gold bugs lose all their money?
But gold is the only real money......
does andrea feed him this crap or does he come up with it on his own?
Greenspan’s newfound ability to recognize “bubble” conditions is impressive. Too bad he didn’t have such an ability prior to retirement.
No kidding. Greenspan should just shut up. He reminds me of Clinton in the way he trys to stay in the spotlight to comment on the messes he created as if he had nothing to do with them.
John
I don’t know if Mr. Greenpants about his “bubbles” but I agree that we should RAISE INTEREST RATES. Dump the stupid free-loading, broke a$$ homebuyers and raise the rates.
He retired; why can'y he spend his time bone jumping on his commie newscaster wife?
I daresay there are a handful on this very thread that would trade their life savings if they thought it might be true, and then lay the blame at your feet if things didn't go as wished for.
I guess human nature is human nature...always has and always will be.
Obviously he has shorted some area of the market or is on retainer with someone who has.
In the days before the machines took over, when a high-school education was quite enough of a credential, that was Trading 101.
Now we have all these computers...
I won’t say no to that.
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