Thursday, August 14, 2014

Deflation nation coming to a city near you.

If I hear another analyst say the Fed is going to raise rates - I am going to bust a vein. It's truly unbelievable they keep insisting on this meme. Based on nothing! Food inflation is starting to tame now. Even crazy Cramer was talking about deflation yesterday.

A few days ago I started reading about record outflows from high yield bonds. And I thought to myself - self, the bondholders are going to cause interest rates to rise. We were suppose to have savage inflation by now and it hasn't materialised, and they are probably tired of not making any money those bonds. If they can find somewhere else to make money, they will likely sell because it doesn't look like interest rates are going to rise any time soon. Rates have been pretty solidly in the even 4% range this week. Some days I can still find a rate under 4%. But it's pretty easy to find a rate at a flat 4% no problem. This is not the sign of a strong economy at all.

Still, if enough of them do sell - it will temporarily make rates rise. And I say temporarily because....... have you seen housing lately? I had to regroup after that GDP number to make sure I thought I was still right about the world.

Southern California home sales plunge in July.

"Southern California home sales plunged in July and show little signs of rebounding. And that, economists say, could stunt the region's economic growth."

Mortgage volume weakens as summer wanes.

"Mortgage applications continue to falter despite lower mortgage rates and far less dramatic home price gains than a year ago.

Last week, total application volume fell 2.7 percent from the previous week on a seasonally adjusted basis, according to the Mortgage Bankers Association. Applications to refinance were down 4 percent."

Does that sound like anyone is going to raise rates any time soon? Right now, to get any refi activity rates would have to fall under 4%. Otherwise that segment is dead, dead, dead.

Now back to that GDP. I've never seen so many people have to do so many gymnastics to try and figure out how we got a 4.3% economy all of a sudden. Lets say I don't think they are completely lying - where is this showing up? Most assuredly some of that number was do to restocking for the school season and getting ready for the Christmas window. But retails sales are not showing a 4.3% economy. They are at stall speed. Housing isn't showing it obviously. Perhaps we sold a bunch of cars. But to who? Europe, Japan, Australia, and China are falling off a cliff right now. And can cars really add 4.3 percent to our economy? It seems pretty implausible. Then there is the distillates that added .03 to the GDP. Which I think very few people understand. So I guess it's a good way to say the economy improved and not have many people question it.

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