What Direction will Stocks, Oil, and Housing Prices Go?

[Joe Flacco]

The balancing act of inflation and growth / recession is probably something that is going to go on for decades. It is not like they are going to kill inflation and that is it. This balancing act is what will causes rates to make higher highs and higher lows over the long term. Uptrend.

 

[Terrel L. Shields]

This balancing act is what will causes rates to make higher highs and higher lows over the long term. Uptrend.

I think it would be a good thing for rates to be somewhat higher - back to more normalized trends we've seen in the past 5-6% range. That gives a cushion to lower rates in a slowdown and increase higher in a run up and sort of dampen the spikes up, and clearly if rates are too low, there is no way to lower rates when the economy is down and interest rates zero...

Zero interest allows companies to make bad decisions and we are seeing some Zombie companies now in trouble as they used cheap credit to buy back their own stock only to see that stock plunge anyway. I think a lot of companies will have to cease or be sold to others in the coming months. That's not good for employment numbers as the typical reaction of new management is to slash R & D and employees...makes the book look better in the short term and earns "Chainsaw Al" or whomever the biggest bonuses as they run a company into the ground for their own benefit. Look at Sears as an example.

It's hard to finance a home at 10% interest - I know, I've had to do it (highest was 11.75% construction loan...went permanent at 10.25%) and I paid off my mortgage on a 5% loan after paying 7-8% the majority of the term. But 2% on a 100% LTV loan? That's with "no skin in the game" and that's a recipe for defaulting as soon as rates go up and who finances for 30 years and actually pays that original loan out to the end?

 

[Joe Flacco]

Rates going up is extra incentive to not default. The main reason people have not held mortgage for 30 years because rates have been in a long term down trend. A lot of these 3% mortgages are going to be held for 30 years.

 

[Joe Flacco]

I'm of the thinking that rates are always what it is supposed to be. Low rate = the right rate at the moment. High rate = the right rate at the moment. The rate is the rate.

 

[Terrel L. Shields]

The rate is the rate.

True if the rate was determined by a free market and not basically set by the FED.

 

[Joe Flacco]

You look at financials and it broke out of a 14 year base in 2021. Now it is retesting that breakout level. To me, this is a really great setup to buy financials to own for the next 5+ years.

Now if the financials do go higher what does that mean for the economy and probably real estate as well?

 

[Joe Flacco]

Same thing with home builders. Broke out of a 14 year base in 2020. Now it is coming back to retest the breakout level. Great setup to buy homebuilders maybe around $50.

If builders do go higher what does that mean for the economy and real estate?

 

[Fernando]

True if the rate was determined by a free market and not basically set by the FED.

You don't fight the FED. FED always wins.

 

[Terrel L. Shields]

Prices for homes are 4x that of when I started appraising. And is 60% higher than it was during the Great Recession. But wait! There's more...

Housing affordability hit a low this year in June.
Food prices OTOH rose slowly through the 50s-60s. The break point was 1973- the energy crisis and embargo. Food prices then rose at a steeper angle but very steady up through 2020. Now it is on a trajectory that is insanely unsustainable. Gasoline prices were falling but signs are that the fall is flattening out and may start to rise as the formulation changes for winter driving and winter heating oil cuts into gasoline production. And diesel prices actually reversed and are rising for the last 3 weeks or so.

You don't fight the FED. FED always wins.

And if we eliminated the Fed? Who would set the rate? When LTCM went kaput with Russian bonds in 1998, who stepped in to bail them out? The Fed? Or, was it the banks and folks like Warren Buffet?

 

[Joe Flacco]

You guys are just having difficulty interpreting what the data is saying.

Interest rates trending higher is a very good sign for the economy. 50's is the last time when rates cross over above the moving average and began trending higher. Go back and look at the trend in rates, GDP growth rate, the stock market, real estate prices, whatever. Rates moving higher is indicative of a strong economy.

When rates were in a long term downtrend (below the moving average) it is doing that because it is in propping up the economy mode. It was not doing that because the "Fed was artificially keeping rates low". It was doing that because that is what the economic conditions dictated based on declining GDP growth rate since the 80's. Trending higher (above the moving average), it is in contain excessive growth mode.

It feels scary or strange because the big picture economic conditions have changed suddenly after 50 years but it is wrong to be afraid of an uptrend in rates.