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Pretty much everyone is saying that interest rates are going up in the US and are going to go up soon. Alan Greenspan just came out today saying people are goin

by soperj 10y ago

Pretty much everyone is saying that interest rates are going up in the US and are going to go up soon. Alan Greenspan just came out today saying people are going to be surprised how quickly they go up.

lps41 10y ago
Why does Alan Greenspan's opinion have any weight? He is not in any kind of position to have control over rates.
- soperj 10y ago
  No, but since he worked in that position for years, he might have some kind of insight?
  - talmand 10y ago
    Insight on how to be incredibly wrong on a housing bubble?
    - soperj 10y ago
      Easy to say in retrospect. Wrong like nearly everyone else.
      - erichocean 10y ago
        Or you could say, nearly everyone else was wrong as a result of him being wrong.
      - axlprose 10y ago
        Saying "nearly everyone" was wrong and blindsided by it is a bit of a stretch. Not everyone that saw it coming profited from it big like the now fabled protagonists in The Big Short. But to people who chose to pay attention to it, the issue was known and well publicized ahead of time: https://youtu.be/tZaHNeNgrcI https://youtu.be/tZaHNeNgrcI https://youtu.be/kFd8YluIVG4 https://youtu.be/kFd8YluIVG4 The key to 'seeing it coming' of course, is to first willingly accept the possibility that something might happen, and then actually look into it. The issue was that many people were just not entertaining the possibility at all, and therefore not bothering to look into it. The information was all there for anybody to see, but this was a case of people missing the gorilla in the room because they were too busy paying attention to the game[0]. [0] http://www.livescience.com/6727-invisible-gorilla-test-shows-notice.html http://www.livescience.com/6727-invisible-gorilla-test-shows...
      - EdHominem 10y ago
        Nobody with any experience was surprised by the housing collapse. The only people I know who were surprised (in the financial industry and out) were people who've honestly never considered the numbers for even a minute. Housing prices have to track rent, to some degree, and vice-versa. One of them will change to match the other and wages were not going up... All the ARMs and layers of CDOs are irrelevant. They multiplied the results but didn't change the underlying issue. Leverage doesn't help you when the fulcrum shifts.
- __jal 10y ago
  He should know: he's probably the individual with the single largest share of responsibility for the housing crisis. Not to mention responsibility for setting up with swindle that is currently used as an excuse by those who want to feed Social Security to the ibankers.
JimboOmega 10y ago
I think everyone would like for them to go up, but I haven't seen any real reason why it might happen. The rich world has been stuck in very low interest rates for a long time. (Edit since I'm fixing a typo: Look at the treasury yield curve. Has it gotten steeper, which would indicate an expectation of rising rates? No. The 30 year rate has been falling the last few years.)
- iofj 10y ago
  Bloomberg had 2 large bank executives complaining very publicly on the low interest rates and advocating having the FED raise rates over the weekend. Here's one, I can't find the other: http://www.bloomberg.com/news/videos/2016-08-19/macquarie-s-shvets-fed-should-move-quickly http://www.bloomberg.com/news/videos/2016-08-19/macquarie-s-... Lots of pension funds have been destroyed (but the Fed doesn't care, and the ECB even less), and banks are not far behind. Soon the choice will be raise rates or face bank bankruptcies. My money's on that they'll raise rates and just let the many, many over-indebted companies refinance or go bankrupt.
pessimizer 10y ago
It's important to mention that they've been saying that for 7 years now, and that Alan Greenspan has been wrong about everything. We haven't even been able to get inflation up past 1.7%.
- jazzyk 10y ago
  Agree on Greenspan, but do you really believe that the inflation rate has been 1.7%? Actual inflation is estimated to be anywhere from 3-7%, depending on the source. The Fed, setting interest rates way below the actual inflation, is actually taking money from savers and retirees (rather than rewarding them), or forcing them to be reckless with their money by investing in principal-at-risk investments (which they should not at their age)
  - JimboOmega 10y ago
    What source is that? The ones that don't say inflation is 1.7%? I'd like to point out as the other poster did that you shouldn't look at housing in development constrained areas (though that's a very interesting sidebar to the whole thing - how much of development constraint exists to prop up housing prices)? Incidentally "official" inflation in the SF Area is 2.7%, still not 3-7%. (http://www.bls.gov/regions/west/news-release/consumerpriceindex_sanfrancisco.htm http://www.bls.gov/regions/west/news-release/consumerpricein...)
  - hx87 10y ago
    If you live in a growing but development-constricted city, housing inflation alone would bring your personal inflation rate above 3%, but besides that (e.g. if you live in Houston) the prevailing inflation rate is still low.
chollida1 10y ago
> Pretty much everyone is saying that interest rates are going up in the US and are going to go up soon. I wouldn't say that. According to Bloomberg's interest rate predictor the probability of a hike before the end of the year, ie the definition of soon, is less than 50%. Even if you go out to the end of 2017 you still only get to 67% probability of a fed hike. And 67% is a far cry from "pretty much everyone". And even with all of that, the most predicted rate hike is a minuscule 0.25% to 0.5%. Now, I agree that this is all up for debate and markets can definitely get this wrong, but I stand by my assertion that low rates are here to stay. I really don't think the years of 5-8% rates are coming back any time soon. But I'm always willing to change my mind if someone can convince me, so back to you.....What makes you think that this era of low rates is going to end?
- soperj 10y ago
  Interesting, I hadn't read the outcome of Wednesday's meeting. Prior to it the local Fed Chiefs were saying that they definitely expected one to two raises this year, and maybe as early as September. All rate hikes are usually minuscule, but they add up. 2 minuscule rate hikes would double the rate right now. One reason to raise rates is that they were set as low as they were for emergency purposes. The emergency itself is over, so time to start increasing them a little.
  - eli_gottlieb 10y ago
    We've been hearing about rate hikes Real Soon Now for more than a year now. Have they actually happened? I haven't heard of any.
    - soperj 10y ago
      There was one in December. They paused because Brexit actually happened.
- randyrand 10y ago
  nice definition of 'soon' you pulled out of your ass.
Chirael 10y ago
Here's a link to the Greenspan interview: http://www.bloomberg.com/news/audio/2016-08-18/a-closer-look-with-arthur-levitt-alan-greenspan-audio http://www.bloomberg.com/news/audio/2016-08-18/a-closer-look...
jacobn 10y ago
I don't know if interest rates will go up or not, but when rates do go up, they can be swift. The Adjustable Rate Mortgages offered by for example First Republic Bank are referenced to one-month LIBOR, and it went from 1.11% in May 2004 to 5.11% in May 2006, i.e. 4%-points in 2 years. On a $1M mortgage, that's $40k per year in swing over two years (typically deductible, so you'd have to factor in your marginal tax rate to get effective cost). http://www.macrotrends.net/1433/historical-libor-rates-chart http://www.macrotrends.net/1433/historical-libor-rates-chart

by soperj 10y ago

lps41 10y ago

Why does Alan Greenspan's opinion have any weight? He is not in any kind of position to have control over rates.

soperj 10y ago
No, but since he worked in that position for years, he might have some kind of insight?
- talmand 10y ago
  Insight on how to be incredibly wrong on a housing bubble?
  - soperj 10y ago
    Easy to say in retrospect. Wrong like nearly everyone else.
    - erichocean 10y ago
      Or you could say, nearly everyone else was wrong as a result of him being wrong.
    - axlprose 10y ago
      Saying "nearly everyone" was wrong and blindsided by it is a bit of a stretch. Not everyone that saw it coming profited from it big like the now fabled protagonists in The Big Short. But to people who chose to pay attention to it, the issue was known and well publicized ahead of time: https://youtu.be/tZaHNeNgrcI https://youtu.be/tZaHNeNgrcI https://youtu.be/kFd8YluIVG4 https://youtu.be/kFd8YluIVG4 The key to 'seeing it coming' of course, is to first willingly accept the possibility that something might happen, and then actually look into it. The issue was that many people were just not entertaining the possibility at all, and therefore not bothering to look into it. The information was all there for anybody to see, but this was a case of people missing the gorilla in the room because they were too busy paying attention to the game[0]. [0] http://www.livescience.com/6727-invisible-gorilla-test-shows-notice.html http://www.livescience.com/6727-invisible-gorilla-test-shows...
    - EdHominem 10y ago
      Nobody with any experience was surprised by the housing collapse. The only people I know who were surprised (in the financial industry and out) were people who've honestly never considered the numbers for even a minute. Housing prices have to track rent, to some degree, and vice-versa. One of them will change to match the other and wages were not going up... All the ARMs and layers of CDOs are irrelevant. They multiplied the results but didn't change the underlying issue. Leverage doesn't help you when the fulcrum shifts.
__jal 10y ago
He should know: he's probably the individual with the single largest share of responsibility for the housing crisis. Not to mention responsibility for setting up with swindle that is currently used as an excuse by those who want to feed Social Security to the ibankers.

JimboOmega 10y ago

I think everyone would like for them to go up, but I haven't seen any real reason why it might happen. The rich world has been stuck in very low interest rates for a long time. (Edit since I'm fixing a typo: Look at the treasury yield curve. Has it gotten steeper, which would indicate an expectation of rising rates? No. The 30 year rate has been falling the last few years.)

iofj 10y ago
Bloomberg had 2 large bank executives complaining very publicly on the low interest rates and advocating having the FED raise rates over the weekend. Here's one, I can't find the other: http://www.bloomberg.com/news/videos/2016-08-19/macquarie-s-shvets-fed-should-move-quickly http://www.bloomberg.com/news/videos/2016-08-19/macquarie-s-... Lots of pension funds have been destroyed (but the Fed doesn't care, and the ECB even less), and banks are not far behind. Soon the choice will be raise rates or face bank bankruptcies. My money's on that they'll raise rates and just let the many, many over-indebted companies refinance or go bankrupt.

pessimizer 10y ago

It's important to mention that they've been saying that for 7 years now, and that Alan Greenspan has been wrong about everything. We haven't even been able to get inflation up past 1.7%.

jazzyk 10y ago
Agree on Greenspan, but do you really believe that the inflation rate has been 1.7%? Actual inflation is estimated to be anywhere from 3-7%, depending on the source. The Fed, setting interest rates way below the actual inflation, is actually taking money from savers and retirees (rather than rewarding them), or forcing them to be reckless with their money by investing in principal-at-risk investments (which they should not at their age)
- JimboOmega 10y ago
  What source is that? The ones that don't say inflation is 1.7%? I'd like to point out as the other poster did that you shouldn't look at housing in development constrained areas (though that's a very interesting sidebar to the whole thing - how much of development constraint exists to prop up housing prices)? Incidentally "official" inflation in the SF Area is 2.7%, still not 3-7%. (http://www.bls.gov/regions/west/news-release/consumerpriceindex_sanfrancisco.htm http://www.bls.gov/regions/west/news-release/consumerpricein...)
- hx87 10y ago
  If you live in a growing but development-constricted city, housing inflation alone would bring your personal inflation rate above 3%, but besides that (e.g. if you live in Houston) the prevailing inflation rate is still low.

chollida1 10y ago

> Pretty much everyone is saying that interest rates are going up in the US and are going to go up soon. I wouldn't say that. According to Bloomberg's interest rate predictor the probability of a hike before the end of the year, ie the definition of soon, is less than 50%. Even if you go out to the end of 2017 you still only get to 67% probability of a fed hike. And 67% is a far cry from "pretty much everyone". And even with all of that, the most predicted rate hike is a minuscule 0.25% to 0.5%. Now, I agree that this is all up for debate and markets can definitely get this wrong, but I stand by my assertion that low rates are here to stay. I really don't think the years of 5-8% rates are coming back any time soon. But I'm always willing to change my mind if someone can convince me, so back to you.....What makes you think that this era of low rates is going to end?

soperj 10y ago
Interesting, I hadn't read the outcome of Wednesday's meeting. Prior to it the local Fed Chiefs were saying that they definitely expected one to two raises this year, and maybe as early as September. All rate hikes are usually minuscule, but they add up. 2 minuscule rate hikes would double the rate right now. One reason to raise rates is that they were set as low as they were for emergency purposes. The emergency itself is over, so time to start increasing them a little.
- eli_gottlieb 10y ago
  We've been hearing about rate hikes Real Soon Now for more than a year now. Have they actually happened? I haven't heard of any.
  - soperj 10y ago
    There was one in December. They paused because Brexit actually happened.
randyrand 10y ago
nice definition of 'soon' you pulled out of your ass.

Chirael 10y ago

Here's a link to the Greenspan interview: http://www.bloomberg.com/news/audio/2016-08-18/a-closer-look-with-arthur-levitt-alan-greenspan-audio http://www.bloomberg.com/news/audio/2016-08-18/a-closer-look...

jacobn 10y ago

I don't know if interest rates will go up or not, but when rates do go up, they can be swift. The Adjustable Rate Mortgages offered by for example First Republic Bank are referenced to one-month LIBOR, and it went from 1.11% in May 2004 to 5.11% in May 2006, i.e. 4%-points in 2 years. On a $1M mortgage, that's $40k per year in swing over two years (typically deductible, so you'd have to factor in your marginal tax rate to get effective cost). http://www.macrotrends.net/1433/historical-libor-rates-chart http://www.macrotrends.net/1433/historical-libor-rates-chart