Wednesday, October 16, 2013

This Housing Market Has Got to Fail

"We've seen redemptions of bond funds. I, for my life, can’t see how at this point in time the Fed pulls back on their bond buying because rates would just go crazy (to the upside).

The jobs numbers that came out in the last two months, you know we averaged about 130,000 (jobs) when they adjusted July down, and August was kind of so-so -- and you can drive a truck through the numbers anyway. It’s my suspicion that there are a lot of the jobs are part-time jobs, and so I think we have a really weak economy here.

And if they do taper, and rates go higher, we already have a crushing situation in housing, where literally the cost of buying a house on a monthly basis, i.e. the interest rate cost, the principal cost, and the cost of the house has gone up 10% or 15%, is up (in total) 50% year-over-year. And nobody’s income is up 50%. I would be surprised if it’s up 2%. In fact, it’s probably down with the increase in social security taxes.

So this housing market has got to fail. The Fed knows this. The charges against the US Treasury are rising as rates are rising, which means the deficit is going to go back up. I wrote a paper, I guess it was about three or four months ago, asking, has the Fed lost control of the interest rate markets? And I suspect they have."

- Eric Sprott via King World News: