The Long Term Investor

We are just going to have to live with severely distorted inflation data over the coming months. The increase in the price of oil and related products will impact inflation readings......as will prices of anything that is sensitive to oil pricing. Of course anything that travels by truck or any other method that is impacted by gas prices will also impact inflation.

I am sure the financial media will fear monger future inflation reporting.....but....with what is going on in the world, it will simply be impossible to know what the TRUE rate of inflation really is. We are just going to have to sit out the next 6-12 months without getting too crazy.

 

Yeah....no fun to sell during a real estate crash.

Of the ten homes we have owned....we sold three times during a crash. Or....I should say....tried to sell. The first time it took us about two years to get a sale.

The WORST was during the 2008/2009 economic and real estate collapse. It took us three years to sell. We did not have to sell but we wanted to move to the Austin area and knew we could get a really good price due to the collapse. The bad news was that we had to sell in that environment to get the good price buying on the the other end.

The third time we sold in a poor market was in Redmond, Wa. We were pushing to get our house on the market.....just after we did........the Federal government sued Microsoft for antitrust. That really impacted our extremely high end home about 5-10 or so miles from the Microsoft HQ. It took us about a year and a half to get a sale. We still made money but only about 20% for eleven years of ownership. We already owned our property in Texas.....so we just moved anyway.

During our lifetimes there have been THREE times that we have bought a home........while still owning the old house. Not a fun thing....although we were able to d it.

 

Here is one bit of good news from the INVASION.

Mortgage rates plunge just as home prices set another record

https://www.cnbc.com/2022/03/01/mortgage-rates-plunge-just-as-home-prices-set-another-record.html

(BOLD is my opinion OR what I consider important content)

"Key Points

• The average rate on the popular 30-year fixed mortgage had risen close to a full percentage point from the start of this year up until last Friday, when it hit 4.18%, according to Mortgage News Daily.
• It hit 3.9% on Tuesday.
• This will give homebuyers more purchasing power as the historically busy spring season kicks off. It will also keep record high home prices continuing on their run higher.

Mortgage rates are sinking as markets contend with the ramifications of Russia’s attack on Ukraine, and that means home prices are likely to continue surging.

The average rate on the popular 30-year fixed mortgage had risen close to a full percentage point from the start of this year up until last Friday, when it hit 4.18%, according to Mortgage News Daily. It then fell to 4.04% Monday and 3.9% on Tuesday. That is the largest two-day drop since March 2020, the start of the pandemic.

This will give homebuyers more purchasing power as the historically busy spring season kicks off. It will also keep record high home prices continuing on their run higher. Prices in January were 19.1% higher year over year, according to a report released Tuesday by CoreLogic. That level of growth is the highest in 45 years, when CoreLogic began tracking prices.

“In December and January, for-sale inventory continued to be the lowest we have seen in a generation,” said Frank Nothaft, chief economist at CoreLogic. “Buyers have continued to bid prices up for the limited supply on the market.”

Nothaft added that the rise in mortgage rates since January eroded buyer affordability, and that price growth should slow in the coming months, but that all depends on how long this drop in rates continues. It could be brief, given the other factors weighing on the mortgage market unrelated to the Ukraine crisis.

Mortgage rates loosely follow the yield of the U.S. 10-year Treasury, which on Tuesday fell to the lowest level since late January. Markets are experiencing volatility because of Russia’s invasion of Ukraine.

For now, the move in Treasurys is causing the pullback in mortgage rates. But mortgage rates are governed more directly by demand for mortgage-backed bonds. Those bonds often mimic the 10-year, but not always, and now is one of those not-always times.

Unlike Treasurys, MBS duration can vary depending on demand for refinancing. A 30-year fixed loan rarely lasts 30 years. If people are refinancing or selling their homes faster, then the bond term doesn’t last as long. Given higher rates now, and more opportunity for refinancing, the current crop of MBS isn’t expected to last much more than five years, according to Matthew Graham, chief operating officer of Mortgage News Daily.

Over the past three months, 5-year Treasurys have risen 0.10% more than 10-year Treasurys. Because mortgage bonds behave more like the shorter-duration 5-year Treasury note, they’ve had a tougher time keeping pace with the 10-year.

“The outlook for Fed bond buying is also hurting MBS more than Treasuries because the Fed accounts for a larger percentage of total buying demand of new MBS,” Graham said. “So if the Fed leaves (which it is in the process of doing), MBS prices have to fall farther to attract buyers. Lower MBS prices = higher rates, all other things being equal.”

Given geopolitical tensions now, however, there has been more demand for short-term debt, and so mortgage rates are keeping better pace with the broader bond market. The question is how long will that be the case, and the answer depends on what happens in Ukraine and beyond."

MY COMMENT

YES......the little dip in the yield of the Ten Year Treasury is giving home buyers a reprieve on the higher mortgage rates. This will probably contribute to the Spring buying frenzy as potential buyers rush to try to find a house while the rates are still lower.

 

You are doing very well this year....gtrudeau88. You must have a portfolio that tracks the opposite of ALL the averages.

 

I ended in the RED today as anticipated. the only good news for me is the fact that I managed to beat the SP500 today by 0.20%.

I had a single stock in the green today......Costco. Probably due to the fact that they report this week on Thursday after the close. So this might reflect a little bit of a run up before earnings.

 

I am not sure....but....today might be the best open we have had since the invasion. The Ten Year Yield is way down in the 1.7% range and stocks are very nicely in the green today. As usual.....this means nothing since we have to get through the normal mid morning weakness and hang on till the close. Nothing new going on and nothing new in the financial news. Same old.....same old.

 

I like this little article.

Ukraine’s Fog of War and the Correction
A clear-eyed look at the latest developments in Ukraine.

https://www.fisherinvestments.com/en-us/marketminder/ukraines-fog-of-war-and-the-correction

(BOLD is my opinion OR what I consider important content)

"Filtering information is one of investors’ most important tasks. It is hard enough in the best of times, but right now, the fog of war is making it all but impossible—and we aren’t talking about the myriad reports of fake images and video footage coming out of Russia and Ukraine. The fog is also engulfing a lot of the economic commentary, obscuring a clear assessment of developments’ impacts over the weekend and on Monday and stoking a lot of this time is different-style commentary. But as tough as it may be to see, we don’t think much has changed for investors since our discussion of sanctions late last week. The latest measures still don’t inflict enough damage to wallop global markets.

Yes, we know the US, UK and EU agreed to expel some Russian banks from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network, which facilitates international financial transactions. We know this theoretically complicates Russian banks transacting with the developed world, effectively freezing commerce and overseas assets even for entities that aren’t under sanctions. And we know several Western leaders have referred to this, however unfortunately, as the “nuclear option.” Now they are patting themselves on the back, promising their actions will create a deep Russian recession.

Perhaps. But there are reasons to doubt this outcome will be so clear. That isn’t an ideological statement, mind you, nor a political one. Rather, our job is to assess these things coolly and rationally, as markets do. Those who argue the SWIFT expulsion will kneecap Russia’s economy point to the deep economic pain in Iran after US sanctions effectively barred all Iranian banks from SWIFT. Thing is, those sanctions included measures targeting Iran’s oil and gas exports, which is what actually crippled Iran’s economy. So far, the West has done no such thing to Russia—the SWIFT ejection applies only to some (heretofore unspecified) banks, meaning there are other banks that still have access and can process oil and gas transactions. Some officials told the press Monday that they are doing so to avoid interfering with the oil trade.

This, of course, is to ensure Russian oil and gas continues flowing to Continental Europe, which relies on that supply. But it also ensures the source of half of Russia’s government revenues is alive and well, which limits a lot of the potential economic damage. Beyond that, SWIFT isn’t technically a money transfer system; rather, it is a messaging system. Messages accompany wire transfers, a key component in informing the receiving bank of the intended recipient and other key information. SWIFT is overwhelmingly the most commonly used messaging system globally. But it isn’t the only game in town. To maintain access to international markets, Russian banks could use antiquated analog technology like Telex. Or they could use Russia’s relatively new SWIFT alternative, enabling them to use banks in China and elsewhere as conduits. Annoying thing about sanctions: There will always be nations willing to help a pariah state skirt them for a small fee.

Fine print should render the weekend’s other big measure much weaker than advertised: the ban on transacting with Russia’s central bank. The idea: strand Russia’s huge foreign currency reserve war chest abroad, so that the Central Bank of Russia (CBR) can’t use it to prop up the ruble. Propping the ruble would require the CBR to sell its foreign currency assets and buy rubles on the international market with the proceeds, which is now theoretically off the table. This, too, will allegedly trigger a Russian currency collapse, bank run and deep recession.

That is a possible outcome, of course. But is it likely? Due to Europe’s aforementioned reliance on Russian fossil fuels, there is an exemption for all entities processing payments for imported Russian oil and gas. That means Russia doesn’t need to repatriate its overseas assets to get the hard currency necessary to stabilize the ruble. It can just sell a boatload of oil and gas, then convert the euros and dollars it receives as payment to rubles—through a third-party nation, if need be. Incidentally, this argues against oil and natural gas prices soaring from here. If anything, Russia’s need for hard currency could motivate it to ramp up supply, helping prices stabilize.

Another thing: Russia has diversified its foreign currency holdings significantly in recent years. Russia’s US Treasury holdings have gone from over $100 billion in 2017 to too small to report by 2020. The dollar was about 46% of its war chest in 2017, according to the CBR’s data.[ii] As of last June, the latest figure available, it was down to 16%.[iii] It could be lower still by now, if the CBR took pre-emptive measures ahead of the long-planned invasion. Meanwhile, the yuan is now 13% of its reserves, and gold is up to 22%.[iv] Between the diversified reserves and the steady incoming stream of hard currency as payment for energy, we think Russia probably has more firepower than most commentary suggests.

It is true that markets had a sharply negative reaction to this weekend’s developments. Russia’s stock market was closed, but Russian companies listed on the London Stock Exchange tanked. So did the ruble, although the CBR’s huge rate hike seemed to help at least temporarily. Yet be very, very careful about extrapolating one day’s market movement into a financial crisis. Just putting our thinking caps on, but we have a hard time seeing why the partial SWIFT ejection or forex lockup would trigger an honest-to-goodness bank run—like, the actual Panic of 1907 kind of bank run, not a few dozen people in line at an ATM because they read a scary article. Neither factor affects domestic banking transactions. Russia’s economy isn’t dollarized. The CBR can provide unlimited liquidity in rubles if need be. We aren’t arguing this will be painless, but those claiming a bank run will bring Putin’s downfall and the war’s end risk believing in a fantasy—not least because they are perhaps being a bit too naïve about who would take over.

Every stock market correction (sharp, sentiment-fueled drop of -10% to -20%) has a this time is different scare story. That tone and narrative is why people have such a hard time staying cool and rational and believing market history can be a useful guide. When the stories are laced with wartime propaganda, it is probably five times as hard. For investors, it is vital to take a deep breath and put on your skeptic glasses. Read the fine print. Leave feelings out and assess the facts. In this case, we think you will see the facts support our opinion that this conflict remains too geographically limited, and the major players too small economically, to wallop global markets."

MY COMMENT

YES.....the sanctions are really toothless. They are riddled with loopholes and as long as we continue to buy oil from RUSSIA they are worthless. Just more political BS.......as usual.

BUT......who cares.....at least in terms of investing. For the average investor this event has had little to no impact. Now that we are into it by about eight days.....any future impact is washed out of the markets already.

 

Powell will be talking soon. Another irrelevant event today since it is ABSOLUTELY clear that the FED will begin to raise rates this month. I am fairly sure that the first raise will be 0.25%......as I have said for months. In the end....all the fear mongering about a bigger raise and more and more increases in 2022 will turn out to be NOTHING but the typical media fear mongering......and.....short term trader talk to drive their short term trades.

As usual......I am HAPPY to see rate increases begin. We need to move the rates out of the current hundred year low range. it is not healthy for the economy for rates to be that low.

 

Speaking of Powell.....and....in case there is anyone in the world that did not hear about this.

Fed's policy pivot on track despite 'uncertain' impact of Ukraine war, Powell says

https://finance.yahoo.com/news/feds-policy-pivot-track-despite-133000478.html

(BOLD is my opinion OR what I consider important content)

"WASHINGTON, March 2 (Reuters) - The Federal Reserve will move forward with plans to raise interest rates this month to try to tame high inflation, but the outbreak of war in Ukraine has made the outlook "highly uncertain" for U.S. central bank policymakers as they plan their next steps, Fed Chair Jerome Powell said on Wednesday.

In prepared remarks for his testimony to the U.S. House of Representatives Financial Services Committee, Powell reiterated the core Fed narrative that high inflation and an "extremely tight" labor market warrant higher interest rates.

"We expect it will be appropriate to raise the target range for the federal funds rate at our meeting later this month," Powell said, and that the Fed will follow that later this year with reductions to its roughly $8.5 trillion portfolio of government securities.

But in his opening statement to lawmakers Powell gave no hint about how far or how fast the Fed may need to go in its policy tightening, said Fed officials still expect inflation to ease later this year, and framed the start and conclusion of his remarks with the events unfolding in Ukraine.

The coronavirus pandemic's impact on the economy appeared to be easing, he said, hiring remains strong, and inflation had emerged as a chief risk.

Inflation "is now running well above our longer-run objective of 2%. Demand is strong, and bottlenecks and supply constraints are limiting how quickly production can respond," the Fed chief said. He added that those supply disruptions had been "larger and longer lasting than anticipated," and restated the Fed's promise to be as tough as necessary to bring prices back into line.

While some of those current inflation pressures are expected to ease later this year, "we are attentive to the risks of potential further upward pressure ... We will use our policy tools as appropriate to prevent higher inflation from becoming entrenched."

Yet Powell also acknowledged the new complexity the Fed faces from events in Europe that have the potential to both add to price pressures, but also to potentially undercut growth.

"The near-term effects on the U.S. economy of the invasion of Ukraine, the ongoing war, the sanctions, and of events to come, remain highly uncertain," Powell said. "Making appropriate monetary policy in this environment requires a recognition that the economy evolves in unexpected ways. We will need to be nimble in responding to incoming data and the evolving outlook."

IMPACT OF WAR

Persistently high inflation, now at triple the Fed's 2% target, has surprised policymakers who thought the run of fast price increases triggered by the pandemic would prove temporary.

Since last fall they've been debating what to do about it.

The central bank is expected to raise its benchmark overnight interest rate, currently set near zero, at its March 15-16 policy meeting. More rate hikes are expected throughout the remainder of this year, steadily increasing the cost of credit for consumers and businesses.

While high inflation remains the Fed's prime focus, Russia's invasion of Ukraine has added a new dimension to policymakers' analysis, with the potential to pull monetary policy in opposite directions. Inflation may be driven even higher, for example, with energy prices rising, and new limits around the movement of people and goods.

But global economic growth may take a hit just as U.S. and European governments were hoping the pandemic was easing to the point that the last restrictions on businesses, schools, and socializing could be dropped.

Should the war in Ukraine grind on or even broaden into a wider conflict, the Fed could be called on to keep global dollar markets stable, a job that might conflict with plans to shrink its asset holdings. (Reporting by Howard Schneider Editing by Paul Simao)"

MY COMMENT

I would rather see the FED act with moderation rather than try to be "nimble".

I also doubt that their rate increases will have much impact on inflation....considering the causes of the current inflation are demand pressures and supply issues.

In addition from my long experience investing and watching the economy I believe that their 2% target rate is EXTREMELY FOOLISH. That is a borderline DEFLATIONARY level. In the older days it would have been considered a normal strong economy to see inflation in the 3-4% range. My view is that that range......3-4%.....should STILL be the target for our economy.

 

It brings back memories to see the name Nordstrom's in the news today. When I lived in the Seattle area they were an ICONIC.......VERY UPSCALE......department store.

In fact they were instrumental in the creation of the Espresso business. They would set up an Espresso standt outside their downtown Seattle store every year in the winter. This was back in the days when there was NO espresso. My memory is that they would bring in as much as $500,000 over a winter season from that sidewalk espresso stand. Years later the espresso craze spread through the city and resulted in the creation of Starbucks.

They were like a Seattle version of Neiman Marcus. Their flagship store in downtown Seattle also had a piano player in the main gallery of the store playing a grand piano.

Of course.....they like Neiman....fell on hard times in more recent days......BUMMER.

Nordstrom shares surge 32% as shoppers return to Rack stores

https://finance.yahoo.com/news/nordstrom-shares-surge-32-shoppers-124239865.html

 

Way to go Emmett!!!!!!