On Monday August 15, 2011, Louis Cammarosano, General Manager of HomeGain, was a guest on the Real Estate Radio show on The Big Talker 1580 AM, hosted by Ryan Sloper.
Listen to the show.
Part 1 (14:27)
Ryan notes the stock market volatility of the prior week. Ryan notes that mortgage interest rates are at record lows. Ryan talks about the cost of home ownership as being the primary determinate in home affordability and matching mortgage payments against rental payments. Ryan and Louis discuss the sales of US Treasuries in the prior week and note that demand for US Treasuries needs to remain high to keep interest rates low. Louis notes that demand for Treasuries needs to be created by the Fed and to be coordinated by the Fed with foreign sovereigns who finance their US debt purchases by taking out debt of their own. Louis notes that interest rates are being kept low artificially. Ryan notes that China is continuing to purchase US Treasuries while Russia is scaling back. Louis notes that China is sort of forced to buy US Treasuries so that the US can pay their interest payments. Louis notes that China and Russia are also purchasing hard assets, including silver and gold. Louis notes that Alan Greenspan recently commented that the US will never default on its obligations because it can always print money. Louis notes that Greenspan’s comments do not reflect encroaching senility but rather his position of no longer being the Fed chairman and notes that Bernanke holds the same view. Louis notes that the US will pay its debt even if they have to print the difference and notes that such a manner of payment is default by inflation rather than default by non payment as the currency so printed up is worth less. Louis notes that getting a low interest rate mortgage now is a benefit in that the dollars used in the future to pay off the mortgage will be worth less. Ryan notes that when markets are volatile, they rush to purchase US Treasuries. Louis notes that the reason there is volatility is because people are concerned about the US economy and the dollar and that ironically their investment decision is to purchase US Treasuries. Ryan notes that he would buy gold or silver as a safe haven rather than US Treasuries. Louis notes that the rate on US Treasuries is lower that the rate of inflation. Louis notes that while we can’t predict the direction of interest rates, we know that rates can only fall from 4% towards zero but they can rise many points higher. Ryan notes that the Fed thinks there is no inflation. Louis notes that there is inflation in the money supply and that it has already found its way into higher prices of commodities but not necessarily in the price of all finished goods. Louis notes that this stance gives the Fed cover to do QE3 and QE4. Louis notes that we are already seeing QE3 as the Fed is reinvesting the interest in the bonds they purchased during QE1 and QE2 back into US Treasuries