Mortgage Rates


#81

Yardeni fwd P/E = 20 - 10-yr TB = 17.29 (13.47 for AAPL, how come AAPL is declining?)
Yardeni ttm P/E =1/10-yr TB = 36.9 (18.13 for AAPL, how come AAPL is declining?)


#82

Stock market yield needs to be substantially higher than treasury to compensate for risks. Historically the risk premium is about 7%. That means if treaury yields 2.7% stocks should yield 9.7%. If not some players will conclude stocks are not worth the extra risks and will buy bonds and sell stocks.


#83

I’m not sure we’ll get the inflation everyone thinks. Tax reform is a huge savings which will offset higher wages. That means inflation should stay relatively low. I think the bigger risk is the economy stalling, because we can’t find people for the 6M open jobs. Companies need to hire those people to keep growing.


#84

You’re reading 1950s textbook? Graham’s books?


#85

That’s from my corporate finance textbook from 2016. Actually it’s the premium over 3 month T-Bill rate, not 10 year.


#86

3mo yield is much lower than 10-year.


#87

T-bill is now about 1.4%. If you add that 7.2% to it that means stock should yield 8.6%.

1/0.086 = 11.6. That’s the implied stock market PE.


#88

1.42% + 7.2% = 8.62%
1/8.62% = 11.60 for P/E (ttm).
Sound like for DJ dogs.
Guess applies to AAPL since it is in DJ :frowning:


#89

I didn’t follow what you said. On the personal level, tax reform gives them a boost on disposable income. Higher wage will give them additional disposable income. How can they offset each other?

On the corporate side, tax reform gives them more profit and wage increase will be smaller than profit increase. Therefore, shareholders will be richer from dividend and appreciation.

This suggests inflation domestically. China’s cost is going up so supply side inflation is also there.


#90

Product pricing is proportional to labor cost not disposable income.
Since businesses didn’t need to increase labor cost hence no need to increase product price, mean no inflation.
Increased disposable income means can buy more stuffs :slight_smile: (not the limited supply houses, please) hence good for businesses :rofl:


#91

Inflation comes from corporations increasing prices. When wages increases, companies typically have to increase prices. This time companies are getting a tax cut which lowers an expense to offset the cost of higher wages. If companies pay higher wages without increasing prices, then there’s no inflation. It’ll be a true increase in the standard of living.


#92

Are you suggesting tax policy make businesses adjust margin? They do that?
Increase wages would increase the cost of producing a product. If they keep price steady, is effectively reduce margin.


#93

So an increase of disposable income could cause a major inflation in asset prices and also the cost of priclvate schools. Home buyers will be wiling and able to bid more. Parents would go for the waiting list for private schools and the school increase tuition based on the length of waiting list.

Some businesses price based on the maximum acceptable price. They can get higher profit with a higher price and a flat labor cost


#94

No. I’m saying the lower gross margin is offset by less taxes. So at the bottom, the net margin should be about the same without having to increase prices. Long-term, S&P 500 gravitates to an 8% net profit margin.


#95

Damn, need to hurry up before rates go through the roof!!!


#96

#97

But for what it’s worth, CoreLogic doesn’t see much of a correlation between mortgage rates and home prices and sales.

“If you look at the relationship between [mortgage] rates and [home] sales and home prices, the relationship is almost zero,” said Sam Khater, deputy chief economist at CoreLogic. “That’s shocking to most people. Even real estate people and finance people, they don’t understand that.”


#98

https://www.federalreserve.gov/monetarypolicy/fomcminutes20180131.htm

I don’t think they increase rates in March.


#99

#100

Come on, I need to lock in a great rate!!!