Trojan,
Thanks for taking the time to answer my questions. Although I don't fully agree with your thoughts about where we are headed in terms of China, future interest rates, and global recessoin, I do respect your opinion as I have been wrong in the past on my calls before. I would have never imagined that the severe stimulus program would inflate the DOW as high as it has to 18k. As I look at my track record for the past 10 years in commodities, forex, and macro investing, although my timing may not be the greatest, I do seem to get my longer term macro shifts and trends correct and I am very confident in my positions today.
We will have to watch the unemployment numbers in Orange County very closely as this will be our leading indicator. Once this the unemployment numbers in Orange County spikes, it will have a direct impact to the Orange County housing prices.
USCTrojanCPA said:
Panda said:
Trojan, So you think that 1) moderate/severe US/global recession 2) higher interest rates 3) China imploding are improbable. Can I please hear your logic on why you think these things happening is improbable in the next twelve months?
I don't think any of the 3 things that I pointed out are probable. We might get a shallow/mild recession in the next few years and rates might get back into the low-to-mid 4% range plus China can keep kicking the can longer than any of us will be alive. Rates today on a 30-year fixed are around 3.25% with the 10-year around 1.60%. I think the US growth will be around 2%/yr for the next decade (on average)....we will become Japan 2.0 with low interest rates and low growth as the majority of the population (baby boomers and gen Xers) continues to age.
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Sure, here are some of more of my thoughts...
1) I don't think we'll a get huge global recession because the powers that be (central banks) can keep kicking the can down the road longer than any of us will be alive by lowering interest rates and/or providing other stimulus. I think we've witnessed that here in the US first hand with our super low rates and QE programs.
2) The Fed can't raise rates much above where we are total because the US has way too much debt to service and most other countries are lowering their interest rates and the Fed doesn't want the dollar to get too strong. I think we have become a Japan 2.0 in many ways (slow growth and low interest rates). 10-year bond rates are down 1% from where they were in 2015 and 30-year mortgage rates are back in the low 3% range. I just don't see any catalyst driving interest rates higher (aka inflation) in the short and intermediate term.
3) Refer to my point 1 above.
I'm not saying everything is perfect and we might not get a recession which will result in small price declines, but I just don't see how we get 10-15% price declines barring any of the 3 things that I mentioned happening. Loans have been fully underwritten for the past 7+ years since the meltdown and the past 5-7 years of buyers have been stronger and put more money down on average on their purchases (aka less weak hands out there if price declines do come).
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