re: 10 yr yield going to 5%

quote:

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How so?

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He's claiming that the Shelter component of CPI is far too high, thus he believes inflation is a bit lower than what CPI shows.

The problem is that the Shelter component of CPI essentially double-dips on rents to come up with its value. What I mean by that is instead of using assessed values, area home sales or even mortgage payments to determine home values (1/3 of the Shelter category), they use OER (Owner's Equivalence of Rent). This is looking at home values through a lens of "what would this homeowner be paying in rent to live in this home in region". Rents fluctuate a LOT slower than home prices (especially when you have the low mortgage rates of the last decade+). As home prices are still inflated in many place, even though rent is catching up, the average mortgage is still higher than the average rent (this is just looking at the national average, it can swing wildly once you get more local).

The impact that it's had on Shelter is to skew that number lower while home prices were skyrocketing and rent was not. Now that home prices are starting to come down (slowly) and rents are starting to rise, OER is going to skew Shelter upward.

He's dead on about the yield curve though.



The Fed's "soft landing"...