Interest Rates Rising - 10 Year Treasury Hit 2.99%

Interest rates for the 10 year Treasury reached 2.99% yesterday and are now down to about 2.90%.  As I have written about earlier, rising rates crush economic activity.  For example, in housing mortgage rates have increased in parallel with the 10 year Treasury.  Since May national rates for a 30 year mortgage have increased from 3.40% to 4.56%.  http://www.bankrate.com/partners/wsj/#Mortgages

Rate Increase Makes Homes 15% Less Affordable

Annual payments for a $200,000 30 year mortgage at 3.40% are about $10,700.  If the rate is 4.56%, the annual payment increases by 15% to $12,400.  Another way to look at it is that an annual payment of $10,700 pays for a $175,000 mortgage at 4.56% instead of a $200,000 mortgage at 3.40%.  Unless you are paying all cash, home prices just increased about 15%.

And, here is a quick review of how rising rates impact corporate earnings:
http://www.zerohedge.com/news/2013-09-05/10-year-breath-away-300-just-50bps-left-until-disorderly-rotation

Argentina: Case Study in Currency Devaluation

Argentina is a case study in currency devaluation and inflation.  Over the last 5 years the official exchange rate for Argentina Pesos (ARS) to the USD has devalued about 40% from about 3.2 to 5.2 per USD.

This article by Bloomberg describes some interesting aspects of business in an inflationary environment.

• The black market exchange rate is double the official rate or 10 ARS to the USD.  Interestingly in Argentina the illegal market is called a blue market.  Seems that if everyone is doing something illegal it cannot be entirely dark.
• Auto sales are up 30% over 2012.  Argentines with ARS want to spend them before they devalue more.  And, Argentines with USD savings can exchange to ARS on the black market and buy that new car for half off.
• The government is trying to help local businesses by requiring companies to export the same value that they import to Argentina.  So the automobile companies are exporting agricultural commodities, which likely has the unfortunate consequence of increasing food prices in Argentina.
• The article states that Argentines are also purchasing gold without describing how.  The government must have controls in place to limit physical gold purchases and ownership.  Otherwise Argentine banks would have no deposits. 

http://www.bloomberg.com/news/2013-05-14/bmws-gaining-bitcoin-like-appeal-as-cpi-hedge-argentina-credit.html

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