The Fed

Well, I’ll admit, I was wrong. I thought the Fed was going to say, “We think the risks of inflation are greater than the benefits of lowering rates again,” and therefore not making any changes to rates. They didn’t. They dropped rates again (insert comment here about how this probably won’t mean that mortgage rates will drop) and they hinted that they are probably done lowering rates for a while.

“The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook remains high. It will be necessary to continue to monitor inflation developments carefully.
The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity.”
We’ll have to see what happens. As of the writing of this (2:30 pm – 15 minutes after the announcement) the market basically had no reaction.

I’ll continue to keep you informed, let me know how I can help.

GM reports $3.3 billion in 1st Quarter losses

Ouch.

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What’s the “Right” Home Price, Bill?

http://www.housingwire.com/2008/04/29/viewpoint-whats-the-right-home-price-bill/?utm_source=HW04292008&utm_medium=MailChimp

I've said it before, and this article on www.housingwire.com adds to it. The real estate market got out of line with the incomes. In some areas (Michigan) incomes fell, in other areas, prices rose too fast. Either way, they need to readjust in order for things to be healthy again.

It isn't going to happen overnight.

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Homeowner Vacancies Hit Record in First Quarter : Housing Wire

Homeowner Vacancies Hit Record in First Quarter : Housing Wire: “A total of 18.6 million properties sat vacant in the first quarter, up one million from year-ago totals”

This is from Paul Jackson at www.housingwire.com. The thing that I wonder is…..

Where did all those people go?

What do you think?

Can the Fed do more good by doing nothing?

Okay, how’s this for a scenario that could play out:

1. The Fed normally lowers rates to help the economy and combat weakness in the economy.

2. Lately, the Fed’s rate cuts have hurt the value of the dollar because it has increased the risk of inflation.

3. The fall in the value of the dollar is a large part of why oil prices have been going up (not all of it, but a large part of it).

4. The fact that oil prices have gone up has, without a doubt, hurt the economy. I know I can’t spend as much on other things because of how expensive gas is.

5. If the Fed’s rate cuts are hurting the value of the dollar, then it would hold true that if the Fed said, “We’re not going to cut rates now,” that would help the value of the dollar. The increase in the value of the dollar would cause oil prices to drop. A drop in oil prices would then help the economy.

So, there you have it. A scenario where the Fed, tomorrow, (or next meeting) holds rates the same and it does more to help the economy than if they lower rates.

What do you think?

Dollar weakness supporting oil prices – Apr. 29, 2008

Good credit, bad loans – Apr. 28, 2008

Good credit, bad loans – Apr. 28, 2008

Another story about a borrower who:
1. Didn’t understand the loan they were getting.
2. Couldn’t really afford the house they bought.
3. Felt pressure from “people” (Realtor? Lender?) to get this type of loan.

She was able to make it through, many aren’t so lucky.

If you don’t understand the loan terms, or you feel that someone is pressuring you, you need to back off, take a second look at things and make sure that you’re doing the right thing.

OPEC president sees $200 oil possible: report

http://mobile.reuters.com/mobile/m/FullArticle/CBUS/nbusinessNews_uUSL289112520080428

Okay, let me lay out a scenario before you:

1. The Fed lowers rates because of our mortgage crises.

2. The value of the dollar falls because of the perceived risk of inflation.

3. Oil prices go up because of the fall of the dollar.

4. The perceived risk of inflation becomes an actual risk of inflation.

Does this then force the Fed's hand to raise rates to fight inflation?

And if they did, would mortgage rates drop because of the lower inflation?

And what impact would that have on the financial markets?

Interesting stuff for early on a Monday.

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Looking at Greenspan’s Long-Lost Thesis – Barron’s Online

I found this article today. It’s a fairly long read and much of it is way over my head. A couple of interesting thoughts are quoted below…

Let me summarize:
1. Back over 30 years ago, Greenspan said that housing prices won’t always go up.

2. He was concerned at that point about a housing bubble, however he didn’t think it would be as bad as it is.

3. If Greenspan really did say that he was surprised by the fact that there was a housing bubble that burst, then he might have been dealing with a case of “selective memory.”

Looking at Greenspan’s Long-Lost Thesis – Barron’s Online: “We were tickled to find that the work’s introduction includes a discussion of soaring housing prices and their effect on consumer spending; it even anticipates a bursting housing bubble. Writes Greenspan: ‘There is no perpetual motion machine which generates an ever-rising path for the prices of homes.’

Greenspan, however, didn’t foresee a housing mania spilling into the general economy, toppling banks and brokerage houses and paralyzing key portions of the credit system. The worst he could anticipate was that a sharp ‘break in prices of existing homes would pull down the prices of new homes to the level of construction costs or below, inducing a sharp contraction in building.’ Back then, there were no home-equity lines of credit, derivatives or subprime mortgages. Mortgages were largely concentrated at savings and loans. Credit was harder to come by, too, because conventional mortgage rates were about 8.5% and headed significantly higher. Still, the thesis shows that the former Fed boss was focused on housing very early in his career. Thus, it casts doubt on his recent assertions about being surprised by the Mesozoic-era-size impact of this decade’s housing mania.”

Looking at Greenspan’s Long-Lost Thesis – Barron’s Online

I found this article today. It’s a fairly long read and much of it is way over my head. A couple of interesting thoughts are quoted below…

Let me summarize:
1. Back over 30 years ago, Greenspan said that housing prices won’t always go up.

2. He was concerned at that point about a housing bubble, however he didn’t think it would be as bad as it is.

3. If Greenspan really did say that he was surprised by the fact that there was a housing bubble that burst, then he might have been dealing with a case of “selective memory.”

Looking at Greenspan’s Long-Lost Thesis – Barron’s Online: “We were tickled to find that the work’s introduction includes a discussion of soaring housing prices and their effect on consumer spending; it even anticipates a bursting housing bubble. Writes Greenspan: ‘There is no perpetual motion machine which generates an ever-rising path for the prices of homes.’

Greenspan, however, didn’t foresee a housing mania spilling into the general economy, toppling banks and brokerage houses and paralyzing key portions of the credit system. The worst he could anticipate was that a sharp ‘break in prices of existing homes would pull down the prices of new homes to the level of construction costs or below, inducing a sharp contraction in building.’ Back then, there were no home-equity lines of credit, derivatives or subprime mortgages. Mortgages were largely concentrated at savings and loans. Credit was harder to come by, too, because conventional mortgage rates were about 8.5% and headed significantly higher. Still, the thesis shows that the former Fed boss was focused on housing very early in his career. Thus, it casts doubt on his recent assertions about being surprised by the Mesozoic-era-size impact of this decade’s housing mania.”

Looking at Greenspan’s Long-Lost Thesis – Barron’s Online

I found this article today. It’s a fairly long read and much of it is way over my head. A couple of interesting thoughts are quoted below…

Let me summarize:
1. Back over 30 years ago, Greenspan said that housing prices won’t always go up.

2. He was concerned at that point about a housing bubble, however he didn’t think it would be as bad as it is.

3. If Greenspan really did say that he was surprised by the fact that there was a housing bubble that burst, then he might have been dealing with a case of “selective memory.”

Looking at Greenspan’s Long-Lost Thesis – Barron’s Online: “We were tickled to find that the work’s introduction includes a discussion of soaring housing prices and their effect on consumer spending; it even anticipates a bursting housing bubble. Writes Greenspan: ‘There is no perpetual motion machine which generates an ever-rising path for the prices of homes.’

Greenspan, however, didn’t foresee a housing mania spilling into the general economy, toppling banks and brokerage houses and paralyzing key portions of the credit system. The worst he could anticipate was that a sharp ‘break in prices of existing homes would pull down the prices of new homes to the level of construction costs or below, inducing a sharp contraction in building.’ Back then, there were no home-equity lines of credit, derivatives or subprime mortgages. Mortgages were largely concentrated at savings and loans. Credit was harder to come by, too, because conventional mortgage rates were about 8.5% and headed significantly higher. Still, the thesis shows that the former Fed boss was focused on housing very early in his career. Thus, it casts doubt on his recent assertions about being surprised by the Mesozoic-era-size impact of this decade’s housing mania.”

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