It’s fixed!
Sorry for being offline for a large part of Friday. I was putting in place some upgrades along with a new style and we ran into some technical difficulties.
But we’re up and running again!
I’ll have more posts tomorrow. Thanks for your patience!
S & P 500 Stock Market Crashes
by Tom on October 31, 2008
in Market Musings
This chart brings up the importance of diversification…..
Thanks to Calculated Risk for the chart.
Are your investments properly diversified? Including the appropriate amount of investment real estate? Talk to Jeff Brown if you aren’t sure.
Personal spending slides – Oct. 31, 2008
by Tom on October 31, 2008
in Market Musings
Personal spending declined at a faster than expected rate in September, falling to its lowest level in more than four years, according to government figures released Friday.
The Commerce Department said personal spending decreased by 0.3% in September after stagnating in August. The measure has not been this weak since June 2004, when it fell 0.4%.
via Personal spending slides – Oct. 31, 2008
This is one of those reports that will, if market fundamentals are in place, put downward pressure on mortgage rates. We’ll have to see if that happens.
Tom
Mortgage Plan May Aid Many and Irk Others – New York Times
by Tom on October 31, 2008
in Market Musings
Some quotes from the New York Times article:
“Why am I being punished for having bought a house I could afford?” he asked. “I am beginning to think I would have rocks in my head if I keep paying my mortgage.”
No Mr. Lawrence, you’re doing the honest and ethical thing. You made an agreement, live up to it.
“If the lunch truly is free, the demand for free lunches will be large,” said Paul McCulley, a managing director with the investment firm Pimco.
There truly is no such thing as a free lunch. Someone, somewhere will have to pay for it.
“This is not about trying to create fairness,” said Michael H. Krimminger, special adviser for policy at the Federal Deposit Insurance Corporation, which is working with Treasury on the latest plan. “The goal is to keep people in their houses.”
Has anyone asked the question, “At what price do we keep these people in their homes?” What are the long term consequences of keeping people in homes that they shouldn’t have purchased originally? What are the consequences of providing subsidies to a certain section of our home owning neighbors without doing the same for everyone?
“If all of our neighbors are getting bailed out despite their own bad decisions, arrogance or ignorance, and we’re asked to keep playing by the rules for the sake of the greater good, I don’t want to participate,” Mr. Luker said.
That’s where these type of things get really difficult. How are we going to equitably determine who gets bailed out and who doesn’t?
I’ll write more about it later, but I believe we are going to see more and more of the term “unintended consequences.” We (collectively) meant to do _____ but instead this happened.
Tom
Happy Halloween!
by Tom on October 31, 2008
in Market Musings
Fed’s Yellen: “Economy Contracting Significantly”
by Tom on October 30, 2008
in Market Musings
"It appears likely that the economy is contracting significantly". Strong words from a Fed president. Q4 is going to be ugly.
via Calculated Risk: Fed’s Yellen: “Economy Contracting Significantly”
Home Value Denial: Not Just a River in Egypt : HousingWire
by Tom on October 30, 2008
in house prices
Half of U.S. homeowners live in a state of denial about falling home values, according to a third quarter homeowner confidence survey released Wednesday by real estate information providers Zillow.com. The survey found that while 74 percent of homes have lost value during the past year, a full 49 percent of homeowners said they believe their home had either maintained or gained value during that time.
via Home Value Denial: Not Just a River in Egypt : HousingWire
Jesse’s Café Américain: In 2009 the US Will Be Forced to Selectively Default and Devalue Its Debt
by Tom on October 30, 2008
in Market Musings
Once the deleveraging of the markets subsides, the dollar and Treasuries will drop, perhaps with some momentum, as the rest of the world realizes that the US has no choice but to default. This can be resolved in several ways, including continued subsidies from foreign sources in the form of virtual debt forgiveness, devaluation of the dollar, raising of taxes, and higher interest rates on debt.
via Jesse’s Café Américain: In 2009 the US Will Be Forced to Selectively Default and Devalue Its Debt
If I had time, I’d work through all of the details of what they are saying but let me summarize it briefly…..
1. All of this bailing out comes at a price.
2. Someone is going to have to pay that price eventually.
Now I’d like to think I’m wrong, but I think the question that people need to start asking is this:
Would I rather pay $350,000 for the house and finance it at 6.5% or pay $300,000 for it and finance it at 8?
Well, what would you rather do?
Mortgage Rates for October 30, 2008
by Tom on October 30, 2008
in Market Musings
Have been posted here.
Based on the rather gloomy forecast from the Fed (see it here) and the GDP report this morning, the normal fundamentals would have one believe that mortgage rates would be drifting downward because of:
1. An effort to stimulate growth
2. A lack of inflation.
However, due to the intricacies of today’s global economies, the global recession and the inter country slowdown in lending, the normal fundamentals aren’t working right now.
Until those fundamentals change, my recommendation would be:
1 Day – Lock
15 Day – Cautiously floating – in today’s financial markets, 15 days is a life time.
30 Day – Cautiously floating
Stay tuned and let me know how I can help.
GDP falls 0.3% in third quarter on dive in spending – MarketWatch
by Tom on October 30, 2008
in Market Musings
The U.S. economy contracted at a 0.3% annualized rate in the third quarter, as consumer spending declined at the fastest pace in 28 years, the Commerce Department estimated Thursday. The drop was close to economists’ expectations that the economy would shrink 0.5%. Final sales to domestic purchasers fell 1.8%, the largest decline in 17 years. Consumer spending dropped 3.1%, the first decline in 17 years and the biggest drop in 28 years, while business investment fell 1%. Investments in homes fell for the 11th straight quarter. Inflation-adjusted after-tax incomes fell 8.7%, the largest quarterly decline since the record-keeping began in 1947.
via GDP falls 0.3% in third quarter on dive in spending – MarketWatch
Well, it’s official. We’ve had our first quarter of negative growth. No more questioning whether the economy is even close to a recession.
Keep in mind though, that an official recession takes two quarters of negative growth and we won’t hit that until December is over.
A couple of other thoughts about this report:
1. The main engine behind economic growth has been the consumer’s willingness to whip out the plastic and keep spending. That appears to be fading as consumer spending had it’s biggest drop in 28 years.
2. Incomes fell by the largest amount since 1947.
If we can get to the point where the markets stay focused on the fundamentals, we’ll see these kind of reports pushing mortgage rates down.
Stay tuned,
