Relative Resolutions

Another year come and gone.  Tonight I face the challenge of divulging my top three resolutions for 2016 to my friends and neighbors without the shroud of alcohol to mask my inadequacies (I don’t drink any other night either BTW, but just to be clear Bishop).  Usually I have a quantifiable thing or two rattling around the forefront of my noggin that’s politically correct and mildly ambitious enough to share on such an occasion.  Tonight I have nothing.  Like Whitney Houston from The Body Guard, “I Have Nothing”, nothing.  So I started thinking about perspective, and what I’d want for 2016 that wasn’t on track in 2015.  But last year was a great year and I have nothing to complain about.  So like the guy scratching his head in the above drawing, I took a step further back and thought about what’s better about our 2015 world than the 1915 world–and I did some research and crunched some numbers.  In 1915 the average white male could expect to live for 52 years, which means that I’d only have about 10 years left.  In 1915 only 14% of homes had a bathtub, 8% had a telephone, and the speed limit in most cities was 10 mph.  The average US worker made $0.33 per hour, the average car cost $2,005, and the average home cost $3,200.  The average dude would then need to trade almost 6,100 hours of work for a car and 9,700 for a home.  By contrast, the average hourly rate in the U.S today is $21.19, which is 1,474 hours for an average car and 8,381 hours for an average home.  Given the astronomical price of stuff these days, it is a surprising revelation to me that cars are 75% cheaper and homes are 14% more affordable in today’s world.  Not only that, but there are four bathtubs and four different phone numbers in my house today, and I get to keep the needle at 80 mph to keep up with freeway traffic. Which reminds me that one of my resolutions for 2015 was to get fewer speeding tickets–which I did, with a grand total of zero.  Mission accomplished. For 2016 I want to be more content and cultivate a grateful heart.  Not sure how to track that one, but it’s probably a good idea all things considered.  Here’s another one: I’d like to work fewer hours.  I am not sure how to track that one either but I think I’ll start by taking tomorrow off.  HAPPY NEW YEAR!


The Federal Housing Finance Agency shows that home prices rose 0.5% over the last monthly period, and 6.1% over the last 12 months.  Someone needs to tell that to appraisers, who assigned a value lower than the REPC price on four of my loans last Friday. So much for the spirit of giving.  Maybe it’s not a localized trend and that’s the reason why the number of Existing Home Sales dropped 10.5% last month.  Or maybe home buyers and their representatives have already checked out for the rest of the year like the Federal Reserve, who will not be making any more asset purcheses until 2016.

We are the Champions

To be perfectly clear, Freddie Mercury and Freddie Mac are not the same.  Freddie Mercury was born in 1946 in what is now Kenya, grew to maturity in India, and became the flamboyant front man of a British band; Freddie Mac was born in the minds of U.S. Congressmen in 1970 and has lived an equally-storied life just outside of Washington D.C..  Freddie Mercury died of Aids in 1991; Freddie Mac is still (much to the chagrin of many current U.S. Congressmen) alive and well.  Freddie Mac’s mission is to stabilize the mortgage markets and expand opportunities for affordable housing in the United States; Freddie Mercury’s mission was a little more simple than that: “We will, we will, rock you”.

Although the Fed hiked short-term interest rates on Wednesday, putting other bonds “Under Pressure” (my favorite Queen song) to increase, longer-term interest rates are driven by the over all rate of inflation and the broader economic outlook in general.  So not all loans jumped 1/4% this week; mortgage rates took the news quite well and have actually improves slightly over the last three days.  Freddie Mac forecasts a modest increase to mortgage rates for 2016, but says that they will be at “historic lows” through the next 12 months.  I agree with Freddie and say to homeowners across the state: “We are the Champions”.

All Quiet

I have never read this book or seen the movie so I am sorry if the title is offensive.  I’m feeling safe however since the cover of the book in my library growing up touted it as “the greatest war novel of all time”, one of the films was made in 1930, and the remake in the 70’s featured John-Boy Walton.  Anyway, the title seems fitting for today’s commentary because 1. it’s not snowing any more, and 2. the rate hike yesterday seems to have gone largely unnoticed by the equity and debt markets.  Like shooting a grizzly bear with a sling shot, the idea was terrifying and caused much debate as to the consequences, but the end result has been absolutely nothing.  So look out your window and enjoy this picturesque day.

Rates Rise, but not Rapidly

For the eighth and final time this year, today is Fed Day.  And for the first time since April 2006, the Fed raised rates today by 0.25%.  It’s the first time since October 2009 that they have even touched them–well, directly that is.  The Fed can only regulate their Fed Funds Index, which up until two hours ago had been at zero for the last seven years.  Other than that, the Federal Open Market Committee ordinarily relies on hints and pointed observations to sway investor capital in and out of investments that drive interest rates on the longer-term loans. They of course also buy and sell billions of dollars worth of various debts every month to regulate the flow of money.

In her prepared statement this afternoon, Janet Yellen said that the Fed will remain accommodative, and reiterated their plan for a “gradual rise” in rates.  Stocks are up about 1.5%, and Bonds are flat after the well-anticipated announcement.


Prior to tomorrow’s Fed announcement with regard to the future of short-term interest rates, pricing on long term bonds such as mortgages have spiraled downward and are now at the lowest levels since last July.  High-risk bonds (AKA: junk bonds) have seen the greatest decline by far.  As these assets continue to decline in value, they could either drag down mortgages with them, or we could see monies from the sale of junk bonds come over into the mortgage market and help drive “safe” yields down (ie: rates for home loans could drop). Could be an interesting couple of days.

Plummeting oil prices are keeping consumer cost of living down, and inflation well below the Fed target of 2.0%. On the producer level, the manufacturing sector is really struggling as a result of our strong dollar enabling the purchase of cheaper goods from abroad than what we an produce domestically.  That could lead to a spiral all of it’s own.

Rate Hike Week

No news today and the pricing on mortgages is continuing to move sideways. Don’t check out for Christmas just yet though because this is a pretty big news week, with the most significant event being the Fed rate decision on Wednesday afternoon.  Although for the first time in a long while there have been more jobs created that pay higher than the median income, I don’t believe we are anywhere near seeing inflation at the 2.0-3.0% Fed target rate and they have a green light to kick up cost of funds 0.25%.

Is it a Dove? Is it a Hawk?

The markets continue to look up into the sky to get a better read on the outcome of next week’s Fed meeting.  There is an 80% chance that after a seven year stagnation, the Fed will raise interest rates at their concluding meeting of 2015 next Wednesday.

Before you pull out your Field Guide to research the species in this picture that appears to be Janet Yellen dressed like a Broadway star, or if you think it could be a molting bird with the head of an old lady, let me explain.  In the economic sense of the word, a “hawk” is someone who believes that interest rates should be higher to keep inflation low, while a “dove” believes that interest rates should remain low to stimulate economic growth.  The Fed’s mission is to provide a stable monetary system including maximum employment and stable prices, and they do that by regulating interest rates.  Hence the depiction of the Chair of the Federal Reserve, Janet Yellen, with the body of both representative birds.

Household Cost Burden

This chart produced as a result of a Harvard study shows the percentage of households that are struggling to make ends meet.  That’s a sobering thought as we head into the final stretch of purchasing Christmas gifts.

There are no economic reports out today again.  It’s like a slow seven-day-long drum roll prior to the Fed meeting.  Have a great day today!

It’s always a little curious to me how the market moves on speculation.  Billions of dollars change hands every day based on what people think they know to be true.  Last week the Bond Market bonked ahead of the Unemployment Report which showed that there were more jobs created than had been previously estimated.  Today, the Job Openings and Labor Turnover Survey shows that there were fewer job openings during that same period than had been estimated by the same analysts.  The actuality probably lies somewhere in the middle.  Regardless, Stocks dropped and Bonds rose at the opening bell.  An hour later, oil prices rise and the equity and debt markets reverse.