Zero is an interesting concept.  Just like infinity, it’s enough to make my head spin.  I just can’t grasp the concept of sheer and utter nothingness.  Fortunately, my attention span isn’t that long so I am not in danger getting too dizzy or even too deep in my philosophical pondering.  And yet, zero is the word that the Fed Fund Futures market is using to describe the likelihood that the Federal Reserve will raise rates this year.  Like for the rest of the year (remember that we are only in January).  Just last week there were all kinds of numbers being thrown around about the likelihood of rate hikes in each of the eight Fed meetings for 2016 and they were all in the double digits and some were greater than 50.  And now, zero.  Interesting stuff.

In yesterday’s pontification (which I won’t blather on about again here because it is, as they say, “yesterday’s news”–but you can find it at if you are really interested), I talked about market expectations and about how failing to meet them brings about unanticipated changes.  That is what we are seeing right now.  The granddaddy of all economic reports, the Gross Domestic Product (GDP), was just published for the fourth quarter of 2015.  Coming in at an annualized growth rate of 0.7%, the Q4 number drags the GDP for the whole year down to 1.8%.  The target rate of the Fed is currently 2.0-2.5% and many economists think that we ought to be greater than 3.0% to be creating the jobs that we need to keep up with population growth and pull ourselves out of this eight year slump.  Alas, our economic scorecard for the year reads 1.8%.  It’s better than a lot of countries, including Japan, and thankfully, that number is still greater than zero.

The Big Chill

I just spent the last week in Florida, where my wife now wants to move.  The state caught the tail end of the storm that closed down the whole east coast so the temperatures got down into the low 40’s, and the high for several days was only in the 50’s.  I know that’s still better than the 30’s, but when you planned for the 70’s, anything less is torture when you only packed shorts and tee shirts.  That’s why my youngest is wearing pajamas in this photo; it was the warmest thing he had.  My other two children are not in the photo because they were running around Universal Studios to generate the body heat to stay alive.

I don’t bring that up to try to gain sympathy because I would imagine that just about everybody likes vacationing in the sun more than driving to work in the snow.  I want to paint the picture of expectations.  When the Fed raised rates last month I believe that the general population figured that the economy was on the mend and it’s nothing but roses and soft fuzzy bunnies pooping money from here through the election.  It turns out that’s not the case.  Retail Sales and Durable Goods Orders have been in the toilet.  Stocks are still on track for their worst year in who knows how long.  Those expectations of economic bliss aren’t materializing just yet and people are shivering.  Just like the cold drove people away from the amusement parks which resulted in shorter lines for the rides, the big chill is pushing money into the safety of mortgages and rates are moving lower–for now.

Slow, but Steady

You’ll pardon my ignorance; I guess that I really don’t get out much.  When I read this morning that China’s GDP has dropped to a 25 year-low rate of growth at 6.9% I almost fell off of my chair.  The Fed’s target rate for the U.S is a 2.0-2.5% annual growth and we have averaged 3.25% from 1947 to 2015.   As long as I have been following things, we’ve never been above 5.0% growth. The chart you are looking at is not an EKG of someone climbing up the oxygen depleted three flights of stairs in my building, it’s the rate of Gross Domestic Product change in the United States over the last 65 years.  Incidentally, our all-time high (and all time low) was back in the 50’s at +16.9 and -10 respectively.

China’s declining GDP is indicative of economic challenges deeper than just the recent downturn in their stock market.  Evidently, becoming a world superpower is harder than it looks.

Fed Fund Futures show an 8% chance of a hike this month, a 35% chance of a hike in March and a 54% chance of a hike in June

Bad News/Good News

The thing about being in the mortgage business is that you get this twisted viewpoint about about world turmoil that goes something like this: “Ah, the Chinese stock market crashed again last night and the US equities look to open down 400 points?  That means rates should be better today.”  “Ooooh, Wal-Mart is closing 269 stores and laying off 16,000 people? Nice, that means that interest rates should stay low this week.”  “Wow, the Consumer and Producer Price Indices dropped again?  That means that the economic outlook is turning sour which should mean that home prices are stabilizing too and that now is an even better time to purchase a home–especially with these low interest rates.”

Some might say that I have a one track mind, but I’d like to think that I am just looking for the bright side of things.  The alternative seems pretty dismal tight now.

The Safety of Mortgage Investments

The price of oil continues to decline–now at $30.75 per barrel. The price of a barrel of oil has dropped over $2 this morning. The DOW which was up almost 200 points earlier is now clinging to a 24 point gain since the opening bell. Mortgage Bonds are a naturally safe place to park your billions if your investment dollars need a reprieve from the politically-charged, super volatile oil industry. Mortgage pricing has risen as a result, making a case for lower interest rates ahead. The latest projections are for two, 0.25% Fed hikes this year, while the Fed itself is anticipating four. This is getting interesting.


The man who encouraged fans to turn and face the strange changes died of cancer last night.  The stock market is hoping for a change this morning.  The major indices are mixed/flat on the day and hoping for a rebound as they are currently off to their worst calendar year ever.

Progress in the Labor Market

Payroll growth surged in December, capping the second-best year for American workers since 1999 and is further evidence of a resilient job market that prompted the Federal Reserve to raise interest rates. The 292,000 newly created jobs far exceeded the 200,000 estimate.  The average hourly rate of pay stayed flat because most of the new jobs came in the temp work and construction, transportation sectors.   However, policy makers are expecting wages to increase as the year goes on, leading to broader inflation and justification for another rate hike.

Rate Projections

Folks are already speculating on whether the Fed will raise rates again at their next meeting in March. The last we heard from any board member prior to the holidays was a call for measured increases in 2016.  However, with another early market closure in China yesterday (which is our today), that probability for raising rates in March decreased from 56% a week ago to 43% today.  That’s a large change many people’s perceptions in a week’s time.

 The Jobs Report comes out tomorrow.  Ahead of it we have a 27.6% decrease in layoffs, but a 24% increase in new people filing for unemployment last week.

Rumors of War

North Korean officials claim that they have made a hydrogen bomb, which for all of you unfamiliar with nuclear weapons, is more powerful than an atom bomb.  Bonds usually thrive on political uncertainty and today is no exception.  With the DOW giving up another 250 points, mortgages became an attractive for investment dollars and rates stay low for another day.

All Smiles?

Core Logic reporting that home prices rose 0.5% last period, and are up 6.3% from a year ago. Real Estate prices continue to outpace inflation numbers by 300%.  Prospective clients need to understand that owning a home is a far better investment than this 2016 Porsche 911 Targa4S is. Don’t let the grin on that guy’s face tell you any differently.  On a related note, Auto Sales tapered off in December after being strong all year long.  Seriously though doesn’t that look like a nice road…

The Targa4S’ all wheel drive will get you home safely in the snow, and combined 21 MPG is more fuel efficient that what your “client” might currently be driving.  HOWEVER, that car will lose about $10,000 every year in value where the average home will gain that much in equity each year.  Let’s see who is smiling more after ten years of ownership.