I was born in 1973 and graduated from high school in 1991, which means that most of my formative existence was smack dab in the middle of the ’80’s.  And nothing is more formative on the mind of an adolescent than watching the same show over and over.  From having watched The Karate Kid and Footloose (the originals) dozens and dozens of times, I learned that even if you are an awkward outsider who doesn’t fit in, if you will practice day and night and get really good at bodily contortions, in the end you get the girl and a crowd of people will  dance and cheer all around you.  Unfortunately for me, I never learned karate and I never learned to dance.  I was going to segue that analogy into something motivational and uplifting, but now I can’t remember what it was because I have the above-referenced movie theme songs running through my head.

A string of favorable economic analysis published this morning has stock and oil prices rebounding.  This comes at the expense of lower bond prices, which is putting upward pressure on interest rates going into the weekend.


The Things We Say

“Depression is merely anger without enthusiasm”–Steven Wright

I am a big fan of quotes.  Some are profound and give me “food for thought” as it were.  Some statements defy conventional wisdom to such a point that I wonder what happened in that person’s noggin to allow them such twisted thoughts.  And some are just plain funny.  I like funny.  Here’s another one from Steven Wright: “I intend to live forever.  So far, so good”.

And then there is St. Louis Fed President James Bullard.  Super smart guy, but not so funny.  This morning he said that he sees a low probability of a U.S. recession, while at the same time, eroding inflation expectations have hurt Europe and Japan, and that is something that the U.S. should fight to avoid.  If I had to guess on what that means, I’d say that he is hinting that he is voting (literally, as he is a voting member of the Federal Open Market Committee that meets eight times a year to set economic policy and set the future of interest rates), to hold off on Fed rate hikes for the time being.


The debate continues in the United Kingdom about their possible egress, or “Brexit” out of the European Union.  If Britain and company marches, it would signal that the EU is beyond repair, leaving troubled Eastern Europe to flail alone for economic stability.  We haven’t talked much about Greece, Portugal, and Spain’s troubles for some months now because there haven’t been any newsworthy developments until now.  Nevertheless, the struggle for solvency continues.  Should the Mother Land defect, the implications of global strife would be grounds for continued low interest rates over the longer term.

Speaking of strife, New Home Sales are reported down 9.2% from last month, and the DOW has sunk 200 points so far this morning.

Lacking Confidence

The report on Consumer Confidence showed a 9.6% drop from last month–meaning that people are less prone to spend money now than they were then.  That’s not the case with existing home purchases, which are up 0.4% to 5.47 million units moved–the second highest level since the infamous 2007 boom.  And Case Shiller reports that across the country, the average price of a home is up 5.7% from this time last year.

Speaking of infamous: Fannie Mae is set to return another $2.9 billion to the Treasury Department next month, which will bring the total amount that the agencies have returned to the government since the TARP bailout to $147.6 billion.  Estimates of what the agencies actually received is around $86 billion, and that implementing the program cost taxpayers $187 billion.  Meaning that it allegedly cost the government $100 billion to administer the cutting of two checks that total $86 billion.


On average, the cost of all of the stuff that we urban consumers purchase didn’t change at all last month: the headline CPI actually read 0.0%.  The Consumer Price Index (CPI) covers over 200 categories of goods and services that the average American purchases on a regular basis.  Number crunchers then strip out the cost of food and energy (considering these sectors to be erratic in their pricing), to give us the Core Consumer Price Index, which actually showed that it’s costing us 0.3% more to live this month than it did last month.  That might not sound like much, but it’s the biggest single-month gain since June of 2011, and brings the average up 2.2% from this time last year.

Next week we see the Personal Consumption Expenditures report which uses different data to measure the same thing, and is the Fed’s favorite measure of inflation at the consumer level.  These fractions of percentage points might seem insignificant (until you notice that your Café Rio burrito just went from $7.95 to $8.05), but I have discovered that ALL numbers matter when we are talking about predicting the future of interest rates.

Save your Frequent Diner Cards; they just became more valuable.  And get a lower interest rate while they are still around; inflation drives rate higher.


So it looks like I can finally once again do 203(k) loans to help your client who wants to remodel a home.  The biggest thing to remember here is that the buyer needs to have their down payment plus some cash to work with to start the remodel.  FHA will only reimburse for repairs once they are finished.  It’s a good program to grab that owner-occupied fixer-upper.

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Some days I sit here and look at the screen and nothing comes to mind.  Today is one of those days.  There was a mixed bag of economic reports from various sectors, but nothing was earth shattering.  Building Permits are up 2%, Producer Price Index rose 0.1%, and Oil just jumped back above $30 per barrel.  The DOW is up 246.  All of these are weighing on bond prices, putting upward pressure on interest rates.


Despite the stabilization in the stock market, the Fed Fund Futures is still pricing in a zero percent chance of a rate hike for 2016.  Also attempting to stabilize is the manufacturing sector.  With the dollar still proving almighty compared to foreign currency, the cost to produce goods domestically surpasses the cost to import them from overseas.  Consequently, our factories are slowing down.  The Empire State Manufacturing Index declined 16.64% this month, which is above last month’s 19.6% drop to be sure, but well off of the expected 9.9% decrease.

The demand for new homes has also waned marginally; the NAHB Housing Index drops to 58 from 61.  Where a measure of 50 is the baseline for a healthy building environment, the new construction industry is still looking pretty good.

Presidents’ Day

The President of the United States of America.  That’s a title that commands respect and denotes a person of stalwart integrity; someone who has preserved our freedoms and made our country a great place to live.  Celebrating those lives well lived is why we take next Monday off to celebrate Presidents’ Day.

Heading into the long weekend after the bond market has seen continued, rapid price increases, I think that today will be a cooling off period to preserve profits.  Interest rates have continued to go lower without much of a breather since the start of 2016.  I welcome that and want to help you take advantage of it.  Now is as good of a time as any to get a low rate on a home loan.

Janet Yellen Tells the Future

Fed Chair Janet Yellen concludes her semi-annual testimony before Congress’ House Financial Services Committee today.  Yesterday she commented that the current market turmoil may deter the Central Bank from the multiple rate increases that officials had foretasted for the 2016 year.  Over the last three months, the 0.25% hike in the Fed Funds Rate has caused the Three-Month Bond’s yield to increase.  At the same time, every other government debt instrument has seen a drop in yield due to increased demand as a result of the “flight to quality” movement.

I can’t tell the future, and whether or not the yield curve will continue to flatten, but this I know: any time that you can purchase an asset (such as a house) which is appreciating at an average rate of 5% per year, and borrow money to do so at less than that rate of appreciation (and get a tax deduction on top of that), it’s a pretty good time to purchase that asset.