Archive for September, 2005

It Was A Dark And Stormy Week for Mortgages

This was a very difficult week.  As most of you know, I’m involved heavily in several other projects besides the Chris Jones Group, though that’s the only one that pays.  Some weeks, the Chambers of Commerce I belong to have unusually heavy demands, and some weeks it’s the American Cancer Society; this week it was the Church and the Republican Party.  Last night I was elected to a post as Legislative District Chair for District 56, so there went the last 4 free hours of my average week.

Always nice to win, though.

Looking at the markets, although there is no good economic news anywhere that I can see, the long bond has dropped substantially the last couple of days.  We’re at 4.33 on the yield, meaning that 30-year rates have risen about 1/8 since I last reported on them.  Roughly, for good credit loans with some down (or equity position), we’re looking at 5.875%, which is still very, very good, but not as good as it has been periodically for the last three years.

Another trend is turning in a positive direction, though, and that’s new construction profits in Utah.  We are working with three different builders at the moment, and each of them is reporting solid margin (15%+) on new construction in the $225-$250k range.  We have also secured an investor that opens the way to doing some 100% investor construction loans, a previous impossibility.  We’d love to work with you on one of those, and right now the market for those projects is very good and improving.

Putting the previous paragraph in English: we can take someone with good credit and a decent job, get him a loan to build a house on spec, guarantee the long-term financing for the project, build the house, and help him sell it for 10% profit (or so).  On a $250,000 house, that would be profit of $25,000.  Net.  If you’d be interested in some of that about the time your Christmas credit cards come due, you should probably email me.

Congratulations to Ray on the glorious triumph of the Colorado State Rams.  Since he does not remember his Alma Mater’s fight song, I have thoughtfully linked to it here.  I’m a nice guy.

Last week’s predictions were not so accurate, which is what tells me I have what it takes to be an economist, or perhaps a weatherman.  To keep in practice, I’ll make some more:

BYU beats SDSU 37-20
Boston and NY finish the season tied with Cleveland, and we get two one-game playoffs.
New Mexico beats TCU 31-20
Michigan beats Michigan State on a last-second field goal
No major news commentator gets any sort of clue what Bill Bennett actually said

If you get some time, please read Peggy Noonan’s excellent column on how Katrina destroyed much more than New Orleans.

Have a good weekend.  Please.

Stuck on Stupid

The bond market went up, now it’s down (hard), but we continue to trade fairly narrowly between 4.15 and 4.3.  That means 30-year rates under 6%, which is all anyone really cares about.

Sorry, but I don’t care much about any of that today.

On to other things.  

Random thoughts:

Saturday I ran a 5k in 29:34, my best time ever.  Two months ago I couldn’t run an entire 5k.  Then Tuesday I ran a mile in 7:26.57 (two months ago I broke 10 minutes and was thrilled).  I don’t seem to be able to cut that last 15 pounds off, but it’s nice to know that there have been some improvements.  Maybe next 5k I can beat my pregnant wife (29:22) or my 11-year-old son (28:15).  A guy can dream.

Best line of the new millennium: “You’re stuck on stupid.  I’m not going to answer that question.” – Gen Honore, to a reporter at a press conference in New Orleans.

Utah survived against Air Force despite absolutely quitting at the end of the game.  On one play, an Air Force receiver caught a pass over the middle and was trailed for almost 30 yards by a Ute defender who was just jogging along.  Coach Whittingham laid into the kid, who walked away down the sideline.  That, ladies and gentlemen, is a BAD sign.  Well, it is if you’re a Ute fan, but then if you are, you get what you deserve.

BYU is going to beat TCU this weekend.  It will be relatively close, say, 10-14 points, but the Cougars will win.

The Yankees are going to lose 2 of 3 this weekend and end up tied with the Red Sox going into the last week of the season.  I’ll make a new prediction then.

We’re in the process of doing a loan for a fellow that is currently in Chapter 13 bankruptcy.  And it looks like the loan will go.  We are also doing a construction loan for another client – nothing down, no income documentation, and non-owner-occupied.  Our new motto is “Remember, this is impossible, but we’ll do it anyway.”  This stuff is why.

The New Orleans refugees went from the Superdome to the Astrodome.  If Rita destroys the Astrodome, where do they go next?  The Kingdome?  The Metrodome?  Thunderdome?

Inc Magazine has a very good article on The Wisdom of Crowds, which is sitting here on my desk and which I have recommended before.

I bought a TV-tuner/video capture card for my PC the other day, and it now appears that with the addition of this $30 piece of hardware and a $30 DVD-authoring program I can use my PC as a TiVo – only I can not only record programs, I can burn them onto DVDs for permanent storage.  I can record all my old home movies and get them onto permanent media.  I can get rid of all my old VHS tapes, some of which are so old they will not last another 5 years.  Great stuff, technology.

Jen King Harris’s family is from Corpus Christi, so if you are a praying person (and I recommend it), would you please offer up a prayer for the King’s down in southern Texas?  We’ll give you updates through the weekend on how they’re doing.

Speaking of which, have a good one.


The Sound of One Hand Clapping

Well, today the market made a fool out of Greenspan and the geniuses at the Fed (with the exception of Mark Olson, bless him), and the gap between short term and long-term rates narrowed some more.  Why does this matter?  The inversion of the yield curve has never failed to predict a recession.  

Inverting the yield curve is a neat trick.  It requires the Fed, which is in charge of short-term rates, to believe that the economy is humming along and that inflation is a serious threat.  It also requires that about 46 gillion bond traders disagree, and continue to buy long bonds.

Tada!  The US bond market, circa 2005.

Yep.  The 10-year bond actually rose today, fairly strongly.  This indicates a couple of things: one, that bond traders are people, and since consumer sentiment is at its lowest level since the first 6 months of the Reagan Administration, bond traders like everyone else believe the economy is in trouble; two, that bond traders watch the news and can see that New Orleans, Gulfport, and Biloxi are missing, and that a newly-minted category 4 hurricane is about to strike the Astrodome, where all the refugees from the Superdome are living; and third, that bond traders can read the inflation reports, which at this point are about a paragraph long, and essentially say “it’s oil.  Nothin’ else here to look at.”

Further, the Fed indicates that it’s going to keep on raising rates.  That means another rate increase on November 1 (All Saints’ Day) and December 13.  As Ray points out, at that point the Prime Rate will be roughly 1.5% higher than the rate for a 30-year fixed mortgage.  Guess what?  We’ll do a 30-year fixed loan for you at 1 point below Prime!

The US has become a nation of idol worshippers.  I’m not talking here about the worship of Eva Longoria or the almighty dollar or the Ford Thunderbird.  I’m talking about the worship of Alan Greenspan and George Bush and heck, even city councilmen and mayors.  It’s as if nobody is willing to say sorry, dude, but if you want to do that you’re going to have to arrest me.  Greenspan says he wants to get “rates to a neutral point” before he retires.  Except for the sainted Mark Olson, everyone goes along.  We reached a neutral point in February.  But the Fed governors just nod and say okay to every increase.  And analysts across the country point out how smart the Fed is, so it must know what it’s doing.

Hooey.  The Fed is no smarter than any full-time bond trader.  It is galactically less smart than the entire world market of bond traders, almost all of whom are saying “what the *%#((&*&*#$%!?!?!  

I don’t trade bonds.  But I’m saying it too.


Yeah, it’s Monday.  Monday is the day I collect the 44 messages off the phone and the 141 emails and try desperately to slog through all the stuff people need me to do.  Forgive me the lack of substantive post.
Check out the blogroll on the right (little by little, we get this stuff figured out), and I’ll see everyone tomorrow.

Mortgage Rates on the Rise – Thanks to China

The bond market has been hammered the last two days over fears that Greenspan will be raising the rate again next week and signaling that he is going to keep right on going.  Next week’s rate increase will make the Prime Rate 6.75%, or roughly 1 point higher than the 30-year fixed rate.  This is, in a word, nuts.  Greenspan is a moron.

While I realize that the plural of anecdote is not data, let me ask you out there – how many of you are suffering from a serious labor shortage in your industry?  Anyone?  No?  What evidence do you have that the economy is picking up speed?  Any?  No?  Guess what – nobody else does, either.  Consumer sentiment is at its lowest level since before the Clinton Administration.
The University of Michigan’s sentiment index hit a 13-year low in September, but investors chose to focus on the fact that inflation futures have spiked in the past few sessions.
“One-year inflation expectations spiked from 3.1 percent to 4.6 percent, by far the highest reading since 1990,” noted Stephen Stanley, chief economist at RBS Greenwich.
Inflation hurts bonds as it erodes the value of the fixed interest-paying investment.
-CNBC Report
Rising prices are supposed to indicate increased demand.  But in this case the demand has nothing to do with it – if you take prices exclusive of energy costs, they are flat and have been for months – since the price increases are simply crude-oil-related.  The increase in the price of crude has nothing to do with the US economy, and everything to do with the Pacific Rim, especially China, where the demand for petroleum is growing at a furious pace.

Therefore, this “inflation” has nothing to do with an increase in economic activity and in fact signals a serious threat of decrease, since the rise in energy prices is likely – certain, actually – to have a seriously depressive effect on spending.  Greenspan ought to be reacting to all this with a CUT in rates, not an increase, and I would welcome his being admitted to the hospital in a vegetative state sometime before he has a chance to completely destroy the economy by making the Prime Rate 7% in September.

Iowa Electronic Markets reads a 75% chance that the Fed will move up a quarter in September.  That’s the worst chance measured for any potential increase in two years, which ought to be comforting, but it isn’t.  The chance of a decrease in rate is forecast at zero.  IEM has a solid history of being pretty close to right about almost everything.

Sorry, folks.  I’m in a very bad mood.  Unless your name is Jim or Elizabeth or Stan, this isn’t your fault.  I have decided this is how I want to feel in response to certain negative stimuli.

Gas Prices and an Attempt at Non-traditional Thinking

So gas prices are at $3.00, essentially, and this led me to the following thought.  Premium gas is supposed to make your car run more efficiently and improve your gas mileage, no?  When regular was $1.00/gal and premium was 20¢ higher, it didn’t make much sense to buy premium, since there was no way anyone was going to get a 20% increase in gas mileage out of better octane.  But now gas is $3.00/gal, and the performance increase only has to be 7% before premium is a better deal.

So I’m trying it.  I got 374 miles on my last tank (15.28 gallons), or 24.51 mpg.  If I get 27.2 on this tank, I will have saved money by buying more expensive gas.  Try it yourself and let me know what happens.

Good News Needed

If you have good news – any kind of good news – I could use some.