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.  

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