Archive for October, 2005

Keynes, Say, Mortgages, and Predictions

You ever keep a journal?  Here’s my problem.  I try to write every week, but there’s just so much that has happened I don’t know where to begin.  Add to that the fact that I just did all this stuff and now I really don’t want to talk about it, and it’s pretty hard to keep the thing going.  This blog is very similar.  There’s lots of stuff happening.  But how much of it do I really want to talk about?

Let’s start from the necessary stuff.  Mortgage rates are going in the tank.  Bonds have dropped steadily for three weeks and we are now at a six-month low on the yield, which pushes the 30-year rate over 6% and the 15-year rate over 5.5%.  There really isn’t a lot of economic news to cause this change, but bond traders are now convinced that the Fed will keep jacking up short-term rates, probably even after Greenspan retires.  We’re big fans here of Robert McTeer as a replacement.  

McTeer appears likely to at least understand Say’s Law, which essentially says that the more production the economy engages in, the richer everyone gets.  Since the major obstacle to production is expensive capital, raising short-term interest rates is one sure way to close down production.  Most of the Fed Governors are devotees of Keynesian economics, which is such bad economic theory that even I can see that it’s delusional.  What they are doing by engineering interest rates is shutting down capital expansion on the theory that if there’s too much production, prices will rise.

Econ 101, people – oversupply creates downward pressure on prices, not upward.  Keynes believes (you didn’t really come here for a lesson in advanced economic theory, did you?  Tough noogies.) that inflation (which is “bad”) is created by too little money chasing too many goods.  In the actual real world, you know, where the people live, the more goods there are, the less they will cost and the more purchasing power each dollar will have.  That would be a good thing.  It always is.  But according to the Fed, and especially according to Greenspan, too much economic growth creates inflationary pressure.  Whatever.  Ignore, I guess, the last couple of centuries of data that show zero correlation between GDP growth and inflation.

What this means to you: if you have a mortgage, keep it.  Refinancing is not an especially good idea right now, unless you are currently in a sub-prime loan or in an option ARM or other adjustable, in which case you need to call us right now (801-310-3407) or send us an email.

If you are an investor, we’re balancing the reduced market for homebuyers (as mortgage rates rise, the purchasing power of people declines respective to houses) and the increased payment risk (so far fairly minimal) against the economic growth that continues to drive housing stock upward in price, at least in Utah.  So far, most of our recommendations have been to proceed.  But there are some cautionary tales out there.

Build jobs continue to be a good source of revenue.  There are margins to be had out there on houses in the $225k range and upward.  We have several clients working those kinds of deals right now – and we’re one of them.

I never commented on my predictions of the past weekend, most of which (again) were inaccurate in the extreme.  My credentials as an economist continue to grow.  

To recap, Colorado State did not lose to Utah after returning a fumble for a touchdown.  In fact, CSU stopped Utah four times inside the 5 yard line – 3 times inside the 1 – to beat the Utes in the final minute of the game.  Ray drove all the way to Colorado and back for that.  He says it was worth it.  Boston was beaten by Chicago, but in 3 games, not 5.  The Yankees actually lost to the Angels in 5 games.  The Bengals did not reach 5-0 (although I was correct that no one cared), and the US soccer team lost to Costa Rica 2-0 (and again, nobody cared.  They did win last night over Panama).

However, there was no terrorist attack, as predicted.  The New York terror alert now appears to have been a hoax.  And for once, my BYU prediction was right on the money.  Cougars staged a hugely unlikely rally in the 4th quarter and beat New Mexico on the road 27-24.  So my streak continues.  One pick, every weekend, comes true exactly as I say it will.  Be afraid.  Be very afraid.

You know, your predictions are welcome.

Note on the website.  Apparently we have lost the server for  We’re working on how that happened, but we have issued a n order to transfer the DNS registry to another server, which ought to fix the problem.  Computers being what they are, though, if you’re sending us email, send it to, and that will work.

A Plethora of Things Going On

A plethora of things to discuss today.  Yes, El Guapo, we have a plethora. (ref)

The Fed Chair position is up for grabs.  Let us be the first to cast our vote solidly with Robert McTeer, ex-Dallas Fed Chair and a strong friend of the idea that if everyone is producing, everyone gets rich.  I am a proponent, as most of you know, of Paul Craig Roberts-style supply-side economics, and McTeer appears to me to be the best available guy among those likely to be considered.  But given how Bush makes his appointments, I suppose I’ll have to get used to the idea of Bernanke or Hubbard or Feldstein, none of whom appear to me to be likely to reverse any of the current insanity.

The bond market finished a miserable week with a tiny ray of hope for Monday.  Employment numbers were not off nearly as much as forecast (adjusted for Katrina), but there is a good deal of economic uncertainty due to lingering hurricane effects and the warning of terrorist attacks in New York.  This warning, incidentally, came from captured documents in Iraq.  So much for the “there’s no link between Iraq and terrorism” idea, a truly, truly kooky one to start with.  Remember, a falling 10-year bond means rising mortgage interest rates.

The stock market got leveled this week, which means that everyone was selling both stocks AND bonds.  Where all the money is going, I can’t say.  I’m not getting much of it.  And what I am getting is going right back out into circulation, believe you me.

Maybe it’s your fault.

The Dow Industrials, bellweather of the broader market, are trading at 10,323.  One year ago, they were trading at 10,310.  The five-year chart shows the Dow at 10,200 and change in 2000.  In other words, the stock market has been flat for five years, with a really ugly trough in the middle.  The economy is growing at a good pace and the recovery has been in full swing since early in ’03.  Look at the chart.  Things were cooking along until spring of ’04.  What happened in ’04 that could have stalled us out?

Oh, wait.

Monday or Tuesday we’ll have a guest article by Geoff Beckstrom, a client and smart financial guy, whose website is linked to the right on the blogroll.

I spent a very pleasant lunch (without the food) at the Apollo Dance Hall in American Fork.  It’s owned by a fellow named Osmond, whom I did not know, but it is run by Toni Sly, who is the person that recruited me into the American Cancer Society, and one of my favorite people.  The Osmonds and Toni and lots of volunteers from the local deaf community (Verl Osmond has deep connections in that community and has done a great deal of work there) have fully renovated the old building and have invited the friends of The Chris Jones Group to come dancing tomorrow night.  8:00pm, the address is 50 East 50 North in AF.  If you mention that you’re with me, you get in free.  No fooling.

Twelfth Night, which will be on January 6, will be held at the Apollo.  We’re considering a murder for that evening, but rest assured it will be something to see, whatever we end up doing.  You’re invited.  You have to RSVP, and we will have space considerations this year, so do it early.

Predictions for the weekend:

BYU will beat New Mexico by 3.
Colorado State will return a fumble for a touchdown against Utah, but will lose.
Boston will be beaten in 5 games by Chicago.
New York will beat the Angels in 4.
The Bengals will reach 5-0 and no one will care.
The USA will tie Costa Rica 1-1 on Saturday.  And even more no one will care.  Except me.
There will be no terrorist attacks in New York – or anywhere else in the USA – for the 1489th consecutive day since 9/11.

Your Mortgage or Your Life? A Perspective.

I was mostly out of the office the last couple days.  Nothing happened, so you didn’t miss anything.

Actually, something did happen.  After the previous post about John who was having hard time getting over the screwups that happened on his deal, I got an email from another client who was a little miffed (well, a lot miffed, actually) over the Shameless Plug in the most recent newsletter.  See the comment, though, for a view from a happy client.  Didn’t want you to think there was an epidemic or anything.

An aside: we are, as you see, very techno-savvy here at the CJG.  Oh yes, we love technology, but not as much as you you see. (reference)  But we are also devotees of snail mail.  I am an avid book reader (currently reading: Lost Country Life, John Adams, and Holly Hanberg’s debut novel On the Table, about which more later) and there’s something about having paper in your hand that satisfies in a way e-print does not.  We do send out a blizzards of email, and we blog, and we do other e-things, but we send out more mail – all solicited – than US Bank does in this state.  If you want on the newsletter mailing list, and you so do, hit me here.

The Plug says that we did three impossibly complex loans in two different states with three different Realtors and three different title companies in less than a month.  The client objected to the less than part, and emailed us to say that according to her timeline, it was way more than a month.  Like, 45 days.  She got a little heated about it, actually.

We (Ray and I) immediately reconstructed the timeline for her.  Turns out the following are true:

  • The client signed the first purchase contract on July 22

  • That contract was first transmitted to us on August 2

  • The loan was logged on August 8 (when Ray gets it, then it’s a real loan)

  • That loan was closed on August 21 – 13 days later, and 29 days from the inking of the contract

  • The last loan was closed on September 6, 28 days after Ray logged the receipt of the original purchase contract

  • All three loans were closed in 34 days from the date we first received the first contract

  • Each individual loan was closed in 27 days or less

Now, you’ll pardon us if we looked at this complaint and were a little bit bewildered that we would be called on the carpet for being “deceitful”.  We had a nice conversation, lasting 41 minutes and 29 seconds (phone logs available upon request), and during the conversation the client and I both made a similar observation.

To wit: loans are stressful.  There’s a lot of money flying around here.  This stress causes people to lose perspective, and we include ourselves in the people part.  Under stress – and even in everyday situations – the tendency is to magnify the things that are going wrong and to ignore the things that aren’t.  Some people call this “realism”, but those people are just as delusional as the rest of us.  How are things going?  Well, I’m not in Kandahar being shot at.  I don’t live in a cave.  I have food.  My city has not been destroyed by a hurricane.  My wife is still speaking to me despite being in the first trimester of her seventh pregnancy.  I have three for-sure friends that I can think of.  How are things going?  Pretty well.  Pretty freakin’ well.  Oh, yeah, there’s this bill I need to pay, and we don’t have the appraisal back yet on the Hawthorne property, and nobody has yet made my client an offer he can’t refuse on his house in Payson.  So I’m likely to answer that things are crappy.  Precisely the opposite is true.  Don’t you do this?  I do.

It became evident that in the middle of a really crappy morning the client decided to take some frustrations out on us, and we ended up by her saying “you know, the thing I hate about this business the most (she’s a Realtor) is the clients that I kill myself doing great things for, who then turn around and complain about the tiniest things.  And then I just did that to you guys.”  So all is forgiven, we hope.

I’m taking it as a lesson for me that I need to be just a little more grateful, have a better perspective on what’s really happening.

The sun is shining.  It’s a perfect day.  I ran 2.5 miles this morning and did not require emergency medical care.  My children slept well, they’re all healthy, and we prayed and sang together this morning before they went out the door.  Yeah, things are pretty good.

Hope the same is true for you.