It’s not the cost of money, stupid
The MBA said the average 30 yr mortgage rate fell another 26 bps to 4.63%, the lowest in at least 20 years as the Fed’s purchases of MBS is working in impacting this metric. However, the response remains predominantly in the huge increase in refi’s with barely a ripple in purchases. Refi’s for the past week rose 41.5% and are 400% off the lows of mid Nov right before the Fed announced their purchase plan. Purchases though while rising 4.2% for the week, are just back to where they were in mid Nov, thus there has been ZERO net impact on the buying of homes as the Fed spends billions.
Price has been the main driver of activity as evidenced by the level of foreclosures and not the cost of money. While refi’s are very helpful, the Fed embarked on this path to spur demand for buying homes. ABC confidence fell 2 pts but the State of Economy component rose to a 3 mo high. Personal Finances fell to a 1 1/2 mo low. German IFO was in line with estimates. Durable Goods and New Home Sales are out today.
UK failed Gilt auction
Out a little while ago, the UK government failed to get enough bids for its 40 year Gilt auction. This comes even with the UK government in the market weekly to buy Gilts to influence longer term interest rates lower. The UK 10 yr yield is now at a 3 week high and demonstrates the huge risk that the UK and now the Fed is taking on in buying bonds to manipulate the level of interest rates.
Durable Goods
Feb new orders for Durable Goods surprised to the upside, rising 3.4% headline and 3.9% ex transports and comes after a big revision downward to Jan which fell 7.3% headline and 5.9% ex transports. Non Defense Capital Goods ex Aircraft rose 6.6% after falling sharply in the prior two months. Helping orders were gains in computers/electronics, electrical equipment, machinery and fabricated metals. Shipments however, which gets directly plugged into GDP, fell .5% so the key is turning the Feb orders into future shipments instead of seeing them get canceled. The inventory to shipments ratio did tick a touch lower to 1.88 from 1.89 in Jan which was the highest since 1992.
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March 25th, 2009 at 8:42 am
HA! CNBC just let Rick Santelli out of the box again…..
March 25th, 2009 at 8:50 am
Peter Boockvar opined:
It’s not the cost of money, stupid
… And then he went on to mention some housing statistics that supported his argument.
comment:
————————–
Here’s maybe something you never thought of. Pay attention. It’s not very complicated but it’s important.
People can frequently be as dumb as dirt, but they’re pretty good at spending money. They know the cost of money is only one part. The cost of the house also matters (you forgot this). Other things can also have an impact, but let’s concentrate here. You know … ceterus paribus.
You see, if housing is cheap, and money is cheap, then people tend to use that cheap money to buy homes. Here’s another big part you forgot. They don’t all jump up at the same time and Buy Buy Buy. Did you take marketing in school? Remember the early adopters, followed by the early part of the middle adopters. Then come the masses. Then comes anyone who is left over. Think of it like a dam cracking a little before it bursts. Unless you think someone has tucked some chewing gum in the crack and stopped the flood (HA HA).
I bet the low priced foreclosure stuff goes first. Just a hunch. Then the CS report will show a massive jump in prices because the normal priced stuff that had to be marked down to compete with the foreclosure junk will be marked back up. People will go all a twitter about it, too. They will mistake it for inflation. (HA HA)
Think about it. Best Wishes.
DH
March 25th, 2009 at 8:59 am
right, it’s about the ‘money’ its ownself..
“…Professor Henry C. K. Liu is an economist who graduated from Harvard and chaired a graduate department at UCLA before becoming an investment adviser for developing countries. He calls the current monetary scheme a “cruel hoax.” When we wake up to that fact, he says, our entire economic world view will need to be reordered, “just as physics was subject to reordering when man’s world view changed with the realization that the earth is not stationary nor is it the center of the universe.”4 The hoax is that there is virtually no “real” money in the system, only debts. Except for coins, which are issued by the government and make up only about one one-thousandth of the money supply, the entire U.S. money supply now consists of debt to private banks, for money they created with accounting entries on their books. It is all done by sleight of hand; and like a magician’s trick, we have to see it many times before we realize what is going on. But when we do, it changes everything. All of history has to be rewritten…”
Sir Josiah Stamp, director of the Bank of England and the second richest man in Britain in the 1920s. Speaking at the University of Texas in 1927, he dropped this bombshell:
The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented. Banking was conceived in inequity and born in sin . . . . Bankers own the earth. Take it away from them but leave them the power to create money, and, with a flick of a pen, they will create enough money to buy it back again. . . . Take this great power away from them and all great fortunes like mine will disappear, for then this would be a better and happier world to live in. . . . But, if you want to continue to be the slaves of bankers and pay the cost of your own slavery, then let bankers continue to create money and control credit.3
http://www.webofdebt.com/excerpts/introduction.php
March 25th, 2009 at 9:00 am
per Marketwatch at this moment:
Machinery and capital-goods demand fuel 3.4% increase in February orders. Economists surveyed by MarketWatch had forecast a decline of 1.2%.
DL,
How’d that shorting idea work out for you yesterday???
March 25th, 2009 at 9:02 am
This guy has got it right, how come RP is the only guy making similar speeches in the US? The people will wise up at some point…
http://www.youtube.com/watch?v=94lW6Y4tBXs&feature=player_embedded
March 25th, 2009 at 9:13 am
DL,
If you want to make a few bucks shorting the system, then wait for the charts to max out. In fact, all shorts should just sit on their hands until the S&P approaches about 900 or a little beyond. Then check out the lay of the land. If momentum and volume has been checked, jump in. Bring some naked shorts if you can find them. I’ll be out when you guys jump in and waiting for a bottom. I’d appreciate the help. I want to make money this year and I only go long.
March 25th, 2009 at 9:14 am
dh,
why the ‘long only’-bias?
March 25th, 2009 at 9:22 am
Mark E Hoffer Said:
March 25th, 2009 at 9:14 am
dh,
why the ‘long only’-bias?
comment:
—————–
To me, the most basic rule of investing (we should think of a new word for that) is to stay well within your comfort zone. I understand ranges and sectors, going long, and enough economics and psychology to get it right enough times keep at it. Stiff drink works well when I get it wrong.
March 25th, 2009 at 9:23 am
Because most of the folks in the troubled situations could never afford them to begin with and lending standards have now returned to the relam of sanity? Over 60% of the reworked loans are agin in default. Looking at the Charts, it seems obvious that house prices are going to drop another 20% IRRESPECTIVE and, looking at prior housing collapses, will not recover quickly from there. Why can’t we just accept it?
March 25th, 2009 at 9:30 am
dh,
“(we should think of a new word for that)”–we could try “risk-taking”..
though, w/this: “is to stay well within your comfort zone.”–always a good idea.
as to the rest, you’re evincing signs of Wisdom (: towit, knowing what you don’t know..
We’d all be better off if we understood, better, our own limitations..
though, about that ‘stiff drink’, you may want to talk to lb, he has other prescriptions, along the lines of mycology, I believe..
http://www.mykoweb.com/
March 25th, 2009 at 9:33 am
philipat,
w/ this: ” Why can’t we just accept it?”– “we” is, obviously, the operative term..
LSS: it isn’t in this version of the script. the good news? the Film isn’t ‘in the can’, yet..
March 25th, 2009 at 9:43 am
my take – we stab above 826 then complete the move. despite the constant chatter about 666 being a “generational” bottom – this last run does not look healthy and looks more like an exhaustive bear rally than anything else.
sold the faz yesterday afternoon around 21. will look to accumulate more today below 18.50.
March 25th, 2009 at 9:53 am
those looking to enter shorts – noontime is the right time.
March 25th, 2009 at 9:56 am
http://www.foxnews.com/story/0,2933,510445,00.html
EU Presidency: Obama Plans ‘a Way to Hell’
I think a Way to Hell is much too strong…how about..”May the Americans get coal in their stockings for Christmas”….
I am amazed that the durable goods orders jumped, especially after being revised to almost -7.5% in January…it seems we must just follow the revisions now…..the original numbers seem to just be guesses at best…
March 25th, 2009 at 10:03 am
Of course the cost of the money will inflate the prices of assets it is used to purchase (like housing), just like it did in 2001-2006. The artificially increased prices (which in this case may just be nothing more than an end to decreased prices) will be, like then, a monetary-induced illusion that will, as always, seem to create demand where none existed before. It will end as badly, or perhaps worse, as the first go ’round.
This economy has become nothing more than a carnival ride to nowhere, with the Fed and Treasury the gap-toothed, greasy-haired carnies operating it.
March 25th, 2009 at 10:03 am
No it is not the cost of money…has anyone noticed how the 10 year has behaved since QE was announced?
It didn’t stay down very long…
March 25th, 2009 at 10:20 am
Everyone around here keeps on talking about infrastructure this, infrastructure that… I keep on wondering if countries will even be able to raise capital to fund these stimulus packages they are announcing without offering higher rates… Maybe they’ll be forced to print money out of thin air with the US cornering the market!
If most US households manage to fix a low mortgage rate for 15-30 years, they’ll be laughing when inflation kicks in. Here in Canada, I’m worried. Fixed mortgages are for 5 years. A large % of households are taking the variable so if rates shoot up, it will get ugly. Unless our government steps in and locks rates…
You should see how many people have been asking me whether they should lock in at 4.5% or stay variabe at 3.5%… I can’t help but wonder how much debt they have when they worry about such low rates!
It’s sad. Free markets are dead, we can’t forecast anything without assuming government interference.
March 25th, 2009 at 10:48 am
danm: “Here in Canada, I’m worried. Fixed mortgages are for 5 years.”
FYI – longer term mortgages are offered by all the big banks but they are rarely advertised since so they sell such a tiny % of these products.
e.g.
https://www.tdcanadatrust.com/mortgages/numbers.jsp
TD 10 year @ 5.25%
At some point, BMO’s 18 year fixed at 9% will look attractive.
http://www4.bmo.com/personal/rates/0,4481,35649_3507291,00.html?pChannelId=0
March 25th, 2009 at 11:05 am
“Refi’s for the past week rose 41.5% and are 400% off the lows of mid Nov”
Great to see that the FED has begun to reinflate the housing ATM, again. Keep those Americans spending and in debt at all costs.
March 25th, 2009 at 11:20 am
Short Man:
I know…. but I don’t know anybody who’s going for fixed. They’re expecting rates to go lower. Have you noticed anyone going for the fixed?
March 25th, 2009 at 11:24 am
I guess what I’m saying is that if there is huge inflation down the road, Canadians will get hurt more than Americans… unless government interferes again.
March 25th, 2009 at 11:28 am
Pat G – I don’t think people are pulling cash out.. probably not much equity to fit within the guidelines. But they are refinancing to a lower payment, which puts more money in their pocket, but might be “stealing” that loan from a local credit union or bank to be sold to Fannie/Freddie.. errr.. Uncle Stupid.
March 25th, 2009 at 11:37 am
Lowering mortgage rates through quantitative easing is a huge subsidy to the banks. They collect massive fees from all of the refinancing activity. This also stimulates the economy as the extra couple hundred dollars the homeowners have per month goes into discretionary spending. I think government action to lower mortgage rates was an obvious and brilliant move. I just wish they would have done it directly through a program like the depression era HOLC. The government would actually make money borrowing at 2-3% 10-year rates and loaning at 4.5% to credit worthy borrowers.
March 25th, 2009 at 12:30 pm
danm: True enough. The inevitable inflation will be rough. The only offset may be that the gold, oil, ag, and commodities sectors of the economy will do ok but for average folks and fixed income retirees it will not be pretty.
March 25th, 2009 at 1:00 pm
Why are we not taxing Mortgage Brokers commissions 90%? Is this refi boom not a Gov’t bailout?
March 25th, 2009 at 4:48 pm
Actually, why are we not hiring prosecutors and building prisons to put mortgage brokers in jail by the thousands?