Is Mr. Bernanke a Genius or a Goat?
By Louis S. Barnes Friday, April 29, 2011
We have a truly splendid outbreak of spring fever in the markets and media, the infected running about in circles, yelling “Inflation! Money-printing! Dollar crashing!”
Before rounding them up, a moment for the economy: inbound data are on the weak side. 1st quarter GDP, expected everywhere (until March) to be in excess of 4% growth, maybe 5%, arrived at 1.8%. Net of distortions, probably closer to 2.5%, but not going anywhere, certainly not fast enough to absorb labor or houses. Orders for durable goods did rise 1.2% in March, manufacturing continuing as the one bright spot.
Case/Shiller found falling home prices in February (Again. Duh.). The surprise of most concern is the rise in people filing new claims for unemployment insurance. At the peak of optimism last winter, weekly filings fell into the 380,000 range; last week were 429,000, the recent average above 400,000 for the first time in two months.
Okay, get out the butterfly nets, soothing voices, straightjackets, and a quart of whatever they used to give to Pat Nixon.
Principles and facts sometimes quiet the disturbed: any inflation problem will cause a jump in long-term Treasury yields. Instead, the 10-year T-note this week dipped to 3.31%; excepting Tsunami Day (“3/11″) as low as any since mid-December.
Second, you cannot have an inflation problem without rising wages. If people don’t have the money to pay higher prices, they won’t buy much of the stuff that got more expensive. In next Friday’s job data, expect wages to be flat for a fifth-straight month.
Third, there is an inflation problem — several of them, full-go wage-price spirals — not one of them here. China, India, Brazil, Russia, even parts of Europe, all “overheating,” meaning economic growth faster than capacity, all in the serious stages of inflation that everywhere previously have required a recession to stop.
“But GOLD, man! Don’t you SEE it?! $1,545!! FIFTEEN HUNDRED BUCKS!! Going straight up… are you BLIND!?! SILVER $47.50… time to melt all that crap we got at the wedding… inflationinflationINFLATION!!”
Better to rent “One Flew Over the Cuckoo’s Nest.” There is nothing to do with these people but shoot ‘em up with thorazine. At $1,545, gold is at last closing on that all-time money loser, $895 on April 25, 1980. In constant dollars that was $2,167.
Gold does not mean anything. Just a pretty, scarce, and emotional commodity.
Dollar principles are harder. First: the price of gold is the price of a thing; the price of a dollar is measured in other currencies, themselves relative to each other. Therefore, any time the booby-hatch begins this dollar-falling hollering, pinch yourself. Fall from what, relative to what? Beware of charts beginning at prior highs — in mathematic inevitability, they must show subsequent decline.
We have fallen versus the yen, now 81/buck. Which is very good news. The yen’s strength is a self-welded prison of deflation. We have fallen versus the commodity exporters — Australia and Brazil — themselves overheated by China’s insatiable appetite, and deeply vulnerable to any China slowdown. We have “fallen” versus the euro (now $1.48), but the dollar is still stronger than the euro-top in the summer of 2008, pre-Lehman ($1.59). The dollar has had no meaningful slide versus China’s yuan or Russia’s ruble, and has gained versus Swiss franc and Canadian loonie.
All of the nations whose currencies have risen recently, previously succeeded in devaluing versus us in the pit of the financial crisis, which cheapened their exports, and helped them to recover. Relative processes tend to self-correct, recurrently.
Last currency principle: the primary mover is interest-rate differential. Earn more there than here, money goes there. In Teutonic blockheadedness, the European Central Bank has begun to raise its cost of money, assuring the collapse of Club Med. Our cost of money is still zero, where it will remain until someone here decides to help housing. The day that Greece goes down, you won’t want to hold euros.
Some day we’ll have dollar trouble, but this day belongs to the Mad Hatter.
Notes to chart: The dollar has gradually declined ever since WW II, as it should have, the rest of the world gaining relative strength. The two huge runs up in value were bad things for us an the world: the early ’80s double-digit interest rates, fighting inflation, pulled cash to the dollar; and the 1997-2004 succession of Asian currency crisis, recession, and 9/11 did the same. The weakness since 2008 traces to suicidal strength in the yen, and a 0% Fed fighting deflation; when we finally recover and the Fed normalizes, the dollar will return to its 80-90 index value on the chart. The we’ll see how we do versus the new world’s largest economy, China, and how it does versus us.
Could the U.S. lose its AAA rating?
By Louis S. Barnes Friday, April 22, 2011
It has been a quiet week in the markets, shortened by Good Friday. Oh, S&P created a tempest with its threat to the AAA rating of Treasurys, but as the week wore on, more and more people asked, “How would they know?”
Stocks regained all losses, but Treasury bond yields stayed low, the 10-year 3.39%, mortgages under 5.00%. Bill Gross, famously dumping all of PIMCO’s Treasurys last month, has lost money on the trade. A Federal budget deal is now likely; Europe is in trouble (again, Greek 2-year bonds paying 22%), and domestic data is weakening.
Sales of new and existing homes are flat, but distressed inventory is rising; and the FHFA found that home prices fell 1.0% in January and another 1.6% in February.
The fascinating thing about housing, now: it’s no longer news. It’s so yesterday, boring. For seven months, media attention has focused on ForeclosureGate, loan servicers allegedly foreclosing on innocent homeowners. The reality is clear now, as then: the servicers have mistreated borrowers by inattention, and have run around antique local-level foreclosure procedures. Servicers will be fined, and newly regulated.
Media have found a handful of wrongly foreclosed families, but that preoccupation has missed wisdom attributed to Uncle Joe Stalin (if he didn’t say it, he should have): “The death of a man is a tragedy; the death of a million is a statistic.” The search for human-interest has abandoned the real victims: another two million households will be foreclosed this year, 11 million underwater — and government help is going… gone.
Imagine if in 1937 FDR had said, “I see one-third of a nation ill-clothed, ill-housed, and ill-fed… but if we wait long enough, they’ll get over it.” Everybody understands the basics: more houses for sale than buyers. However, even those in pain often don’t believe me when I say that credit is too tight and too scarce. Today, two examples.
Fannie, Freddie, and FHA are the only remaining significant sources of mortgages, and they are frantically trying never to make another bad loan. One cause of default is fraudulent borrower documents. Early in the 1990s, minutes after the invention of desktop publishing, the first borrower fabricated tax returns showing more income than the ones filed at the IRS. Minutes after that, FF&F required form 4506T, to pull transcripts from the IRS. For a while we actually checked, but so few fraudulent returns were found that the signed 4506T became a threat, but not an immediate act.
Since 2009 — as never before — every borrower must bring tax returns (not just the self-employed), and we must run a 4506T every time. May a merciful Almighty save us this time of year, when the IRS could not find its behind with the help of a proctologist. Transcript delays have run six, even eight weeks.
How many fraudulent returns and defaulted loans are we really preventing? In a billion dollars of loans through here, I know of one case of fraud (a CPA applicant!), hundreds of innocent but odd 1040s questioned with red-hot tongs, and thousands of delays. Think FF&F are tracking cost/benefit? Uh-uh. Just tighten, baby, tighten.
Second example: the Dodd-Frank Qualifying Residential Mortgage, qualifying for capital exemption in securitization. QRMs will require 20% down to buy, 25% equity to refi, forbid 2nd mortgages… a belt tightened right through the backbone. An FHFA study (April 14 www.fhfa.gov) found annual rates of 90-day delinquency pre-bubble (1997-2003) clustered between 2.50% and 3.00% for all loans — which is why FF&F charge to securitize loans, or require mortgage insurance. QRM-equivalent defaults ranged 0.31% to 0.55%, but were barely 20% of all loans.
By 2009, standards had so greatly tightened that all new purchase loans had a 0.30% default rate, and the QRM fraction 0.07%. No one need fear the wind-down of government supported lending: it’s already done — although the 80% of supply, non-QRM loans are going to be expensive and scarce. This self-defeating political backlash against FF&F has turned them into insurance companies offering hurricane coverage, but only for homes 200 miles from an ocean.
Could the “meltdown” in Japan mean a mortgage rate “meltdown”?
By Louis S. Barnes Friday, March 18, 2011
This week was more about human nature than economics and markets.
When Fukushima looked catastrophic, the fearful bought Treasurys and 10-year yields fell to 3.15% from 3.55% in six days, taking mortgages to 4.75%. Since Japan is now merely awful, the stock market drunks are back in charge, fright-money coming out of bonds and rates rising on the happy thought of war with Libya. Go figure.
In the US economy, little has changed. A spurt in manufacturing activity has the blind watchers of traditional patterns fondling their braille, and for once they may be right: it is possible that the US competitive gap with the world is closing. The rest of the economy… the Fed’s post-meeting statement said the “recovery is on firmer footing.” Fair enough. No footing is firmer than flat ground, and stripped of revisions that’s what the new-data trend was: core CPI, industrial production, starts and permits for new homes, mortgage applications, unemployment claims… flat.
The Fukushima story began without the benefit of competent media. Anybody with history compulsion, let alone nuclear OCD, knew Saturday morning that seawater injection and hydrogen explosion meant meltdown. CNN for the next four days chopped off any nuclear expert in the first sentence and went back to footage of crying babies and tsunami. Monday’s markets were quiet; not until Tuesday morning trading in Asia did nuclear glow dawn, and the Nikkei crash 15% in five minutes. I did not find the first capable TV account until Tuesday evening, on Rachel Maddow of all productions.
Compounding the media weakness is the historical inability of Japanese institutions to pass negative news from the field to leadership (who knew that Guadalcanal wasn’t going well?), and these guys are taking top trophy from Brownie and FEMA. Every bit as bad: the determined optimism near stock markets, an astounding number of analysts claiming that rebuilding will be good for Japan and the global economy.
All that you need to know: if not one CH-47 pilot could hover for the 15 seconds necessary to dump a bucket on target… that place is hot. However, that hard radiation is not moving: there is no Chernobyl graphite-fire volcano to move it. Long-term contamination will move, but not in human-harmful dose; yet, enough strontium and cesium to make plants and grazing animals inedible for a long time, in a large area.
Scale. Russia’s land area is 6,592,800 square miles. All of Japan is 145,903. The Chernobyl exclusion zone is 3,560 square miles. Fukushima’s extent cannot be known now, but there won’t be anybody on a beach towel near there for a long time.
Follow the money. Japan’s finances are the weakest of all large nations, in John Mauldin’s observation, “a bug in search of a windshield.” Debt 200% of GDP, going higher. Windshield found. Japan’s deepest financial problem is demography. It is one of the oldest of all nations, vaunted savings rate dropping to zero, and its population five years ago began to shrink outright. In the last week or so, prospects for immigration there have not improved, nor for conception.
In post-catastrophe we all tend to fall into counter-panic, desperate to prevent recurrence. Ban nuclear power altogether, when resistance to new-build is responsible for the hazards of so many overage plants? Embrace the rising price and environmental damage of fossil fuel, or the impoverishing mega-cost of renewables?
Rebuild… what? The towns on Honshu’s north shore lie on compact river deltas, the mountains beside them perfect magnifiers of tsunami. Re-build only above this apocalyptic high-water mark? Or live behind new 100-foot-high sea walls? How quaint. Lovely. Build for another 9.0? Or figure you’ve taken the once-a-millennium shot, and build (again) for 7.9? Or for 9.5?
Leadership everywhere, not just Japan, constantly fails to look around corners, freezes in emergencies, and then overreacts once it’s all over. Yet the individual collective keeps moving, goes to work, tends kids, brushes off, smiles, and looks to a better day. I could draw an allegory to a mortgage and housing meltdown, but… nah.
Reverse Mortgage for Home Purchase
January, 2009, HUD allows Reverse Mortgage for Home Purchase.
Reverse Mortgage for Home Purchase has opened up new opportunities not only for Senior-Home Owners, but also for Real Estate Agents. Agents now have a reason to market to the fastest and largest growing demographic in the country. It is estimated that over 10,000 people a day in America are turning 62 years of age. The first wave of the Baby Boomer Generation is now receiving Social Security Income. 
Many of today’s seniors are living in homes that no longer fit their life style. Many of the homes are multi-level, with the bedrooms upstairs, the kitchen on the main level and the laundry facilities down in the basement. In some cases the yard is too big in the summer to take care of, the drive way is too big in the winter to shovel. Many seniors today are living in homes that are to far from family & friends.
What they want is a new home. But what they don’t need is a new monthly mortgage payment at this latter stage of their life.
Real Estate Agents across the country are finding that a reverse mortgage may be an option for potential senior-home buyers who want to move or need to move but cannot qualify for a new mortgage or want to take on a new payment.
Is your mortgage lender acting like a tour guide or a travel agent?
Are you being pointed in the right direction, or no direction, and then left to your own devices to figure out what you want and should do? Or, is your lender treating you like an experienced tour guide who will carefully walk you through the mortgage journey. Read on to determine if you are working with a tour guide or a travel agent.
Let’s imagine that you heading to a foreign country called “Pluimenia.” A country that is world famous for its spectacular natural wonders. Pluimenia, as beautiful as it is, is strikingly different from America in a number of ways.
For example, Pluimenians’ greeting is different. In our country a handshake is the customary greeting between strangers. In Pluimenia, if you greet a stranger with a handshake, you are saying that you find them offensive and wish to challenge them to a duel to the death. Their greeting is to put both hands on each side of the stranger’s head and kiss him on the forehead.
Their language is a major difference. No one in Pluimenia speaks English. In fact, their language is considered by most linguists as the most complex and difficult language in the world to understand and speak. Even if you could get a dictionary of the language, you would find it nearly impossible to say the words because the language requires you to articulate sounds that you have never learned to make.
Then there is Pluimenia’s economic system. In America, we have been taught to negotiate in order to get the best price. In Pluimenia, sellers set prices too low. The buyer is expected, as a show of generosity and kindness, to negotiate the price up to ensure that the seller will make enough money to stay in business. To try to negotiate the price down, or to not negotiate the price up, would be the ultimate insult and violation of business ethics. You could alienate yourself from the business community overnight. The country is very small, and word of your offense would spread quickly. In a very short time, you would not be welcomed in any business establishment, including restaurants and inns.
There are also hundreds of other cultural differences. And, as you can see, to not know them in advance could prove to be disastrous, if not fatal.
Now, let me ask, “Would you recommend that you use a travel agent or a tour guide for your trip?” A travel agent will buy your airline tickets, make your reservations at the appropriate inns, get your reservation for a car rental, and possibly furnish a road map of the country with some of the best sights noted.
A tour guide, on the other hand, would go with you on the trip as a personal escort. He may or may not be the one who buys the airline tickets, makes inn and car reservations, but he will be right by your side during the entire trip as your personal guide.
The tour guide has been to Pluimenia many times. He speaks fluent Pluimenia and intimately knows all their unusual cultural differences. He will also be able to show the family all the sights and experiences that uninitiated tourists will never see or find, because only the locals and seasoned tour guides know about these incredible sights and adventures.
Let me identify Pluimenia for you. It is the world of mortgage banking. And let me ask you, “Do you want to be served by a travel agent or a tour guide as you consider visiting Pluimenia?”
Is your loan officer pointing you in a direction and then leaving you to your own devices to figure out what you want and should do? Or, is your loan officer an experienced tour guide who will carefully and strategically walk you through every detail and option that makes sense for your financial and life goals?
If you want to work with a tour guide, make sure your Loan Officer has learned the language, the customs, understanding of the terrain, and is passionate about understanding what you want to experience in Pluimenia and combining it with both this enchanted country and its people.
Then and only then can he be an effective tour guide taking you and your family on an exploration of Pluimenia that will transform your lives forever.
The author, Bradley K. Dale, is both a mortgage strategist with Cherry Creek Mortgage and the President of Life Tools, Inc., an executive coaching company that specializes in helping individuals discover and build their legacy. Mr. Dale may be reached via email at bradd@ccmcmn.com.
The Dale Advisory Group of Cherry Creek Mortgage
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