II) Fundamentals
The good news is that Initial Jobless Claims fell to 521,000. The bad news
is that 521,000 is good news. Wholesale Inventories were -1.3%.
ISM Services Index was 50.9 indicating mild expansion for the first time in
a year.
Thursday's Treasury auction went well but not as well as expectation so the
market started selling. Lower prices = higher yields.
III) The Technicals
The daily downcrossed Thursday and yields then moved up sharply. The weekly
is still bullish.
For those who are not long time readers the basis
for these observations about technicals is the work of Jim Grauer which can be
viewed at StoMaster.
IV) Analysis
In a word if you have not refinanced you should start now if there is any benefit.
Rates were very low but the bottoms are short-lived. If you are not sure e-mail
of call me.
If you are concerned about where mortgage rates are going all I would say is
that there is very little, if ay, room for lower rates and a lot more room for
higher rates. We could go up 0.5% in rate as easily as we could go down 0.125%
in rate.
I want to emphasize again that the Fed announced that it will stop buying mortgage
debt at the end of 1stQ2010 so there is every reason to believe that mortgage
rates will go up then.
I need to share something because maybe you folks can help me. I received my
absentee ballot for next months election for "I have no idea what".
The first page tells me that San Francisco is sophisticated and uses "ranked
choice" voting and I would "Vote for my first, second and third choices"
for City Attorney and Treasurer. The three choice for City Attorney are Dennis
Herrera, Dennis Herrera, and Dennis Herrera. The three choices for Treasurer
are Jose Cisneros, Jose Cisneros, and Jose Cisneros. I was in a quandry. Should
I rank the three Herreras? I confess that I gave up and simply vote for none
of these.
Since I started on Ranked Choice Voting I may as well make a point. Unless
something has happened in the past few years that I am not aware of there is
a mathematical theorem from the 1950's called "Arrow's Theorem" (http://en.wikipedia.org/wiki/Arrow's_impossibility_theorem).
Ken Arrow was a sort of mathematical economist who won the Nobel Prize in Economics
in 1972.
While the math part of this can be intimidating I believe that the point should
be taken that Ranked Choice has some inherent problems. The most controversial
part of the set of requirement for reasonableness is probably that part called
Independence of Irrelevant Alternatives. This means, in simple form, that if
I prefer A to B then the introduction of candidate C should not wind up with
my re-ranking B above A. It is this point on which Ranked Choice fails most
often.
Another issue is that all of this assumes that voters act rationally. Here
the word “rational” has the strict definition that people vote in
their own best interest. That is, in my observation, not the case. Thus we are
cursed with trying to impose a rational system on people whose behavior is irrational.
The important point to note is that while Ranked Choice Voting seems like a
good idea to most people they are unaware of its fundamental flaws.
I have started using Facebook recently and post these
newsletters and some commentary on the economy there. If you want to see these
add me as a "friend". There are not a lot of folks named "Dick
Lepre". I am not one of those folks who tells everyone what I had for dinner.
It is just not that interesting.
V) Mortgage This and That
I want to make a few points about what is happening with the mortgage business
and where the markets may be going in 2010.
We have seen a couple of changes in the past for months which make what we
do a bit more difficult. One item is the HVCC appraisal guidelines which make
it necessary for the lender to order the appraisal. This hurts some brokers
and benefits bank and mortgage banking operations such as ours. One inconvenience
we face is that we cannot contact the appraiser at the start of the process
and get an estimate of value. This means that some folks are going to pay for
appraisals only to find that the value is too low to support the intended loan.
In declining housing markets this is more than academic.
The other new thing is the rules about disclosures. We used to send out an
initial Good Faith Estimate and Truth in Lending. Now if the rate lock is different
from what is on the disclosure we need to redisclose. We have the technology
to deliver these in a manner so that you can electronically acknowledge receipt.
Otherwise we need to stop for 3 days if this is sent by fax or mail. This simply
means that more cooperation is needed from borrowers to make sure that loans
fund on time.
Overlaying all of this is an intense measure of scrutiny. Our underwriters
and funders are demanding things which they did not previously demand solely
for the purpose of quality control. We do not want to have to but a loan back
from an investor because a page was missing from a bank statement.
All of these inconveniences are the price of the lax way the mortgage industry
had acted. The Federal Government has a substantial measure of responsibility
by demanding subprime lending from FHLMC & FNMA and demanding more subprime
under CRA (Community Redevelopment Act) for banks and S&L's wanting to expand.
The Dollar
Somehow even Forex got politicized this week. If has always been my belief
that mixing politics with economics is a good way to obfuscate economics. Blaming
Obama for the weak dollar is silly. The dollar is weakening because of an abundance
of supply and fiscal irresponsibility (too much borrowing). I still find it
utterly insane that we are in a prolonged discussion about health care reform
and the possibility that the Federal Government will expand Medicare (I am using
the expression "expand Medicare" here only to refer to any increased
responsibility to cover health care expense) when Congress has for 6 consecutive
years refused to increase Medicare cost to match expense. This approach to Medicare
has a similarity to predatory lending. Possible outcomes are: 1) significant
inflation 2) higher taxes and lower GDP 3) significant cutback in healthcare
for seniors 4) economic disaster. Underfunding Medicare is irresponsible.
About Those Jobs
I know I have said this at least 10 times but it is important that folks understand
that the economy is not the jobs market. We will very soon see the recession
end which only means that GDP will start expanding. This is of little immediate
benefit to the large numbers of people who are out of work. Job creation will
come later when investors, businesses and the banking system are comfortable.
Jobs always lag in recovery. This is another reason not to mix politics and
economics. This administration (like every other administration) sold its economic
policies as creating jobs. If that does not happen voters will recall that and
opponents of the incumbents will point to unfilled promises.
Jobs are created when business, labor and capital come together with opportunity.
Opportunities in the future are likely to be tech driven and technological breakthrough
occurs on its own schedule. We are likely to be in for a few years of high unemployment.
This will not be solved by government spending.
If
you have something to add to this discussion please post a comment on the blog.
Dick Lepre
RPM - SF
580 Pacific Avenue
San Francisco, CA
94133
DRE License # 01143973
dicklepre@rpm-mtg.com
Web site: www.loanmine.com
Blog: economy.typepad.com
(415) 343.6789 (direct
dial number)
(866) 488-2051 fax
California Department of Real Estate
- real estate broker license #01201643
On voting, it seems to me that we already have a system where society's least desirable can win. E.g. 45% vote for Gore, 15% for Nader (whose 2nd choice would be, say, Gore), 45% for Bush. Result: 55% prefer Gore to Bush but Bush wins.
It seems to me that InstantRunoffVoting.com solves this problem to better reflect the will of the majority (no system can reflect unanimity because there is none). It's certainly better than what we have now and encourages more diversity in voting (and hence add'l parties) without throwing away your vote for choosing who you think is best.
Posted by: Bob K | October 09, 2009 at 12:39 PM
The point proved by Arrow's Theorem is precisely that ranked choice voting is flawed in the sense I described. If A would beat B in a one-on-one contest ranked choice voting enables the addition of a third candidate and ranked choice to allow B to beat A. Ranked Choice is sold as saving the cost of run-off elections but, as Arrow has proved, it is a system which is inherrently defective.
Posted by: Dick Lepre | October 09, 2009 at 09:14 PM