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. There has now not been a single terrorist attack on any US asset anywhere on earth outside of Iraq or Afghanistan in over four years. No USS Coles. No Beirut bombings. No anthrax attacks. No 9/11. Nothing. Can you remember the last time that happened? What could have caused this? I wonder.

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 www.thechrisjonesgroup.com. 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 chris@chrisjonesgroup.com, and that will work.