Why I Hate the Fed

I have friends that tell me that the Federal Reserve was created illegally.  This argument makes me tired almost immediately, so I'll not rehash it.  I could not agree with them more, however, that the Fed is a bad thing that occasionally creates even worse things.  The idea that seven wise men could sit on their thrones and "keep the economy stable" by issuing policy pronouncements and raising or lowering the rates at which banks can borrow money from other banks is ridiculous.  It is hubris of the most destructive sort.  It is having, has had, and will continue to have grave negative consequences for the nation and indeed for the world.

You will of course assume from the above that the Fed decided to raise rates and based on yesterday's post you will also assume that they did so using language that makes it clear that they aren't finished raising them yet.  You will be absolutely correct.  The Fed said that "further tightening may be necessary", meaning, I guess, that 1.1% growth in GDP is too robust an economic picture, and that we need to get back to a recession before we do anything that might make it easier for businesses to borrow short-term money for expansion.  I also said yesterday that the Fed is not stupid.  Let me retract that.

The Chris Jones Group is not about the lowest possible rates, unless that's what you are about.  It is not about the lowest possible fees, unless that is what you are most interested in.  What we are about, whether you are or not, is trying to make the most accurate forecasts of economic conditions so that we can all prosper.  This is a difficult thing to do.  When it is made more difficult by a group of pathological buffoons who occupy unlelected and insulated positions and try to make the rest of us dance to their merry tune, then we get seriously annoyed.  Right now we are seriously annoyed.

Tomorrow, Tomorrow

The end of the Alan Greenspan era is upon us with Ben Bernanke taking
over the Fed at tomorrow's meeting. Not that anyone's expecting
anything dramatic from that. Bernanke is virtually certain to raise
interest rates again to 4.5% on the Fed rate - the 14th consecutive rise
in short-term rates. At that level, the Fed rate will be .02% below the
10-year bond rate, which is going to make it really, really difficult
for banks to lend money. Typically, this type of crunch, which is
called a yield-curve inversion, presages a recession. Maybe that won't
happen this time. Maybe it will.

The real interest is going to be in whether the Fed indicates a pause in
rate hikes after this one. If no such pause is indicated, then mortgage
rates are going to skyrocket. If the Fed says something about being
nearly done raising the cost of borrowing money, then there's a chance
that rates could stay around the 6% range. The Fed raises rates to ward
off inflation, figuring that restricting the supply of cheap money will
keep prices from rising. But inflation is tame, you say. Recent CPI
numbers show an increase that measures out to an annual rate of 1.2%.
Any smaller growth and you get deflation (prices falling) which nearly
everyone agrees is bad because it passes directly to falling wages. Oh,
what a tangled web we weave.

So why make another rate increase to ward off inflation that doesn't
exist? There are signs, in fact, that the rising rates will kill off
the housing market, which is the main source of money for the economy at
this point. The Fed raises rates not because it is stupid, though I
have indicated in the past that I think it is, but because it follows an
incorrect economic model. There's a lot of math here and I am far from
qualified to do it or to explain it to others. But I can point to one
thing - the bond market itself.. Markets are only wrong when they are
either 1) tampered with or 2) deceived. The bond markets are not being
tampered with and they are not deceived. It is the Fed that is
deceived. This will become obvious over the next couple of years and
Ben Bernanke will have to be truly as good as advertised to keep the Fed
from being under serious investigation for incompetence. You read it
here first.

Friday's Mortgage News - We Told You So

Since I’m getting tired of saying that the market makes little sense, I thought today I’d let David Lereah, Chief Economist of the National Association of Realtors, say similar things.  He also has a forecast of realty activity for 2006, and it’s pretty good.

New home sales were up sharply in December.  This is a trend, now.  New homes sell.  Existing homes don’t.  This is, of course, an oversimplification, and tells us, as I mentioned earlier this week, nothing whatever about your particular house.  But in general, homebuyers are more interested in brand-new houses than in existing homes.  I cannot explain why.  Especially in Utah, I prefer homes that are 20 years old, because the trees have had time to get taller than I am.  But I am weird, and I’ve learned to accept that.  What it means is that people like me are getting better deals on the homes they want to buy, and even better deals on the new homes they are building for sale.

If you were paying attention to this space, and some of you were, you knew this last fall and are now sitting on some very solid assets.  You’re welcome, Chad.

We’ve been playing lots of chess here recently, I guess to stay sharp.  If you’d like to get in on some of the action, stop on by.  I could use some help as black dealing with the Queen’s Gambit.

The Chris Jones Group would like to make you aware of the Lehi Area Chamber of Commerce meetings the first Tuesday of every month at the Harvest Restaurant at Thanksgiving Point at noon.  Lunch and the speaker and the networking and the whole enchilada is $15.  You won’t regret it.

Since there is nothing happening this weekend, there will be no predictions.  My prediction is that nothing will happen.  See that I am right.

Movin' On Up!

Just saw this and wanted to make sure I posted - the Mortgage Blog has moved into the top 10 on Google's rankings for the Chris Jones Group.

 

Thanks, guys.  I mean it.

 

 

Chris Jones Watch

The market reacted very, very negatively to the news that the housing market is cooling off rapidly, even more rapidly than was expected.  That ought to be a sign that interest rates are at a good level, and in turn to signal that the Fed likely will finish its interminable round of moves next week, but the bond markte did not take it that way and we have a cascade failure that lost us .125 on both the 15- and 30-year mortgage rates.  More tomorrow, even if, like today, none of it makes any sense.

 

Time for another Chris Jones Watch installment.  Today, I am a wide receiver for the Minnesota Vikings.  I guess.  I have no statistics, so it's really hard to tell if I'm any good.  Thanks, as always, to Google.  This reference appears on page 12, right before the link to my page where I'm a developer for MobyGames.

 

If you're interested in who I really am, try going to The Chris Jones Group main page.

 

But if you DON'T know who I am, what are you doing here?

 

Not that you aren't welcome.

Times, They Are A-Changin'

My ankle is not fine, but substantially better than it was.  It appears that it is definitely not broken, and the ligament is attached where it should be, more or less.  Thanks for the concern, but all I need now is physical therapy and a new hobby.

Rates are creeping slowly back up.  Nothing spectacular.  No major moves to report.  Everyone is pretty much holding their breath for the Fed meeting next week.

A new study of home values shows that the Salt Lake area is approximately fairly priced.  This is in contrast to places in California or Florida where the values of the properties are less than 65% what was paid for them.  As long as the economy continues to be fairly strong, that shouldn't be too large of a problem, though again, let me emphasize that broad-market health doesn't tell us anything about your house in particular.  Similarly, a bad market nationwide has no relevance to whether you make a packet on your home personally.  Good economic news doesn't relieve you of your suty to do your homework, and doesn't make professional assistance any less important.

That's why we're here.  The Chris Jones Group is interested in you making the most of your money.  We routinely tell clients not to do loans, or to do them differently, because it's not in their best interests to proceed down the path where we get paid right now.  But that only makes for happier clients and we know that happiness translates in to the love.  We are all about the love.  Well, and the money.  But our money comes from your money, and if you don't do well, neither do we.  So it's all the same.

Some serious changes are coming to the Group, by the way.  We're considering several changes to our business model, some of them cosmetic, but many of them systemic, and all of them meant to deliver better and better service to our clients.  We're not doing well enough yet.  We need to do better.  We are committed to doing so.

Yeah, we're keeping the blog. :-)

Just When You Think Things Are Going Really Well...

We've had an extraordinary run of good fortune recently.  Most of the loans we are working on are proceeding fairly smoothly.  Most of our clients are people with good credit and verifiable income.  Our investments appear to be paying off.  Everyone is out of the hospital.  Stuff like that.

On a personal note, some of you know that I have been aggressively working on my fitness for the past 7 months, mostly to get ready for basketball season, which is my sport of choice.  I've run some 5ks, things like that.  The last two years I have been unable to play ball, due to ripping a tendon in my ankle two years ago (on the very first day of the year) and tearing my ACL (opposite leg) last year in a freak accident that I still can't completely understand.  Yesterday was game 3 of the season, and I am, currently, averaging about 20 points a game and leading the league in 3-point shooting.  At 37.

So of course I tore my ankle up again.  It is the same injury as last time, which took me roughly 6 months to recover from.  This time I can go see a doctor, which I will do, but I am right now predicting that I can spend practically whatever I want and get exactly the same results as two years ago.  So far we're out $275 for a doctor visit and some x-rays, which showed nothing whatever of any practical value.  It does appear that I have broken my ankle before, but that must have been someone else's ankle, because I'm sure I would have remembered.  But that's what the x-rays show.

So if I'm a little testy the next few days, or slow to return phone calls, it's because I am bitter at the entire universe.  That, and I have to hop (on the leg with no ACL) to reach the phone.  Laugh if you must.

The yield-curve inversion has grown so deep that it looks like a horse trough.  The 2-year bond is above both the 5- and the 10-year, and the 6-month bond is almost a full tenth of a point in yield above the 5-year.  It's just completely screwed up.  Practically speaking, for those just joining us, this means that the 30-year fixed mortgage rate is about where it has been for the last three years, right around 6%, but the ARM rates have skyrocketed to the point that there's almost no reason to do any other loan than the 30.

So who is right?  The Fed thinks interest rates should be higher than they are.  By the Fed, I mean the seven members of the Fed Board of Governors, who are the ones that set the Fed Funds Rate, from which the Prime Rate is derived.  This group of seven, led by Alan Greenspan, have raised rated fourteen consecutive times, at 1/4 each time.  This means a cumulative rise in short-term rates of 3.5%, from 1% to 4.5%, making the Prime Rate 7.5%.  During this time, the cumulative wisdom of the bond traders is that the Fed Governors are completely nuts.  The long bond (10-year bond) is trading almost exactly where it was three years ago before the rate hikes began.  What this means, in effect, is that bond traders think the risk of inflation is less for a 2-year bond than for a 6-month bond, and MUCH less for a 5-year or 10-year bond.  This is impossible, naturally, because whatever rise in interest rates affects the 6-month bond must affect any bond with a longer maturity, by definition.

What this means is that the Fed has taken short bonds off the market.  They are ridiculously priced, to the point that if you're going to sink cash into the market, you'd be better off putting it in a savings account than into a short-term bond.  The short bond price continues to fall (driving up the yield), because there is no price that would make it attractive to an investor.  Meanwhile bond traders can't get enough of the longer bonds, so their yields fall while their prices rise.

The Fed thinks inflation is a problem, so it raises rates to reduce the monetary supply.  Bond traders keep pumping liquidity in by buying longer bonds.  One of the two is wrong.  Which one?

The guys at the Fed are bright.  These are not dumb people.  But no group of seven men, no matter how intelligent they are, are smarter than several million people together.  You can get more on this from James Surowiezki's The Wisdom of Crowds, which I heartily recommend, but suffice it to say that the Fed is wrong.  And in order to forestall a recession, it will have to cut rates again.  You heard it here first.

What does this mean to you?  Not much, except that for the moment, you cannot use the more aggressive mortgage loans to provde low payments, unless you are willing to back that low payment with the equity in your house, and absorb some of the unpaid interest into your  outstanding loan every month.  It just reduces the options available to homeowners and investors, and this reduction is due to one person, and one person only: Alan Greenspan.  You have him to thank that your payment is $150 higher than it should need to be.

The Broncos will beat the Steelers, and it will not be close.  The Panthers will beat the Seahawks, and it will be.

Have a good weekend.  I'll try to summon up a positive mental attitude by Monday.

The Day After

My father is, in fact, doing fine. There was no metastatis that the doctor could find, and Dad expects to be his old self (at least most of his old self) inside of a month.

The only prediction from the weekend that I did not get right was the Colts, and I had lots of company on that one. Oh, and the Jazz lost. And lost again yesterday, though they really should not have.

The yield curve is now so inverted that the 10-year bond is below the 2-year AND the 1-year AND the 6-month, a situation that has never occurred before in my memory. That's great for long-term fixed mortgages and absolutely crap for everything else.

Continuing update on the construction scene, our favorite builder just sold his spec home - in ONE DAY - FOR $4000 ABOVE FULL PRICE. Nice four months' work there, B. Don't spend your $40k all in one place. And yes, I'll be out shopping for a lot myself later this week. Thanks for asking.

Cj

Dad's Doing Fine, I Guess

I've gotten several calls today about my father, asking how he is doing after his cancer surgery yesterday. The answer is: I have no idea. Well, that's not strictly true. It is true that no one has called me, despite my repeated attempts to raise someone at the hospital for information, and that none of my family seems to give a crap if I know what's going on or not. It is also true that this is not surprising; it's sort of how we do things in my family. The deal is, if nothing is wrong, nobody calls. It's only if the World is Coming to an End that the phone will ring, so my assumption is that everything is cool. They would have called me otherwise, right?

Today's economic news showed slow consumer spending and, again, no inflation. Miracle of miracles, higher energy prices are not bleeding into the rest of the economy. This is a miracle only because higher energy prices - those resulting from a major spike in energy costs, like the one we had in the fall - never result in increased general inflation. Right. Never. It's never happened. Economists are mystified that the economy seems to be doing exactly what it has always done.

Bond traders, however, greeted the report with joy, and the bond took off. We lost about 1/8 to the 30 and 15-year rates over the last two days - good news for the .14378% of homeowners that have yet to refinance, and even better news for those buying houses. Of which, let me tell you, there is a plethora.

A few of the better links I'm reading:

Does This House Make My Butt Look Fat, a post by the always interesting David Porter of the Pacesetter Mortgage Blog

Overheard in New York, which accurately portrays exactly why I live in Lehi, UT

What is Your Dangerous Idea? for those of us that like living dangerously

Grim Times Ahead, by the most amusing - and consistently wrong - mortgage blog on the 'net. The premise of this article is that an 8% decline in mortgage applications will usher in the Reign of the Undead. Frankly, if that 8% decline gets rid of 8% of the loan officers I know, we will not yet have gotten to the ones that are merely incompetent, and not willfully evil. This industry has tripled in size in the last 5 years, and could use a trim, if you know what I mean, and I think you do.

And a new installment of the Chris Jones Watch, where I show you yet another of myselves out there on the www. Today, I am a pitching prospect for the Boston Red Sox. But for shoulder surgery, I might be with the big club already. But there is progress of another kind - our website, which when last seen was not mentioned on the web under Chris Jones Group, is now 21st and 40th on Google's rankings, a dramatic improvement. Mostly thanks to you, I believe. We continue (as the Lehi Chamber Press Release says) to rank #1 on Technorati's rankings under utah housing, and we're intent on staying there.

Broncos beat the Patriots in overtime. Bears lose to Carolina by 7. Redskins just don't have enough offense for Seattle, and Indianapolis crushes the Steelers.

The Jazz, the MIGHTY JAZZ, beat the Heat tonight for their ninth win in ten games.

Have a great MLK weekend.

New Lehi Chamber Chairman (Me) Speaks Out!

FOR IMMEDIATE RELEASE          12 January 2006               
Contact: Wells Kempter  801.310.9175

New Lehi Area Chamber Chairman Says Chamber Will Double in 2006

Lehi – The Lehi Area Chamber of Commerce Board of Directors has named Christopher Jones, 37, of Lehi, its Chairman for 2006.  Jones laid out a very aggressive agenda for the Chamber in his inaugural address.  “We are gong to double the size of the Chamber this year,” he said, speaking at the Chamber’s monthly luncheon, held at Thanksgiving Point’s Harvest Restaurant.  Jones replaces Lisa Liddiard, also of Lehi, as Chairman.  Liddiard presided over one of the fastest-growing periods in Chamber history in 2005, where Chamber membership increased almost 25%.

“We are very excited to have Chris as our Chairman for 2006,” said Heather Miller, President of the Chamber.  “Chris brings a lot of energy and good organizational skills, which we need.  He also has a specialty in communications and marketing, which will be very important for us in the coming year.”  Recent announcements of development in Ivory Ridge and Traverse Mountain are expected to mean increases of up to three times the current retail square footage in Lehi in the next five years.

“We are going to substantially boost the community and commercial impact of the Chamber and its members,” Jones said.  “The Chamber has already become a solid force for good in the Lehi, Saratoga Springs, and Eagle Mountain areas, but we can do more.  We will be working closely with the American Fork Chamber and you’ll see a huge impact from the Chambers in all of north Utah County this year.”

Also elected to Board positions were Kris Belcher of Flowers on Main, who became the Chamber’s Vice-Chair, and Lisa Liddiard, who stepped down from the Chair position to become the Board’s Secretary.  Kelly Terry remains the Chamber’s Treasurer.

Jones mentioned that he had recently attended the Eagle Mountain Inaugural Ball and had a chance to speak to Brian Olsen, the incoming Mayor, as well as John Walden, the chief developer of Cedar Valley.  “There is going to be an explosion of commercial activity in the west of Utah County over the next five years.  The Lehi Area Chamber could exit the decade as the largest Chamber of Commerce in the county.  It’s our job as a Board, as a Chamber, to go out and find these new businesses, hook them into the existing economic network, and help them succeed.”

Chris Jones is the Resident Magician of the Chris Jones Group, a real-estate finance and mortgage company.  Resident Magician?  “When you found the company, you can call yourself anything you want,” Jones laughed.  “We are a little different as a company, and we wanted titles that reflected that difference.”  The Group’s motto is “Get a Home for Everyone in the World.  Then Start Over.”  Jones writes a blog at www.thechrisjonesgroup.com that Technorati.com rates as the #1 blog for Utah Housing, and he was recently asked to speak to the State Legislature on real-estate tax issues.

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Twelfth Night, and the Dow

I didn’t spend a lot of time pushing this on here, but we had a very, very successful Twelfth Night Celebration on Friday, and raised some serious money for the American Cancer Society.  We’re grateful to the Apollo Dance Hall in American Fork, as well as our sponsors Hammond Promotions, Horizon Title, Kunzler Financial, Picture Perfect Utah, Sign-A-Rama in Murray (Brad Hill), The Music Makers dance band, and Weddings 4 Less.  All of you were marvelous.  Thank you from the bottom of our hearts.

Pictures to follow.

The Dow cracked 11,000 earlier today, then immediately retreated.  What that means for bonds is…nothing.  Bonds were absolutely flat today.  I think there’s a good deal of nervousness about the late January Fed meeting, which is the one where we have a changing of the guard from Alan Greenspan to Ben Bernanke.  If the Fed signals that its rate hikes are done with for now, that’s going to be really good for mortgage rates.  It ought to do this.  There is no inflation, or threat of it.  The yield curve remains inverted – seriously inverted (that’s when the short-term bonds have a higher yield than the longer-term bonds).  That always means a recession, or it has always meant that in the past.  Best way to avert an inflation, other than tax cuts, is an infusion of cheap money into the economy via lower interest rates.  I’m sure Bernanke does not read this blog, but I’m assuming that if I have this figured out, he does, too.  We’ll see.

Meantime, 30-year rates are still hovering at 6%, and 15-year rates are 5.375% or thereabouts.  Still lots and lots of money to be made in real estate in Utah.

It’s going to be a terrific year.

Business is Business

The Fed minutes reveal that the rate hikes are almost over. This has done exactly nothing to help bonds, to most people's surprise. We're just about flat for the last couple days.

Here's an article about making money in a down real-estate market, for those of you that live in places like Las Vegas (#100 out of 100 in the 2006 projections for appreciation) or anywhere in California (#s 83, 87-92, 94, 95, and 97-99). We like up markets, and we like down markets. In Utah, we have an up market, and everywhere else in the wewst we have a down market. Sounds like good times.

Ways your real-estate deal can blow up on you #117: we had a client in here yesterday that tells us the offer on their house fell through because the buyer was arrested for DUI and will be in prison when the loan is supposed to close. Really, folks, we couldn't make this stuff up.

If you are political, you might want to read my dissection of the Jack Abramoff conspiracy case, posted at The Chris Jones Group blog. Occasionally some of my racier stuff goes over there so as not to adulterate the flow of financial wisdom on this page.

Whatever.

If you're not watching the BCS bowl games, you're missing the best college football of your life. I hate the BCS and hope it is destroyed, but I have to say, every last one of those games this year has been a corker. The Penn State/Florida State game last night was exhausting. Triple overtime, guys being carried off on stretchers, absolutely incredible stuff. This after the Sugar Bowl, which might be the best game of the year if it weren't for the Notre Dame/USC game back in October. If tonight's Rose Bowl is even close to as good, it will be the best bowl season ever. Ever.

Texas beats USC 27-24, by the way.

Cj

Let's Get This Party Started!

Wake up!  It’s 2006!

A couple things to get us started.  The markets are waiting for the Fed minutes from the last meeting, watching to see if there’s any indication about the timing of the “pause” in rate hikes.  I’m hoping for a total cessation, myself, but that’s probably wishful thinking.  Meantime, we’re holding pretty steady just under 6% on the 30-year and 5.375% on the 15 year.

Here’s an article from Fortune about real-estate markets that you might find interesting.  Note that Salt Lake is ranked #20 out of 100 in projected real-estate appreciation for 2006.

It’s going to be a great year, whether these numbers are accurate or not.

NEW YORK (FORTUNE) -- Everybody from Los Angeles to Boston -- your mom, your doctor, your dry cleaner -- is puzzling over which way the nation's real estate market is headed. Up or down? Bubble or not?It's a debate that's been raging for years, and recently that there have been clear signs of a slowdown. It's unlikely, however, that the housing market will come to a screeching halt.To get a clearer picture of how things may play out, FORTUNE turned to Moody's Economy.com and home property-valuation service Fiserv CSW.The researchers crunched numbers on the 100 largest metropolitan regions in the country, and the results of their analysis appear in the table below.Nationally, the overall outlook seems reasonable: 7 percent appreciation for 2006 and flat for 2007. But markets that have seen the greatest appreciation over the past five years appear to be vulnerable.Indeed, at some point in the next two years, according to the forecast, a third of the nation's 100 largest metro areas (accounting for 60 percent of the U.S. population) are expected to see modestly falling house prices.Real estate bear markets often come in the form of steady declines over many years, rather than sudden sharp drops.As inflation gradually gnaws away at the value of nominal home prices, regular folks might not take much notice. But in the long run the loss of wealth becomes all too real. From 1989 to 1997, for instance, Los Angeles residential real estate dropped more than 40 percent in inflation-adjusted terms.The nation's most perilous regional market, according to the forecast data: Las Vegas, a speculator-infested hot spot. Prices there are projected to deflate by 7.9 percent next year, the year after by another 5 percent. For newcomers to the market and those with low-money-down deals who may have overleveraged themselves with adjustable-rate mortgages, even a modest downturn could mean financial jeopardy.