Bernanke Speaks!

Ben Bernanke made Wall Street happy today when he did not come right out and say that his policy, like the policy of his predecessor, is to completely destroy the world economy.

Well, he didn’t.

He even indicated that there might come a time when the Fed did not automatically drive the Prime Rate up just because they were holding a meeting, although this has been the policy for the last two years.

Here, read for yourself.

CNNMoney says that Bernanke said that “a pause in rate hikes may be likely”.  Ah.  I suppose that means a pause may not be likely, as well.  How much comfort can you take from that?  Not much, apparently, as the bond market rose a modest .03% in yield, not enough to make any rate difference worth commenting about.  So I won’t.

You have a nice day, now, y’hear?

Toot! Toot! Goes the Horn!

Tooting my own horn, here’s a letter (edited for space and relevance) I received yesterday:

Chris,

It was nice to finally meet you in person. I had surfed your website [The Chris Jones Group] and saw a picture of you so I had an idea of what you look like. Olivia Votaw has made it clear that I need a new picture on my site, cards etc. I agree and it is my plan for this year some time.

I have been VERY impressed with you and enjoyed getting to know you and work with you. I of course appreciate getting a referral and will reciprocate for certain.

It is my intention to send you more business than even I thought I would send to “someone else”. I have been impressed by you and you are clearly in the top tier of loan officers in this valley. I also enjoy your personality very much and the fact that you are from the DC area doesn’t hurt either.

On my website, I have a personal policy that I don’t link to other sites (excluding charities). I don’t want people to lose focus on me as they surf through an affiliate site. My website is to bring me business and help my clients meet their needs. What I will do is put your company name and phone # with your name on the site. Further I will actively refer buyers to you whenever possible and hope you will do the same. My personal goal is to give you 2 referrals for every one you give me as a minimum standard.  I forsee the potential for a strong business relationship that will be beneficial for us both.

Thanks again for everything.

Harry

Harry A. Rodas, ABR, CRS, GRI
REALTOR®, CENTURY 21 Bushnell
Direct Line (801) 787-7990
Email: harry@hrodas.com
http://www.hrodas.com

My marketing philosophy is to just go and meet people in the normal course of doing interesting things, impress the socks off them if possible, and develop a natural relationship that matures into something fine.  I do understand that the average loan officer goes about marketing to Realtors as a way to get business.  Some are successful and make a good living doing that.  But it isn’t for me.

My relationship with Harry (and with Greg and with Amber, who are the Realtors I do business with) came about naturally over the course of us each doing the best job we could on a difficult loan.  We like each other.  I can recommend him (and have already done so).  In response to his goal to give me two referrals for every one that he gets from me, I offered a friendly wager that he couldn’t even match me one for one.  No Realtor ever has.  That’s mostly a tribute to you.

Meantime, I recommend Harry’s site to you, and I recommend Harry Rodas as one of the finest Realtors I’ve worked with.  If you’re looking, he can help.

Title Insurance? Who Needs Title Insurance?

Can’t pass this one up.  One of the best blogs on mortgages in the country, David Porter’s Pacesetter Blog out of Lansing, Michigan, has a great post on title insurance, what it is and why you need it.  It’s worth the read.

Save On Fuel!

We don’t just save you money on your mortgage here.  We’re all about saving you money everywhere we can.

A long while back, I posted some of my gas mileage experiments with my 1997 Dodge Stratus.  What I found was that the type of gas made no difference at all, but the speed I drove did.  Since gasoline is back above $2.50 again, it might be nice to haul some of those things out again.

Apropos of that, here is an article about gasoline savings that I thought you might enjoy.  I have a neighbor with a hybrid car, and rode in one with a client the other day (and quite liked it – quiet is one of my favorite things), so I have wondered about the fuel efficiency (it’s better) of these cars, and whether they save people money (they don’t).  Having spent a good amount of time studying alternative energy and renewable fuels, as well as innovative recycling techniques (we both recycle and compost – roughly half the normal waste of our house goes places other than the landfills) (I guess today is a parenthesis day), I know one thing about them that most people don’t – they don’t necessarily save either money or natural resources.

Wind power is not more efficient – hence not more eco-friendly – than oil or even coal.  People forget this one very simple truth: it’s not the end result that determines whether a process is worth it.  Cloth diapers, for instance, do not clog landfills.  But they do destroy large amounts of water and require far, far more energy to produce and to clean than disposable diapers.  These are costs it seems few want to think about.  Wind power, if it were cheaper, would be a major source of energy for cities and towns (the oil lobby, please believe me, does not have a lot to do with whether Lehi buys its power from Utah Power or produces its own).  But it isn’t.  Wind power, solar power, all these alternative, renewable energy sources are still much more expensive than fossil fuels.  When that changes, watch how fast we get wind farms and solar arrays all over creation.

And then, watch how fast people complain that all their precious virgin land is smeared with windmills and billboard-sized solar collectors.  This is a tradeoff nobody seems interested in talking about.

But I digress (Me? Digress? Never!)

Edmunds.com, one of the leading car-review sites on the web, ran some tests to determine what the best gas-saving ideas really are.  Here are a few of the findings:

• Cruise control really does save gas on the highway.


• There is no gas savings from leaving the air conditioner off but rolling down the windows.  The reverse saves no gas, either.


• Jackrabbit starts eat up fearsome amounts of gas.  Fuel savings from taking 20 seconds to go from 0-to-60 versus taking only 10 seconds were enormous.


• Air pressure in the tires doesn’t make that much difference.

As you know if you were watching this space last fall, slowing down to 60-65 on the highway will result in close to 10% better gas mileage for the average commuter.  It’s probably even better with cruise control, but I can’t use the cruise in my car, because it is possessed by the spirit of Dale Earnhardt and immediately puts the gas pedal on the floor if I engage it.  And then it leaves it there.  If you want to know how you get control of an automatic car when the gas pedal is bolted to the floor – without crashing into anything – send me an email.  It was quite an experience.
     

Mortgage Rates, Housing Markets, and Why It's Our Turn

Haven’t discussed the market much recently, which is because it’s been trading in the same range for some time, at least as far as the bond goes.  For those just joining us, the 10-year treasury bond is the leading indicator for mortgage rates (where “leading indicator” in this case means “absolute predictor”).  The bond yield is 5.98%, where we’ve been for a bout three weeks since the market gave up trying to coax any sanity out of the Fed Chair.  All economic news is to be interpreted not on its own merits, but according to what the Fed will do with it.  Therefore bad economic news is to be ignored and good economic news is a sign that inflation is going to eat us alive.  The yield curve, however, is no longer inverted, which over at the Fed Bernanke will take as a sign of correct policy.  Unfortunately.

A 10-year yield of 6% means mortgage rates of roughly 6.375% on the 30-year and 6% on the 15-year.  The 7-year ARM, interestingly, has for the first time in my career become a serious player in the market, as it is being priced about 1/8 below the 30-year.  For most people, 7 years and 30 years are roughly the same, as they don’t intend to be in their houses for even 5 years, let alone 7.  So we’re writing some 7-year loans for the first time.  One never knows.

On the housing front, no doubt you’ve heard all about the huge real-estate crash that has virtually wiped out Las Vegas and San Diego.  You haven’t?  Oh, wait….that might be because IT ISN’T HAPPENING, despite pronouncements from everyone on earth that the market is ridiculously overpriced.  Without wanting to get too deeply into the reasons that the market cannot get too overpriced (this is assuming that the government does not take “action” to “save the housing market” like they did in the 1980s, which “help” destroyed both the housing market and the entire savings and loan industry of the US), let me nonetheless say that although the vulture media will search for horror stories, the vast majority of people in the US will not have their houses decline in value at all over the next year.

If you happen to live in Utah, not only will your house not fall in value, it will likely rise by some thousands, perhaps as much as 20% this year.  More, if you happen to live in one of the hotspots (Midway, for one).  Utah, as readers of this column know, has lagged the rest of the country in home appreciation for several years.  Well it’s our turn now, baby.  The average house bought 2 years ago for $200,000 will appraise between $250 and $275, depending on the area.

If you’re not looking to buy or sell, you really ought to consider a refinance to a loan we describe here.  It’s the loan we’re getting on our house.  It has the potential to decrease the time to payoff of your mortgage by as much as 14 years without changing your monthly outlays or your spending habits.  It is not a biweekly payment system; this is something new.  Call us (801-310-3407) or email us and we’ll talk over your situation.

The Phishing is Bad Today

At some point, folks, it’s just too much, and I have to say something.  Most of you know (I’ve complained about it before) that I have several email accounts and routinely get 2-300 emails in a day.  Along with the usual Viagra ads (six children, seventh mere minutes away now, seriously doubt that the Viagra is necessary) and pitches to help someone-or-other in Nigeria (got one in French the other day – good French, too, my father says, and he would know), I get phishing attempts from “banks” wanting me to “upgrade”.  Sometimes it’s EBay instead (I think EBay is one of the six reasons the Internet was created), but mostly it’s “from” some bank I don’t have an account at.

Some of the scams are pretty good.  Phishing, for those not in the know, is an email trolling scam where your financial information or passwords are collected by a third-party website pretending to be a bank or other institution “upgrading its account” or “verifying your information”.  Mostly, these are pretty transparent, though there are some that are quite good and one or two (I save these) that are downright diabolical.  So the bar is set, you might say, pretty high.

Then today I get this:
Dear client of Washington Mutual,
Technical services of the Washington Mutual are carrying out a planned software upgrade. We earnestly ask you to visit the following link to start the procedure of confirmation on customers data.
To get started, please click the link below:
http://www.wamu.com/softwareupg
This instruction has been sent to all bank customers and is obligatory to fallow.
Thank you,
Customers Support Service.

You may not be a grammarian.  You may not be a member of the SAGP.  But please, please tell me nobody would ever fall for something like this.  Note additionally, if you’re ever uncertain about one of these phishing scams, just mouse over the hyperlink to see the site you’ll be taken to.  If it isn’t the same one in the hyperlink, don’t go there.  Heck, just don’t go there.  Ever.  If any – ANY – email letter or chain email ever proves to be accurate, I promise you you’ll hear about it here first.

And a word about email chain letters: they are all false.  All of them.  People send them (surely not you), saying things like “what can it hurt?”, and nearly always those batch emails are sent in the clear as Cc, not Bcc, so the email addresses are all out there for anyone to get.  But it can’t hurt, right?

Oh yeah?  Do you really think the phishers are buying their email lists?  Why would they, when all they have to do is send out a warning about someone trying to ban the US flag from classrooms, together with a bogus link to a cnn.com webpage, which link nobody – NOBODY – ever seems to click on, and presto! ten thousand emails go swooshing about the Internet and the email addresses pile up!  And since the people sending and re-sending these emails are among the most gullible humans ever created by God, they are, coincidentally, the perfect market for phishing scams, which they will think are “obligatory to fallow”.  So somewhere out there is a little old grandma who lost her life’s savings because someone sent her an email about how Bill Gates was giving away his billions to “anyone that forwards this email”, because, after all, “what can it hurt?”  Don’t you hope it wasn’t you?

The Last Mortgage Loan I'll Ever Get

Promised to write about a loan program you’ve never heard of.  So here we are.

A couple weeks ago I sat with a lender and he told me about a program they are importing from overseas.  Apparently, outside the US, the standard 30-year amort (why 30 years?  Why not 25?  Or 40?) is not the dominant force it is here.  Out there, people get variable loans at a much higher rate than they do in the United States.  Interestingly, one does not hear about how German consumers are going to destroy their economy by getting adjustable mortgages, but I digress.

Last time I posted a question – how important is your interest rate, and offered an analysis of some answers.  Bottom line for most people – the rate matters far, far less than they think.  Yet the #1 question I get asked is not – hey, Jones, what’s the lowest payment I can get borrowing $200k? – but “so, what are rates right now?”

Example #1: the payment (on a 30-year loan) is the same for $150,000 at 9% as it is for $200,000 at 6%.  So is the rate more important than the loan size?  No.  But most people think they know the loan size going in.  Most people are wrong.

Example #2: the payment on $200,000 is about the same at 6% and 7% if the 7% loan is amortized at 40 years and the 6% at 30.  But I’m not going to live in my house for 40 years, you say.  No, you’re not.  You’re not going to live in it for 30 years either, though, are you?

What if you could make the interest rate matter even less?  What if you could change your outstanding loan amount every month – even every day?  What if your interest rate was not calculated as an amortized loan over 30 years, but computed like a credit card – based on your average daily balance for the month, with simple interest?

Well, there’s a loan like that.  What most people are doing with it is depositing their paychecks directly into the loan every time they get paid.  But you can’t do that, you say, because you need that money to pay bills.  So you do.  This loan lets you write checks (it even comes with a debit card) to cover them.  As long as you do not exceed your loan limit, you can do what you want with the rest.  Interest is calculated on your average daily balance, not on your loan limit.  So most people are paying interest on $2000 less than other people with traditional loans of the same amount – just for a few days.  Then it’s $1400 less.  Etc.  Another check comes, and the loan drops another $2000.  Goes back up.  And so on.

But what if, like me, you happen to be a business owner?  And what if your business sometimes puts $15,000 through in a month?  What if you’re a builder, and you put $50,000 through?  Or $100,000?  We have a builder we’re working with that has $150,000 in his business checking account right now.  Just in case.  His mortgage is $165,000.  He’s paying $1100 a month in interest.  When we finish the refinance, he’ll be paying about $175/mo.  And if he ever needs the money, he can get it.

What this means is that the average Joe, just by changing where his paycheck is deposited, can cut 7 years off his loan, and save tens of thousands in interest.

The industry has been searching for a way to make mortgages a part of the savings programs of Americans instead of a drain.  This loan, for many, many people, is the answer.

Now, it won’t work for everyone.  You have to have good credit and you have to have some equity in your property.  But if you do…

Email me or call me at 801-310-3407 if you want to talk about it.  You’ll be glad you did.

Ray's Vacation (take 2)

As some of you know, Ray went on vacation Sunday for three days (it’s Spring Break here) to Bear Lake, which is up by Logan in northern Utah. Beautiful spot. Last year, when he went, his car broke down. This year he has a new Suburban, so that’s not a problem.

Yesterday it snowed 11 inches in Logan.

Here is a photo of Ray's Spring Vacation.

Does Your Interest Rate Matter?

So, now that 30-year fixed rates are cresting 6.5%, it’s time to ask a question: how important is your interest rate on your mortgage?

There are several answers to this question.  You’re instantly thinking one of them.  Let’s take them in turn, then, shall we?

What most people are thinking: the rate is critical.  Nothing matters more than the interest rate.  I once had a client that got a 5% fixed rate on his 30-year mortgage.  What was unusual about this is that he was willing to pay over $15,000 in discount points to get it.  That rate was about 3 points below par (the rate at which the broker gets paid nothing by the wholesale lender).  Was this a good idea?  We’ll explore that.

What some people are thinking: the rate is important, but it has to be balanced by closing costs.  Some people don’t know this (if you’re one of them, you haven’t been paying attention to this blog), but your closing costs and your interest rate are absolutely inextricably linked.  Get a high enough rate, and you could have no closing costs at all (I did several of those kinds of “no cost” refinances a couple of years ago).  Get a low enough rate, and your closing costs could be astronomical (see example above).  Your closing costs will generally average about 3% of your loan amount.  If you get better than that, good for you, but understand that your rate will reflect it – or someone cut you a super deal.

A note about super deals: I understand that the cheapest wireless router in town is being sold at Wal-Mart.  I don’t buy computer equipment from Wal-Mart, however.  Or garden supplies.  Or, frankly, much else that is truly important to me.  Lots of people want a cut-rate mortgage with no closing costs and a rock-bottom rate.  These same people would never shop at Deseret Industries (the DI, to us in Utah) or the Salvation Army for clothes, though.  They are willing to pay Nordstrom $125 for a couple pair of jeans, but when someone is helping them borrow $350,000, they want DI prices.  Which is sillier – expecting top-quality clothes from a discount used-clothing retailer or expecting that the same rules that apply to clothes won’t apply to mortgages?

What practically nobody is thinking: the interest rate makes almost no difference at all.  All that matters is the payment.  Now, there are some people that think this when they should be thinking one or the other above, but there are indeed some people that think the foregoing and are perfectly correct.  We did a loan recently for a builder that would be holding construction financing for only a few months while he built several houses on some lots he wanted to buy.  The lots were going to appreciate by 100% themselves, and the houses would sell for roughly 20% over what it cost to build them.  He told me his rate made no difference as long as he got the loans in a week.  Happy to oblige.  He is selling the houses now and will make about $180,000 net profit from the operation.  He couldn’t tell you within two points what his rate is, and I’m not sure I could, either.  Why should we care?

The question really is not “which of these are you thinking” but “which of these things should you be thinking in your situation?”  Guess what?  I don’t know.  I won’t know until about a half hour after we sit down and start discussing your objectives and your current position.  I likely won’t be sure even then, but I’ll have a pretty good guess.  How can you figure this out yourself?  Well, I recommend getting a mortgage license and spending six months or so getting to know lenders and programs.  I have said many times that this business is not rocket science.  It is, however, math intensive and very knowledge-based.  In other words, what you don’t know can hurt you very badly and for years.

Tomorrow: a loan that you never heard of before that could change the way you think about interest rates forever.

Home and Garden Expo Today!

We're at the Home and Garden Expo at the McKay Events Center on the UVSC campus today from noon to 2 and tomorrow from 9am to noon, so come by and see us. It's a great event and this is precisely the time you want to get ideas for your garden this year. We can't plant yet in Utah, so there's still no pressure. Well, okay, you can plant peas, carrots, potatoes and radishes and onions. Stuff like that. But the veggies everyone wants - tomatoes and peppers and corn - still can't go in until the first of May. Average last frost of the winter is April 17 on the Wasatch Front, so don't get ahead of yourselves.

Additionally, we're debuting a new mortgage program that can cut more than 5 years off your mortgage term and the only thing you have to do is change where your paycheck is deposited. This is not a gimmick. We're so sure the program is a good one that we're asking for just 15 minutes to show you how it works. If you don't believe us at the end of the quarter hour, we'll spring for a movie and popcorn. Seriously.

More details later. Come see us. If you want tickets to the Home Expo call me on the cell - 310-3407 - and I'll have them for you when you get there.

Cj

Earth to the Fed! Earth to the Fed!

Guest blogger Flint Stevens of Strategis Financial has our article today, and lo, it's on why the Fed is likely to screw this rate thing up. Can't recall where I heard that before... This is long for my blog, but it's worth reading in its entirety.

April 6, 2006

Time to start worrying about the Federal Reserve

The Nasdaq broke out of its long, narrow trading channel this week. But instead of soaring to much higher levels, as often occurs on a breakout, the index laguished just a few points above the old channel. For that, you can probably blame the Federal Reserve. As most of you know, the Fed last week raised interest rates for the 15th straight meeting. And the statement released with the announcement hinted that another hike is likely at the next Fed gathering.

History indicates that Fed officials are likely to continue raising interest rates until the economy is driven to the brink of recession or is actually pushed over the edge. There is no reason to believe this time will be different. Wall Street knows this, so even though everyone expected last week's addition to the interest rate, it still had a dampening effect on the market.

I'm going to try to explain why the Federal Reserve continually pushes the country into recession, but first I want you to know that most of the information I'm going to provide is readily available at the Federal Reserve's own web site. In fact, on the site you'll find the statement released by the Fed at each Federal Open Market Committee meeting (the gathering where interest rates are set). You'll also find copies of virtually every report the Federal Reserve issues, such as the periodic Beige Book reports. Here is a link to the site and to the site for the St. Louis Federal Reserve Bank:

http://www.federalreserve.gov

http://www.stls.frb.org/default.html

Bill Poole is president of the Federal Reserve Bank of St. Louis. Last week he spoke about the role of federal reserve banks to a gathering of students at the University of Dayton. Here are some of his comments (I've bolded some of the highlights):

"Monetary policy is the most visible of the Fed’s responsibilities. As the nation’s central bank, the Federal Reserve regulates the creation of money and of liquidity more generally. The Federal Open Market Committee (FOMC) is the Fed’s monetary-policy body; it consists of the seven members of the Board of Governors and the 12 Reserve bank presidents, five of whom are voting members at any given time.

"The Fed implements its monetary policy by setting a target federal funds interest rate. The primary goal of policy is to maintain an inflation rate that is low and stable—price stability. Price stability in turn creates an economic environment that fosters maximum sustainable economic growth and sustained high employment. In an environment of price stability, the Fed can respond flexibly to economic disturbances—an excellent example is 9/11—that might otherwise lead to recession. Not all recessions can be avoided, but price stability does seem to have contributed to a more stable economy over the past decade or so."

In other words, the main goal of the Fed is to keep inflation in check. It does this by raising and lowering interest rates and by tightening and loosening the money supply. What I'm more concerned about is how Fed officials determine whether or not inflation is a legitimate concern. Poole again shed some light on that process:

"As for the FOMC meetings themselves, the mystique created by the media is a tad overblown. The responsibility is great, the surroundings are intimidating—we meet in a 56-foot-long boardroom with a half-ton chandelier hanging over our heads. The brainpower assembled in the room is impressive. But, other than the real-time anecdotal information we’ve collected, we have very little information that anyone else couldn’t gather.

"...We aren’t all on the same page all the time. We debate. We discuss the data. We listen to one another’s anecdotes about how the economy is doing. We even chuckle over amusing quips. Then, after reviewing expert staff analysis and all the information and wisdom we can muster, we reach a consensus monetary policy decision. The Fed chairman, of course, leads the discussion and defines the consensus, but when any of us believes sufficiently strongly that another policy course would be better, we enter a dissent."

These comments are a little disconcerting. I guess I always hoped Fed officials had access to better information than what was publically available.

Transcripts of the FOMC meetings are kept secret for five years, then released to the public. You can view these documents online and get a revealing look into what occurs during these meetings. I'm now going to refer to some information contained in the transcript of the May 16, 2000 FOMC meeting.

Think back to the economic situation in May 2000. In February 2000 the Nasdaq peaked above 5,000. By mid-May, the index had dropped to 3,500--a 30% decline. The air was quickly being depleted from the technology bubble and there were other signs that the economy would soon be struggling. Many of these were outlined during that FOMC meeting by Michael Prell, a long-time economic forecaster and analyst for the Fed. Here are some of his comments:

"In the current cycle, there would seem to be a risk of a particularly large decline in the market, given that, by many conventional metrics, we've experienced a speculative bubble of extraordinary proportions. ...But, even if you vastly increase the dimension of the decline, our economic model would still say you can avoid recession, if you cushion the effects by backing off on your tightening."

Pell made other comments about the fact that the Fed had traditionally done a poor job of staving off recession. "...When we've attempted to apply the brakes in the past, we generally ended up skidding into the ditch."

In addition, he said:

"I'd be remiss if I did not mention one other likely reason that soft landings have proven elusive. That is that, in part because of the lags in the effects of interest rate increases and our foggy crystal balls, we probably have a tendency to tighten too much or too long. This undoubtedly would be an argument of those who would caution against more aggressive tightening action right now, with the effects of your first five policy actions still in the pipeline."

So when I say that the Fed historically ends up hurting the economy by raising rates too fast and too long, I am merely agreeing with members of the FOMC, who recognize that tendency. These experts also agree that it takes about nine months before the full impact of the rate increases can be measured in the economy.

At the end of the May 16, 2000 FOMC meeting, Alan Greenspan recommended raising the Fed Funds rate by half a percent to 6.5%. And the sixth straight increase was approved. Nine months later the economy was on the brink of recession, unemployment was soaring, and trillions of dollars had disappeared from the stock market. The Fed had already began slashing interest rates with an unusual pre-meeting rate cut in an attempt to undo the damage it helped unleash. In other words, contrary to Mr. Poole's statement above, the Fed had already weakened the economy so much prior to 9-11 that when the terrorist attacks occurred, it became impossible to prevent a much deeper recession.

Now here we are after 15 rate hikes with the Nasdaq and the S&P 500 still well below their levels of May 2000. The Dow is at about the same mark as it was then. Oil prices remain at record levels--far above 2000 prices. Many experts argue that there is currently a housing bubble. The war against terrorism drags on and the man responsible for starting it still hasn't been caught.

Is the Fed going to pause here, or will FOMC members follow the historical pattern of pushing too far?

Here is the opinion of John Mauldin, an expert economic analyst and best selling author. This is taken from his weekly Frontline newsletter. It is free and you can subscribe at: http://www.frontlinethoughts.com/subscribe.asp

"Much of conventional wisdom suggests that the Fed is at the point of 'one and done.' (Haven't we heard this song before?) Just one more rate increase, thank you very much. I am not buying it. I have said since the Fed started hiking two years ago that they would go further and longer than anyone at the time thought likely. I still think that today. ...

"I believe that interest rates are going higher than 5%. The Fed will keep raising them as long as the economy is growing more than 3% a year, and that could be at least through the summer. That would take us to 5.5%, which is still below the historical mean. There are meetings in May, June, and August, thus the potential for three more hikes. The Fed will only stop raising rates when it is clear the economy, the drive for increased leverage, and the housing market have all slowed. And not a meeting before that."

In coming weeks there will be a deluge of corporate earnings reports from the first quarter. In general, these are expected to be quite favorable. This creates a juncture where the interests of Wall Street, corporate America and the Federal Reserve collide. Rising profits should translate into higher stock prices and business expansion. But businesses don't want to spend money on growth if interest rates are going to rise. So Wall Street and corporate America will hold back, waiting to see what action the Fed will take. The Fed sees the strong corporate earnings, worries about an overheated economy and raises rates again. Can you see how the cycle perpetuates?

There is another complicating factor this time. Last week's FOMC meeting was the first for new Chairman Ben S. Bernanke. As the new guy, the safest course for him to follow is the one began by his predecessor, Alan Greenspan. This was hinted at in the statement released at the latest meeting. "The Committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance." In other words, the committee stated that it plans to keep raising rates.

It is this last comment that causes the most concern to Wall Street. Traders were hoping that the first statement from the new Fed chairman would provide some indication that the FOMC was finished or nearly finished raising interest rates. Those hopes were dashed at about the same time as the Nasdaq reached a new multi-year high. The effect was similar to pouring water on a fire that was just starting to build.

Ironically, while Fed officials keep hiking interest rates and supposedly working to keep inflation under control, they continue to grow the money supply. That is an act that seems to be in direct contradiction to what they hope to achieve. By pumping up the supply of currency, the Fed provides the fuel for the inflation it claims to be fighting. Since January of 2005 the daily money supply has steadily risen from $6,400 billion to almost $6,800 billion in March 2006.

I must humbly admit that I do not have an economics or finance degree from an Ivy League school. I truly doubt I could match IQs with any of the people who attend the FOMC meetings where the nation's monetary policy is set. But I am smart enough to be concerned when I read comments from those folks like, "...When we've attempted to apply the brakes in the past, we generally ended up skidding into the ditch."

I hope they've since learned their lesson and this time will avoid taking things too far. But I'm not confident that is the case and apparently, neither is Wall Street.

--Flint Stephens

Counting Lessons

Just so everyone is aware, at a couple minutes after 1am this morning, the date was officially:

01:02:03 04/05/06

This is the sort of critical information you will find on no other mortgage blog.

The End of the World as We Know It

Terrible news. Really shatteringly bad news from medical authorities today. There is a definitive link between cancer and barbecue. Oh, the humanity!

Actually, I have lots of problems with this study, which is in the first place conducted by people that do not know the difference between barbecue and grilling. This is the first giveaway that the research is not being performed by experts. Barbecue describes a process that does not necessarily involve a barbecue grill, while grilling is what many people call “barbecuing”. Linguistically, it is indeed problematic to invite people over for a “grill”, whereas having a barbecue is generally accepted as the proper thing to do to kick off the summer. So some confusion is understandable, but really, if you’re going to do a study like this, don’t you have to get this stuff right?

Today is Opening Day, the first day of summer. Well, of course not really, since the first day of summer is the day after daylight savings begins (for those of us in the time-travel portion of the USA), because that is the first day that the kids have to go to bed when it’s still light outside. So that was yesterday. But today is the first day of the baseball season, so that’s yet another sign that the White Witch is dethroned and Aslan is on the move.

The Dodgers lost, 11-10. Maybe next year.

Announcements:

The First Ever Chris Jones Group First-time Homebuyer Seminar will be held at the Provo/Orem Chamber of Commerce offices in Provo (corner of Center and University) at 10am on April 15. This is invitation only, meaning that you need to RSVP to come. If you’re reading this, you’re invited. There will be mail – watch for the newsletter. We’re going to talk about the 5 things nobody knows about credit, the four things you should never do when buying a house, three ways to save for that first house, two things you have to remember about real estate, and a partridge in a pear tree. You’ll want to come.

Apropos of the first item above, we’re reprising the Chris Jones Group Client Barbecue in August this year. More details as the summer waxes.

Ray and Chrys had a baby last week. Peter Joseph. Photos appended. Congratulations from us all.