Connecting the Headlines
Happy Early Turkey Day!
I have a lot to be thankful for this year. My wife and new baby girl are healthy and I am surrounded by family, friends and the opportunity that comes every day with living in the greatest country in the world! It can’t get any better!
Yesterday was big step forward in our economic recovery. In addition to the economic bailout passed earlier this year, the Federal Reserve and Treasury department unveiled an $800 billion plan to attempt to jump start bank lending to consumers and small businesses. The program will make $200 billion available from the Federal Reserve Bank of New York to holders of consumer debt. The Federal Reserve will also purchase up to $500 billion in mortgage backed securities (MBS.)
There are a couple of reasons for the excitement surrounding this announcement. Firstly, this is designed to work along side the bailout; not just to prevent financial companies from failing, but to get banks lending again to consumers. Secondly, since October there has been no market for MBS. Banks buy and sell MBS to help raise needed capital or invest money to achieve a return for their shareholders. When the MBS market collapsed; banks could not sell off their MBS (loans they have already made) in order to get new money to lend to customers for new loans. This is at the heart of the credit crunch. The FED will begin creating demand by purchasing MBS from the banks creating liquidity. Hopefully, this will continue to unfreeze the credit markets.
Mortgage rates responded immediately by dropping almost 0.5% yesterday bringing the current rates more in line with the Treasury Bills (T-Bills.) How long rates remain low is anyone’s guess. In the long term, rates will have to rise to compensate for the huge amount of debt that will have to be sold for the government to continue to operate and pay all these programs.
The great news is our elected and industry leaders continue to work together across party lines to try and solve the current financial mess. Another step forward to get us closer to recovery! We need to all be thankful we live in country were we have plenty of opportunity and the freedom to pursue happiness.
I hope you have a great and safe Thanksgiving.
Interest Rate Trend Forecast
Short Term (Next 20 Days) - Steady to fractionally lower interest rates
Long Term (20 days out and greater) - Lower interest rates
Sources:
http://money.cnn.com/2008/11/25/news/economy/paulson_consumer/index.htm?postversion=2008112514
http://money.cnn.com/2008/11/26/real_estate/mortgage_rates_plummet/index.htm?postversion=2008112611
Market Alert by Larry Baer
Wednesday, November 26, 2008
Friday, November 21, 2008
Connecting the Headlines- On The Road to Recovery
Connecting the Headlines
It is my guess that no one would argue that we are not in a recession. Several signs have become evident including poor earning reports from Wall Street, the decline of job creation and production and the increase in unemployment. The most important question on everyone’s mind is how long will this recession last? The good news is that by the time we accept the fact we are in a recession; we have been in one for several months. Most professional forecasters surveyed by the FED agreed that the recession started last April and should last a total of 14 months. The GDP is expected to shrink by 2.9% in Q4.
Is it reasonable to expect the recovery to start in summer of 2009? According to Richmond Federal Reserve Bank President Jeffery Lacker it is. He believes the current monetary policy is “quite stimulative” and that the major economic shocks that hurt the economy are already behind us or starting to subside. So, is it possible that the worst is here or already behind us? If so, the times are tough right now; but not that bad. Inflation is a non-issue and gas is $1.83 a gallon near my house. This means that consumers will keep more money in their pockets due to falling prices on food and gas.
Another interesting story was on the Associated Press-GfK poll that was conducted Nov 6-10th and surveyed 1,001 adults. It found that 72% of Americans believe that Obama will fix the economy. This included 44% of Republicans surveyed! Regardless of where your political affiliations lie; if the majority of Americans believe Obama will take the steps to get the economy back on track; this is one of the keys to our recovery. Consumer confidence which you hear about all the time in the news accounts for nearly 2/3 of all spending! If the average American starts to spend money again, the economy will churn back to life. The bottom line is that the economy will get better soon and we all need to do our part by staying positive and working hard!
Interest Rate Trend Forecast
Short Term (Next 20 Days) - Steady to fractionally lower interest rates
Long Term (20 days out and greater) - Lower interest rates
Sources:
Fed’s Lacker: Reasonable to expect rebound in 2009; Reuters
For Full Article Click the link below:
http://www.reuters.com/article/GCA-Economy/idUSTRE4AK3Y120081121?sp=true
Forecasters: U.S. in 14 Month recession; Reuters
For Full article click below
http://www.reuters.com/article/newsOne/idUSTRE4AG54L20081117?sp=true
Poll: 72% are confident Oboma will fix economy (AP)
For Full Article Click Below
http://www.rockymountainnews.com/news/2008/nov/11/poll-72-are-confident-obama-will-fix-economy/
Market Alert by Larry Baer
It is my guess that no one would argue that we are not in a recession. Several signs have become evident including poor earning reports from Wall Street, the decline of job creation and production and the increase in unemployment. The most important question on everyone’s mind is how long will this recession last? The good news is that by the time we accept the fact we are in a recession; we have been in one for several months. Most professional forecasters surveyed by the FED agreed that the recession started last April and should last a total of 14 months. The GDP is expected to shrink by 2.9% in Q4.
Is it reasonable to expect the recovery to start in summer of 2009? According to Richmond Federal Reserve Bank President Jeffery Lacker it is. He believes the current monetary policy is “quite stimulative” and that the major economic shocks that hurt the economy are already behind us or starting to subside. So, is it possible that the worst is here or already behind us? If so, the times are tough right now; but not that bad. Inflation is a non-issue and gas is $1.83 a gallon near my house. This means that consumers will keep more money in their pockets due to falling prices on food and gas.
Another interesting story was on the Associated Press-GfK poll that was conducted Nov 6-10th and surveyed 1,001 adults. It found that 72% of Americans believe that Obama will fix the economy. This included 44% of Republicans surveyed! Regardless of where your political affiliations lie; if the majority of Americans believe Obama will take the steps to get the economy back on track; this is one of the keys to our recovery. Consumer confidence which you hear about all the time in the news accounts for nearly 2/3 of all spending! If the average American starts to spend money again, the economy will churn back to life. The bottom line is that the economy will get better soon and we all need to do our part by staying positive and working hard!
Interest Rate Trend Forecast
Short Term (Next 20 Days) - Steady to fractionally lower interest rates
Long Term (20 days out and greater) - Lower interest rates
Sources:
Fed’s Lacker: Reasonable to expect rebound in 2009; Reuters
For Full Article Click the link below:
http://www.reuters.com/article/GCA-Economy/idUSTRE4AK3Y120081121?sp=true
Forecasters: U.S. in 14 Month recession; Reuters
For Full article click below
http://www.reuters.com/article/newsOne/idUSTRE4AG54L20081117?sp=true
Poll: 72% are confident Oboma will fix economy (AP)
For Full Article Click Below
http://www.rockymountainnews.com/news/2008/nov/11/poll-72-are-confident-obama-will-fix-economy/
Market Alert by Larry Baer
Thursday, November 20, 2008
Economic Update Nov 13th
Economic Update Nov 13th The recent drop in the stock market was fueled by Secretary Paulson's announcement the Government will not buy bad assets from banks; the market reacted negatively to this news. Many felt this was expected as purchasing assets is more of a challenge and just as many are upset and consider this a flip flop, causing more concern. The main issue is no one really knows how to determine the value of these assets. Even after they were to determine the value once the banks sell these assets they then are required to take a write down, which would further devalue the banks. Paulson has indicated he is more focused now to invest money directly in firms that provide financing to the broader economy.
As for the bailout planned outlined in the summer, the government committed $700 Billion, this is to come in 2 installments of $350 Billion. Of the first installment they have used $290 Billion, the second installment will not come until after the new president is in place and congress will again vote on how to use these funds. The good news is the additional money invested into AIG this week has been interpreted to be a win for Banks as they will now be able to recoup $35 billion in collateral. This will reduce the amount of future write downs the banks would have been required to take if AIG had failed and was not able to deliver on the insurance contracts. Ultimately the sooner the confidence amongst banks is achieved the better for the overall economy as the continued tightening of lending has caused a ripple effect to all consumers and businesses.
So to date we have passed the first cause of uncertainty in regards to the economy with the election of a new president. Regardless of your political affiliation with the election behind us it does provide some clarity as to what steps will be taken. As the market has its own expectations of what each potential president would do to restore confidence knowing who will be president is something that was needed. As for predictions of the market analysts now are expecting the Fed to further cut rates, currently there is 84 percent chance that the U.S. central bank will lower interest rates by 75 basis points to 0.5 percent at its next meeting, compared with a 58 percent probability a week ago. Most analysts feel at this point the FED is going to keep cutting rates until something happens that is positive for economic growth. To date more than $29 trillion has been erased from the value of global equity markets this year and the S&P 500 is down 42 percent as credit losses and write downs neared $950 billion.
Although the possibility of a rate cut seems to be more realistic it does not in turn mean mortgage rates will drop significantly, as the lending institutions are keeping their margins higher and charging a greater premium for money than in the past. So anyway waiting for rates to drop further needs to realize that is not something Wall Street wants to occur, dropping rates by the Fed is simply meant to instill greater flow of cash amongst banks not consumers.
With the value of Homes in Georgia remaining stronger than the national average it is just another fact to that illustrates the benefit of homeownership in GA. (See chart above) Ultimately I still feel strongly that anyone looking to buy; the current market provides a once in a lifetime opportunity with the cost of homes down and borrowing cost somewhat reduced for the time being, action now can save them thousands of dollars later.
As for the bailout planned outlined in the summer, the government committed $700 Billion, this is to come in 2 installments of $350 Billion. Of the first installment they have used $290 Billion, the second installment will not come until after the new president is in place and congress will again vote on how to use these funds. The good news is the additional money invested into AIG this week has been interpreted to be a win for Banks as they will now be able to recoup $35 billion in collateral. This will reduce the amount of future write downs the banks would have been required to take if AIG had failed and was not able to deliver on the insurance contracts. Ultimately the sooner the confidence amongst banks is achieved the better for the overall economy as the continued tightening of lending has caused a ripple effect to all consumers and businesses.
So to date we have passed the first cause of uncertainty in regards to the economy with the election of a new president. Regardless of your political affiliation with the election behind us it does provide some clarity as to what steps will be taken. As the market has its own expectations of what each potential president would do to restore confidence knowing who will be president is something that was needed. As for predictions of the market analysts now are expecting the Fed to further cut rates, currently there is 84 percent chance that the U.S. central bank will lower interest rates by 75 basis points to 0.5 percent at its next meeting, compared with a 58 percent probability a week ago. Most analysts feel at this point the FED is going to keep cutting rates until something happens that is positive for economic growth. To date more than $29 trillion has been erased from the value of global equity markets this year and the S&P 500 is down 42 percent as credit losses and write downs neared $950 billion.
Although the possibility of a rate cut seems to be more realistic it does not in turn mean mortgage rates will drop significantly, as the lending institutions are keeping their margins higher and charging a greater premium for money than in the past. So anyway waiting for rates to drop further needs to realize that is not something Wall Street wants to occur, dropping rates by the Fed is simply meant to instill greater flow of cash amongst banks not consumers.
With the value of Homes in Georgia remaining stronger than the national average it is just another fact to that illustrates the benefit of homeownership in GA. (See chart above) Ultimately I still feel strongly that anyone looking to buy; the current market provides a once in a lifetime opportunity with the cost of homes down and borrowing cost somewhat reduced for the time being, action now can save them thousands of dollars later.
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