Daily Commentary by Larry Baer 8.31.2011

Commentary: Mortgage investors gave this morning's slightly stronger-than-expected 2.4% gain in the July Factory Orders report little more than a passing glance. Vehicle orders climbed last month by the most since January 2003, rebounding from a slump caused by supply disruptions linked to the earthquake in Japan. Stripping out the outsized gain in the transportation component of this data - so called "core" factory orders posted a very modest 0.9% gain for the month.

In a separate report the Mortgage Bankers of America said their mortgage application survey for the week ended August 26^th showed overall mortgage loan demand slumped 9.6% on a week-over-week basis. Refinance requests fell by 12.2% while purchase applications edged 0.9% higher.

The contract rate for 30-year fixed rate mortgages finished the week at 4.32%, down 7 basis-points from the prior week, down 13 basis-points from the month ago mark, and down 11 basis-points from this time one-year ago. Refinance requests represented eight out of 10 loan applications taken last week.

It is a close call - but for the time being I suggest you remain in your fox holes with your helmets on and your head down until/unless the Fannie Mae 4.0% 30-year mortgage-backed security can muster strong enough upward momentum to close above a price of 103.875. As I mentioned in this space last Friday -- it will not take much in the way of an inflation spike or signs of an accelerating economic recovery to prompt an ugly change in your investors' rate sheets

FYI: The mortgage market will operate on a normal schedule on Friday, September 2^nd and will be closed on Monday, September 5^th for the Labor Day Holiday.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 8.30.2011

Commentary: Normally the most scrutinized report of the month, the August jobs report takes on added importance given Fed Chairman Bernanke's recent public comments stressing how crucial it is for the long-term health of the economy that the national jobless rate fall below 9.0% (as of the July report the national jobless rate stands at 9.1%). Many analysts believe Friday's nonfarm payroll figures will play a major role in determining what, if any, new economic stimulus plans are forthcoming from the central bank.

An August jobless rate of 9.1% or higher will tend to support the prospects for steady to fractionally lower mortgage interest rates while a jobless rate of 9.0% or lower will almost certainly cause investors to nudge mortgage rates higher. It is a close call - but for the time being I suggest you remain in your fox holes with your helmets on and your head down until/unless the Fannie Mae 4.0% 30-year mortgage-backed security can muster strong enough upward momentum to close above a price of 103.875. As I mentioned in this space last Friday -- it will not take much in the way of an inflation spike or signs of an accelerating economic recovery to prompt an ugly change in your investors' rate sheets

FYI: The mortgage market will operate on a normal schedule on Friday, September 2^nd and will be closed on Monday, September 5^th for the Labor Day Holiday.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 8.29.2011

Commentary: This morning's stronger-than-expected July Personal Income and Spending report is just the latest in a series of various reports suggesting the economy has not yet fallen into the black hole of a recession. The Commerce Department said spending rose 0.8% last month - it fastest pace in the past five months. Income grew 0.3% on a month-over-month basis and the core rate of inflation as measured by the personal consumption expenditure component of the index posted a modest 0.2% increase.

This morning's data is actually little more than background noise as mortgage investors brace for Friday morning's much more important August nonfarm payroll figures.

Normally the most scrutinized report of the month, the August jobs report takes on added importance given Fed Chairman Bernanke's recent public comments stressing how crucial it is for the long-term health of the economy that the national jobless rate fall below 9.0% (as of the July report the national jobless rate stands at 9.1%). Many analysts believe Friday's nonfarm payroll figures will play a major role in determining what, if any, new economic stimulus plans are forthcoming from the central bank.

An August jobless rate of 9.1% or higher will tend to support the prospects for steady to fractionally lower mortgage interest rates while a jobless rate of 9.0% or lower will almost certainly cause investors to nudge mortgage rates higher. It is a close call - but for the time being I suggest you remain in your fox holes with your helmets on and your head down until/unless the Fannie Mae 4.0% 30-year mortgage-backed security can muster strong enough upward momentum to close above a price of 103.875. As I mentioned in this space last Friday -- it will not take much in the way of an inflation spike or signs of an accelerating economic recovery to prompt an ugly change in your investors' rate sheets

FYI: The mortgage market will operate on a normal schedule on Friday, September 2^nd and will be closed on Monday, September 5^th for the Labor Day Holiday.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 8.24.2011

Commentary: It is another very slow start to the trading day in the mortgage market. Mortgage investors are putting the finishing touches on their risk management strategies in front of Friday's much anticipated speech by Fed Chairman Bernanke.

Many market participants are hoping Mr. Bernanke will use his time at the podium to signal a new monetary policy stimulus designed to avert the threat of another recession. In my opinion, it is far more likely he will discuss the various methods the Fed has at its immediate disposal to provide additional lift to the struggling economy - and he will reaffirm his commitment to act decisively should the need arise -- but Mr. Bernanke will probably stop short of making any "big bang" announcement. If my assessment proves accurate -- look for the stock market to sell-off while mortgage interest rates move sideways to perhaps fractionally lower.

The Commerce Department announced earlier today that orders for goods manufactured to last 3-years or more posted a 4.0% gain in July on a huge jump in transportation equipment - particularly aircraft where orders were up 14.6%. Things were not nearly so heady for the component of the report that excluded transportation orders - where the July gain was a very modest 0.7%. Overall, the data continues to reflect continued softness in broad sections of the economy.

As they do every Wednesday, the Mortgage Bankers of America have released their mortgage application survey data for the week ended August 19, 2011. Overall loan demand declined 2.4% from the previous week with purchase money requests dropping 5.7% and refinance requests down by 1.7%.

The contract rate for 30-year fixed rate mortgages finished at 4.39%, up 7 basis-points from a week ago, down 18 basis-points from four weeks ago, and down by 16 basis-points from a year-ago. Refinance applications accounted for eight out of every ten applications taken last week.

Mortgage investors are currently doing nothing more than milling around with their hands in their pockets waiting for the results of this afternoon's 1:00 p.m. ET sale of $35 billion of 5-year notes. Early indications suggest the auction will draw solid demand from foreign and domestic investors alike. If this assessment proves accurate, mortgage interest rates will not likely move much in either direction. Only in the off-chance demand is so weak at today's debt sale Uncle Sam finds it necessary to "sweeten-the-pot" by offering a notably higher yield on today's offering of 5-year notes will mortgage investors feel particularly compelled to push rates upward from current levels. I'll post today's auction result on my website as soon as possible once the final gavel falls.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Doing Short Sales? Behave or Get the Freddy Mac Smackdown!

Think Big Work Small had a great video today regarding short sale fraud. Click Here to view the video. Sorry about the sexyfest thing at the end. You can always stop the video.

The Mortgage Coach Edge

I literally have an Edge on my competition. It is internet based software called Edge that allows me to produce a Total Cost Analysis for every client that I service. It allows me to show my clients exactly how refinancing will benefit them over time. Click Here to view a short video that shows just how powerful Edge can be!

Weekly Update by Bill Fisher 8.23.2011

The helpful notices (via computer and texting) from RateWatch that track the rise and fall of the Fannie Mae coupon have to be viewed differently today than they were a few years ago. Specifically, when the coupon rate declines, the service tells us this very likely portends a “favorable” move for interest rates.

What, we must ask, is “favorable”? For years and years, “favorable” meant that rates would probably decline. Simple as that—and also very helpful to the mortgage market because lower rates are attractive to those wishing to finance (or, even more particularly, to refinance) a home mortgage.

A lower mortgage rate means the effective cost of purchasing a home falls. And that hasn’t changed.

What’s changed is that, while significant declines in interest rates still do stoke the volume of refinances, they have minimal effect on purchase money originations. In a very real sense, lower rates may even be antagonistic to the possibility of rising purchase money mortgage volume.

This may be obvious, but it is generally overlooked—especially in national policy. The Fed recently promised that it will keep interest rates low until mid-2013 at the least. The credit markets responded briefly with lower interest rates (that is, lower yields on Treasury securities) and the stock markets reacted even more briefly with higher prices for equities. It was a knee-jerk reaction, but it had no conviction to it.

The fact is, lower interest rates indicate that the economy may be in even worse shape than we thought it was. At the very least, rates that remain low are indicative of a lack of improvement. And a lack of improvement is not conducive to home purchases. If jobs numbers aren’t improving at a meaningful pace and everything from retail sales to orders for manufactured goods remains relatively weak, you can throw a mortgage sale in the real estate sector, but most people won’t come out and buy.

It is odd, therefore, that the Fed and other policy-makers continue to hold to low interest rates as a necessary (if not sufficient) answer to our economy’s woes. They seem to say, constantly, that consumers wouldn’t spend freely and businesses wouldn’t borrow or hire if rates were to rise—even by a small amount. The fact is, though: consumers AREN’T spending freely, nor are businesses borrowing or hiring at a meaningful pace.

So we end up waiting at the bus stop for something to arrive, but nothing does. We should not be surprised. Even those retirees who would be spending more if they were only earning a decent return on their savings are waiting with us at that quiet bus stop, watching intently as nothing happens.

Now, does all of this—as obvious as it appears—suggest that the Fed and others should be readier to allow interest rates to creep higher? Perhaps. In fact, perhaps keeping rates low is a knee-jerk response whose time has come and gone.

At the very least, the lack of benefit from low rates suggests that we really can’t have an economy that is making much-needed forward moves unless we have rising interest rates. But old habits die hard. If rates were to rise a bit, most analysts would probably moan loudly that higher rates will push us into recession.

I submit that we need a little genuine “Yes, we can.” We can stimulate our jobs market. We can make it more profitable to save. We can help the economy advance. Not with yet another, feebler, even more expensive quantitative easing program. But, in part, with less manipulation of interest rates. If rates have an inclination to move higher, that sounds worthy of quiet celebration. It may be a sign of potential economic growth.

Let’s not rush to put out the fires that could bring a little warmth this winter.



by: Bill Fisher

Daily Commentary by Larry Baer 8.23.2011

Commentary: Mortgage investors are doing nothing more than milling around with their hands in their pockets waiting for the final gavel to fall at this afternoon's 1:00 p.m. ET sale of $35 billion of 2-year notes. Early indications suggest the auction will draw solid demand from foreign and domestic investors alike. If this assessment proves accurate, mortgage interest rates will not likely move much in either direction. Only in the off-chance demand is so weak at today's debt sale Uncle Sam finds it necessary to "sweeten-the-pot" by offering a notably higher yield on today's offering of 2-year notes will mortgage investors feel particularly compelled to push rates upward from current levels. I'll post today's auction result on my website as soon as possible once the final gavel falls.

The Commerce Department reported earlier this morning July new home sales fell a more-than-expected 0.7% -- hitting a five-month low. The June New Home Sales pace was revised fractionally lower as well. There were a record-low 165,000 new homes on the market in July. This news came as no surprise to mortgage investors who are keenly aware the pace of new home sales will not improve meaningfully until job creation ramps up on a multi-month sustainable basis.

The biggest event on this week's schedule is, in my opinion, Fed Chairman Ben Bernanke's Friday morning address to attendees at the Fed's global banking conference in Jackson Hole, Wyoming. Bernanke is expected to acknowledge his disappointment over the pace of economic growth -- but the probabilities remain low he'll provide any guidance on a new round of monetary stimulus. If my assessment proves accurate, it's a perfect recipe for a churning, range-bound trading environment for both stocks and bonds. Heads up.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 8.22.2011

Commentary: Mortgage investors are putting the finishing touches on their risk management strategies in front of this week's three-part, $99 billion Treasury debt auction. The process will kick-off tomorrow with $35 billion of 2-year notes on the auction block followed by $35 billion of 5-year notes on Wednesday and concluding on Thursday with $29 billion of 7-year notes. The yields on these securities are flirting with 60-year lows -- so reasons for investors to step up and buy will need to be very compelling. If demand is soft at this week's government debt sale look for the upward pressure on mortgage interest rates to increase.

The biggest event on this week's schedule is, in my opinion, Fed Chairman Ben Bernanke's Friday morning address to attendees at the Fed's global banking conference in Jackson Hole, Wyoming. Bernanke is expected to acknowledge his disappointment over the pace of economic growth -- but the probabilities remain low he'll provide any new guidance on a new round of monetary stimulus. If my assessment proves accurate, it's a perfect recipe for a churning, range-bound trading environment for both stocks and bonds. Heads up.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Weekly Update by Lou Barnes 8.19.2011

“Volatility” is Wall Street’s favorite term for losing your shirt. Volatility means down and up and down and up, a transient emotional upset.

That’s not what this is.

The Dow set one of its highs since the Great Recession began, on July 21 at 12,724. That was the same day that Europe announced its newest effort to save itself. On the next day the plan was exposed as a sham, and the Dow has since unraveled not quite 2,000 points. That is not “volatility.”

In the same span, the 10-year T-note has fallen almost one full percent, and almost broken 2.00% for the first time since 1950. That is not an investment. That is cash running to mattresses.

Only a minor portion of this trading traces to faltering recovery here. This is Europe.

The most immediate and fatal hazard in Europe, growing all week long: its banks and the European Central Bank itself are packed with sovereign bonds not worth face value. Exactly as the Great Freeze in July 2007, the financial system ceases to function when nobody knows what collateral is worth. We take collateral for loans in assurance that we can sell it if we have to, and make ourselves whole, or mostly so.

The sovereign debt problem inside European banks takes two forms. First is the mass of government bonds on their balance sheets as long-term holdings. In the mysterious world of bank capital, none is required to back up holdings of sovereign bonds because we all know that they will not default. (Not a joke.) Unlike any other loan on bank books, any loss on sovereign bonds is a hit to capital required to support other loans. The risk to these bonds today comes in either outright default (missed payment), or currency risk (payment in New Drachmas). Bank imploders.

The second risk is worse. Banks everywhere are linked by loans to each other, backed by collateral. The best collateral: government bonds. Today, every bank in Europe knows that every counter-party bank is impaired to one degree or another, and every one is studying the prospect of fire-selling semi-phony collateral into a market with only one buyer: the European Central Bank.

The ECB is exposed to nearly $500 billion of Greek debt alone, holdings of bonds bought to support a crashing market, and a great deal more held as collateral against cash hosed into banks, replenishing runs on each other. The ECB began two weeks ago to buy Spanish and Italian bonds when those markets began to crash, and to take French bonds with them. Jean Claude Trichet, a true believer in the European experiment, has executed these policies over the violent objections of Germany, the only country in the zone strong enough to back the ECB’s central bank fiction.

The inherent, structural weakness of the ECB is the source of this week’s panicked trading. Faith in all central banks rests on national capacity to pay taxes, and upon faith itself. The euro-currency zone has no taxpayers, just 17 parliaments with disparate and contradictory interests. The ECB rests on faith alone. If the zone is unable to find sound financial footing, and soon (as PIMCO’s El-Erian said, “Weeks and days, not years and months”), then the world will have to deal with the bankruptcy of the ECB.

Even if it comes to that, or any number of other European disaster permutations, in the US we are likely to be okay. We are less dependent on exports than anybody. As commodity prices collapse, inflation here will disappear. It will be easy to sell Treasurys for a long time, and we have a lot to sell.

Take all of that to the mortgage markets... at any authentic European salvation, the 10-year and mortgages will run up, and fast. Even the Fed’s two-year sorta-promise to stay at zero will not hold us here.

And as it is, our markets are frustrating borrowers. Only a handful of giant securitizer-wholesalers survive, and they are raising margins, not passing through all of the market gains. That situation will improve the longer we stay on Europe-watch, but see above: any European rescue, and this record-low episode will conclude.



by: Lou Barnes

Daily Commentary by Larry Baer 8.19.2011

Commentary: There is nothing on the economic calendar for mortgage investors to chew on.

What little trading occurs in the mortgage market today will be largely dictated by trading activity in the stock markets. Higher stock prices will likely create a little upward pressure on mortgage rates while lower stock market prices will tend to be supportive of steady to perhaps fractionally lower rates.

Looking ahead to next week the headliner event will be Fed Chairman Ben Bernanke's key-note address Friday morning at 9:00 a.m. CT on the "Near- and Long-term Prospects for the U.S. Economy." Mr. Bernanke will be speaking at the Federal Reserve Bank of Kansas City Economic Symposium in Jackson Hole, Wyoming.

There are some analysts suggesting the Fed Chairman will publicly announce another round of central bank sponsored fiscal stimulus in the form of "QE3." The majority of major Wall Street investment houses are putting the probabilities this generally mortgage interest rate unfriendly event will occur at less than 40%. Most of these market participants believe the politics surrounding such a move together with major questions regarding the true effectives of "QE2" make it unlikely the Fed will try to deploy the same strategy a third time.

Also on tap for the coming week will be a $99 billion, three-part Treasury debt auction scheduled to run from Tuesday through Thursday. July New Home Sales numbers on Tuesday, July Durable Goods Orders on Wednesday and revised second-quarter Gross Domestic Product numbers on Friday will make up the total of the coming week's rather lackluster battery of macro-economic news.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 8.18.2011

Commentary: The Dow Jones Industrial Average took a 500+ point nosedive earlier this morning as fears over growing signs of a global economic slowdown sent capital scurrying for the relative safe-haven of dollar denominated assets like Treasury debt obligations and mortgage-backed securities.

While the infusion of additional buyers supporting steady to lower mortgage interest rates is certainly welcome - I encourage you to bear-in-mind these "safe-haven" investors are not acquiring Treasury debt obligations and mortgage-backed securities with the intent of holding these assets in their portfolio for an extended period of time. The majority of these "flight-to-quality" investors will dump their "safe-haven" investments like a hot potato the second the last panicked seller in the stock markets has been indentified and satisfied.

Morgan Stanley's index of global stocks is currently posting a forward-earnings ratio for MSCI index of 11.7 versus a 22-year average of 16.4. In other words, these riskier assets are approaching such heavily discounted values any perceived sign(s) of stabilization for global economic growth will send professional investors the world over into a swirl of activity redeploying capital back into riskier but higher yielding investments like stocks. The process, when it occurs, will create a significant amount of selling pressure in both the Treasury and mortgage-backed securities market.

If my assessment proves accurate, the days of support for steady to fractionally lower mortgage interest rates from international "safe-haven" buyers are numbered. I'm not trying to tell anybody how to run their business - but with 8 out of every 10 loans in most pipelines representing refinance requests - but I think it is critically important borrowers are aware how quickly their funding sources may dry up - even though all the current underlying government economic reports suggest rates should be moving yet lower.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 8.17.2011

Commentary: The primary driver behind changes in mortgage interest rates remains trading action in the stock markets. Higher stock prices will tend to drive mortgage interest rates fractionally higher while lower stock prices will probably prove supportive of steady to perhaps fractionally lower mortgage interest rates.

As I mentioned in this week's edition of "Viewpoint" - in my judgment the 11,200 price level as indexed to the Dow Jones Industrial Average represents the demarcation line for mortgage interest rates. As long as the DJIA trades above the 11,200 mark -- it will likely prove difficult, if not impossible for mortgage interest rates to make a sustained move to notably lower levels.

Mortgage investors gave this morning's Labor Department report indicating inflation at the nation's factory gates rose at a stronger-than-expected pace little more than a passing glance. The specifics of the July Producer Price Index showed overall prices were higher by 0.2% following a 0.4% drop in June. The core rate of inflation at the producer level, a value which strips out the more volatile food and energy costs, rose by 0.4% -- double most economists' expectations and the largest single monthly increase for this measure of inflation since January.

A jobless rate of 9.0+% continues to take a major toll on salaries and wages which in-turn crimps consumer spending. As long as the labor market remains weak -- it is highly unlikely businesses will find the pricing power necessary to pass their rising raw material costs through to consumers.

If tomorrow morning's 8:30 a.m. ET July Consumer Price Index confirms this assessment -- the report will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates. In the off-chance the core rate of the July Consumer Price Index posts a reading of 0.3% or higher -- expect mortgage investors to respond by pushing rates higher in tomorrow's early going.

As they do every Wednesday, the Mortgage Bankers of America have released their weekly mortgage application survey numbers for the five-business-day period ended August 12^th. The composite index gained 4.1% from the previous week, driven entirely by a huge surge in refinance requests. Refinance loan demand was up 8.0% on a week-over-week basis while request for purchase money mortgages fell 9.1%.

The contract rate for 30-year fixed-rate mortgages finished the week at 4.32%, down 5 basis-points from the prior week, down 22 basis-points from the month-ago mark, and down 28 basis-points from the year-ago level.

Refinance applications accounted for eight of every ten loan applications taken last week by lenders across the country.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Mortgage Interest Rates are at All Time Lows Again!

Mortgage interest rates are at all time lows again. Now is a great time to refinance or purchase. Do not miss out on this great opportunity. Click Here to view a short video that explains why rates are so low.

Weekly Update by Bill Fisher 8.16.2011

Moody’s now rates the chances of the U.S. economy falling back into recession at roughly 1 in 3. We don’t have to look far to find a more depressing outlook. The harshly sober view of economist Nouriel Roubini sees little chance of avoiding another recesson (as of August 23). “So can we avoid another severe recession?” he asks. “It might simply be mission impossible.”

Now, just because Mr. Roubini is, as usual, very unhappy about the future prospects for American economic growth is not necessarily enough to make us assume we’re stuck in a leaky life raft. Still, his past forecasts, even when they have run sharply counter to the predictions issued by other economists, have proven prescient enough that we really can’t avoid paying close attention to what he says.

So—let’s work with the Roubini forecast of a lengthy slowdown and try to gain some insight into what it means to real estate and real estate financing.

First, and very important, a lack of economic growth may well throw a wet blanket over even the tepid recent job growth data. And weaker job growth dampens the willingness of potential homebuyers to make probably the biggest investment of their lives—in a personal residence. (Granted, recent job growth and the mild decline in new applications for unemployment insurance have been weak tea, at best…but they are workable, and the economy can continue its slow-growth pattern at that pace. Weaken them further, though, and the economy—including the real estate market—is likely to tank.)

Second, a lack of economic growth has already meant that the real estate finance industry is—as most global investors are—reluctant to take on risk. Global investors have pushed the value of the ultimate safe (alternative) currency, gold, to astonishingly high levels, and kept the value of safe-haven U.S. Treasury securities very high…but slow growth has made investors avoid risk, even if that risk is to be found in the recently-resilient stock market.

What this has meant in real estate financing is a dearth of purchase money (riskier) lending. The qualification restrictions on such lending have remained counter-productive to increased real estate property sales—especially as lenders have been preoccupied with a strong refinancing market, powered by falling interest rates.

Thus far, we can find little cheer for the future of the real estate market if the overall economy remains slowed by its movement toward recession (assuming the economic train hasn’t already limped into that station). But there is some small reason for hope.
If indeed, the economy continues to slow, it is very possible that mortgage rates, egged on by a declining rate for 10-year Treasury notes—which is reasonably likely to fall deeper into record territory (perhaps all the way to 1.5%)—will not only make further refinancing attractive, but will motivate more homebuyers to step up to the proverbial plate and take out purchase money loans.

Surely some lenders will become aware that there is more money to be made in purchase money financing that they are now making. And perhaps the government, if it gains a bit of sobriety about how important a lively real estate market is to overall economic growth, may develop programs stimulate purchase money lending. Perhaps.

Time will tell, and we can only hope that the time isn’t overly mired in political theatrics that divert the nation’s attention for the simple steps that can be taken to help get the economy back on track. As Roubini writes, “Another recession may not be preventable. But policy can stop a second depression. That is reason enough for swift and targeted action.”

by: Bill Fisher

Daily Commentary by Larry Baer 8.16.2011

Commentary: Second verse - same as the first.

The mortgage market continues to idle as investors watch trading action in the stock market for clues on where to set their interest rates. Higher stock prices will tend to drive mortgage interest rates fractionally higher while lower stock prices will probably prove supportive of steady to perhaps fractionally lower mortgage interest rates.

Recent economic data suggest second-half economic growth will be softer than first thought. Unemployment has remained stuck near 9.0%, raising speculation the Federal Reserve may have to be more aggressive in its monetary policy in order to revive the labor market. Inflation data on Wednesday and Thursday will give Fed Chairman Bernanke and his fellow central bankers a sense of how much fuel they can add to the economy's growth engine without awakening the inflation beast. Here's the "so what" factor attached to all this mumbo-jumbo.

A key reason stocks have rebounded so aggressively from a nearly 20% slump was the Fed's decision to make an unprecedented pledge to keep their benchmark interest rates near zero for another two years while they explore other options for breathing life back into the economy.

If the Fed is successfully in their efforts to rekindle job creating economic growth - stocks will likely move notable higher from current levels at the expense of higher mortgage interest rates. On the other hand, if the Fed fails in their effort to revive the sputtering economic growth engines - stocks will almost certainly turn notably lower. A major sell-off in the stock markets will undoubtedly prove supportive of the prospects for steady to perhaps fractionally lower mortgage rates.

As I mentioned in this week's edition of "Viewpoint" - in my judgment the 11,200 price level as indexed to the Dow Jones Industrial Average represents the demarcation line for mortgage interest rates. As long as the DJIA trades above the 11,200 mark -- it will likely prove difficult, if not impossible for mortgage interest rates to make a sustained move to notably lower levels.

Today's economic news did nothing but confirm mortgage investors' current expectations for slow growth - but not so slow the economy slips into another recessionary spiral.

July Industrial Production increased a stronger-than-expected 0.9% after an upwardly revised 0.4% gain in June. Capacity Utilization - a general measure of slack in the manufacturing sector - rose to 77.5% in July from 76.9% in June. This is the highest level of capacity utilization since August 2008. Until/unless the capacity utilization rate exceeds 80.0% on a sustained month-over-month basis mortgage investors will not be concerned about the potential of inflation producing production bottlenecks developing within the economy.

To no one's surprise, the Commerce Department reported this morning that housing starts fell 1.5% in July. Building permits, a proxy for future construction, declined 3.2% on a month-over-basis. Mortgage investors gave this data nothing more than a passing glance.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 8.15.2011

Commentary: The mortgage market is currently idling as investors watch trading action in the stock market for clues on where to set their interest rates. Higher stock prices will tend to drive mortgage interest rates fractionally higher while lower stock prices will probably prove supportive of steady to perhaps fractionally lower mortgage interest rates.

Recent economic data suggest second-half economic growth will be softer than first thought. Unemployment has remained stuck near 9.0%, raising speculation the Federal Reserve may have to be more aggressive in its monetary policy in order to revive the labor market. Inflation data on Wednesday and Thursday will give Fed Chairman Bernanke and his fellow central bankers a sense of how much fuel they can add to the economy's growth engine without awakening the inflation beast. Here's the "so what" factor attached to all this mumbo-jumbo.

A key reason stocks have rebounded so aggressively from a nearly 20% slump was the Fed's decision to make an unprecedented pledge to keep their benchmark interest rates near zero for another two years while they explore other options for breathing life back into the economy.

If the Fed is successfully in their efforts to rekindle job creating economic growth - stocks will likely move notable higher from current levels at the expense of higher mortgage interest rates. On the other hand, if the Fed fails in their effort to revive the sputtering economic growth engines - stocks will almost certainly turn notably lower. A major sell-off in the stock markets will undoubtedly prove supportive of the prospects for steady to perhaps fractionally lower mortgage rates.

As I mentioned in this week's edition of "Viewpoint" - in my judgment the 11,200 price level as indexed to the Dow Jones Industrial Average represents the demarcation line for mortgage interest rates. As long as the DJIA trades above the 11,200 mark -- it will likely prove difficult, if not impossible for mortgage interest rates to make a sustained move to notably lower levels.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Buying is Cheaper Than Renting in Most US Cities

A recent Article by Les Christie in CNN Money states that Buying is now cheaper than renting in most US cities. Here is an excerpt from that article.

NEW YORK (CNNMoney) -- Home prices have taken such a beating and demand for rental units has increased so much that it's now cheaper to buy a two-bedroom home than to rent one in most major U.S. cities.

According to real estate web site Trulia, buying was cheaper than renting in 74% of the country's 50 largest cities in July. In just 12% of the cities, including New York, Seattle and San Francisco, renting was cheaper. In the remaining 14% of cities, renting was less expensive but close to the cost of buying.

In addition to a continuing decline in home prices, rock-bottom interest rates have added a lot of weight to the buy side of the scale. The overnight average rate for a 30-year fixed was just 4.19% on Monday, according to Bankrate.com. A 15-year fixed averaged just 3.43%.

Add in the tax perks of home ownership and for those who can afford it (and who can actually qualify for a loan), it certainly is a buyer's market.

Daily Commentary by Larry Baer 8.12.2011

Commentary: This morning's rally in the mortgage market come almost entirely by way of a "flight-to-quality" buying spree created by a short-selling* ban on financial shares by France, Italy, Spain, and Belgium.

Many European investors are of the opinion that "where there is smoke - there is fire." Why would you put a ban on short sales of the stocks of banks and other major money-center institutions if there was nothing wrong? The good news is that the flow of capital out of Europe into the relative safe-haven of dollar denominated assets like Treasury debt obligations and mortgage-back securities is supporting the near-term prospects for steady to perhaps fractionally lower mortgage interest rates. The bad news is that this "flight-to-quality" support can be withdrawn as quickly as it appears. Expect more - not less - price volatility in the mortgage market in the next week or so.

This morning's flood of safe-haven seeking capital from Europe completely trumped what would have otherwise been mortgage interest rate unfriendly news from the Commerce Department. According the government U.S. retail sales posted their biggest gain since March last month, tempering fears the world's largest economy might be slipping back into recession. Overall sales climbed 0.5% in July, largely in line with most analysts forecast. Excluding autos, sales increased 0.5%, well above forecasts calling for a 0.2% gain. Year-over-year growth for ex. auto sales is now at its post-recession high. The fact that the July retail sales gains occurred during a period of weak job growth and falling consumer confidence did go unnoticed by most economists and more experienced mortgage investors.

Be very careful with your risk management strategies - there is a good chance today's rally in the mortgage market is based more on short-term illusion than long-term substance.

The coming week will be a rather quiet one with respect to major economic reports. Wednesday's 8:30 a.m. ET release of July Producer Price Index and Thursday's 8:30 a.m. ET release of the July Consumer Price Index will be the primary economic news stories of the coming week. These two measures of inflation pressures at the factory gate and at consumer's front door are both expected to be benign. If this assessment proves accurate, their respective impact on the current trend trajectory of mortgage interest rates will be virtually unnoticeable.

* A trade that involves selling an asset you don't currently own in hopes of buying that same asset at a lower price at some point in the future and pocketing the difference as profit.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 8.11.2011

Commentary: Who's afraid of a little 'ol credit downgrade on the sovereign debt of the United States?

The majority of investors in the global credit markets seem to have completely shrugged the whole thing off. Foreign and domestic investors alike proved willing to be aggressive buyers of Uncle Sam's 10-year notes at yesterday's Treasury auction. Buying demand was strong enough to push the yield on these securities down to a decade-long low of 2.092%.

The Treasury Department will complete this week's regularly scheduled three-part debt sale this afternoon when they auction off $16 billion worth of 30-year bonds. I suspect demand for today's offering may not be as robust as it was for Tuesday's 3-year notes and yesterday's 10-year notes. If this morning's 200+ point rally for the Dow Jones Industrial Average is sustained through the conclusion of the Treasury auction at 1:00 p.m. ET - it is likely the yield on the 30-year Treasury bond will edge fractionally higher - a condition almost sure to cause mortgage interest rates to creep fractionally higher as well. I'll provide a summary of today's 30-year Treasury bond auction on my website as soon as possible once the final gavel falls this afternoon.

The Labor Department reported earlier this morning the number of Americans claiming new jobless benefits dropped 7,000 to a seasonally adjusted 395,000 - the lowest level for this measure of activity in the job market in more than four months. While still elevated, the level of weekly claims for government funded unemployment benefits has improved markedly since hitting a peak of 478,000 during the last week of April. Hiring remains exceptionally weak by historical standards for this stage of the economic recovery. Economists generally agree the U.S. needs to add at least 125,000 jobs a month just to keep up with the growth of the labor force - and double that amount to make a significant dent in the nation's 9.1% unemployment rate.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 8.10.2011

Commentary: Amazing. Just-four days after the first-ever downgrade of America's sovereign debt rating to AA+ from AAA -- dollar denominated Treasury debt obligations and their mortgage-backed security cousins are enjoying "rock-star" status in the global credit markets.

The current rally in the credit markets in general - and the mortgage market specifically - is being driven singularly by the fact the rest of world - especially Europe -- is coming apart at the financial seams.

Rumors are circulating around the globe that France will soon loose their AAA sovereign debt rating as the debt crisis that began in Greece continues to infect an increasing number of the other 16 countries that share the euro.

Rick Rieder, chief investment officer at BlackRock Inc., succinctly summarized the stunning power behind this week's rally in the Treasury and mortgage-backed securities market when he said, (I'm paraphrasing) "Whether rated AA+ or not, the world still thinks Treasury debt obligations are AAA rated." The "so what factor" here is significant.

As long as the this AAA global perception of dollar denominated assets remains unshaken - and as long as Europe continues to stagger under the shifting strains of what will likely prove to be one of history's most crippling sovereign debt crisis - the support mechanism for extraordinarily low mortgage interest rates will almost certainly remain in place. If additional reasons develop for the global investment community to question America's ability to repay her debts in a timely manner -- the trend trajectory of mortgage interest rates will undoubtedly reverse course in the blink of an eye. But that is a worry for another day.

The Treasury Department will sell $32 billion of 10-year notes today. The auction will conclude at 1:00 p.m. ET and I'll post the result on my website as soon as possible once the final gavel falls.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Weekly Update by Bill Fisher 8.8.2011

Bill Miller, chief investment officer of Legg Mason Capital Management, had this to say about Standard & Poors’ downgrading of American debt: “The action was wholly unnecessary and the timing could not have been worse. Compounding this, the reasoning was poor and consequences, both short and long term, for the global financial system unpredictable.” In short, he’s not pleased.

Miller, like economist Robert Reich and others, also pointed out the irony involved in the safety of U.S. debt being downgraded by the organization that kept the safety ratings of crumbling mortgage-backed securities at AAA until well past the time they should have been downgraded. This was a costly error—if indeed it can be called an error.

Further, Miller notes that S&P, a privately-owned/for-profit firm, seems to have wormed its way into a position of great authority, not only lecturing the U.S. government on what it must do (to retain the highest debt rating) but also having a direct effect on markets all over the world.

U.S. stock markets, as you know, began the day Monday by tumbling more than 3.5% (where it was still poised to fall further as this brief essay was written). It is easy to conclude that we’re in the midst of a crash and perhaps further into another (deeper) recession than we’d begun to fear.

Into this state of anxiety, allow me to inject a bit of hopefully grounded thought. This past weekend, Paul Krugman wrote, “In those rare cases where rating agencies have downgraded countries that, like America now, still had the confidence of investors, they have consistently been wrong. Consider, in particular, the case of Japan, which S.& P. downgraded back in 2002. Well, nine years later Japan is still able to borrow freely and cheaply. As of Friday, in fact, the interest rate on Japanese 10-year bonds was just 1 percent.”

Krugman concluded, “So there is no reason to take Friday’s downgrade of America seriously. These are the last people whose judgment we should trust.” Instead, the dollar is still trusted.

What we saw last week was actually a strong inclination among global investors to continue utilizing U.S. Treasury securities as the safe haven for frightened money. The ten-year note’s yield declined in a dazzling way as investors sought what they still perceive as the safety of the U.S. Treasury security.
Admittedly, the S&P downgrade has the stock markets doing a St. Vitus dance as if the harsh judgment of the gods had somehow been unleashed on the markets. This, too, I feel, will soon pass.

But once it does pass—and interest rates firm a bit, and stock markets invite the bottom-fishers back into the pond, and we continue to see a gradual improvement in real estate data—we will still have several problems to deal with. First, can we make the support of our economic recovery less a matter of bipartisan political theater and more a matter of reasoned steps toward economic health? Can we think of the national—even of the world—economy before we theorize ways to advance the Democrats’ or Republicans’ political power? (This, you’ve noticed is the task that has been laid at the feet of the “Super Committee” that will theoretically reduce our nation’s debt without emaciating its economic strength.)

The failure over the past few years, and especially the last few months, represents not so much an economic problem as does a political one. Almost all of us seem to know this. But few of our voices are being heard, much less acted upon.
So far, the markets are casting votes of no confidence on the debt ceiling agreement and on S&P’s downgrading. Time to apply genuine creativity and skill to reigniting the jobs market, the credit markets, the real estate markets, and the overall economy.

by: Bill Fisher

Daily Commentary by Larry Baer 8.8.2011

Commentary: The flow of capital fleeing the sell-off in the global stock markets is flowing into the mortgage market and is single-handedly driving today's rally.

As I'm sure you are aware by now - after the market close last Friday Standard and Poor downgraded the U.S. credit rating to AA-plus from the top-notch AAA. The heavy selling in our domestic stock markets is currently being driven by nothing but panic created by the move by Standard and Poor. There are no fundamental reasons for a selloff. The economy is traversing through a difficult period of time - but so far there are no signs we are tipping over into another recessionary spiral. Corporate America's balance sheets haven't been in as good a shape as they are now in decades. Earnings season was terrific.

I strongly suspect the heavy sell-off in the stock market may come to a rather abrupt stop as more experienced and sophisticated players step in to buy stocks at "fire-sale" prices. In my judgment, should the Dow Jones Industrial Average close above 11,250 -- I think significant amounts of capital will return to the stock markets at the expense of the government debt and mortgage-backed securities. As we witnessed last week Friday when prices collapsed by roughly 100 basis-points in the mortgage market - "flight-to-quality" money can flow out just as fast as it flows in. Look for mortgage market price volatility to be exceptionally high this week.

While today's rally in the mortgage market is certainly welcome - I strongly urge you not to get complacent regarding the prospects for dramatically lower mortgage interest rates. Investors' attention will shift before the day is over to tomorrow's Federal Open Market Committee meeting and the Treasury's $72 billion three-part debt auction scheduled to run from Tuesday through Thursday. The auction will feature $32 billion of 3-year notes, $24 billion of 10-year notes, and $16 billion of 30-year bonds.

As I mentioned in this week's edition of "ViewPoint" - I believe the Treasury auctions will trump all other events on the macro-economic calendar. If investor demand is puny - particularly at Wednesday's sale of 10-year notes and Thursday's offering of 30-year bonds - the probabilities are strong mortgage interest rates will reverse course and begin to creep higher from current levels. Heads up.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 8.5.2011

Commentary: Nonfarm payrolls grew by 117,000 jobs in July according to Labor Department data. In the same report, the headcount for May and June was revised to show 56,000 more jobs were added than previously reported. The unemployment rate dipped to 9.1% from 9.2% in June - most likely because more than 190,000 prospective workers became so discouraged they simply quit looking for employment. The national jobless rate has now remained above 8.0% for 30 straight months, the longest stretch of high unemployment since the Great Depression.

While the July nonfarm payroll report exceeded most economists' expectations for headline job growth of 90,000 - it is still not strong enough to even cover the natural monthly increase in the labor force, which requires a minimum of 125,000 new jobs. It will take several consecutive months of headline payroll gains of 100,000+ to make a convincing case that the labor market has begun a sustained recovery.

Today's swoon in the mortgage market is probably far more the result of an unwinding of yesterday's "flight-to-quality" buying spree created by a 500+ point drop in the Dow Jones Industrial Average -- than it is a reaction by investors to this morning's slightly stronger than expected July nonfarm payroll report.

I am watching trading action in the stock markets closely. My models are suggesting the Dow Jones Industrial Average is attempting to build a bottom to support an "up" move to higher prices. If my assessment proves accurate - the "flight-to-quality" flow of capital out of stocks and into the relative safe haven of Treasury debt obligations and mortgage-backed securities will continue to tapper off rather quickly -- an event likely to bring the recent rally to notably lower interest rates to a abrupt end as well. In my judgment the threat of a stock market rally will dissipate should the Dow Jones Industrial Average fall and close below the 11,200 level and/or a meaningful rally for stocks has not developed before next week Friday.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 8.4.2011

Commentary: The pace of first-time jobless benefits filed last week were little changed from the prior period - which strongly suggests tomorrow's much anticipated July nonfarm payroll report will show new job creation during the month of something in the neighborhood of 90,000. At that pace, the national jobless rate is almost sure to remain at 9.2%. Current rate sheets already reflect investors' expectations for a puny July employment story. To put the current trend favoring fractionally lower interest rates at risk -- tomorrow's headline payroll number will need to exceed 120,000 or more. While such an outcome is certainly possible - it is not very probable.

I am watching trading action in the stock markets closely. My models are suggesting the Dow Jones Industrial Average is building a bottom as it trades in the 11,600 to 11,500 range (11,532 is the intraday low so far). If my assessment proves accurate - the "flight-to-quality" flow of capital out of the stocks and into the relative safe haven of Treasury debt obligations and mortgage-backed securities will begin to tapper off rather quickly -- an event likely to bring the recent rally to notably lower interest rates to a abrupt end as well. In my judgment the threat of a stock market rally will dissipate should the Dow Jones Industrial Average fall and close below the 11,300 level and/or a meaningful rally for stocks has not developed before the Labor Day Holiday break.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Mortgage Rates Plummet as Debt Deal Sealed

By Polyana da Costa

Published August 04, 2011

Bankrate.com

Mortgage rates plunged this week as the debt ceiling deal was overshadowed by fear of a second recession in the United States and the threat of another global financial crisis.

The benchmark 30-year fixed-rate mortgage fell 20 basis points this week, to 4.54%, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.39 discount and origination points. One year ago, the mortgage index was 4.66%; four weeks ago, it was 4.79%.

The benchmark 15-year fixed-rate mortgage fell 15 basis points, to 3.68%. The benchmark 5/1 adjustable-rate mortgage fell 11 basis points, to 3.23%.

This is the lowest rate on the 30-year fixed in more than eight months. In Bankrate's survey from Nov. 22, 2010, the 30-year fixed was 4.58%. Prior to that, on Nov. 3, 2010, the rate was 4.42%, which ties the record low in the nearly 26-year history of Bankrate's weekly mortgage rate survey, which was set two weeks prior, on Oct. 20, 2010.

Low rates surprise most

The sharp and rapid decline in rates surprised many mortgage experts. They expected rates to increase even after Congress reached a deal to cut spending and raise the debt ceiling.

"I don't think anyone foresaw the fact that we were going to get the (rate) improvements that we got this week," says Jim Sahnger, a mortgage planner for FBC Mortgage in Jupiter, Fla.

But thanks to bleak economic reports in the U.S. and the aggravating debt crisis in Europe, mortgage rates have been falling like a rock.

"Investors took a look at all of the insecurity that existed out there and they found safe haven in mortgage-backed securities and Treasuries," Sahnger says.

Bleak economic news

The gross domestic product, or GDP, estimates released by the U.S. Department of Commerce last week have helped fuel investors' insecurity, as the numbers show the U.S. economy is growing much more slowly than expected. The economy grew only 1.3% in the second quarter and 0.4% in the first quarter, according to the GDP report. That puts the estimated GDP growth for 2011 far from the 2.7% to 2.9% the Fed expects.

Recent data also show Americans cut back on purchasing major goods such as cars, furniture and appliances in June. Consumer spending for June dropped 0.2%.

Investors remain extremely concerned about the dire jobs market. Unemployment rates rose in more than 90% of U.S. cities in June. The national unemployment rate climbed to 9.2% in June, the highest level this year.

"It's all bad news right now," says Michael Becker, mortgage banker at WCS Funding Group in Lutherville, Md. "Everybody was focusing so much on the debt ceiling last week that economic reports were sort of brushed aside, but they have really impacted the market."

Stock market

The stock market is on its longest losing streak since the financial crisis of 2008. Stocks fell for eight consecutive days as of Wednesday as investors pulled their money out of the stock market.
"Investors are either going to invest in stocks or bonds, and nobody wanted to put money on stocks," says Sahnger.

The flight to safety and the increased demand for Treasury bonds triggered a sharp drop in yields. When yields drop, mortgage rates normally follow the trend.

Good time to refinance

But the stock market may rebound at any time, and when that happens, rates will likely adjust, says Sahnger.

Borrowers who want to refinance should not take a chance, says David Kuiper, a mortgage planner at First Place Bank in Holland, Mich.

"In the borrowing environment, times couldn't be any better," Kuiper says.

Like many other mortgage professionals, he has alerted his clients of the near-record low rates.
"Grab a low rate while you can," he says.

Short Sales Have Most Significant Legal Issues

Short Sales Have Most Significant Legal Issues

Daily Commentary by Larry Baer 8.3.2011

Commentary: The pace of growth in the service sector of the economy - (fields such as health, finance and entertainment - which account for three-fourths of all domestic economic activity) ticked down unexpectedly in July to its lowest levels since February 2010. The private Institute of Supply Management said its Service Index fell to 52.7 last month from 53.3 in June. Most economists had been expecting a reading in the neighborhood of 53.6. The new orders gauge fell to 51.7 from 53.6 and more importantly the employment component slipped to 52.5 from 54.1.

The weak performance for the employment component of the this morning's ISM Service Sector Index is hinting that the government's key July Nonfarm Payroll report (to be released at 8:30 a.m. ET on Friday) will likely show the economy managed to create a measly 85,000 new jobs last month - not nearly enough to push the unemployment rate below its current 9.2%. If this assessment proves accurate - the upcoming labor report will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates.

In a separate report this morning the Mortgage Bankers of America said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, rose 7.1% during the week ended July 29^th. The purchase index posted a 5.1% week-over-week improvement while the refinance index gained 7.8%.

The contract rate for 30-year fixed-rate mortgages finished at 4.45%, down by 12 basis-points from a week ago, down by 24 basis-points from four weeks ago, and down by 15 basis-points from the year ago mark. Refinance applications accounted for seven-out-of-every-ten applications taken last week.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 8.2.2011

Commentary: Senate approval of the national debt limit expansion is expected this afternoon with President Obama’s signature to follow almost immediately. The fierce partisan battle that has paralyzed Washington and spooked investors of every description will be coming to an end – at least until 2013.

The much touted $2.1 trillion in spending cuts spread over 10-years contained in today’s legislation represents a mere drop in the bucket compared to our national deficit of $14.3 trillion. Credit rating agencies were looking for $4 trillion in spending cuts in order to confirm America’s AAA credit rating – so there is still a chance that our national credit score may fall. If such a scenario were to become reality-- the upward pressure on interest rates of every kind will likely ratchet up noticeably. More on this story as it develops.

Earlier today the Commerce Department said June Personal Incomes rose 0.1% while spending slumped 0.2% -- posting its first decline since September 2009. The core personal expenditure index, a measure of consumer inflation which is closely watched by the Fed, rose a very modest 0.1% after gaining 0.2% the prior month. A soft inflation reading and a dip in consumer spending is viewed by investors as mortgage interest rate friendly news.

THE MARKET IS ALWAYS RIGHT! … YOU AND I ARE SOME OF THE TIME

Weekly Update by Bill Fisher 8.1.2011

It is an old adage now. Those who fail to learn from history are doomed to repeat it.

In 1937, the nation seemed on the verge of economic growth after years of the Great Depression. Congress decided it was time to impose fiscal order on the economy, making broad cuts to governmental spending. This resulted in a severe slowing of the economy, and we hastily fell into the worst portion of the Great Depression.

Does this mean that enacting spending cuts today will throw us back into the Great Recession and make it worse than it was the first time through? While that is a real possibility, no one can reasonably make it their forecast. There are too many wildcards.

But we can be reasonably fearful that severe cuts to governmental spending now would indeed result in an economy that has no fuel for further growth. (Why, after last Friday’s news about the non-existent growth of Gross Domestic Product, am I speaking of “further growth”? I have recently been noticing glimmers of hope in the economy, especially in the real estate market, and writing about them. But my observations seem overly optimistic when measured against how poorly the economy now seems to be performing.)

I write these words on Sunday evening, as Congress muddles with little hope of success toward a possible Houdini-like escape from the Default Trap. Perhaps investors all over the world would be elated that we were able to pull the votes together after all. But I anticipate very little elation. Nothing will have been resolved. The can will simply have been kicked down the road a bit.

And this time, there is a feeling much like loss of innocence in the air. Unthinkable questions now have their unthinkable answers. Would many in Congress really risk our preeminent position in the world economy just to make their point about the need to reduce spending? Answer: Yes, it would. Would Congressional leaders refuse to compromise their positions (and, at the same time, would other leaders compromise the positions advocated by their voters)? Yep again. Is it really possible that we could see America’s credit rating lowered and watch Treasury securities lose some of their standing in world debt markets? Yes.

These speculations aren’t any fun at all—which is probably why we didn’t ponder about them out loud very much until recent events forced us to. Now, we cannot avoid a sense that the rules are changing, the ground shifting under our feet. Already, even before we see Treasury securities lose much value—the 10-year note fell to 2.80% at the end of last week—there is an unavoidable feeling that Treasury securities just ain’t what they used to be.

Another cliché—involving the use of a fiddle while Rome burns—springs lamely to mind. What we need is economic growth, especially job growth. Without economic growth, hiring isn’t going to increase. Businesses see no evidence that their sales will remain strong or increase. There is no wind to set your sails to. We’re becalmed.

In order for the economy to grow, we need the perfect alignment in the celestial stars, with every star burning a bit more brightly as a result. We need to place money where it will actually do some good. We need to stop spending money on programs that are obvious losers. We need to open markets. We need to welcome new businesses. We need to support those who have been without work for months on end. We need to create the feeling and mood of an American Economic Renaissance.

I’m inclined to think that anyone in the House and Senate who is not thinking in these terms should be invited to look for another job. And to believe that those who are committed to America’s future should take their places.

Let’s not repeat one of history’s painfully destructive mistakes.

by: Bill Fisher