20080316 - Booooyyyynnnnngggg!

30 yr – 6.13% w/ 0.5% in fees. UP from 6.03%. 1 yr ago - 6.14%
15 yr – 5.60% w/ 0.5% in fees. UP from 5.47%. 1 yr ago – 5.88%
5/1 ARM – 5.58% w/ 0.6% in fees. UP from 5.34%. 1 yr ago – 5.90%
1 yr ARM – 5.14% w/ 0.5% in fees. UP from 4.98%. 1 yr ago – 5.42%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of 3-12-08)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate which direction mortgage rates have moved from week to week.

Summary: Booooyyyyynnnnnngggggg. If rates have done anything, they have bounced around so far in 2008. Kind of like the equities markets, but unlike gold, oil and other commodities which have done nothing but head North all year (i.e. INFLATION). Overall, mortgage rates across the board rose about 1/10th percent. In late January, average rates for a 30 yr fixed were just below 5 ½ percent and have bounced as high as 6 ¼ percent. The markets should be used to it by now with all this mortgage stuff hitting the fan and The Fed and “The Guv-Mint” trying to do their thing….getting involved in something they should leave alone. Overall, nothing new for homeowners and would be homeowners except rates increased slightly. Now is a good time to buy and bad time to sell. The old saying of "buy low sell high." This market is representative of the first half of this quote. If you're in the market and have cash flow, go for it. Cash flow controls mortgages, mortgages control real estate. If things are tight, be just that, tight. Better to be safe than sorry.

The Fed: Deep concerns about the viability and livelihood of some of the world’s largest financial institutions had some of the world’s central banks combine together with other lenders to keep others afloat. Some call this “creative financing” and something The Fed needs to do, while others have called it a “bail-out” of the banks. Whenever this type of thing happens, it’s certainly dramatic, but not necessarily good for you and me.

One thing that you always have to remember is that The Federal Reserve system is designed for one thing, and one thing only -- to maintain the viability, profitability and preservation of its member banks and to some extent, their European and Asian counterparts. Every move, change or policy they do is for that reason only. While The Fed may talk about stock markets, employment, blah, blah, blah, a little digging, reading and a short history lesson will teach you the origins of that Creature from Jekyll Island way back in the early 1900’s.

What has happened was critical to the markets, and that is, banks had stopped lending to other banks, so The Fed had to step in, and they did. When all is said an over, this week’s announcement by the Fed was nothing more than a creative way to cut interest rates and they accomplished it with this $200 billion lending line. This was apparently the right move at the time, and will do more for the markets than another rate cut. The problem is that the markets are going to continue to demand further rate cuts and US inflation will continue to rise. Further rate cuts by the Fed will cause a further drop in the dollar. Even higher inflation is coming to a door near you.

Trade: The international (im)balance of trade “shrank” to only $58.2 billion for January, down slightly from the expected $59.5B. For the last 12 months, we have imported $709 billion more than we have exported. While the lower value of the dollar may help this specific number by helping lower the cost of our exports, but in the long run it is never a good idea to have your currency become worth less. That is exactly what is happening by The Fed lowering rates and getting “creative” in the markets. It’s a band-aid on a severely, infected wound. The financial markets need to let a limb or two get amputated by the free-markets, but The Fed will have none of that. In other words, the free-market should be allowed to work and some of the banks should go bankrupt instead of getting “bailed-out”. Yup, I said it. The banks are getting bailed out of their bad decisions.

There’s another problem with the imbalance of trade. In order to “make things right” and balance things out, we need to import investment in our country from overseas. Well, that’s not been a problem for years. Those that sold us all those cheap toys and foreign made goods have reinvested their money by buying US Treasury bonds and other financial debt-instruments…so, the net was we imported more stuff, but we kept their money as well. It all balanced out, until…these foreign entities decide not to buy our bonds and take their money back home. What happens then?

Well, a whole lot of something happens. Interest rates rise in order to attract that money back. Get ready for higher rates. It may not be next week or next year, but it will happen. Not only have these huge, monster investors been getting poor yields, they’re also losing their back-sides by the dollar going down in value. So, yes, they sold us a lot of stuff, but they kept the money in dollars which has gone down in value for the last 20 years. How long can this continue? I know I’m sounding like a goof here, but it comes down to a quote I posted a few weeks ago; “Stop spending money you don’t have!” No matter which candidate gets in office next year, they’ve all said they will be spending more money. Yippee, higher taxes for us! Time to move on…

Retail Sales: Consumers are battening down the hatches. Retails sales reports showed a DROP of 0.6% for February, whereas “the experts” called for a 0.1% rise. Consumers are spending anymore…at least as measured by this one report. Over the last 12 months, retails sales are up 3.0%, but the trend is certainly reversing itself.

Gold and Oil: Hey man! Do you own any gold? Gold topped $1000/oz this past week. That is a clear signal of inflation. Those OPEC nations are making some money, eh? But, they’re losing a lot too because oil is priced in US Dollars…which is going down in value. Heck, the Canadian dollar is worth more than the US Dollar. That’s a drop of about 30% of the last several years.

Thought of the Week: "We should be taught NOT to wait for inspiration to start a thing. Action always generates inspiration. Inspiration seldom generates action." -- Frank Tibolt, Author