Saw the President on the news signing that new thing that gives us $1,200, so Mrs. Paul and me are headed off to WalMart today to do some serious shopping! I know, I know, we won’t get those checks until later (Mrs. Paul said the same thing), but as I explained to her, between our fourteen credit cards, I’m sure we can find two or three that aren’t up to the limit, and we can just charge what we want now, and then use the $1,200 to pay the credit card company later. Duh!
For the life of me, I can’t understand how Mrs. Paul thinks. She said our three car garage is already filled with so much stuff we can’t even walk through it, let alone park a car in it, so she says we should just use the $1,200 to pay off some of our credit card debt and not buy anything else. So ... trying to explain it as simply as I could for her ... I told that is exactly what we are going to do when we get the money next summer .... use it to pay for the things that we buy today! But right now there are things that I need and I deserve and I want. (Anyway, we have to hurry and use what’s left of our credit card limits soon because I’m pretty sure the banks are going to cancel our credit cards as soon as they learn we haven’t made any payments on our house for nine months.)
Then she started talking this nonsense about using the money to help America’s economy and how if we shop at WalMart, we only help China’s economy. How much more American can it be to buy from WalMart, founded by the greatest American ever, Sam Walton? I'm not sure I convinced her completely because she just kept saying, “我可爱的傻老公,他什么时候能学聪明点啊?” whatever that means.
So anyway, that is our plan for today.
The only part I’m still trying to figure out is ... if its so great for the economy when the government gives us our $1,200 back, then how much better would the economy be if the government gave us all of our money back?
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23 comments:
good post - made me laugh.
What is your opinion on the mortgage rates over the next 6 months? I thought they would be drifting lower with the rate cuts and lousy economic news, but it seems like the 10yr is climbing steadily each day.
I watch the NACA site as sort of gauge of what's out there for conforming. 2 weeks ago, it was 4.675, today it's 5.375. Those people who cheerlead the overnight rate drops have no idea how risk pricing works.
Funny!. Thanks for a bit of humor in the middle of the week. BTW, I'm reading your blog (almost) daily. Good info. Please keep posting.
This government largess will be a great blessing to my youngest daughter and her little family. They will probably end up spending it on food and utility bills.
In general, I don't see this helping much. It's kind of symbolic of how out of touch the ruling class is, unless you have the jaded belief that it's just being implemented so they can use it politically as proof they took some kind of action.
If I get anything, I'm putting it into savings.
Sacramentia:
Gwynster is correct. The much heralded news reports of the Fed lowering the Fed funds target rate and/or discount rate, have little to do with mortgage rates. The former are "short term rates," the latter longer term. I think that mortgage rates are more closely correlated with the 10 yr US Treasury bond rates, which are only weakly influenced by government (or at least the US Govt.) action. In January 2008, when the stock market tanked, money flowed into ten year bonds ("flight to safety/quality"), driving the prices higher and interest rate yields lower (down to 3.5%). Since then, the price on the bond has fallen and the interest rate yield has climbed to about 3.8 (this a.m.). The US govt has only minimal short term influence on the longer bond prices. As one of our former presidents so eloquently stated about the economy, "You mean I'm at the mercy of some ******** bond traders?" And the answer is "Yep."
So my guess about mortgage rate direction is: The Feds will do their best to keep rates down any way they can, until ... But with little actual govt. control over the long term bond rates, we are likely to see mortgage rates higher some days, lower some days. Only if the market perceives that inflation is going to get worse or out of control, do I think it likely we will see significantly higher mortgage rates. And if the credit crisis worsens, that is likely to increase interest rates for almost everything but treasuries.
Cmyst: My concern is your daughter and her family are going to be saddled with the $156 billion in new debt created by this government give-away.
If you are wondering about interest rates, keep an eye on how freddie and fannie handle the new junior jumbo mortgage thing. If they pool the new, higher-limit (and higher risk) conforming loans in with those below $417k, rates are going up. Blown Mortgage and Calculated Risk have posts up on this.
You'd think that these smart people would see that coming and work it out so it's not a problem, but you'd also think smart people would have seen how completely unregulated lending would trigger a bubble....
Alek D. : Thank you for the kind remarks, but the credit for this blog goes to BT. She holds it all together and amazingly finds time between work and family, to write thought provoking pieces almost every day.
Gwyn,
Thanks for the link - great rates on that site if you qualify for the program.
I don't have a technical understanding of how the mortgage risk pricing is done, but I do understand that the fix rate has to take into account expected inflation, payoff due to rate changes, and still provide a better return than a treasury bond of similar length.
It seems like there are two camps right now to me 1) People that think the rate cutting will lead to inflation long term. 2) People that think the asset price deflation and credit destruction will lead to deflation.
Which one do you think will win out, and how do you think that will affect rates? Or do you have a good link I should go read?
"if its so great for the economy when the government gives us our $1,200 back, then how much better would the economy be if the government gave us all of our money back?"
whoa, that's deep!
I'm firmly in the deflation camp. I had to be forced there at sword-point as I was a stagflationist for a long time.
From what I've seen, the FHAsecure paper had to pooled separately because no one was buying. This is basically investors demanding to be rewarded for the riskier paper.
I expect we'll see the same thing with those new jumbo conformings despite the 20% dp requirements. If they don't make them a separate offering, all of that FHA paper will cease to move and then the mortgage rates will back to 10% in no time. They can't afford to let that happen because then you really get the deflationary thumbscrews.
As I've said before, mt rebate is going into a forex account >; )
I'm just sending my rebate $$ right back to the IRS with my next estimated tax payment.
If we do end up with Japanese style deflation and 0% interest rate, then an adjustable rate mortgage would look good and stay under the 30yr fix rate for a while.
If we get inflation, then taking the largest possible loan @ 5.75% fixed will look brilliant in hindsight.
A 30yr loan means that the lender is taking on all interest rate risk for 30yrs. An adjustable means both parties share the risk. Therefore, over time wouldn't an adjustable save money, on average?
And if stocks return an average of 8% over the long haul, wouldn't it make more sense to go interest only for a 10yr period on the mortgage and invest the cap reduction in stocks? At the end of 10yrs liquidate the stocks and pay down the principal?
gwn: forex eh? what's your currency of choice?
Wow sacramentia, you bring up some interesting ideas. If long term rates stuck around 5% while short term headed down close to zero, sure, I see no problem with getting an ARM until short term rates climb up again. You'd have to be damn sure you could refi out of it without any trouble though once rates started to climb (I have no idea what's involved with this).
As for going interest only and using the difference in interest to play the stock market, I've actually not heard that before... again, interesting. The 8% you mention does make an assumption though. The S&P has not even been close to that over the last year.
I was thinking that back in 03 but that's a whole lot of if's that have to line up over time. I'd try something like that short term (6 to 24 mo), but when we're talking about spans greater then 3 yrs, that's a whole lot of risk.
As I say often these days, you go first >; )
PR, I did well in BRL but it's too popular now so I got out and bought another 10 yr. I'm leaning towards MYR but damn if I know where I'll go.
I'm seriously the most risk adverse person you are ever likely to meet. I am the person who gets dragged to Reno kicking and screaming, has to be handed nickels from a friend and forced to play. At the first 'win' of any sort, I go directly to the cashier's office and ask for it all in large bills so I won't be tempted to break them (true story).
I'm with you on gambling - it's a tax on people that can't do math!
You're right - a lot of if's that have to work out and you have to be able to absorb the downside risks.
I've always tried to keep total debt at 2x income and done interest only variable rate loans to stay as liquid as possible. It has just never made sense to me to commit cash to monthly bills that I don't have too. However, I have absolutely no problem budgeting and not spending money.
Everyone has a different situation and a different strategy -- that is what is interesting to me about this blog, the views are so diverse.
Happy Valentines Day to everyone - Time to put on the happy face and spend WAY too much on dinner :)
AB,
LMAO! Thanks for the fun.
As for me, I won't be getting the $1,200, but I'll be the one in Wal-Mart right behind you, using coupons to buy household goods.
But I gotta ask -- if you didn't pay taxes to begin with, is it really a rebate or just a bate?
Paul gets all the credit for the fun today....
I am very risk adverse...and somewhat lazy....so I stick with simple easy to execute strategies. You all are waaay above average.
I'm rushing out to consolidate my loans on my two properties in EDH. I can afford either way but I'm willing to saddle Fannie/Freddie either way. And no, I won't default.
You Monday-morning quarterbacks give me a chuckle. I read this blog to see how "the other half" lives.
AB: For all your acumen, oh please...Blackstone is a pit and the high school that is assigned to that development is not appropriate (yeah, I know your kids are little) but think "resale"...but I guess I need to draw you a chart or stats to prove that to you. Look it up, you'll see how far it is from EDH.
Anon, what are you going to do with your $300 rebate? Conventional loan eh? In EDH, must be real nice properties!
I won't get any rebate...but thanks for thinking of me.
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