“Get yourself some debt” isn’t the advice you’d expect to hear from your financial advisor. But with interest rates at record lows it makes sense to continue carrying debt in the form of a refinanced 15-year mortgage on your primary residence or vacation home. One of the key advantages of debt is its defensive qualities against inflation. A dollar today locked in at these low rates goes at least as far tomorrow and could go much further in the not too distant future. I realize paying off a mortgage today with rates of return on treasury bonds so low can make sense, especially if you’re on a … [Read more...]
Record Low for Car Purchase Plans
If consumers follow through with their purchase plans for major appliances, new homes, and new cars, economic growth is likely to slow significantly over coming quarters. Plans to buy a new car are at record lows and plans to buy a new home are bordering on record lows. … [Read more...]
Housing Starts Look Weak
Housing starts released today came in far below consensus estimates. Government efforts to stimulate the housing market have once again failed. The federal tax credit for home buyers simply pulled demand forward. We are now seeing the giveback. … [Read more...]
A Valuable Lesson
If you have been following the Securities and Exchange Commission (SEC) civil suit against Goldman Sachs, you know the SEC is suing the firm for underwriting and selling a synthetic collateralized debt obligation (CDO) without disclosing to the buyers that a hedge fund taking a short position in the deal helped select the securities referenced in the CDO. The SEC is focused on whether or not Goldman made misrepresentations to the buyers. Whether or not the allegations against Goldman are true, there is a valuable lesson here for investors. The counterparties in the Goldman synthetic CDO deal … [Read more...]
Lowest Mortgage Rates in a Lifetime
The three decade decline in mortgage rates is now at a trough. The Federal Reserve program to support the mortgage market ends today. If you haven’t refinanced your mortgage what are you waiting for? You may never see mortgage rates this low again in your lifetime. … [Read more...]
Bad News for Small Business
In 2009, the number of problem banks increased nearly 200%. Problem banks now hold $400 billion in bank assets. Most of these problem institutions are regional and community lenders. The same banks that dominate in small business and commercial real estate lending. A continued rise in problem banks is likely to hinder a recovery in these sectors of the economy. … [Read more...]
The U-Shaped Recovery?
Historically, housing recoveries follow a V-shaped trajectory. Even with significant government support, the current housing recovery, appears to be taking more of a U-shaped path. A healthy skepticism on the pace of a housing recovery remains warranted. … [Read more...]
A Threat to Global Economic and Financial Stability
January 29, 2010 There is an emerging real-estate bubble in China. Ultra-loose monetary policy in the U.S. and an over-the-top stimulus plan in China, coupled with a pegged yuan, have created optimal bubble conditions. BusinessWeek reports that in Beijing's Chaoyang district, a typical 1,000-square-foot apartment sells for 80X the income of the average resident. Sound troubling? The Chinese leadership is concerned. Monetary policy is being tightened, and the government is reimposing a tax on home sales. A hard landing for the Chinese real-estate market is a real risk to global economic and … [Read more...]
Pull Your Head Out of the Sand
In a recent speech to the American Economic Association, Fed Chairman Bernanke offered his explanation of the causes of the housing bubble. Mr. Bernanke contends that easy money in the early years of this decade did not cause or even significantly contribute to the housing bubble. He also contends that the housing bubble was caused by a global savings glut and the growth in non-traditional mortgage products-option ARMs, Alt-A mortgages, and negative amortization loans. Mr. Bernanke ran through simulations and mortgage statistics, and he even broke out fancy equations. His explanation was very … [Read more...]
My New Year’s Gift to You
December 31, 2009 To get you started on the right track in the New Year, we are offering a friends and family price of only $99 on a three-month subscription to Young Research’s Global Investment Strategy-our premium-level strategy report. Young Research’s Global Investment Strategy offers vital intelligence that savvy, sophisticated investors need in order to craft a globally diversified portfolio. Global Investment Strategy covers global economic and monetary trends, currencies, commodities, and global credit and equity markets, including distressed securities and special situations. This … [Read more...]