Discussing what happens when the Fed raises rates, good news about foreclosures and serious delinquencies, income growth and building wealth plus more!
Dodge Momentum Index Declines In September
An important indicator for commercial real estate and the economy was just released by Dodge Data & Analytics:
The Dodge Momentum Index fell in September, moving 8.4% lower to 116.4 (2000=100) from the revised August reading of 127.1. The Momentum Index is a monthly measure of the first (or initial) report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year. Both components of the Momentum Index declined in September. The institutional building component fell 11.5% from August, while the commercial building component fell 6.1%.
While the overall Momentum Index has lost ground for four consecutive months, this should not be seen, in and of itself, as a predictor of a turn in building markets. Prior to the previous peak of the Momentum Index in January 2008 it had suffered similar significant declines, only to rebound and post strong gains in subsequent months in line with overall economic growth. Similarly, the Momentum Index posted healthy gains from late-2016 through early 2017. Economic growth remains solid, and building market fundamentals are supportive of further growth in construction activity.
I hope they are correct about 4 consecutive months of decreases NOT indicating a downturn. However, I am not one for being unrealistically optimistic…
What Happens to Other Interest Rates When the Fed Raises Rates
From the St. Louis Fed:
The Federal Reserve’s main instrument for achieving stable prices and maximum employment is the target for the federal funds rate. The idea is that by affecting the rate at which banks lend to each other overnight, other interest rates may be affected. In turn, this would also affect nominal variables (such as inflation) and real variables (such as output and employment).
In December 2015, the Fed ended seven years of near-zero policy rates. Through a series of increases since then, the target rate has been gradually raised by one percentage point. The current monetary policy outlook, as stated recently by Fed Chair Janet Yellen, is to continue increasing the target rate due to worries that a strong labor market may create inflationary pressures.
When you read me or someone else talking about the Fed raising their benchmark rate or raising rates, we actually mean they are going to increase the Federal Funds Rate.
So while the Fed does NOT directly control mortgage rates, what they do does have an effect on 10-year Treasury bonds. And 10-year Treasury bonds in turn, affect mortgage rates:
As you can see, they move together in a very similar way. Yu can also see how mortgage rates are much much lower NOW compared to in the past!
Serious Delinquency Rate for Mortgages Holds Steady at a Near 10-Year Low
CoreLogic just released their latest Loan Performance Insights Report and they said that 4.6% of mortgages in the U.S. were in some stage of delinquency (30 days or more past due including those in foreclosure) in July 2017. This represents a 0.9 percentage point year-over-year decline in the overall delinquency rate compared with July 2016 when it was 5.5%.
As of July 2017, the foreclosure inventory rate, which measures the share of mortgages in some stage of the foreclosure process, was 0.7%, down from 0.9% in July 2016 and the lowest since the rate was also 0.7% in July 2007.
The low level of mortgage delinquencies and foreclosures is good news for the housing market. This is, of course, talking about national statistics and not talking about what is happening on a local level.
I know that many buyers think they must get a foreclosure to get a great deal. Not all foreclosures are great deals and not all great deals are foreclosures…
Insanely Concentrated Wealth Is Strangling Our Prosperity
Remember Smaug the dragon, in The Hobbit? He hoarded up a vast pile of wealth, and then he just hung out in his cave, sitting on it (with occasional forays to further pillage and immolate the local populace).
That’s what you should think of when you consider the mind-boggling hoards of wealth that the very rich have amassed in America over the last forty years. In 1976 the richest people had $35 million each (in 2014 dollars). In 2014 they had $420 million each — a twelvefold increase. You can be sure it’s gotten even more extreme since then.
But here’s what’s even more egregious: that concentrated wealth is strangling our economy, our economic growth, our national prosperity. Wealth concentration drives a vicious, downward cycle, throttling the very engine of wealth creation itself.
Some would want to implement some type of Robin Hood take from the rich and give to everyone else program. Instead, I think we need to get the incomes and wealth of the bottom 90% to increase at pretty much the same pace.
How? If wish I knew…
But like I said, getting the incomes growing for everyone is essential. Check out the chart below from the Urban Institute:
Is there only so much income to go around? If the bottom 90% starts making more, will it mean the top 10% will be making less?
Do you think the ultra wealthy and powerful will be OK with this?
CEOs Should Stop Focusing on Profits Above All Else
Paul Tudor Jones says corporate chiefs have gone too far in embracing economist Milton Friedman’s profit-above-all-else ethic and they need to change how they do business. Even Friedman would rethink his ideas if he could see how divided the U.S. has become in terms of wealth, said Jones, a billionaire. “The way wealth disparity has been historically dealt with is either wars, revolution or taxes.
When we start hearing billionaires making warnings such as this…
DOD, HUD Defrauded Taxpayers Of $21 Trillion From 1998 To 2015
From MPN News:
Last year, a Reuters article brought renewed scrutiny to the budgeting practices of the U.S. Department of Defense (DOD), specifically the U.S. Army, after it was revealed that the department had “lost” $6.5 trillion in 2015 due to “wrongful budget adjustments.” Nearly half of that massive sum, $2.8 trillion, was lost in just one quarter. Reuters noted that the Army “lacked the receipts and invoices to support those numbers [the adjustments] or simply made them up” in order to “create an illusion that its books are balanced.”
The cumulative effect of this mishandling of funds is the subject of a new report authored by Dr. Mark Skidmore, a professor of economics at Michigan State University, and Catherine Austin Fitts, former assistant secretary of housing.
The report, which examined in great detail the budgets of both the DOD and the Department of Housing and Urban Development (HUD), found that between 1998 and 2015 these two departments alone lost over $21 trillion in taxpayer funds. The funds lost were a direct result of “unsupported journal voucher adjustments” made to the departments’ budgets.
Defrauding may be too strong a word but imagine what could be done with an extra $21 trillion dollars in the budget…
Only 32% Think U.S. Headed in Right Direction
From Rasmussen Reports:
Thirty-two percent (32%) of Likely U.S. Voters now think the country is heading in the right direction, according to a new Rasmussen Reports national telephone and online survey for the week ending October 5.
Eventually, the majority is going to get tired of feeling the country is headed in the wrong direction…
Americans Favor Compromise to Get Things Done in Washington
Fifty-four percent of Americans want political leaders in Washington to compromise to get things done. This far outpaces the 18% who would prefer that leaders stick to their beliefs even if little gets done, while the views of 28% fall somewhere in between. The gap between compromise and sticking to principles is the widest in Gallup’s trend.
Being able to compromise is part of negotiating. And being an adult…
Original ‘Dr. Doom’ Says Next Fed Chair Must Break Up Banks “To Be Small Enough To Fail”
From Zero Hedge:
Henry Kaufman, the former chief economist of Salomon Brothers in the 70’s and 80’s who earned the moniker of “Dr. Doom” for his frequent criticisms of the Fed’s interest rate policies, has some advice for President Trump on how to pick the next Fed Chair: find someone willing to break up the “too big to fail” banks.
“You’ve got to be small enough to fail” without that failure causing problems that cascade through the financial system, Kaufman said in the question-and-answer session of an Economic Club of New York breakfast on Oct. 5 at the imposing University Club on Fifth Avenue. As it is now, Kaufman said, “We are trying to preserve conglomeration.”
So do you think there is any hope of the TBTF banks being broken up…
Who Is the New Face of American Homeownership?
Snippet from a must read article via Brookings.edu:
The U.S. homeownership rate remains lower than it has been for more than 20 years, even though housing markets have largely recovered from the Great Recession (U.S. Census Bureau 2017). Most of the drop in homeownership is due to fewer renters choosing to purchase first homes than prior to the crisis. Researchers and policymakers have posited several possible reasons for the apparent shift in behavior, including:
1. Increased regulation of mortgage lending and stricter underwriting criteria.
2. Weak labor markets for young workers, leading them to delay household formation and homeownership;
3. Millennials’ lower preferences for owning rather than renting; and
4. High levels of student loan debt among younger households.
Encouraging homeownership has long been an explicit policy goal of the U.S. government, mostly implemented through the federal tax code and regulation of residential mortgage markets. The changing characteristics of prospective homeowners presented here raise several questions about whether current policies will be effective at increasing homeownership–and whether they adequately support the growing share of renter households.
There is no doubt that we need to encourage a healthy sustainable level of home ownership. At the same time, we need to provide affordable housing for the people that home ownership is not possible/feasible/logical.
Many American Households Still Struggling to Build Wealth
American households have recently made broad-based gains in wealth, but many have not made up for losses during the Great Recession. How could they save more?
I have to once again point out that owning your home is one of the best wealth creation tools available to the average person. This article mention how the biggest problem is many households have difficulty saving.
The “forced savings” of home ownership should not be overlooked as a wealth building tool…
Rare Prosecution for Financial Crisis Malarkey
Wilmington Trust Corp has reached an agreement on criminal charges that the bank concealed its deteriorating condition from regulators and investors in 2009 and 2010, a U.S. judge said on Tuesday, just as a trial was set to begin.
The U.S. government, criticized for a dearth of prosecutions tied to the 2008 financial crisis, was scheduled to spend eight weeks making its case.
The bank and the former executives were indicted on 19 counts for allegedly hiding from regulators and investors the deteriorating condition of its loans in 2009 and 2010, when it was bought by M&T Bank Corp of Buffalo, New York.
Almost liking seeing a unicorn or Bigfoot…
You have to wonder why Wilmington Trust execs are facing prosecution when other bank CEOs got away without being charged?
Small Business Optimism Falls
The NFIB Index of Small Business Optimism tumbled in September from 105.3 to 103 led by a steep drop in sales expectations, not just in hurricane-affected states, but across the country.
Juanita Duggan, NFIB President and CEO said:
The temptation is to blame the decline on the hurricanes in Texas and Florida, but that is not consistent with our data. Small business owners across the country were measurably less enthusiastic last month.
Not good but maybe this is the pendulum swinging back after the extreme gains seen at the beginning of the year?
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