Friday, May 28, 2010

Mortgage Rates, Gas Prices Falling


According to data released yesterday by Freddie Mac, 30-year mortgage rates fell to 4.78% this week, which is close to an all-time historical low.   The 4.78% rate this week matches several previous weeks last April and December of 4.78%, and is just slightly above the all-time low of 4.71% in the first week of December 2009 (see chart above, data here).  

Gas prices (national average) have dropped over the last month, except for a small increase yesterday.  Compared to $2.94 per gallon earlier in May, average gas prices at the pump have fallen about 17 cents to $2.77, which is about a 6% decrease (data here).


15 Comments:

At 5/28/2010 8:36 AM, Anonymous Anonymous said...

Just refinanced my place at 4.65.

 
At 5/28/2010 8:59 AM, Blogger VangelV said...

It is a sign of a weak economy. People are scared and driving less. The government supports the lenders and prints money to buy its own debt. So what we see for a while is a fall in gasoline prices and a drop in interest rates. Of course, that only lasts until people see where all of the money printing leads and begin to exchange their pieces of paper for real assets that can't be created out of thin air.

 
At 5/28/2010 9:15 AM, Anonymous Anonymous said...

People are driving less because they don't have jobs and nothing to deliver.

If you believe what you say, then you should go out and borrow as much as you can and buy something tangible with the money.

 
At 5/28/2010 9:34 AM, Anonymous morganovich said...

from bloomberg:

"Bond sales plunge in month of May to decade low; Borrowers issued

$61.1 billion of debt in currencies from dollars to yen in the month of May; this is just 33% of the amount sold in Apr; this is the lowest monthly sales total since Dec ’00; at least 13 companies withdrew offerings"

corporate credit looking a great deal tighter.

that's a worrying sign.

 
At 5/28/2010 10:21 AM, Blogger VangelV said...

If you believe what you say, then you should go out and borrow as much as you can and buy something tangible with the money.

I have been retired since 2001 so I have a tendency to avoid debt. That said, the reason why I was able to retire was my willingness to make a bet against the financial system and buying into tangible assets. I still prefer cash rich energy plays in politically safe jurisdictions and exposure to gold, silver, and agricultural commodities.

 
At 5/28/2010 10:24 AM, Blogger VangelV said...

corporate credit looking a great deal tighter.

that's a worrying sign.


The municipal bond market is riskier. And federal treasury bonds are just a momentum play right now. The yields are too low to justify holding anything longer than a T-bill. While one could make a bundle betting on a collapse that drives yields even lower it does not look as if the risk can be justified.

 
At 5/28/2010 10:26 AM, Anonymous Madres said...

Declining mortgage rates and falling gas prices are often indicative of falling demand.

 
At 5/28/2010 10:54 AM, Anonymous m said...

vangel-

that makes it all the more worrying that corporate issuers are having a difficult time selling bonds.

 
At 5/28/2010 2:22 PM, Blogger VangelV said...

...that makes it all the more worrying that corporate issuers are having a difficult time selling bonds.

I disagree. A cleansing of the system is not a worry but a good thing. Malinvestments need to be liquidated if a recovery is to begin anew and a weak corporate bond market sends a signal that the cleansing process is beginning.

My worry is that idiot politicians will step in and bail out the inefficient businesses that should be liquidated. By doing so they might postpone the crisis for a while but by doing so they make the inevitable adjustment larger and more dangerous.

 
At 5/28/2010 2:28 PM, Anonymous morganovich said...

v-

agreed that we do need a good cleansing, but that means there is some real pain to take.

such a cleansing and the credit contraction that comes with it are going to cost us a great deal of growth.

to see such a difficult credit environment despite the loosest monetary policy in history and govvie rates near all time lows is a sign this is going to be rough.

necessary, yes, but nasty nonetheless.

 
At 5/28/2010 2:35 PM, Anonymous morganovich said...

also:

a lot of private bond issuers are actually in pretty good shape and have good prospects of being able to pay back bonds.

the issue is less one of the market deciding they are uncreditworthy than one of tier one capital rule changes favoring govvies and banks going into deep retrenchment driven by recent and fearful of forthcoming regulation.

that sort of distortion is not insignificant - encouraging lending to the government (especially one in with budget deficits) in preference to private industry is a monstrous destroyer of growth.

 
At 5/28/2010 2:43 PM, Blogger VangelV said...

agreed that we do need a good cleansing, but that means there is some real pain to take.

Errors need to be corrected. That means pain for those that made them.

such a cleansing and the credit contraction that comes with it are going to cost us a great deal of growth.

I think that you are not thinking the argument through. Unsustainable growth that comes due to distortions created by interventions by governments and central banks is very harmful over the long run. That is not the growth that we need.

to see such a difficult credit environment despite the loosest monetary policy in history and govvie rates near all time lows is a sign this is going to be rough.

I could not agree more. But as I wrote above, we need things to get rough so that real growth can begin once again. The path we are on is a very dangerous one and the faster that people figure out that growth of government and meddling in markets does not work the better off we will be. What the world needs is a lot less government and a lot more individual freedom and responsibility.

 
At 5/28/2010 2:48 PM, Blogger VangelV said...

a lot of private bond issuers are actually in pretty good shape and have good prospects of being able to pay back bonds.

I agree. P&G and Coke are in better shape than the US government because they create wealth by making stuff that people need and want to buy while the US government only knows how to destroy wealth.

the issue is less one of the market deciding they are uncreditworthy than one of tier one capital rule changes favoring govvies and banks going into deep retrenchment driven by recent and fearful of forthcoming regulation.

I do not dispute this. The system favours the banks playing arbitrage games with government debt and hurts productive businesses.

that sort of distortion is not insignificant - encouraging lending to the government (especially one in with budget deficits) in preference to private industry is a monstrous destroyer of growth.

That game has to end. People figured out that lending to EU businesses was a terrible idea. They are about to see that the US is not very different than Greece or Spain.

 
At 5/29/2010 3:17 PM, Anonymous morganovich said...

v-

my point is that the credit crunch that is coming with be not only nasty (and inevitably so), but nastier than it needs to be.

recovering from the excesses of draining the 2000 bubble into the 2008 bubble will be difficult enough on there own without adding to it by a crowding out of the private sector by the public one.

it's long past time to raise capital requirements for US govvies, but it's not going to happen because the government needs the money too much.

so long as there is so much access to cheap borrowing and easy leverage on govvies, this corwding out will continue, intensified by huge fed gov deficits.

i think we're essentially reading from the same hymnal.

to trace this back to its roots, the real problem has been attempts to control the business cycle leading to concatenated bubbles. economies do best with frequent, mild contractions. long periods without a contraction (especially driven by easy money) just keep building up imbalances by encouraging over borrowing and too much risk taking.

when this is all said and done, greenspan is going to have a lot to answer for. his denial of bubbles, data manipulation, and preposterously loose monetary policy have been disastrous.

 
At 5/29/2010 10:41 PM, Blogger VangelV said...

my point is that the credit crunch that is coming with be not only nasty (and inevitably so), but nastier than it needs to be.

Sorry but I do not know how one can determine what the credit crunch 'needs to be.' The problem is that we live in the real world where interventionism in the credit markets keeps creating bigger distortions that will have to be corrected.

recovering from the excesses of draining the 2000 bubble into the 2008 bubble will be difficult enough on there own without adding to it by a crowding out of the private sector by the public one.

I do not understand. Since when was the 2000 credit bubble 'drained?' What I saw in the data was a credit expansion that took levels to new highs in most countries. It was the failure to deal with the 2000 bubble that created the housing bubble that began to collapse in the latter part of 2005 but did not become clearly apparent to most people until 2008.

it's long past time to raise capital requirements for US govvies, but it's not going to happen because the government needs the money too much.

The government can't create wealth and solve problems by printing more money. At best it can only postpone the inevitable correction and make it a lot more painful. The risk is the unwillingness of people and foreign governments to buy more debt. Once trust is lost the currency becomes vulnerable and will fall towards its intrinsic value as paper.

so long as there is so much access to cheap borrowing and easy leverage on govvies, this corwding out will continue, intensified by huge fed gov deficits.

It may not last that long. Eventually you will see people move away to hedge their exposure and you could see the price of gold, energy, etc., explode to the upside. The best thing for those that do not have much exposure is to buy the sharp corrections as the commodity markets get hit in the futures markets and the pessimists attack gold, silver and energy.

i think we're essentially reading from the same hymnal.

You are probably right but I am very clear about the need to let the markets work and to move away from central banks being able to create money out of thin air. I would abandon the Fed and go to a hard money system that would limit the ability of governments to rob savers and workers of purchasing power by inflation.

to trace this back to its roots, the real problem has been attempts to control the business cycle leading to concatenated bubbles. economies do best with frequent, mild contractions. long periods without a contraction (especially driven by easy money) just keep building up imbalances by encouraging over borrowing and too much risk taking.

In a world run on fiat money and fractional reserve banking there is no way to avoid interventions. The temptation for bankers and politicians is simply too great.

when this is all said and done, greenspan is going to have a lot to answer for. his denial of bubbles, data manipulation, and preposterously loose monetary policy have been disastrous.

It is not Greenspan but central banking itself that is the big problem.

 

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