Here's a interesting read I got recently from someone I know, like and trust (hey, he's referable!) I disagree with him about the recession. I'll add my comments in (parenthesis). Enjoy!
Friday's Jobs report was probably the straw (or brick!) that has now left the Fed asking as to just how deep the rate cut will be at the next FOMC meeting on September 18. Will the cut be 25bps or 50bps? Most likely the cut now seems to be a 50bp cut when the Fed members meet. Or will they call an emergency meeting between now and the 18th to halt plunging treasury yields? (Highly unlikely with cautious Ben) As stated previously, the yield on the 10-Year Treasury Note was last seen hovering around the 4.38%, a level not seen since January of 2006. At that time the Federal Funds Rate was at 4.25%.
The "R" word or recession is now starting to loom its ugly head but those fears may be overblown. The Fed's Beige Book summary of economic conditions released earlier this week indicated that housing and credit problems have had little impact on the broader economy so far. Also last week, retailers reported better-than-expected sales for the August back-to-school shopping period. (Can you spell c-o-n-t-a-i-n-m-e-n-t-? See my post from earlier today to see why I disagree)
However, William Poole, president of the Federal Reserve Bank of St. Louis, said there is "no question" that recent market turmoil would worsen conditions in the U.S. housing market, but that the effect on the broader economy was less clear.
"I think the probability of recession is higher than it used to be," Mr. Poole said following a speech in London late last week. (Indeed, going from 1:5 odds to 1:3 overnight is definitely "higher"!) He added that there is anecdotal evidence and also some formal data suggesting there is a further leg down in the housing market. (Sorry guys and gals, but it's true! I'll put up a post soon detailing how subprime ARM resets will reach all time highs in October and November of this year - a time after most subprime lenders have already been buried and guidelines as we once knew them in the lending world are GONE! Who's going to refinance these 90%+ LTV folks w/sub 620 FICOs!? You can see where this is going...)
Federal Reserve Bank of Philadelphia President Charles Plosser said that while the surprise loss of U.S. jobs in August was "not encouraging," it doesn't on its own justify lowering interest rates. "We want to be careful not to overweight one piece of information," he said in an interview late Saturday after a speech in Waikoloa, Hawaii. "I've not made up my mind at all on whether a rate cut is needed." Plosser doesn't vote until next year on interest rate decisions. (Ah, that's comforting! He's got at least another 4 months before his opinion counts! :o)
Goldman Sachs is now expecting a 50 bp rate cut from the Fed on Sep 18 in wake of weak jobs report and Bear Stearns a 25 bp cut. Barclay's is looking for 75bps in cuts by year-end. (Report I read earlier today shows a 56% likelihood of 1% cuts by end of 07. BUT, bare in mind that a Fed Funds rate cut does NOT equate LOWER long term mortgage rates! Just as rates didn't go up 4.25% as the Fed marched on their steady parade up from 1% to 5.25%, they won't drop in step with the cuts either in all likelihood - ESPECIALLY if the language released in the Fed Minutes details continued concern about inflation!)
I registered www.MortgageMarketMeltdown.com recently and have not had the opportunity to throw the site up yet. I'm inviting you to visit the site and if it's not up by midnight tonight (PST), please jab me with accountability! Thanks!
PS - I'll also be posting great news links and list my "sources" there too. AND, what I'm most excited about is starting a podcast! I'll be interviewing nationally recognized experts, local experts (San Jose, CA), top producing Realtors, and industry trainers. If you have any suggestions, please let me know!
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