What is going this week?

Crazy week is sort of an understatement for the amount of economic insanity we've seen this week. Where to even begin.

Let's start with oil, black gold, Texas tea. After a larger than expected build in Crude Oil inventories, the price dropped on Wednesday to roughly $87 a barrel. I can't believe I'm calling this good news, since it wasn't very long ago when everyone talked about crude "hopefully not going over $75.". I guess it's a start and while today (Feb. 8th) oil prices are up over $89, we're still below $90 and it's start and a step in the right direction. Now if only the prices at the pump reflected the lower prices as well.

The Stimulus Package should come with a warning. There's a lot written into this package. Most notably spoken about is the tax refunds. Refunds are nice, don't get me wrong. But keep in mind what the government is trying to do with this package. They are trying to Stimulate the economy. That means they want you to go and blow this new found cash. Please don't. Enough people will blow this money to create the desired economic response but that doesn't mean you have to jump on the band wagon. Hold your cash, pay off debt or invest it. Don't buy a bunch of junk that you won't remember buying in 6 months!

The package is also calling for an increase in lending limits for Fannie Mae's Jumbo limit, raising the limit above the current $417,000 threshold. Following in turn will be increases in the FHA loan limits for many areas to Fannie's old threshold mark. For much of New York north of Westchester, the FHA limits are too low for the average home price. The increase will instantly allow thousands of people to get into fixed rates from adjustables, and borrow money to payoff other debts as the FHA will allow someone with a clean mortgage payment history to borrow 95% of the value of their home. I'm not saying you should tap all (or most of) your equity, but if you need to, then you need to, and in this time of decreasing values, you may be at 95% without even knowing it. In a sea of confusion, this is definitely good news!

Rates have been all over the map! After two rate cuts by the Fed, bond yields & rates steadily increased, but they increased slowly and rates remained around 5.5% with ease. That is, until this week! On Tuesday, the ten year bond yield opened up lower (lower yields = lower rates...more often than now). At 11am, the breaks got put on and the yield started going straight up. Then yesterday's bond auction happened. With yields so low and inflation fears on the rise, the auction went horribly. When no one wants to buy something, supply and demand tells us that the value drops. When bond values drop the yields go up and rates follow. Nice rollercoaster ride this week. Very comforting. It is believed the Fed will lower rates again.  WOW

In the grand scheme of things, it's up to you as individuals to determine what helps you, what hurts you, and what doesn't even matter in the crazy mixed world. You can read the paper everyday and get their opinion of what matters to you or you decipher what's bad news for you and what's good news and what's beyond your control and what isn't. There's always a little bit of everything.

Best to you,

Dave Cheatham