We’re in the “Era Of Finger Pointing” so I”ll just pile on; mortgage rates have skyrocketed in the past week and it’s all the Chinese, Tom McClintock, and Bill Gross’ fault.
Tom McClintock is a California Congressman (and former gubernatorial candidate). Congressman McClintock wrote an opinion piece, in the Washington Times this past weekend, that suggested that the budget crisis in California foreshadows the inevitable national crisis:
What can California do? Its credit is stretched to the breaking point, and increasing tax rates now produces decreasing tax revenues. Its deficit vastly exceeds resolution by conventional budget reductions. There is no line item labeled “waste,” and the state’s deficit vastly exceeds the truly obsolete and overlapping programs strewn throughout its budget.
McClintock’s summary and warning:
The decline and fall of the California Republic is a morality play in the form of Greek tragedy. Before dismissing California’s agony as the just price for its hubris and folly, though, heed this warning: Congress is well under way toward imposing the same policies on the rest of the nation. California is just a little further down that road.
Bill Gross is perhaps the most prescient fixed-income money manager in the world. He’s often known for being early but correct. Mr. Gross suggested that America’s soverign debt might lose it’s rock-solid AAA rating and that we’re headed for the junk bond heap:
Bill Gross, manager of the world’s biggest bond fund, warned on Thursday the United States will eventually lose its top AAA credit rating, a fear that had already spooked financial markets on Thursday and could keep the dollar, stocks and bonds under heavy selling pressure.
Throw in the unsolicited money management advice from our largest creditor, the Maoists, and you have a recipe for a panic run on mortgage bonds.
Mortgage rates responded appropriately; the mortgage-backed securities market sold off about 3% in the last five days. This means that a 4.5% mortgage rate, that cost 1 point a week ago, costs 4 points today. This is a short-term overreaction. Moody’s rating service, mostly owned by Friend of Obama (FOO), Warren Buffett, reaffirmed the US Treasury’s Aaa (highest) rating today:
And today, Warren Buffett’s Moody’s (MCO) went ahead and decided to kick sand in Bill Gross’s face yet again. How so? Moody’s affirmed the U.S.’s Aaa rating, arguing that “the U.S. economy’s long-term resilience and key role in global affairs should bolster its ability to resume a strong performance following the current recession.”
In addition to the Gross-slap Warren Buffett administered today, the Fed still has $600-700 billion earmarked to support mortgage-backed securities. This means that they can buy a bunch of mortgage bonds, to bid up the lost 3% and drive rates back down into the 4’s.
Is this crazy? Why are we borrowing from Mao to subsidize Joe’s mortgage? The answer lies in the depression recession war; we gotta subsidize housing by any means available if we want to pull out of the economic nose dive- even if it means we have to bribe “Big Daddy Buffett” to git ‘er done.
What’s this mean to you? Locking in your mortgage rate is probably a hasty decision right now. Expect Ben Bernanke to speak by Friday in his gentle, reassuring tone. Tim Geithner should be front and center, calming down those impetuous bond traders tomorrow. Mortgage rates should drift down by the end of next week.
The Chinese, Tom McClintock, and Bill Gross are all correct; the US government’s actions are inflationary and destructive. They are all correct but early. The time to panic will be this fall; hopefully you’ll do what you need to get done by then.