Happy President’s Day, I hope you’re lucky enough to be off. The markets are closed today, which leaves us with relatively little to discuss today. Mortgage rates were more or less flat last week, in keeping with the trend for February. Rates rose swiftly in January, and have since plateaued. The increase is mostly attributable to fears of a change in Fed policy rather than any real firming in the U.S. economy.
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Most of this week’s significant economic data is jammed into Wednesday and Thursday. Of primary import to us are the Housing Starts and Existing Home Sales reports, as well as the FOMC minutes on Wednesday. The minutes will be scoured for any possible indications of changes to the Fed asset purchase programs (the Fed is currently buying $85 billion in mortgage backed securities and Treasuries each month in order to keep rates artificially low). A lot of people are scared of what will happen when these programs cease or are curtailed, and nobody knows what the timing for either of these events is, exactly. Previously the Fed indicated that it would stay the course until unemployment fell to 6.5% or inflation rose to 2.5%. Right now we are not close to either number, and my best guess is that we won’t see any real economic progress this year, especially if the sequester cuts are allowed to occur.
Speaking of the sequester, we are starting to really see the rhetoric surrounding the issue ramp up as our elected officials bloviate, full of sound and fury, signifying nothing. On Sunday Obama’s chief of staff warned of the impending cuts ($1.2 trillion total over nine years, comprised of $984 billion in cuts and $216 billion in debt service savings). The President and the Democrats wish to replace the sequester with a combination of tax increases and spending cuts:
“Let’s fix this in a kind of balanced way … with a reasonable amount of spending cuts and a reasonable amount of revenue raisers so that we can get this thing done and move on to the business of the country.”
Meanwhile, across the aisle, the Republicans are split on the issue. Most are opposed to the tax increases proposed by Obama, having just acceded to the expiry of the payroll tax cut at the beginning of the year. Said Sen. John Barrasso:
“Let me be very clear – and I’d say this to the president as I say it to you – these spending cuts are going to go through. The American people need to know tax cuts are off the table and the Republican Party is not in any way going to trade spending cuts for a tax increase.”
Others in the party (such as Rand Paul) seem content to let the sequester cuts go through despite the fact that they fall most heavily on the military. On the other hand, some such as Lindsay Graham claim that the cuts would devastate the military, but it’s not clear if this faction of the party would accept increased taxes to avoid some of the cuts. The schism within the GOP is going to make some sort of compromise that much more difficult.
At the end of the day, I still think that there will be some sort of last-minute agreement that kicks this can down the road – but if no such agreement is reached, the spending cuts are going to seriously impact US GDP this year, and that’s going to be one more hurdle to recovery (along with the tax increases that went into effect earlier in the year). I think this economic stagnation will continue throughout the year, and it should help ensure that the Fed keeps supporting low interest rates.
All of that said, we saw a 20 basis point rise in rates in January, and I think we will see a trend of slowly rising rates throughout the year (I’m thinking the 30-year ends 2013 around 3.875% or so). If I were looking to get a mortgage, I’d still probably want to act sooner rather than later.
Project on Government Oversight: Dangerous Liasons – Revolving Door at SEC Creates Risk of Regulatory Capture. The relative lack of outrage here is befuddling.
NYT: Don’t Blink or You’ll Miss Another Bailout.
Credit Slips: Too Big to Regulate? The Warren Debut.
Bloomberg: Reader’s Digest is Bankrupt as Iconic Magazine Falters.
Poynter: McGrory: Boston Globe Will ‘Untangle’ Its Two Websites. The Globe has 28,000 online subscribers. That can’t augur well.
Guardian: Banksy Mural Torn Off London Poundland Store for Miami Auction.
AP: Mortgage Bill Faces Tough Road in Congress.
Scientific American: The Rich See a Different Internet Than the Poor.
Mental Floss: How the Greatest Prankster in Political History Messed With Richard Nixon.
Vanity Fair: Cinema Tarantino: The Making of Pulp Fiction.
Credit Writedowns: Is Spain’s Economic Contraction Now Self Perpetuating? Austerity, hurrah!
Washington Post: Pope Benedict XVI’s Leaked Documents Show Fractured Vatican Full of Rivalries. Like any other big bureaucracy I suppose.
Mashable: Google Retail Stores Rumored to Be On the Way.
The Economist: The Audacity of Dope.
Total Mortgage offers some of the lowest mortgage rates and fastest closing times of anyone in mortgage industry. Refinancing your home loan today could slash your monthly payments. Call us now at 877-868-2503 in order to speak with one of our licensed loan officers.