Roseville Loan Guy » obama

Let’s talk about gas prices… And interest rates.

Greg Cowart — Tue, 03 Apr 2012 21:42:06 +0000

Let’s talk about gasoline for a few moments. Surprisingly, doing so may afford some insight into other subjects, maybe even the level of interest rates.

The place to start, I suspect, is here: We have heard a lot of whoppers about how the current high price of gasoline at the pump either was engineered by Obama or was the result of Obama’s lack of obvious oil-price-easing activities. In short, it’s because of what Obama did (or, as the case may be, it resulted from all Obama didn’t do).

Most economists look at this argument and respond with a very obvious point. Obama couldn’t cause gas prices to rise if he wanted to. Sadly, he isn’t much more proficient at making gas prices fall, either.

There is a belief, however (“Drill, Baby, Drill”) that Obama could bring prices down if he found ways to encourage greater gas production in America. An obvious problem here is that we have not only already increased our production – largely because of technology that unlocks the oil heretofore bound up in shale deposits in a vast number of locations beneath the American soil (note for example, North Dakota) – but we even graduated to the status of net oil exporter (that’s right, we export more oil than we import) this past year.

It was assumed that the price of oil would decline if we seemed to have enough of it. But no. The price of oil is determined by “the international market,” and thus it depends on the level of demand for oil across the world, and the key there is whether OPEC wants to boost the price of oil or to bring it down.

A grocery store, after all, can lower the price at which it sells hot dogs. But when an international chain of supermarkets sets the price higher, the grocery story may gain several new fans, but the price of its hot dogs will eventually move to the price established in the international markets.

This has raised the question of why OPEC countries are so “greedy” – why they don’t just accept a lower price when the profits they are making by producing it for a few bucks a barrel and selling it for over $100 are outrageous (the same, of course, can be asked of American oil companies. The Saudis, among others, have no lock of greediness)?

In any case, there is an obvious answer… If you are the Crown Prince of Saudi Arabia, for example, and the only things your country has for its people – like food, like the essentials of living, as well as the luxuries – are imported, not grown or manufactured at home and those imports are paid for with oil money, you want to manage your national resource with great (and greedy) care. Otherwise, you will end up thrown out of office and into the same dustheap of history where Mubarak and Gaddafi and others find themselves.

As Bibal Qabalan noted in NPR’s Planet Money, every gallon of gas we buy has an unspecified but costly tax within it. “Like it or not, the bill for keeping the Persian Gulf monarchies in power is now being footed by every American. Every time we fuel our car we send an extra 35 cents per gallon, or roughly $6 per fill up, to the Save the King Foundation. Since oil goes into everything we buy from food to plastics, this adds about $1,500 annually to the expenditures of the average American family.”

Is it a political issue, therefore? Absolutely. But neither Obama nor any other American politician can do much about it – except throw his and her support behind our own energy program, and get us into electric cars, still a somewhat dubious proposition, especially in the short term.

The Saudis don’t want to make us overly angry. So they also work to keep oil prices from rising too high – whatever that might prove to be. Studies have shown that, even as oil prices rise still further, “Americans may protest loudly, but their economic behavior indicates a remarkable indifference to the price of oil.”

And what might this have to do with interest rates? It just fits into a similar category. Interest rates, particularly today, are established in world markets. They depend on how well the euro happens to be faring, the psychology of certain fiscal and political problems – from Greece to Spain to Iran to Brazil – and other matters. To gain some understanding of why rates are going where they’re going, we have to dig very, very deep. And we’re still likely to come up with little to no gain – either in understanding or in profit… And so it is at this moment.

This crazy world…

Greg Cowart — Mon, 08 Aug 2011 22:39:15 +0000

Bill Miller, chief investment officer of Legg Mason Capital Management, had this to say about Standard & Poors’ downgrading of American debt: “The action was wholly unnecessary and the timing could not have been worse. Compounding this, the reasoning was poor and consequences, both short and long term, for the global financial system unpredictable.” In short, he’s not pleased.

Miller, like economist Robert Reich and others, also pointed out the irony involved in the safety of U.S. debt being downgraded by the organization that kept the safety ratings of crumbling mortgage-backed securities at AAA until well past the time they should have been downgraded. This was a costly error—if indeed it can be called an error.

Further, Miller notes that S&P, a privately-owned/for-profit firm, seems to have wormed its way into a position of great authority, not only lecturing the U.S. government on what it must do (to retain the highest debt rating) but also having a direct effect on markets all over the world.

U.S. stock markets, as you know, began the day Monday by tumbling more than 3.5% (where it was still poised to fall further as this brief essay was written). It is easy to conclude that we’re in the midst of a crash and perhaps further into another (deeper) recession than we’d begun to fear.

Into this state of anxiety, allow me to inject a bit of hopefully grounded thought. This past weekend, Paul Krugman wrote, “In those rare cases where rating agencies have downgraded countries that, like America now, still had the confidence of investors, they have consistently been wrong. Consider, in particular, the case of Japan, which S.& P. downgraded back in 2002. Well,
nine years later Japan is still able to borrow freely and cheaply. As of Friday, in fact, the interest rate on Japanese 10-year bonds was just 1 percent.”

Krugman concluded, “So there is no reason to take Friday’s downgrade of America seriously. These are the last people whose judgment we should trust.” Instead, the dollar is still trusted.

What we saw last week was actually a strong inclination among global investors to continue utilizing U.S. Treasury securities as the safe haven for frightened money. The ten-year note’s yield declined in a dazzling way as investors sought what they still perceive as the safety of the U.S. Treasury security.

Admittedly, the S&P downgrade has the stock markets doing a St. Vitus dance as if the harsh judgment of the gods had somehow been unleashed on the markets. This, too, I feel, will soon pass.

But once it does pass—and interest rates firm a bit, and stock markets invite the bottom-fishers back into the pond, and we continue to see a gradual improvement in real estate data—we will still have several problems to deal with. First, can we make the support of our economic recovery less a matter of bipartisan political theater and more a matter of reasoned steps toward economic health? Can we think of the national—even of the world—economy before we theorize ways to advance the Democrats’ or Republicans’ political power? (This, you’ve noticed is the task that has been laid at the feet of the “Super Committee” that will theoretically reduce our nation’s debt without emaciating its economic strength.)

The failure over the past few years, and especially the last few months, represents not so much an economic problem as does a political one. Almost all of us seem to know this. But few of our voices are being heard, much less acted upon.

So far, the markets are casting votes of no confidence on the debt ceiling agreement and on S&P’s downgrading. Time to apply genuine creativity and skill to reigniting the jobs market, the credit markets, the real estate markets, and the overall economy.

Extension of tax credit and flood insurance program finally signed…

Greg Cowart — Tue, 06 Jul 2010 20:38:08 +0000

The mortgage industry can feel a little more patriotic this 4th of July holiday now that President Obama has signed two bills to re-start the flood insurance program and extend the closing deadline for homebuyers seeking a tax credit.

The National Flood Insurance Program has been shut down for the past month (as it had expired earlier in the year and congress had not managed to get an extension through yet), which has tied up mortgage closings in many flood-prone areas. The bill – H.R. 5569 - President Barrack Obama signed authorizes FEMA to approve new flood insurance policies through September 30. It also allows FEMA to approve flood insurance applications and renewals that have been pending since the June 1 shutdown.

The second bill – H.R. 5623 - extends the closing deadline for the homebuyer’s tax credit program by three months to September 30. Originally, homebuyers who signed a sales contract by April 30 had until June 30 to close and qualify for the tax credit. But a tax credit-driven jump in home sales caused closing delays. The National Association of Realtors warned that up to 180,000 buyers could miss the deadline and lose their tax credit — $8,500 for first time homebuyers and $6,500 for repeat buyers. Real Estate agents noted that changes in mortgage settlement rules and lapses in the flood insurance program and Rural Housing Service single-family loan program contributed to closing delays.