Since my last newsletter - the FDIC has taken over operations of IndyMac Bank, the third-largest financial institution to fail in U.S. history. 5 banks have failed in the country YTD, the most bank failures in any calendar year since 2002.
The Federal Deposit Insurance Corporation has 90 banks currently on its list of problem banks. During the 5 years from 1987-91, a total of 1,901 banks and savings & loan institutions failed in the USA or more than 1 per day. A total of 9,096 banks failed in the USA in the 3 1/2 years following the stock market crash of 1929. So by comparison things could be a lot worse.
Fannie Mae and Freddie Mac which are nicknames for the Federal National Mortgage Association and the Federal Home Mortgage Corporation, are having serious liquidity problems. Fannie and Freddie are government sponsored enterprises (GSEs) that were created in 1968. Freddie and Fannie buy mortgages from banks (thus providing banks with new money to loan) and oftentimes resell the purchased loans to investors, providing a guarantee of repayment to the new owners of the mortgages. Freddie Mac and Fannie Mae own or back $5.2 trillion of mortgages, equal to 49% of the nation’s $10.6 trillion mortgage market What this means is the air is still coming out of the credit and housing bubbles. It is the equivalent of the ground hog seeing his shadow on Ground hog’s Day - winter’s not over yet. The trend toward lower lending is likely to continue. And lower lending is going to be a huge headwind for an economy that is already struggling. The other thing that is struggling is my website company and myself getting my newsletter out properly. They sent out my June newsletter again instead of this one. I will get the bugs out eventually. Interest rates on a 30 year fixed mortgage where 6.75% today July 21st. If you look at the bond chart above you can clearly see things got really ugly after we broke below the 200 day moving average. Interest rates are at the highest level of the range I called for at the beginning of the year. Lets hope the bonds can hold this level and start moving higher. As the FNMA 30yr bond goes up the corresponding interest rates goes down and as the bond goes down interest rates rise. I would like to see the interest rates take at least one more run for the low range of around 6%. Stay Tuned, Todd Dawkins
Fannie Mae and Freddie Mac which are nicknames for the Federal National Mortgage Association and the Federal Home Mortgage Corporation, are having serious liquidity problems. Fannie and Freddie are government sponsored enterprises (GSEs) that were created in 1968.
Freddie and Fannie buy mortgages from banks (thus providing banks with new money to loan) and oftentimes resell the purchased loans to investors, providing a guarantee of repayment to the new owners of the mortgages. Freddie Mac and Fannie Mae own or back $5.2 trillion of mortgages, equal to 49% of the nation’s $10.6 trillion mortgage market
What this means is the air is still coming out of the credit and housing bubbles. It is the equivalent of the ground hog seeing his shadow on Ground hog’s Day - winter’s not over yet. The trend toward lower lending is likely to continue. And lower lending is going to be a huge headwind for an economy that is already struggling.
The other thing that is struggling is my website company and myself getting my newsletter out properly. They sent out my June newsletter again instead of this one. I will get the bugs out eventually.
Interest rates on a 30 year fixed mortgage where 6.75% today July 21st. If you look at the bond chart above you can clearly see things got really ugly after we broke below the 200 day moving average. Interest rates are at the highest level of the range I called for at the beginning of the year. Lets hope the bonds can hold this level and start moving higher. As the FNMA 30yr bond goes up the corresponding interest rates goes down and as the bond goes down interest rates rise. I would like to see the interest rates take at least one more run for the low range of around 6%.
Stay Tuned, Todd Dawkins
======================================== Anchoring I was reading an interview with a psychological stock analyst. He was describing how some people today feel that stock prices are cheap at today’s level based upon valuations of earnings during the tech bubble. This behavior is called anchoring and is defined as the habit of hanging onto irrelevant benchmarks. If you take these stocks based on earnings at the peak of the bubble then yes prices do look very reasonable now. Relative to a decent long- run history they are not. The problem is people have very short term memories and it takes a very long time to change their mentality. This is exactly what I see happening in the housing market. People base their value of a good buy or a bad buy, or the value of their home for sale today, based on housing prices at the peak of the housing bubble. What is the real value of that home? I have been taking a long term approach at housing prices in order to eliminate the year to year fluctuations. By looking at the home over its history whether it is five years old or thirty years old, I come up with a value based on long term appreciation rather than what the house sold for at it’s peak in 05 and 06. I call this the home’s "True Value" and feel more comfortable using this method. To Your Financial Health,Todd Dawkins
Anchoring
I was reading an interview with a psychological stock analyst. He was describing how some people today feel that stock prices are cheap at today’s level based upon valuations of earnings during the tech bubble. This behavior is called anchoring and is defined as the habit of hanging onto irrelevant benchmarks.
If you take these stocks based on earnings at the peak of the bubble then yes prices do look very reasonable now. Relative to a decent long- run history they are not. The problem is people have very short term memories and it takes a very long time to change their mentality.
This is exactly what I see happening in the housing market. People base their value of a good buy or a bad buy, or the value of their home for sale today, based on housing prices at the peak of the housing bubble.
What is the real value of that home? I have been taking a long term approach at housing prices in order to eliminate the year to year fluctuations. By looking at the home over its history whether it is five years old or thirty years old, I come up with a value based on long term appreciation rather than what the house sold for at it’s peak in 05 and 06. I call this the home’s "True Value" and feel more comfortable using this method.
To Your Financial Health,Todd Dawkins
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Todd Dawkins www.MortgageCreditCare.com 2424 North Federal HWY, suite #415 Boynton Beach , FL 33435By Phone: 561-714-5541 (Office)By Fax: 561-739-8333 (Fax)By e-mail: ToddDawkins@gmail.com
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