Mish's Global Economic Trend Analysis

Mortgage Rates Hit 1-Year High; NAR Whines for Government (Taxpayer) Support of Fannie, Freddie; "*" the NAR
Mubarak Refuses to Step Down, Crowds Furious, Silence From Obama
Overhaul of Ohio's Collective Bargaining Law Picks Up Steam
Military Takes Control in Egypt; Crowds Cheer; Mubarak to Address Nation; MSNBC, Al Jazeera Live Feed
Cisco Employee Responds to "CEO Chambers Not Worth a Cent; Lather, Rinse, Repeat"
Dual Mandates, the Price of Gold, and Tinfoil Hats

Mortgage Rates Hit 1-Year High; NAR Whines for Government (Taxpayer) Support of Fannie, Freddie; "*" the NAR

Posted: 10 Feb 2011 06:24 PM PST

With the recent spike in 10-year treasury yields, mortgage rates have climbed as well. If you needed to (or were able to) refinance, you should have done it three to six months ago. Courtesy of Bankrate and Bloomberg, here is a Table of Mortgage Rates that shows just that.

click on table for sharper image

The table shows 30-year fixed mortgage rates are close to a 1-year high, up .27 from a month ago, up .69 from three months ago, and up .57 from six months ago.

The "sweet spot" in refinancing was 3-6 months ago.

Mortgage Applications Fall as Rates Rise

Bloomberg reports Mortgage Rates for U.S. Loans Rise to 10-Month High

U.S. mortgage rates climbed to a 10- month high, reducing affordability for homebuyers as the housing market struggles to recover from depressed levels.

Mortgage rates are rising along with yields on the benchmark 10-year Treasury note, which reached a nine-month high this week. The increase in borrowing costs from record-low levels in November may reduce demand for purchases as the market enters its key spring selling season.

"It will have a slight dampening impact on homebuying," Paul Dales, senior U.S. economist for Capital Economics Ltd. in Toronto, said in a phone interview. "Mortgage rates around 5 percent are still very low by historical standards, but these increases do seem to be putting people off."

Mortgage applications fell for the second time in three weeks, a Mortgage Bankers Association index showed yesterday. The group's gauge of purchases decreased 1.4 percent in the week ended Feb. 4, and its refinancing measure dropped 7.7 percent.

Mounting foreclosures and 21 months of unemployment of at least 9 percent are reducing buyer confidence in the housing market. Home prices fell in almost half of U.S. cities in the fourth quarter, the National Association of Realtors said today.

The rate for a 30-year fixed mortgage reached 4.17 percent in November, the lowest in Freddie Mac data going back three decades. The increase in borrowing costs has pushed the monthly cost for a $300,000 home loan to $1,620 from $1,462.

Rates may not have an effect on homebuying until they reach about 6 percent, said Tom Tzitzouris, head of the fixed-income department at Strategas Research Partners in New York. The current levels are a "neutral zone" where purchasers are neither pushed to buy nor discouraged from the market, he said.

NAR Whines in Favor of Continued Government (Taxpayer) Support of Fannie and Freddie

In a 100% completely expected whine, the NAR says GSE Structures Must Protect Taxpayers and Ensure Mortgage Availability

Continued government participation in the secondary mortgage market is essential to ensuring affordable and available home mortgages to qualified consumers when private lenders withdraw from the market, according to the National Association of Realtors®' recommendations for restructuring the government-sponsored enterprises (GSEs).

"As the leading advocate for home ownership, NAR believes that the federal government must continue to play a role in the mortgage markets to ensure the steady flow of safe and affordable mortgage funding that middle-class consumers need, and only the government can provide that backing," said NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I.

NAR believes the previous structure of Fannie Mae and Freddie Mac with private profits and taxpayer loss must never recur; however, without some level of government backing of the most basic, simple mortgages – such as the 30-year fixed rate product – interest rates and mortgage fees will be notably higher for consumers and could severely restrict access to credit, especially during down or disruptive markets. The recent economic downturn, for example, caused private capital to flee the marketplace; government backing of residential mortgages was critical in providing capital to borrowers and without their support the financial crisis could have been far worse.

NAR encourages private market solutions and innovations such as covered bonds for less traditional mortgages. However, a full privatization across all mortgage products will inevitably put taxpayers at risk. Given the very high concentration in the banking industry, the market will be vulnerable to tacit collusion and too-big-to-fail mistakes.

Thoughts on "Affordable Housing"

If you are sick of the incessant, hypocritical whining by the NAR, you are not the only one. I say "*" the NAR.

Full privatization is the only way to ensure taxpayers are never again put at risk by clowns whose message is always and forever "There's never a better time to buy than now."

Indeed, anything less than full privatization of mortgages by definition puts taxpayers at risk.

The fact is, Government has no business promoting housing. President Bush's preposterous "Ownership Society" contributed to this mess.

I am in favor of eliminating all tax breaks to home buyers and on mortgages. In fact, I am in favor of eliminating all tax breaks on everything, instead lowering rates across the board.

One of the reasons we do not have "affordable housing" is hypocrites like the NAR and hypocrites on the take like Congressman Barney Frank have sponsored hundreds of bills allegedly for "affordable housing" that do everything imaginable to promote housing, thus guaranteeing prices stay unaffordable.

Look at the hypocrites now, wanting to stabilize prices. The best thing that could happen for those truly in favor of "affordable housing" would be for prices to fall another 20-30%.

Moreover, if home prices fell to affordable levels, buyers would step up to the plate and sales would soar (and so would overall commissions). Ironically, the dunces at the NAR fear falling home prices even though falling home prices are the solution, not the problem.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Mubarak Refuses to Step Down, Crowds Furious, Silence From Obama

Posted: 10 Feb 2011 01:33 PM PST

Just when everyone thought Mubarak stepping down was a done deal, we find out otherwise. Needless to say, the protesters in Cairo and Alexandria are furious.

Please consider Mubarak Refuses to Step Down

President Hosni Mubarak told the Egyptian people Thursday that he would delegate more authority to his vice president, Omar Suleiman, but that he would not resign his post, contradicting earlier reports that he would step aside and surprising hundreds of thousands of demonstrators gathered to hail his departure from the political scene.

In a nationally televised address following a tumultuous day of political rumors and conflicting reports, Mr. Mubarak said he would "admit mistakes" and honor the sacrifices of young people killed in the three-week uprising, but that he would continue to "shoulder my responsibilities" until September, and did not give a firm indication that he would cede political power.

Even as Mr. Mubarak spoke, angry chants were shouted from huge crowds in Cairo who had anticipated his resignation but were instead confronted with a plea from the president to support continued rule by him and his chosen aides. People waved their shoes in defiance, considered an insulting gesture in the Arab world.

"We will not accept or listen to any foreign interventions or dictations," Mr. Mubarak said, implying that pressure to resign came from abroad as opposed to masses of people demanding his ouster through his country.

Cairo Live Feed MSNBC

Live Feed Al Jazeera

Here is a link to the Live Feed From Al Jazeera

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Overhaul of Ohio's Collective Bargaining Law Picks Up Steam

Posted: 10 Feb 2011 12:49 PM PST

On February 4, I noted that Ohio state senator Shannon Jones submitted a bill that would Kill Collective Bargaining for State Employees.

Governor John Kasich has supported this move so unless Democrats can find a procedural way to block passage, Ohio is going to see some much needed changes.

More details emerged today, including a protest by nurses, prison guards, firefighters, and other beneficiaries of the unjust existing collective bargaining setup.

Please consider Overhaul of state's collective bargaining law proposed in Ohio Senate

The fight over changes to Ohio's collective bargaining law escalated Wednesday with the introduction of a Republican proposal that labor groups say is a direct attack on public-sector workers across the state.

Hundreds of those workers, including nurses, firefighters and prison guards, packed the statehouse in protest as Ohio Sen. Shannon Jones, a Republican from Springboro, described details of her plan for the first time.

Collective bargaining would be eliminated for state workers and reformed for employees of local governments under the proposal, which also includes changes to teachers' contracts and benefits, bargaining timelines, layoff procedures and binding arbitration rules for police and firefighters.

Jones testified to the Senate panel that changes to the law are needed to help local governments deliver necessary services to taxpayers while dealing with declining revenues. The plan is not a political attack on unions, she said.

The 476-page bill outlines numerous changes to the state's collective bargaining law, including:
State workers' salary schedules and step increases would be eliminated, and pay would be based on merit.

Public employers in a deadlock with safety forces would have the option to extend the last collective bargaining agreement for one year rather than go into binding arbitration.

Length of service could not be the only factor in layoffs. Efficiency and quality of performance also could be considered.

Public employees would be required to pay at least 20 percent of their health care premium.

Fiscal Move Not a Political Move

This is a direct (and much needed) attack on public unions, but it is not political per se. The bill is about delivering services to taxpayers at a lower cost.

Thus, Shannon Jones' statement "The plan is not a political attack on unions" is factual.

"This bill will likely lead to lower wages and benefits for police officers, firefighters and other public employees who put their lives on the line every day to keep us safe," Sen. Joe Schiavoni, of Canfield, said.

Hopefully, in the next election, voters kick state senator Joe Schiavoni out on his ass where he belongs. Wages and benefits of police and firefighters are bankrupting city after city. It's high time those wages and benefits come under review.

Unfortunately, there is a big loophole in the bill "Public employers in a deadlock with safety forces would have the option to extend the last collective bargaining agreement for one year rather than go into binding arbitration. "

Binding arbitration heavily favors unions. It needs to go, across the board, but especially for police and firefighters. If they think they can get better wages in the private sector, let them try.

Phone Your Senators

The email Craig passed along directs members to an AFSCME e-Action Network that will forward you to to your state senator after a brief bit of pro-union propaganda.

To call in, you will need to know your senator's name. Here is an Interactive Map of Ohio Senate Districts that will help find the name if you do not know it.

After you determine your senator's name, please click on the above AFSCME link, enter your phone number, and you will get a callback in 10 seconds. Disregard the propaganda and request your senator to vote Yes on Senate Bill 5.

Tell your senator that collective bargaining drives up costs and it is time for merit pay. While you are at it, ask for a bill that will stop union dues from being used for political purposes.

Also ask your senator to amend the bill to kill binding arbitration as well! Please emphasize that point. That you want even stronger measures including elimination of binding arbitration.

It is a scam in and of itself that public unions can waste taxpayer dollars with organized call-in processes like these. It shows you just what you are up against. However, as long as the procedure is out there, it makes sense to voice your opinion too.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Military Takes Control in Egypt; Crowds Cheer; Mubarak to Address Nation; MSNBC, Al Jazeera Live Feed

Posted: 10 Feb 2011 10:17 AM PST

The protesters outlasted Egyptian President Hosi Mubarak who at long last will step down. The New York Times reports Egypt's Army Signals Transfer of Power

The command of Egypt's military stepped forward Thursday in an attempt to stop a three-week-old uprising, declaring on state television it would take measures "to maintain the homeland and the achievements and the aspirations of the great people of Egypt" and meet the demands of the protesters. The development appeared to herald the end of President Hosni Mubarak's 30-year rule.

Gen. Hassan al-Roueini, military commander for the Cairo area, also appeared in Tahrir Square and told the demonstrators, "All your demands will be met today." Some in the crowd held up their hands in V-for-victory signs, shouting "the people want the end of the regime" and "Allahu akbar," or "God is great," a victory cry used by secular and religious people alike.

The moves marked a decisive turn in an uprising that has brought hundreds of thousands into the streets in the most sweeping revolt in the country's history. So far, the military has stayed largely on the sidelines, but Thursday's statement suggested it worried that the country was sliding into chaos. The military called the communiqué "the first statement of the Supreme Council of the Armed Forces," strongly suggestive that it had arranged to take power in Egypt.

Wael Ghonim, a Google executive and protest organizer whose anti-torture Facebook page helped spark the movement, wrote on his Twitter feed Thursday evening: "Mission accomplished. Thanks to all the brave young Egyptians."

The youthful leaders of the protest movement said that they would welcome a role for the military in running the government during a transitional period, provided it was overseen by a council composed mainly of civilians. They repeated their previous demand that the council should include only one military officer, and oversee the government for a maximum of one year until free elections under a revised constitution.

Moaz Abdel Karim, a 29 year old leader of the youth section of the Muslim Brotherhood, agreed: "We have had enough of military rule. We want a civilian president."

Thursday's meeting of the Supreme Council was shown on television, only the third time the council had met publicly — the first two were in 1967 and 1973, during the wars with Israel. "Today, Thursday the 10th of February of the year 2011, a meeting was held to discuss the developments of the situation today. It is decided that a meeting will convene continuously to look into what measures and procedures to be taken to maintain the homeland and the achievements and the aspirations of the great people of Egypt," it said.

Some of the protesters say they have been inspired by Wael Ghonim, a Google executive who has emerged as a prominent voice in a revolt galvanized in part by social networking sites. On Thursday, a Twitter feed in his name in English declared: "I promise every Egyptian that I will go back to my normal life & not be involved in any politics once Egyptians fulfill their dreams."

But, in an interview on CNN, he was also quoted as saying he was "ready to die" for the opposition's cause. "And I'm telling this to Omar Suleiman," he said. "He's going to watch this. You're not going to stop us. Kidnap me, kidnap all my colleagues. Put us in jail. Kill us. Do whatever you want to do. We are getting back our country. You guys have been ruining this country for 30 years."

There is much more in the three-page article. Here is a live feed from Cairo courtesy of MSNBC.

Mubarak to Address Nation

The Washington Post reports Mubarak to address nation amid reports he will cede power

President Hosni Mubarak appears poised to cede power after 17 days of massive citizen demonstrations, with the Egyptian military saying the longtime leader would meet protesters' demands and CIA director Leon M. Panetta saying Mubarak could step aside as soon as Thursday night.

The military's supreme council met all day Thursday--without Mubarak, its commander in chief-- and said it would remain in "continuous session" in order to fulfill the army's responsibility "to protect the people, and to oversee their interests and security," according to a written statement.

A spokesman for the council told state television that the council would "support of the legitimate demands of the people."

Gen. Hassan al-Roueini, military commander for the Cairo area, told the crowds in Tahrir Square that, "All your demands will be met today." Roueni did not offer specifics, but the protesters' central demand is for Mubarak to cede power.

Cairo Live Feed MSNBC

Cairo Live Feed Al Jazeera

Here is a link to the Live Feed From Al Jazeera

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Cisco Employee Responds to "CEO Chambers Not Worth a Cent; Lather, Rinse, Repeat"

Posted: 10 Feb 2011 09:33 AM PST

Yesterday evening in CEO Chambers Not Worth a Cent; Lather, Rinse, Repeat I trashed Cisco CEO John Chambers for raking in hundreds of millions of dollars over the last decade while not delivering a dime to shareholders.

Today I received this email response from a Cisco employee.

Hi Mish,

I'm a software engineer at Cisco and I agree with most of your points. The one thing I can't understand is that many employees are insanely loyal to Chambers and see him as an extremely great and successful leader. This is in spite of the fact that all of the older coworkers who've been there for 5+ years and retained their stock options are underwater on them.

Some coworkers who have held and continue to accumulate Cisco shares for the last 10 years will not think of selling them at this point because they are sure Chambers will bring the stock back up to "its proper level" given enough time.

The biggest problem I've seen is a lack of any true innovation at the company. We increasingly buy smaller companies for their IP.

Worse yet, Cisco is very top heavy on executives and layers upon layers of management. I have several layers of managers between myself and my director and I honestly can't figure out what the mid-level managers do at all besides go to an endless series of meetings where they contribute nothing of value.

Meanwhile, there are many talented engineering teams in the company working hard to develop products. They scream for more software engineer contributors but are denied repeatedly in favor of still more management. The result is a lot of our products are delayed or cancelled halfway through development.

I saw the light years ago. I now dump all my stock and options as soon as I can, just like John Chambers does.

Cisco Employee

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Dual Mandates, the Price of Gold, and Tinfoil Hats

Posted: 10 Feb 2011 01:26 AM PST

As noted in Republicans Attack Dual Mandate, a group of Republicans want to remove the Fed's employment mandate and have the Fed focus solely on keeping prices stable.

This got me thinking once again about dual or triple mandates, and also the price of gold.

Dual Mandate Silliness

The idea that the Fed can have dual or triple mandates is complete silliness. Triple mandate you ask? The Fed seems to have added supporting equity prices to its mandates.

Honey About Your Dual Mandate ...

Short Lesson About Mandates

The Fed can control at most one thing at once.
The Fed can control short-term interest rates but not long-term rates, the price of gold, or money supply.
The Fed could influence the price of gold but then would lose control of interest rates and money supply.
The Fed could target money supply growth but would then give up control of interest rates and the price of gold.
The Fed can make money available but it cannot control where the money goes, or if it goes anywhere at all.
The Fed certainly cannot force businesses to hire anyone.
Prices are set in the global economy. At best the Fed can influence prices (via interest rate policy)

The only thing the Fed can directly control is short-term interest rates or money supply (until there is a bond market revolt of course). Dual and triple mandates are complete nonsense.

Given the nature of the global economy, the Fed can only "act" to suppress the price of gold, it could not "control" it. Moreover, and as noted above, if the Fed were to act to suppress the price of gold, it would give up control and influence over other things.

Yet people believe the Fed and JP Morgan have conspired to suppress the price of gold for decades. To believe this could be done with any degree of success over long periods of time is nonsense.

In regards to commodity prices in general, China is currently at least a big as influence as the Fed. However, by raising interest rates sufficiently high, the Fed certainly can influence prices.

At the short-term rate of 0% (where policy is now) the Fed has effectively lost all control and influence over the price of gold. Moreover, the Fed has effectively ceded control over prices in general. The Fed foolishly wants prices rise (except food and energy - exactly the prices that have been rising).

Here are two competing theories to explain what has transpired recently.

Theory #1

The Fed is buying futures to support equity prices. It has done so for 10 years but no one at any trading desk anywhere can confirm. How this happens, and how the Fed keeps all those futures off its books is the best kept conspiracy secret in the world.
The Fed and JP Morgan are suppressing the price of gold and silver. How and why and for what purpose the Fed and JP Morgan would want to do this is subject to much debate. Details of the exact mechanism and who is involved is the second best kept secret in the world, but clues are hidden in 30 year old documents as well as commitment of traders (COT) reports.
The Fed will not let the market drop
The Fed is mysteriously all powerful even though it could not stop the S&P from plunging to 666 in the crash, nor could it stop gold from rising to 1400 from 250.
There is no contradiction between points 3 and 4 because this is a planned conspiracy from the outset so that JP Morgan and Goldman Sachs can rule the world.

Theory #2

The Fed's bubble blowing polices have created bubbles of increasing amplitude over the years.
The Fed kept real interest rates negative in the wake of the dot-com crash. This fueled the housing bubble, and the initial rise in gold.
Real interest rates went positive in the housing crash and the price of commodities and equities crashed.
The Fed flooded the markets with liquidity in 2009 and 2010 which once again fueled renewed speculation in financial assets and commodities lifting the stock market.
The price of gold has generally gone up with negative interest rates. However, nothing move up forever in a straight line, so there have been some corrections in price along the way.

If you believe theory number 1, please put on your tinfoil hat.

Current Fed policy is thus based on the hope prices stay low and companies start hiring. The hope regarding hiring is unfounded. Moreover, the Fed is once again ignoring asset bubbles in the making, in the equity and junk bond markets.

For more details and further discussion of asset bubbles, please see