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Category Archives: Economic News

Just Begin

At some point, everything’s gonna go south on you and you’re going to say, this is it. This is how I end. Now you can either accept that, or you can get to work. That’s all it is. You just begin.

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Clinton May Have Lost Popular Vote

Clinton May Have Lost Popular Vote. I hear a lot about how Clinton won the popular vote by 2,000,000 and how our system is screwed up with the electoral process. It’s been discussed in my circles ad nauseam and I make the argument that’s it’s irrelevant.  Let me explain.
Popular Vote versus Electoral Vote – Explained. The popular vote is simply the number of Americans voting for a particular candidate. But the electoral vote is much more complicated. It’s actually the House members of each state that cast the actual votes based on how the citizens of that state vote. Each state has 2 U.S. Senators and a number of House of Representatives based on the state’s population. For example, California has 2 Senators and 53 House members for a total of 55 votes because its population is huge compared to Arizona who has 2 senators and 7 House members for a total of 9. The idea was to balance the voting power to the smaller states.California has about 40 million people and Arizona has about 7 million. Each member of the House represents about 725,000 people in California (40m/55) whereas each member of the House in Arizona represents about 775,000 (7m/9). Many think this it’s unfair that the candidate that won the popular vote should get trumped by the winner of the electoral vote (pun intended).
Why It’s Irrelevant.  It just doesn’t matter – trust me! Look, if we used a popular vote instead of the electoral vote everything would be different and there’s no way to know how the results would change. First, the number of people voting would change dramatically. Many people in California didn’t vote because they felt it was a waste of time since it was a forgone conclusion that the state would go democratic and all 55 electoral votes would go to Clinton. Same thing in Arizona…I know a lot of people that simply didn’t vote because they didn’t feel there was a chance in hell the state would vote anything other than republican and all 9 of its electoral votes would go to Trump. Since all the electoral votes go to one or the other, people stayed home. I read that nearly 100 million didn’t even vote! Many argue that a much higher percentage of people in the country would vote if we moved away from the electoral process.
Second, and just as important, the strategies employed by the candidates would have been strikingly different. That is, Trump and Clinton would have strategized and executed a plan that looked nothing like their actual campaigns over the last 500 days. Using my example above, Trump would have undoubtedly spent more time in California and Clinton would have spent more time in Arizona. But EVERYTHING would be different. It’s like saying we’re going to change the rules of baseball where each stolen base is worth 1 run…recruiting would be greatly skewed towards fast base runners and the strategy behind every game plan would be completely different…coaches would be more interested in getting singles by fast base runners to score more runs and catchers with strong arms would be in higher demand.
The point is, if we used the popular vote, the overall strategies of the campaigns, where they visited, the speeches, the advertisements, everything would be different. Clinton may have lost by 20 million or won by 50 million…there’s no way to know. So when anyone makes an argument that Trump would have lost or Clinton should have won, it’s nonsense. Unless we actually change the system, we’ll never know the true impact to the election results.

Why Bonds Fell – The Assumptions & Uncertainty Of Trumpenomics

trumpWHY DID BONDS FALL?  THE ASSUMPTIONS & UNCERTAINTY OF TRUMPENOMICS.  Let me see if I can give you some talking points with your clients on why bonds fell so dramatically since the election results were announced.  The main concern is rising inflation.  Bonds hate inflation so when it’s on the rise traders will sell-off bonds. The truth is, nobody really knows what Trump will do except Trump himself, and I don’t think he really has a definitive plan at this point. I believe he approaches these sorts of issues with the mentality that whatever it is he’ll make sure it’s fixed…that he’ll figure it out…just like he figures out how to fix issues within his businesses. There is no room in his mind for failure…he’ll just get it done. But based on his comments made during the campaign, we expect him to (1) repeal free trade agreements with other countries and (2) lower taxes while simultaneously increasing government spending for infrastructure, i.e., airports. This would undoubtedly influence an accelerated change in the Fed’s monetary policy.
  1. Elimination Of Free Trade Agreements.  Per the Constitution, Trump as President will have the authority to negotiate trade agreements with foreign countries. He has said that he intends to repeal the free-trade agreements that are currently in place because they allow other countries to take advantage of the U.S.  These free-trade agreements have allowed countries to trade without heavy regulations or tariffs (taxes).  So, if Trump repeals these trade agreements, then products that we purchase from other countries will be more expensive because of the newly placed regs and tariffs. When products become more expensive it’s called rising inflation, and Bonds hate inflation. Therefore, traders have sold off bonds because they expect rising inflation if Trump goes through with eliminating free trade agreements. When traders sell off bonds, our rates/pricing worsen.
  2. Lowering Taxes While Increasing Government Spending.  Trump promised to lower taxes while simultaneously increasing government spending for infrastructure, i.e., airports, etc. So, the question economists have been asking is where is this money going to come from to build infrastructure if we’re going to lower taxes?  The only logical source, unless Trump knows something we don’t, is that we will have to borrow the money and increase our debt.  We currently owe about $14 trillion which is about 76% of our GDP. Think of the debt-to-GDP ratio in mortgage terms we understand, “DTI.”  So, our DTI if you will is about 76%.  I know that sounds like a lot since we work in mortgages where the cut-off is typically 50%. But compared to other countries, our DTI of debt-to-GDP is relatively low. For example, the UK, Germany, France, Italy, and Canada all have higher debt-to-GDP than the U.S.  And Japan has a whopping 260% debt-to-GDP…way more than 3 times the U.S.  Because our bond debt is relatively low compared to our GDP, our bonds look attractive to other countries.  But if we increase that debt to raise capital for infrastructure, then the debt-to-GDP will go up making our bonds less attractive.  When bonds are less attractive, the price will be worse. When traders anticipate the price of bonds being worse, they sell. When traders sell off bonds, our rates/pricing worsen.
  3. fedThe Fed Will Accelerate The Reduction Of Buying Bonds.  The Fed had been buying bonds for the last several years in order to keep interest rates low. It’s what is often referred to as “the artificial market.”  Ideally, the Fed should not be involved in buying bonds…the free markets should dictate when bonds are bought and sold. But the Fed employed monetary policy of buying droves of bonds to help out our flailing economy during the recent depression. For this reason our rates/pricing have been artificially low for almost the entirety of the Obama administration. The problem is that this is not sustainable. At some point, and many argue we’re way overdue (including me), the Fed needs to back off and let the free market operate. That’s why you’re hearing all this news about the Fed raising interest rates.  Traders know that eventually rates will increase and the Fed will reduce its involvement to buy bonds. But that timeline was expected to go on for years and therefore simply raising interest rates is in itself not enough to influence traders to sell off bonds.  But now that Trump is going to be President, and we expect him to raise our debt-to-GDP (DTI – see #2 above), the Fed will likely accelerate the reduction of buying bonds.  Some argue the Fed might have to stop altogether after the 2017 year!  That fear is what caused traders to sell off bonds. When traders sell off bonds, our rates/pricing worsen.

    To take it a step further, traders are considering that there will be less refinances. If rising interest rates are accelerated, then the number of refinances will diminish faster. That should make perfect sense to you. If not, then let me explain…when a borrower refinances, they pay off the existing mortgage. As an investor of these mortgages, the Fed would get an influx of cash from the payoff and that cash would be used to buy more bonds which in turn would help keep interest rates low. But if rates go too high, refinances will fall off significantly, meaning there will be less payoffs of existing mortgages and less cash flow for the Fed to buy more bonds.  It exasperates the problem.  My analogy is an ice-covered lake. As the temperature rises, the surface melts and creates cracks in the ice. These cracks will feed down to the bottom of the ice carrying the warmer water from above which accelerates the melting. Traders realize this and have been selling off bonds as a result. When traders sell off bonds, our rates/pricing worsen.

FOR ALL THESE REASONS, traders sold off bonds. It took a whole year to get the bond prices high and our rates/pricing so aggressive. But because of these concerns after Trump was elected, bonds lost all the year’s gains in less than 2 weeks.  As always, this is intended to give you talking points with your borrowers. REMEMBER, borrowers are more likely to do business with you if they trust you. By understanding what’s going on, and being able to communicate the same, you instill trust. I hope all of this helps. If my explanations are unclear, or if you disagree, I would love to hear from you.
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Culture Shift Comes With Success

ethos logo verticalCulture Shift Comes With Success.  Ethos is having great success. We’ve hit record numbers which allowed us to increase our staff. We have more underwriters, doc drawers, etc. This has allowed us to reduce the number of loans underwritten per Underwriter each day, and open them up to better communication with LOs and Processors.  In fact, because of our success, Underwriters are now making outbound phone calls to Processors after they have uploaded all but 2 to satisfy conditions. Underwriters are also calling out after the second round of uploads has been completed. This has proven to get more loans CTC faster.  Last, Underwriters will call you upon request via ASK-E, our IM system for direct access to the Underwriters.

In addition, I now have a new more experienced underwriting team all located in the same office with your Broker Advocate. And, our Underwriting Lead is one of the best ever. This is proving to make things much more efficient.  With all the success Ethos has had, and all of the success I have personally had, these changes are exciting to get us to the next level. A level of service that exceeds the industry standard while maintaining our hyper-aggressive pricing strategy. Let’s go!

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Dad, What Is Memorial Day?

memorial dayDad, What Is Memorial Day? It’s important to me my kids understand what it is. But war is a concept my 11-year old and 8-year old just don’t quite get, yet, unless it’s within the context of Minecraft. So, I did my best. And then the questions came pouring in.

Dad, why is there war? Why do people want to kill each other? Why would anyone want to be a soldier if they’re going to die? Will Uncle Mike (NAVY) have to go to war again? Will I have to go to war? Why did those people crash into those buildings in New York…is that why we have Memorial Day? Why would someone kill himself to kill others…that doesn’t make any sense?

Part of me is glad they don’t understand it. But the other part realizes they must. So, because of the questions I showed them footage of 911…the planes crashing…people jumping, etc.  I explained that there are people in this world that want to destroy what we have. I explained there are people in this world that want to destroy anyone who isn’t just like them. I even explained there are people in this world that want to kill our family because we are Jewish. I explained there are people in this world that fear what they do not understand, and rather than learn about each other, their fear consumes them and baseless hatred results.

The purpose of Memorial Day is to pay tribute to those Americans that paid the ultimate price to protect us from these hateful people. And it is also a day to thank those currently serving, like Uncle Mike, for continuing to protect us. It was a heavy talk but I think they have a better understanding. And the questions kept pouring in all day and into the evening… 

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Dead Cat Gratitude

lucyDead Cat Gratitude.  Yeah, she’s dead…put her down Thursday afternoon.  Hey, Lucy was 16 years old…I knew her longer than I’ve known my kids, and not once did she get mad at me for not buying her crap.  Of course, my kids never crapped on the floor, at least not yet.  Anyway, it’s been a sad house these last few days and your messages have made it an easier transition. I truly appreciate all your warm messages, thank you.

 

What Are You Waiting For?!

Consistent Price Leader Every Day
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Lock Them In!
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and a consistent PRICE LEADER.
Get Approved!
In 10-Minutes I Can Have Your Package Submitted.  Super Easy and Fast Process.
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So Grateful! AND PRICING IS EVEN STRONGER!

gratefulSo Grateful!  Wow, we must be doing something right, because Friday and yesterday were MONSTER lock/submission days and I’ve already seen a bunch come in this morning.  What’s awesome about this is the repeat business.  Yes, our pricing is ridiculously strong, but our improved service levels and speed are bringing you back.  Thank goodness we beefed up our operation staff to handle the influx.
 
Not only did I take a ton of locks and submissions personally but the rest of our AEs each took a ton as well.  I haven’t had lock/submission days like this in a long time!  Ethos is on fire…  So grateful! 
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MY MARKET UPDATE:  The Fannie Mae 30-year bond is +38bps since yesterday’s close. Generally a lender’s rates/pricing improves when the bond is being bought.  Pricing improved by 40-50bps on Friday and today we’re up another 30-40 bps!  Bonds are reacting to the stock market which is not doing so great.  Today it’s oil prices driving traders to dump stocks and invest in safer bonds instead.
Check it out:  U.S. Stocks Sink With Markets Around the World
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Special Moments — EXTREMELY AGGRESSIVE PRICING!

special momentsSpecial Moments.  Weeks ago I went to Minneapolis for my brother’s wedding. The night before the wedding my brother had out-of-town guests to his new home and it turned out to be over 100 people. Therefore, getting any quality time with my brother was understandably dismissed.  But as my daughter recently reminded me, there was enough time for one special moment in the evening that defined the entire weekend of events for me and my daughter.

To set it up, my brother built a sound proof smoking room within his master bedroom where he keeps his guitars and media system.  Besides having a special sound system and air-suction units that pull any cigar smoke or other odors out of the room, this little space is entirely insulated…you can’t hear anything outside the room and nobody can hear you.

Since my daughter is learning to play the guitar, my brother sneaked away from the chaos of the party and pulled us into the room for about 7-minutes. We went into the room, locked the door, closed the shades, and my brother sang a song while playing his guitar for my daughter.  I wish I could’ve captured the look in her eyes…memorized by the moment and dreaming of her own talent some day.  There were many wonderful moments that weekend, but that one…………


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Attitude Is Everything – Pick A Good One

Netflix Secret Codes

Netflix Secret Codes.  Just like In-n-Out Burger’s secret menu, Netflix also has a secret search index.  If you know the secret code, you can search for many more movies than Netflix initially let’s you see.  Netflix only show you movies it thinks you want to see based on previous searches and selections.  But if you use this list, you can find so much more.  Check it out…go to the Secret Netflix Code page and click any search code.
The Dreaded Broker Package.  You hate doing them…every wholesale broker does.  So why not let me do it for you?
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