0 Hundreds of billions lost. Your gain?

The End is Near! The sky is falling! George Bush said things are great so it must be true. Ben Bernanke isn’t sure whether things are great so keeps lowering interest rates and crushing the dollar in the process. Your friendly banker knows things are not great. Your above average Foreclosure/Short Sale Investor is buying foreclosure properties at prices that are phenomenally low and feels like this foreclosure craze is the start of something big.

Who is right? Maybe all of them and maybe none but I tend to side with the foreclosure investor. Not since the Great Depression has the housing market seen this many foreclosures and taken a hit like it is currently undergoing.

Great fortunes were made in the Great Depressions and greater fortunes were lost. The goal here is to be one of the winners not one of the losers. Buy when the blood is in the streets is an old Wall St saying that is very true is today's real estate deflationary blood bath.

Foreclosure investing is a skill that is quickly coming into its own as a legacy-building vehicle. By this I mean if you properly plan your strategies now you can be building wealth that will endure into the future. Opportunities like this only come about once in a lifetime. Being in a position to capitalize on it will make you on of the “lucky ones” that comes out of this downturn with a big smile on your face and a lot of friends dying to get some of your tips.

Detail: Hundreds of billions lost. Your gain?

0 The FED cut and rates are higher?

As clients are learning, mortgage rates are higher now than last week, back up to 6.5 percent for vanilla 30-year and 7% for Jumbo mortgages. Yes, higher.
Federal Reserve Chair Ben Bernanke probably has the same frustrated shoulder sag that we do: he played this thing exactly right, and has gotten nothing for his trouble but a run on the dollar.
The Fed's 0.5 percent was actually two quarters: the federal funds rate had been trading near 5 percent, 0.25 percent off-peg, for a few weeks. That was an inter meeting ease not formalized, a deft piece of central banking: if formalized, and then the crunch dissolved by itself, the Fed would have had to execute an embarrassing formal reversal. Instead, Sept. 7 news of sinking payrolls (an economic fade additional to and independent of housing and the crunch) made it easy to cut. At this moment the economy receives some dinky benefit from the cut (Construction money is 0.5 percent cheaper -- wanna build a house? Short-term rates are down -- how about a nice new neg-am pre-pay-penalty ARM? No?), but the crunch is still in place, especially in Mortgageland.

Other benefits have been cancelled as well. The 10-year T-note, driver for all long-term credit, has soared from 4.35 percent to 4.62 percent. The dollar run has been to the euro (now all-time high vs the dollar at $1.41) and to hard assets: gold at a 27-year high $744 and oil at one moment yesterday $84.

A great deal of domestic money has joined the run, buying into the fingernail-on-blackboard theorizing: there was no reason for Fed action; it guarantees a resurgence of inflation; it's just Bernanke's Put; and all bailouts all the time are bad.

This run has foreign fingerprints as well; Asia's currencies are dollar-pegged, but a race to hard assets is typical of our Persian Gulf friends and their several-trillion-dollar-hoard. Big currency moves often involve confidence, and it is disturbing in a time of financial crisis to find money running away from the dollar, the historical safe-haven. Confidence has aspects beyond interest rates and inflation: at some point, the average Persian Gulf observer of U.S. leadership, present and forthcoming, might well conclude that we don't have the good sense that Allah gave to the camel.

I like a good chart to see what happened in the past to see if it can give a little insight into the fog the future. Below is a chart of the U.S. dollar index which is our currency vs a basket of foreign currencies(Euro, Yen, Pound, Australian Dollar, etc.). Immediately below is the chart of the 10Y Treasury rates during the same period. In order to strengthen the dollar, rates need to rise to attract investment and/or taxes need to be reduced to drive growth. Taxes were cut during the early 80's, the growth engine revved up and interest rates dropped dramatically. I don't think with medicare, social security and a war machine at full speed the government can lower taxes. The FED is in a bind. The hope is that as they trash the dollar, this expands our export economy. Reviving growth, increasing tax receipts and paying back all the treasure we borrowed over the last few years. The US government owes 8.9 trillion dollars in bond money.

I believe rates across the board will need to rise in order to attract investment in our economy and to encourage investors to buy mortgage/ government debt. What's your take? I'm sure Bernanke and the new President could use you in Washington the next few years to sort out the problem.

Detail: The FED cut and rates are higher?

0 The Thrill is Gone.

Mortgage Rates are trading higher again this morning. The euphoria has worn off from Tuesday's rally following the interest rate cut. Traders have now assessed the long-term negative effects of the sinking Dollar and have begun selling into the market.The US Dollar has been falling against foreign currencies. This is inflationary because it takes more Dollars to buy foreign imports, which is effectively the same thing as a price increase.Bond prices may continue to drift lower throughout the day, pressuring home loan rates higher. For today, I would advise sticking with a locking bias.

Detail: The Thrill is Gone.

0 What's the cost of the interest rate drop to you?

Have you seen the value of your hard earned dollars? I remember as a child traveling to Mexico struggling to figure out how many thousands of pesos I had to get from my pocket to buy ice cream. The U.S. dollar has not collapsed to that degree but its value has declined dramatically in the last five years. An empire can't wage war and spend like a drunken sailor forever. Eventually, the currency suffers. How does this matter to you? Well as a starter, do you buy gas? Two reasons why it's $3 a gallon is rising global demand and the falling dollar. Oil is traded in dollars and the middle east pegs their currency to the green back. They are demanding more dollars because each month because they are worth less relative to other currencies.

In order to protect the dollar the FED would have had to keep rates steady on Tuesday. They chose to bail out speculative investors(hedge funds, investment banks, and leveraged buyout shops) and hope it trickles down to Joe Six Pack. Investors around the world could end up demanding higher interest rates on our government and mortgage debt.

We have seen the rate on the ten treasury and mortgage paper drift higher today. Just one day after the cut. This could result in much higher mortgage rates in the coming years. I believe fixed mortgage rates are a tremendous value and I think people will look back at 6-7% FIXED as the cheap money years. Have you traveled recently and seen the value of your bucks? Has your business been hurt or benefited from a falling dollar? Comment and you may win a free ice cold Sam Adams. Can I pay for it in EUROS?

Detail: What's the cost of the interest rate drop to you?