Today’s blog is a random assortment of topics.
1. Brent Johnson: Rates Will Go Up or Hold in the Same Range Next Year
Brent Johnson is my favorite macro analyst because he’s not on a team, he’s so pragmatic, and he’s been so accurate with his predictions.
He was just on this recent Sachs Realty podcast, saying that rates will hold steady and go up a bit next year – largely in response to the supply of bonds that will hit the market.
I am sharing this because on Friday I predicted that rates will fall: 2025 Interest Rate Forecast: How Far Will Rates Fall In 2025? (based largely on a weakening labor market; also Jeff Snider and George Gammon often point out how the supply of bonds does not impact rates).
2. Mortgage Rates vs 10 Year Treasury: Tighter Spread Is Why Mortgage Rates Are Falling
Mortgage rates closely track the 10 Year Treasury – but the spread between the average mortgage rate and the 10 Year yield varies greatly, as indicated by the table below.
Mortgage rates are always higher than 10 Year Treasury yields because mortgages are riskier, less liquid, and holders risk early pay-offs too.
What is interesting is that the spread has been falling sharply from well over 3% to under 2.5% more recently.
3. FHA Delinquencies Shoot Higher: Why FHA Needs Insurance; Sign of Two-Tiered Economy
FHA payment delinquencies are shooting higher. These are numbers for a few southern states from Q2 of 2024 showing the percentage of FHA loans in delinquent status: Georgia: 11.96%; Texas: 11.90%; Alabama: 11.33%; Mississippi: 11.33%; and Louisiana: 14.41%.
First, this is a great illustration of our two-tiered economy that I reference often in my blogs. People on the lower end, who are not riding the stock market and crypto booms, are hurting.
Second, this is a great reminder of the necessity of FHA’s huge insurance fund (from collecting upfront MIP and monthly mortgage insurance). The fund currently holds over $170 billion, and I often see people on X saying they should lower FHA insurance premiums and/or use those funds in other ways.
But we are one bad recession away from seeing a much higher level of delinquencies and foreclosures, and those funds will get used up very quickly. It has just been so long since we’ve seen a downturn that many observers forget how fast those funds can go.
4. “Each Government Regulator Destroys 158 Jobs!”
I blogged last week about the benefits of deregulation – The Main Reason We’re Entering A Golden Age – and a friend sent me this Peter St. Onge post on X: Each government regulator destroys 158 jobs…
I’m not sure if he is correct, but he makes a strong case in the post. And even if he’s half correct, the benefits of deregulation will be enormous.
5. Cash Inflows from Other Countries Pushing Up Stock Prices
Jim Bianco shared a chart in this post on X showing the massive surge of cash inflows into the U.S. stock market (and the outflows) from other countries since the presidential election.
It is fascinating because it is a reminder of how much more enticing the U.S. remains relative to the rest of the world (we remain less awful than other economies); it is a huge reason why stock prices are surging still; and it is an illustration of Brent Johnson’s dollar milkshake theory, where capital will continue to flood into America and it is why Johnson thinks stocks will go to the moon eventually, even after a correction or two.
