The big news for today is China and their desire to diversify their holdings away from the U.S. Dollar. If you've been watching or listening, then you've caught Chinese Officials saying,
"We will favor stronger currencies over weaker ones, and will readjust accordingly. The U.S. Dollar is losing its status as the world currency."
From Bloomberg: Dollar Falls to Record on China's Plans to Diversify Reserves
"The dollar fell to a record versus the euro and the lowest since 1981 against the pound after Chinese officials signaled plans to diversify the nation's $1.43 trillion of foreign exchange reserves.
The U.S. dollar also declined to the cheapest versus the Canadian dollar since the end of a fixed exchange rate in 1950 and a 23-year low against the Australian dollar. The New York Board of Trade's dollar index dropped to 75.077, the lowest since the gauge started in March 1973...
The dollar has dropped against all 16 most-actively traded currencies this year, losing 10 percent against the euro, 6.9 percent versus the pound and 5.2 percent against the yen."
From the Mortgage Reports Blog:
"Ask yourself: Would you want to be holding an asset that is worth less over time? Right. Neither does China, and neither would a whole lot of other countries.
More dollar dumping should push mortgage rates higher going forward."
What does all of this mean?
If China moves is U.S. Dollar holdings, that means that they have to sell off some of their huge U.S. Dollar based positions such as those invested in our Mortgage Bonds. Moving forward, they may very well decide not to purchase as many of our Mortgage Bonds as they have in the past.
It's the large demand for Bonds by the Chinese that have allowed for rates to stay relatively low in recent times. Though this isn't the only reason rates have stayed low, it's definitely one of them.
If the Chinese decide to diversify their holdings out of our Bonds, well...it's not good for Bonds and it's not good for home loan rates in the long term.
UPDATE: Listen to a podcast by RealTimeTraders.com and Dan Green, author of the Mortgage Reports Blog - For a look into the economy and the role that National Buyers are playing in the housing market!
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Articles of Interest:
Increasing personal debt, increasing national debt, decreasing dollar exchange rates, increasing interest rates, declining average real income levels for middle and lower income folks, increasing commodity prices (gasoline, farm produce, heating oil, other energy< etc.) all leading us to a scenario not seen in this country in its history...
We shall see how it all pans out...
Great post, very scary prospect and one that I've been scared would happen.
Richard - Thanks for the heads up my friend. Time is the only teller.....
Richard ... this news will crush the US debt market ... thanks for the info
These countries may kill their own prosperity. We import plenty from China and have an open market for their products. Are they going to sell toys to Japan and Russia? The Oil rich companies also hold trillions of dollars, are they going to invest in Iran? The dollars have to return as the printing presses have gone mad. Are tax increases going to help the economy?
Good post and good information. The stock market was truly ugly today, probably because Ben Bernanke's helicopter was grounded due to gas getting too expensive. Actually, I think that one of the reasons the US stock market is up is because of the weak dollar--if i'm not mistaken, it increases the value of the foreign earnings of US multinational companies.
The present administration has created a nasty mess, I'd rather not get into a tirade.
Ricardo- Excellent post.. only time will tell how our markets will be affected.. The news will certainly have a major effect on the presidential elections.. I keep remembering how upset everyone was about the Japanese buying US real estate and securities.. ultimately the dollar held up while the yen went south and has yet to recover. We are a strong economy partly because even with all the political rhetoric we are a stable country. In the long run stability means a great deal..
This is r5eally scary stuff. I knew I should have bought gold.
Hmmmm, may be a good time for everyone to start investing in real estate . . .
Excellent post but oh so scary to be thinking of the consequences.
Ricardo - Thanks for sharing this news even though it's not pretty. Thanks for keeping us in the loop here on Active Rain.
We'll see how it all pans out. Will be interesting to watch - and likely a bit scary also.
Ricardo- I was just talking to a friend about this today. I agree, this is a tell sign that interest will more likely go up in the long run. What is scary as all the rainers have indicated is all the financial mess this country is in right now. I think we are heading for a recession. Great Post
Excelled article. I can't tell you how many people that have told me they want to wait because of recent reductions to the prime rate not accepting my explanation that fixed rates have a greater likelihood to rise in contradiction to their expectations.
Greg Z
Ricardo. I don't pay much attention to day to day matters. However, the TREND is very bad.
I beleive that the U.S. should take about a $Trillion Dollars out of their XMas fund and buy some dollars. Shucks, they're cheap.
With any economic stumble, new markets are opened. This country is very diverse in shaping to 'new challenges'. Where we might have high fuel costs, new methods are producing energy are arising. Welcome the return of the 'Farmers Market'. Ethanol hasn't seen demand like this since the invention of the automobile. Our economy is already developed in such a way that existing markets are already flooded, so there's many of business developers and eager entrepreneurs looking for the next big venture. These times will be tough on our industry, but I can rest assured knowing many new companies will help fuel the economy and latter our real estate industry.
Ricardo - "muy bueno" post. Sorry, I couldn't resist.
This is information that everyone should be aware of. Way to elaborate that point clearly. All economic indicators point towards inflation and people shouldn't try and shy away from this thought. It should be talked about, it should be discussed. People should prepare and think of things know so they aren't stuck with their pants down when the time comes.
On another note, have you been able to come up with any solutions for jumbo pricing? I'd be interested to hear your thoughts. Good luck to you!
This is a great post - although not a popular topic, one that we should all be wary of in our changing economy. Thanks!
Heck, I can tell you guys don't go grocery shopping. We already are experiencing inflation, not in realestate, but in household goods especially due to the price of gas and the cost of trucking in these items. Everyone should be tightening their belts now o9r they may be in for one great surprise.
I would be interested to know Ricardo, if you know of a way to play the currencies, futures or what all?
Madeline Merritt, Rose and Womble Realty
Virginia Beach
Hi Ricardo, I read a report today that made the point that people who are active internationally ( celebs, etc ) are now demanding to be paid in anything but U.S. currency !
Great post...this is something I've been dreading. We will have to wait and see how this all plays out.
We need to make some drastic changes in our monetary policy.
Great post Ricardo. People forget how low these interest rates have been compared to the past. They have remained low with the Fed trying to spur on the economy, for quite a while now. In my opinion it has been a temporary fix. I agree with Vero, new markets and ventures will emerge as they always do.
Understanding China's impact on the world could be a full time job in itself. China's huge expansion, along with other 3rd world countries is one of the major reasons we have had such low interest rates for so long. I have been hearing for many years to watch out for China. What bothers me is that the country doesn't seem to care about the well being of it's own people, how can they care about the rest of the world. I guess that in some ways the same can be said of the USA's government too.
I think that some of the rhetoric coming out of China right now is in response to the huge number of product recalls that we are experiencing right now. It's hurting their economy and they are losing face. It feels like an economic saber - accept our sub-standard products or else!
In the end, China pushing down the dollar will only hurt China!
Ricardo, Great Post! You earned a gold star for the day ;) I agree with everything you said. I would like to point out that on the flip-side, since the other currencies are so strong against the U.S. dollar, it is the perfect time for foreign investors to buy real estate (residential and commercial) in the U.S., and they ARE doing this.
This statement was printed in my local newspaper yesterday:
"More foreign buyers are actively interested in acquiring properties in the U.S. With the dollar at historic lows against the euro and other currencies, real estate agents, appraisers and developers say overseas buyers are stepping up their purchases in the U.S. Some are buying vacation homes in Florida, California, and Colorado that would previously have been considered out of reach. Others are gambling that properties purchased now will translate into profitable investments down the road, when both the dollar and the U.S. housing market eventually rebound. Some brokers are aggressively marketing to such potential customers, pitching new condos to prospects in foreign countries."
I realize that your blog and my comment are two different scenarios, but at least there is a positive side to the international currency story.
Hi Ricardo - All good points.
@ Kate - Talk about a double whammy for China since they hold so much of our lovely underperfoming paper. :)
Hey Everyone!
I want to formally apologize for my delay in responding to all of your comments! For those of you that don't know, I have recently found a new home with World Wide Credit Corporation so the change has been keeping me very busy!
But I'm back now and ready to get moving! Thank you for your loyalty in reading my blog and I look forward to you returning.
All the Best!
Paul: indeed time will tell! Gas is in route to peeking at $100/barrel. I recently heard of one area recently where gas prices are at a staggering $4.29/gallon. Looks like hybrids will be selling off the lots...what do you think?
Ana: it is indeed a very scary prospect but on the other hand, it seems we're driving foreign investors into our real estate markets. I've recently updated an interesting podcast onto this article: Podcast by RealTimeTraders.com and Dan Green, author of the Mortgage Reports Blog
Jason: this corrective market has certainly been a roller-coaster ride! The best we can do is stay on top of the daily changes as you and I both know, news travels VERY fast!
Allen: the market definitely reacted negatively...we have to remember, it's all psychology! Will the Chinese diversify their investments elsewhere? I don't think so. And even if they did to an extent, our economy has historically held stable so I'm sure we will again to an extent.
Eric: As I mentioned to Allen, I'm very doubtful the Chinese will diversify their investments elsewhere!
Paul: your comment was priceless!
Since this post was written, the Stock market has taken a bit of a tumble. But with news of Financial bellwether WalMart poised to open up strong with a positive earnings and future outlook, it's seems investors are moving their cash out of Bonds to get ready to invest in Stocks.
Michael: I agree it's quite a predicament but as you said, let's not get into a tirade :)
Kaye: you said,
It appears National investors are once again flocking into our Housing Market. I've updated this post with an interesting podcast that I came across.
In the end it's like you said, we're a strong economy and a stable country and that definitely goes a long way!
Madeline: thanks for stopping by...though I didn't mean to frighten you :( I can't comment on the currency market.
Trent: what's interesting is that a lot of well qualified buyer's are sitting on the fence. For the past couple of weeks, the Stock market has been holding pretty weak which was good for Bonds. We saw interest rates rally downwards to the low 6% range.
Do I think it's a good time for buyers to start flocking off the fence and into buying? Absolutely! Rates are excellent! But you'd better be careful when locking or floating, the Stock market showed signs of improvement today which was bad for Bonds and shows deteriorated pricing on our Rate Sheets!
Diane: like to told Madeline...I'm sorry, I didn't mean to frighten you. Ultimately we'll fare off fine but in the short-term news travels fast at the economy is played by market psychology.
Marlene: it's always a pleasure to have you stop by and comment! And it's certainly a pleasure to keep everyone informed :)
Bob & Carolin: time will definitely tell...psst...do you think we'll have another Rate Cut in December? I suppose I should be the one answering that question :)
Gary: it's always a pleasure to have you by! We've definitely had our share of negative news as of recent. But hey, it's all about attitude in our business and someone will always be buying real estate. If we don't help them, who will?
So it's like you said to me the other day, let's keep fighting the good fight!
Greg: you should write a post about that scenario and wait for everyone to comment. Once they do, print it out and show it to your clients! It's a neat presentation and usually works out very positively!
Thanks for reading! I hope to see you soon.
Lenn: your comment too was priceless...
I'll admit, the trend lately has been bad! But I'm determined to help household one family at a time, the right way, even if it kills me. I'm one man but I inspire others and along with colleagues like Gary Miljour from Arizona, we're going to keep fighting the good fight!
Vero: you commented,
You raise a very valid point. It's all in the name of change. As I mentioned earlier, we're already seeing foreign investors flock to our housing markets. As far as how everything else pans out and the progress we make, I'll try and keep everyone posted daily. News travels fast so I'll try and stay on top of it.
Zach: you said,
LOL! That's too funny! Thanks for visiting and thanks for the very many positive comments! At the end of the day, it's like you said about our issues in this market,
Blogging is one way to discuss our issues; barriers to increased leads and higher sales. Mastermind Groups and accountability lunches are yet another forum for great discussion. Both of these have worked out great and I recommend them to everyone and anyone!
PS. I'll contact you tomorrow to discuss Jumbo Pricing.
Emily: my pleasure! I hope you visit again soon :)
Madeline: talk about being in for a surprise! I new the price of a barrel of gas was going up which meant increased gas prices but to see prices at $4.29...jeeze!!! I couldn't believe what I saw! It makes me want to walk into a lot to pick up a hybrid!
As far as playing the Currency/Futures Market, sorry Madeline, I don't have a Series 7 License...but I know a couple of top brokers!
Bill: it's interesting that you mention this...I was having a discussion recently on a major International Model who refuses to be paid in U.S. currency. She's negotiating to have payment in some other currency! I can't think of her name but I'm sure as you indicated, she's not the only one.
Sal: thanks for stopping by and thanks for the compliment. Visit back soon!
Chip: did you hear Bernanke's speech last week?
Kathleen: I take it you don't agree with the recent Fed Funds Rate cuts? We might see yet another one in December despite indications that one would be avoided.
I have to say that this corrective market has brought about some revolutionary changes to our industry! I don't think we'll ever see lending return to the leniency that existed in recent years. I'm also hopeful that our recent rate cuts were enough to spur some positive psychology into the marketplace to get those well qualified buyers off the fence. After all, buying isn't a spectator sport, it's a full contact sport!