Economics Somewhat Overshadowed by Politics in January

Some January Economic News including the impact of Politics: The late push by Obama 16 days ago to support the democrat in the MA Senate race, took a harsh populist tone which has only expanded in the wake of her defeat. Democratic strategists have judged that independents and even some democrats have bailed from supporting the Obama agenda because his administration "has become too cozy with Wall Street". So we hear his anti-banking saber-rattling throughout the week hitting a double crescendo of the Whitehouse proposed bank-stifling legislation and withdrawal of the Bernanke confirmation vote. The Dow sold off while waiting to hear: is Ben staying or going. Only 9 days remain and then he gets replaced by the Fed's Ass't Chair Kohn unless and until a vote is made. Expect to see more saber rattling this week and eventually a 60-vote confirmation of Ben. OR's Sen Merkley has been the most vocal in opposition to Bernanke (see here) placing blame for the "fire" on Ben the "fireman". He is joined by Barbara Boxer and other populist democrats, though Harry Reid continues to hold enough Democrats and Republicans to pull off the vote as soon as the Whitehouse quietly gives him the signal while still holding their "street is bad" game face. (P.S. Bernanke was indeed confirmed for another term by the end of the week.)

Markets: The stock market fell through the week putting the DOW below its 50-day moving average for the first time in over 6 months of growth. The dollar flight to bonds included buying rate-influential Mortgage-Backed Securities (MBS) that responded by stepping above its 200-day moving average, a tough barrier to cross. Watch the stock market during the week and you can expect that the mortgage rates will be moving in opposite direction; as stocks recover rates will worsen slightly and vice versa. In local markets, Columbia River Bank's sale brokered Friday by the FDIC to Columbia State Bank of Washington hit close to home. All branches remain operational and let's hope they begin making commercial loans again.

If you missed the EDCO-sponsored presentation by Alan Beaulieu of Institute for Trend Research on Friday at the Riverhouse in Bend, you will want to view the video stream and PPT slides when they become available at this website. Dayna at EDCO said it would be posted within the week. In the meantime, you may find Alan's 2008 presentation interesting. His slides are posted here. The 2010 version was fascinating. The key message to recognize is the onset of inflation that will come no later than 2011. His advice for an inflationary cycle is a sure winner. Invest in assets that will rise with inflation and use low-rate debt that will be repaid with inflation-reduced dollars in the future. Alan's advice: "Buy Commercial Real Estate. Values are down and will bottom out in 2010 or 2011 and rise with the inflationary cycle along with rents. Buy residential real estate. If you don't own a home, buy one. If you own one already, buy another. Buy one for your children."

Those great interest rates are not going to be there forever. We have 2 substantial legs of support for the housing market that are going to be pulled out shortly from underneath the current table of stability and it will be interesting to see if there are enough legs remaining to keep the table up. Fed purchases of MBS will continue through March 31. See this Post article about the risks and possible return of the Fed if we falter. The next leg of support will be the end of the "First-time Homebuyer Credit", available for purchase contracts entered into by April 30. It has been a real pleasure seeing families getting into homes for the first time these past months. Interest rates and incentives have been keeping the <$250k inventory very low in our area. These temporary benefits and eventually the inflation monster coming out of its closet will have a substantial impact on the market and we will be keeping an eye on it.

We'll have another economic forecast presentation this Thursday with Bill Watkins of CLU's Center for Economic Research & Forecasting. This will be worth seeing how Bill's views compare. If you can't be there, you can follow the presentation with a twitter feed at www.twitter.com/DaveWoodland or watch for the slides also to be posted at the EDCO site. If you would like to see Bill's slides from last year, click here.

During the week we sent out a notice about the changes at the FHA, supporting loans for "flipped" properties and retaining the 3.5% minimum down payment. If you would like to share that information with others, you can refer to it at our blog site by clicking here.

The changes are dramatic and the opportunities are huge. We welcome your referrals and thank you for your support. We took an app over the weekend for a couple refinancing into a 10-year fixed mortgage and the rates there are as low as 3.875% with an origination. Remember the mantra we heard Friday: Buy real estate. If you have one home buy another. If you have two, buy one for your children! Interesting times... Make it a great week!