The View From The Golden Dome

Views on the week's events plus some of mine.

Fragile China, Washington AGAIN, and Cheerio

China very recently was unable to sell its own treasuries though the normal channels. They ended up selling 90 day bills through the Hong Kong stock market – and priced the units at 3%. By comparison, US 90 treasuries are being sold at .1%.  ANd did you know that Cheerios just celebrated their 70th birthday?

Back to the fragile China. So what difference does it make if China bonds were priced 30X that of US paper? Simple – the market is saying that the Chinese markets are unstable, at best. The government is trying to stave off a bubble that could make the South Sea Bubble, the Japanese real estate bubble of the 1980’s and 90’s, the dot com bust of April 2000 and the recent collapse of the US economy, look like a minor blip on the landscape. For those who don’t remember the Japanese real estate joke, here is a brief reminder.

They came. They bought prime properties at prices driven by their ego demand for prime properties, and they were counting on inflation to help their corporate balance sheets. Ah – nope. That didn’t happen. And a very few years later, these same corporations were selling off US real estate, not only for far less than they paid, but for less than what they were really worth when they made the initial purchase. The Japanese lost trillions on their ego driven fiasco, and put the Japanese economy into a slump that exists 15+ years later.

Back to China. For the country to survive, they will have to stop manipulating their currency because, somehow, the Chinese think that an artificially low currency is healthy. What is happening is that China is a huge consumer of natural resources. They are buying minerals and more from North America, huge amounts of agri products from Brazil and Argentina, and other resources from many other countries. Once they start paying for these products in their revalued currency (which they must do in order to raise capital on the open market), they will begin to price themselves out of the world market. Demand for the raw materials will decrease, and those supplier countries could end up in another recession or depression. My source on this information, an oft quoted stock analyst, says there is a 50-50 chance that this scenario could play out.

So what does this mean for the USA economy? The dollar will strengthen. Imports will become less expensive. Interest rates in the US may go up to counter rising rates in other countries. Higher interest rates mean capital inflows to secure government securities. What it also means is that stock prices will tank – and anyone in those investments will get hurt, big time. And one thing that could happen – manufacturing in the US could get jump started by China’s economic woes. However, that could be tempered by the strength of the US dollar.

My source also said that he can see the collapse of the Euro within 12 months, but certainly within 36 months. And the US dollar gets stronger again. He said that the aggressive play today is shorting the Euro. Greece is getting bailed out: Spain, Portugal and Italy are sure to follow. The unemployment rate of men under 25 years of age in Spain is about 40% – the same as in Egypt !! The similarity – these are all welfare states. People are paid good incomes if they don’t work. There are no incentives to work. Sarkozy in France has seen this and that government has already taken steps to stop the welfare. And so has Merkel in Germany. And the people are not happy. I guess they’ll have to become productive members of society.

It’s been 70 years, and yet the same plant in Buffalo NY is still producing the most popular cereal in the USA – Cheerios. Here are some cheery facts. The O’s, which was about the tenth product design, are made by shooting little balls of dough from a puffing gun at 100 mph. In 1979, Honey Nut Cheerios were introduced, followed by Apple Cinnamon Cheerios in 1988, MultiGrain Cheerios in 1992, Frosted Cheerios in 1995, Berry Burst Cheerios in 2001 and Chocolate Cheerios in 2010. And Honey Nut has been the top seller since 2009. And who hasn’t eaten Cheerios at some time in the last 70 years – every kid I know grew up on those little O’s.

Washington continues to slam the mortgage world. And at long last, the CA Assn of Realtors has come to the side of the mortgage loan originator (yes- that IS what I do for a living) and issued a press release – and here is part of what theyhad to say: ”

More than 30,000 California families will face higher down payments, higher mortgage rates, and stricter loan qualification requirements if conforming loan limits on mortgages backed by the Federal Housing Administration (FHA), Fannie Mae, and Freddie Mac are reduced beginning October 1, 2011, according to analysis by the California Association of Realtors (CAR).

“By reducing the conforming loan limit, thousands of California home buyers will be shut out of homeownership,” said C.A.R. .  “The higher mortgage loan limits are critical to providing liquidity in today’s housing market and are essential to our housing recovery.

Barring Congressional action, the maximum FHA, Fannie Mae, and Freddie Mac conforming loan limit will decline to $625,500 beginning Oct. 1, 2011, from the current $729,950 limit, though the majority of counties will fall far below the $625,500 maximum.  The conforming loan limit determines the maximum size of a mortgage that FHA, Fannie Mae, and Freddie Mac government-sponsored enterprises (GSEs) can buy or guarantee.”  Fannie and Freddie have their collective heads jammed ‘where the sun don’t shine!”

And finally, I encourage all Americans to immediately boycott Delta Airlines. They have freely admitted that because of their proposed code sharing with Saudi Airlines, Delta will no longer allow Christians, Jews, or people with an Israeli passport stamp to board any of their aircraft heading towards Saudi Arabia. Also specifically excluded are Bibles and religious tracts of any kind. Delta’s stupidity in agreeing to these demands from the Saudi’s is a violation of the civil rights of anyone who is not a follower of Islam. Do a search for this information. I will not dignify Delta by including it. They are idiots at best,

Please remember something that is very important to me – and to you and people you know. I am in the business of providing real estate loans. For purchases. For refinance. For you and for your friends. Your referrals are what makes my business survive. My number is 818.305.4695 and my email is

Have a great week – and a Happy and Safe 4th !!!


Berman’s Factoids of the Week

It would take 3,155,524,416 Cheerios to circle the Earth.

How did the kerosene fungus get its name? (did you even know there was such a thing??) It eats kerosene and lives in jet fuel tanks.

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For the week of Jun 27, 2011 — Vol. 9, Issue 26
In This Issue… 
Last Week in Review: Important economic indicators moved up and down. Find out what they mean to Bonds and home loan rates!Forecast for the Week: Multiple high-impact reports will be released this week. Here’s what you need to know!View: Does grad school really pay off in today’s economy? The answer below may surprise you!
Last Week in Review 
“WHAT GOES UP… MUST COME DOWN?” Gas prices have dropped at the pump lately, but the markets are more focused on movement in the rest of the economy. Here’s a look at where some important economic indicators are headed… and what they mean to you!
Fill ’er up… oil’s down! Late last week, crude oil fell under $90 per barrel after the International Energy Agency (IEA) said it would release 60 Million barrels of oil in the coming months to offset the loss of production in Libya.Lower expectations for economic recovery. The big news last week was the Fed FOMC meeting and the release of the Fed’s Policy Statement. While there weren’t many surprises to come out of the meeting, the Fed did revise its forecast for the 2011 Gross Domestic Product (GDP) lower and acknowledged that the economic recovery is a little slower.Frustratingly high. On Unemployment, the Fed stated that the pace of job growth is “frustratingly slow” and that it believes the Unemployment Rate will average 8.6% to 8.9% in the 4th quarter of 2011…which is actually higher than earlier forecasts of 8.4% to 8.7%.Inflation on the rise? The Fed also raised expectations for Core Inflation, which strips out volatile food and energy costs. This is important because if inflation picks up, Bond prices will move lower – since yields have to move higher to attract buyers to compensate them for the pickup in inflation. And that means home loan rates may move higher as well.Where are Stocks headed? The Fed said the second round of Quantitative Easing (known as QE2) will end as scheduled at the end of June – but there was no mention of a third stimulus package (which would be known as QE3). Their silence on this point was fairly deafening. Many experts have wondered about the possibility of a third round of QE, but it doesn’t look to be in the cards at this point. It’s important to note that the Stock market did not like that there was no mention of QE3, especially since Stocks have only risen the past couple of years when the Fed has been buying – like during both QE1 and QE2. It will be very interesting to see how Stocks behave once the QE2 support is removed.

Misery loves company? Here’s an interesting fact for you. Believe it or not, there’s actually a “Misery Index.” This Index takes into account both inflation and the Unemployment Rate. Currently, it’s just slightly below the level seen in December 2009, which is when the economy was still in the midst of the credit crisis. To put this in perspective, we haven’t seen the Misery Index this high since 1983. And what is a bit concerning is that the Index has climbed higher each month so far during 2011. With inflation rising higher still and unemployment not ticking down, the upward trend may well continue in the near future.

Better than expected… but what’s the catch? Durable Goods were reported better than expected last week. It wasn’t a blockbuster reading, but it was good news in light of concerns that the economic recovery is slowing. That said, there’s a catch to consider if you or someone you know is looking to refinance or purchase a home. The recent slowdown in the economic recovery has actually helped improve Bonds and home loan rates. But if the slowdown proves to be just a minor bump in the road to recovery and if future reports show modest improvements, home loan rates could move higher rather quickly.

The good news is that home loan rates are still at historical lows, making this a terrific time if you or someone you know might be thinking about refinancing or purchaing a home. It only takes a few minutes to see if you can benefit from the situation. Call me at 818.305.4695 or email to get started.

Forecast for the Week 
Another busy week is ahead of us, especially with the release of multiple high-impact economic reports, not to mention Treasury Auctions:

  • We start off right away Monday morning with reports on Personal Spending and Personal Income, as well as the Personal Consumption Expenditures (PCE) Index, which is the Fed’s favorite gauge of inflation.
  • In addition to seeing new data on consumer spending and income, we’ll also see new reads on how consumers feel about the economy. On Tuesday, the Consumer Confidence report will be released, followed by the Consumer Sentiment Index on Friday.
  • Manufacturing will also be in the news this week. On Thursday, we’ll see the Chicago PMI, which surveys more than 200 Chicago purchasing managers about the manufacturing industry and is a good indicator of overall economic activity. Then on Friday, we’ll see the ISM Index, which is considered the king of all manufacturing indices and the single best snapshot of the factory sector.
  • The housing industry will also be highlighted this week, with the release of Pending Home Sales report on Wednesday.
  • Finally, on Thursday the markets will see a new read on the weekly Initial Jobless Claims report. In last week’s report, the number of new Jobless Claims rose significantly to come in higher than expected. Overall, the pain in the job market continues to weigh on the economy and the quandary for the Fed is that further government stimulus or support may be warranted if things slow down further. But with more government stimulus comes further inflation fears – and since inflation is the archenemy of Bonds and home loan rates, this will be an important news story to keep watching.

In addition to those reports, the Bonds and home loan rates may also be impacted by the Treasury Auctions this week. The Treasury Department will auction off a total of $99 Billion in 2-, 5- and 7-Year Notes on Monday, Tuesday, and Wednesday. I will watch those auctions closely to see how they’re received and how they impact home loan rates early in the week.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.

As you can see in the chart below, Bonds and home loan rates benefited from the news last week. I’ll be watching closely to see if the slower economic recovery continues… and how this week’s news impacts home loan rates.

Chart: Fannie Mae 4.0% Mortgage Bond (Friday Jun 24, 2011)
Japanese Candlestick Chart
The Les Berman Weekly View… 
Does Grad School Pay Off?We look at how much you’ll make – and how much you’ll owe – after earning advanced degrees in five popular fields.By Jane Bennett Clark, Kiplinger.comA few years ago, going to graduate or professional school seemed like a smart way to wait out a miserable economy. Students who picked up an extra degree may now be wondering if it was worth the time and expense.In terms of salary expectations, the answer is yes. The Census Bureau reports that workers with a master’s degree earn an annual $74,217, on average, compared with $58,762 for bachelor’s degree recipients and $32,812 for high-school-only graduates. Grads who earn doctoral degrees can earn salaries in the six-figure territory. Professional degrees bring in an average of $128,578.

But the average grad-school debt for students who borrow tops $30,000 for a master’s degree and approaches $90,000 for a professional degree, not including undergraduate loans.

If your monthly payment exceeds 10% of your monthly income, you could end up struggling financially for the sake of that degree. Vet the prospects for your profession before spending (or borrowing) to go to graduate school.

Law degree

New hires of law-firm associates, which plummeted 40% in 2009 from the previous year, are creeping back up. More than 87% of law students who participated in law-firm summer programs were offered jobs in 2010, an 18% bump over 2009, according to the National Association for Law Placement. Still, hiring remains significantly below prerecession levels, and competition for jobs will be fierce as law schools continue to churn out more lawyers than the market can bear. As for salaries, the biggest paydays are at big private firms, where new lawyers earn a median annual salary of $160,000. Public-interest attorneys earn the least, with median starting salaries of $42,000 to $50,000, according to the NALP.

Medical degree

The medical profession suffered its share of economic heartburn in the aftermath of the recession: In 2010, doctors in eight specialties, including plastic surgery and gastroenterology, saw a drop in pay from the previous year, and most others enjoyed only a modest increase. No worries: Physician incomes are still among the highest in the country, ranging from $175,000 to $600,000, depending on the specialty. And job prospects for physicians will be healthy throughout the decade, owing to an aging population and ongoing demand for high-level care. The most sought-after of the profession (but not the highest-paid): doctors who practice in rural and low-income areas and those who specialize in age-related illnesses.

Doctor of Pharmacy

Take regular breakthroughs in medicine, a shortage of new pharmacists, and a host of older pharmacists getting ready to retire and you’ve got a prescription for job opportunity. Although some pharmacists saw their hours cut back or their schedules rejiggered during the recession, job growth for pharmacists will approach 20% over the decade ending in 2018, according to the Bureau of Labor Statistics. The average salary for the profession, which currently requires a doctoral degree, is $106,630. If you go into this field, plan on spending less time mixing medications – most are premeasured and delivered ready-to-use by pharmaceutical companies – and more time counseling patients and filling out insurance forms.


Employment prospects for MBA grads rebounded after suffering a dip in 2009: Nine in ten members of the class of 2010 were employed after graduation, about the same as prerecession levels, according to the Graduate Management Admission Council. But getting those offers was no walk in the office park: Grads sent out more than 33 applications, on average, and submitted to more than six interviews before getting a bite. Nearly half of the class reported applying for jobs that offered less money than they had hoped for. As for the future, job growth for business management analysts over the decade should be strong, and so should the competition among job seekers. Many firms won’t even look at a candidate who lacks an MBA.

Master of Public Health

Public-health professionals should find plenty of jobs in the coming years as the health care industry expands, the federal government ramps up disaster-preparedness efforts, and communities seek to improve preventive care. Specialties with the most job potential include health services administration, epidemiology, health education and public-health program management, at first-year salaries (which include all degree levels) ranging from $33,000 to $86,625 for health education and $37,050 to $161,400 for health services administration. The median for health service management runs $80,240. Most public-health management positions require a master’s degree, such as a master of public health or health administration.

Reprinted with permission. All Contents ©2011 The Kiplinger Washington Editors.

Economic Calendar for the Week of June 27-July 1, 2011

Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.

Economic Calendar for the Week of June 27 – July 01

Economic Report
Mon. June 27
Personal Income
Mon. June 27
Personal Spending
Mon. June 27
Personal Consumption Expenditures and Core PCE
Mon. June 27
Personal Consumption Expenditures and Core PCE
Tue. June 28
Consumer Confidence
Wed. June 29
Pending Home Sales
Thu. June 30
Jobless Claims (Initial)
Thu. June 30
Chicago PMI
Fri. July 01
Consumer Sentiment Index (UoM)
Fri. July 01
ISM Index
The material contained in this newsletter is provided by a third party to real estate, financial services and other professionals only for their use and the use of their clients. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, we do not make any representations as to its accuracy or completeness and as a result, there is no guarantee it is without errors.
As your trusted advisor, I am sending you the LES BERMAN WEEKLY because I am committed to keeping you updated on the economic events that impact interest rates and how they may affect you.

And now for Lou Barnes

The world received a ton of new information this week, most in political cloak, all difficult to interpret. Markets accordingly have wockety-tonged all over the place, but the 10-year T-note sliding below 2.90% says the net effect is heightened anxiety.

The only straightforward stuff was US economic data. Sales of both new and existing homes slid in May, but with no real change in pattern. Weekly claims for unemployment insurance are trickling upward, 11-straight weeks above 400,000 — far below the 650,000 post-Lehman, but about the same as the worst of the two prior recessions. May orders for durable goods improved, but did not offset April’s decline; similarly, the Chicago Fed’s index in May was again negative, but better than April.

The endless Greek saga reminds me of schoolboy trial by Odyssey and Iliad fire. Lashed to a mast, but no sirens in sight. Could Odysseus just… go home? The European proceedings are now officially stupid, an argument over verb conjugation: default, defaulting, defaulted. Each day that the inevitable approaches, stocks sink and cash goes to bonds, then reversing at each new and absurd procrastination.

The moment that Greece finally goes will be anticlimax, as banks and regulators have had 18 months to sort through the web of its debt and credit default swaps. The daily concern in the markets is the next euro-dominoes.

In the global black box of black boxes, China is further along in its first-ever central bank fight with inflation. New signs: slowing real estate sales, a decline in lending, and a spike in bank-to-bank lending rates (5.5% to 8.9%). All nations, even ones with a hundred years’ experience in this sort of thing, are touchy about how much tightening medicine to apply to deal with a little inflation. Yet none has ever beaten China-sized inflation without a recession, and throwing a lot of people out of work.

China is likely to be flinchier than most, as it is in the midst of one of its changes in leadership without constitutional guide, just a power struggle under the covers between Party, Army, bureaucrats, entrepreneurial Princes, and ethnic and migrant crowds. Thirty years ago, less than 20% of China lived in cities; today, more than 50%. Urban populations are volatile. How China’s first capitalist business cycle plays out may matter more than anything that happens in Europe.

With that backdrop, the aftermath of the Fed’s meeting this week seems almost routine and orderly. Almost. The Fed did not announce any new action; in fact took pains to engrave that it would not do anything until the economy does something.

However, two jarring aspects. First, another downward revision in the Fed’s 2011 GDP forecast: January’s 3.9% best-case gave way in April to 3.3% and this week to 2.9% — which will require acceleration in the second half of the year. Then, rather more disturbing, Mr. Bernanke offered, “We don’t have a precise read on why this slower pace of growth is persisting.”

Tha-dump. “Maybe some… weakness in the financial sector, problems in the housing sector, balance sheet and deleveraging issues — some of these headwinds may be stronger or more persistent than we had thought.”

You don’t say. Housing… ya think, could be? Credit a little… scarce?

All right, enough smartass. Be serious: Perfesser Bernanke doesn’t have the votes to take new stimulus steps, regional Fed rockheads ready to revolt. Congressional no-bailouters and hard-money nitwits are especially upset that the Fed has interrupted their path to national suicide. This is a good time for the Fed to get off the stage, to lower its profile in self-protection.

A benefit from that exit: the markets already see, and the nation soon will, that absent the Fed there is nobody on stage. The hapless Treasury Secretary speaks from time to time, but no one listens, and the President has not been seen near a financial issue since his party got pasted last November. Congress… is Congress.

Thus a competition between misgovernment here and in Europe and who-knows-what in China, and the net result is  safety trades and lower rates, even for mortgages.


June 26, 2011 - Posted by | Uncategorized

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