Yo! Rate talk, DEFLATION explanation and my Triathlon

You are not going to believe this...but FHA rates are at the BOTTOM of the chart.  They simply can not go lower...but only get cheaper.  Today's rate is in the 4.25% range for the 30 year fixed, but that rate with the right conditions actually allows me to waive some of the origination fee!

The Conventional rate is in the 4.375% range for 30 year fixed with the option to purchase a rate of 4.25% for additional fees.

This is very strange indeed.

The FNMA 4.5% bond is trading at $102.28 and on an upward trend today. 

DEFLATION talk is the latest driver cited.

Deflation is what happens when a currency buys MORE goods.  With inflation, if you took a basket of goods and paid a certain price last week for them: you would be paying more this week and more still next week.  With DEFLATION: that basket of the SAME goods would actually cost less this week.  

Why do we care?  With deflation: the "strength" of our money actually makes it MORE expensive for other currency to purchase our goods.  This is great for those who already are holding US dollars, but not so great for those who want to convert money to US dollars and invest in our economy.  Unfortunately, we have set ourselves up to REALLY heavily rely on foreign investment in our economy.  If that were to "dry up" overnight: it would be devastating.

The "FEAR" of deflation makes it seem as though our "goods and services" will become more "expensive" to the rest of the world and therefore the "value" of stocks traditionally goes down.   (Less people purchasing the goods=less profit)

The FEAR of deflation puts a sense of urgency into foreign investors wanting to get a piece of the bond and Treasury note market.  Why?  When they can buy while the exchange rate is favorable, they can convert the promised return on their investment to their own currency and EFFECTIVELY make more money.  Investors at home also like the guaranteed return on investment that effectively is worth "more" because each dollar returned buys more.

Example: Person buys a bond with a 5% annual return for $100.  They convert from their currency to ours at a rate of really close to 1 to 1.  One year later: With deflation, the exchange may be 2 US dollars to 1 unit of another currency. The $5 in "return" can be converted for 10 units of the other currency.  Same for a domestic investor.  If the $5 return buys MORE goods and services than the same $5 when they initially invest, their "return" is "effectively" higher than 5%. 

Naturally, this is a ridiculous example...but hopefully the theory comes across.

The funny thing: Deflationary fear usually subsides quickly.  There are way too many things pointing to inflation.  However: remember when I pointed out that the Financial Reform Legislation would SUCK a whole bunch of money out of the economy due to higher reserve requirements?  When a glut of currency is removed, the "supply" is less vs. the demand so the value goes up.

More to come.

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My Triathlon.

On Sunday July 25 I completed my first triathlon.  I didn't come in last.  There were several lessons I picked up along the route.  The "route" was a 700 meter swim, a seven mile Mountainous bike ride and a three mile mountain trail run.  The Swim was in a frigid mountain lake, the bike was 5 steep miles uphill and 2 really steep and rocky miles downhill on a narrow track and the run was a rocky and root riddled dust trail through the mountain forest.  

I would be lying if I didn't tell you that I actually ENJOYED every MINUTE of it.

You see, I was advised to simply "compete to complete" by a friend of mine who regularly does "REAL" triathlons.  (I did the "short course" which is about half the distances.)

Compete to complete puts things into perspective.  It challenged me to concentrate on one stroke at a time in the lake, one roll of the pedal at a time up the mountain on my bike and one foot in front of the other on the run.  It was ME and it was 100% MY time.  I loved it.  

I noted that although there was only one official "winner", there were no losers.  I noted that each time I passed someone or someone passed me on the trail we encouraged each other.  "Good job! or "You got this!" or "Atta kid!" was sincere and meaningful on my personal journey.

When it was done, I felt great.  I KNOW I could have dug in an trimmed at least 8-10 minutes off of my time...but I ENJOYED every minute of it.  Life can be like that.

Cheers,

Chad

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Chad Schauers
Montana Mortgage Lender, Bozeman, Montana
Personal Cell: 406 799 8613
Personal Email: metchad@gmail.com