Mortgage Rate% APR


RateWatch #216 - RATS - The Election Is Coming

September 16, 2000
by Dick Lepre, Homeowners.com

I) Fixed Rates

30 year conforming* 0 point 8.000%
30 year conforming 1 point 7.75%
15 year conforming 0 point 7.75%
15 year conforming 1 point 7.375%

30 year Jumbo 0 point 8.5%
30 year Jumbo 1 point 8.25%
15 year Jumbo 0 point 8.25%
15 year Jumbo 1 point 8.000%

*"conforming" is less than $252,700 for a single family home

II) What's Happening?

This week saw some savage selling in the 30-year bond market. What is this all about and what does it portend for rates? Letís go back a week and set the stage. We were (an still are in a long-term) bull market for bonds. The Treasury yield curve has been inverted since the beginning of the year. What happened this week was the inevitable disinversion. Look at the economic data this week. It would be hard to imagine a stronger case for "no inflation". So what happened? Investors who were long in the 30-year and short on the shorter maturities (so called "flatteners") abandoned their positions and sold the long (30-year) bond. The flattener unwinding, thus, caused exaggerated selling of the long end (30-year) and buying in the short end as investors betting on the continued inversion got hammered.

The size of the movement is, at least in part, the result of the decreased trading volume which translates into greater volatility or exaggerated movement. In addition, looking purely at the technicals, over last weekend the recalculation in the weekly technical (this is where the oldest data gets tossed out and the newest included) caused a downcross from the closing of the market last Friday. This technically instituted downcross acted as a force to support the selloff.

What we just had is an intermediate cross or correction. The bull market is still alive. Whatís more, the increase in oil prices is working with Greenspan. Increasing oil prices act as a brake on business just as rate hikes do. There are no more rate hikes in the near future.

III) RATS - The Election Is Coming

OK, so the election is coming. The big issue to date has been the "RATS" issue. That is a clear indication that this will be a campaign of substance in which issues of national importance will be discussed. I mean, rats are a serious health problem and it's time we took care of the little bastards.

In talking with folks on the phone, I often hear an expression something like, "Well, since this is an election year interest rates will go down". This statement has no basis in fact. The Fed Funds rate did not increase in 1992 and 1996 but there was no need to increase it either year. Before that, from 1960 to 1988 the fed funds rate increased 3 times during the campaign, decreased 3 times and was flat twice. That is the very definition of "zero correlation coefficient".

The Fed owes nothing to either political party or to the incumbent. The fact that the Fed operates outside the political arena is one of the very things that makes it work. As financial deregulation expands and the distinction between insurance companies, brokers and lending institutions become blurred it is imperative that the Federal Reserve not get caught in a political crossfire and have its ability to help the economy impaired.


There is one thing about the election and campaigning and the candidates that I don't like. That thing is - everything. I've thought real hard about it and may have come up with a solution. This is somewhat radical and may need a little bit of work. Let's remember Columbus was headed for India when he ran into America.

One of the underlying things that no one seems to like is campaign finance. What I propose here is the ultimate campaign finance reform. Raising money is tough. It is difficult to make one case to the people whom you are seeking to get money from and another case to the voting public. That's the problem. Our founding fathers saw fit to give everyone, well, every man, one vote no matter how much he contributed.

There is a much more efficient way to do this. This new method will do away with campaign rhetoric and save the government a ton of money. The notion is simple. We put all national offices: President, Senate and House of Representatives up for bid. There are two rules which will make this extremely profitable. Rule #1 - when you submit a bid you need to send a cashier's check for the entire amount of the bid and the government keeps all of the money - even the losers'. Rule #2 - all of the winners will take the offices that they have purchased but none of them will be paid. They don't act as if they work for us, so why should we be paying them? They will have to pay their own staffs and their own travel expenses. This is not a cold, heartless proposal. They will be given office space in government buildings (150 sq. ft per employee) complete with utilities and janitorial services. They have to pay for their own phones, copies etc. just like any other business.

Do you like political commercials on TV? Radio? Do you like all of those darn signs saying "Vote Yes on N and No on Y?" Of course not! With my plan we do away with all of this and instead of the money going to TV networks and stations it goes to the Treasury.

This is just the beginning. Congress needs to be run less like NASA (a financial disaster) and more like NASCAR. No more of this 106th (or whatever it is) Congress stuff. Corporations will be encouraged to buy the naming rights to Congress. It will be the Microsoft Congress (might help with that darn lawsuit) or the Yahoo! Congress. For some reason, I like the sound of Yahoo! Congress but, hey, if AT&T wants to pay more, that's the way it goes. In addition to Congress, in general, we will sell the naming rights to the House and the Senate. The opening of each congress will seem more like a Hollywood movie.

Each session of Congress will begin with a prayer but that will be followed by a 60-second commercial message. When a Congressman gets up to give a speech on the floor he will be requires to wear a baseball cap with an advertiser's logo. Bella Abzug had this idea first but she did not know how to monetize it.

This is just the beginning. We can sell the naming rights to Federal buildings, monuments, parks and maybe even holidays. Professional sports have learned this lesson from NASCAR.

Who makes more money, C-Span or E-Bay? Washington Mutual would probably be willing to pay a lot to not have the name of the Washington Monument changed to the Countrywide Monument. Yosemite is a nice place. Kodak should be willing to shell out big bucks to become "the official film" of Kodak National Park.

The important thing is that we will be spared campaign rhetoric. We won't have to listen to the candidates debating about how many debates they are going to have. In fact, we won't have to listen to them at all.

And you know what? In the end it will make little difference as to who gets into office. It will just save us a lot of money.


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