Observations on Financial News

I haven’t done some observations for a while, so while I eat lunch, here are a few:

  • The Los Angeles Times is reporting that mortgage delinquencies are up 15.6% in the last quarter of 2005. In the same issue, they are reporting that the 30 year mortgage rates are rising: for the week that ended 2/2, they rose to 6.23%, up from 6.12% last week. 15-year fixed-rate mortgages averaged 5.81%, up from 5.7% last week. One-year adjustable-rate mortgages increased to 5.33% from 5.2%, and rates on five-year hybrid adjustable-rate mortgages rose to 5.87% from 5.75% last week. What the Times doesn’t say is that these are for “conforming” mortgages, i.e., under $417K. “Jumbo” rates are about 0.50 higher.

    Do you think the two are connected? As rates go up, and the growth of equity slows, those with variable rates get squeezed (and trust me, you needed a variable to buy in the recent markets). Add to this the reports about how paychecks aren’t keeping up with inflation, and you have delinquencies. Could this be due to an increased focus on the war? After all, the White House is asking for an additional $70B for the war.This might not bother me if it was for space acquisition (as that helps me keep my job), but it usually isn’t.

    This concerns me a lot. As many folks know, we bought a house last summer. This drastically increased our mortages costs, moving from a loan balance of around $180K to one around $540K. Our monthly payments have approximately tripled. I’ve been exploring this week whether it is time to move from our option ARM (currently at 5.7something%) to a fixed. It still looks like the option ARM is the better choice, as the fixed rates are much higher. We have no risk of delinquency, but it does increase my financial worries. So I’ll keep an eye on things, but the news about rates isn’t good. I hope things will get better with the new Fed Chairman.

  • The Los Angeles Times is also reporting that Del Monte is shuttering their last Hawaiian pineapple plantation–after 90 years in the islands, pineapple operations are ceasing in 2008 when the current planting ceases to produce fruit. Why? According to Del Monte, it was no longer economically feasible to grow pineapple in Hawaii because it can be grown for less in other parts of the world; in fact, they stated that “It would be cheaper for Del Monte to buy pineapples on the open market than for the company to grow, market and distribute Hawaiian pineapple.” This leaves the only companies producing true Hawaiian pineapple as Dole Food Co. and Maui Land & Pineapple Co..

    You may not think this is connected with my first observation, but it is. Why are economic troubles starting? One reason is that we are moving from being a producing nation to a consuming nation. If we don’t have goods to sell, we are not bringing the funds in to fuel growth. We must be producing things, be it pineapples, steel, or exportable ideas. It is the latter that fuels the growth in the late 90s.

    What fuels this growth? What permits America to be more efficient in production, so that the wages and output can remain high, yet still have marketable prices. Good old American scientific knowhow. But we’re failing on that. There was a recent report in the Los Angeles Times and KTLA that students just cannot pass algebra, and yet it is demonstrated that more math is needed to succeed. We need to educate our kids in math and science, and encourage them to be geeks, proudly, and come up with those new innovative ideas.

  • Lastly, the Los Angeles Times is reporting on the conversion of Robinsons-May stores to Macy stores. The sales are on! A lot of people don’t like this… because Macy’s prices are higher. The Macy’s West chief executive acknowledges that his company must do a delicate dance to win over Robinsons-May customers — who are hooked on lower prices and endless sales — without diminishing its own cachet. We all know that large conglomerates are good for consumers and lower prices. Let’s all raise a toast for ExxonMobil, whose merger has lowered prices and helped the environment. Let’s all sing a pirate shanty for the health care conglomerates, who do their part to keep health care costs down, working with the drug companies who make affordable medicine. Let’s all praise the credit card companies who let us pay for it all with low fees. Yes, corporate consolidation is a boon for consumers.

    And if you believe that, I have a bridge to sell you.