Glinkonomics, life this week on WSB radio, Ilyce talks about money, real estate, unemployment and what happened in the economy this week.
Hi everybody, welcome back to the Ilyce Glink Show. Rebuilding America one house at a time and we’re starting with yours here on news talk WSB. I’ll be taking questions today about money, real estate, unemployment, and what’s going on with all three of those things. We’re going to do a little Glinkonomics segment as well. Talking about what has happened in the economy this week and why I think there’s so many unusual and interesting things to talk about.
Online, let’s go there. Thinkglink.com, I’d love for you to follow me on Twitter, @Glink. Sign up for the free weekly newsletter at thinkglink.com. There is tons of information there that we’re sharing and I’m happy to kick that off.
So I want to talk about Fed’s decision this week to continue buying stimulus, basically… it’s a stimulus program, at $85 billion a month. The Fed is essentially printing money to do this, there is no doubt about that. We have watched interest rates go up sharply over the last couple of months, from 3.5 percent for a 30-year fixed-rate mortgage to 4.75 percent. And everybody thought that the Fed was going to start tapering back… taper, there’s a word you don’t hear very often, tapering back on its bond buying binge at least by $10 billion a month. And surprise, surprise Wednesday afternoon Ben Bernanke said, “Um, sorry, I know you think we’re going to do this and pull back but the economy is still too sluggish to stop buying bonds.” And everybody in the world went, “OH, that’s not good.” So immediately the stock market, which had been all the way into the fourteen thousands at some point in the last few weeks, shot up and then came back a little bit. But really, this is all good news, right? Companies are borrowing money at super low rates. I mean Verizon did a $40 billion bond issue that sold out right away; I think it was oversold actually. Wall Street knows that the bond buying is good, but clearly it is not floating all the way down to everybody else, let’s call it the 99%. And so what we’re seeing is that mortgage interest rates, which had gone all the way up are now falling back. And terms that lenders were offering on 30-year loans immediately eased Wednesday afternoon following Bernanke’s announcement. For example, the interest rate on a 30-year loan, with no discount points, dropped from 4.5 percent to 4.375 percent. If you wanted to get a 30-year fixed mortgage at 4.1 percent, borrowers were paying one point, but Wednesday morning it had been 2 points, right? So that got cut in half.
So what was Ben looking at? Ben Bernanke was looking at retail sales and industrial production, both growing more slowly than economists had expected. Consumer sentiment fell for the second straight month since September. And while we did see home buying continue, that too was starting to fall off. Housing starts were significantly lower than had been expected, and all of those things add up. And really, it’s not like the economy was going gangbusters anyway. So to pull back even more to see first time unemployment claims rise above 300-thousand again… all of these had to be factors on why the Fed is keeping its bond-buying program, right?
There has also been this tightening on financial conditions in recent months. So we’re seeing not such a great economy and it took enough of the tick that the Fed decided they were going to keep things going… they’re going to go for another round of bond buying. Even as the unemployment rate, the official unemployment rate, ticked down towards 7 percent… and remember that 7 percent was Bernanke’s red line, right? Bernanke said, “When unemployment gets to 7 percent we’re probably going to stop buying bonds, and then taper that off the following year.” Which would be next year, 2014.
And so what is happening with that unemployment rate? Well, what we’re seeing is a lot of part-time jobs, not full-time jobs, being created. And full-time jobs that are not really high-end full-time jobs, we’re seeing an unemployment rate for people in their 20s, 25 and under, hit 20 percent. That’s pretty lousy. And so there’s an uncertainty out there. It’s not like you can count on having a great job and getting going, and that’s sad. I have to tell you, the people I’m hiring for my business, who are all in their early 20s, are really a very smart, together, and talented group of people. They want to work, they want to do something interesting, and they want to be stimulated. And I’m happy to hire them as far as I can, which is like any business owner. I will only hire when I have business, as would any other small business. So I’m not unlike other business owners who want to have some sort of comfort and understanding that if you make the investment in these young people and in building your business that the returns are going to come. And we just don’t know that right now… that’s the measure of a sluggish economy.
WSB Radio’s Ilyce Glink Show – September 22, 2013
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