Wednesday, September 17, 2008


The ten year rate is down to 3.43. If it stays at that level for a little while, the 30 year home mortgage rate should fall to below 5.3%. For a brief time, it may even fall to the high 4's. Wow! The monthly payment on a home is down to very affordable amounts.

In the same way, the wholesale price of gasoline is trading around $2.45 (back up from the lows of yesterday). If the price stays in the current range, the retail price should be to $3.05 in two or three weeks.

Better still, we have made a long term turn. The ten year is still on the way down and the price of oil is still on the way down. There is still a lot of catching up to do.

Looking in the rear view mirror, we see a financial wreckage. AIG, Lehman Brothers and Merrill Lynch are "gone". Morgan Stanley is rumored to be next. The surviving banks will be like all surviving businesses after a shake-out; there will be plenty of highly profitable business to go around. My brother likes to tell about the housing market in 1983. He was one of a few home builders who made it through the period of 21% interest rates. He made the most money he had ever made in 1983 and 1984.

This morning the London market is catching up with the big gains in the US of yesterday. The US market is facing a bounce in energy prices but this bouncing market is like a rubber ball that has been dropped from 50 feet, each bounce is lower than the previous one. The oil price will eventually settle to the marginal cost of producing the last demanded barrel. It appears that that will be as low as $35 sometime in the next decade.