Since the Fed cut interest rates last year, rates on 30-year mortgages have risen from 6.79 percent to 7.02 percent.
INTEREST rates on 30-year mortgages have risen over the 7 percent level for the first time in more than a year.
I’ve been writing about how inflation is becoming a concern for the bond market, even though the stock market has been ignoring the fact that interest rates have been rising for the past eight months.
Here are the results for consumers of the two Federal Reserve rate “cuts” that were imposed last October.
Since that time, the average interest rate on standard 30-year mortgages has risen from 6.79 percent to 7.02 percent last week, according to the Bank Rate Monitor. That’s the highest that borrowing costs for a home have been in the last 12 months.
That means homebuyers will have to pay about $12 a month more for every $100,000 borrowed or more than $4,000 per $100,000 borrowed over the life of the loan.
One-year adjustable rate mortgages are up to an average of 5.87 percent compared with 5.55 percent in October.
Car buyers, however, are getting a break. Rates are down to 8.65 percent from 8.89 percent back in October – actually moving in the direction that the Fed wanted.
Car loans are cheaper now because they are generally pegged to the prime interest rate at banks while 30-year mortgages get their direction from U.S. government bonds, which were still getting clobbered yesterday.
The other problem with the direction of rates is that corporations borrow for longer periods of time – especially when they sell bonds to the public – so their costs have been rising like those of 30-year mortgage buyers.
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The trial of the Florida Speaker of the House who received money from Bally’s and others got under way this week.
This from the Orlando Sentinel, which has been following the trial. “One month the Speaker of the Florida House was denouncing a move to legalize casinos in Florida and organzing a state panel to regulate gambling.”
“The next month, Speaker Bo Johnson and his wife, Judi, were hopping a private jet to Atlantic City for several days at a luxury hotel and casino owned by Bally’s Casino Holdings. The company picked up the $6,000 tab, but that was just the beginning.”
“Within days of the 1994 trip, Bally would wire Johnson $50,000 – the first in a series of secret payments that would total $240,500.”
The payments became public after Johnson retired, the paper said. He and the Mrs. are on trial for tax evasion.
Bally’s has a letter from federal prosecutors in Florida saying neither it nor its head Arthur Goldberg, is a target of the investigation.
Doug Guetzloe, a chief witness against Johnson, has told me that federal investigators have asked him questions about Bally’s and the company’s executives. And Jersey Casino Control Commission investigators are attending the trial.
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Hallmark, the company that makes greeting cards, looks like it wants to become a force in the entertainment industry.
The company won’t talk, but a source is telling me that Hallmark, which is located in Kansas City, is one of at least four companies that’ve talked with Paxson Communications about buying the family network.
The others are more predictable: one of the networks, probably NBC; Gaylord Communications and, I’m told, a financial buyer, probably Apollo.
Paxson has never acknowledged that it is for sale but that is probably the worst kept secret in the entertainment industry since I broke the news last year. But the company has been completely unsuccessful so far in finding someone willing to take it over. It has managed to get infusions of capital.
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Stock prices, at least as measured by the Dow, rose nearly 3 percent on Monday. But at the same time the bond market was getting pulverized and interest rates were soaring.
The Federal Reserve took care of that temporarily on Wednesday when it agressively pushed rates lower by doing so-called repos – where they buy bonds back from banking customers and make other bonds more valuable – as well as coupon passes.
The Treasury Department also trotted out its bigwigs like Robert Rubin to contemplate the possibility of Washington actually buying bonds on the open market. (Don’t worry, folks, they aren’t going to do it. The exercise was all for show.)
Why go through all this trouble?
Because Washington is probably terribly afraid about the way interest rates have been rising recently. Higher rates have widespread implications, not only because they could damage the stock market bubble, but also because the government is now being forced to pay much higher interest rates to borrow money at the same time it is spending a lot more because of the war in Yugoslavia.
Keep an eye on interest rates if you are playing to stock market bubble. The bond market is too big for the folks in Washington to control forever.