Americans are increasingly addicted to forecasts and predictions.  There are experts in every imaginable field predicting every detail of our future experience:  weather, politics, sports, finances, farming, global climates, etc.  Nothing is lacking a forecast today. 

 I see this first hand every day in the Financial Services industry.  There is an illusion that we are getting better at predicting financial and economic events.  However, the law of large numbers can explain the illusion.  With so many self-proclaimed prophets predicting every possible outcome there is always someone that can claim they accurately forecasted every event.  Consider a coin toss.  One person flipping ten heads in a row is very unlikely.  However, if 10,000 people all flip coins it is a statistical certainty that one of them will flip ten heads in a row.  Problem remains, predict in advance which one will be able to do it.  Successful financial predictions are not evidence of a good prophet but rather a product of the number of prophets predicting. 

Why this growing dependence on predictions?  Are we better forecasters of the economy now than in the past?  NO!  Statistics show that even in the most important financial predictions the experts are no better than a random guess.  Nonetheless, we keep turning to proven failures for another guess about tomorrow’s outcomes today.

This addiction to prediction is growing due to our increasing need to be able to control our experiences.   There is a strong sense that a surprise means we did something wrong; we missed a piece of data, let our guard down, or forgot to do something.  We expect our car to start when we turn the key, the room temperature to be just right, no long waits at the checkout line, and our investments to earn a healthy, steady, positive rate of return – or something failed.  Failure creates uncertainty and anxiety.  Our expectations for predictable outcomes seem so reasonable that we begin to demand certain outcomes.  Financial institutions have heard our demand and are working overtime to satisfy us with an overload of new predictions.  This guessing game feeds on our willingness to continue to pay for worthless advice.  It is time to STOP!  We need to stop giving our savings away to prediction junkies! 

The real solution is not easy but it is very simple.  It starts with knowing the truth.  With all the changes in the financial markets there are some things that never change, they are always true.  Our financial Peace of Mind comes from knowing and holding on to the things that are always true.

An example:  The Free Markets reward risk.  The truth is, you cannot remove all risk and expect to get a market return over time.  The truth is, diversified risk is good, it allows for long term returns on invested assets. 

The truth is, the markets are random and you and I can have Peace of Mind in our investments.   No forecasting necessary!

The extension of the payroll tax cut was approved by congress in late 2011.  To fund this extension they tapped Fannie Mae and Freddie Mac to foot the bill.  In the next couple of months, Fannie and Freddie will be adding a premium to the rate on every loan they insure to pay for this temporary extension. 

Costs for $100,000 loan equals approx. $500.

Costs for $200,000 loan equals approx. $1000.

If you or someone you know is planning to get a new home mortgage, you may want to consider acting on the opportunity before the additional expenses are applied.

If you are in the process of getting a new loan and your payment is currently locked in you can avoid the increase if your loan is closed before mid-February.

If you have already closed on a new low interest rate in the past 24 mos and have no need for additional financing right now you will not need to worry about this fee. 

Call my office if you have questions and schedule time to discuss the best options.

I get a lot of questions from folks wondering if the rates can go lower than they are now. Here is a very interesting chart that tracks the mortgage bonds for the past year. (Note: The bond chart moves opposite the interest rates: i.e. when the chart moves higher, interest rates generally move lower)

You can see from the chart that the mortgage bonds have stalled out at the same place they did last year. This is significant. We don’t know when the interest rates will jump up but it does not appear that they will go significantly lower from where they are today. If you know of anyone that is considering financing their home in the next few months they would do well to get things started soon to get the best terms.

Most fixed rates are between 3.5% and 4.5% depending on the length of the term (15yr to 30yrs) and the credit of the borrower. Let me know if you have questions about any of this.

Here is more information on the live simulcast on September 30. If you are already registered, forward this to some people that you think should come with you! They can register for the event here. This is excellent Leadership training! We would like to get as many Michigan Leaders to attend as possible. LEADERSHIP MATTERS!