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Breaking the economy, causality, and 40-yr mortgages
Weekly Newsletter 04/28/23
Breaking the Outlook
(and 40 year mortgages)
Jon explains the new 40-year mortgage, Bennett is breaking the economic outlook (which is what we pay him for), Tim uses AI to determine true causality, Nate talks about what sets HC apart.
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01. Are we actually that different?
From Nate Hoskin, Founder & Lead Advisor
I have always had a vision of what Hoskin Capital is. It’s my passion and my favorite thing to do so it has always had a rosy tint for me. I always thought I knew what Hoskin Capital was, but recently I have had to pause and ask,
“What do other people think of Hoskin Capital?”
I was interviewed by ThinkAdvisor last week and we talked for nearly an hour. I spilled the entire story of Hoskin Capital with all of our ups and downs and by the end of it I had no idea what the finished article would actually look like.
The interview was published on Wednesday and I was happy to learn that the Hoskin Capital in my head is actually pretty close to the real Hoskin Capital!
In the same age group as his target clients, Hoskin not only advises them but also supports their lifestyle. That helps to “empower them toward [reaching their] goals because we see eye to eye,” he says.
As I kept looking I found that the main reasons Hoskin Capital exists are being noticed left and right. In my interview with Denver7 I also found:
So, he encourages you to get started sooner than later in your financial planning, using free tools like his, to learn about your money options.
Business Insider and the Denver Business Journal agree that Hoskin Capital is taking a different approach to wealth management to better address the needs of Gen Z & Millennials.
What do you think? Are we doing this right? How can we improve? I would love to know how we can improve before the end of 2023.
Also, Mugs & Money is the day after tomorrow, come join us!
02. Two Outlook Breaking Possibilities
From Bennett Fees, Economic Research Associate
Making macroeconomic predictions is a tricky business. This week we got updates on two issues that could drastically affect outlooks for the coming quarters: a recession and a government default.
On the first point, preliminary GDP numbers came in this week, slightly lower than expected with a 1.1% annualized increase. The relatively low number was due primarily to changes in inventories with consumer spending on goods and services increasing. The price index for GDP also remained high, which confirms the bond market’s expectation for another 0.25% rate hike in May. These numbers tend to get revised downwards in periods before a recession so time will tell.
Another very important issue is the US debt ceiling problem. While this ceiling was technically reached in January, a default wouldn’t take place until the so called “X-date”. Here is a good chart from Moody’s visualizing their estimate.
Granted, this issue isn’t new with similar problems present in 1995, 2011, 2013 and 2021. A key aspect being that the debt ceiling only affects the Treasury’s capacity to finance policy already passed by Congress. In turn, the bill passed this week by the House to increase the debt ceiling also includes substantial cuts in government spending resulting in strong dissaproval from democrats and leaving a solution far from apparent.
Usually, when these debates come around, the consensus is that the debt ceiling should be increased - the optimal way being a clean increase similar to the three that took place under Trump which allows the policy already passed to be carried out. But at present, when the US and the world is facing so much geopolitical and economic turmoil, these reasons are no longer the only ones that matter.
A default would result in many unique consequences, not limited to domestic spending cuts, including a hit to US creditworthiness (similar to the downgrade that occurred in 2011), a corresponding decline in the dollar affecting trade and the global monetary system as well as the multiplying effects that stem from this added chaos when recovery and stability are pressing goals for governments.
I will be keeping my eye on these outlook breaking possibilities as things heat up over the summer so stay tuned for updates!
03. The 40 Year Mortgage
From Jon Scott, Lead Author
You may have heard some commotion about new 40-year mortgages, but the truth is 40-year mortgages have been around for a while. The reason you do not hear about them is because 40-year mortgages are not eligible to be qualified mortgages by federal law. One reason for this requirement is that longer loan terms can increase the risk of default, as the borrower is making payments over a longer period of time and may face more financial challenges. In addition, longer loan terms can result in higher interest charges over the life of the loan, which can make the mortgage less affordable for the borrower. 30-year mortgages have more favorable legal protections for both the borrower and loan holder.
What does the difference between these two mortgage terms look like in practice? Let’s say you need a home loan for $383,061. One option is a 30-year mortgage with an interest rate of 6.27%. With this option, your monthly payments are $2,363.56. Your total cost for the life of the loan is $850,880.68 (mortgages really seems like a scam, huh?)
Let’s say you borrow the same amount, but for a 40-year mortgage, and this time the interest rate is 6.33%. Your monthly payment would be $2,196—$167 less than the 30-year—but your total cost of the loan is $1,054,285.65. More than $200,000 in total costs versus the 30-year (over 10 additional years).
The Federal Housing Administration (FHA) now offers 40-year mortgages, but they are only available as part of a loan modification program. A loan modification involves making changes to an existing mortgage without completely replacing it. These changes can include reducing the interest rate, extending the loan term, or changing the type of loan, among other options. Loan modifications are typically offered to borrowers who are struggling to make their mortgage payments due to financial hardship, and can help to make their payments more affordable and prevent foreclosure.
If you’re in the market or soon to be in the market for a new home, join us this Sunday for our Mugs and Money Webinar where we’ll be focusing specifically on buying a home!
04. Chaos to Clarity: Causal AI
From Tim Frenzel, Head of Data Analytics & Research
Lately, I've been fascinated by the potential of Causal AI to transform the investment management landscape. Over the years, I've come to appreciate the importance of discerning cause-and-effect relationships in market variables, and Causal AI promises to deliver a more refined understanding of these intricate connections.
Causal AI can help investment managers make more accurate forecasts and informed decisions by simulating counterfactual scenarios and evaluating potential interventions. It complements human expertise, leading to comprehensive and well-rounded strategies that can better adapt to ever-changing market conditions.
Of course, Causal AI isn't without its challenges. Building precise models requires high-quality data and domain expertise, and the dynamic nature of causal relationships calls for ongoing monitoring and updates. These challenges present an opportunity for investment managers to establish a strong data infrastructure and foster a culture of knowledge-sharing to ensure that the implementation of Causal AI yields the desired results and contributes to better investment decision-making. We've initiated a few conversations in this space and are excited to keep you updated on our progress and insights as we explore this promising frontier together.
What do you want to learn about next?
Your income can grow only to the extent that you do.
- T. Harv Eker
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