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[00:00:00] Welcome back to the What's Your 1 More podcast. I'm your host, Quinton Harris, you're dialed in for episode 245. And [00:00:05] guys, today we're gonna talk about every time this time of year, we bring up that word called National deficit. it doesn't mean [00:00:10] much to a lot of people, but in this episode, I kind of wanna explain what it means to mortgage rates, what it means to you, the [00:00:15] consumer, and what it means overall for the health of our economy.
All of that in this episode, and more of, [00:00:20] what's your one more.
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So, hey, let's talk about the national deficit. Obviously we understand how that's [00:00:30] compiled, right? A deficit is pretty simple when you spend more than the income coming in, and that's been a historical [00:00:35] trend for us here in the United States. And it's continuing to go again as we're already over budget for the year of [00:00:40] 2025.
And a lot of the administration's working towards getting that fixed. But that's gonna take time and that's kind [00:00:45] of seemed, you know, that. Seemed to be the motive of the tariffs that kind of put a dent in it. but in this [00:00:50] episode, I wanna talk about why it was downgraded. I wanna talk about where it's heading, and I wanna talk about [00:00:55] why it's a potential issue.
And more importantly, I wanna talk about why that is impacting mortgages right now. We were on [00:01:00] such a good trend and then all of a sudden tariffs and then, you know, the pullback. Are we gonna do it? We're not gonna do [00:01:05] it. Oh, gonz tariffs. Oh, we're gonna talk it over to all these countries. We're gonna work through it.
And the loser in this [00:01:10] situation. It is ultimately the consumer because you've got rates that have dipped to a level [00:01:15] that we called would be in the fives, didn't hang there very long, and now have spiked back up to significant levels, [00:01:20] you know, in the upper sixes, in some case, lower sevens. And it's just not, it's not fair to the consumer, right?
And there's no [00:01:25] control over, there's a lot of things that aren't fair, but this is an unfortunate set of circumstances that, is gonna take a little while to dial [00:01:30] it back. And, you know, when you take a look at it, Moody's rating has now joined their peers of s and p [00:01:35] and Finch and they've all come out and they have downgraded.
the US debt now, which is basically treasuries, right? 'cause [00:01:40] treasuries are a form of debt issued by the United States. And we know through listening to this episode [00:01:45] and other episodes that treasuries are the main factor, especially the 10 year treasury of deriving a 30 [00:01:50] year fixed rate mortgage.
I'm gonna have a lot of charts, in every episode in this one. There's gonna be two in particular, [00:01:55] but they're important. And, it's easier if you can see this on YouTube. If you go to our YouTube channel at Watch's, your one [00:02:00] more hit the subscribe button, you'll see this stuff in there and get a chance to take a look at it here.
But, [00:02:05] you know, as I pull up my notes here, Moody's is downgraded, from AAA rating to a one, went to AA one, and that's [00:02:10] the second highest rating that you can get. So it went from the highest rating to the second highest rating. and the reason I think [00:02:15] that's important that we kind of talk about it a little bit is because.
Moody's commentary simply said, Hey, listen, [00:02:20] you know, we're downgrading it one notch because we think this needs to reflect, a [00:02:25] couple things. Number one, it needs to reflect that the a continuing issuing of debt in the United States [00:02:30] and the lack of pulling back on spending are causing a little bit of concern.
You know, in 2011, s and [00:02:35] P dropped it. They saw it at that time and they haven't moved it back up. And then Finch's did it in [00:02:40] 2023. Now you've got, you know, their peer Moody's coming in and all three of them have downgraded the US debt. You [00:02:45] know, I think there's this notion that, the US debt and is, and the US dollar is untouchable because [00:02:50] it's considered to be, you know, the world's largest reserve, right?
It's the currency reserve, it's crown, the world's [00:02:55] reserve currency. And I think that,sometimes the US debt is looked at as like this [00:03:00] amazing unlimited credit card, right? It doesn't have a limit. It's gold, it's shiny, it's platinum, it's whatever you [00:03:05] wanna call it. it's a black amex.
You can't go wrong with it. And the reality is, I think the bond market has said. [00:03:10] Enough. Like we, we've had enough of it, right? We realize that there's issues because the bond [00:03:15] market has to continue to become increasingly attractable to buyers, right? [00:03:20] So unlike going to a store, you go to a store and there's a product not selling, [00:03:25] right?
let's use this, let's use the laptop I'm doing with my notes here. If this laptop is not a good [00:03:30] selling laptop, right? They produced quite a few of 'em in anticipation that it would be a [00:03:35] world-class, amazing laptop, and it's not selling. As a consumer, we're saying, well, the price should come [00:03:40] down. And that's what the, that's what the supplier's gonna do.
They're gonna reduce the price of this, [00:03:45] laptop, and we're gonna go, oh, okay. Based on the reduction, is it worth it? Is it more attractive Now, [00:03:50] maybe it's not. Prices go down again. Sometimes it's 20% off, then it goes from 20 to 30. Then from 30 to 50, [00:03:55] you get the point, and then it's on clearance. Right?
Everything must go. And we're not quite on [00:04:00] clearance yet with US treasuries. That's not what I'm saying. But we're at that 20% sale right now, [00:04:05] and unlike this laptop that I'm referring to, where the price goes down. On a treasury to make it [00:04:10] more attractive, the yield has to go up, which means the actual numeric [00:04:15] number of the yield, the interest that you make on that, has to go up to attract more buyers.
[00:04:20] That is a pitfall of not having enough people buying or enough [00:04:25] countries and buying, US treasuries. That there's oversupply of them. And I'm gonna show you here in a [00:04:30] minute where some of that oversupply may be coming from by lack of buyers. I wanna be very clear about that. [00:04:35] But the reality is.
If there's not enough buyers and we have a surplus [00:04:40] of these, the price has to go up. The consumer loses on that because ultimately that means the 30 year fixed [00:04:45] rate's going to go up because. We haven't had the Federal Reserve meet, since the last meeting. They're not gonna meet [00:04:50] till June 18th.
And at that time, they're gonna make a decision to lower the Fed funds rate, which can alter and help that [00:04:55] 10 year treasury. But right now we're not getting any relief. And I'll continue to say Scott Beson has [00:05:00] one of the toughest jobs in the world because he's gotta find a way to get that number to come down because he has said over and over again, one of [00:05:05] my main goals, one of my main functionalities, is to get the US Treasury 2, 3, 8, 5.
Well, Tell [00:05:10] you right now as we're doing this podcast here on Wednesday, the 21st, on Wednesday the 21st, [00:05:15] that US Treasury, right now, when I pull it up is, 4.53. actually [00:05:20] I'll take that back. It's 4 5, 9, almost approaching four, six your 80 basis points off of your goal. You've [00:05:25] got some work to do there, and what sucks about that is he was there, he hid it, and we couldn't get it to stay [00:05:30] there because of the back and forth on the tariffs and the market uncertainty.
And we saw what happened to the stock [00:05:35] market. The Trump called off the tariffs for the most part. A lot of the reductions went away. Put a 90 day. [00:05:40] Pause on it with China and it just, it was like all that goodwill that was put in there, it all [00:05:45] went away and that really kind of sucks here because it took the wind outta the sales when it comes to mortgage interest rates and the potential for home [00:05:50] buyers to buy and people to refinance.
Hopefully that will come back, but man, I'm going to have to pivot a little bit on our [00:05:55] forecast here. Because of the Gonzalo tariffs that didn't hold, and the way they've kind of been yo yoed back and [00:06:00] forth, if you may, has caused a,has caused a dynamic shift in what our forecast was. And we'll be doing that here [00:06:05] in the next coming weeks.
kind of pivoting on that, because again, we talked about in our forecast, barring [00:06:10] certain economic windfalls, this was our forecast. And, we even used the banking [00:06:15] system in 2023. When we had, you know, Silicon Valley Bank go down and that type [00:06:20] of windfall, we didn't kind of forecast how to alter the rate market.
Here we are again, So let's go back to this. [00:06:25] Let's go back to, um. The national debt we're almost at 37 trillion. Like I remember when I started this [00:06:30] podcast just shy of three years ago, the first national debt episode we did, Charlie, I think was like at [00:06:35] $32 trillion 32.
We said 32 going on 33. Remember that episode [00:06:40] 32 going on 32, dude, we're at 37 trillion as I do this right now. We're not even three years removed from [00:06:45] that. Kind of scary when you think about that at the rate in which it's going. We had a lot of good conversations on our YouTube channel at [00:06:50] what Your One More back and forth and on social medias back and forth with people that were.
Basically telling us it doesn't [00:06:55] matter. And we were getting a lot of monetary theory put in there. But the reality is it does matter, and I'm gonna show you this [00:07:00] in this graph that I'm about to pull up right here. It's called the sovereign Credit Ratings of the developed [00:07:05] Markets, right? And our friends NBS Highway gave this to us here.
by the way, shout out to Dan Habib about to be back on the [00:07:10] show again. love the fact he picked up the phone and said, Hey, Q, I'd love to get back on the show. Would love to talk about a couple [00:07:15] things, that are real imperative in our market right now, and just get a chance to sit down with your audience and chop it up again.
So can't wait to get him back [00:07:20] on the show. But let's take a look at this here. So you look at this on our YouTube channel, you're seeing this graph I have pulled up here. [00:07:25] So these are a lot of major countries, right? Australia, Canada, Denmark, Germany, Netherlands, Norway, Sweden, [00:07:30] Switzerland, New Zealand, United States, Austria, Finland, South Korea, France, Ireland, United Kingdom, Japan, [00:07:35] Spain, .Portugal, Italy.
That's a lot, right? But what you see next to 'em is all of their ratings from Moody's. And you [00:07:40] can see how we have fallen down to mid tier. We're in the middle of the pack. Like when you take a look at this, like you think [00:07:45] United States, like you think that top tier rating,no. We are down in the middle of this now.
And there's a number in here that I think is [00:07:50] important, the public debt, GDP ratio. Now what this means is this is your debt to your income [00:07:55] coming in. So an income ratio, it used to be thought of, I would say, as little as maybe five years ago [00:08:00] when you got to a hundred and like 25% of GDP to debt [00:08:05] ratio, and usually called a negative when you get to that level.
It became like irre [00:08:10] recoverable is what people used to call it. A lot of, economists said it was irre recoverable mean. It was such a drag on the economy that you [00:08:15] couldn't overcome the debt, that the economy would actually hinder itself from growing. Since then, I would [00:08:20] say over the course of the last really two to three years, that number's kind of jumped to 200%.
and there's variable reasons as to [00:08:25] why, but if you look at this, we're now at 123% among those countries I [00:08:30] just named. There's only three. That have that GDP [00:08:35] ratio greater than ours, and that's Japan, Portugal, and Italy. Now, the reason that's important is [00:08:40] because a lot of those countries are not in the best economic shape.
We are far superior than that, but [00:08:45] we are having some challenges of our own. And I think when I take a look at this, one of the things that's interesting here is [00:08:50] that. The minute this downgrade came out, the minute this downgrade came out, we were at about a 4.4 [00:08:55] in the 10 year yield. Now, as I'm talking to you right now, we're about 4.6.
This happened less than 48 hours from when I'm doing this [00:09:00] podcast. In the past, when this happened with inches and when it happened with s and p, we had this [00:09:05] bounce, and then we had this recovery. Usually this recovery happened in the 10 year treasury market, like within the last 24 hours. [00:09:10] We have not recovered from this, which is slightly concerning, and a reason why we're gonna alter our forecast here.
I [00:09:15] would've thought we'd hit four six, fell back down somewhere to that four four mark where we started with this. We haven't seen [00:09:20] that bounce yet. I. I'm not saying it won't come in the next 24, but we're way past the 48 hour mark of this [00:09:25] happening. It's something that is concerning to me. Another thing that's a little concerning to me is that some of the Fed members have come [00:09:30] out, especially, you know, how I feel about Raphael Bostic, right?
Charlie, I know we've talked about this on the show. I met this guy [00:09:35] in person and I was, I don't know, turned off would be the word, right? Smart dude. Smart guy. [00:09:40] But turned off in a lot of reasons I've talked about in the episode. I thought there was a, a little ego in the room there, more so [00:09:45] than there was an educational and opinionated, giving advice room.
I was in a town hall meeting with him, and you can go back to [00:09:50] the episode. I'm not gonna dwell on it, but he did not impress me. And if you're listening to this episode, which I know he's not, I've [00:09:55] invited him on the show three times and I've gotten, no response from his team. But, uh, and by the way, did you guys know this, [00:10:00] the Federal Reserve is required.
Each member of the Federal Reserve, they're required to have a team to [00:10:05] answer those emails, and more importantly, they're required to come do educational forums like this. They have not done this one, [00:10:10] so, just a quickly reminder to them. But anyhow, and that's on their website. I'm not making that up or pulling that out, that's [00:10:15] literally on their website.
but the reality is Raphael Bostick, he comes out and he says, Hey, [00:10:20] listen, we're not so much worried about, the employment market as much as we are inflation. [00:10:25] Well, wait a minute. All we've heard about is all we've heard is labor over inflation for quite some time. He's [00:10:30] worried that literally the trailing trends of the tariffs are going to impact [00:10:35] inflation over the next 69 days that he only thinks there's gonna be one rate cut this year.
[00:10:40] Well, good news for all of us here. He's not a voting member, so I'm not saying his opinion doesn't matter, but I'm saying his vote [00:10:45] doesn't. And for that, I'm very thankful some other Fed members have come out and they have said, Hey, listen, we see some [00:10:50] potential issues to where there may be more than one fed cut, two, three or four.
But the one thing we know about the Fed is they changed their mind [00:10:55] rather quickly, and they don't always adhere to their stances. But I will say this, I still think we're in the market for [00:11:00] five rate cuts. I said at the beginning of the year. I think they may be in the combination of 50 versus 25.
25, [00:11:05] 25, but I still think the overall number will hit as far as what we forecasted in due [00:11:10] time this year. But let's get back to this GDP. So the other thing I noticed on here as far as what's [00:11:15] impacting the 10 year treasury, there's a lot of rumors online. There is a lot [00:11:20] of what I like to call social media talk.
There's a lot of Twitter talk in regards to. [00:11:25] When we were in these tariff talks with China, that they were just immediately draining and selling and [00:11:30] unloading their treasuries. And we talked about why that doesn't make sense. First thing was if they're [00:11:35] unloading treasuries before they mature, they're actually probably losing their behind on that.
That doesn't make sense for them. They're [00:11:40] losing money. You're not just gonna do that for the hell of it just to be spiteful, right? And the second thing is it doesn't make [00:11:45] any sense for them. Where are they going to put the money? Right. They still have to put that money somewhere where it makes sense for them to gain a [00:11:50] yield.
And you know, as much as people think it's crypto or other things, don't get me wrong, that market may be doing much [00:11:55] better than a tenure treasury. But from a safe haven standpoint, the reason you put money in treasury is 'cause you're put in a safe haven. So it [00:12:00] won't have any risk tolerance.
Literally some of those other things I just mentioned have a tremendous amount of risk. You're not gonna throw it [00:12:05] over there. So my point is, they didn't just unload it to piss off the United States and drive the treasuries up [00:12:10] and the people online that are saying that are absolutely foolish.
However, the second graph, again, go to our YouTube channel. [00:12:15] What's your one more my buddy Dan Habib over MBS Highway, put this together. I love what he did here because he [00:12:20] kind of said, Hey, here's a couple things to take a look at. there's this enigma that countries are kind of backing off of [00:12:25] the US debt being treasuries and saying, Hey, listen, we're scared.
We're nervous of it, and there's been a lot of talk [00:12:30] that other countries aren't participating in this, and foreign participation in the treasuries are critical [00:12:35] to keep that yield down right now. Obviously, when you get downgraded, that doesn't help. And when there's not enough [00:12:40] buyers in the market, that doesn't help either.
Now remember we've talked about it over again. The number one buyer for years. [00:12:45] The number one owner of all treasuries is the general public and the Federal Reserve of the United States, and that's important, [00:12:50] and they're slowly getting back into the market. They're not full throttle, but they're back in.
They're [00:12:55] got like a toe in the water. I need to put both feet back in the water. That's gonna help out immensely as well. Take some of these treasuries off the [00:13:00] shelf. But here's what we are seeing. Countries like the UK. [00:13:05] Have been increasing their buying of treasuries, right? We see countries like [00:13:10] Japan that are still buying.
We see countries like Canada and Belgium, and we see Luxembourg and the Cayman [00:13:15] Islands all increasing their positions in the treasuries. But what we also see on this graph is a downfall [00:13:20] of China and their holdings. Now, the reason this is important, and this is why I think these [00:13:25] notions online are popping up.
'cause you can get access to the same graph I got. It just came from the US Department of Treasury. [00:13:30] There's a lot of people going, oh man, look, they're unloading these. look at the trend going down and you can see it [00:13:35] Clearly. It looks like it's just falling right off. It's not going down. Like I think that's important.
It's not going down because [00:13:40] they're unloading them. What you're seeing is how, you know, I think everybody can understand that China was a large [00:13:45] holder dating back to, you know, the early two thousands of US treasuries. Those things are [00:13:50] starting to mature. if they had 15 year treasuries or 10 year treasuries that they got in 2010, those are [00:13:55] maturing.
And they're falling off the books. I mean, you can see a cliff start to happen at 2020, but the peak was at [00:14:00] 2010. That makes sense. 10 year notes are starting to mature. They're falling off. So the maturity date is [00:14:05] happening and the coupons are maturing. They're not selling and unloading these. And so I think for the people online [00:14:10] that.
Or, how can I say it? Not accurately describing what's happening is causing this [00:14:15] false pretense that this country's retaliating against us over tariffs when that's not in fact, the case [00:14:20] Now, because they're not repurchasing after that maturity. They're not saying, oh, these matured by another set of [00:14:25] these.
That is what's happening. And you can see that in this graph. They're not one upping or re-upping that 10 year all [00:14:30] over again. If they did, that would help. So therefore, participation is kind of diminishing a little bit. [00:14:35] And, that's not helping this either because they are one of the largest, you know, top four holders of treasuries [00:14:40] between them and the Fed not being this buying powerhouse that they've been.
that's kind of impacting us a [00:14:45] little bit more than we'd like to see. And then adding this downgraded, rating for Moody's. And we're three for three. on the, [00:14:50] the rating factors is,going from the best to the second best. And remember, I think there's 26 ratings that they can [00:14:55] have on Moody's.
We're at the second highest, so it's not like we fell off a cliff here. But the reality is the bond market [00:15:00] doesn't like it. And the bond market is, definitely rearing its ugly head, which is directly impacting mortgage [00:15:05] rates. Now good news is on the way. Right. Every time you go and hit a height, there's only one way to [00:15:10] go.
And it's usually backed down. And we've seen that. The question is, have we found that height? Right? Have we found the top of where we can [00:15:15] peak to right now, or is it going to get worse? Um, I always think that there's this notion [00:15:20] that how much higher can it go, you know? And, I think that for me.
I think the 4, 7, 5 [00:15:25] is the highest, right? I think that's where it's at. that's the high mark. Right. And I think once we hit that, we peak, [00:15:30] hopefully we don't hit it, but we peak and we start to come back down. The question is how fast can we come down? We got Scott Beson, the US [00:15:35] Treasury Secretary in our corner, trying to get this thing down to 3 8 5.
He's admitted that he's got. Tactical [00:15:40] abilities to do it. and then we need some help from the Federal Reserve, like they need to get it together over there and we need to see that [00:15:45] rate cut either be announced, put some confidence in the market, it's gonna happen, and then we'll start to see [00:15:50] that cliff come down that we talked about.
But between now and then, little choppy waters right now, hopefully it gets [00:15:55] better over the course of the next 48 hours. I'm not banking on it because we haven't seen that rebound that we normally see, but I do [00:16:00] think help is on the way. It's just gonna be a little delayed from what we originally thought.
So guys, if you like what you're hearing, please share this [00:16:05] podcast. Please give it a five star review on Apple or Spotify. You heard me say it about four times on the show, check out [00:16:10] that YouTube channel. Watch your one more subscribe, leave some comments. obviously we love reading 'em, you guys' feedback is great.
We [00:16:15] always learn something from you guys on there. And, for some of the people that like to argue, we even challenge you a little bit on there as well. we get [00:16:20] into that with you guys in the weeds sometimes. Guys, I hope you have a great holiday weekend and uh, we'll see you back [00:16:25] at the next episode at What's your one more.
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