Buyers' #1 Bugaboo?

Divining Buyer Psychology

What's keeping Buyers from buying?

I see three factors operating at the moment:

One. Can't qualify for a mortgage/bad credit.

If you don't have a job, or any money in the bank, you're not going to get a loan.

At least not one from a bank.

Sadly, a couple years of grinding recession has pushed more people into this category.

Two. Can't sell what they have.

You've got a job and some savings (Yeah!).

But you've also a got a house that you can't sell, or that may be underwater -- meaning you owe more than it's worth (Drat!).

Ultimately, to a Realtor, this is just another, less dire variation of Factor #1.

Three. Worried about home prices falling further.

I can't prove it, but I think this is the real bugaboo for Buyers at the moment.

Interest rates are in the basement, courtesy of the Fed; unemployment is apparently stabilizing (albeit at very high levels historically); and home prices have already taken a major whack almost everywhere -- meaning that payments for a decent home have seldom been this low.

Ever.

Lastly, signs of inflation -- historically a positive for hard assets like housing -- are becoming manifest in all manner of commodities and stocks lately.

Everywhere, apparently, except the housing market.

Deflationary Mindset?

Ironically, while inflation concerns appear to be dominant outside the housing market, inside it, there are signs that a deflationary mindset has taken hold.

Which means that many Buyers evince an attitude of, "my choices will be better and cheaper if I wait."

Unfortunately, there's only one, 100% guaranteed cure for that: a year or two of sustained gains in housing prices.

If enough people wait for that to happen . . . current Buying demand suffers, and lower prices become a self-fulfilling prophecy.

P.S.: If inflation expectations are on the rise, wouldn't interest rates be rising?

Normally, they would be -- and that would send a signal to the Fed to act.

Except in this case, it's actually Fed intervention that's suppressing interest rates.

Got that?

Always a smart idea to disable the brakes before you hit the gas . . .

Next: "Defensive Housing Plays"

"Quantitative Easing??" Try, "Printing More Idiots"

Is the Fed Repeating
Wall Street's Sins?

Joe Nocera: At a certain point, Wall Street ran out of clients to sell [securitized debt] to. So the only way it could keep the machine going was to buy it themselves.

Jon Stewart: So, they infected themselves. At the end, they themselves became vampires.

[Which suggests] a new theory on the financial crisis: it occurred because of an idiot shortage. If I'm the Fed, I just print more idiots.

--Bethany McLean and Joe Nocera Interview; The Daily Show (11/16/2010)

That's it!

Instead of calling the Fed's current monetary policy something arcane like "quantitative easing," how about calling it "printing more idiots?"

At least, that's how I understand it.

Just like Wall Street ran out of "idiots" to sell securitized debt to, the U.S. Treasury has started to run out of investors to buy (more) U.S. debt.

China already stuffed to the gills with U.S. bonds?

Ditto for Japan, Singapore, South Korea, Saudi Arabia and all our trading partners on the other side of our yawning trade deficit?

No problem -- we'll buy the bills and bonds ourselves!

Two years, five years, ten years . . . you name it.

In fact, we -- the Fed -- will buy so much, we'll actually drive interest rates down.

Which is quite an accomplishment, given that long term interest rates have already collapsed, and short term rates are effectively zero.

Nothing could possibly go wrong with such a scheme . . . . right??

Flushing Savers From Their Foxholes

"Certificates of Confiscation" Once Again?

Certificate of Confiscation: 1970's term for bonds, certificates of deposit (CD's), etc. yielding less than (rising) inflation.

How do you get people (and corporations and banks) to stop hoarding cash, and put it to work, stimulating the economy?

Reduce interest rates to zero.

But what if that still doesn't do the trick?

Make holding cash not only unremunerative, but costly.

The best way to do that is to devalue the currency and/or create inflation, so that the value of cash steadily erodes, precipitating an inexorable stampede into . . . anything else.

Fleeing Cash

Which is basically what has been happening since late August, when The Federal Reserve signalled its intent to further stimulate the economy by printing more money (called "quantitative easing").

Since then, stocks have rallied about 10%, and commodities -- especially gold and oil -- are up anywhere from 15% to 40%.

Meanwhile, the dollar is down 8% against a basket of major currencies.

(Un)Intended Consequences

The problem with driving savers out of their negative-yielding foxholes is, what comes next?

The Fed hopes that all that liquidity will find its way into the stock market, driving up prices and creating a "wealth effect" that will spur spending and the broader economy.

But it's just as plausible that erstwhile savers will switch their affinity to something -- anything -- that promises immunity from central bank debasement.

That list includes: gold, silver, oil, wheat futures, Swiss francs, Australian dollars -- you name it.

As those things appreciate, they create inflation, which punishes consumers, which hurts the economy.

Can you say, "full circle?"

Bernanke's High Wire Act

Disconnecting the Heart Monitor

In my post last week titled, "Approaching the Zero Bound," I characterized the Fed's plan to buy hundreds of billions ($600 billion, it turns out) in U.S. debt as a "hypodermic needle to the economy's heart."

Actually, that analogy is not quite complete.

The Fed's money-injection plan, also known as quantitative easing, is like administering a hypodermic needle to the heart . . . after disconnecting the patient's heart monitor.

That's because the Fed's injection mode of choice -- buying up U.S. securities -- suppresses a key market signal: interest rates.

How's that?

Normally, when inflation kicks up, demand for loans becomes overheated, etc., buyers of U.S. debt balk, causing demand to flag -- and interest rates to rise.

Now, enter the Fed, and quantitative easing.

With the Fed guzzling U.S. debt -- goosing demand -- interest rates stay low or even go down.

As Bloomberg columnist Caroline Baum puts it (my paraphrase): 'playing with the yield curve is like trying to fool Mother Nature. Instead of increasing demand for goods and services, printing money just raises asset prices.'

Sure seems like the stock market agrees.

Financial e.coli

Laws, Sausages -- & Securitized Mortgages

Laws are like sausages — it is best not to see them being made.

--Otto Von Bismarck

To "laws" and "sausages," now add "securitized debt," circa 2004-2008.

It turns out that Wall Street's financial sausage factory was even more toxic and laxly run than previously thought.

The latest chapter is apparently a breakdown in the very essence of what makes a securitized mortgage, securitized: the link between the mortgage, and the property securing it.

Due to sloppy or non-existent documentation, investors in such paper may not have rights to the collateral -- millions of homes -- after all; if that's correct, "fasten your seat belts, it's going to be a bumpy night," as Bette Davis might put it.

Financial e.coli Outbreak

As the daily headlines (continue to) make clear, the financial e.coli outbreak traceable to Wall Street has sickened not just the U.S. economy, but a good portion of the world economy.

If a real sausage factory caused 1/1,000 of the harm, it would be shut down, fined into oblivion, and its operators jailed.

Much the same fate would befall the government inspectors responsible for overseeing the factory; the private company that put its Good Housekeeping seal of approval on the factory's output; and any other actors associated with the shameful enterprise.

How shameful?

Imagine the uproar if a corrupt food inspector -- charged with abetting food poisoning -- defended itself by claiming that its bogus ratings were "protected free speech," as the credit ratings agencies are now risibly arguing.

Calling Upton Sinclair

So, what's happened to Wall Street and its enablers, post-crash?

And exactly what is their defense to the foregoing?

In the hope that doing so would somehow revive the economy Wall Street wrecked, the Federal Reserve and Congress have actually showered Wall Street with more money since 2008 (courtesy of quantitative easing and TARP, respectively).

Meanwhile, Wall Street has escaped responsibility of any sort by arguing -- try to keep this straight -- that: a) the financial sausages it sold were not tainted with e.coli; but b) if they were, it was because investors wanted to buy tainted sausages; and c) should have known the sausages were tainted; because d) Wall Street told them they were.

Or not (see, SEC v. Goldman Sachs).

And "a." through "d." don't really matter, anyways, because of "e.": selling tainted financial sausages . . . was all perfectly legal.

Any political commercials out there discussing this??

I didn't think so.

P.S.: What do you do with an e. coli -tainted batch of (financial) sausage? Recall it.

Refinancing Motive #23: Making Your Home More Saleable

Is Your Mortgage Assumable?

The interest rate on your mortgage is already low (or, you don't have a mortgage).

You're allergic to paying bank fees.

And you're not contemplating moving any time soon.

Should you still refinance?

The surprising answer is, perhaps "yes" -- especially if your current mortgage is not assumable.

That latter feature could very possibly be the difference between having a sellable home in a few years and not -- particularly if the Federal Reserve's current machinations result in an inflationary spike (and dramatically higher mortgage rates).

Then, the couple grand in refinancing fees will have turned out to be very cheap insurance.

Your lender will let you know which mortgages are assignable, and which aren't.

Approaching the Zero Bound

"An Attempted Hypodermic
Straight to the Economy’s Heart"

A fascinating, even feverish dialogue is taking place right now -- joined by some of the financial world's most influential thinkers -- concerning what will happen next week, and what economic consequences will flow from that outcome.

The elections next Tuesday?

Try, the Fed's much-signalled intention to initiate another round of quantitative easing (also called "printing money") when it meets next Wednesday.

Here is Bill Gross' take, from his perch at PIMCO, the nation's (world's?) largest investor in bonds:

Quantitative easing is temporarily, but not ultimately, a bondholder’s friend. It raises bond prices to create the illusion of high annual returns, but ultimately it reaches a dead-end where those prices can no longer go up. Having arrived at its destination, the market then offers near 0% returns and a picking of the creditor’s pocket via inflation and negative real interest rates.

--Bill Gross, "Run Turkey, Run"; PIMCO Investment Outlook (Nov., 2010)

So why do it?

Because the Fed, caught in a liquidity trap, is out of other options.

Gross again:

Ben Bernanke can’t raise or lower taxes, he can’t direct a fiscal thrust of infrastructure spending, he can’t change our educational system, he can’t force the Chinese to revalue their currency – it (more quantitative easing) is all he can do.

--Bill Gross

Will "it" work?

Gross, whose credentials are as good as anyone's, thinks the jury's out.

Bubbles as Policy Tool

Grantham: 'Almost Criminally Inept Fed'

The Federal Reserve's asymmetric policy of stimulating stock moves by setting artificially low rates and then leaving the bull markets, when overstimulated, to bubble over, is dangerous. It is probably the most dangerous thing to inflict on a peace time economy with two possible exceptions – runaway inflation and a housing bubble.

--Jeremy Grantham

Leave it to Jeremy Grantham to lay bare exactly why the Fed has so many market watchers -- myself included -- baying at the moon in exasperation.

On the one hand, it denies any duty or ability to contain the damage from asset bubbles (or even recognize them!).

On the other hand, it pursues policies -- first zero percent interest rates, now quantitative easing -- guaranteed to inflate serial bubbles.

Grantham devotes most of his current quarterly letter (see, "Night of the Living Fed") to explaining why this is irresponsible, and -- in the case of housing -- especially dangerous.

Amongst other things, in their wake burst asset bubbles leave squeezed consumers, taxpayers, savers, retirees, pension funds, states, and municipalities -- and, when they are compelled to clean up the mess, ultimately a broke Fed and federal government.

Grantham again:

Distorted asset prices have been like the deliberately misplaced signal lanterns, which the Cornish, in the stormy west of England, used to lure ships onto the rocks for plunder. Individuals, as well as institutions, were fooled into believing that the market signals were real, that they truly were rich. They acted accordingly, spending too much or saving too little.

So what does Grantham prescribe, besides not inflating any more bubbles?

Noting on the one hand the "army of non-frictional unemployed ready to get to work," and on the other hand the country's "dreadfully deteriorated infrastructure and desperate need for improvements in energy efficiency" . . . Grantham thinks it's obvious.

You owe it to yourself to read the entire article.

ZIRP Winners and Losers

Boon For Wall Street,
Goose Egg for Savers

Want to place a bet on how long the Federal Reserve's current policy of zero percent interest rates ("ZIRP") continues?

Consider who it helps -- and hurts:

ZIRP Winners:

--U.S. Treasury (debt service kept artificially low)
-- Wall Street (free money -- how nice!)
--Mega-Corp Borrowers (ditto. IBM just borrowed more than $1 billion for . . . 1%!!)
--Home owners (*kind of)

ZIRP Losers:

--Retirees and other savers

My money's on zero percent interest rates . . .

*Historically, cheap mortgages stimulate housing demand. But cheap money can be trumped by other factors, like falling asset prices, high unemployment, etc.

Why Gold is Making Record Highs

The Link Between 0% Interest Rates, Spiking Gold

When "risk-free" cash keeps paying a guaranteed loss, then a growing number of people will, in due course, start seeking shelter elsewhere.

--"What The Economist Doesn't Know About Gold"; Seeking Alpha (6/29/2010)

The above quote is from the best piece I've seen yet explaining why gold is setting record highs.

The executive summary?

When cash can be deployed profitably -- think, bonds, CD's, stocks, anything -- the opportunity cost of holding gold is high.

However, when holding cash yields .0001% -- thanks, Federal Reserve -- the opportunity cost of holding gold disappears.

In fact, after taking account of inflation, the cost of holding cash is actually negative (and has been, for much of the last decade).

Make it painful to hold cash . . . and people won't.

Gold has emerged as the alternative for an increasing number of savers (not to mention various Central Banks).

P.S.: the best definition of opportunity cost I know is an anecdote about Cornelius Vanderbilt and real estate investing.

In the early 19th century, Vanderbilt bought a plot of land on Wall Street for $4,000, then re-sold it two years later for $8,000. His perplexed Buyer asked him (after the closing) why he sold a piece of land sure to continue appreciating.

Vanderbilt replied that, in another two years, the Wall Street land was likely to be worth $16,000.

Meanwhile, the 100 lots that he had just purchased in Greenwich Village (north of Wall Street, and then raw land) with his Wall Street proceeds for $80 apiece were then likely to be worth $80,000.

And he was right!

Contrarian Real Estate Bet

Which Way Mortgage Rates?

According to a certain (contrarian) school of thought, whatever everyone expects to happen . . . won't.

In the housing market, there seems to be almost universal agreement at the moment that mortgage rates are going to be higher -- perhaps dramatically -- in the second half of 2010 and beyond.

That's based on: 1) the expectation that the Federal Reserve will be removing the foot it has had firmly planted on the mortgage market "scales" the last year, as it purchased $1.2 trillion of mortgage securities on the open market; and 2) concerns about excessive liquidity -- courtesy of the Federal Reserve again -- reviving inflation.

Is everybody wrong?

It wouldn't be the first time . . . (and if they are, you'd guess that Nov. elections might have something to do with it).

Wholesale Price of Money Goes Up (A Little)

Fed Rate Bump

Today's leading financial stories are: a) the Federal Reserve's apparently surprise decision to raise interest rates on short-term bank borrowing; and b) the market's reaction to same (playing out now).

My take?

The action itself is relatively trivial: hiking rates on some arcane, overnight interest rate from .5% to .75% (yes, that's less than 1%) does not suddenly make money expensive (the same rates have been as high as 6%(!) in recent years, before "the deluge").

Clearly, then, the concern is that there are more increases to follow.

Given the hair-trigger nature of today's markets ("Explanation for Jumpy Markets"), you'd expect traders to overreact to the news -- like they now do to all news -- then settle down rather quickly.

As far as mortgage rates go, what the Federal Reserve and Treasury are doing (or not) with respect to funding Freddie Mac, Fannie Mae, FHA are much more significant than a trivial bump in banks' overnight borrowing costs.

The Fed & Unintended Consequences

The Fed, Commodity Prices & Economic Recovery

Twelve hundred miles (give or take) from Wall Street, me thinks that a not-so virtuous cycle has emerged regarding the government's various and sundry efforts to nurse the economy back to health.

The dynamic goes something like this:

Step 1: the Federal Reserve and Treasury essentially borrow and/or create money -- at this point, trillions of it -- then direct it where they think it's most needed (not necessarily to me or you . . . but that's another post).

Step 2: the markets ("Mr. Market") take note of all that deficit spending, and drive down the dollar while pushing up commodity prices.

Step 3: elevated commodity prices retard recovery.

To take just one example, at $80 a barrel, oil is likely twice what supply and demand would otherwise dictate at the moment. Meanwhile, "stores of value" like gold -- now around $1,100 an ounce -- drain money that would otherwise fund economic growth.

Step 4: the Federal Reserve and Treasury, noting anemic growth, serve up another helping of stimulus cum deficit spending (see Step 1).

How long can this go on?

As many commentators have now noted, eventually one of two things happen: 1) economic recovery kicks in, and the government can taper its rescue efforts; or 2) the U.S. bumps up against the natural limits of its ability to borrow (not a bright line).

The "canary in the coal mine" for this kind of kind of fiscal/monetary tightrope is Japan, which is a good 15 years ahead of the U.S. on its trajectory of boom, bust, and (non)recovery.

The lesson for policymakers would seem to be, "don't do what Japan has done."

"Our" New Paymasters?? Define, "Our"

Confusing "Us" and "Them"

Today's Wall Street Journal is running a house editorial decrying government wage controls on the top 175 executives at seven companies that are still using money from the Troubled Asset Relief Program ("TARP").

The title of the piece?

"Our New Paymasters: wage controls are politically easier than genuine reforms."

I can see how if you're one of the 175 affected executives, it would certainly seem like the government was your new paymaster.

But where does "our" come in?

"Our" presumes an "us."

"Us," of course, would be the 99.9999% of Americans who don't make millions annually running banks that were bailed out by the government, and are being sustained even now by free money from the Federal Reserve.

Real Estate & Inflation -- Updated

A *Macroeconomic Overview

Back in April, I ran a post called "Real Estate & Inflation" that isolated wage growth as the key to whether any inflationary outbreak would help or hurt real estate (incidentally, that post is now ranked 18th in the world, according to Google).

Specifically, if inflation spilled over into workers' wages, it would drive up real estate; absent that, inflation would hurt real estate.

That's because static wages plus rising prices for everything else (food, gas, health care, etc.) would "crowd out" consumers' ability to spend on housing.

Six months later, how do things look?

Clearly, there is no inflationary pressure on wages. In fact, with unemployment at about 10% nationally and still rising, there is more downward pressure on wages than upward.

However . . . two other developments have come into clearer focus.

Coming Into Focus

The first is the Fed's apparently indefinite commitment to an easy (free?) money policy -- at least to banks that borrow from it.

Second, while wage inflation is nowhere to be found, asset and commodity inflation -- at least outside of housing -- appears to be rampant. (Hmmm . . . maybe the two are linked).

The Dow Jones is well over 10,000, gold smashed through 1,000 an ounce weeks ago, and oil appears to be poised for another run at $100 (and beyond). Meanwhile, the dollar is plumbing record lows against the Euro, yen, and other major currencies.

So, to return to the original question, what will an outbreak of inflation mean for real estate -- and specifically, the housing market?

Based on the foregoing, I've shifted into the camp that believes that rising inflation elsewhere in the economy will ultimately spill over into real estate, as well -- even if wage growth is flat (or negative).

If the economy can simultaneously experience recession and inflation -- a phenomenon dubbed "stagflation" in the '70's -- there's no reason why houses can't appreciate in a lousy economy, given what's happening to other asset prices.

P.S.: Peter Lynch has a famous line that if you spend 15 minutes a year trying to figure out macroeconomic factors . . . you've wasted 13 minutes.

Big Rate Drop

The Fed's "Mortgage Shopping Spree"

Drowned out in all the health care reform discussion is a quiet -- but big -- drop in mortgage rates.

As of this morning, rates on 30-year mortgages are being quoted at 5%.

That's a big improvement over just six weeks ago, when rates were in the mid-5's -- and thought to be heading higher -- based on excess liquidity-driven inflation fears.

Now, the mortgage market and long-term rates appear to be driven by two things:

One. Relatively weak demand, due to the soggy economy; and

Two. The Fed's concerted program to buy up mortgages and keep the market liquid (it has a cool, $1.25 trillion (!!) war chest to do exactly that).

Not necessarily in that order . . .

How Many Parachutes?

Pick Your (Economic) Metaphor

The real question is, now what? Government interventions are only meant to light a fire under the real economy and unleash what John Maynard Keynes called our "animal spirits." But government dollars can't sustain growth.

Like it or not, the stock market is bigger than the Federal Reserve and the U.S. Treasury. The stock market anticipates only future profits and prosperity, not government-funded starter fluid. You can only fool it for so long. Unless there are real corporate profits from sustainable economic growth, the stock market is not going to play along.

--Andy Kessler, "The Bernanke Market"; The Wall Street Journal (7/15/09)

Kessler's is one of the better takes I've seen recently on "where we're at now" (a rapidly growing genre of Op-Ed pieces lately).

Here's my, somewhat starker take:

Parachute #1, monetary policy -- the Fed's control of (short-term, wholesale) interest rates -- has been fully deployed for quite some time. Once rates are zero, you're done. (Eventually, so-called "quantitative easing" ignites inflation fears.)

Parachute #2, fiscal policy -- also known as government spending -- has now been deployed in the form of what I'll call "TARP, SCHMARP, and GARP" (sorry, lost of track of all the ad hoc acronyms some time ago -- maybe that was the point).

The economy's rate of descent now seems to be slowing.

How far away is the ground? Do we have any more parachutes?

Stay tuned . .

P.S.: if you're new to all this economic metaphor-stuff, "soft landing" seems to get recycled every 10 years or so.

Goldman Sachs' 9-Plus Lives

Hen House Preservation Principles

"Goldman to make record bonus payout."
--headline, guardian.co.uk (6/21/09)

Principle #1: When presented with overwhelming evidence that the foxes have taken over the hen house . . . stop adding chickens!

Principle #2: It's not hard to figure out -- at least in the short run -- which foxes stole the most chickens: look for the ones with the bulging bellies (see, headline).

At the height of the financial crisis last fall, Goldman Sachs "shapeshifted," in record time, from a Wall Street investment bank to a bank holding company. As an investment bank, Goldman Sachs wasn't eligible for direct aid from the Federal Reserve; as a bank holding company, it was.

Such aid was promptly forthcoming -- by the tens of billions. Exactly how much of a lifeline that aid constituted isn't known (and may never be). However, it never hurts to have another $10 (or $30) billion of capital and federal guaranties backstopping you in the midst of the worst financial melt-down since The Great Depression (one that you helped precipitate).

Now, of course, the financial markets (if not the broader economy) appear to be recovering, and Goldman Sachs has decided that the pay restrictions that came with the federal aid are unduly onerous.

Voila! The government gets its money back.

Want to bet what the company's next move is? (assuming, of course, that the financial markets remain benign):

Take itself private, so it doesn't have to publicly disclose its pay practices anymore.

[Not sure how much any of that had to do with real estate -- but it sure felt good!]

Hurricane Metaphor

Breached Levee's & Underwater Mortgages

If the housing bust and resulting recession are the equivalent of an economic hurricane (albeit a man-made one), what were the levees designed to hold back the flood waters?

Certainly, the major ones were:

--the role played -- or not played -- by the credit rating agencies, which blatantly mis-rated trillions in securitized mortgages as "Triple-A" that in fact were junk.

--the Glass-Steagall Act, passed by Congress in the Depression to separate investment and commercial banks, and repealed --at the behest of Wall Street - in 1999.

--SEC rules limiting investing bank leverage that were relaxed (gutted?) in 2003.

--the (erroneous) assumption that there was no "national housing market," just dozens of "local" ones (the diversity was thought to protect against a simultaneous downturn).

--the belief that the Federal Reserve possessed the tools and discipline to keep monetary policy on an even keel, or, in the event that an asset bubble formed and then popped, it would know how to clean up any resulting mess (Alan Greenspan's mantra).

--the belief, widely held by lenders, that borrowers with high credit scores -- and not much else -- would never default.

Clearly, all these "levees" and more were breached.

As is also the case with hurricanes, it's the low-lying areas that get inundated first. In the housing market, that would be homes purchased by marginal buyers, using dubious loans, with nothing down.

No wonder a mortgage that's worth more than the underlying home is said to be "under water."

Interest Rates Stable

Banks Not Passing Along Rate Drop?

After a dramatic drop late Wednesday, 30-year mortgage rates have leveled off at 4 5/8% at the moment. Given the size of the Fed commitment -- up to $1 trillion in new cash aimed at mortgages -- you'd expect rates in the low 4's.

Why hasn't that happened (or at least, not yet)?

Here are the reasons being bandied about:

One. There are now many fewer lenders, so they aren't competing as hard for loans (you compete for business by offering the lowest rates).

Two. The lenders still out there are understaffed, and use interest rates as a spigot to increase or decrease loan (and refi) applications. When they're overwhelmed, like they are now, they raise rates (or don't pass along savings).

Three. Banks aren't passing along savings because they're wounded and need to replenish their capital (undoubtedly true, especially for the biggest banks).

The real explanation is probably a combination of all three of these factors; the exact mix likely varies by bank.

Ultimately, mortgages and prevailing interest rates sure seem a lot like gas prices and the price of a barrel of oil: increases show up at the "pump" immediately, while price drops reach consumers more slowly . . .