The Dow lost 152.71 points, or 1.3 percent, to 11,971.73 at 2:45 p.m. in New York, its first dip below 12,000 since March, and the Standard & Poor’s 500 Index fell 1.2 percent. Ten-year Treasury yields lost three basis points to 2.97 percent, while the yen rose against all 16 major peers. The cost of insuring Greek and Portuguese debt rose to all-time highs amid lingering concern over Europe’s debt crisis. Oil sank below $100 a barrel.
U.S. equity benchmarks are threatening to erase their gains for the year amid concern that the economic recovery is weakening. The S&P 500 trimmed its 2011 advance to less than 1.5 percent today and the MSCI World Index is up 0.8 percent. The Russell 2000 Index of small U.S. stocks and the Nasdaq Composite Index both erased their gains for 2011 at least briefly today.
“The big question mark for investors is -- is this simply a transitory soft patch?” said Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which manages $54 billion. “Or, if not, will this begin to weigh on corporate profits in a slow economic growth environment, and therefore equity valuations will have to be adjusted? Right now the market is saying the latter.”
Leading Declines
The S&P 500 has lost more than 2 percent this week and is down almost 7 percent from a three-year high at the end of April, while 10-year Treasury yields linger near their 2011 lows. The index is trading at about 12.1 times the forecast earnings of its companies, near the cheapest level since last summer, with analysts surveyed by Bloomberg forecasting profit growth of 20.1 percent this year.
The drivers of the slump have been an inventory correction in manufacturing because of overproduction, a slowdown in demand because of high oil prices, “spiced up with a flareup of sovereign debt pressures in the European Monetary Union periphery, plus worries about Chinese tightening,” according to JPMorgan Chase & Co. (JPM) strategists led by Jan Loeys. It also came as investors awaited the end of the Federal Reserve’s $600 billion bond-purchase program, the central bank’s third round of so-called quantitative easing that investors nicknamed “QE2.”
‘Bearish Drivers’
“How much further markets correct depends on how these bearish drivers worsen and how much investors really believe it was QE2 rather than better data that turned markets around last year,” Loeys’ team wrote in a note to clients today. “Economic data are still on net weaker though supportive of a rebound into” the third quarter.
Travelers Cos. led losses in the Dow today, sliding 2.8 percent, after the insurer said it’s scaling back share repurchases as about $1 billion in catastrophe costs will probably wipe out second-quarter operating profit.
Financial shares pared losses after CNBC reported that the maximum capital surcharge on banks being considered by international regulators may be 2 to 2.5 percentage points, not the 3 percent being widely reported. CNBC cited unidentified officials.
S&P 500 financial shares were down 0.4 percent after sliding as much as 2.1 percent earlier as the Federal Reserve announced wider scrutiny of the balance sheets of big banks. The Fed said it will expand a capital-planning program to the 35 largest U.S. lenders. Banks with at least $50 billion in assets will be required to conduct annual exams to ensure “robust, forward-looking capital planning processes that account for their unique risks and that permit continued operations during times of economic and financial stress,” the Fed said today.
Friday, June 10, 2011
Monday, May 9, 2011
email me now
Alan Felch
Residential and Commercial Lending
5401 Central Expwy #310
Dallas, TX 75205
214-561-0130
214-683-1770
1-866-796-4957 Error! Filename not specified.PrimeLending, A PlainsCapital Company"
For the week of May 9, 2011 – Vol. 9, Issue 19
>> Market Update
QUOTE OF THE WEEK..."A will finds a way."--Orison Swett Marden, American writer
INFO THAT HITS US WHERE WE LIVE...For those of us with a strong will to succeed in this housing recovery, the way appears to be by focusing on the extraordinary affordability of today's residential market. Part of this affordability lies in the fact that mortgage rates fell again for the third week in a row, according to Freddie Mac's weekly survey of national average rates for conforming mortgages. This drop took them to their lowest point of the year. The Mortgage Bankers Association (MBA) weekly survey reported demand for purchase loans was UP a seasonally adjusted 0.3% from the prior week.
The National Association of Realtors (NAR) released another annual forecast, this one predicting a 1.8% drop in the medium price of existing homes this year. Sales of existing homes, however, are expected to grow almost 8%, which shows that more buyers are realizing there are outstanding bargains out there, especially when lower home prices are coupled with the low mortgage interest rates. In solid support of this is the recent report that shows it's cheaper to buy a home than to rent in 39 of the 50 largest cities in the U.S.
BUSINESS TIP OF THE WEEK...A customer's experience with your business should be consistent. Customers should come away with the same sense of your unique professionalism and style from every interaction--emails to voicemails, phone conversations to face-to-face meetings.
>> Review of Last Week
IT WAS WILD...Wall Street gave investors a wild ride, in a week that began with the death of Osama bin Laden and ended on a mixed April jobs report. The net result was that after two weeks of gains, all three major stock indexes slid a bit. Commodities also took a hit, with crude oil prices off almost 15% for the week. This is good for consumers, who should get lower gas prices, and good for the rest of the economy, as it starts seeing some of that money which had been going into our tanks. ISM Manufacturing and Services were down for the month, though still indicating growth. Q1 Productivity was up, but lower than the prior quarter.
The April Employment Report held a few surprises. Overall payrolls, expected to increase by 183,000, came in at 244,000 new jobs. The private sector had the best gain in over five years, adding 268,000 new jobs (the loss of government jobs lowered the overall reading). Nonetheless, these numbers still describe a slow recovery, as the pace of job creation was far higher coming out of previous recessions. Also on the downside, average hourly earnings were up less than inflation, at only 0.1%, and the unemployment rate climbed back to 9%, as more people stopped looking for jobs.
For the week, the Dow ended down 1.3%, at 12,639; the S&P 500 was down 1.7%, to 1,340; and the Nasdaq was down 1.6%, ending at 2,828.
Bond prices moved higher, with safe haven buying from investors concerned over Greece's threats to leave the EU and those plummeting commodities prices. The price of the FNMA 4.0% bond we watch ended the week UP .97, the same amount as last week, closing at $100.14. Higher mortgage bond prices signal lower mortgage rates and national average rates for conforming mortgages fell again, as covered above.
DID YOU KNOW?...Crude oil dropped to $99.80 a barrel on Thursday, the first time it's been under $100 in almost two months. But analysts say crude will have to stay around $100 a barrel for 5–10 days before we see gas prices come down at the pump.
>> This Week’s Forecast
INFLATION, CONSUMER FEELINGS, CONSUMER SPENDING...This is the week for looking at inflation once again. Thursday's Producer Price Index shows us how prices are doing at the wholesale level. The overall headline number will continue just shy of 1% with the core number holding at 0.3%. How much of this price increase gets passed on to the consumer will be told by Friday's Consumer Price Index. The Fed focuses on Core CPI, which excludes food and energy and is expected to rise to 0.2%.
We'll see how much consumers are spending with Thursday's Retail Sales for April which should show continued growth, although at a slower rate when they take out car sales. Consumer feelings will be felt Friday with the University of Michigan Sentiment Index, forecast to be down slightly for May.
>> The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.
Economic Calendar for the Week of May 9 – May 13
Date Time (ET) Release For Consensus Prior Impact
W
May 11 08:30 Trade Balance Mar –$46.3B –$45.8B Moderate
W
May 11 10:30 Crude Inventories 5/7 NA 3.421M Moderate
Th
May 12 08:30 Initial Unemployment Claims 5/7 445K 474K Moderate
Th
May 12 08:30 Continuing Unemployment Claims 4/30 0M 3.733M Moderate
Th
May 12 08:30 Producer Price Index (PPI) Apr 0.9% 0.7% Moderate
Th
May 12 08:30 Core PPI Apr 0.3% 0.3% Moderate
Th
May 12 08:30 Retail Sales Apr 0.7% 0.4% HIGH
Th
May 12 08:30 Retail Sales ex-autos Apr 0.6% 0.8% HIGH
Th
May 12 10:00 Business Inventories Mar 0.8% 0.5% Moderate
F
May 13 08:30 Consumer Price Index (CPI) Apr 0.4% 0.5% HIGH
F
May 13 08:30 Core CPI Apr 0.2% 0.1% HIGH
F
May 13 09:55 Univ. of Michigan Consumer Sentiment May 69.3 69.8 Moderate
>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months...Even though more economists are talking about the need for the Fed to raise the Funds rate to curb inflation, virtually none believe Chairman Bernanke will listen to them any time soon. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.
Current Fed Funds Rate: 0%–0.25%
After FOMC meeting on: Consensus
Jun 22 0%–0.25%
Aug 9 0%–0.25%
Sep 20 0%–0.25%
Probability of change from current policy:
After FOMC meeting on: Consensus
Jun 22 <1%
Aug 9 <1%
Sep 20 <1%
Alan Felch
Residential and Commercial Lending
5401 Central Expwy #310
Dallas, TX 75205
214-561-0130
214-683-1770
1-866-796-4957 Error! Filename not specified.PrimeLending, A PlainsCapital Company"
For the week of May 9, 2011 – Vol. 9, Issue 19
>> Market Update
QUOTE OF THE WEEK..."A will finds a way."--Orison Swett Marden, American writer
INFO THAT HITS US WHERE WE LIVE...For those of us with a strong will to succeed in this housing recovery, the way appears to be by focusing on the extraordinary affordability of today's residential market. Part of this affordability lies in the fact that mortgage rates fell again for the third week in a row, according to Freddie Mac's weekly survey of national average rates for conforming mortgages. This drop took them to their lowest point of the year. The Mortgage Bankers Association (MBA) weekly survey reported demand for purchase loans was UP a seasonally adjusted 0.3% from the prior week.
The National Association of Realtors (NAR) released another annual forecast, this one predicting a 1.8% drop in the medium price of existing homes this year. Sales of existing homes, however, are expected to grow almost 8%, which shows that more buyers are realizing there are outstanding bargains out there, especially when lower home prices are coupled with the low mortgage interest rates. In solid support of this is the recent report that shows it's cheaper to buy a home than to rent in 39 of the 50 largest cities in the U.S.
BUSINESS TIP OF THE WEEK...A customer's experience with your business should be consistent. Customers should come away with the same sense of your unique professionalism and style from every interaction--emails to voicemails, phone conversations to face-to-face meetings.
>> Review of Last Week
IT WAS WILD...Wall Street gave investors a wild ride, in a week that began with the death of Osama bin Laden and ended on a mixed April jobs report. The net result was that after two weeks of gains, all three major stock indexes slid a bit. Commodities also took a hit, with crude oil prices off almost 15% for the week. This is good for consumers, who should get lower gas prices, and good for the rest of the economy, as it starts seeing some of that money which had been going into our tanks. ISM Manufacturing and Services were down for the month, though still indicating growth. Q1 Productivity was up, but lower than the prior quarter.
The April Employment Report held a few surprises. Overall payrolls, expected to increase by 183,000, came in at 244,000 new jobs. The private sector had the best gain in over five years, adding 268,000 new jobs (the loss of government jobs lowered the overall reading). Nonetheless, these numbers still describe a slow recovery, as the pace of job creation was far higher coming out of previous recessions. Also on the downside, average hourly earnings were up less than inflation, at only 0.1%, and the unemployment rate climbed back to 9%, as more people stopped looking for jobs.
For the week, the Dow ended down 1.3%, at 12,639; the S&P 500 was down 1.7%, to 1,340; and the Nasdaq was down 1.6%, ending at 2,828.
Bond prices moved higher, with safe haven buying from investors concerned over Greece's threats to leave the EU and those plummeting commodities prices. The price of the FNMA 4.0% bond we watch ended the week UP .97, the same amount as last week, closing at $100.14. Higher mortgage bond prices signal lower mortgage rates and national average rates for conforming mortgages fell again, as covered above.
DID YOU KNOW?...Crude oil dropped to $99.80 a barrel on Thursday, the first time it's been under $100 in almost two months. But analysts say crude will have to stay around $100 a barrel for 5–10 days before we see gas prices come down at the pump.
>> This Week’s Forecast
INFLATION, CONSUMER FEELINGS, CONSUMER SPENDING...This is the week for looking at inflation once again. Thursday's Producer Price Index shows us how prices are doing at the wholesale level. The overall headline number will continue just shy of 1% with the core number holding at 0.3%. How much of this price increase gets passed on to the consumer will be told by Friday's Consumer Price Index. The Fed focuses on Core CPI, which excludes food and energy and is expected to rise to 0.2%.
We'll see how much consumers are spending with Thursday's Retail Sales for April which should show continued growth, although at a slower rate when they take out car sales. Consumer feelings will be felt Friday with the University of Michigan Sentiment Index, forecast to be down slightly for May.
>> The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.
Economic Calendar for the Week of May 9 – May 13
Date Time (ET) Release For Consensus Prior Impact
W
May 11 08:30 Trade Balance Mar –$46.3B –$45.8B Moderate
W
May 11 10:30 Crude Inventories 5/7 NA 3.421M Moderate
Th
May 12 08:30 Initial Unemployment Claims 5/7 445K 474K Moderate
Th
May 12 08:30 Continuing Unemployment Claims 4/30 0M 3.733M Moderate
Th
May 12 08:30 Producer Price Index (PPI) Apr 0.9% 0.7% Moderate
Th
May 12 08:30 Core PPI Apr 0.3% 0.3% Moderate
Th
May 12 08:30 Retail Sales Apr 0.7% 0.4% HIGH
Th
May 12 08:30 Retail Sales ex-autos Apr 0.6% 0.8% HIGH
Th
May 12 10:00 Business Inventories Mar 0.8% 0.5% Moderate
F
May 13 08:30 Consumer Price Index (CPI) Apr 0.4% 0.5% HIGH
F
May 13 08:30 Core CPI Apr 0.2% 0.1% HIGH
F
May 13 09:55 Univ. of Michigan Consumer Sentiment May 69.3 69.8 Moderate
>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months...Even though more economists are talking about the need for the Fed to raise the Funds rate to curb inflation, virtually none believe Chairman Bernanke will listen to them any time soon. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.
Current Fed Funds Rate: 0%–0.25%
After FOMC meeting on: Consensus
Jun 22 0%–0.25%
Aug 9 0%–0.25%
Sep 20 0%–0.25%
Probability of change from current policy:
After FOMC meeting on: Consensus
Jun 22 <1%
Aug 9 <1%
Sep 20 <1%
Thursday, April 28, 2011
The Current Market Condition
In the aftermath of yesterday's historic Fed day, Mortgage Bonds are trading higher, and recouping yesterday's losses. Also helping Bonds were some weak economic readings this morning…let's break it all down.
As expected, there was no change to the Fed Funds Rate yesterday, and the Policy Statement pretty much remained the same, including the "extended period" language. Even the highly anticipated and unprecedented press conference given by Mr. Bernanke offered no big surprises.
That said, here are the important takeaways from Bernanke's press conference:
Bernanke said the downtick expected in GDP is "transitory". The Fed just loves that word - "transitory" – as they also use it to explain the persistent high prices of Oil and Commodities. By transitory, Mr. Bernanke is saying that the economy's temporary sluggishness is somewhat a result of high Oil prices, which he believes is also temporary in nature. The obvious question is, what if the high price of Oil is not "transitory" or temporary? Mr. Bernanke also clarified what "extended period" language means, suggesting that a hike in rates would be a couple meetings away. This is something we have been saying for a long time, that once that language is removed, the Fed is moving towards a tightening of monetary policy. And we aren't there yet. He was also crystal clear in saying the the Fed will complete the $600B of QE2 purchases through June, and that after that point, the Fed will continue to reinvest the proceeds running off its $2.7T portfolio back into Treasuries. He also said that early in the tightening cycle, "one step would be to stop reinvesting all or part of maturing securities." We believe the Fed will stop reinvesting these proceeds back into Treasuries at the same time as they hike rates. And we don’t feel that is likely to happen in 2011. The Fed also updated their Forecasts last given in February.
You will notice below that they have upped their expectations for inflation, but have toned down their economic growth expectations, largely due to high oil and commodity prices.
Updated Fed Forecasts:
GDP Forecast
(Most recent forecast) Apr- 2011: 3.1-3.3%; 2012: 3.5-4.2%; 2013: 3.5-4.3%; Long Run: 2.5-2.8%
(Prior forecast) Feb- 2011: 3.4-3.9%; 2012: 3.5-4.4%; 2013: 3.5-4.6%; Long Run: 2.4-3.0%
Unemployment Forecast
Apr- 2011: 8.4-8.7%; 2012: 7.6-7.9%; 2013: 6.8-7.2%; Long Run: 5.2-5.6%
Feb- 2011: 8.8-9.0%; 2012: 7.6-8.1%; 2013: 6.8-7.2%; Long Run: 5.0-6.0%
PCE Inflation Forecast
Apr- 2011: 2.1-2.8%; 2012: 1.2-2.0%; 2013: 1.4-2.0%; Long Run: 1.7-2.0%
Feb- 2011: 1.3-1.7%; 2012: 1.0-1.9%; 2013: 1.2-2.0%; Long Run: 1.6-2.0%
Core PCE Inflation Forecast
April- 2011: 1.3-1.6%; 2012: 1.3-1.8%; 2013: 1.4-2.0%; Long Run: N/A
Feb- 2011: 1.0-1.3%; 2012: 1.0-1.5%; 2013: 1.2-2.0%; Long Run: N/A
In today's economic news, the Commerce Department reported that the 1st look, or Advanced reading, of 1st Quarter Gross Domestic Product (GDP) fell to 1.8%, down from the Q4 2010 reading of 3.1% led by declining consumer spending and government spending. This was a weak reading, but it was actually higher than expectations and much better than some whisper numbers of a sub 1% reading. This is backward looking, but nonetheless, Stocks lost some ground on the number, thereby helping Bonds.
But the real rotten egg this morning was Initial Jobless Claims, which sadly climbed to 429,000 for the week, well above both expectations and that psychologically important 400K barrier. Unfortunately, the pain in the labor market has not been "transitory". And seeing Claims rise back above 400,000 is not a good thing, as Initial Jobless Claims are a leading indicator on the health of the economy. This is an area where the Fed has very limited capacity to help. And because of the pick up in inflation – which Bernanke acknowledged yesterday – we should not expect continued government support of the economy, or another round of QE, which can fan the flames of inflation.
As expected, there was no change to the Fed Funds Rate yesterday, and the Policy Statement pretty much remained the same, including the "extended period" language. Even the highly anticipated and unprecedented press conference given by Mr. Bernanke offered no big surprises.
That said, here are the important takeaways from Bernanke's press conference:
Bernanke said the downtick expected in GDP is "transitory". The Fed just loves that word - "transitory" – as they also use it to explain the persistent high prices of Oil and Commodities. By transitory, Mr. Bernanke is saying that the economy's temporary sluggishness is somewhat a result of high Oil prices, which he believes is also temporary in nature. The obvious question is, what if the high price of Oil is not "transitory" or temporary? Mr. Bernanke also clarified what "extended period" language means, suggesting that a hike in rates would be a couple meetings away. This is something we have been saying for a long time, that once that language is removed, the Fed is moving towards a tightening of monetary policy. And we aren't there yet. He was also crystal clear in saying the the Fed will complete the $600B of QE2 purchases through June, and that after that point, the Fed will continue to reinvest the proceeds running off its $2.7T portfolio back into Treasuries. He also said that early in the tightening cycle, "one step would be to stop reinvesting all or part of maturing securities." We believe the Fed will stop reinvesting these proceeds back into Treasuries at the same time as they hike rates. And we don’t feel that is likely to happen in 2011. The Fed also updated their Forecasts last given in February.
You will notice below that they have upped their expectations for inflation, but have toned down their economic growth expectations, largely due to high oil and commodity prices.
Updated Fed Forecasts:
GDP Forecast
(Most recent forecast) Apr- 2011: 3.1-3.3%; 2012: 3.5-4.2%; 2013: 3.5-4.3%; Long Run: 2.5-2.8%
(Prior forecast) Feb- 2011: 3.4-3.9%; 2012: 3.5-4.4%; 2013: 3.5-4.6%; Long Run: 2.4-3.0%
Unemployment Forecast
Apr- 2011: 8.4-8.7%; 2012: 7.6-7.9%; 2013: 6.8-7.2%; Long Run: 5.2-5.6%
Feb- 2011: 8.8-9.0%; 2012: 7.6-8.1%; 2013: 6.8-7.2%; Long Run: 5.0-6.0%
PCE Inflation Forecast
Apr- 2011: 2.1-2.8%; 2012: 1.2-2.0%; 2013: 1.4-2.0%; Long Run: 1.7-2.0%
Feb- 2011: 1.3-1.7%; 2012: 1.0-1.9%; 2013: 1.2-2.0%; Long Run: 1.6-2.0%
Core PCE Inflation Forecast
April- 2011: 1.3-1.6%; 2012: 1.3-1.8%; 2013: 1.4-2.0%; Long Run: N/A
Feb- 2011: 1.0-1.3%; 2012: 1.0-1.5%; 2013: 1.2-2.0%; Long Run: N/A
In today's economic news, the Commerce Department reported that the 1st look, or Advanced reading, of 1st Quarter Gross Domestic Product (GDP) fell to 1.8%, down from the Q4 2010 reading of 3.1% led by declining consumer spending and government spending. This was a weak reading, but it was actually higher than expectations and much better than some whisper numbers of a sub 1% reading. This is backward looking, but nonetheless, Stocks lost some ground on the number, thereby helping Bonds.
But the real rotten egg this morning was Initial Jobless Claims, which sadly climbed to 429,000 for the week, well above both expectations and that psychologically important 400K barrier. Unfortunately, the pain in the labor market has not been "transitory". And seeing Claims rise back above 400,000 is not a good thing, as Initial Jobless Claims are a leading indicator on the health of the economy. This is an area where the Fed has very limited capacity to help. And because of the pick up in inflation – which Bernanke acknowledged yesterday – we should not expect continued government support of the economy, or another round of QE, which can fan the flames of inflation.
Monday, March 21, 2011
All Thats Happening!
>> Market Update
QUOTE OF THE WEEK..."To a journalist, good news is often not news at all."--Phil Donahue
INFO THAT HITS US WHERE WE LIVE...Well, journalists had plenty of their kind of news to write about with last week's housing reports. The bad stuff began with February Housing Starts dropping 22.5% to a level close to the April 2009 low, which was the lowest on record. Most of the drop was from multi-family starts, which are volatile on a monthly basis. Single-family starts were down 11.8%. New Building Permits fell 8.2% for February. This gauges activity a few months out, indicating starts in the Spring ought to be up a bit from now.
Nonetheless, experts feel building and sales activity should normalize to much higher rates in the next few years. The population is growing and aging housing stock needs to be replaced. Analysts say builders usually need to put up at least one million homes a year to keep up with these demands. Maybe that's why an industry index of builder sentiment actually ticked up a point for March, putting it at its highest level since May 2010, when the homebuyer tax credits were making everyone feel good.
BUSINESS TIP OF THE WEEK...Don't forget to smile. You may think people buy from you because of price, quality and the fact you stand behind your work. Those factors count, but ultimately, people buy because they like you.
>> Review of Last Week
MELTDOWN ON WALL STREET...As of Friday, a nuclear disaster at Japan's Fukushima complex had been averted, but that didn't stop stocks from having their own meltdown. Investors sold off holdings, worried over Japan's nuclear crisis, Libya's civil war spreading to other oil producers, as well as the European Union's lingering sovereign debt problems. The market did manage two good days at the end, but they weren't good enough to prevent another weekly drop in all three major indexes, although many people felt things could have been a lot worse.
Economic news was mixed, the negative part being Housing Starts and Building Permits, covered above. On the very positive side was the Philadelphia Fed Index for March showing solid manufacturing growth in that region. Wholesale (PPI) and Consumer (CPI) Inflation were both up more than expected, thanks to higher energy and food prices. But the Fed focuses on Core CPI, which eliminates food and energy, and remains within an acceptable range. It seems like almost everyone but the Fed is concerned about inflation picking up. Homebuyers should note that real estate is still, even now, an excellent hedge against inflation over the long term.
For the week, the Dow ended down 1.5%, at 11,859; the S&P 500 was down 1.9%, to 1,279; and the Nasdaq was down 2.6%, ending at 2,644.
With Japan's nuclear fears prominent in the news all week, investors' "flight to safety" in bonds became a flat-out run. The FNMA 4.0% bond we watch ended up .95 for the week, closing at $99.10. In line with this, Freddie Mac's weekly survey of conforming mortgages showed national average mortgage rates easing a little more in their historically low range. Many economists forecast mortgage rates to rise this year as the economy recovers, but now feel low rates may remain a tad longer than expected.
DID YOU KNOW?...This week's GDP estimate refers to our nation's Gross Domestic Product. This is the total final value of all U.S. goods and services produced in a year: all consumer, investment and government spending, plus the value of all exports, minus the value of all imports. GDP growth is what counts, with 2.5% to 3.0% the historical average.
>> This Week’s Forecast
FEBRUARY HOME SALES AND ANOTHER LOOK AT Q4 GDP...February isn't usually a top month for home sales and the experts don't expect that situation to change. Monday's Existing Home Sales for February are expected to be down from January, coming in at a 5.05M annual rate. But Wednesday's New Home Sales for February should be up slightly from the prior month, at a 288K annual rate.
But the overall economic picture appears to be picking up. The Third Estimate of Q4 GDP is forecast up another 0.1%, to 2.9%, showing that the overall economy continues to grow. Consumers' attitudes are holding steady in the University of Michigan's Sentiment Index for March.
>> The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.
Economic Calendar for the Week of March 21 – March 25
Date Time (ET) Release For Consensus Prior Impact
M
Mar 21 10:00 Existing Home Sales Feb 5.05M 5.36M Moderate
W
Mar 23 10:00 New Home Sales Feb 288K 284K Moderate
W
Mar 23 10:30 Crude Inventories 3/19 NA 1.745M Moderate
Th
Mar 24 08:30 Initial Unemployment Claims 3/19 384K 385K Moderate
Th
Mar 24 08:30 Continuing Unemployment Claims 3/9 3.700M 3.706M Moderate
Th
Mar 24 08:30 Durable Goods Orders Feb 0.9% 3.2% Moderate
F
Mar 25 08:30 GDP-Third Estimate Q4 2.9% 2.8% Moderate
F
Mar 25 08:30 GDP Deflator-Third Estimate Q4 0.4% 0.4% Moderate
F
Mar 25 09:55 Univ. of Michigan Consumer Sentiment-Final Mar 68.0 68.2 Moderate
>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months...The Fed's FOMC Policy Statement last week said that they weren't worried about inflation and that although the economy is improving, the recovery isn't strong enough to withstand a rise in interest rates. So economists are forecasting the Funds Rate to stay where it is well into the second half of the year. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.
Current Fed Funds Rate: 0%–0.25%
After FOMC meeting on: Consensus
Apr 27 0%–0.25%
Jun 22 0%–0.25%
Aug 9 0%–0.25%
Probability of change from current policy:
After FOMC meeting on: Consensus
Apr 27 <1%
Jun 22 <1%
Aug 9 2%
QUOTE OF THE WEEK..."To a journalist, good news is often not news at all."--Phil Donahue
INFO THAT HITS US WHERE WE LIVE...Well, journalists had plenty of their kind of news to write about with last week's housing reports. The bad stuff began with February Housing Starts dropping 22.5% to a level close to the April 2009 low, which was the lowest on record. Most of the drop was from multi-family starts, which are volatile on a monthly basis. Single-family starts were down 11.8%. New Building Permits fell 8.2% for February. This gauges activity a few months out, indicating starts in the Spring ought to be up a bit from now.
Nonetheless, experts feel building and sales activity should normalize to much higher rates in the next few years. The population is growing and aging housing stock needs to be replaced. Analysts say builders usually need to put up at least one million homes a year to keep up with these demands. Maybe that's why an industry index of builder sentiment actually ticked up a point for March, putting it at its highest level since May 2010, when the homebuyer tax credits were making everyone feel good.
BUSINESS TIP OF THE WEEK...Don't forget to smile. You may think people buy from you because of price, quality and the fact you stand behind your work. Those factors count, but ultimately, people buy because they like you.
>> Review of Last Week
MELTDOWN ON WALL STREET...As of Friday, a nuclear disaster at Japan's Fukushima complex had been averted, but that didn't stop stocks from having their own meltdown. Investors sold off holdings, worried over Japan's nuclear crisis, Libya's civil war spreading to other oil producers, as well as the European Union's lingering sovereign debt problems. The market did manage two good days at the end, but they weren't good enough to prevent another weekly drop in all three major indexes, although many people felt things could have been a lot worse.
Economic news was mixed, the negative part being Housing Starts and Building Permits, covered above. On the very positive side was the Philadelphia Fed Index for March showing solid manufacturing growth in that region. Wholesale (PPI) and Consumer (CPI) Inflation were both up more than expected, thanks to higher energy and food prices. But the Fed focuses on Core CPI, which eliminates food and energy, and remains within an acceptable range. It seems like almost everyone but the Fed is concerned about inflation picking up. Homebuyers should note that real estate is still, even now, an excellent hedge against inflation over the long term.
For the week, the Dow ended down 1.5%, at 11,859; the S&P 500 was down 1.9%, to 1,279; and the Nasdaq was down 2.6%, ending at 2,644.
With Japan's nuclear fears prominent in the news all week, investors' "flight to safety" in bonds became a flat-out run. The FNMA 4.0% bond we watch ended up .95 for the week, closing at $99.10. In line with this, Freddie Mac's weekly survey of conforming mortgages showed national average mortgage rates easing a little more in their historically low range. Many economists forecast mortgage rates to rise this year as the economy recovers, but now feel low rates may remain a tad longer than expected.
DID YOU KNOW?...This week's GDP estimate refers to our nation's Gross Domestic Product. This is the total final value of all U.S. goods and services produced in a year: all consumer, investment and government spending, plus the value of all exports, minus the value of all imports. GDP growth is what counts, with 2.5% to 3.0% the historical average.
>> This Week’s Forecast
FEBRUARY HOME SALES AND ANOTHER LOOK AT Q4 GDP...February isn't usually a top month for home sales and the experts don't expect that situation to change. Monday's Existing Home Sales for February are expected to be down from January, coming in at a 5.05M annual rate. But Wednesday's New Home Sales for February should be up slightly from the prior month, at a 288K annual rate.
But the overall economic picture appears to be picking up. The Third Estimate of Q4 GDP is forecast up another 0.1%, to 2.9%, showing that the overall economy continues to grow. Consumers' attitudes are holding steady in the University of Michigan's Sentiment Index for March.
>> The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.
Economic Calendar for the Week of March 21 – March 25
Date Time (ET) Release For Consensus Prior Impact
M
Mar 21 10:00 Existing Home Sales Feb 5.05M 5.36M Moderate
W
Mar 23 10:00 New Home Sales Feb 288K 284K Moderate
W
Mar 23 10:30 Crude Inventories 3/19 NA 1.745M Moderate
Th
Mar 24 08:30 Initial Unemployment Claims 3/19 384K 385K Moderate
Th
Mar 24 08:30 Continuing Unemployment Claims 3/9 3.700M 3.706M Moderate
Th
Mar 24 08:30 Durable Goods Orders Feb 0.9% 3.2% Moderate
F
Mar 25 08:30 GDP-Third Estimate Q4 2.9% 2.8% Moderate
F
Mar 25 08:30 GDP Deflator-Third Estimate Q4 0.4% 0.4% Moderate
F
Mar 25 09:55 Univ. of Michigan Consumer Sentiment-Final Mar 68.0 68.2 Moderate
>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months...The Fed's FOMC Policy Statement last week said that they weren't worried about inflation and that although the economy is improving, the recovery isn't strong enough to withstand a rise in interest rates. So economists are forecasting the Funds Rate to stay where it is well into the second half of the year. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.
Current Fed Funds Rate: 0%–0.25%
After FOMC meeting on: Consensus
Apr 27 0%–0.25%
Jun 22 0%–0.25%
Aug 9 0%–0.25%
Probability of change from current policy:
After FOMC meeting on: Consensus
Apr 27 <1%
Jun 22 <1%
Aug 9 2%
Tuesday, March 15, 2011
For the week of March 14, 2011
For the week of March 14, 2011 – Vol. 9, Issue 11
>> Market Update
QUOTE OF THE WEEK..."An economist's guess is liable to be as good as anybody else's."--Will Rogers
INFO THAT HITS US WHERE WE LIVE...Last week there was no guessing involved in the Mortgage Bankers Association (MBA) report that applications for purchase mortgages hit their highest level of the year. The MBA credited this to the improving job market and mortgage rates remaining at super low levels. This demand for purchase mortgages was up 12.5% from the week before and at its highest level since last May. Freddie Mac's weekly survey of conforming mortgages showed mortgage rates pretty much unchanged, at historically low levels for the third week in a row.
Another UCLA Anderson Forecast came out, reporting that the economy is growing and employment should soon pick up steam. But this somewhat pessimistic group of West Coast economists feel housing will continue to lag behind other sectors. Nonetheless, they see a "modest" recovery in housing starts, up 12% this year, then hitting 1 million in 2012 and approaching 1.5 million in 2013, thanks to pent-up demand.
BUSINESS TIP OF THE WEEK...Get out of your comfort zone. Don't keep doing things a certain way just because that's how you've always done them. Be open to new ideas and technology. Things can't change for the better if you're not open to change.
>> Review of Last Week
STOCKS SLIP...All three stock market indexes registered their second weekly decline in the past three weeks. The Middle East continued to concern investors as the disturbances expanded to Saudi Arabia where no one on Wall Street wanted to see them go, fearing even higher oil prices. But Friday we were all shocked by the devastation of Japan's worst earthquake in over 100 years. Oil prices seemed far less of a worry and they actually wound up down for the week.
Economic news was light but net positive. New weekly unemployment claims were up a bit, after dropping the week before, but the four-week moving average is now 392,000, quite a bit below last summer's readings. Continuing unemployment claims dropped to 3.77 million, its lowest level since October 2008! These trends are in the right direction for the country overall and for housing in particular. Friday saw Retail Sales UP 1.0% in February, increasing now eight months in a row, their longest streak of gains in over ten years! Consumers are definitely helping out.
For the week, the Dow ended down 1.0%, at 12,044; the S&P 500 was down 1.3%, to 1,304; and the Nasdaq was down 2.5%, ending at 2,716.
Amidst slipping stocks, bond prices held up, with buying driven by the turmoil in the Middle East and strong auctions. The FNMA 4.0% bond we watch ended up .01 for the week, closing at $98.15. As noted above, Freddie Mac's weekly survey of conforming mortgages showed national average mortgage rates still at historically low levels. But buyers should not expect these rates to last forever, as the economic data continues to improve.
DID YOU KNOW?...The Federal Open Market Committee, or FOMC, is the policymaking body of the Fed. Its meeting this week is one of eight held each year to discuss the economy and monetary policy options to promote stable prices and growth.
>> This Week’s Forecast
HOMEBUILDERS, INFLATION, THE FED...This week highlights three favorite topics. Wednesday we see how homebuilders are feeling, as reflected by February Housing Starts, expected to be down a little, and Building Permits, showing builders' sentiment further out, which should be up a bit.
Tuesday we'll have the FOMC Rate Decision from the Fed. Economists don't expect the Funds Rate to move off its rock-bottom level, but they'll dissect the Policy Statement coming out of the confab for signs of when the rate may go up. Rising inflation can hike the rate, but Wednesday's wholesale inflation (PPI) and Thursday's consumer inflation (CPI) readings are expected to hold steady.
>> The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.
Economic Calendar for the Week of March 14 – March 18
Date Time (ET) Release For Consensus Prior Impact
Tu
Mar 15 08:30 NY Empire State Manufacturing Index Mar 17.0 15.43 Moderate
Tu
Mar 15 14:15 FOMC Rate Decision 3/15 0%–0.25% 0%–0.25% HIGH
W
Mar 16 08:30 Housing Starts Feb 570K 596K Moderate
W
Mar 16 08:30 Building Permits Feb 573K 562K Moderate
W
Mar 16 08:30 Producer Price Index (PPI) Feb 0.6% 0.8% Moderate
W
Mar 16 08:30 Core PPI Feb 0.2% 0.5% Moderate
W
Mar 16 10:30 Crude Inventories 3/12 NA 2.52M Moderate
Th
Mar 17 08:30 Initial Unemployment Claims 3/12 387K 397K Moderate
Th
Mar 17 08:30 Continuing Unemployment Claims 3/5 3.750M 3.771M Moderate
Th
Mar 17 08:30 Consumer Price Index (CPI) Feb 0.4% 0.4% HIGH
F
Mar 11 08:30 Core CPI Feb 0.1% 0.2% HIGH
Th
Mar 17 09:15 Industrial Production Feb 0.6%
–0.1% Moderate
Th
Mar 17 09:15 Capacity Utilization Feb 76.5% 76.1% Moderate
Th
Mar 17 10:00 Leading Economic Indicators (LEI) Index Feb 0.9% 0.1% Moderate
Th
Mar 17 10:00 Philadelphia Fed Manufacturing Index Mar 28.0 35.9 HIGH
>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months...Fed Chairman Ben Bernanke has been adamant about his commitment to keep rates where they are until he sees greater job growth and more traction in the economic recovery. The experts are talking about a rate hike later in the year, but the chances of that now are next to nil. Literally. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.
Current Fed Funds Rate: 0%–0.25%
After FOMC meeting on: Consensus
Mar 15 0%–0.25%
Apr 27 0%–0.25%
Jun 22 0%–0.25%
Probability of change from current policy:
After FOMC meeting on: Consensus
Mar 15 <1%
Apr 27 <1%
Jun 22 <1%
Dce
>> Market Update
QUOTE OF THE WEEK..."An economist's guess is liable to be as good as anybody else's."--Will Rogers
INFO THAT HITS US WHERE WE LIVE...Last week there was no guessing involved in the Mortgage Bankers Association (MBA) report that applications for purchase mortgages hit their highest level of the year. The MBA credited this to the improving job market and mortgage rates remaining at super low levels. This demand for purchase mortgages was up 12.5% from the week before and at its highest level since last May. Freddie Mac's weekly survey of conforming mortgages showed mortgage rates pretty much unchanged, at historically low levels for the third week in a row.
Another UCLA Anderson Forecast came out, reporting that the economy is growing and employment should soon pick up steam. But this somewhat pessimistic group of West Coast economists feel housing will continue to lag behind other sectors. Nonetheless, they see a "modest" recovery in housing starts, up 12% this year, then hitting 1 million in 2012 and approaching 1.5 million in 2013, thanks to pent-up demand.
BUSINESS TIP OF THE WEEK...Get out of your comfort zone. Don't keep doing things a certain way just because that's how you've always done them. Be open to new ideas and technology. Things can't change for the better if you're not open to change.
>> Review of Last Week
STOCKS SLIP...All three stock market indexes registered their second weekly decline in the past three weeks. The Middle East continued to concern investors as the disturbances expanded to Saudi Arabia where no one on Wall Street wanted to see them go, fearing even higher oil prices. But Friday we were all shocked by the devastation of Japan's worst earthquake in over 100 years. Oil prices seemed far less of a worry and they actually wound up down for the week.
Economic news was light but net positive. New weekly unemployment claims were up a bit, after dropping the week before, but the four-week moving average is now 392,000, quite a bit below last summer's readings. Continuing unemployment claims dropped to 3.77 million, its lowest level since October 2008! These trends are in the right direction for the country overall and for housing in particular. Friday saw Retail Sales UP 1.0% in February, increasing now eight months in a row, their longest streak of gains in over ten years! Consumers are definitely helping out.
For the week, the Dow ended down 1.0%, at 12,044; the S&P 500 was down 1.3%, to 1,304; and the Nasdaq was down 2.5%, ending at 2,716.
Amidst slipping stocks, bond prices held up, with buying driven by the turmoil in the Middle East and strong auctions. The FNMA 4.0% bond we watch ended up .01 for the week, closing at $98.15. As noted above, Freddie Mac's weekly survey of conforming mortgages showed national average mortgage rates still at historically low levels. But buyers should not expect these rates to last forever, as the economic data continues to improve.
DID YOU KNOW?...The Federal Open Market Committee, or FOMC, is the policymaking body of the Fed. Its meeting this week is one of eight held each year to discuss the economy and monetary policy options to promote stable prices and growth.
>> This Week’s Forecast
HOMEBUILDERS, INFLATION, THE FED...This week highlights three favorite topics. Wednesday we see how homebuilders are feeling, as reflected by February Housing Starts, expected to be down a little, and Building Permits, showing builders' sentiment further out, which should be up a bit.
Tuesday we'll have the FOMC Rate Decision from the Fed. Economists don't expect the Funds Rate to move off its rock-bottom level, but they'll dissect the Policy Statement coming out of the confab for signs of when the rate may go up. Rising inflation can hike the rate, but Wednesday's wholesale inflation (PPI) and Thursday's consumer inflation (CPI) readings are expected to hold steady.
>> The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.
Economic Calendar for the Week of March 14 – March 18
Date Time (ET) Release For Consensus Prior Impact
Tu
Mar 15 08:30 NY Empire State Manufacturing Index Mar 17.0 15.43 Moderate
Tu
Mar 15 14:15 FOMC Rate Decision 3/15 0%–0.25% 0%–0.25% HIGH
W
Mar 16 08:30 Housing Starts Feb 570K 596K Moderate
W
Mar 16 08:30 Building Permits Feb 573K 562K Moderate
W
Mar 16 08:30 Producer Price Index (PPI) Feb 0.6% 0.8% Moderate
W
Mar 16 08:30 Core PPI Feb 0.2% 0.5% Moderate
W
Mar 16 10:30 Crude Inventories 3/12 NA 2.52M Moderate
Th
Mar 17 08:30 Initial Unemployment Claims 3/12 387K 397K Moderate
Th
Mar 17 08:30 Continuing Unemployment Claims 3/5 3.750M 3.771M Moderate
Th
Mar 17 08:30 Consumer Price Index (CPI) Feb 0.4% 0.4% HIGH
F
Mar 11 08:30 Core CPI Feb 0.1% 0.2% HIGH
Th
Mar 17 09:15 Industrial Production Feb 0.6%
–0.1% Moderate
Th
Mar 17 09:15 Capacity Utilization Feb 76.5% 76.1% Moderate
Th
Mar 17 10:00 Leading Economic Indicators (LEI) Index Feb 0.9% 0.1% Moderate
Th
Mar 17 10:00 Philadelphia Fed Manufacturing Index Mar 28.0 35.9 HIGH
>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months...Fed Chairman Ben Bernanke has been adamant about his commitment to keep rates where they are until he sees greater job growth and more traction in the economic recovery. The experts are talking about a rate hike later in the year, but the chances of that now are next to nil. Literally. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.
Current Fed Funds Rate: 0%–0.25%
After FOMC meeting on: Consensus
Mar 15 0%–0.25%
Apr 27 0%–0.25%
Jun 22 0%–0.25%
Probability of change from current policy:
After FOMC meeting on: Consensus
Mar 15 <1%
Apr 27 <1%
Jun 22 <1%
Dce
Tuesday, March 8, 2011
All in Oil!
"Awash in Oil?"
Friday, I filled up at Costco's discount gas station. Gas cost $3.28 per gallon. That was up from last year by at least fifty cents a gallon, but compared to the reports of $4.00-plus gasoline in California, I felt we were fortunate here in Dallas to be closer to the national average.
When I came to work this morning, I was talking to one of my associates and she mentioned that her son had filled up at the same gas station on Saturday, less than 24 hours after me, before heading back Ft Worth. The cost was $3.47 a gallon - almost a 5% increase overnight!
What's going on? Obviously, the unrest in the Middle East is creating fear that supplies of "black gold" will be reduced. That fear is sending prices higher. Those higher prices are being generated in the futures pits around the world as speculators bid oil higher. While the spot price is about $105 per barrel, the price for future delivery in the commodities markets is over $115.
It's only logical that higher oil prices should affect stocks. But how higher oil prices affect stocks can vary tremendously. Since the Egyptian crisis began, the oil and stock price indices have been moving in opposite directions. An up day in oil prices has meant a down day for stocks. And if oil prices stumble, stocks rally.
This actually is what one would expect, isn't it? If oil goes up, and if most industrial societies run on oil, increasing costs of oil can make production more expensive, causing recovering economies to slow down, earnings to decline and stock prices to sink.
Yet, for much of the last year, oil prices and the S&P 500 have behaved very differently. They were moving in lock step - rising and falling together. In fact, this has been the case since 2008. But their mutual admiration society fell apart in mid-January.
Why the change? At the end of last year, experts were telling us that the world was awash in oil - that prices should remain stable at least through the first half of 2011. Yet here we are just two months and a few days into the New Year and oil prices have increased by about 20%.
This is the supply argument and we are hearing it daily from the stock market bulls. Oil inventories are high, so oil prices are artificially high, driven there solely by the speculators. When politics calm down in the Middle East, prices will reverse just as quickly as they went up.
I must say that I lean toward this camp as well. Oil supplies have not changed appreciably since last fall when we were awash in oil. In fact, according to the most recent figures from the Department of Energy, the stockpile of oil is 1.4% above levels from last year and inventories are 4% above their 5-year average.
And just last week, Treasury Secretary Geithner declared that the US might just have to draw on its Strategic Petroleum Reserves to cool things off. While I would hope this is not just an attempt at political jawboning by the Administration, a closer look suggests that it is and that it is a hollow threat.
According to information on the Department of Energy's website, the Strategic Petroleum Reserve holds only 727 million barrels. That's significant, but still accounts for just about two and a half months of our needs.
What's more, the impact from releasing oil from the SPR would not be immediate. The DOE says the maximum drawdown per day is just 4.4 million barrels and that it would take nearly two weeks after a decision is made to tap the SPR before that oil actually hits the US market.
Of course, our friends, the Saudi's and our partners at OPEC have also tried to assure us, saying they would increase production if prices stay high. But in the past these assurances have been empty ones. And today, the head of OPEC weakened the assurances by stating that reserves would have to shrink before cartel members would actually take any action.
In the meantime, whether the bulls or the bears are correct, the stock market seems likely to be held hostage by our Middle East suppliers. With Gulf oil drilling rigs down over 75% from a year ago due to the Administration's restrictive position on Gulf of Mexico drilling (although, I note they did just award the first post-spill drilling permit today - perhaps they're feeling the heat and are going to make a policy announcement that could have a tangible effect), a further increase in US oil supplies seems unlikely to help in the intermediate term.
As the earnings season has ended and interest rates are moving up along with the price of oil, these usual bull market girders are not supportive in the short run. The most positive factor for the stock markets today is the constant drumbeat of good news about the economy. Last week we had 24 reports and 15 of them beat expectations. The employment and manufacturing numbers were especially heartening.
I continue to believe that we are in for a stock market correction, that it will be shallow, and that the stocks will bounce back to set new highs later this year.
Friday, I filled up at Costco's discount gas station. Gas cost $3.28 per gallon. That was up from last year by at least fifty cents a gallon, but compared to the reports of $4.00-plus gasoline in California, I felt we were fortunate here in Dallas to be closer to the national average.
When I came to work this morning, I was talking to one of my associates and she mentioned that her son had filled up at the same gas station on Saturday, less than 24 hours after me, before heading back Ft Worth. The cost was $3.47 a gallon - almost a 5% increase overnight!
What's going on? Obviously, the unrest in the Middle East is creating fear that supplies of "black gold" will be reduced. That fear is sending prices higher. Those higher prices are being generated in the futures pits around the world as speculators bid oil higher. While the spot price is about $105 per barrel, the price for future delivery in the commodities markets is over $115.
It's only logical that higher oil prices should affect stocks. But how higher oil prices affect stocks can vary tremendously. Since the Egyptian crisis began, the oil and stock price indices have been moving in opposite directions. An up day in oil prices has meant a down day for stocks. And if oil prices stumble, stocks rally.
This actually is what one would expect, isn't it? If oil goes up, and if most industrial societies run on oil, increasing costs of oil can make production more expensive, causing recovering economies to slow down, earnings to decline and stock prices to sink.
Yet, for much of the last year, oil prices and the S&P 500 have behaved very differently. They were moving in lock step - rising and falling together. In fact, this has been the case since 2008. But their mutual admiration society fell apart in mid-January.
Why the change? At the end of last year, experts were telling us that the world was awash in oil - that prices should remain stable at least through the first half of 2011. Yet here we are just two months and a few days into the New Year and oil prices have increased by about 20%.
This is the supply argument and we are hearing it daily from the stock market bulls. Oil inventories are high, so oil prices are artificially high, driven there solely by the speculators. When politics calm down in the Middle East, prices will reverse just as quickly as they went up.
I must say that I lean toward this camp as well. Oil supplies have not changed appreciably since last fall when we were awash in oil. In fact, according to the most recent figures from the Department of Energy, the stockpile of oil is 1.4% above levels from last year and inventories are 4% above their 5-year average.
And just last week, Treasury Secretary Geithner declared that the US might just have to draw on its Strategic Petroleum Reserves to cool things off. While I would hope this is not just an attempt at political jawboning by the Administration, a closer look suggests that it is and that it is a hollow threat.
According to information on the Department of Energy's website, the Strategic Petroleum Reserve holds only 727 million barrels. That's significant, but still accounts for just about two and a half months of our needs.
What's more, the impact from releasing oil from the SPR would not be immediate. The DOE says the maximum drawdown per day is just 4.4 million barrels and that it would take nearly two weeks after a decision is made to tap the SPR before that oil actually hits the US market.
Of course, our friends, the Saudi's and our partners at OPEC have also tried to assure us, saying they would increase production if prices stay high. But in the past these assurances have been empty ones. And today, the head of OPEC weakened the assurances by stating that reserves would have to shrink before cartel members would actually take any action.
In the meantime, whether the bulls or the bears are correct, the stock market seems likely to be held hostage by our Middle East suppliers. With Gulf oil drilling rigs down over 75% from a year ago due to the Administration's restrictive position on Gulf of Mexico drilling (although, I note they did just award the first post-spill drilling permit today - perhaps they're feeling the heat and are going to make a policy announcement that could have a tangible effect), a further increase in US oil supplies seems unlikely to help in the intermediate term.
As the earnings season has ended and interest rates are moving up along with the price of oil, these usual bull market girders are not supportive in the short run. The most positive factor for the stock markets today is the constant drumbeat of good news about the economy. Last week we had 24 reports and 15 of them beat expectations. The employment and manufacturing numbers were especially heartening.
I continue to believe that we are in for a stock market correction, that it will be shallow, and that the stocks will bounce back to set new highs later this year.
Monday, March 7, 2011
The Weekly Java!
QUOTE OF THE WEEK..."There are no constraints on the human mind, no walls around the human spirit, no barriers to our progress except those we ourselves erect."--Ronald Regan
INFO THAT HITS US WHERE WE LIVE...We should be especially careful to not erect barriers to our progress just because of a minor setback, like the one we had with last week's Pending Home Sales. The National Association of Realtors (NAR) index of signed contracts on existing homes slipped in January for the second month in a row. But the drop wasn't as bad as expected and, as the NAR's chief economist said: "We should not expect the recovery to be in a straight upward path--it will zig-zag at times."
The latest NAR overall forecast gave an interesting picture of that recovery. Existing home sales should grow 8.1% this year and another 5.2% in 2012, with the median price essentially flat in 2011 before gaining over 3% next year. New home sales are forecast up about 5% this year, then up over 55% for 2012, with the median price up a bit in 2011, then up 3.5% next year. Fannie Mae's latest National Housing Survey reported that the vast majority of people believe housing prices will hold firm in 2011 and that Hispanics, African-Americans and Generation Y (18–34 years old) are more positive than other Americans about homeownership.
BUSINESS TIP OF THE WEEK...Do you know what's the most precious commodity in business? Time! Return calls and e-mails immediately, deliver what clients want sooner than they expect and you'll enhance your competitive edge.
>> Review of Last Week
SQUEAKING HIGHER...Investors who were worried about oil prices hitting two-year highs amidst Libyan turmoil sent stocks down Tuesday. But economic data continued to portray a steady if slow recovery. So stocks shot back up Thursday by enough to put all three indexes ahead for the week, even after dipping a bit on Friday.
Encouraging economic news appeared on all fronts. The ISM Services index, tracking the sector that employs over 85% of our workforce, reached its highest level since 2005. ISM Manufacturing also hit a multi-year high. Meanwhile, inflation measured by Core PCE Prices, was up just 0.1% in January and 0.8% the past year, well within the Fed's acceptable range. Then Friday we had the February Employment Report with 192,000 new jobs overall. The private sector contributed 222,000 jobs, its 12th monthly gain in a row. And the unemployment rate unexpectedly dropped again, this time to 8.9%!
For the week, the Dow ended up 0.3%, at 12,170; the S&P 500 was up 0.1%, to 1,321; and the Nasdaq was up 0.1%, ending at 2,785.
Bond prices were hurt by the improving economic data, but went back up as a result of the safe-haven buying driven by continuing tensions in the Middle East and rising oil prices. The FNMA 4.0% bond we watch ended down slightly for the week, closing at $98.14. Mortgage rates dropped for the third week in a row according to Freddie Mac's weekly survey of conforming mortgages. But buyers should note that these low rates will not last forever, as the improving employment picture will eventually edge them back up.
DID YOU KNOW?...The median home price is the midpoint price for all homes sold. 50% of selling prices were above it, 50% were below. It is less biased than the average home price, which can be skewed upward by a few high-priced homes.
>> This Week’s Forecast
WHAT'S UP WITH THE CONSUMER?...Frankly, it's a pretty quiet week for economic news, but there are a few significant readings on the state of the consumer at the very end. Friday we see February's Retail Sales reports, which are expected to show continued growth, both with and without auto sales included. The University of Michigan Consumer Sentiment Index should show consumer confidence holding pretty steady. Thursday, you'll want to take note of Initial and Continuing Jobless Claims, as jobs remain key to the economic and housing market recovery.
Alan R. Felch
214-683-1770
homeloanapproval.com
INFO THAT HITS US WHERE WE LIVE...We should be especially careful to not erect barriers to our progress just because of a minor setback, like the one we had with last week's Pending Home Sales. The National Association of Realtors (NAR) index of signed contracts on existing homes slipped in January for the second month in a row. But the drop wasn't as bad as expected and, as the NAR's chief economist said: "We should not expect the recovery to be in a straight upward path--it will zig-zag at times."
The latest NAR overall forecast gave an interesting picture of that recovery. Existing home sales should grow 8.1% this year and another 5.2% in 2012, with the median price essentially flat in 2011 before gaining over 3% next year. New home sales are forecast up about 5% this year, then up over 55% for 2012, with the median price up a bit in 2011, then up 3.5% next year. Fannie Mae's latest National Housing Survey reported that the vast majority of people believe housing prices will hold firm in 2011 and that Hispanics, African-Americans and Generation Y (18–34 years old) are more positive than other Americans about homeownership.
BUSINESS TIP OF THE WEEK...Do you know what's the most precious commodity in business? Time! Return calls and e-mails immediately, deliver what clients want sooner than they expect and you'll enhance your competitive edge.
>> Review of Last Week
SQUEAKING HIGHER...Investors who were worried about oil prices hitting two-year highs amidst Libyan turmoil sent stocks down Tuesday. But economic data continued to portray a steady if slow recovery. So stocks shot back up Thursday by enough to put all three indexes ahead for the week, even after dipping a bit on Friday.
Encouraging economic news appeared on all fronts. The ISM Services index, tracking the sector that employs over 85% of our workforce, reached its highest level since 2005. ISM Manufacturing also hit a multi-year high. Meanwhile, inflation measured by Core PCE Prices, was up just 0.1% in January and 0.8% the past year, well within the Fed's acceptable range. Then Friday we had the February Employment Report with 192,000 new jobs overall. The private sector contributed 222,000 jobs, its 12th monthly gain in a row. And the unemployment rate unexpectedly dropped again, this time to 8.9%!
For the week, the Dow ended up 0.3%, at 12,170; the S&P 500 was up 0.1%, to 1,321; and the Nasdaq was up 0.1%, ending at 2,785.
Bond prices were hurt by the improving economic data, but went back up as a result of the safe-haven buying driven by continuing tensions in the Middle East and rising oil prices. The FNMA 4.0% bond we watch ended down slightly for the week, closing at $98.14. Mortgage rates dropped for the third week in a row according to Freddie Mac's weekly survey of conforming mortgages. But buyers should note that these low rates will not last forever, as the improving employment picture will eventually edge them back up.
DID YOU KNOW?...The median home price is the midpoint price for all homes sold. 50% of selling prices were above it, 50% were below. It is less biased than the average home price, which can be skewed upward by a few high-priced homes.
>> This Week’s Forecast
WHAT'S UP WITH THE CONSUMER?...Frankly, it's a pretty quiet week for economic news, but there are a few significant readings on the state of the consumer at the very end. Friday we see February's Retail Sales reports, which are expected to show continued growth, both with and without auto sales included. The University of Michigan Consumer Sentiment Index should show consumer confidence holding pretty steady. Thursday, you'll want to take note of Initial and Continuing Jobless Claims, as jobs remain key to the economic and housing market recovery.
Alan R. Felch
214-683-1770
homeloanapproval.com
Monday, February 21, 2011
The Market Week
>> Market Update
Quote of the week... "I've been blamed for just about everything that's wrong with this country."--Elvis Presley
INFO THAT HITS US WHERE WE LIVE... We who work in the real estate and mortgage industries know exactly how Elvis felt. The same people who unfairly blamed us totally for the recession now look to us alone for signs the economic recovery has taken hold. They might want to remember the health of the housing market is directly dependent on the health of the jobs market, which is not under our control. In any case, everyone felt better last week when January Housing Starts were UP a surprising 14.6%. Even though starts are down 2.6% from a year ago, this still shows builders are more hopeful going forward. The boost came from multi-family units, though single-family starts were off a mere 1% for the month.
A lot of home buying activity is due to the affordability now out there. The National Association of Home Builders (NAHB) and a major bank reported their index shows home affordability in Q4 of 2010 at its highest level in 20 years. Their measure found that 73.9% of the new and existing homes sold in Q4 were affordable to families making the national median income of $64,400.
Business tip of the week... A big part of success is not giving up. Studies show that one trait shared by all very successful people is perseverance. They are persistent, determined, tenacious, pursuing a goal far beyond the point where the average person gets discouraged.
>> Review of Last Week
THE BULLS KEEP CHARGING... It's not like the running of the bulls at Pamplona just yet, but the bulls on Wall Street are definitely picking up steam. We had another weekly gain in the stock market as the three major indexes were up around 1% and the Dow and the S&P 500 hit new two-year highs. The Nasdaq reached a three-year high, just short of its 2007 peak. If the stock markets are a leading indicator of the overall economy, the recovery should pick up steam as the year goes on.
There were worries over rising Chinese interest rates and disruptions in the Middle East, but these were dispelled by the economic reports. The consumer is key to the recovery, so it was good to see retail sales are now UP seven months in a row. Inflation was a little hotter than expected, as year-over-year, the Core Consumer Price Index is now up 1.0%. Core CPI, the Fed's key inflation reading, is still within their target range and observers feel deflation concerns are now put to rest.
In other news, the Empire State Index showed manufacturing continuing to expand. This is great, though the jobs recovery depends on the services sector, where over 85% of the workforce is employed. Fortunately, that sector is expanding at its fastest pace in five years. Let's hope the jobs follow.
For the week, the Dow ended UP 1.0%, at 12,391; the S&P 500 was also UP 1.0%, to 1,329; and the Nasdaq went UP 0.9%, ending at 2,834.
Even with the stock surge, bond prices held on. Inflation was a little hotter than expected, but still tame. The FNMA 4.0% bond we watch ended up 18 basis points for the week, closing at $97.18. Mortgage rates, which had been inching up, fell back a bit. Freddie Mac's weekly survey of conforming mortgages showed national average fixed-rate mortgage rates remained near historic lows.
>> This Week’s Forecast
JANUARY HOME SALES, CONSUMER MINDSET, Q4 GDP... Happy Presidents Day! The markets will be closed Monday but then we'll have some important economic reports. January Existing Homes Sales on Wednesday are expected to be a tad off December's pace. The same goes for January New Home Sales on Thursday.
The week begins and ends with readings on the consumer mindset. Tuesday's Consumer Confidence is forecast up for February while Friday's Michigan Consumer Sentiment should hold steady. January Durable Goods Orders are predicted to be growing again, a sign business is investing in capital equipment and, perhaps next, in jobs. Friday, we get the second estimate of Q4 GDP, expected to be up a bit from the original estimate.
>> The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.
Economic Calendar for the Week of February 21 – February 25
Date Time (ET) Release For Consensus Prior Impact
Tu
Feb 22 10:00 Consumer Confidence Feb 67.0 65.6 Moderate
W
Feb 23 10:00 Existing Home Sales Jan 5.23M 5.28M Moderate
Th
Feb 24 08:30 Durable Goods Orders Jan 3.0% –2.3% Moderate
Th
Feb 24 08:30 Initial Unemployment Claims 2/19 410K 410K Moderate
Th
Feb 24 08:30 Continuing Unemployment Claims 2/12 3.900M 3.911M Moderate
Th
Feb 24 10:00 New Home Sales Jan 310K 329K Moderate
Th
Feb 24 11:00 Crude Inventories 2/19 NA 0.86M Moderate
F
Feb 25 08:30 GDP – Second Estimate Q4 3.3% 3.2% Moderate
F
Feb 25 08:30 GDP Deflator – Second Estimate Q4 0.3% 0.3% Moderate
F
Feb 25 09:55 U. of Michigan Consumer Sentiment – Final Feb 75.1 75.1 Moderate
>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months You hear a lot more experts now disagreeing with Fed policy, including some Fed members. But Fed Chairman Bernanke seems determined to keep the Funds Rate at its rock bottom level until we see stronger signs of economic growth and jobs recovery. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.
Current Fed Funds Rate: 0%–0.25%
After FOMC meeting on: Consensus
Mar 15 0%–0.25%
Apr 27 0%–0.25%
Jun 22 0%–0.25%
Probability of change from current policy:
After FOMC meeting on: Consensus
Mar 15 <1%
Apr 27 <1%
Jun 22 2%
Quote of the week... "I've been blamed for just about everything that's wrong with this country."--Elvis Presley
INFO THAT HITS US WHERE WE LIVE... We who work in the real estate and mortgage industries know exactly how Elvis felt. The same people who unfairly blamed us totally for the recession now look to us alone for signs the economic recovery has taken hold. They might want to remember the health of the housing market is directly dependent on the health of the jobs market, which is not under our control. In any case, everyone felt better last week when January Housing Starts were UP a surprising 14.6%. Even though starts are down 2.6% from a year ago, this still shows builders are more hopeful going forward. The boost came from multi-family units, though single-family starts were off a mere 1% for the month.
A lot of home buying activity is due to the affordability now out there. The National Association of Home Builders (NAHB) and a major bank reported their index shows home affordability in Q4 of 2010 at its highest level in 20 years. Their measure found that 73.9% of the new and existing homes sold in Q4 were affordable to families making the national median income of $64,400.
Business tip of the week... A big part of success is not giving up. Studies show that one trait shared by all very successful people is perseverance. They are persistent, determined, tenacious, pursuing a goal far beyond the point where the average person gets discouraged.
>> Review of Last Week
THE BULLS KEEP CHARGING... It's not like the running of the bulls at Pamplona just yet, but the bulls on Wall Street are definitely picking up steam. We had another weekly gain in the stock market as the three major indexes were up around 1% and the Dow and the S&P 500 hit new two-year highs. The Nasdaq reached a three-year high, just short of its 2007 peak. If the stock markets are a leading indicator of the overall economy, the recovery should pick up steam as the year goes on.
There were worries over rising Chinese interest rates and disruptions in the Middle East, but these were dispelled by the economic reports. The consumer is key to the recovery, so it was good to see retail sales are now UP seven months in a row. Inflation was a little hotter than expected, as year-over-year, the Core Consumer Price Index is now up 1.0%. Core CPI, the Fed's key inflation reading, is still within their target range and observers feel deflation concerns are now put to rest.
In other news, the Empire State Index showed manufacturing continuing to expand. This is great, though the jobs recovery depends on the services sector, where over 85% of the workforce is employed. Fortunately, that sector is expanding at its fastest pace in five years. Let's hope the jobs follow.
For the week, the Dow ended UP 1.0%, at 12,391; the S&P 500 was also UP 1.0%, to 1,329; and the Nasdaq went UP 0.9%, ending at 2,834.
Even with the stock surge, bond prices held on. Inflation was a little hotter than expected, but still tame. The FNMA 4.0% bond we watch ended up 18 basis points for the week, closing at $97.18. Mortgage rates, which had been inching up, fell back a bit. Freddie Mac's weekly survey of conforming mortgages showed national average fixed-rate mortgage rates remained near historic lows.
>> This Week’s Forecast
JANUARY HOME SALES, CONSUMER MINDSET, Q4 GDP... Happy Presidents Day! The markets will be closed Monday but then we'll have some important economic reports. January Existing Homes Sales on Wednesday are expected to be a tad off December's pace. The same goes for January New Home Sales on Thursday.
The week begins and ends with readings on the consumer mindset. Tuesday's Consumer Confidence is forecast up for February while Friday's Michigan Consumer Sentiment should hold steady. January Durable Goods Orders are predicted to be growing again, a sign business is investing in capital equipment and, perhaps next, in jobs. Friday, we get the second estimate of Q4 GDP, expected to be up a bit from the original estimate.
>> The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.
Economic Calendar for the Week of February 21 – February 25
Date Time (ET) Release For Consensus Prior Impact
Tu
Feb 22 10:00 Consumer Confidence Feb 67.0 65.6 Moderate
W
Feb 23 10:00 Existing Home Sales Jan 5.23M 5.28M Moderate
Th
Feb 24 08:30 Durable Goods Orders Jan 3.0% –2.3% Moderate
Th
Feb 24 08:30 Initial Unemployment Claims 2/19 410K 410K Moderate
Th
Feb 24 08:30 Continuing Unemployment Claims 2/12 3.900M 3.911M Moderate
Th
Feb 24 10:00 New Home Sales Jan 310K 329K Moderate
Th
Feb 24 11:00 Crude Inventories 2/19 NA 0.86M Moderate
F
Feb 25 08:30 GDP – Second Estimate Q4 3.3% 3.2% Moderate
F
Feb 25 08:30 GDP Deflator – Second Estimate Q4 0.3% 0.3% Moderate
F
Feb 25 09:55 U. of Michigan Consumer Sentiment – Final Feb 75.1 75.1 Moderate
>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months You hear a lot more experts now disagreeing with Fed policy, including some Fed members. But Fed Chairman Bernanke seems determined to keep the Funds Rate at its rock bottom level until we see stronger signs of economic growth and jobs recovery. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.
Current Fed Funds Rate: 0%–0.25%
After FOMC meeting on: Consensus
Mar 15 0%–0.25%
Apr 27 0%–0.25%
Jun 22 0%–0.25%
Probability of change from current policy:
After FOMC meeting on: Consensus
Mar 15 <1%
Apr 27 <1%
Jun 22 2%
Monday, February 14, 2011
Market Update
>> Market Update
INFO THAT HITS US WHERE WE LIVE... Last Thursday the National Association of Realtors (NAR) came through with the encouraging report that sales of existing single-family homes and condominiums in Q4 of 2010 increased over Q3 in 49 out of 50 states -- a 15.4% rise for the three-month period. However, sales were down 4.78% for the year, to an estimated 4.91 million, from their 5.16 million level the year before. Fueled by the homebuyer tax credit, that higher 2009 sales rate was deemed "unsustainable" in 2010 by the NAR.
Home prices, on the other hand, appear to be stabilizing. The NAR revealed that the national median existing single-family home price in Q4 of 2010 stayed essentially flat versus Q4 a year ago, coming in at $170,600. Here's a good sign that prices are beginning to climb off the bottom: median prices in Q4 of 2010 rose in 78 of 152 metro areas compared to Q4 a year ago. The NAR's chief economist added the pleasant thought, "An improving housing market and job growth will go hand in hand. The housing recovery will mean faster job growth." Let's hope he's right!
>> Review of Last Week
BULLS STILL IN CHARGE... The Wall Street bulls aren't yet on a charge, but they're definitely in charge, as they sent stocks higher for another week. The Dow-Jones Industrial Average stayed above the 12,000 threshold it crossed the prior week, the broadly-based S&P 500 shot up 1.4% and the tech-heavy Nasdaq saw a 3.1% gain, which would be impressive in any economic environment. Investors are feeling better about the economy, even though last week included some things which certainly would cause economic worry in more bearish settings.
We can start with Egypt, which was all over the news media, but had little visibility to the investment community. Before the market closed Friday, President Mubarek stepped down, as stocks tapered off with a 44-point gain on the day. We also had China increasing its lending rates to slow down inflation and its economy. Here on our shores tech giant Cisco surprised analysts with a disappointing outlook. Their downside guidance came because they see pressure on their profit margins in the coming year.
The Cisco situation was especially interesting in light of the fact that the main impetus for the strongly upside week came from some compelling corporate news. Walt Disney reported upside results that sent its stock to a record high. Coca-Cola met its earnings estimates on very strong volume growth. 3M boosted its quarterly dividend by 5% and told of a $7 billion share repurchase plan. A sparse week of economic indicators was highlighted by December's trade report showing imports UP 12.8% and exports UP 13.7% in the last year. We also had initial jobless claims dropping to 383,000, their lowest level since July 2008, while continuing claims fell to 3.89 million. University of Michigan Consumer Sentiment showed an increase over the prior month.
For the week, the Dow ended UP 1.5%, at 12,273; the S&P 500 was UP 1.4%, to 1,329; and the Nasdaq shot UP 3.1%, ending at 2,809.
INFO THAT HITS US WHERE WE LIVE... Last Thursday the National Association of Realtors (NAR) came through with the encouraging report that sales of existing single-family homes and condominiums in Q4 of 2010 increased over Q3 in 49 out of 50 states -- a 15.4% rise for the three-month period. However, sales were down 4.78% for the year, to an estimated 4.91 million, from their 5.16 million level the year before. Fueled by the homebuyer tax credit, that higher 2009 sales rate was deemed "unsustainable" in 2010 by the NAR.
Home prices, on the other hand, appear to be stabilizing. The NAR revealed that the national median existing single-family home price in Q4 of 2010 stayed essentially flat versus Q4 a year ago, coming in at $170,600. Here's a good sign that prices are beginning to climb off the bottom: median prices in Q4 of 2010 rose in 78 of 152 metro areas compared to Q4 a year ago. The NAR's chief economist added the pleasant thought, "An improving housing market and job growth will go hand in hand. The housing recovery will mean faster job growth." Let's hope he's right!
>> Review of Last Week
BULLS STILL IN CHARGE... The Wall Street bulls aren't yet on a charge, but they're definitely in charge, as they sent stocks higher for another week. The Dow-Jones Industrial Average stayed above the 12,000 threshold it crossed the prior week, the broadly-based S&P 500 shot up 1.4% and the tech-heavy Nasdaq saw a 3.1% gain, which would be impressive in any economic environment. Investors are feeling better about the economy, even though last week included some things which certainly would cause economic worry in more bearish settings.
We can start with Egypt, which was all over the news media, but had little visibility to the investment community. Before the market closed Friday, President Mubarek stepped down, as stocks tapered off with a 44-point gain on the day. We also had China increasing its lending rates to slow down inflation and its economy. Here on our shores tech giant Cisco surprised analysts with a disappointing outlook. Their downside guidance came because they see pressure on their profit margins in the coming year.
The Cisco situation was especially interesting in light of the fact that the main impetus for the strongly upside week came from some compelling corporate news. Walt Disney reported upside results that sent its stock to a record high. Coca-Cola met its earnings estimates on very strong volume growth. 3M boosted its quarterly dividend by 5% and told of a $7 billion share repurchase plan. A sparse week of economic indicators was highlighted by December's trade report showing imports UP 12.8% and exports UP 13.7% in the last year. We also had initial jobless claims dropping to 383,000, their lowest level since July 2008, while continuing claims fell to 3.89 million. University of Michigan Consumer Sentiment showed an increase over the prior month.
For the week, the Dow ended UP 1.5%, at 12,273; the S&P 500 was UP 1.4%, to 1,329; and the Nasdaq shot UP 3.1%, ending at 2,809.
Monday, January 24, 2011
Home Sales and Rate Trends
>> Market Update
INFO THAT HITS US WHERE WE LIVE... Thursday saw Existing Home Sales shoot up 12.3% in December, to an annual rate of 5.28 million, well ahead of the 4.87 million rate the consensus expected. Overall, existing home sales are off 2.9% compared to a year ago, but that's when sales were artificially boosted by the homebuyer tax credits. All regions showed sales gains in single family homes, condos and coops.
The supply of existing homes dropped to 8.1 months from 9.5 months in November. The pace of existing home sales is up 38% since July and sales are now only around 5% off the long-term trend, which has been a 5.5 million annual pace. All this has happened without government tax credit support. Smart buyers don't want to miss out on housing affordability that's at its highest level in 40 years.
Earlier in the week we saw housing starts drop 4.3% for December to a 529,000 unit annual rate. But colder temperatures and more snow than usual slowed starts in many parts of the country. Home completions actually increased for the month, while building permits shot up a strong 16.7%, to a 635,000 annual rate. We're not out of the woods yet, as permits are off 6.8% from a year ago and starts are down 8.2% compared to last year.
>> Review of Last Week
SHORT WEEK FALLS SHORT... The holiday shortened week ended its four days of trading with only the Dow ahead, the S&P 500 and the Nasdaq both dropping a bit. What bothered investors were some Q4 corporate earnings that fell short, plus more worries that China will hike its interest rates to cool down an overheating economy, already growing at about a 10% annual rate.
Earnings disappointments included a couple of the big financials, although three others in the sector beat expectations. Beyond that, General Electric, IBM, and Google all reported strong, better than expected Q4 earnings. GE even went so far as to forecast increasing profits in the years ahead. Apple then showed up to hit the ball out of the park with Q4 revenues up 70.5% year over year, blowing estimates out of the water with ease. But it was unfortunate to learn that Apple CEO Steve Jobs is taking another indefinite leave to deal with health challenges.
The Empire State Index, which gauges manufacturing in New York, grew to 11.9 in January from 9.9 the previous month, reflecting manufacturing gains across the country. New weekly unemployment claims dropped by 37,000, putting the four-week moving average at 412,000, its lowest level since July 2008. Meanwhile, continuing claims dropped to 3.86 million, their lowest number since October 2008. The Philadelphia Fed Index of manufacturing activity in that region was down in January, but the Leading Economic Indicators (LEI) index was up, better than expected.
For the week, the Dow ended up 0.7%, at 11872; the S&P 500 was off 0.8%, to 1283; and the Nasdaq dropped 2.4%, ending at 2690.
Bonds were under pressure last week, with yields going up as prices headed down. The FNMA 4.0% bond we watch ended down 83 basis points for the week, closing at $98.31. According to Freddie Mac's weekly survey of conforming mortgages, average fixed-rate mortgage rates changed little, remaining at super low levels. Tame inflation is the reason, with core consumer prices compared to December 2009 up a paltry 0.8%, their smallest yearly gain since 1958.
>> This Week’s Forecast
THE FED, PLUS OUR FAVORITE TOPIC... There's another Fed meeting this week to grab everyone's attention, but no one expects a hike in the Funds Rate quite yet. The FOMC statement will be closely examined to see how the nation's central bank views our economic recovery. The housing part of that recovery will also be covered with Wednesday's December New Home Sales, expected to be up slightly from the prior month. But Thursday's Pending Home Sales for November should be down slightly for existing homes.
The week is bookended with readings on the consumer. Tuesday's Consumer Confidence and Friday's Michigan Consumer Sentiment are both forecast to be improving in January. Finally, we close the week with the advanced Q4 GDP number, expected to come in at a solid 3.8% annual growth rate.
>> The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.
Economic Calendar for the Week of January 24 – January 28
Date Time (ET) Release For Consensus Prior Impact
Tu
Jan 25 10:00 Consumer Confidence Jan 53.5 52.5 Moderate
W
Jan 26 10:00 New Home Sales Dec 300K 290K Moderate
W
Jan 26 10:30 Crude Inventories 1/22 NA 2.62M Moderate
W
Jan 26 14:15 FOMC Rate Decision 1/26 0%-0.25% 0%-0.25% HIGH
Th
Jan 27 08:30 Initial Unemployment Claims 1/22 408K 404K Moderate
Th
Jan 27 08:30 Continuing Unemployment Claims 1/22 3.835M 3.861M Moderate
Th
Jan 27 08:30 Durable Goods Orders Dec 1.5% -0.3% Moderate
Th
Jan 27 10:00 Pending Home Sales Nov -0.5% 3.5% Moderate
F
Jan 28 08:30 GDP-Adv. Q4 3.8% 2.6% Moderate
F
Jan 28 11:00 GDP Chain Deflator-Adv. Q4 1.6% 2.1% Moderate
F
Jan 28 08:30 Employment Cost Index Q4 0.4% 0.4% HIGH
F
Jan 28 08:30 Univ. of Michigan Consumer Sentiment-Final Jan 73.0 72.7 Moderate
>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months Rumblings have begun that the Fed is sure to hike the Funds Rate in the second half of the year. But with inflation still well under control, economists do not expect any rate increases for the next few months. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.
Current Fed Funds Rate: 0%–0.25%
After FOMC meeting on: Consensus
Jan 26 0%–0.25%
Mar 15 0%–0.25%
Apr 27 0%–0.25%
Probability of change from current policy:
After FOMC meeting on: Consensus
Jan 26 <1%
Mar 15 <1%
Apr 27 <1%
INFO THAT HITS US WHERE WE LIVE... Thursday saw Existing Home Sales shoot up 12.3% in December, to an annual rate of 5.28 million, well ahead of the 4.87 million rate the consensus expected. Overall, existing home sales are off 2.9% compared to a year ago, but that's when sales were artificially boosted by the homebuyer tax credits. All regions showed sales gains in single family homes, condos and coops.
The supply of existing homes dropped to 8.1 months from 9.5 months in November. The pace of existing home sales is up 38% since July and sales are now only around 5% off the long-term trend, which has been a 5.5 million annual pace. All this has happened without government tax credit support. Smart buyers don't want to miss out on housing affordability that's at its highest level in 40 years.
Earlier in the week we saw housing starts drop 4.3% for December to a 529,000 unit annual rate. But colder temperatures and more snow than usual slowed starts in many parts of the country. Home completions actually increased for the month, while building permits shot up a strong 16.7%, to a 635,000 annual rate. We're not out of the woods yet, as permits are off 6.8% from a year ago and starts are down 8.2% compared to last year.
>> Review of Last Week
SHORT WEEK FALLS SHORT... The holiday shortened week ended its four days of trading with only the Dow ahead, the S&P 500 and the Nasdaq both dropping a bit. What bothered investors were some Q4 corporate earnings that fell short, plus more worries that China will hike its interest rates to cool down an overheating economy, already growing at about a 10% annual rate.
Earnings disappointments included a couple of the big financials, although three others in the sector beat expectations. Beyond that, General Electric, IBM, and Google all reported strong, better than expected Q4 earnings. GE even went so far as to forecast increasing profits in the years ahead. Apple then showed up to hit the ball out of the park with Q4 revenues up 70.5% year over year, blowing estimates out of the water with ease. But it was unfortunate to learn that Apple CEO Steve Jobs is taking another indefinite leave to deal with health challenges.
The Empire State Index, which gauges manufacturing in New York, grew to 11.9 in January from 9.9 the previous month, reflecting manufacturing gains across the country. New weekly unemployment claims dropped by 37,000, putting the four-week moving average at 412,000, its lowest level since July 2008. Meanwhile, continuing claims dropped to 3.86 million, their lowest number since October 2008. The Philadelphia Fed Index of manufacturing activity in that region was down in January, but the Leading Economic Indicators (LEI) index was up, better than expected.
For the week, the Dow ended up 0.7%, at 11872; the S&P 500 was off 0.8%, to 1283; and the Nasdaq dropped 2.4%, ending at 2690.
Bonds were under pressure last week, with yields going up as prices headed down. The FNMA 4.0% bond we watch ended down 83 basis points for the week, closing at $98.31. According to Freddie Mac's weekly survey of conforming mortgages, average fixed-rate mortgage rates changed little, remaining at super low levels. Tame inflation is the reason, with core consumer prices compared to December 2009 up a paltry 0.8%, their smallest yearly gain since 1958.
>> This Week’s Forecast
THE FED, PLUS OUR FAVORITE TOPIC... There's another Fed meeting this week to grab everyone's attention, but no one expects a hike in the Funds Rate quite yet. The FOMC statement will be closely examined to see how the nation's central bank views our economic recovery. The housing part of that recovery will also be covered with Wednesday's December New Home Sales, expected to be up slightly from the prior month. But Thursday's Pending Home Sales for November should be down slightly for existing homes.
The week is bookended with readings on the consumer. Tuesday's Consumer Confidence and Friday's Michigan Consumer Sentiment are both forecast to be improving in January. Finally, we close the week with the advanced Q4 GDP number, expected to come in at a solid 3.8% annual growth rate.
>> The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.
Economic Calendar for the Week of January 24 – January 28
Date Time (ET) Release For Consensus Prior Impact
Tu
Jan 25 10:00 Consumer Confidence Jan 53.5 52.5 Moderate
W
Jan 26 10:00 New Home Sales Dec 300K 290K Moderate
W
Jan 26 10:30 Crude Inventories 1/22 NA 2.62M Moderate
W
Jan 26 14:15 FOMC Rate Decision 1/26 0%-0.25% 0%-0.25% HIGH
Th
Jan 27 08:30 Initial Unemployment Claims 1/22 408K 404K Moderate
Th
Jan 27 08:30 Continuing Unemployment Claims 1/22 3.835M 3.861M Moderate
Th
Jan 27 08:30 Durable Goods Orders Dec 1.5% -0.3% Moderate
Th
Jan 27 10:00 Pending Home Sales Nov -0.5% 3.5% Moderate
F
Jan 28 08:30 GDP-Adv. Q4 3.8% 2.6% Moderate
F
Jan 28 11:00 GDP Chain Deflator-Adv. Q4 1.6% 2.1% Moderate
F
Jan 28 08:30 Employment Cost Index Q4 0.4% 0.4% HIGH
F
Jan 28 08:30 Univ. of Michigan Consumer Sentiment-Final Jan 73.0 72.7 Moderate
>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months Rumblings have begun that the Fed is sure to hike the Funds Rate in the second half of the year. But with inflation still well under control, economists do not expect any rate increases for the next few months. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.
Current Fed Funds Rate: 0%–0.25%
After FOMC meeting on: Consensus
Jan 26 0%–0.25%
Mar 15 0%–0.25%
Apr 27 0%–0.25%
Probability of change from current policy:
After FOMC meeting on: Consensus
Jan 26 <1%
Mar 15 <1%
Apr 27 <1%
Thursday, January 13, 2011
Things to Know About Buying Home
Things to know about buying a home now...
With the start of the new year, there's lots of talk about where home prices, mortgage rates and home sales in general are headed. If you're thinking about buying a home in the near future, here are some points to ponder:
Prices are now at all-time lows. According to the National Association of Realtors (NAR) housing affordability index, home prices are more affordable now than during any other time in our history going back to 1970. In addition, this time of year is especially good for buyers, because activity has slowed down. The school year in full swing and the holiday season cuts the number of active buyers, so sellers are especially motivated to make a deal.
It's a good time to buy if you plan to stay awhile. A home is still a good investment, just don't expect the house you buy today to deliver a big jump in value right away. The NAR's chief economist says, "Despite very attractive affordability conditions, a housing market recovery will likely be slow and gradual...." But if you plan to stay in your home more than a few years, your investment should beat inflation. According to Department of Labor statistics, for the ten years from 7/1/2000 to 6/30/2010, the average home increased in price 3.4% per year in the US. Inflation measured by the CPI (Consumer Price Index) went up 2.4% per year in the same period.
Mortgage rates are still at historic lows. National average mortgage rates are at their lowest levels in history. You may have heard about rates inching up a little lately, but "inching" is truly the operative word. National average mortgage rates are still below where they were at the start of last year. The important thing to remember is that lower rates increase your buying power by allowing you to qualify for a larger loan amount.
You're in the driver's seat. It's still a buyer's market, so many sellers are prepared to negotiate to close the sale and move on with their lives. Price and appliances for instance are all things that can be up for discussion – you just have to test the waters. But remember, when home prices stabilize and start to head up, sellers won't be in the same bargaining mood. At that point, sellers could regain the upper hand as buyers compete with each other to purchase before prices go up more.
Don't forget the tax benefits. Buying a home gives you some nice tax breaks. Interest on your mortgage and real estate taxes are both tax deductable. If you pay points to reduce your loan's interest rate, that money may also be deductible. Please consult with a tax advisor to find out how these deductions apply to your circumstances.
You want choice? Now you've got it! In many areas of the country, home buyers are feeling like kids in a candy store. There are many nice options to explore. Just don't get overwhelmed. Figure out what you want in a home, a neighborhood that's right and what you can afford to pay – then go enjoy the shopping experience.
It's easy to get started. The first thing to do is to get qualified for a mortgage. This tells you how much money a lender is willing to loan you, so you know exactly what you can afford. Being qualified also strengthens your position when making an offer because the seller knows you're a pre-approved borrower. Please contact us and we'd be happy to help you through this process.
There may never be a better time to buy. One thing's for sure, mortgage rates and home prices won't stay at these historic levels forever. When you find a home you fall in love with, don't let it get away. Remember, you want the best home, not just the best deal, and holding off on a purchase for things to improve, could lose you the home of your dreams.
Feel free to call or email us about these or any matters relating to home financing or refinancing. We're glad to talk further about any of these topics... Have a great day!
With the start of the new year, there's lots of talk about where home prices, mortgage rates and home sales in general are headed. If you're thinking about buying a home in the near future, here are some points to ponder:
Prices are now at all-time lows. According to the National Association of Realtors (NAR) housing affordability index, home prices are more affordable now than during any other time in our history going back to 1970. In addition, this time of year is especially good for buyers, because activity has slowed down. The school year in full swing and the holiday season cuts the number of active buyers, so sellers are especially motivated to make a deal.
It's a good time to buy if you plan to stay awhile. A home is still a good investment, just don't expect the house you buy today to deliver a big jump in value right away. The NAR's chief economist says, "Despite very attractive affordability conditions, a housing market recovery will likely be slow and gradual...." But if you plan to stay in your home more than a few years, your investment should beat inflation. According to Department of Labor statistics, for the ten years from 7/1/2000 to 6/30/2010, the average home increased in price 3.4% per year in the US. Inflation measured by the CPI (Consumer Price Index) went up 2.4% per year in the same period.
Mortgage rates are still at historic lows. National average mortgage rates are at their lowest levels in history. You may have heard about rates inching up a little lately, but "inching" is truly the operative word. National average mortgage rates are still below where they were at the start of last year. The important thing to remember is that lower rates increase your buying power by allowing you to qualify for a larger loan amount.
You're in the driver's seat. It's still a buyer's market, so many sellers are prepared to negotiate to close the sale and move on with their lives. Price and appliances for instance are all things that can be up for discussion – you just have to test the waters. But remember, when home prices stabilize and start to head up, sellers won't be in the same bargaining mood. At that point, sellers could regain the upper hand as buyers compete with each other to purchase before prices go up more.
Don't forget the tax benefits. Buying a home gives you some nice tax breaks. Interest on your mortgage and real estate taxes are both tax deductable. If you pay points to reduce your loan's interest rate, that money may also be deductible. Please consult with a tax advisor to find out how these deductions apply to your circumstances.
You want choice? Now you've got it! In many areas of the country, home buyers are feeling like kids in a candy store. There are many nice options to explore. Just don't get overwhelmed. Figure out what you want in a home, a neighborhood that's right and what you can afford to pay – then go enjoy the shopping experience.
It's easy to get started. The first thing to do is to get qualified for a mortgage. This tells you how much money a lender is willing to loan you, so you know exactly what you can afford. Being qualified also strengthens your position when making an offer because the seller knows you're a pre-approved borrower. Please contact us and we'd be happy to help you through this process.
There may never be a better time to buy. One thing's for sure, mortgage rates and home prices won't stay at these historic levels forever. When you find a home you fall in love with, don't let it get away. Remember, you want the best home, not just the best deal, and holding off on a purchase for things to improve, could lose you the home of your dreams.
Feel free to call or email us about these or any matters relating to home financing or refinancing. We're glad to talk further about any of these topics... Have a great day!
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