The Weekly Rap! Friday June 28th, 2013

US national Debt is $16,888,906,375.00 and climbing!  (http://www.usdebtclock.org/)

The bond market’s month-long plunge got a bit of a bounce back in the last couple days.  The Dow last traded at 14,987.  The S&P 500 is trading at 1,613.  Gold prices continued to slide this week shedding more than 13% since the start of June and are now down almost 30% since the beginning of the year, propelled lower in part due to investors’ concerns that the Fed will soon trim its $85 billion-a-month bond-buying program.  It’s trading are at $1,226 an ounce, while oil futures at $97.06 a barrel.  Gas prices, (Regular in El Dorado Hills, Costco, AM/PM), are at $3.65/Gal.

Yields on 10-year Treasury notes, which move inversely to prices, last traded at 2.52%.  30-year Treasury Bond yields last traded at 3.54%.  Rates on 30-year fixed-rate mortgages stayed a hair above 4% this week. Just a month ago, they were below 3.5%.  Since May 8th Fannie Mae MBS (Mortgage Backed Security) with 3% coupons has fallen nearly 7 points to their lowest levels in a year.  MBS yields are interest rates at which banks sell their loans into Fannie Mae and Freddie Mac bond programs. Rising yields mean higher consumer-mortgage rates.

The FNMA 30-year fixed 3.0% coupon, containing 3.75-4.125% mortgages, pretty much the benchmark or how rate sheets are priced these days  is currently trading at 100.375,.  Basically each percent change in the price of the security translates to the price (or points paid or credited) of the mortgage rate.  The higher the number (price), the better the rate.

In economic news this week;  The readers digest version is everything hinges on what the Fed will or will not do and when.  And the Fed Gods are creating more uncertainty in the market just by opening their mouths.  Every time one of them speaks the markets react.  Most of the selling in the last few weeks is from “program” trading: that is traders will put in sell orders below the market and when they are triggered it causes a domino effect.

Mortgage rates soared over the past week, after panic set in after the Fed suggested it could start tapering bond purchases this year, with 30-year fixed-rate mortgage rate hitting the highest level in almost two years. The average rate for the 30-year fixed-rate mortgage rose to 4.46% in the week ending June 27, the highest rate since July 2011, and up from 3.93% in the prior week, Freddie Mac said in its weekly report. The latest weekly result is also the first time the rate has reached above 4% since March 2012.

The central bank’s $85-billion-a-month bond-buying program has helped prop up stock prices and keep interest rates ultralow.  Bernanke said last week that the central bank would likely scale back its bond buying later this year and end the program when the unemployment rate was near 6%, perhaps by mid-year 2014.  The problem is that the Markets didn’t pay attention to the “ifs” in his statement and took it as fact that the Fed will be pulling back on accommodative policy. There is a big rule in securities trading; “Sell the rumor, and buy the fact.”  And the markets sold off big-time on the rumor.  There are some really big “ifs” in the Fed’s statement: Bernanke said the Fed “could begin” to taper its purchase of bonds later this year, “if the economy continues to improve” as Fed officials expect and “if everything goes well.”

The Fed expects the unemployment rate, now at 7.6%, to fall to as low as 6.5% by the end of 2014 and perhaps even dip below 6% in 2015.   Unless we get employment numbers above 250,000 every month for more than six months and GDP growth above 4.5% (currently less than 2%), this simply isn’t going to happen folks.  But markets trade on perception first and facts second.

A Federal Reserve official this morning opend his mouth saying that the central bank’s bond purchase program may be scaled back in September.  In a speech to the Council on Foreign Relations, Fed God Jeremy Stein used only September as the hypothetical start date for slowing the pace of purchases. Stern’s remarks indicate he is eyeing September for making a decision about changing the pace of purchases.  In his speech, Stein suggested markets should not to focus on fresh payroll numbers that come out just before the meeting, saying any decision by the Fed to slow the pace of its currently $85 billion-per-month asset-purchase program will be based on accumulated trends since the program started last fall, not the most recent data. Stein said the Fed didn’t want to be a “prisoner” of the market.

Markets are now pricing in more rate hikes than had been assumed before last week’s policy meeting and news conference by Bernanke. Fed fund futures imply at least three quarter-point rate hikes, and possibly four, by the end of 2015.  Earlier this week, Dallas Fed President Richard Fisher likened market participants to “feral hogs” for pushing bond yields higher.

The mood of U.S. consumers climbed to a five-year high in June, according to an index released Tuesday that showed expectations for the future climbing significantly.  The Conference Board’s consumer confidence index jumped to 81.4 in June, the best reading since January 2008 and up from 74.3 in May. The final June reading of the University of Michigan and Thomson Reuters consumer-sentiment index declined to 84.1 from a final May reading of 84.5. May’s reading was the highest since July 2007.

The U.S. economy grew slower in the first quarter than previously believed, mainly because of softer spending on consumer services such as health care, takeout food and travel.  Gross domestic product rose by just 1.8% in the January-to-March period, down from a prior estimate of 2.4%, the Commerce Department said in the last of three regular updates.  The reduced pace of growth in the first three months of 2013 calls into question the Fed’s assertion last week that the economy has improved significantly since last fall.

U.S. house prices saw the strongest monthly jump on record, while new-home sales reached a five-year high. Pending home sales jumped in May to reach a six-year high.  The NAR’s pending home sales index climbed 6.7% to 112.3 in May, from 105.2 in April. The index was up 12.1% from May 2012 levels.  In the Eldorado Hills to Shingle Springs area this year, listings have grown from 149 in January to 222 in May or 48%, while sales have gone from 70 to 147 in the same period.

If you know anyone who can benefit from my services, please call me.  My greatest goal is to see clients and friends happy.  I guess that’s why I love providing mortgage financing.  It’s an immediate gratification when you can help someone purchase a home, or lower their payment on their existing home.

Please visit my website at: http://bill.bartok.stanfordloans.com/agents/Blog

Sincerely,

Bill Bartok

Mortgage Advisor

NMLS# 445991

The Origins of Father’s Day

The campaign to celebrate the nation’s fathers did not meet with the same enthusiasm–perhaps because, as one florist explained, “fathers haven’t the same sentimental appeal that mothers have” or in other words people don’t send or buy flowers for fathers.  On July 5, 1908, a West Virginia church sponsored the nation’s first event explicitly in honor of fathers, a Sunday sermon in memory of the 362 men who had died in the previous December’s explosions at the Fairmont Coal Company mines in Monongah, but it was a one-time commemoration and not an annual holiday.

The next year, a Spokane, Washington woman named Sonora Smart Dodd, one of six children raised by a widower, tried to establish an official equivalent to Mother’s Day for male parents. She went to local churches, the YMCA, shopkeepers and government officials to drum up support for her idea, and she was successful: Washington State celebrated the nation’s first statewide Father’s Day on July 19, 1910.

Slowly, the holiday spread. In 1916, President Wilson honored the day by using telegraph signals to unfurl a flag in Spokane when he pressed a button in Washington, D.C. In 1924, President Calvin Coolidge urged state governments to observe Father’s Day.

However, many men continued to disdain the day. As one historian writes, they “scoffed at the holiday’s sentimental attempts to domesticate manliness with flowers and gift-giving, or they disparaged the proliferation of such holidays as a commercial gimmick to sell more products–often paid for by the father himself.”

I for one am just looking forward to spending the day with my family and maybe enjoying a nice juicy grilled T-bone Steak (½ NY Strip, ½ tenderloin) with a bourbon peppercorn cream sauce and a nice bottle of wine.

Bill

The Weekly Rap! Friday June 14th, 2013

US national Debt is $16,865,511,300.00 and climbing!  (http://www.usdebtclock.org/)

The bond market’s month-long plunge continues to keep long-term interest rates on mortgages and Treasurys at their highest levels in more than a year.  The Dow last traded at 15,052.  The S&P 500 is trading at 1,624.  Gold is trading higher at $1,387 an ounce, while oil futures at $97.97 a barrel.  Gas prices, (Regular in El Dorado Hills, Costco, AM/PM), are at $3.69/Gal.

Yields on 10-year Treasury notes, which move inversely to prices, last traded at 2.13%.  30-year Treasury Bond yields last traded at 3.30%.  Rates on 30-year fixed-rate mortgages stayed a hair above 4% this week. Just a month ago, they were below 3.5%.  Since May 8th Fannie Mae MBS (Mortgage Backed Security) with 3% coupons has fallen nearly 4 points to their lowest levels in a year.  MBS yields are interest rates at which banks sell their loans into Fannie Mae and Freddie Mac bond programs. Rising yields mean higher consumer-mortgage rates.

The FNMA 30-year fixed 3.0% coupon, containing 3.25-3.625% mortgages, pretty much the benchmark or how rate sheets are priced these days  is currently trading at 100.43, a tad better than where they were a week ago.  Basically each percent change in the price of the security translates to the price (or points paid or credited) of the mortgage rate.  The higher the number (price), the better the rate.

In economic news this week; The readers digest version is the economy continues to limp along with layoffs falling, inflation rising slightly, Retail Sales rising slightly, and consumer sentiment dropping.

The National Federation of Independent Business said its small-business “optimism” index rose 2.3 points to 94.4 in May, which also is the second-highest level since the recession. Of the 10 components, 8 rose, led by a 10-point jump in the “expect economy to improve” category, which still is a net negative 5%. When asked the top business problem, 24% cited taxes, 23% said regulations and red tape, 16% said weak sales and 2% said financing or access to credit.

On the unemployment front:  The number of people who applied for new regular state unemployment-insurance benefits fell 12,000 to 334,000 in the week ended June 8, reaching the lowest level since early May, pointing to a slower pace of layoffs.

On the inflation front:  Wholesale prices rose in May for the first time in three months, nudged up by higher costs of gasoline, fresh eggs (a record 41.6% jump in the price of eggs) and light trucks. The producer price index climbed 0.5% last month.  Excluding food and energy, core wholesale prices rose a much smaller 0.1%. The core rate is viewed by the Fed as a more useful gauge of underlying inflationary trends. A better measure of whether Americans are paying more for goods and services, the consumer price index, will be released next week.

Retail sales 0.6% rose in May, the fastest rate in three months, led by higher demand for autos, building materials and groceries. The details of the retail report though were somewhat mixed, in a sign of lingering softness in the American economy.  Gross domestic product is expected to expand less than 2% in the second quarter and the latest sales figures contain little evidence that growth is about to speed up.  The surge in May was largely driven by a snapback in auto sales, which generate about one-fifth of all retail spending.  Excluding autos, retail sales rose a smaller 0.3%.

Consumers are the main engine of economic growth and retail sales account for a big part of what they spend. The retail report usually offers clues on whether Americans are feeling confident enough about the economy to increase their spending. In the past year, retail sales have risen a solid but unspectacular 4.3%.

While we’re on the consumer; led by gloomier views on current conditions, a gauge of consumer sentiment declined this month, missing analysts’ expectations.  After hitting the highest level in almost six years in May, the University of Michigan and Thomson Reuters’s consumer-sentiment index fell to a June reading of 82.7 from a May reading of 84.5. Markets look at data on consumer sentiment for signals about spending.  According to the UMich report, a gauge of consumers’ views on current conditions dropped to 92.1 in June from 98 in May.  A decline in confidence is never good news, but to the extent it will dampen further some of the speculation about near-term Fed tapering, it could be good (temporarily) for the markets.

The U.S. government posted a budget deficit of $139 Billion in May.  Although expected to record a full-year deficit of less than $1 trillion for the first time since 2008, for the full 2013 fiscal year, the “nonpartisan” Congressional Budget Office is projecting a deficit of $642 Billion.  Now what do you want to bet that IF they ever get around to balancing the budget and maybe dare I say, have a surplus, they will just spend it rather than paying down the debt that our children will inherit.

I don’t understand why more people aren’t outraged over the actions of our politicians.  The entire nation should be worried and raising their voices over this.  Politicians beg for our support/vote, and as soon as they get to Washington the game changes and they forget that they represent the people that sent them there.  Large corporations may have written them big checks but the peoples votes are what ultimately got them elected.  Personally I think we should “sequester” (means they can’t leave by the way) our congressmen and representatives in a cheap hotel somewhere until they reach a budget agreement.

Bill Bartok

Mortgage Advisor  NMLS# 445991

The Weekly Rap! Friday June 7th, 2013

The bond market’s month-long plunge has pushed long-term interest rates on mortgages and Treasurys to their highest levels in more than a year.  The Dow last traded at 15,213.  The S&P 500 is trading at 1,6392.  Gold is trading higher at $1,383 an ounce, while oil futures at $96.23 a barrel.  Gas prices, (Regular in El Dorado Hills, Costco, AM/PM), are at $3.73/Gal.

Yields on 10-year Treasury notes, which move inversely to prices, last traded at 2.15%.  30-year Treasury Bond yields last traded at 3.31%.  Rates on 30-year fixed-rate mortgages stayed a hair above 4% this week. Just a month ago, they were below 3.5%.  Since May 8th Fannie Mae MBS (Mortgage Backed Security) with 3% coupons has fallen nearly 4 points to their lowest levels in a year.  MBS yields are interest rates at which banks sell their loans into Fannie Mae and Freddie Mac bond programs. Rising yields mean higher consumer-mortgage rates.

The FNMA 30-year fixed 3.0% coupon, containing 3.25-3.625% mortgages, pretty much the benchmark or how rate sheets are priced these days  is currently trading at 100.28, right where they were a week ago.  Basically each percent change in the price of the security translates to the price (or points paid or credited) of the mortgage rate.  The higher the number (price), the better the rate.

In economic news this week; The big news of the week is the employment report this morning.  The Fed’s stimulus has been a boon to financial markets, so traders have been on edge since Mr. Bernanke’s comments. Today’s report appears to have eased concern among stock investors that the central bank would soon pull back on stimulus as the Dow jumped 1.2% to reclaim the 15000 level.

U.S. employers added 175,000 jobs in May, maintaining the slow but steady gains of recent months and easing worries about a summer slowdown in the U.S. economy. The May payroll increase was in line with the average job gain of 172,000 over the past 12 months.  The unemployment rate rose slightly to 7.6% in May from 7.5% in April, as more people entered the workforce, the Labor Department reported this morning.  A broader measure of unemployment that includes discouraged workers and those forced to work part time was 13.8%.

The report likely keeps the Fed Gods on their current monetary-policy path as they contemplate pulling back on its on their $85-billion-a-month bond-buying program later this year.  Fed Chairman Ben Bernanke said last month that the central bank could start slowing its bond purchases at one of its “next few meetings” if the economy continues to improve.  Has anyone bothered to ask where the Fed is getting the $$$ to be purchasing 85 BILLION of bonds each month???

Construction spending rose a scant 0.4% in April.  Nonresidential construction spending, which includes projects such as health-care facilities, rose 0.7%, while residential construction spending fell 0.2%.  Supported by growing demand and low inventory, home prices continued to run ahead in April, with year-over-year growth hit the fastest pace in more than seven years. Including short sales and other distressed properties, home prices in April grew 3.2% during the month and were up 12.1% from the same period last year.

Businesses in the U.S. weren’t as productive in first quarter as originally believed and worker pay posted the biggest drop since 1947, as companies sought to avoid the full effect of a big tax increase that took effect in January. The growth in productivity from January to March was taken down a few pegs to 0.5% from 0.7%, according to newly revised figures from the Labor Department.  Adjusted for inflation, hourly wages sank 5.2% in the first quarter.

Apparently there is little evidence that cutbacks in federal government spending were slowing down the economy. The Beige Book data (because the report is printed on beige paper, seriously), with the report of steady growth may be one reason that Bernanke has suggested the central bank could reduce the pace of its bond-buying program in a “few” meetings, subject to the economic data.

The report said that manufacturing continued to expand in most districts. One area of some concern could be consumer spending.  Instead, the so-called Beige Book released by the Fed, covering the period from early April to late May, said the economy maintained the “modest to moderate” pace that has been in place so far this year.  The report showed that seven of the 12 districts reported only ”slight’ sales growth. Three reported modest or moderate gains. New York reported sales were tepid and Richmond said sales were flat. Residential housing and construction activity was either moderate or strong across the country. Reports about the labor market seemed more upbeat, with hiring “at a measured pace” in several districts and some contacts reporting difficulty in finding qualified workers.

Now here’s what really worries me: Since January 2009 the average growth rate in the economy has been at or below 2.0%.  The Dow has gone from 9,000 to 15,000 a 66% gain in the same time period.  Historically, from 1947 until 2013, the United States GDP Growth Rate averaged 3.2 Percent.  First Q GDP is estimated to be 2.4%.  Does this really warrant a stock market breaking all-time highs?  I begged the question earlier; has anyone bothered to ask where the Fed is getting the $$$ to be purchasing 85 BILLION of bonds each month?  If the Fed is attempting to slow their purchases of Billions each month in bonds, my guess is that it’s not because the economy is growing, it’s because they can’t continue to do it forever.  As we continue to print more $$$ the value of our currency will drop causing further problems.

The US can’t continue to run this way forever.  The more debt we incur (trillions each year) the more of each revenue dollar gets eaten up.  Just try running up your credit cards and see what happens.  This is a house of cards that could so easily fall.  As soon as the stock market realizes this it will correct, and when it does retirement and saving assets drop, consumers spend less, companies’ tighten, layoffs ensue and you have another recession or worse.  I’m not trying to be a gloom-sayer here, but am I the only one who sees this.  The US national Debt is almost 17 TRILLION and climbing with no signs of stopping.  The Fed has been trying to control something we call “free markets” in our capitalistic system, and this can only be “controlled” for some time and eventually it will return to its natural state.  Maybe this is a good thing.  We’ve had our rose colored glasses on for some time now and eventually they will either fall off or be ripped off.  But it probably will be the latter.

If you know anyone who can benefit from my services, please call me.  My greatest goal is to see clients and friends happy.  I guess that’s why I love providing mortgage financing.  It’s an immediate gratification when you can help someone purchase a home, or lower their payment on their existing home.

Bill Bartok

Mortgage Advisor

NMLS# 445991