The Weekly Rap! Friday Aug 30th, 2013

Good Friday morning:

The National Debt is currently: $16,920,033,360,537.00

The Dow last traded at 14,792.  The S&P 500 is trading at 1,632.  Gold is trading at $1,400 an ounce, while oil futures at $107.54 a barrel.  Gas prices, (Regular in El Dorado Hills, Costco, AM/PM), are at $3.49/Gal.

Yields on 10-year Treasury notes, which move inversely to prices, last traded at 2.76%.  30-year Treasury Bond yields last traded at 3.69%.  Rates on 30-year fixed-rate mortgages are a hair above 4.5% this week. 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 3.5% coupon, containing 3.75% – 4.125% mortgages, pretty much the benchmark or how rate sheets are priced these days is currently trading at $99.96, .75 points (or percent) better than we were last week as we continue to test the top of the current trading range (100).  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; It’s the beginning of a long Labor Day holiday weekend and the markets are very quiet with most month end trading behind us and most of the big traders already  heading out to the Hamptons to enjoy the last official summer holiday weekend.  News this morning was mixed and in some ways contradictory.  For instance, consumer income was flat but spending was down. You’d think that would signal lower consumer confidence, but it did not. Confidence was up for some strange reason.  Based on current market conditions, if I had purchase loans, I would not want to enter a three day weekend unlocked.

Orders for big-ticket goods sank 7.3% in July, mostly because of fewer contracts for jetliners and large military goods.  The retreat in orders, the first in four months, was expected after a steady increase in demand since spring. Still, the weak report underscores how slowly the manufacturing sector is expanding and suggests the economy entered the third quarter with little momentum.

The economy, Gross Domestic Product (GDP) rose at a 2.5% annual rate in the April-to-June period instead of an initial reading of 1.7%.  The revision was mainly because of an improved trade picture and higher demand for American-made goods and services. This is due to a devalued Dollar which makes our goods more attractive to foreign buyers.  But the Dollar has risen since which likely will reduce 3rd quarter GDP.  At 2.5% growth employment has no chance of expanding.  We would need to see a rate of about 6.00% for many quarters to see advancement in employment.  The U.S. is forecast to grow 2.4% in the third quarter and 2.8% in the fourth quarter.  The fact that growth has not surpassed 3% since the first quarter of 2012 remains troubling.  GDP is the broadest measure of an economy’s health, reflecting the value of all the goods and services a nation produces.

Home prices in June posted another month of growth, though the data signals some moderation.  With gains in cities across the country, home prices increased 2.2% in June, a strong result but down from 2.5% in May, according to the S&P/Case-Shiller gauge. Overall, the report shows that housing prices are rising but the pace may be slowing.  Overall, home prices remain about 23% below a bubble peak. However, the story varies widely by city.

Led by drops in most of the U.S. Pending sales, or contracts on homes, fell 1.3% in July, a second month of declines, as mortgage rates continued to rise.  Despite the recent drop, the pending-home sales gauge in July was up 6.7% from the year-earlier period, according to the National Association of Realtors.

American consumers grew slightly more optimistic in the waning days of summer as the effects of tax hikes earlier in the year continued to fade, according to the consumer confidence index which rose to 81.5 in August from 80.0 in July and nearly matched a five-year high.  Rising confidence is generally a good sign for the economy, but the index remains well below its historical norm. Readings usually top the 100 mark during an expansionary phase. Another gauge of consumer sentiment the University of Michigan/Thomson Reuters consumer-sentiment index declined to 82.1 August from 85.1 in July, which was the highest level since, on grimmer views of current and coming economic conditions. I guess it depends on which index you watch and whom they poll.

Americans barely increased spending in July, another indication that the economy got off to a slow start in the third quarter.  Consumer spending edged up 0.1% last month. The increase in spending matched the meager growth in personal income, which also rose a scant 0.1% in July.  Consumers account for more than two-thirds of U.S. economic activity. When Americans buy more goods and services, businesses generate higher sales and profits and can afford to hire extra workers. That puts more money into the economy and further boosts spending and growth.

On the employment front; Signaling that the pace of layoffs remains relatively slow, a trend of jobless claims recently stuck close to the lowest level in six years.  the number of people who applied last week for unemployment benefits declined by 6,000 to 331,000.

Bill Bartok

Mortgage Advisor

NMLS# 445991

The Weekly Rap! Friday Aug 23rd, 2013

The National Debt is currently: $16,911,552,058,827.00

The Dow last traded at 14,986.  The S&P 500 is trading at 1,660.  Gold is trading at $1,397 an ounce, while oil futures at $106.79 a barrel.  Gas prices, (Regular in El Dorado Hills, Costco, AM/PM), are at $3.47/Gal.

Yields on 10-year Treasury notes, which move inversely to prices, last traded at 2.83%.  30-year Treasury Bond yields last traded at 3.81%.  Rates on 30-year fixed-rate mortgages are a hair above 4.5% this week. 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 3.5% coupon, containing 3.75% – 4.125% mortgages, pretty much the benchmark or how rate sheets are priced these days is currently trading at $99.25, .375 points (or percent) better than we were last week as we continue to test the bottom of the current trading range.  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 reader’s digest version is the economy is still treading along and the Fed has to begin tapering off the bond purchases later this year (because they can’t keep doing this forever) and housing is taking a breather from the spring price increases.

The big news of the day was that sales of “new” homes dropped 13.4% to an annual rate of 394,000 in July, the lowest rate since October, as all four regions posted declines. Expectations were for sales to pull back in July to a rate of 485,000.  Looking longer-term, new-home sales in July were up 6.8% from the year-earlier period.

July’s “existing” home sales, according to the National Association of Realtors, rose 6.5% to an annual rate of 5.39 million, the highest level since late 2009, when buyers rushed to make a tax-credit deadline.  July’s spike could be due to buyers looking to purchase a home before mortgage rates rise further.  Mortgage rates have increased more than one percentage point since early May, though they still remain historically low.  The median price of a home was $213,500 in July, up 13.7% from the year-earlier level. Inventories rose 5.6% to 2.28 million homes available for sale, representing a 5.1-month supply at current sales rates. NAR added that all-cash deals remained high in July, while there were relatively few first-time buyers and distressed sales.

The Fed Gods agreed with their leader Ben Bernanke’s view that the economy will pick up later this year and allow the central bank to taper its asset purchase plan before the end of the year, according to last meeting’s minutes released Wednesday.  But they shied away from signaling when a move might come.  It’s expected that if economic conditions improve broadly, the Fed would taper the pace of its securities purchases later this year. And if economic conditions continue to develop broadly as anticipated, they would reduce the pace of purchases in measured steps and conclude the purchase program around the middle of 2014.

The U.S. continues to expand at a moderate if uneven pace with a chance that growth might speed up later in the year, according to the “Leading Economic Index” an index that measures the nation’s economic health. The LEI is a weighted gauge of 10 indicators designed to signal business-cycle peaks and valleys.  The index rose 0.6% in July to 96.0, the highest level in five years, after no change in June. Eight of the 10 components expanded in July, led by the spread on interest rates, availability of credit, stock prices and permits to build new homes.  The two categories to show declines were hours worked by manufacturing employees and business orders for long-lasting manufactured goods.

On the employment front; the number of people who applied last week for unemployment benefits rose to the highest level in a month but remained near a post-recession low.

The national activity index, a weighted average of 85 different economic indicators, produced by the Chicago Fed rose to a negative 0.15 reading in July from negative 0.23 in June, and the three-month average did virtually the same, rising to negative 0.15 from negative 0.24 in June. The index is designed so that readings of zero indicate trend growth, and readings below negative 0.70 indicate an increasing likelihood a recession has begun.

I read a great article this morning in the Wall Street Journal and I couldn’t have written a better rant so I’m just going to post the link to the article, “Fed tapering: The math investors need to know” It’s about just how overvalued the stock market is based on the Fed manipulating interest rates.  In a nutshell: Fed “tapering”, the winding down of “quantitative easing,” and the normalization of interest rates, changes absolutely everything in the markets.  Check it out.

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 Weekly Rap! Friday Aug 16th, 2013

 

The National Debt is currently: $16,902,974,130,678.00

The Dow last traded at 15,071.  The S&P 500 is trading at 1,655.  Gold is trading at $1,369 an ounce, while oil futures at $106.91 a barrel.  Gas prices, (Regular in El Dorado Hills, Costco, AM/PM), are at $3.57/Gal.

Yields on 10-year Treasury notes, which move inversely to prices, last traded at 2.84%.  30-year Treasury Bond yields last traded at 3.87%.  Rates on 30-year fixed-rate mortgages are a hair above 4.5% this week. 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 3.5% coupon, containing 3.75% – 4.125% mortgages, pretty much the benchmark or how rate sheets are priced these days  is currently trading at $98.875, 2.07 points (or percent) lower (or worse) than we were last week as we test the bottom of the current trading range.  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 how do we survive without the Fed’s “crack” feeding the Markets.  This will not end pretty.  The markets (stock and bond) are trading in reverse.  That is, they are moving higher on negative economic news because that means the Fed will continue buying bonds and stimulating the economy.  They should be moving higher on good news.  Strong economic growth should be good for stocks because they earn a higher return.  The current pattern suggests that when (not if) the Fed returns to normalcy, the stock market will correct.  And it won’t be pretty.

The Federal Government posted a budget deficit of $97.6 billion in July, a rise from the same month ago, though a rise in tax receipts may make the annual budget gap the smallest in five years.  In July, the government spent $297.6 billion and took in $200 billion in revenue. Including the July deficit, the budget gap for the first ten months of the 2013 fiscal year totaled $607.4 billion, down 38% from the same period a year ago.  Question; is this supposed to be good news?

Small-business “optimism” pretty much remained the same in July, helped by slight gains in the percentage of those planning to increase employment, those saying now’s a good time to expand and those expecting real sales to be higher. The National Federation of Independent Business said its small-business optimism index rose 0.6 points to 94.1, still half a point below the Dec. 2007 reading, when the U.S. entered recession. The report is based on the responses of 1,615 randomly sampled small businesses in NFIB’s membership.  I don’t know if there’s a “pessimism” index, but I show this because small business I think is a big component in the direction of growth.

Retail sales rose a sluggish 0.2% for the fourth straight month in July, and details of the report suggest some firming in consumer spending.  But most of the weakness was due to a steep drop in automobile sales after strong gains in May and June.  Excluding that category, retail sales rose 0.5%.  Consumer spending drives about two-thirds of demand in the U.S. economy.

Prices (inflation) at the wholesale level were unchanged in July, as prices declined for energy, didn’t change for food, and rose for pharmaceuticals. Meanwhile, the core producer-price index, which excludes food and energy, increased 0.1%.  The report signals that inflation was contained in July.  Weak international conditions have been pressuring prices.

Consumer prices rose 0.2% on gains for gasoline, housing, clothing and food, among other goods. Excluding energy and food, the “core” consumer-price index also rose 0.2%.  Consumer prices have increased 2% over the past 12 months, and the core has increased 1.7%.  While most traders (the Market) expect that the Fed could announce plans to taper its massive bond-buying program as early as September, there’s been some concern about inflation running too low.  Also, the government reported that inflation-adjusted average hourly earnings fell 0.2% in July. Real wages have declined 0.1% over the past 12 months.

On the employment front: Signaling a slower pace of layoffs, the number of people who applied for new jobless benefits fell 15,000 to 320,000 last week, hitting the lowest level of initial claims since October 2007. Continuing claims dropped 54,000 to a seasonally adjusted 2.97 million in the week that ended Aug. 3. Continuing claims reflect the number of people already receiving benefits.

Home-builder confidence rose in August to the highest level in nearly eight years, on gains in both current sales conditions and prospective ones. The National Association of Home Builders/Wells Fargo housing market index rose 3 points to 59, marking the fourth rise in a row.  Any reading above 50 is considered “good.” The component measuring current sales conditions rose 3 points to 62, the component measuring sales expectations in the next six months rose a point to 68, and the component measuring traffic of prospective buyers was unchanged at 45.

Consumer sentiment took a step back in August from post-recession highs after some leading retailers reported cautious spending by shoppers.  The preliminary August reading of the University of Michigan/Thomson Reuters consumer sentiment fell to a reading of 80.0 in August, down from 85.1 in July.  The outlook component fell to 72.9 in August from 76.5 in July, while current conditions dropped to 91.0 in August from 98.6 in July.  These levels are still quite weak on a historical basis even with the post-recession gains.

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

So just where is economy headed? The Fed and Wall Street economists seem upbeat about things. Are you?

I don’t enjoy writing about negative things, I mean who does, but sometimes you just have to put it out there.  Our media says we are in a “recovery” incessantly. We are told that because the stock market is rising, because housing is enjoying a few signs of life (at bankruptcy prices), and because cars are selling better than the terrible rate they sold at last year, that the U.S. economy is doing well. It’s my opinion that it’s a mirage.

Let’s see: While the economy has grown at a lackluster 2% (GDP), the stock market has doubled, the Federal budget is spending about 1 TRILLION dollars more than it’s taking in, The Fed is purchasing just over 1 TRILLION dollars in treasuries and mortgages per year in an attempt to stimulate growth, and we have an aging population.

The older population, persons 65 years or older, numbered 39.6 million in 2009.  They represented 12.9% of the U.S. population, about one in every eight Americans. By 2030, there will be about 72.1 million older persons, 19% of the population. A consistently older population over the age of 65 will put a severe strain on Federal programs such as Medicare and Social Security.

What worries me the most is that while some people have saved adequately for retirement, between one-fifth and two-thirds of today’s seniors haven’t saved enough, leaving them to rely heavily on Medicare and Social Security — programs that, along with Medicaid, now account for about 40 percent of all Federal spending.  The Baby Boomers are past their spending years entering retirement and growth in the economy requires spending which employs workers which pays taxes.  Who are the spenders going to be going forward?

The nation’s gross national product rose from about $200,000 million in 1940 to $300,000 million in 1950 and to more than $500,000 million in 1960. At the same time, the jump in postwar births, known as the “baby boom,” increased the number of consumers which in turn created more spending. More and more Americans joined the middle class.  But we aren’t living in the same time period.  In the 1950’s and 1960’s most families had a house, a car, and one wage earner.  Just try that today.

Our current National Debt is in the stratosphere, growing every second, with no signs of stopping and no plans for repayment.  The higher it gets the higher percentage of income (tax dollars) are needed just to pay the interest.  For a precursor, just look at a few European countries such as Greece and Italy.

I really don’t know what will actually trigger this but my bet would be on a stock market correction.  Many pensions are currently underfunded and when asset values drop (401K, IRA savings) consumers stop spending.  I really hope someone can open the publics eyes and come up with a solution.  I for one am out of the stock market.  To be continued…  Please comment with your thoughts.

Bill Bartok

The Weekly Rap! Friday Aug 9th, 2013

The National Debt is currently: $16,894,431,665,658.00

The Dow last traded at 15,436.  The S&P 500 is trading at 1,694.  Gold is trading at $1,310 an ounce, while oil futures at $105.75 a barrel.  Gas prices, (Regular in El Dorado Hills, Costco, AM/PM), are at $3.57/Gal.

Yields on 10-year Treasury notes, which move inversely to prices, last traded at 2.58%.  30-year Treasury Bond yields last traded at 3.64%.  Rates on 30-year fixed-rate mortgages are a hair above 4.5% this week. 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 3.5% coupon, containing 3.75% – 4.125% mortgages, pretty much the benchmark or how rate sheets are priced these days  is currently trading at 100.96 right where we were last week.  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 it was a very light week in the economic news category with lackluster trading in the markets.

U.S. service-sector companies expanded at faster than expected pace in July, according to the Institute for Supply Management. The ISM said its survey of purchasing managers – the executives who buy supplies for their companies – climbed to 56.0% last month from 52.2% in June. That’s the highest level since February.

According to the most recent survey of senior bank loan officials at American banks and foreign branches in the US, in the last three months, 13% of those questioned had established easier conditions on business loans to large and medium-sized firms and 7% on small firms.  While this is a small percentage, their business could be feeling the pinch of a slow growth economy and attempting to gain new business.

Annual home-price growth in June was close to the fastest pace in seven years, as inventories of existing and new homes remains low.  Home prices, including distressed sales, rose 1.9% in June, and were up 11.88% from a year earlier, according to CoreLogic, an Irvine, Calif.-based analysis firm. Excluding short sales and other distressed properties, prices rose 1.8% in June, and were up 10.97% from the year-earlier period, reaching the fastest annual pace since February 2006.  The 30-year fixed-rate mortgage, according to Freddie Mac data, rose as high as 4.46% in June from as low as 3.35% in May.

Consumer credit rose 5.9%, or $13.8 billion, to an annual rate of $2.85 trillion, the Fed reported.  Revolving credit like credit cards fell 3.8%, while non-revolving credit like student and auto loans climbed 10%. Revolving credit fell for the first time since March, while non-revolving credit has grown every month since August 2011.

New applications for unemployment benefits rose less than expected last week and remained near a five-year low, perhaps a sign of some improvement in the labor market. A better sign was a decline in the four-week average, a more reliable gauge than the volatile weekly number. It fell by 6,250 to 335,500, touching the lowest level since November 2007.

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