The Weekly Rap! Friday Sept 27th, 2013

The National Debt is currently: $16,954,381,376,237.00

The Dow last traded at 15,253.  The S&P 500 is trading at 1,691.  Gold is trading at $1,338 an ounce, while oil futures at $102.63 a barrel.  Gas prices, (Regular in El Dorado Hills, Costco, AM/PM), are at $3.70/Gal.

Yields on 10-year Treasury notes, which move inversely to prices, last traded at 2.61%.  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 98.90.  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 it was a relatively lackluster week in the economic news category an economy that continues to limp along an anemic growth rates.

An index of national activity turned positive in August, indicating above-trend growth, according to data released by the Chicago Fed Monday. The national activity index rose to +0.14 from -0.43 in July, while the three-month moving average edged up to -0.18 from -0.24 in July. The index is a weighted average of 85 different economic indicators, and when the three-month average is below -0.7 there’s an increasing chance a recession has begun.

Orders for durable goods rose 0.1% in August after a revised 8.1% drop in July as demand for autos surged, but other key segments of the U.S. manufacturing sector were mixed.  Companies are still investing at a slow to moderate pace, helped by low interest rates.

The U.S. economy grew at 2.5% in the second quarter, according to the government’s third and final review of gross domestic product.  U.S. growth is projected to slow to a rate of 1.9% in the third quarter.  We need to see growth at least 4.00% and more like 6.5% consistently before we really see any improvement in employment and real growth.

Consumers opened up their wallets in August and spent more in July than previously reported, but the pace of growth in the U.S. remained on the softer side. Consumer spending rose 0.3% last month, marking the third-fastest increase of the year if only by a slight amount. Yet the rise in spending is no sure sign that the economy is gaining momentum. Consumers aren’t the big spenders they used to be in the days before the Great Recession slammed into the United States.  Over the past year spending has climbed only 3.7%, about half the rate compared to periods of stronger economic growth.  Consumer spending represents as much as 70% of the U.S. economy and is the biggest influence on growth.

A big wild card is the latest budget standoff in Washington. A government shutdown or, worse, a default on the nation’s debt, could undermine the economy once again.  We experienced a short but sharp slowdown during the last major budget brouhaha in the summer of 2011.

On the Real Estate front:  Sales contracts on homes fell 1.6% in August, a third month of declines, led by drops in three of four U.S. regions, according to data released Thursday by the National Association of Realtors. NAR cited higher interest rates and prices, among other factors. “Moving forward, we expect lower levels of existing-home sales, but tight inventory in many markets will continue to push up home prices in the months ahead,” said Lawrence Yun, NAR’s chief economist. Despite the recent drop, the pending-home sales gauge in August was up 5.8% from the year-earlier period. Here in the West we fell 106%.

Home prices with a Conventional loan (the FHFA index is calculated from mortgages owned by Fannie Mae and Freddie Mac) rose 1.0% in July, the 18th straight monthly rise. The, was up 8.8% from the same period of July 2012, and is now 9.6% below its April 2007 peak. Separately, the S&P/Case-Shiller 20-city composite rose 12.4% in the year to July 2013

On the employment front:  The number of new applications for unemployment benefits fell by 5,000 to 305,000 in the week ended Sept. 21.  The average of new claims over the past month, a more reliable gauge than the volatile weekly number, dropped by 7,000 to 308,000. That’s the lowest level since June 2007.  Continuing claims, or people continuing to receive benefits, increased by 35,000.  This indicates we are still not out of the woods yet by any means.

The Fed’s quarterly “Financial Accounts of the United States” report, which provides a snapshot of the finances of U.S. households and corporations and the government, shows that Americans are gradually rebuilding their wealth after the recession. Households’ net worth rose about 6% in the first two quarters of 2013.  Stock prices and real-estate values have advanced since then, with the S&P 500 index up 5% since the end of the second quarter.  But is this real?  The reason for the advance in the stock market and real estate (due to lower interest rates) is because the Fed is pumping so much money (85 BILLION per month) into the financial system artificially keeping borrowing rates at a minimum.  I’m afraid to thing of what happens when they stop.

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

Sincerely,

Bill Bartok

Mortgage Advisor

NMLS# 445991

The Weekly Rap! “A lesson in Economics 101 Revisited.” Friday Sept 19th, 2013

The National Debt is currently: $16,945,767,524,687.00

I’ve titled today’s commentary/rant “A lesson in Economics 101 Revisited.”  I’m going to deviate from the usual summary of the week’s economic indices because well, there really isn’t that much change, and this weeks Fed meeting and their subsequent announcement really has me at a quandary.

The Feds feeding the Market with cash is the equivalent to giving an addict Crack.  It will appease them and make them feel better about the current situation, but eventually the supply will have to be cut off and the addict will come crashing down.  This is why the markets are reacting to the Feds decisions rather than economic news.  Stocks “normally” rise when the economic news is good because growth means more profits.  But lately it’s been the opposite.  Stocks have been reacting negatively to “good” news because it could mean the Fed will cut off the “supply.”

Ok, here is the usual numbers:  The Dow last traded at 15,526.  The S&P 500 is trading at 1,713.  Gold is trading at $1,330 an ounce, while oil futures at $104.46 a barrel.  Gas prices, (Regular in El Dorado Hills, Costco, AM/PM), are at $3.79/Gal.

Bond prices soared this week following the Fed Gods meeting. Yields on 10-year Treasury notes, which move inversely to prices, last traded at 2.72%.  30-year Treasury Bond yields last traded at 3.75%.  Rates on 30-year fixed-rate conventional mortgages are at 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.

Well the moment arrived.  After a months-long buildup, the Fed Gods announced that they decided against scaling back their controversial bond-buying program.  By a 9-to-1 vote, the Fed chose to keep buying $85 billion a month in debt and said it would wait for more evidence of economic progress.  Will investors remain calm?  Can the economy handle higher interest rates?   What happens to the program under a new Fed Chairman, or Chairwoman? Read text of FOMC statement.  For details Read on…

The no move by the Fed had markets reacting violently. The Dow rose 93 points, or 0.6%, to 15624, a sharp reversal after being down about 40 points minutes before the Fed announcement was released. The S&P 500 jumped 0.8% to 1717, a fresh intraday record high.  The benchmark 10-year Treasury yield fell to 2.771% after sitting at 2.867% before the announcement hit the wires.  Precious metals are spiking on the news with gold rising 2.9% to $1,346.80, while silver also added about 3% to $22.41.

Fiscal fears: the Fed cited restraint from fiscal policy in two places, a clear reference to the coming fight in Congress about averting a shutdown and raising the federal borrowing limit. AGAIN!  The new language shows the Fed “taking into account the extent of federal fiscal retrenchment.”  In other words, it depends on what Congress does in the way of balancing the budget (deficit spending and raising the national debt) vs. spending cuts.  Because our politicians couldn’t agree on how to do this we had mandatory cuts (sequester) put into place which very well could be a reason for the pull back in the economy.

Economic conditions: the Fed is also clear that it wants to see more improvement in the economy before it starts pulling back.  That helps address the inevitable question it would have faced about why it’s pulling back if the economy is still struggling. In a press conference, Fed Chairman Ben Bernanke said the bank might still scale back its purchases before the end of the year, but it will depend on whether growth and the pace of hiring show greater strength.  “We could begin later this year, but even if we do that, the subsequent steps will be dependent on continued progress in the economy,” Bernanke said. “So we are tied to the data. We don’t have a fixed calendar schedule.”

The Fed has been trying to get that message across for some time, to get markets to respond to economic data rather than hanging on every word from the central bank.  But we still don’t know for sure the Fed’s reaction function; that is, understanding what will trigger the Fed to taper actually allows investors to respond to economic conditions.

Speaking of the economy and growth; although the Fed cut its U.S. growth forecast for 2013 for a third time, the bank expects the economy to accelerate in 2014 and 2015.  But I haven’t seen anything yet on how they perceive where the growth in the economy to be coming from.  In other words what plan do they have or see to get growth (GDP) back to a level (4.00% to 6.5% minimum), which is what it will take on a consistent basis for employment to pick up and the unemployment rate to come down.  We have been in a 2.00% growth pattern for the last few years (and the stock market has doubled in this time, but that’s a different story).  I just don’t see anything on the immediate horizon that’s going to get us the growth we’ll need to make the Fed stop its aggressive policy. The bottom line is that unemployment is too high and progress or growth is too slow.

Continued support, but a warning: the Fed reiterated that “asset purchases are not on a preset course” and future decisions will depend on the Fed’s “economic outlook as well as its assessment of the likely efficacy and costs of such purchases.”  Let’s look at this for a moment: The Fed has to be assessing the “cost” of their purchases and wondering just how they can get out of the corner they’ve backed themselves into.  That “corner” is that markets (both stock and Bond) have been trading based on the Fed adding 85 Billion dollars into the economy each month.  So what happens if they stop and there’s nothing positive in the economy to pick up the slack?  The Markets correct.  That’s what happens.

America’s economy has not shrunk since Q2 of 2009.  Yet, if the Congressional Budget Office’s estimates of just 1.4% real GDP growth this year prove true, America will have experienced its worst four consecutive growth years of GDP in the Bureau of Economic Analysis’ data going back to 1930.  Even if 2008 (-0.3%) and 2009’s (-3.1%) negative annual GDP percentages are dropped (something undone for the other periods) and only the 2010-13 period is averaged, the result is just 1.95%, still over a full percentage point below the previous decade’s.  During the time frame when the Fed started purchasing bonds Nov 2008, the Dow (stocks) have gone from 8,032 to 15,709 (Wednesday).  That’s an increase of 95.5%, all while the economy has failed to grow above 2%.  So what does that tell you???

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

Our processed food supply and GMO labeling

Hello everyone:

I am a firm believer that our bodies know how to process foods in their natural state.  This is due to many years (generations) of learning.  When we have to process a new “chemical” or “species,” the body has to figure out what to do with it and how it affects the rest of our system.

The big problem with our food supply is that we have no idea of how much “processing” goes on between farm and store anymore.  We have always processed our food; this is an activity that is uniquely human. We chop, soak, cook and ferment our food, as well as grind and dry; these are all types of processing.

Farmers and artisans, bread makers, cheese makers, distillers, and so forth, processed the raw ingredients into delicious foods that retained their nutritional content over many months or years.  Unfortunately, in modern times, we have substituted local artisanal processing with factory and industrial processing, which actually diminishes the quality of the food, rather than making it more nutritious and digestible. Industrial processing depends upon sugar, white flour, processed and hydrogenated oils, synthetic food additives and vitamins, heat treatment and the extrusion of grains.  Why does almost every food product contain added salt, sugar, and “additives” in one form or another?  We’ve tricked ourselves into believing those seldom-mentioned additives or long lists of synthetic chemicals make food taste better – but more on this later.  I want to touch on another food related-topic that’s gotten a lot of press lately (thankfully), Genetically Modified Organisms (GMO).

GMOs are plants or animals that have been genetically engineered with DNA from bacteria, viruses or other plants and animals. These experimental combinations of genes from different species cannot occur in nature or in traditional crossbreeding.  This is done to usually gain a higher crop yield or to make the crop resistant to pesticides like Roundup.  This way farmers can spray their crop with Roundup or other weed killers and not harm the crop – or so food companies say. Many times the crop is modified with a bacterium which, once embedded within a plant’s DNA, cannot simply be washed off. Do we really want our food soaked in poison, or genetically altered so deeply as to not be listed on the ingredients – but altered just the same?

There are four major crops that are currently genetically modified to a high degree: Soy, Corn, Canola (oil), and Sugar Beets.  Canola oil is derived from a genetically altered Rapeseed plant which, in its natural state, is poisonous.  And manufacturers had to label it Canola (Canadian Oil) because consumers would not purchase Rapeseed oil.

Yet as a growing population demands more and more food, food producers are grafting and altering the genes of more than just the four above crops. The future of orange crops are now at risk, and “pig genes” may be considered part of the solution. This is due in part to stave off Asian jumping lice and the bacteria that they carry, which has been devastating Florida’s orange crop since 2005. It has been determined by University of Florida agricultural analysts that the Asian bug and bacteria has cost Florida $4.5 billion and 8,000 jobs between 2006 and 2012.  But is this justification for genetically altering the makeup of the Orange?  And will they label the product to inform vegetarians?

To be fair, there are many benefits to genetic engineering (it was once my Major in collage). I would just like to know if the food I am purchasing is genetically altered and with what, and just how “processed” it is.  The problem today is that the manufacturers don’t want us to know because we may not purchase their product, leading to their making less money.  And let’s face it, everything today is about money. More on this later.  That’s my opinion and I’m sticking to it.

Bill

The Weekly Rap! Friday Sept 13th, 2013

The National Debt is currently: $16,937,192,689,583.00

The Dow last traded at 15,365.  The S&P 500 is trading at 1,687.  Gold is trading at $1,312 an ounce, while oil futures at $107.92 a barrel.  Gas prices, (Regular in El Dorado Hills, Costco, AM/PM), are at $3.77/Gal.

Yields on 10-year Treasury notes, which move inversely to prices, last traded at 2.90%.  30-year Treasury Bond yields last traded at 3.84%.  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 98.90.  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 it was a very light week in the economic news category with lackluster trading in the markets and an economy that continues to limp along an anemic growth rates.

Consumer credit rose in July, posting an annual growth rate of 4.4.  Revolving credit, which is mostly made up of credit card loans, fell for a second month. Meanwhile, non-revolving credit, which covers loans for education and cars, among other areas, rose at an annual rate of 7.4% in July, down from 9.5% in June. Non-revolving credit has grown every month since August 2011. Credit is important to watch because it points to how real consumer spending is due to whether its borrowed or not.

A gauge of consumer sentiment, The University of Michigan/Thomson Reuters consumer-sentiment index fell to a preliminary September reading of 76.8, the lowest since April, from a final August reading of 82.1.  The sentiment gauge fell in August from the highest level in six years, on grimmer views of current and coming economic conditions. This is not a good report and indicates that Americans are still cautious and their mood has worsened recently.

On the employment frontier; Job openings at U.S. workplaces fell to 3.69 million in July, the lowest level since January, from 3.87 million in June.  Compared with same period last year, July’s job openings rose 5.4.  That’s about 3.1 potential job seekers per opening. When the recession began in December 2007, there were less than two potential job seekers per opening.  Consider this: One reason why employers are letting go of few workers is that staff levels are already so slim that there’s little fat to cut.  The number of applications for unemployment benefits fell below 300,000 for the first time since 2006, but the government attributed the surprising plunge to computer-related glitches instead of a sudden improvement in the labor market.

Retail sales increased in August by the smallest amount since late spring 0.2.  Americans remain cautious in their spending habits because of slow growth in wages and job creation.  Companies hired fewer workers toward the end of summer. And that’s a big obstacle to growth since consumers are main driver of the economy. Barring a sudden pickup in spending, there’s little chance of the economy shifting into a higher gear before the end of the year. Retail sales have risen a mild 4.7% over the past 12 months, unadjusted for inflation. In the three years prior to the 2007-2009 recession, retail sales grew at a annual pace of 6.2%, 6.5% and 5.4%.

On the inflation front; wholesale prices rose in August, mainly because of higher costs of gasoline and vegetables, but there was little sign of rising inflationary pressure in the broader economy.  The producer price index rose 0.3% in August after no change in July. Minus the volatile categories of food and energy, “core” wholesale prices were unchanged. The core index is viewed by the Federal Reserve as a more accurate gauge of inflationary pressure. Core prices have risen just 1.1% over the past 12 months, well below the central bank’s ceiling of 2.5% or less. A better measure of whether Americans are paying more for goods and services, the consumer price index, will be released next week.

The Government recorded a budget deficit of $148 billion in August, but remains on course for its first full-year shortfall below $1 trillion since 2008.  The U.S. has run deficits of more than $1 trillion for every year of President Barack Obama’s presidency, though they have fallen slightly as revenue has increased through the recent mandatory sequester cuts. The shortfall for fiscal 2012 was $1.1 trillion.  As you can see from the Debt clock above we are about to break the 17 TRILLION mark.

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

Sincerely,

Bill Bartok

Mortgage Advisor

NMLS# 445991