Happy New Year,
I hope the holidays were good for you and that you got to spend time with your family. We do not get enough chances to spend quality time with the ones we love. Well, it’s a new year and time to hit the ground running. For those of you who missed last week’s comments I’ve included my “predictions for 2014” below.
The National Debt is currently: $17,311,149,951,597.00 higher by about 50 BILLION. I post this so we will be aware of what we are leaving the next generation.
The Dow last traded at 16,461 about even from last week. The S&P 500 is trading at 1,831. Gold is trading at $1,236 an ounce, while oil futures at $94.41 a barrel. Gas prices, (Regular in El Dorado Hills, Costco, AM/PM), are at $3.35/Gal.
Yields on 10-year Treasury notes, which move inversely to prices, last traded at 2.99%. 30-year Treasury Bond yields last traded at 3.92%. Rates on 30-year fixed-rate mortgages are about 4.625% 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 99.41 right about where we were last Friday at this time. 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 as you may have guessed with it being the second holiday week, there was very little news to get excited about. Markets are usually volatile this time of year with many traders taking time off.
The economy appears set to enter a new year with some fresh momentum, according to a trio of reports released on the last day of 2013. Americans expressed the most confidence in December in three months, while other data pointed to steady expansion in the manufacturing sector and continued recovery in the housing market. The consumer-confidence index jumped 6.1 points in December to 78.1, following two straight declines triggered in part by the government shutdown in October.
More importantly, consumers said they feel better about their current circumstances now than at any time in the last 5 1/2 years. The so-called present situation index advanced to 76.2 from 73.5. One reason is a steady increase in hiring, the survey indicated.
Two sectors that have played big roles in the expanding economy are manufacturing and housing. The manufacturing sector has been on the upswing since the end of summer, and there are few signs of any slowdown. The business barometer for the Chicago region, a key U.S. manufacturing hub, expanded in December for the eighth straight month.
On the Real Estate front: Pending sales of homes rose slightly in November, the first gain in six months, signaling that upcoming activity could move higher reported Monday. The National Association of Realtors’ index of pending home sales increased 0.2% last month to 101.7, slightly above a 10-month low of 101.5 in October, but down from 103.3 in November 2012. “We may have reached a cyclical low because the positive fundamentals of job creation and household formation are likely to foster a fairly stable level of contract activity in 2014,” said Lawrence Yun, NAR’s chief economist. Although higher mortgage rates have taken a bite out of housing-market activity, Yun said sales in 2013 will be the highest in seven years. Buyers are becoming accustomed to higher mortgage rates and pricier properties.
Looking forward, the expectation is that further increases in mortgage rates won’t derail the housing market assuming that jobs growth is healthy enough, unleashing some of the demand that built up during and since the recession. And despite rising more than one full percentage point during 2013, the average rate for a 30-year fixed-rate mortgage still remains relatively low by historical standards.
In a separate report home prices remained on a solid upward trend in October, but price gains may not be as strong in 2014. The home-price index covering 10 major cities increased 13.6% in the year ended in October, according to the S&P/Case-Shiller home-price report. The 20-city price index also increased 13.6%, close to the 13.7% advance. Both increases are the best since February 2006. Las Vegas continues to lead price gains, with home values up 27.1% year-over-year. San Francisco has seen prices rise 24.6%. The report noted that many forecasters expect home prices will post single-digit growth in 2014.
On the Employment front: The number of Americans applying for unemployment benefits fell slightly in the last week of 2013, suggesting that the U.S. labor market remains on a path of gradual improvement. In the seven days ended Dec. 28, initial jobless claims dropped by 2,000 to 339,000, the Labor Department reported. That’s the lowest level in four weeks. One year ago, claims stood at 372,000.
Other gauges of the labor market, however, suggest that companies continue to hire at a moderate pace and many economites expect employment to further strengthen in 2014. More evidence will emerge next week with the employment report for December. The U.S. added an average of almost 190,000 jobs through the first 11 months of 2013, marking the best performance since the recession ended in mid-2009.
The U.S. economy can’t shift into a higher gear though without stronger employment gains and faster wage growth.
OK, here are a few predictions for 2014: I will always tell you my honest opinion as I think you deserve to be informed of the bad thing that can happen as well as the good. I think the economy will continue to grow at a snail’s pace, maybe 2.5% to 3.0% for the year, mostly because I do not see anything on the horizon to change it and we are trying to implement a national healthcare plan.
I think Washington will remain a gridlocked as ever and unless they can figure out a way to balance the budget (we are currently adding about 20 BILLION dollars to the national debt EACH WEEK) Economic growth will suffer.
I see a deep correction possibly below 10,000 in the stock market possible mid year 2014 mostly due to the fact that the stock market has more than doubled in value over the past 5 years (the Dow hit 6,626 on Mar 6, 2009 and 8,146 on July 10, 2009) while the economy has grown at a measly 2.5%. And this growth is due to the government pumping billions of dollars into the markets. There is a great piece illustrating the past 5 years and the burdens to growth at this link from the U.S. Treasury (unbiased as I can get).
I would take a look at your asset allocation (especially in your 401K and retirement plans) and re-balance or balance accordingly. I can help with this if interested as I was a Financial Advisor for Merrill Lynch for 14 years. I don’t charge anything and can refer you to a great advisor if needed. Real Estate is a great investment right now.
I see interest rates possibly rising a bit but nothing to get alarmed about. After all, we would need to see a rapidly growing economy and/or inflation, and I don’t see either. The Fed tapering its bond purchases may cause a rift in the market but if the stock market corrects money usually flows into safe investments (bonds) and this should balance anything the Fed is doing. I thing conventional rates will remain between 4.25% and 5.25% (no disc pts or lender Credit).
You can visit my corporate website at: http://bill.bartok.stanfordloans.com
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