June 11, 2009
June 11, 2009 by admin
The stock market jumped higher following key economic reports released Thursday morning. The market saw positive signs from the retail sales report and continuing job claims report. The market is more focused today on economic reports and corporate earnings, but is keeping a close eye on the treasury markets, which have seen the yields on bonds rise sharply over the last thirty days.
Retail sales for the month of May were up .5%, in line with most analyst’s expectations, but still over 10% lower than in May of 2008. The report of continuing job losses indicated a slight pull back in job loss claims for the week, another sign that the economy may begin to finally being hitting its bottom. The total number of unemployment claims remains in excess of six million claims. The job market remains the key driver of the economy and reports that the trend of job losses appears to be easing is welcome news to the market.
The market is closely following the results of the Fed bond auctions this week. The yield on bonds has been driven up sharply over the last thirty days as concerns are growing over the load of debt the U.S. is attempting to finance in the market. The market is also feeling pressure from surging oil prices, which have eclipsed $70 per barrel and jumped over 100% since March of 2009. The rapid move up within the equity markets are also impacting the bond market as investors view more attractive returns with stocks, helping lower demand on bonds. The yield on the closely followed ten year treasury bond has touched 4% and is hovering in the 3.9% range. The residual effect of the rise in yield with the ten year bonds is an indication of the changing in prices within the bonds markets, which directly impact long term lending rates (mortgage rates) and have the direct impact of raising interest rates.
Rising interest rates will remain a key concern in the attempt to stabilize the housing market. Today, RealtyTrac reported that home foreclosures for the month of May were six percent lower than in the month of May, but were almost twenty percent higher than their level in May of 2008. Home foreclosures remain a large issue in stabilizing the housing markets, as bank owned homes and foreclosed properties have significantly deteriorated housing prices across the nation. Stabilizing the housing market becomes more difficult as mortgage rates move higher, despite attractive incentives from the government and abundant housing inventory.
June 9, 2009
June 9, 2009 by admin
The stock market is looking for direction in early trading on Tuesday. Investors have limited economic reports to digest today and the main news gathering attention is report that ten banks that have received money from the governments TARP program would begin to repay these obligations today. This move to repay the governments loans from late last year, as a way to boost company’s balance sheets and jump start lending, is mostly viewed as a positive sign for the health of the markets. Investors have seen a healthy return in bank and financial stock prices, since their March lows, companies such as Bank of America and Wells Fargo are trading 150% higher. The moves by the broader financial markets to restore lending are not the root cause of the rebound in stock prices, rather the elimination of a fear that the government would look to nationalize these companies is no longer present. The government remains the largest shareholder in Citigroup, as it now owns almost 38% of the company due to the emergency loans handed out earlier in the year. Banks that have the capital base to repay the TARP funds early are looking to do so primarily as they want to remove themselves from the stringent government oversight that was a part of these programs.
The repayment of the TARP money does not mean that the economy has turned the corner. There remain a number of concerns in the marketplace that could have an effect on the banking industry. The percentage of defaults on credit card and commercial loans is continuing to increase, and the job market now shows unemployment on a fast track to exceed ten percent. The banking industry received a nice boost with the historically low mortgage rates early this year, as millions of home owners refinanced their mortgages into new fixed rate loans. The refinance rush is likely to be slowing as fixed rate home loans are now closing in on the six percent level. Interest rate for mortgages have climbed almost one full percent over the last sixty days. The residual effect of rising rates could also have another impact on the banking industry, as rates move higher this will impact the market for new home buyers, one that the government is desperately trying to energize to help stabilize the housing markets. The rate of home foreclosures continues to rise despite the government’s loan modification and refinance programs announced earlier in the year. The long term impact of job losses is going to significantly impact the housing markets and ultimately the banking and lending markets. The repayment of the Tarp funds is a nice step in the right direction for the banking industry, but there are a number of concerns that still remain unsettled to believe that this marketplace is close to a full recovery.
Banks feel the pain as credit card delinquencies surge
June 8, 2009 by admin
The Banking industry feels more pain as credit card delinquencies surge over ten percent in the first quarter of 2009 according to a recent report released from transunion. The fallout in repaying credit cards can be directly traced to the current economic struggles and mounting job losses that the economy currently faces. Credit cards are considered to be delinquent when they pass 90 days without a minimum payment being received. Once a credit card payment is ninety days past due, banks begin to work with collection agencies and often pursue legal action against the card holder. The process of winning a judgement and receiving repayment for credit card debt often leads towards significant losses for the credit card company who likely now has to write off the entire balance as a future loss for accounting purposes.
The banking industry has been heavily criticized for how they manage credit cards and payments. Earlier this year, the government passed additional reforms aimed at how banks apply credit card payment and notify customers once a credit card becomes past due. The fallout from the rising delinquencies and changing guidelines will most likely result in higher rates and lower credit limits for many consumers.
The current economic challenges that have been well documented in the housing and job market, are now beginning to find their way into the credit card and commercial loan markets, two new areas banks will have to set aside reserves for future losses. The delinquency rate for credit cards is still lower than the foreclosure rate for home mortgages, although both segments continue to see a significant increase with late payments. The government will have to closely follow the news on consumer repayment as they are now some of the largest stakeholders in the nations biggest banks and top credit card companies (Citigroup/Bank of America).
The credit squeeze that has impacted all facets of lending from home loans to car loans will likely continue to feel pressure from rising delinquencies. Banks and lenders will face pressure to lend, but will also likely follow stricter underwriting guidelines as their concerns for repayment are reinforced through the struggles of the current economy. The governments TALF program was designed to help provide additional working capital earmarked specifically towards lenders in this space as they don’t want banks to completely stop offering credit and loans to consumers. The economy has relied heavily on consumers financing their purchases over the past ten years and is struggling to adjust to new lending terms and eroding confidence from the buying public.
The unemployment reports beats expectations, mortgage rates jump again
June 5, 2009 by admin
The government released the May non farm payroll report today, surprising most expert’s predictions for the state of the U.S. job market and sending mortgage rates upward in the process. The month of May saw 350,000 additional job losses and the national rate of unemployment has reached 9.4%, the highest level in the past twenty five years. Most economists were predicting the report to indicate job losses of 450-500k for the month of May. The economy has not shown positive job growth in over one year, marking a period when over six million Americans have lost their jobs. Key to the report were two revisions to the April and March report, both of which lowered to the total number of job losses for these periods.
Today’s report was a stunner for the stock market, and helped to send the stock futures skyrocketing. The report also added to the run of oil, which is now hovering above $70 per barrel (a 7 month high), sending the average cost of gasoline above $3 per gallon. The bond market has also rallied off of the news, yields on the ten year treasury have moved past the 3.8% level, breaking a critical resistance point in pricing. The rapid increase in bond yields has a direct effect on the way mortgage rates are priced for consumers. The increase in bond pricing over the last two weeks has lifted fixed rate mortgages by over fifty basis points, and the national average for a thirty year fixed rate mortgage loan is now at 5.5%. The next critical test for the bond market will be the 4% level. Once the 4% level is passed on the ten year bond, it is not hard to imagine that long term mortgage rates could surpass the six percent mark. The mortgage industry was a key beneficiary with the large sell off in the stock market as well as the governments pledge to purchase mortgage backed loan securities. Lenders saw a huge volume of refinance loan applications, as homeowners looked to lock in historically low interest rates. The recent rally in the equity markets along with the rapid rise in oil prices have begun to pressure rates to move up in an aggressive pattern.
Moving forward, this will raise the level of expectations for the economic recovery and future job growth. The probability of the U.S. adding jobs this year still appears to be a long shot. The economy will feel pressure from increasing gas prices, now likely past $3 per gallon and higher interest rates on mortgages. The housing market will be closely following the rise with mortgage rates and future increases could push the FOMC to take additional action in purchasing more mortgage backed loan securities to try and keep long term rates at attractive levels. The equity market has returned to more normalized trading patterns and is likely to draw more capital back into the system as investors can turn their attention to growth and earnings. There are a number of key economic reports due out over the next two weeks including the CPI report, housing and consumer confidence, all of which have the potential to move the markets.
June 4, 2009
June 4, 2009 by admin
The stock market is returning to more normalized trading patterns as investors regain confidence and rely on the economic reports and corporate guidance to influence their investment decisions. The likelihood that oil will again be a major economic focus for investors and consumers continues to grow as the price of oil is close to surpassing seventy dollars a barrel. The oil cartel known as OPEC is likely feeling a jolt of relief now that oil prices have doubled off of their March lows. Consumers are going to feel a a significant challenge in their budgets with the average gallon of gasoline expected to pass $3 per gallon over the next thirty days.
The stock market received some welcome news on the labor front today, ahead of Friday’s critical labor market report. For the first time in the past twenty weeks, unemployment claims declined, although the number of Americans claiming unemployment benefits is still in excess of six million. The news has provided a bit of optimism in the equity markets and the stock market is looking to put Wednesday’s decline in the rear view mirror. Indications from major retailers such as Target, Kohls, TJ Max also have been a focus on investors as these companies provided updates to their May store sales that have been mixed in sales volumes.
The Treasury department is gaining more attention from bond investors as they are attempting to keep the secondary market prices from surging. More and more investors are concerned that the Treasury department is accumulating too much debt as they are forced to try and finance the U.S. out of its current recession. Evidence of the concerns in the market can be traced to a few areas, the rising yield on treasury bonds, the ten year bond is again above 3.6% and concerns that the U.S. could lose its AAA bond status, although the latter has been temporarily dismissed by the worlds leading bond agencies. The rising treasury prices are having a negative impact on the housing market as mortgage rates are on the rise. Fixed rate thirty year loans are now well above 5% with most lenders. If the current trend with rising rates continues, the FOMC will likely have to make another commitment to purchasing mortgage backed loan securities as they attempt to keep rates at or near their historic low levels to try and keep the housing market recovery moving forward. Mortgage rates are somewhat flat this week, but have moved up over fifty basis points in the last two weeks. This is likely to slow the volume of refinance applications with lenders, but is not likely to impact home purchases as rates remain well below historic levels.
Inflation and rates, return to focus
June 2, 2009 by admin
Inflation and the potential for future inflation growth is beginning to enter into the marketplace. The effect of inflation on a market has historically led to higher interest rates. The anticipation of products/services/commodities becoming more expensive in the future will influence investors to seek a higher premium in a current marketplace. Their desire for a higher premium, allows the to safeguard themselves financially in the even that inflation reduces the value of their investment in the future. The result of a higher required premium in today’s marketplace will directly be reflected in higher interest rates. The economy has withstood a significant recession and is beginning to show a breath of life over the past sixty days. This rebound in the market can be seen in two areas, the stock market which is up over 30% and the price of oil, which has nearly doubled in the past sixty days and is now approaching seventy dollars per barrel.
Oil prices are a major component of the market. Last year, as oil prices surged, the average consumer felt considerable financial pain as the cost of a gallon of gasoline eclipsed $4. The large jump in oil prices helped to push the economy into an economic recession and was a component in crippling the auto industry that was not prepared for a shift in consumer demand to smaller and more fuel efficient vehicles. Today, it is hard to imagine oil prices climbing back to $140 per barrel in the tough economic times that the world is currently facing, but the fact that oil has rebounded sharply from its low point earlier this year is a signal that stability is returning to the market.
The effect of high oil prices could carry through many different industries, from travel, to the auto industry and even the housing markets. As oil prices climb and investors begin to assess future markets supply/demand, their will likely be a greater concentration on traditional market beliefs such as inflation, roi and alternative investing options. The short term impact is that inflationary concerns have aided in the rapid increase of yield within the bond markets. The ten year bond is again approaching the 3.7 level, mortgage bonds have surged and fixed rate loans are now above five percent for both fifteen and thirty year loan terms. Housing which is greatly influenced by mortgage rates likely wont see a significant change unless rates were to jump above 6%. Mortgage lenders are likely to see a slow down with refinance applications. The reality is that in a normal economy, oil prices are one of a number of factors that help to set interest rates. Mortgages work like any typical commodity; investors move in and out of these positions, the greater the demand, leads to lower rates. A return to a normal market may lead to higher interest rates, but could provide comfort that the world economy is closer to pulling out of a long recession.
June 1, 2009
June 1, 2009 by admin
The end of an era for General Motors is being taken in stride by investors. The stock market has moved up aggressively following the news of there corporate bankruptcy filing this morning. The market believes that eliminating lingering issues and uncertainty will help to restore confidence and is the driving force behind the early gains in equity positions. The filing for a bankruptcy by GM will result in their removal from the Dow 30 components and all but ensures that their stock holders will be left with nothing.
The overall economy appears to be slowly regaining traction and direction. This will be a closely watched week by investors and economist who will be anxious to review the jobs report due out later in the week. Inflationary concerns are going to become a larger focus for both equity and bond investors. Inflation is likely to continue to become a concern for future monetary policy, and will face significant pressure from the increase in oil prices. The price of oil has surged in the month of May and is fast approaching seventy dollars per barrel. Oil prices climbed over 30% last month and gas prices have moved well above $2.5 a gallon. The low oil/gas prices that the economy has benefitted from during the toughest of economic times helped to mitigate the financial pain of the recession. The long term prospects of low oil prices seem quite unrealistic and expect more emphasis on fuel efficient vehicles and renewable energy sources to regain exposure as the economy moves forward. The major economic report for the day was on consumer spending which declined .1% for the month of April, which beat most economists forecasts, who anticipated a larger drop. The savings rate has climbed to its highest level in the last ten years as more and more consumers try to prepare for a long period of economic challenge.
Mortgage rates jumped sharply in midweek action last week as an unprecedented increase to bond prices occurred. Last week the ten year bond traded from 3.45% to 3.75% and finished the week at 3.48% on Friday. Early on Monday, the ten year bond was trading at 3.65%, an early indication that fixed rate mortgage bonds will be under pressure to move higher, resulting in higher mortgage rates. Mortgage rates have benefitted from the FOMC’s actions and the economic uncertainty, providing a safe harbor for conservative investors. The improvements in the equity markets and presence of new inflationary pressure will likely push rates up in the near term, but it is hard to imagine a significant jump with rates under the Fed’s oversight of this critical component to the housing markets. Thirty year fixed rate loans were available with most national lenders in the low five percent range on Monday (5.25%) and fifteen year loans were available at or below five percent, both representing near historic low rates.