August 31, 2009
August 31, 2009 by admin
International markets sold off over the weekend, setting the stage for a broad market decline on Monday, the last day of August. The market was down a full percent in early morning trading, but managed to recover late in the day as equity investors appear to becoming more concerned that the rally has run its course. The yield on the ten year Treasury bond has dropped to 3.4%, its lowest level in the last sixty days. The recent drop with bond yields is helping to bring down long term mortgage rates for both fifteen and thirty year fixed loans to their lowest levels since early March. The below market rates should help to fuel the housing market for the balance of the summer and ensure home owners who need to refinance or home buyers looking to close a purchase in the next sixty days. Thirty year fixed rate loans were available at or below five and a quarter percent on Monday with most national mortgage lenders.
The drop in the stock market is not entirely unexpected. The rally that has lifted the market broadly since early March has already started to see profit taking by investors who have managed to recoup partial losses or lock in new profits. The fallout of today’s equity market may not be significant. The psyche of investors appears to be changed from earlier in the year when panic and greed were the driving factors. Today, more investors appear to be taking a longer term outlook with the equity markets, a signal that the overall economy has stabilized.
The economic news this week could set the tone for the month of September. The labor market releases a key report on Thursday, a critical day that could attract the attention of investors who have been sitting on the sidelines. The shortened holiday week, also signals a time of less volume in the market, which could add to the volatility this week.
Corporations will likely be pulling back on their news releases as they are now well into the third quarter of the year. Analysts are going to closely follow the retail sector, specifically back to school spending as an early gauge of consumer sentiment prior to the holidays. Consumer confidence appears to be making steady improvement over the course of the summer. Consumers who have seen the stock market recover and a solid string of housing reports is the key to driving the necessary spending to help officially end the economic recession.
News out of Washington could be quite this week as well. The government is likely to turn more attention to the home loan modification program in the coming months, but results from the Fed’s move keep mortgage rates low and the home buying tax credit are certainly better than expected. The health care insurance debate could garner a majority of the governments attention for the foreseeable future, a signal that the financial markets are finally able to break away from the scrutiny and try to regain some independence
Job market will set tone for September
August 29, 2009 by admin
This week will be a pivotal week for the economy and market for the balance of 2009. Thursday the market will digest another non farm payroll report, following improved figures from the month of July, economists and investors alike will be cautiously awaiting the new data. The market is anticipating job losses to exceed two hundred and fifty thousand jobs for the month, with the national unemployment rate to be at 9.4%.
The month of August jobs report helped to set the tone for a strong rally in the equity markets. For the month of August, the market lost about two hundred and forty seven thousand jobs, much lower than many experts were predicting. The national unemployment rate also dropped to 9.3%, for the first time in the last six months, the unemployment rate improved slightly.
The labor markets will likely be a lagging indicator for the state of the economy. Most experts believe that the job market is likely three to six months behind the balance of the economy when pulling out of a recession. This past week, Ben Bernanke was nominated for a second term as Chairman of the Federal Reserve. Following the data over the last three months, many economists are now optimistic that the worst of the recession is over and the market is improving as highlighted by a report out of the Federal Reserve this week.
August marked the fourth month in a row with improving figures in the housing market. The housing market is critical to the economy and was a catalyst in pushing the economy into a recession. Historic low mortgage rates, combined with the tax rebates have proven to be the right ingredients to help bring new buyers back into the market. The mortgage market has been relatively immune to the changes in the equity markets, as rates have held at or below five and a half percent for almost the entire year. The government was very determined to try to and provide life support to the housing market, and their efforts have been rewarded.
Improved numbers in existing and new home sales are likely to be a key contributor in the most important factor with any economy, confidence. Consumer and business confidence is always the most important driver of any capitalist economy. Confidence in job stability, the real estate market and equity markets will drive spending. Individual spending makes up seventy percent of the gross domestic product. Consumers have now seen the stock market rally over three thousand points since march, up over thirty percent, home sales reports improve for the past three months and improved figures in the labor market. These reports could propel additional spending and provide confidence for corporations to begin hiring.
The dramatic surge by the stock market since early March could leave the equity markets in a vulnerable stage should the numbers on Thursday be disappointing. Expect investors to pull back and lock in profits if the job market report misses the mark. If job losses are higher than anticipated, long term mortgage rates could be heading even lower and could retest the five percent level, a mark that was flirted with earlier in the year. Traditionally, September is a challenging month for the equity markets, all signs are pointing towards long term rates holding relatively stable until the month of October.
August 27, 2009
August 27, 2009 by admin
The stock market is trying to extend its winning streak, despite being down by over 80 points in early morning trading. The Dow has been steadily climbing out of its hole all day, financial stocks continue to lead the way as short sellers are forced to sell off their positions, helping to ignite a sharp rally higher. Long term mortgage rates continue to hover near 2009 lows, despite the upward turn of the market over the last thirty days. Yields on the ten year bond remain below 3.5%, helping to keep fixed mortgage rates in the low five percent for thirty year loan terms. Mortgage rates have proved to be resilient against the equity market rally, despite rising oil prices and concerns over the U.S. debt levels.
The stock market move up is coming at a time when the Dow has moved into 2009 highs and investors are being cautioned to lock in profits. The upward in Financial has helped to lift companies such as AIG, Citigroup and Bank of America to year end highs. Shares of AIG, are now up close to 600% from there low point in March as short sellers are scrambling to cover positions, following the companies surprise move to profitability in the past quarter. The improvement in the housing markets has also helped to bring more investors into the company who are betting that the companies new CEO will be able to guide the company in the near future as it sells off key assets to repay the billions of dollars owed to U.S. taxpayers.
The economic news of the day focused on Jobs and GDP. The weekly job survey showed an improvement of 10,000 job losses, the first positive improvement over the past three weeks. GDP was down one percent, and likely was a strong influence in pushing the broader equity market lower in early trading.
The news on the housing market this week continues to show signs of improvement. This week, the new home sales report showed another strong month of housing gains, marking the fifth straight month of improvement. The Case-Schiller home value report also showed positive movement with home pricing in the countries twenty largest metro markets. These reports are adding to the belief that he housing market will have bottomed out in the summer of 2009 and better days are in the future. The improvement in home sales could influence the home foreclosure market if prices begin to stabilize. Home owners, concerned that their homes have lost 40-50% of their value, and showing signs of further value drop, have simply been walking away from their properties, adding additional strain to the housing market.
Despite the improvement in housing reports and forecast the lending industry appears to be under pressure as experts are now predicting that their will be over 400 bank closures in the next two years. Smaller regional and local banks that are straddled with bad debt are struggling to improve their capital ratios and have been forced into receivership by the FDIC.
Bernanke to serve a second term
August 25, 2009 by admin
President Barack Obama today announced that he would extend the term of current Federal Reserve Chairman Ben Bernanke for an additional four years. Today’s announcement was not a dramatic surprise to experts who follow the Fed, but was a signal that the President has faith that the current chairman has helped to navigate the country through one of the toughest economic periods of record.
The Fed Chairman serves as a key figure in leading the countries monetary policy. Mr. Bernanke, in addition to the other Federal Reserve board members serve as protectors of the countries monetary system, and are primarily responsible for the lending of money between the government and lending industry, by setting the Fed discount and Fed funds rate, through the FOMC. The Chairman of the Federal Reserve also plays a key role as the primary point person who is called on to forecast economic growth, review economic conditions and frequently testifies before Congress as to the state of the current economy, both in the United States and globally.
The role of Chairman of the Federal Reserve became much broader over the last two years. During the peak of the credit crunch and economic recession, Ben Bernanke was called on to help create programs to keep the economy from further crashing. The Fed Chairman was involved in programs ranging from the TARP and TALF to the Fed’s commitment to purchase mortgage backed loan securities, which helped drop home mortgage rates to historic low levels. In addition, the Fed lowered rates on both the Fed discount and Fed funds rates to historic low levels, providing the lending industry access to cash to help them address their short term funding requirements.
Today’s announcement by President Obama will likely bring forth a good amount of criticism for the job the Fed Chairman has done covering his first tenure. The criticism is likely to focus on the Fed’s lack of oversight in allowing the banking and lending industry to create financial derivatives a key component to the collapse of the banking industry. Critics will also point out that the Fed Chairman allowed Lehman Brothers to file bankruptcy, yet provided a life raft to Bear Stearns and AIG, moves that caused billions of dollars in lost wealth and put the government on the hook for billions of dollars worth of emergency loans. The Fed’s decision to lower the Fed Funds/Discount rate can also be called into question, that the Fed was slow to react to proactively stay in front of the financial collapse, and responding in a reactionary position further escalated the problems that occurred in 2008.
The stock market has rallied sharply into 2009, from it’s March lows and the governments decision to subsidize the secondary home mortgage market has helped lift home sales for the past three months. These factors were certainly a strong endorsement that the policies enacted by the Fed Chairman are having a positive impact in helping to turn the economy in the right direction. The end result is that Ben Bernanke, having witnessed the collapse and playing a critical role in helping to find working solutions was the right candidate to help formulate a plan to balance growth over the next four years
August 24, 2009
August 24, 2009 by admin
The stock market surge has helped the Dow surpass the 9500 point level, quickly approaching 10,000 point level as investors appear to be aggressively moving back into equity positions. The stock market is now at the highest level of the year, and up almost 3000 points since bottoming out on March the 9th. The market is light with economic news today.
Investors who have been piling into equity positions in the stock market have been focusing on the positive economic news of the last month, as well as corporate earning reports that continue to reassure investors that the worst of the economic recession is officially over. The news has not been all positive as over the weekend, the FDIC announced the collapse of Guaranty Bankcorp, one of the largest bank failures of the year (top 10 of all time) and a move that will likely drain another three billion dollars from the FDIC insurance funds. Expert analysts are estimating that well over 100 more banks are likely to collapse in the next twelve months. Guaranty Bankcorp was one of the largest banks in Texas, likely collapsed as their financial investments within the banking industry collapsed, hurting their core capital ratios at a time when raising capital as a bank is extremely challenging.
The two largest agency lenders Fannie Mae and Freddie Mac appear to be back in good graces with investors. Shares of both companies, which specialize in conventional loan financing, have been shooting higher. Both companies saw their share prices drop below $1 as they were forced to accept billions of dollars in capital from the government as the housing market collapsed. The recent upswing in the housing markets and news out of Freddie Mac that their capital base should be sufficient to handle future foreclosure losses is helping to bring new investors into the companies, who believe their long term prospects for becoming profitable are increasing.
The level of the U.S. deficit is projected to top nine billion dollars, according to a report today featured in CBSmarketwatch. The deficit, which is growing at a historic pace thanks to the government bailout of the banking industry, stimulus programs and new spending programs, is going to have a significant impact on the future economy if it is not addressed in the near future. Concerns over the U.S. debt led the bond market to shoot up in early June, driving fixed mortgage rates to their highest point of the year.
Long term fixed mortgage rates are beginning to move higher. Rates dropped sharply during the last sixty days, despite the improvement in the equity (stock markets). The yield on the ten year bond has gained almost ten basis points in the past week, helping to raise fixed rates on thirty year loans from 5.25% to 5.375%. Long term rates will begin to feel pricing pressure as the market moves closer to 10,000 points for the Dow. The recent reduction with mortgage rates, should help to boost home sales through the balance of the summer, a move that should help keep the stock market and economy on an upward plane.
Existing home sales continue to improve
August 21, 2009 by admin
The housing market roller coaster ride took a turn upward today with news from the NAR (National Association of Realtors) which indicated that existing home sales for the month of July were higher than expected. The existing home sales report indicated an increase in home sales over seven percent and setting the pace of annual home sales to exceed five million units, the highest level in the last two years. Today’s report from the NAR marks the fourth month with positive improvement in the existing home sales marketplace.
The real estate market has been on a roller coaster of mixed news over the last sixty days. Last month, the new home sales, existing home sales and Case Schiller metro market price report were all above expectations, great news for the real estate market. The downside is that the mortgage bankers association has recently released a report that is showing increases to home delinquencies and home foreclosures. The market appears to be stabilizing from a sales perspective, but the new inventory that is coming into the market is predominantly home foreclosures and bank repo properties. The offset of improved sales is an expectation that the new foreclosed properties could add additional pricing stress to the market, further driving down home values and eroding wealth.
The real estate market has been struggling to pull itself out of the downward spiral originally attributed to the subprime mortgage collapse. The fallout began in late 2006 as the subprime lending industry began to show signs of duress as toxic mortgages, written during periods of unprecedented home appreciation began to increase in delinquency. The problem soon spiraled recklessly out of control and forced the elimination of the subprime industry. This collapse helped to start a massive change in the secondary mortgage market as independent Wall Street firms stopped purchase mortgage backed loan securities, creating a large hole in the lending industry and adding another element of stress to a struggling economy. The collapse of this marketplace, soon impacted every area of the finance world, along the way causing the credit mayhem that sent the worlds economies on a downward spiral.
The fallout from Wall Street was having a major impact on Main Street as home values and the real estate market imploded. The government has been working on overdrive to try to support the residential market since the beginning of 2009, hoping this would help stabilize the economy. The tax rebates up to $8,000 helped to bring more buyers into the market. Combining this rebate with historically low mortgage rates (aided by further government action) and abundant housing inventory, it is apparent that the government actions have been successful in helping to bring buyers into the market, propping up existing home sales now for the last four months. The next few months will be critical for the real estate market as peak home buying season generally ends by October and the market could benefit from robust sales through the balance of the year.
August 20, 2009
August 20, 2009 by admin
The stock market is trying to push for three days of positive movement as investors appear to be cautiously moving back into the equity markets. The market is moving without a significant number of economic reports and corporate news has slowed down as the third quarter is well under way. The headline of today’s economic news was the release of the weekly jobless claims report, which indicated another week of higher than expected job losses. This remains one of the most closely followed reports on a weekly basis as an improvement in the labor markets would truly signal a rebound in the overall economy. The disappointing news that job losses increased last week did not seem to derail the equity markets from pursuing a broader increase.
The news out of the housing markets continues to send mixed signals regarding the state of the real estate industry. This week, the report of new housing permits was much lower than anticipated. This follows a strong run of reports on home sales for the month of July. Today, the market is digesting another dismal report indicating home foreclosures are still moving higher. The news out of the MBA (Mortgage Bankers Association) painted a grim report of the real estate market and raised further doubts to the proposition of the governments making home affordable program. The number of properties that are currently over thirty days delinquent on the mortgage increased past thirteen percent and the percentage of homes moving into foreclosure is now over four percent, up a full percentage point from the first quarter of 2009. Home foreclosures, tend to be a lagging indicator of the state of the marketplace as they take months to catch up to the fallout in the job sector. Many states have recently passed legislation that is aimed at helping home owners modify their mortgage loans, while providing them a moratorium from the lender to try to renegotiate their mortgage terms. This process is helping a percentage of home owners to remain in their properties, but is also delaying the true accuracy of the current foreclosure crisis that the real estate market is facing. Home foreclosures have had a devastating effect on real estate values, as they lead to properties selling between 20-30% below the price of comparable homes, eroding the overall value of properties in a given area. The further home values decline, the more incentive home owners have to simply walk away from properties where their loan to value ratio is in excess of 150%, further adding stress to the market and creating a downward spiral.
The lack of market movement has been good news for fixed mortgage rates. Long term mortgage rates remain in the low five percent for thirty year loan terms. The yield on the ten year bond is hovering around 3.5%, a thirty day low. Bond yields have remained low as investors are searching for safe alternatives to the equity market as they balance their investments for the second half of 2009. The historic low rates have helped to stabilize the market and create more affordable house payments for buyers who have been on the fence. There is a strong belief that the low mortgage rates will last for the next several months, through peak home buying season, welcome news to the housing market.
International Monetary Fund – Calls the bottom
August 18, 2009 by admin
The IMF (International Monetary Fund) today announced the world’s economic recession is officially over. The IMF, which is taking a global view of the economy, is predicting an unprecedented turnaround for the worlds markets, one that will feature challenges and surprises. The IMF, in issuing today’s statement helped to ignite a stock market rally for equities and calm the nerves of anxious investors who have been sending global equity markets lower over the last week.
The news out of the IMF, follows a similar report out of the FOMC last week, when they announced there would ne no change to the Fed rates. The news is not an endorsement that the recession in the United State is over, rather it reflects a global view that the worst of the economic issues has ended. The end of an economic recession is usually characterized by positive growth in GDP (Gross Domestic Product). GDP is not likely to see positive growth in the U.S. for the next several months as the U.S. economy has been more significantly impacted by the recession.
Nationally, there still remains a number of lingering issues that are weighing on the economy, and a clear sign that the recession locally has not come to an end. The job market report has shown signs of improving, but the national unemployment rates remains well over nine percent, and the country lost over two hundred thousand dollars in the month of July. Consumer confidence has yet to improve, and will be one of the major catalysts in helping to improve the economy. Consumers, through spending are one of the largest contributors to GDP and to date consumers appear to be viewing the current economic recession as an opportunity to reign in their spending and ratchet up their savings. The improvement in GDP will begin once consumers help to turn the tide. The lingering issues with the employment market and housing market are large issues that are weighing down on consumers. The lingering issues are amongst the factors that helped to influence the Fed’s decision to leave rate unchanged last week.
The housing market continues to mystify the market. Today, housing starts were down for the month of July, a surprise that almost derailed the housing market. Following strong numbers last month in the three major housing reports (existing, new sale and prices), expectations were high that housing starts would be improving. A decline in housing starts may be only a blip on the radar for the market, but is a clear signal that challenges remain in the broader housing market.
The news out of the IMF today was a positive shot for the confidence of consumers and investors. Today’s economy is certainly more globally influenced than in years past. Emerging markets could help to lift the economy and provide new opportunities for manufacturing and production as the economy works itself out of the present challenges.
August 17, 2009
August 17, 2009 by admin
The global equity markets sold off sharply overnight and brought the U.S. stock market sharply lower on Monday. Stocks were off over two percent in early trading and investors appear to being growing more concerned that the stock market rally over the last five months is over. The markets six month winning streak was fueled by confidence that the worst was over and the recession would not turn into a global depression. Investors appear to be growing a bit more concerned that the corporate earnings will fall below expectations as consumers are reluctant to begin spending and confidence remains lower than anticipated.
The sell off that began late last week has been suggested by numerous investment strategists for some time. The economic news has been much better that expected on a number of fronts and has helped to drive the market up almost forty five percent since early March. The challenge is that pace was simply unsustainable. The strategists that predicted the market was due for a correction were simply aligning themselves with the philosophy that the market has risen to far to fast and investors would look to lock in profits along the way.
The timing of the selloff is interesting as it arrives prior to another key week of housing news. Many experts are looking for a solid set of new housing reports this week, showing further evidence that the real estate market has bottomed out. Home sales appear to have turned at an opportune time, after months of tax incentives and historic low mortgage rates. The resale home sale report for July will be one of the biggest economic reports of the week and could set the tone for the balance of August. Home foreclosures still appear to be the real estate markets largest Achilles heals, and there is no early sign of relief on this front.
The dramatic global equity sell off is predictably driving yields on bonds lower. The ten year bond is again under 3.5% and appears to be moving lower as investors look to protect themselves from a potential equity market correction. The stock market sell off is helping to drive oil prices lower. Oil has dropped by over $5 per barrel in less than one week. Slowing the movement of higher energy prices helps to keep a key element of inflation out of the market, which is good for bond yields. The mortgage market is benefitting from the current correction as long term mortgage rates are again moving lower. Fixed rate home loans on fifteen year loan terms are now under five percent and thirty year loan terms are near 5.25% with most national mortgage lenders. If the equity market sell off gains momentum, interest rates could again approach 2009 lows, but there is little reason to believe the market will sell off in excess of ten percent in the near future.
FDIC – Likely will need to raise rates for bank insurance
August 16, 2009 by admin
The FDIC is burning through depository insurance coverage at an alarming pace. This week, the FDIC announced another round of bank closings, including the largest bank of the year with the collapse of Colonial BankGroup of Georgia. The latest group of bank failures brings the total number of banks taken over by the FDIC to seventy eight for the year.
The FDIC, is a government sponsored agency that is responsible for helping to regulate banks and plays a key role as they oversee the insurance protection offered to banking consumers who deposit money with FDIC approved institutions and products. The FDIC, is an acronym known as Federal Depository Insurance Corporation. It was created, following the great depression as part of the Glass-Steagall act, in order to provide confidence in the banking system and allow for banks to accept deposits to build their financial balance sheets and utilize this capital to lend out to the community, helping to grow the economy.
The role of insuring deposits is critical to the banking industry. The FDIC temporarily increased the amount eligible for insurance from $100,000 to $250,000 late last year in an effort to preserve the banking system and prevent a phenomenon known as “run on the bank”, where customers line up in mass and begin withdrawing funds, essentially create a panic that escalates into a bank failure. Banks, which are a critical component of the economy, lend money only on the basis of their depository or capital base. Regulators, typically allow for a bank to lend out money at ratios between 8-10% of their capital ratio. For example, for every dollar deposited, a bank essentially can lend out between eight to ten dollars. Banks offer incentives (interest) to consumers in exchange for their deposits, and consumers likewise enjoy the protection of near risk free investments. The FDIC, is compensated by banks that offer insurance, and use these premiums to build a pool of money, which is utilized on the rare occasion that a bank were to fail and the FDIC is forced to cover the insured deposits of the institution.
The string of bank failures over the last twenty four months, ranging from IndyMac Bancorp (largest to date), to Bank United and Colonial all faced similar problems. These companies were paramount in lending in the real estate market for both the residential and commercial markets, in some of the worst performing markets in the country (California & Florida). These markets have experienced historic rates of home foreclosures as property values have dropped sharply during the economic recession. The rapid rise in foreclosed properties, significantly impacted the balance sheets of these banks which held billions of dollars worth of loan securities that were losing value at a record pace. Ultimately, the banks were not able to secure enough adequate capital to remain viable and keep their required ratios in line with the FDIC and government banking requirements, which led to their FDIC seizures.
The FDIC role in supporting the banking industry is becoming threatened by the billions of dollars worth of insurance losses they have experienced in the last twenty four months. When the FDIC increased the coverage amount to $250,000 late last year, they also raised the premiums charged to banks for offering this, in a move to help restore their insurance loss reserves to cover future bank failures. Experts vary on the total number of banks they expect to fail in the near future, as the banking industry struggles to deal with record home foreclosures and job losses continue to escalate. The FDIC is likely to turn to the Treasury department for a capital injection to help rebuild its insurance coverage fund and could explore additional rate increases this year.
