Bernanke proclaims low rates to stay for awhile
February 25, 2010 by admin
FOMC Chairman Ben Bernanke is on Capital Hill this week testifying to the direction of the economy and the Federal Reserve’s plan to help stabilize the economy to try and help rebuild the public and private sectors. One of the most critical pieces to come from Wednesday’s testimony was a reassurance to the markets that the Fed would work to keep interest rates low for the foreseeable future. The Fed’s role in stabilizing the economy following the market collapse of 2008 & early 2009 was pivotal in helping avoid a catastrophic recession. The Fed aggressively lowered rates to try and spur lending to continue within the markets.
The decision to keep interest rates low for the near future should be viewed as a positive move that the Fed recognizes that the recovery could take upwards of another twenty four months to achieve. Low rates will enable banks to continue to operate with healthy profit margins, improving their balance sheets and better positioning them to begin to open up their lending options. The economies Achilles heal is clearly the lack of job creation that has occurred over the past two years as the market will struggle to replace over eight million jobs that have been lost since the beginning of the recession. Stabilizing the economy was critical to help slow down the rate of job cuts, but has not effectively worked at job creation to date. The Senate is reviewing a proposal aimed at stimulus funds and tax incentives for small businesses to begin hiring.
Clearly the Fed is taking a conservative approach with leading the economy out of the recession. There is a strong sentiment that the economies improvement may not continue and could quickly turn sour, sentiment that was backed up by the most recent reports gauging consumer confidence. A dip in the recovery could derail the markets and greatly impact the potential rebound of key components in the recovery (spending, jobs, real estate) all of which should benefit from ultra low interest rates for the near term.
The low rate promise has helped to push long term mortgage rates to record lows. Interest rates on home loans are well below five percent for thirty and fifteen year loan terms. Keeping home loan rates below historic levels will certainly be an aid in helping to keep the struggling real estate market from further imploding.
February 22, 2010
February 22, 2010 by admin
Home loan rates continue moving lower in 2010 as the mortgage industry has benefitted from a pullback in the market. Bond yields over the past week have been relatively unchanged as the yield on the ten year Treasury bond is stil hovering in the upper 3.7% range. The lack of movement in the bond yields have not prevented fixed rate mortgage loans from dipping to their lowest levels in the past ninety days. Thirty year fixed rate mortgage loans are now available at or below five percent with most national mortgage lenders. The drop below five percent marks a significant correction with mortgage rates over the last two months, and an improvement by .25% for home loan interest rates in the past thirty days. The drop with long term mortgage rates is likely to benefit homeowners who have yet to refinance their home loans as well as consumers who may be in the market to purchase a new home in the next sixty days. Intererst rates last dipped below five percent in March of 2009 at a time when bond yields fell sharply in conjunction with the major selloff in the stock markets. This time interest rates have benefitted from concerns over international markets and less optimism over the quick rebound to the U.S. economy as well as a renewed confidence for investors in mortgage backed loan securities.
Political headlines could have an impact on the market this week. A proposed program for the creation of jobs is working its way through the Senate and could have an impact on both the bond and equity markets if passed as job creation remains the markets largest achilles heal. President Obama has also been working at revising the U.S. health care reform bill that now features the ability for the Federal Government to push through limitations on price increases as well as a number of other critical health care insurance reforms. These two pieces of legislation have the potential to dramatically impact the stock market which could in turn translate into higher bond yields and rates if there is a significant market rally and optimism for growth..
February 17, 2010
February 17, 2010 by admin
The stock market has struggled with putting back to back gains together for the better part of the New Year as investors have witnessed a roller coaster ride between sharp rallies and steep declines. The recent two day rally this week has helped bring the Dow back above the 10,000 point level, but has done little to ensure that the market will change its tug of war tactics between buyers and sellers anytime soon. The stock market is taking cues from better than expected figures from the housing market.
The real estate industry certainly will be at the focal point of any type of economic recovery this year. The strong rebound in home sales for the second half of 2009 played a key role in helping to stabilize the equity markets as well as begin to place a floor under the bottom of home values across the country. Real estate benefitted greatly from the tax rebates and ultra low interest rates witnessed last yean and appear poised for another short term rally ahead of Aprils deadline to lock in the revised tax credits. The Fed’s decision to hold interest rates steady has helped influence long term mortgage rates to remain at extremely attractive levels. Most national mortgage lenders were offering thirty year fixed rate home loans at or below five percent and well into the mid four percent range on shorter loan terms. Yields on the ten year Treasury bond remain in the 3.7% range with minimal inflationary pressure on the short term horizon. Loan rates remain heavily subsidized by government actions and could be at attractive levels through the beginning of the summer as the FOMC remains committed to keep rates low to help spur on economic growth. Most economists now believe there is no chance that the FOMC will consider raising interest rates until the last half of the third quarter of this year.
International markets are becoming a greater influence on the performance of the U.S. stock market as well as the bond markets. Concerns over debt financing and debt levels are again a focus that will need to be monitored as large swings in volatility could quickly drive up or down equities and also greatly influence the amount of buyers moving in and out of the bond market, which could push interest rates at unexpected times to change quickly. Greece, Japan and Dubai have all recently been in the news and have influenced the U.S. markets.
Tips on choosing investment advisors
February 14, 2010 by admin
It is important to put the same level of importance to a financial planner to your financial management, as much you would to choose a good doctor for your health. Your financial health determines the kind of life you’d live as money definitely makes the world go round. Take into account the credentials, their experience, their fees and the regulatory standards to zero into the choice of an ideal financial planner:
1. Credentials: When it comes to credentials, the four common types of financial planners are certified financial planners, certified public accountants, certified financial consultants and certified public consultant. The Certified Financial Planner credential is given by the Certified Financial Planner Board of Standard to an individual after having passed tough examinations and met certain requirements. Such a person has a good amount of in-depth knowledge on financial planning that includes investments, retirement planning, mutual funds, insurance related matters, real estate and tax management.
2. Certified Public Accountant: Certified Public Accountant is known to have extensive knowledge on tax related issues. The degree is awarded by the American Institute of Certified Public Accountants
3. Certified Financial Analyst: These people often work in asset management companies in charge of mutual funds and pension funds. Individuals who work as Certified Financial Analysts are given the accreditation by the CFA institute after they pass three exams that include portfolio management, economics, security analytics, economics and ethics.
4. Certified Financial Consultant: These people usually work in the insurance industry. A Chartered Financial Consultant (ChFC) earns his or her degree through the American College in Bryn Mawr, PA. The person ought to have broad-based knowledge on all aspects of financial planning that includes insurance taxes, investment planning etc.
Financial Planners generally are also classified on the basis of three compensation categories. They are as follows:
A – Commission based: Financial planners who agree to take commission based fees earn their paycheck through commission on sales of financial products like mutual funds, stocks, bonds, insurance etc. You have to assume theses types of advisors will likely those products for which they get higher commission.
B – Fee based: Here, the planners are paid flat fees, or a percentage of money for sales and management of financial products like insurance, stocks, mutual funds, bonds etc
C -Fee only: Here the financial planner is not supposed to get commission on his sale; he just gets a pre-decided amount of money (flat fee) or a percentage of assets under the management. There is less room for conflict of interest here, because the planner is not under any influence to sell the product for a higher commission. The planner tends to give his recommendation on the basis of what is good for his client without stressing on his company
Finding a financial planner with the right amount of experience can be a great asset. Make sure that you hire a planner on the basis of good word-of –mouth publicity; in order words, through recommendation of friends or colleagues. You can also check online for some of the best financial planners who have received good reviews online.
February 12, 2010
February 12, 2010 by admin
Mortgage rates moved higher to end the second week in February, despite a dip in the equity markets to end a choppy week of trading on Friday. Interest rates had previously gained some relief from the broad market selloff as more investors were pulling funds out of equities and investing into the bond markets. Yields on the closely followed ten year Treasury Bond ended at 3.68% in late action on Friday. For the week the range on the ten year was between 3.58% and 3.72%. Thirty year fixed rate home loans continue to hover just above five percent (zero points) with most national mortgage lenders, and are in the mid four percent range on fifteen years for borrowers with excellent credit and sufficient home equity.
Volatility remains quite elevated as witnessed by the rapid movements in the stock market indexes this week. Concerns of international countries (Greece, Dubai) debt loads as well as growing concern over the level of debt and size of the government in the U.S. have become a focus for economists and investors who are gauging the economic recovery and the impact of the global markets.
The FOMC also made headlines this past week, chairman Ben Bernanke reaffirmed that the Fed is keeping a close eye on the economy and interest rates, but would be airing on the side of caution as it concerns raising borrowing rates. This news is a strong signal that their will likely be little to no movement in the Fed’s monetary policy over the next 4-6 months. Concerns that the Fed could begin raising rates as early as March of this years are all but erased. The Fed appears to be airing on the side of caution as it attempts to help stabilize the economy and promote growth. The low interest rates have helped homeowners refinance their mortgages and spurred a rally in the housing markets in 2009, but their remains a number of concerns whether the real estate market can sustain the momentum that was created last year. The major concern on the minds of most economists and investors is the lack of meaningful job growth. There remains a large disconnect between small to medium sized business and the financial markets as it relates to lending. The lack of financing in the market for businesses has greatly impacted their ability to fund operations and growth plans and is a key reason why jobs are not being created. You can expect additional government pressures to begin being placed on the financial sector to fulfill their role in stabilizing the markets, especially when you consider they have had the luxury of zero percent lending from the FOMC for over a year, which has been a great aid in helping to improve their balance sheets.
The markets will be closed in observance of Presidents day on Monday the 15th.
What the recent labor reports mean to interest rate futures
February 6, 2010 by admin
Following the stock market over the past six weeks could quickly leave the average investor searching for the nearest exit. The dramatic rally the markets experienced from March of 2009 through the end of the year was built on confidence that the economy would not totally collapse and the economic recession would eventually come to an end. The New Year has started with a much higher degree of scrutiny for timing the economic recovery and predicting future growth. Following a disappointing labor report for the month of December and overall skepticism the stock market lost nearly 6% during the month of January. Economists and financial experts were quick to pile on the train of doom and gloom, proclaiming months of additional challenges for the overall economy and thus dampening the hopes of a speedy recovery in the New Year. Yields on the closely followed ten year Treasury bond dipped by almost twenty basis points last month, bringing mortgage rates a bit of extra relief.
Friday’s jobs report was a tell tale sign of what we might come to expect in 2010, mixed reports bringing out extreme volatility in the markets and sending more investors to look for safer and more stable avenues to direct their monies. The labor report showed a significant drop in the national unemployment rates and the smallest number of job losses in over one year. Investors appeared to be taking the news in stride in early trading, but fear eventually led to a significant market selloff during midday trading, sending the DOW to its lowest levels in the last ninety days, prior to a surge in late trading to see a complete recovery in the markets. The trading closely resembled much of the action the markets witnessed exactly one year ago as investors are clearly scrambling to try and find direction to the economy and markets. The labor report was certainly an improvement over the month of December, but prognosticators were quick to point out that there were some large gaps in growth and that nearly nine million people have now lost their jobs since the beginning of the recession.
The real question is how does the FOMC interpret the data and what is the future of interest rates. In short, while the numbers were an improvement it is hard to imagine that this sold report will lead the Fed to make any changes in policy in the near future. There simply remains too many obstacles to raising interest rates in the short term and inflation remains quite contained. Worth following will be whether the improved figures help to loosen the banking industry to start sending money out into the markets in the form of loans. The spread on borrowing from the Federal Reserve remains quite attractive and should hold true for a minimum of the next six months. A boost in lending would certainly benefit the market and economy and help improve the labor markets at a faster rate.
February 1, 2010
February 1, 2010 by admin
February started on a much higher note than the month of January ended for the stock market, driving up fixed home loan rats along the way. The stock market jumped over 100 points on Monday as investors looked for bargain opportunities following a five percent decline in the DOW for the month of January. The markets were able to look past the fear and panic that appears to be setting back into the market as investors showed signs of concerns that the economy would be challenged for most of 2010.
Mortgage rates were pushed higher with the jump in equities today. The bond market crossed back over 3.6% , pushing up long term rates. Fixed thirty year mortgage rates are now closer to 5.25% and fifteen year rates are above the 4.5% range. Interest rates have benefitted from a decline in equities as bonds tend to be a safe haven for investors looking for stable investment options during uncertain times.
Politics continue to be a major focus for the economy to watch. The proposed budget from President Obama calls for a 3.8 Trillion dollar deficit. The proposed financial plan from the government calls for a deficit reduction beginning in 2011. It appears more and more likely that the government will need to set aside additional dollars for a job stimulus program and this is likely to further strain the economy.
Corporate earnings will be in the headlines until the market places a renewed focus on the labor markets starting with Wednesday when the ADP report for January is released followed by Friday’s non farm payroll report. The markets will be eagerly expecting an increase for the fist time in the last 18 months, but following the disappointing report from last month, it remains to be seen whether or not the labor markets have actually started to gain some jobs.