It’s the End of the Year and I Know It

Last day of the year!  Make sure that you pay your state taxes and tie up any loose ends to avoid trouble on Thursday.  Interest rates are holding their own but definitely in an upward pattern:


Consumer Confidence jumped up 8% from last month, and the Case-Shiller 20 City Index shows a 13.6% home price increase from last year at this time.  As more and more good news comes rolling in, the economy will pick up steam and rates will start rising more quickly.  I think that at best we can hope for an Olympic size ski jump at the end of our hill on the graph shown here.  That’s a matter of speculation and timing—and a foolish bet if you are holding out for better rates since they are steadily marching upward.

Home for the Holidays

The last few days of the year are upon us.  Wall Street is all but vacant again this week, unlike my house which is full of over-sugared children already claiming to be bored of the bounty received less than a week ago.

Pending Home Sales ticked up 0.2% last month, well under the 1.5% increase expected.  I guess that folks decided to spend all of their money on presents last week.  They should have bought a new home instead of all of the gifts under the tree; there’d be more to show for the expenditure and the kids would be just as excited.

Plus, the 4-4.5% 30 year interest rate on a home loan is much cheaper than what credit companies charge 🙂

Happy Festivus

I am just here long enough to wrap up a couple of things before Christmas.  I would also like to pay homage to the 100th anniversary of the Federal Reserve (happy birthday today Fed) and to celebrate Festivus.

While Mortgage Bonds stabilize, Stocks continue to hit record highs and Gold keeps sinking.  Personal income is up 0.2%, but is eclipsed by personal spending, up 0.5%.  Which leads me to my “airing of grievances”.  What the heck is wrong with you people?  Spending more money than you earn is foolhardy.  Yes I am talking to you Mr. and Mrs. America and to you Uncle Sam.  I just hope for my own retirement’s sake that the run-up in Stocks is not directly tied to corporate profits based on those two statistics.

MBS have gained back 95% of what they lost with the taper announcement last Wednesday, allowing rates to stay in the 3.875-4.5% range.

Coming off of the Lortab

First of all, I wish you a very merry Christmas!  I hope that you are able so spend lots of time with your families over the next few weeks, that you are safe, and that your stocking is full. On Wednesday the Feds started to slim down their purchases of MBS and longer-term Treasuries to allow interest rates to come up.  Like a physician slimming down your Lortab dosage several weeks after a hip replacement, it is painful, but necessary.  And soon you discover that you might not need as much as you had been taking in the first place because you have recovered more than you had thought. So right on queue today, the GDP numbers come out showing a 4.1% growth rate across the country.  This is a greater increase than we’ve seen since the end of 2011.  A large portion of that growth came from a 2% increase in Consumer Spending—so your stocking should be full. You can see from the chart here that interest rates are most assuredly on the rise as prices fall following a very linear pattern; the big decrease two days ago and subsequent whip-saw is post-Fed reaction.


Believe it or not, 30 interest rates are still in the 4.0-4.5% range for now.

A House of Gold

After six months of deliberating, the Federal Reserve yesterday announced a plan to start tapering their purchases of mortgage backed securities and 10 year treasury bonds by $10,000,000,000 per month.  Ben Bernanke said that economic data will be the determining factor to determine the momentum of easing egress in the future in our return to normalcy – whatever that is.  Stocks surged and bonds plummeted on the news.  Gold has also taken of being the last few days, down 3.8% today alone.  The value of gold has decreased 31% since the beginning of the year, a little over the margin that the S&P has gained during the same time period.  Stocks, bonds, and commodities will continue to suffer volatility while they digest what effect tapering will actually have on the markets.  Volatility will be exacerbated as veteran traders will have skipped town for the rest of the year and the neophytes attempt to make a name for themselves by making big moves.

Weekly Initial Jobless Claims rose to 379,000, above the 333,000 expected, and higher than any week since last march.  Who wants to look for a job when there’s so much Christmas shopping to do?  Existing home sales fell by 4.3% last month, to an annualized 4.9 million units sold.  Home Sales were down 1.2% from last year—this is the first yearly decline in 29 months.  Because rates have been so low during the last few holiday seasons, it’s hard to remember that home sales are usually slower this time of year.  With rates up, and it’s sales down, now’s a good time to buy a home at a discount—especially if you want one made of gold.

Farewell Mr. Bernanke

The Bond Market is a little skittish this morning ahead of the Fed’s last meeting of the year.  At Ben Bernanke’s last meeting as Chair of the Federal Reserve, the likelihood of raising the interest rates they control directly is zero.  However, there is a chance that they announce a reduction to the stimulus program known as quantitative easing.  Those odds that were only at 25% up through yesterday now have another ¼ of the economists surveyed flinching; a poll out this morning place the odds of a plan to taper at 50/50.

One of the factors spooking bond traders today is the 22.7% increase in Housing Starts announced this morning, representing the largest month-over-month increase in 23 years.  I think that the increase is just a matter of timing, since Building Permits in the same report actually declined 3.1%.

Technically speaking, Stocks are mixed, and Bond pricing moves sideways.  I, like you, am interested to hear the policy statement at 12:00 our time.  This morning, 30 year rates are in the 3.875-4.5% range.

Inflation in Check

The Consumer Price Index, a measure of the cost of living across the country, was released this morning.  The report shows that prices of the stuff we buy are up 1.7% from last year.  The Fed looks for the inflation reading to be in the 2.0-2.5% range and adjusts interest rates up to keep the cost of living down.  Where rates are on the floor, the CPI reading is under the target rate and the Fed is meeting today, I would imagine that the chances of tapering just dropped under the 25% mark.  This is good news for those of you who enjoy low interest rates—and low prices for that matter.

30 Year rates are in the 3.875%-4.5% range today (APR will most likely be higher, depending on loan amount and loan to value ratio).

Houses (of Congress) in Order

This month’s Federal Open Market Committee meeting begins tomorrow and culminates on Wednesday at noon our time with the reading of the monetary policy statement. Some speculate that the Fed will announce a formal plan to ease out of the five year long economic stimulus plan known as quantitative easing.  My viewpoint is where this is the last statement of outgoing Chair Ben Bernanke, no such plan will be announced.  Is it because the economy is floundering?  Kinda, but not really.  Data shows that we have hit bottom and begun to turn the corner (please excuse me for mixing my metaphors—guess I’m still feeling cheeky for saying “kinda”) and we will have to return to normalcy sooner rather than later.  I believe though that Mr. Bernanke will want to be remembered for all that has been done on his watch, and not as the guy who prematurely turned off the lights when the show was still going on.

Also something to consider is the political pressure for the Fed to keep rates low.  Think about it: as of this morning the US Government owes $17,236,033,598,592.96, and can’t get its spending under control.  According to the Treasury Department the average interest rate paid by the US Government is 2.543%, which equates to $438,312,334,412.22 in interest every year. The National Debt has continued to increase an average of $2.65 billion per day since September 30, 2012!  Rates going up will affect the government more than it will someone who has their proverbial house in order.

In order to get your house in order, why not look at a 15 year loan with rates still at 3.5%? (APR will vary and is dependent on down payment, loan amount, the presence of mortgage insurance, etc.)

The Hazy Shade of Monetary Policy

I think that this week’s weather is exactly what Paul Simon (or The Bangles if you are younger) envisioned by “the sky is a hazy shade of winter”—except that there is more than just “a patch of snow on the ground”.




Like the weather, the markets are quiet—if not cold—in the absence of earth-shattering economic data today and ahead of next week’s Fed meeting where there exists a 25% chance of QE tapering to begin.  Will the Federal Open Market Committee see that our economy is in fact improving enough to justify scaling back their purchase of long-term investment vehicles and consequently allowing interest rates to return to more natural levels?  Or do they, like 83% of those polled by CNBC this week, still rate the economy as “fair/poor” despite increasingly (though incrementally-challenged) better numbers reflecting economic growth?  Beauty, they say, is in the eye of the beholder.  And in this case, the 12 voting members of the FOMC (comprised of five Reserve Bank presidents and seven Fed Governors) are the beholders of the future of interest rates—if they can see through the haze that is.