How Durable are the Goods?

We will need to wait until October to see how selling $3B in iPhone 6 on just the first day of availability sways the numbers; today though, August’s Durable Goods Orders (purchases of wares that are expected to last at least a year) took a record plunge of 18.2%.  Getting “sold on the sizzle” of decreased sales, traders have pulled their positions causing the DOW to plummet over 200 points so far this morning.  I anticipate that in a few hours investors will remember that July’s Durable Goods Orders were UP a record 22.5% as a result of ginormously expensive aircraft contracts, making today’s decline in reality an increase of 4% from June.  So don’t go cashing in your 401(k) just yet.

Up against a ceiling of resistance, Mortgage Bonds are flat, so all of the funds from the sale of equities are going into cash accounts.  Translation: it’s a good day to lock in the interest rate on your loan if you haven’t already done so.

New Home Sales Up Big.

New Home Sales come in at 504,000 annualized units, way above the 435,000 expected by Wall Street. New Sales jumped 18% in August (the largest increase in over 22 years), and have increased 33% from a year ago!  The median price of said new home is now at $276,600, and increase of 8% over this time in 2013.  So far this morning the markets don’t know which way to react; stocks and bonds have whip-sawed back and forth in early trading. Thirty year FHA loans are at 3.5% and Conventional loans are at 4.125%. Fifteen year rates are way lower at 3.0% (APR will be higher, depending on the loan and down payment amounts, and amortization term–as closing costs and the presence of mortgage insurance affect each loan differently.)

Bonds Bounce

Where interest rates were relatively steady all summer prior to the “fall” (pun intended), it’s been awhile since we I have broken out the trampoline to show prices rebounding like we’ve seen the last few days.  In the short term anyway, that bounce should keep us at current levels given the U.S. military strike on Isis this morning (generally speaking Stocks get a little squeamish over international conflict and Bonds are the BFF that investors come running back to for comfort).  I don’t anticipate us rising back to where we were during the warmer months incidentally.

Monthly Home Prices fell 0.6% last month and 0.4% the month prior, bringing the year-over-year increase to 3.7% across the country. (Don’t panic, this is just one survey.)

A Hodgepodge of Useless Information

Scotland has voted to remain part of the United Kingdom and will hash out their tax rate changes which take effect as early as 2015.    While doing a bit of research on the UK debacle, I ran across this bit o’ information about our taxes here in the U.S. that was of more interest to me personally.  The IRS claims that 47% of tax returns filed in 2012 reported adjusted gross income (AGI) of less than $30,000, while only 3.6% of tax returns reported AGI of at least $200,000. There are about 300 million households, but in 2012 only 145 million tax returns were filed.  Of those who filed, 64% of the returns paid federal income tax while 36% of the returns did not pay any federal income tax.  So if you paid any income taxes in 2012, you are included the 31% minority of the population which did so.  Thank you for keeping our government afloat (is that the right word?  BTW: This is not a cry for a vote of secession).
Interestingly enough the National Association of Realtors shows that 54% of all licensed agents earn less than $50,000 per year while 7% earn more than $200,000 per year.  Real estate agents are more polarized in their incomes than the national averages listed above.  Realtors earn an average of $39,140 per year and it’s the 89th best job to have in the country according to US News and World report (#1 is software developer).
How is that for a smattering of useless information? Here’s what you really want to know: Thirty year FHA loans are at 3.5% and Conventional loans are at 4.25%. Fifteen year rates are way lower at 3.0% (APR will be higher, depending on the loan and down payment amounts, and amortization term–as closing costs and the presence of mortgage insurance affect each loan differently.)

Fed Pulls Back

Easing off the throttle by another $10B, the Fed will purchase a total of $15,000,000,000 in mortgage backed securities and Treasuries (10 billion in Treasuries and five billion in mortgages) next month.  This is down from the original 85 billion per month when Quantitative Easing began almost six years ago….  The DOW took the news well, closing at another all-time record high of 17,156, up 24 points, while Mortgage Bonds lost 25 basis points to fuel the surge in Stocks.  The DOW is up almost 100 already this morning as Mortgage Backed Securities settle in at the lowest price of the last five month, putting upward pressure on interest rates.

Although they are phasing out their purchase of long term debt, the Federal Open Market Committee yesterday reaffirmed their commitment to keep the Fed Funds Rate (which directly affects short term interest rates like credit cards) at the current level for a “considerable time”.

Among this morning’s data released, Building Permits decline 6% to just under 1MM (annualized), and Housing Starts are also just under 1MM, a drop of over 14% from the month prior. Jobless Claims fall 36K to just 280,000 new filings for Unemployment Compensation last week.

FOMC Meeting Concludes

It’s Fed Day.  The Federal Open Market Committee will conclude its two day closed-door session with a press conference at 12:30 MDT.  It is anticipated that the Fed will address whether they will hold course and maintain rates at near zero levels for “a considerable time”.  That “time” has been hitherto been interpreted as second or third quarter of 2015.
The economic date released since the last meeting has not been what anyone could consider “strong”; today’s Consumer Price Index shows prices at the consumer level have contracted by a fraction of a percent from last month–down 0.2% versus an anticipated flat reading of 0%.
On the other side, the National Association of Home Builders’ Housing Market Index rose four points to 59 today (the threshold of 50 and above represents an optimistic outlook in the new construction arena).
Thirty year FHA loans are at 3.625% and Conventional loans are at 4.125%. Fifteen year rates are way lower at 3.0% (APR will be higher, depending on the loan and down payment amounts, and amortization term–as closing costs and the presence of mortgage insurance affect each loan differently.)

The Fed Funds Rate

The Fed Funds Rate is currently at a range of 0-.25% (incidentally this is the first time that it’s had a range because 0% doesn’t work for trading market funds).  The Prime Rate is 3.0% above the Fed Funds Rate, always rounded up–wait, don’t get our your calculator, I’ll do that math for you: that’s 3.25% for Prime.  And there it has been there since October 2008.

A report out today by the San Francisco Fed says that their researchers indicate that investors are underestimating how quickly the Fed can raise interest rates. Once again, it’s time to get your financial house in order (including a plan to pay off credit cards once and for all) and buy a house before rates jump.  Current forecasts from the Fed predict the Fed Funds Rate to rise to 1.13% at the end of 2015 and 2.5% a year later.

I am heading to Palm Desert tomorrow for my annual nerd convention.  There are several things that always give me pause there.  The first is during the first morning’s session as I ponder “am I really running my business the best way I can?”.  The second is when I walk out of the dark and drafty convention hall to see really tan people lounging poolside and I wonder “am I really living my life the best way I can?”.  After four days of meetings I hope to have more clarity; I’ll let you know next week.

Recession vs. Recovery Revisited

So last week I discussed the ongoing debate about whether the data indicate that the economy is improving or not.  And wouldn’t you know it, it’s been an entire week and the issue is still not resolved. Today’s Jobs Report makes it all the more perplexing.  …While highly-paid PhD wielding economists expected 233,000 to be created last month, the Bureau of Labor survey reports that only 142,000 jobs were created in that time (they were only off by 40%).  Adding insult was a downward revision to June’s number by 28,000.  Yet somehow, the Unemployment ticked down to 6.1% from 6.2%.  Riddle me that.

Enter the Labor Force Participation Rate, which fell to 62.8% from 62.9% (matching a 26-year low as another 64,000 Americans dropped out of the workforce). Once again I reiterate that the Unemployment Rate is declining because folks are leaving the workforce.

The Bond charts continue to move sideways, keeping interest rates low and steady. Thirty year rates for FHA are at 3.5% and conforming conventional loans are at 4.125% today, while 15 year rates are down at 3.125%. (APR will be higher, depending on the amortization term, and the loan and down payment amounts–as closing costs and the presence of mortgage insurance affect each loan differently).

ECB Lowers Interest Rates

This morning the European Central Bank announced that due to their stagnant economy, they are lowering their interest rates and starting their own version of quantitative easing.  That’s like so 2008, Europe.  Where the European Union does not have a debt aggregator (a ‘la Fannie Mae and Freddie Mac) like we do it will be a little more complicated to pull off, but I am more concerned about the implications than I am logistics.

Lower rates across the pond should mean that our rates get better too, but in the early going, Stocks are the beneficiaries of the prospect of lower rates abroad and upward pressure is being put on mortgage rates here at home.