I welcome your witty caption about these pigs swimming in a the Mediterranean Sea off the coast of Greece, where their banks and stock market have just shut down for a week. Grecians can’t pull more than 60 Euro out of ATMs per day, the supermarkets are running out of food, and the gas stations are running out of fuel.
Jumping on the “trouble in paradise” band wagon, Puerto Pico’s governor announced this morning that his Commonwealth cannot repay their $72 Billion in debt.
For the time being, the uncertainty has caused the DOW to drop 245 while the equity markets bleed into the bond markets. Our mortgage bonds are taking their share of the proceeds, driving prices up 59bps this morning.
Pending Home Sales rose 0.9% last month, below the 1.4% increase expected. At the same time, my favorite-named financial services company, Black Knight, reported that home prices rose 1% last month and are up 5% from 12 months ago.
Well, this is the almost the last day that I get to look at my June parody of a motivational calendar, pictured above.
Now to the boring stuff. Rates are near the yearly high even though Greece has been given until Monday to strike a deal and avoid defaulting on their billion dollar payment due by Tuesday.
Rumors are also swirling that if no agreement is reached, a form of bridge financing may be struck in an effort to kick the can down the road a few more months. There is also talk of a multi agency bailout plan, which will be reviewed at tomorrow’s meeting. You know it’s bad if you have a meeting on a Saturday.
Global Bond yields continue to edge higher as investors move (though nervously) into riskier assets like Stocks. Nervously because China’s Shanghai Composite just suffered its biggest 1-day loss in 5 months. Chinese Stocks are seen as extremely over-valued as a large portion of the run up has been heavily financed by margin trading.
Greece has a debt payment due at the end of the month for $1,800,000,000. Again, that’s a payment of 1.8 billion dollars. The country was to have been making weekly payments of 300M euros, but has not been able to do that, at first promising a lump sum payment at the end of the month and now negotiating with creditors for alternative repayment plans. The future direction of both Stocks and Bonds now are dependent on whether Greek officials are able to negotiate an acceptable deal.
Domestically, Personal Income rose 0.5%, while Personal Spending rose 0.9% The Fed’s favorite gauge of inflation, the Core Personal Consumption Expenditures is at 1.2%; the Fed would like to see 2.0%. Great Expectations indeed.
The big news to confirm this morning as that the launching of TILA-RESPA reform (AKA: TRID) has been kicked a little bit further down the road to October 1st.
Taking a back seat to the CFPB, the FOMC said that policy will remain “highly accommodative for a long time”. Ms. Yellen’s comments lead me to believe that a rate hike by the Fed will still happen late this year. That’s right, the Fed also kicks the can.
Seven years after the peak of the housing crisis, CoreLogic reports that 10.2% of American homes still have mortgage balances above the property’s fair market value. Crazy.
Speaking of crazy, Greek officials today confirm that their country has no way to make their lump sum debt payments that are due June 30th without some sort of “loan modification” plan, or by taking on additional debt. Just last week their President assured the world that they could get caught up on their payments by the end of June. The latest excuse seems to be that because the citizens of Greece don’t work during the summer months, there are no tax revenues to pay the bills. EU officials are threatening to kick them out of the Union. The conversation was something like “if you are going to live in our house you need to live by our rules”. And then Greece was like “what are you talking about, all of Europe vacations during the summer”. Since I don’t speak German, or Greek, the translation could be a little rough.
As for the FOMC meeting that concludes today: with the most recent reading of our U.S. GDP at -0.7%, the likelihood of the Fed raising rates today is pretty slim…pretty slim indeed.
Building Permits rose 11.8% and Housing Permits sank 11.1%. The yin-yang numeration is uncanny. I ‘d like a little more balance in my personal numeration since I lost my wallet yesterday. While the credit cards and driver license will all be magically replaced with just a little bit of effort, the cash that was in there (which was more than I usually carry since I was out of town for the weekend) remains out of balance. I throw that out there for the universe to note. But if I don’t see the cash again, oh well, worse things have happened.
And speaking of looking for cash and worse things happening, the debt crisis in Greece may be coming to a head over the next few weeks. If the country defaults on its debt, they would cause significant economic unrest in the European Union. On the plus side, interest rates would come back down.
Back on our shores, the two day FOMC meeting starts up again today, with their eight-times-per-year statement about the Fed’s monetary policy being released at mid-day tomorrow.
We are getting a little bit of reprieve from the free-fall in mortgage pricing that has sent interest rates upward this month. Market nerds call this chart pattern the “dead cat bounce” because it’s a little bit of a correction that doesn’t have any life in it. On this two year chart, the bounce can be seen as the little blip upward above the blue line on the far right, before it heads downward again breaking through the line. Twelve days later we are in the middle of another one right now–or are we? Only time will tell whether we are in a correction that will reverse and continue to send interest rates even lower than they have been following the long-term trend that commenced in September 2013:
Or whether the market has shifted and we are in a downtrend that started in January of this year:
Taking al of the data into consideration (including that dangling tail hanging off of the end of the graph with the long upward blue line), I would conclude that interest rates are finally on their way back up. Oh, and I apologize to anyone who finds this cat graphic disturbing. I have no personal malice toward cats.
Cash sales on homes dropped 2.8% last month, making up only 35% of total residential home sales. The decline comes as a result of a downturn in investor participation and not from an easing of the mortgage application process.
Jobless Claims are up by 2,000 to 279,000. New Unemployment filings have been under 300,000 now for 14 weeks, the longest streak in 15 years.
Mortgage pricing is up 22 today, but don’t be fooled by that old bear. The momentum has stalled out at the falling trend line and we should expect another big price drop in the morning, putting additional upward pressure on interest rates.
Having been running at full speed for the last five months and facing a few weeks of obligations that will take me out of the office and out of cell range, I have been looking for a little reprieve. Emphasis on little. What we are seeing is an illogical selloff taking mortgage pricing back to the levels seen one year ago (see graph below). Like the kids pictured, we are getting more than we bargained for.
A bear bond market is when pricing deteriorates and interest rates rise irrespective of the economic conditions. That’s what we are seeing over the last ten days. When this happens there is no way to predict a turn around the best plan is to take the cautious approach and lock in a fixed rate as soon as you can.
Having said that, I of course still hope that rates improve again expeditiously; I just don’t care to gamble with your money.
UP: 49% of those participating in the Fannie Mae National Housing Survey feel that it’s a good time to sell a home. Forty-nine percent is a new high for the survey.
Another new high: the Job Opening and Labor Turnover Survey (JOLTS) shows that there were 5.4 million job openings in the U.S. at the end of April–the most since JOLTS began 15 years ago by the Bureau of Labor Statistics.
DOWN: Homes in foreclosure declined 20% since this time last year. Also down is the likelihood that Greece’s proposal of debt restructure will be approved by creditors. Even still, mortgage pricing is al the lowest since last October.