An Early Christmas

It looks from here that Christmas is coming early as interest rates appear to be staying low through at least December.  No mention of a rate hike was made by Fed Chair Janet Yellen at the conclusion of Wednesday’s meeting.

The Fed once again indicated that they are looking for sustainable growth in the labor market, as well as measures of inflation to get to the target of 2% per annum, before they hike interest rates.  While the first Q2 GDP reading came in at that number yesterday, there will be some half dozen future stabs at it and plenty of revisions to follow.  A contributor to wage-based inflation, today’s announcement that the Employment Cost Index rose 2.0% from last June is also in line with Fed expectations.  Moreover the pitiful 0.2% increase over the last quarter (that represents the smallest in 33 years) is most likely the after effect of the significant jump in Q1 that was a consequence from the Affordable Care Act implementation among employers.

Fed Gives No Clues

The Fed concluded their two-day, eight-times-per-year meeting yesterday with the customarily vague prepared statement.  Here’s an excerpt that pertains to what we care about: “The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term.”  IE: there was no hint as to when the first rate hike may take place.

Today’s first reading on the second quarter GDP comes in at 2.3%, below the 2.5% anticipated, but well above any reading from the first quarter.

Waning Confidence

I am back in the saddle after a two week hiatus; only one of which weeks was actually spent on vacation and the other week was spent preparing for and catching up from said time away.  We took the family to San Francisco to walk the streets, bike the bridge, explore the woods, and take in a couple of ballgames.  I didn’t think that I would enjoy the city as much as I did and can’t wait to get back.

But enough about me, let’s talk about boring stuff.  The nation’s home ownership rate declined yet again to a paltry 63.4%.  This is the lowest percentage of Americans who have owned homes since 1967–back when you had to have a 20% down payment to get financing.  It might have something to with the collective mentality of the consumer.  The numbers out today show that Consumer Confidence slipped 10% from last month’s reading.

Janet the Hawk

Looking more like an inflation hawk than her usually dove-ish self, Fed Chair Janet Yellen testified on Capitol Hill this morning.  Here are three main points out to that speech:

1. Gradual interest rate increases will be contingent on how soon interest rate increases begin. The longer the wait to raise, the less gradual subsequent increases may be.

2.  In regards to the current ability to originate new mortgage loans: “Dodd Frank standards have kept us from slack lending standards, but have had some unintended consequences” .

3. With regards to Puerto Rico, it is appropriate for Congress, but not the Fed, to step in as a creditor.

After a drop at the outset on the heels of a hot PPI (up 0.4%), pricing on mortgages is up 32bps from the opening bell.  This seems to be coming not from Ms. Yellen’s comments, but from outspoken economists rebuttals 

State of the Market

Retail Sales lower than expectations at -0.3%.  Stripping out car sales, the number only fell by -0.1%.  That’s the only domestic report out today; the Producer Price Index and the Fed’s Beige Book come out tomorrow.

Greece made a $95M debt payment to Japan today.  Banks in Greece are scheduled to reopen this Thursday after being closed for a two weeks now.  It’s probably pretty easy to find $95,000,000 when the banks are empty and you have complete access.

Our mortgage bond pricing enjoyed a run up for the first week of the Greece debt crisis and has now slid back down to pre-crisis levels from the last week in June.  We have hit a triple bottom and hope that we can continue to hold here.  Looking at the chart for the last two years, this area holds a lot of support, but if pricing falls from here, rates will most likely climb another 1/4% rather quickly.  Stay quick on your feet.

Rates Be Gettin’ Higher.

I came down with a case of Bell’s Palsy over the weekend and on top of not being able so smile with both sides of my mouth, I can’t close my right eye.  As cool as my kids think it is that I am wearing an eye patch, it’s taking some adjustment.

Rates are looking to come up this week because of the Greek Bailout and the Fed Chair will be testifying before congress on Friday.  Let’s talk about the best options and save you clients some money!

Pigs is Pigs

Money is flowing out of Bonds and into Stocks this morning after news that the latest $59,000,000,000 Greek bailout proposals mays appease creditors and keep the country in the European Union.  Greece will most assuredly need to usher in tax increases and spending cuts to make payments this time around.

China’s whipsaw stock market is also making headlines again today as it closed this time on the upside.  Regarding the economies of both countries, the question is whether there is real sustainable growth based on sound fundamentals or just fabricated headlines to appease big brother.  No matter how you doll it up, a pig is still a pig I say.  Disclaimer: I am in no way asserting that these countries, their citizens, or anyone descending from–or with ties to–these nations are anything less than the best of human kind.  My assertion is simply that a healthy economy requires more than lipstick and rose-colored glasses.

Speaking of pigs, I had a delicious Brown Sugar Bacon and Pit Smoked Ham Sandwich on a King’s Hawaiian Bun at a reputable dining establishment down the street from my office (okay you got me, it was Arby’s) this week.  What made the experience even more sweet is that when I got to the drive thru window to pick up my food, the gal handed me my bag and informed me that the car ahead had picked up the tab.  It was the most gratifying lunch that I had all week and has caused me to look for more opportunities to be kinder than I need to be.

Ruin in Greece

Eighty-seven years ago today, sliced bread was first sold in stores.  This was right at the start of the Great Depression–the worst economic period in our nation’s history.  If you look around your friendly neighborhood Super Wal-Mart this afternoon, you’ll see that most of the bread on grocery store shelves are sold as pre-sliced loaves–this time saving innovation has saved mothers of school aged children millions of hours of time (and time is money) over the last nine decades.

Now head over to the Pita department and you’ll see that most of them are not pre-sliced.  And when you try to hollow out a pita yourself you usually end up poking a hole through the side.  What does that have to do with the price of tea in China?  Nothing, (but it does again raise the question about those silly chopsticks).  It does have something to do with Greece and how 16 of the 18 other European Union countries have voted to kick the country with the big red “fail” stamped across it out of the Union.  Greece has been relying on the same old pita bread and the same old washed-up buildings as tourist attractions for too long.  Now they owe billions of dollars that they can’t repay, as a country they voted to not have any more help, and they don’t want to work for it either.

This big fat Greek disaster has been pending for over a year, and has been one of the reasons that interest rates have stayed so low for so long.  Now that it’s here, it will be interesting to see how things play out.

America the Beautiful

With tomorrow being the federally observed fourth of July, the monthly Jobs Report was released a day early.  The headline Unemployment Rate dropped to 5.3%, the lowest since our rebound from the Great Recession started seven years ago.  However, the thing about headlines is that they can be deceiving, and if you delve into the BLS Report, there is concern among those who know their way around a calculator.

To Wit: The Labor Force Participation Rate dropped to a 38 year low, showing that only 62.6% of the working age population is actually employed. Um, yikes.  On top of that, the Average Work Week is still only 34.5 hours–meaning that a large portion of workers are only employed part-time.  Despite what the Unemployment Rate shows, fewer people are really employed full time.  Additionally, wage growth increased a measly 2% from this time last year.  Those jobs that are being created are low paying.

So What?  Well, let’s look at our beautiful nation.  The thing about a government, any government,  is that it “earns” most of its money by collecting taxes.  And if Americans are paying less taxes (because individuals and corporations are earning less money), while at the same time the government is shelling out more and more money to social programs, sooner or later they are going to run out of money.

We need to learn a lesson from Greece and get our act together.  The U.S. is now where Greece was some 30 years ago.  We have a large national debt and interest rates are going up.  Though we don’t have much control over what Washington does, we do have control over how we spend our money and how much debt our family has.  Not everyone in Greece right now is standing in line at the ATM; many, many people could see this bank shutdown coming and prepared themselves accordingly.  The financial turmoil in Greece has been in the news for several years, and the suffering is happening among the folks who have done nothing to help themselves and are still waiting for their bankrupt government to help them out.

If you need someone to help you put together a plan to get you back on track, let me know.  I will help you out free of charge.  Have a happy and safe fourth of July my friend!

God Bless America

First of all, just a disclaimer: I love our country and look forward to celebrating her greatness this weekend by seeing stuff explode over Lavell Edwards Staduim while listening to a Pilipino Steve Perry sound-a-like instruct me to “Don’t Stop Believing”.  But just like my kids–who I also love–they make dumb decisions sometimes.

It’s not just our federal government who struggles to make the best choices either.  Take Greece, just for example.

“In housing news, single family Housing Starts are up 6.7% year-to-date and single family permits are up 7.5% year-to-date; New Home Sales are up a staggering 24%!  Relatively fewer custom homes are being built across the country, giving way to more spec and track built homes. First-time buyers accounted for 32% of existing home sales in May, their highest level in 32 months.