Last day of my despair.com August calendar. Even for an eternal optimist like me, sometimes things just don’t go the way that you had hoped. Today bonds are still trying to stabilize from last week’s volatility and ahead of this Friday’s Jobs Report. Both stocks and bonds are down marginally at the moment, but nothing as permanent as being eaten by a bear.
August is now all but gone. The kids are back in school, and I am back to clocking into the office at 7:45 instead of waking up at that time. As this paragraph writes itself, the nostalgia of summer is winning out over anticipation of another workday ahead. But it’s Friday and I think that I can muster up the stamina to keep on task for another eight hours.
It’s been an interesting week or so in the financial markets. As fortunes are made and then lost again, Fed Governors speak their respective minds about the future of the economy and interest rates. Greece’s big fat catastrophe has given way to China’s tripping over it’s fast and furious financial schemes. Pricing on mortgages has whipsawed 150bps in the last ten days as stocks have attempted to stabilize after the DOW lost over 2,000 points in three days, to make back 1,000 in the last three trading sessions.
Pending Home Sales, Gross Domestic Product, and Consumer Confidence are all up, while Jobless Claims and Personal Consumption are down. None of these are earth shattering, nor do they affect me personally. After a steep decline, the price of oil seems ripe for a 10% rebound. That is news I can use since my car is just about empty. Few things heighten my excitement like a full tank of gas and an empty weekend ahead.
I generally don’t put a lot of stock into revisions of previously published data. One of the reasons is that there is so much new information being released every day that it’s impossible to keep up while still trying to make this column mildly interesting, and the second is that with a number like GDP, it’s impossible to be absolutely accurate–even after a half dozen updates. Today’s second reading of the second quarter Gross Domestic Product came in at 3.7 though, which is significantly higher than the first reading of 2.3, and is cause for alarm among the Chicken Littles who claim that not only the sky, but the bottom as well is falling. I am not saying that it is or isn’t, just that the surge in growth proclaimed by the above graph is affecting the markets. Today, the jovial atmosphere is pushing the prices of both stocks and bonds upward.
Aside from clean air and speaking English, one of the biggest advantages of living in America over China is economic stability. Sure they are really good at gymnastics and manufacturing fake gold watches and computer components incredibly inexpensively, but economic stability is something that the Chinese have yet to figure out. Their Shanghai Stock Composite is down over 40% in the last two months in their push for economic reform that isn’t quite hitting the mark. Comparatively, our stocks are up almost 2% again this morning after the largest three day decline in history last week. This is not a slight against China or a chest puffing we-are-the-greatest-country-in-the-world-and-your-economy-sucks-by-comparison moment. After all, you know what they say about living in glass houses and throwing rocks. This morning I am grateful about two things: 1. I am not worried about an economic meltdown, and 2. my Chinese-made computer, cell phone, and office space heater are working flawlessly.
Last Night’s Seven Peaks party was great. I again thank you for all that you do for my business!
In housing, the Home Price Index rose only 0.2% last month, but is up 5.6% from last year. Case Shiller 20 City Index shows a monthly contraction of -0.1%, and a year-over-year increase of 5.0%. New Home Sales numbers came in at 99% of expectation. All in all, some pretty good numbers.
In Stocks, the Shanghai Composite fell another 7.6% last night. Today, China is cutting interest rates to try and stabilize their rapidly declining stock market. Here in the U.S., after the worst three day selloff in the history of our stock market, the DOW, NASDAQ, and S&P market indices are all up about 2.25% this morning.
The DOW was down 1079 points just after the opening bell this morning, but has bounced back up 745 points to be down 334 “only” as of this writing. That current 2.03% plummet pales by comparison to China’s Shanghai Composite which bled off 8% of its worth last session. Panic over a global slowdown is to blame. The S&P is down 11% from the all-time-high of 2,134 in May. Mortgage Bonds, which rose 40 points this morning are now up only nine. Interest rates are not getting as much love as you would think–or as I would hope–given the bear takeover. The dollar is also getting hammered, currently down 1.73.
Just a reminder that our Client Appreciation Party is happening at the Provo Seven Peaks tonight from 5-9PM. If you didn’t receive a ticket for your family, call me quickly; I only have four left.
This Monday, August 24th, we will be having our annual “You are The Best Clients in the History of Mankind” event at the Provo Seven Peaks Waterpark. The park will be open from 5-9 PM exclusively for you, my awesome client. If you didn’t see your invitation in the mail, just email me back and I will hook you up. The ticket will get you and your immediate family into the park (even if there are more than five of you). Or if you don’t want to bring your family, it’ll get you and four close friends through the gates. I look forward to seeing you Monday!
As far as interest rates go, it appears that the Federal Reserve will keep their rates close to zero for longer than anyone would have initially anticipated when they hit this level in 2008. The target of a rate boost in the month of September that was prevalent among prognosticators earlier this year is now grounds for finger pointing taboo. With stocks slumping, oil prices declining, China slowing down, and inflation well, deflated; the earliest sign of increasing rates looks to be December at the soonest.
Yesterday’s unveiling of the minutes from the last FOMC meeting showed that the majority of the members believe that the economic conditions justifying an increase in the Fed Funds Rate have not yet manifested themselves.
Jobless Claims are up 1.4%, Existing Home Sales are up 2%, the Shanghai Composite fell 4% yesterday, and the S&P is down about 1% this morning. All that and mortgage bonds are flat. I’ll take flat though after a 50bp jump yesterday. That puts pricing back up to a quarterly high and right at a technical triple top. I’d lock in your rate today.
Two Fed Governors are speaking out today, one for and the other against a September rate hike. Hedge fund managers and purveyors of bonds are also chiming in. The reason why opinions vary is because there will be positive and negative ramifications when rates do start to increase; one answer will not fix all of the challenges facing our economy. While I think that raising rates is a healthy thing to do, I don’t see that the economic indicators of well-being are any better than they were a year ago. It’s sort of like kicking your 30 year old son out of the basement. Sure, he still can’t hold a job, but dude, it’s time to move on. The question is when and how.
The only economic report out today that offers any guidance is the Consumer Price Index, which measures inflation at the level that you and I experience it. The CPI rose 0.1% last month and only 0.2% from this time last year. That annual number of almost zero is a rare occurrence. Perhaps even more interesting though is that when you remove the cost of food and energy from the inflation equation, CPI rose 1.8% from a year ago–meaning that the retail cost of these two sectors has decreased from a year ago, a rare occurrence indeed. “Hey Johnny, your mom and I would like to talk with you about your future…”
NAR released a statistic today, claiming that 56% of agents surveyed called open houses “pointless”, meaning that half know how to work them and half do not. Or it means that half of the Realtors surveyed just like sitting in an empty house with free Wi-Fi and gourmet cupcakes on the counter–and half do not.
The Empire State index plummeted 14.9% this month, the lowest measure of activity for the manufacturing sector of New York in over six years. New York State accounts for 12% of our country’s GDP, which is why we care about this number.
Another sector that we care about is housing, and today brings the ever volatile New Construction numbers of Building Permits (which declined 16.3%) and Housing Starts (up 0.2%).