The Senate expected to give themselves and the rest of the federal government more money to avoid another shutdown at the end of the fiscal year (which is today). The fix is only proposed to last through the 11th of December however. I am speechless. Speaking of the cost of running a country, I grabbed this wall of numbers from some site a few months ago. While I have not validated the data, I believe the numbers to be accurate enough that some are worth consideration. Telling the story of the government running in the red, over 14% of our citizen are receiving food stamps, and almost 1% of our nation lives in prison–for starters.
While the government is spending more money, the tax basis collected from Mr. & Mrs. America is diminishing. Our nation’s workforce has declined 3.2% since 2000, and at the same time the median income of those who are employed has dropped 1.2%. That could explain why the percentage of our country’s citizens who have chosen to no longer work has increased 16.1% during the same period.
An interesting factoid regarding housing: the median price of a new home has increased almost 60% over the last 15 years. It would appear that the rich are getting richer and the gap between the haves and the have nots is widening. All the more reason to quit reading this blog and get back to work. 🙂
I can’t believe that it’s been a month since the last Jobs Report, which comes out again this Friday. As such, there is not much in the way of financial news that will move markets until the end of the week. The Case Shiller Index shows the year-over-year home appreciation rate at 4.7%; no market reaction. Consumer Confidence comes in higher than the 96 expected at a 103; crickets are chirping on the trading floors of Wall Street. Why? Because the Fed has reiterated that they are watching the employment sector as a gauge for economic growth and thereupon building a basis for increasing (or maintaining at 0.25%) the Cost of Fund yield and the Fed Funds Rate (still at 0.0%).
Speaking of the Fed, New York Bank President William Dudley said yesterday that the FOMC is likely to raise rates in October or December (of this year?). And when has Dudley Do-Right ever failed to save the day?
I know I know, I have used this image before. I am an old hack who is unoriginal in his thoughts, but it’s Friday and this actual photograph of the Federal Reserve Board Chair Janet Yellen is an uncanny metaphor of her “hawkish” 23 page speech at the University of Massachusetts last night. Ms. Yellen said that the Fed will likely raise interest rates later this year (read: December) as a result of improvements in the labor market, and expects that inflation will tick up shortly afterward. (BTW: in economic speak, a hawk is generally someone who favors higher interest rates to keep inflation in check. Chair Yellen is insinuating that by raising interest rates, the chance of inflation spiking out of control will be mitigated.)
If you didn’t understand any of that besides “raise interest rates”, you got the point. Watch for interest rates to start coming up.
I am really not one to toot my own horn, preferring to just go about my job in relative peace and quiet, but today I got to run around the office in a cape. It seems that writing this post every day for the last seven years has turned me into a better writer and I won a nationwide contest for writing a paragraph about how I was a superhero and helped another would-be-renter purchase a home. Amid the applause of my peers, the pomp and pageantry drove home the reality that what we do everyday for work can be very rewarding. Often I get so bogged down by the encumbrance of a swelling mountain of rules and regulations that I fail to remember the positive impact that our industry has on individuals and families. Well done real estate professionals, well done.
Out of the 19 seasons that Yogi Berra played professional baseball, he was in 15 All-Star Games and competed in 14 World Series–winning the championship 10 times. With stats like that, is it any wonder that he is praised as one of the greatest players of all time? One of my favorite sayings attributed to him is “you can observe a lot by watching”. It resonates because that’s all I do to produce this column every morning; I watch and read until something interesting pops up and then I attempt to turn it into useful entertainment. We do the same thing in our professional practices: listening to the client and asking key questions to better ascertain how we can help them accomplish their goals, while keeping them interested in using our services.
Speaking of stats, Weiss Residential Research reported that the number of appreciating homes has declined more than 12% over the last year. They also said that there are three times as many homes losing value every month than there were the year prior. Pretty sure that I saw this on my eighth grader’s homework last night: (x-0.12=3x)? No word on what type of homes these are, where they are located, nor the cause of the depreciation. Given the price appreciation of housing calculated by every other publication this year, a possible explanation for their conclusions could be that the exploited sampling is very small and the reasons could be fire, flooding, or possibly anywhere around Citizens Bank Park in Philadelphia where the Phillies’ winning percentage is only 37%.
Today, several of the Fed governors are out defending the Open Market Committee’s decision to leave rates unchanged last week. They indicate that their position is to ensure that the economy has enough momentum to not get dragged down with money costing more to borrow. Three Fed officials are continuing to warn that they will raise rates prior to the end of the year (names below). Stocks are down about 1.5% this morning, mostly on weakening forecasts out of China and India–where a large percentage of my IRA funds still reside. The Federal Housing Finance Agency this morning reports that home prices rose 0.6% from June to July, and are up 5.8% in the 12 month period ending July 31st. Oh, and the portrait of Jack Nicholson has nothing to do with anything, but I figured that you wouldn’t recognize James Bullard, Jeffery Lacker, of John Williams (Fed officials) anyway.
Despite the look on Janet Yellen’s face in this photo, nobody should be surprised that the Fed didn’t raise interest rates yesterday. Chair Yellen commented that a slowing global economy along with continued low inflation levels were the big reasons for no change in rates. There was only a 30% probability of a rate increase yesterday, and Wall Street now prices out an 18% chance of a hike in October and a 44% likelihood that the Fed hikes their Cost of Funds Rate in December.
I am not a gambling man (which should come as a surprise to no one), but if I were, I would put my money on no rate hike until next spring. The Fed Funds Rate has been at 0% since January of 2009.
So for sure, today is the day that the Fed will unveil their stance on the economy and the future of interest rates. The popular consensus is wagering a 30% chance that they will finally bump the Fed Funds Rate from 0% up to 0.25% (and the Cost of Funds from 0.25% to 0.5%). I don’t know whether they will or won’t, but I think that they’ll try to appease both sides of the debate either way they swing. Consequently, there will be even more confusion about the direction of the economy and half of the people will be unhappy. As always, there is nothing that I can do about it, other than to perhaps consider what a really unprecedented time in our nation’s history that this is as we are going on eight years of zero percent interest rates. And that’s as close as I can get to explaining why I chose to use this picture of a bear shark today.
After trudging along in a relative flat line over the last two weeks, the price of mortgages yesterday took a dive below the 100 day moving average. Ordinarily that’s a big deal, but the technical picture holds no water compared to the comments that will come from the Federal Open Market Committee tomorrow afternoon–including whether or not they raise interest rates after holding to a 0-0.25% range for the last seven years. I know that yesterday I said that those comments were coming today, but I forgot what day it was.
Fundamentally, the economy is just so-so, which is the source of the debate over whether to hike rates or not. On the plus side today, you have the National Association of Home Builder’s Index rising to a 62, the highest level in a decade and over the expectation of 61 (50 is the baseline for positive sentiment with the NAHB Index). In the so-so category you have the Consumer Price Index, the headline reading of -0.1% and the Core reading of +0.1% (Core strips out stuff we don’t really need like food and energy). Tomorrow we’ll see the Fed’s written statement to see if they hike rates or not. Remember that the Fed Funds Rate is the rate which depository institutions can lend balances to each other overnight–that’s it; that’s the only index that the Fed controls. The free market regulates rates on all of the other debt instrument based on perception.
We had an abundance of bad economic news this morning, which should have caused rates to improve. Retail Sales, Industrial Production and Empire Manufacturing all significantly missed their mark, yet bonds sell off. It is very difficult to read an irrational market. Interest rates have gotten worse today when they really shouldn’t have. Why? Today is Day 1 of the Fed meeting. Tomorrow we’ll hear their written statement to see if they hike rates or not. Most folks believe that they should, but won’t. Stay tuned.