President-Elect Trump named Steven Mnuchin as the next Treasury Secretary.  You’ll start seeing his name on all of those new $100 bills in your pocket starting next year.  He is a former investment banker, Hollywood producer, and also may have evicted people from their homes before he should have.

Personal Consumption is up 1.4% from this time last year, while Personal Income is up 4.5%–so you should have more of those Benjamins in your pocket.

Home Prices and Loan Limits

The chart here shows the appreciation rate of homes in major metropolitan areas across the country.

Fannie and Freddie’s parent organization, the Federal Housing Finance Administration, reported that its third quarter House Price Index (HPI) is now 1.7% higher than it was in the third quarter of 2007 (right–nine years ago, and the last time the conforming loan limit was raised).  Consequently, the agency will raise the conforming loan limits by 1.7% starting January 1st to $424,100.  The report also showed that home prices have increased 6.1% from this time last year, nationwide. The not-quite-as rosy-Case-Shiller Index shows that home prices have risen 5.5% during the same period across the country..

The second estimate of the GDP for the third quarter of 2016 rose 0.8% and gives an annualized 3.2% growth rate.  Other annualized figures of note: Consumer Spending was up 2.8%, and Personal Income rose 5.2%

Strong

In her speech this morning before Congress’ Joint Economic Committee, Janet Yellen (who is NOT pictured above) said that she expects economic growth to continue over the next couple of years so that the markets return to a 2.0% inflation level.  Ms. Yellen said that a rate hike would be appropriate “relatively soon”, stating that if they delay for too long, it encourages excessive risk-taking, undermines financial stability, and the economy would “overshoot the goals of the Committee”.

Speaking of overshooting goals, the Initial Jobless Claims fell by another 19,000 to the best figure since 1973.  Continuing Claims fell by 66,000 to the lowest number in 16 years.  The labor market, like the guy who IS pictured above, is looking strong.

Do We Have a Flat?

Sometimes, flat can be problematic. The Producer Price Index, measuring inflation at the wholesale level, was released today.  The PPI shows 0% price growth–totally flat–and when stripping out food and energy nets a -0.2% loss.  The anticipated showing was a gain of 0.3%. This month’s loss brings the year-over-year reading to an anemic 0.8% advance.  Overall, pretty flat.

The National Association of Home Builders’ Housing Market index remains unchanged this month at a 63–also flat.  Stocks and Bonds are pretty close to unchanged so far today. Sometimes flat and unchanged isn’t a big deal, and sometimes flat can be a problem.  The question is, who is getting out of the car to see how bad the flat is?

Yesterday I mentioned that rates are trying to stage a tiny comeback, and that can’t happen with a flat.

 

Down, Down, Down

I know that charts can be super boring, but they say that a picture is worth a thousand words.  That means that I don’t need to write as much for you to see the bloodbath that’s happened to the mortgage market since the election.  You can easily see that the price has massively declined over the last three trading sessions but is finally, hopefully, finding some footing to stop the sell-off.  As I had mentioned last week, crossing the 200 Day Moving Average would incite a price decline/rate hike; it just so happens that the surprise election result coincided with piercing that support level and was just the stimulus to push rates convincingly higher.

Any economic news is secondary at this point.  I suspect that we might see pricing bounce back from here (which is why I broke out the old trampoline)and give maybe half of the losses back.  But I don’t see interest rates returning to pre-election levels prior to the the next Fed meeting a month from now–and even then it’s wishful thinking to expect long-term rates to go lower even then. 

We are Headed for Greatness

So the electoral college voted to make America great again.  I like the idea of great.  I’m still not sure what it means for America, but great is a compelling argument for people all over the world.  What’s scary is the unknown. That fear of the unknown in the darkness of night had the DOW futures down 800 points before the opening bell.  But then the sun rose and people got showered and dressed and back to their jobs at the trading desks and realized that there was probably no real reason to sell all of their clients’ assets and move to Canada before a wall is built there too.  And so on the prospect of a great America, stocks didn’t lose 5% in value as anticipated last night.  As a matter of fact they are up; all of the major indices are up almost 1.0% this morning–the opposite of what experts thought would happen.  That sounds a lot like the outcome of the election, right?

For every winner there is a loser, and today, the loser is the bond market. The 10 Year yield has risen to just under 2.0%, the highest since last January.  Thirty-year mortgage bonds are down 50 basis points from the closing bell yesterday, meaning that it’ll cost you $1,000 to get the same rate on that $200,000 loan that it did yesterday.  So does “great” really mean just more expensive?  My car salesman seems to think so.  But that’s a subject for another day.

Drum-roll Please

It’s election day.  And though we don’t actually put a piece of paper into a box anymore, as this finely manicured man-hand is demonstrating, it’s an important right as citizens of the best country in the world.  I don’t do politicis so much, but I do vote.  Word around the the political/market circles is that if Ms. Clinton conquers, stocks will rally as a result of continued congestion in Washington.  Should Mr. Trump triumph, stocks would suffer and bonds would rally due to unsurpassed upcoming uncertainty.  Nobody is even consudering a victory for the other dozen or so names on the presidential ballot today.

This is the moment that we have all been waiting all year for.  Drumroll please…

What Would Carl Do?

No, your eyes are not playing tricks on you, this really is not a photo of Janet Yellen.

At the conclucion of Yesterday’s Open Market Commitee meeting, the Fed Chair, Janet Yellen, said that although inflation has increased somewhat throughout the year, she’d like to see further evidence of economic progress before raising interest rates.  So we’ve got that going for us, which is nice.

Mortgage Bonds are continuing to trade right around the 200 day moving average, the arbitrary line on the chart denoting mediocracy.  My guess is that that will hold true through the election and then all hell will break loose to one side or another.

Stocks are up today for the first time in over a week.  Yesterday was the seventh straight day that the stock market lost value, which is the first time that has happened in seven years.  And speaking of things that haven’t happened in years, the Cubs won the World Series last night (in baseball, not poker) in a spectacular 10-inning, seventh game.  It’s the Cub’s first title in 108 years.  So we’ve got that going for us too, which is also nice. (Incidentally, that quote is from Bill Murray, the nototious Cubs fan, who played Carl Spackler, pictured above, in Caddyshack).

A Portent of Storm

Stocks and Bonds are on the decline so far this morning as the markets sell off.  Gold and Oil are on the rise, making today’s plays seemingly based on fear–or hedging, whatever you want to to call it.  With no negative news out today, it would seem that traders are just bracing for the election, which is now just one week away.

In economic news, CoreLogic reports that home prices rose 1.1% last month to round out the year-over-year increase to 6.3%.  The ISM index shows that the manufacturing sector continues to grow.  Last month’s positive reading was 51.5; the market was expecting a 51.7, and we saw a 51.9.  The nice round number of 50.0 represents the baseline for growth for this survey.

The Fed meets today.  Nobody is expecting a rate hike announcement at the conclusion of the convocation tomorrow, but every word in the verbiage of the prepared statement will be dissected and debated.  The Fed Funds Futures is pricing in a 78% probability of a rate hike at the December meeting–December being the one year anniversary from the last hike, which was the first in nine ans a half years.

Looking at the technical picture for bonds, the 30 Year Fannie Mae coupon just broke to the underside of the 200 Day Moving Average for the first time in over a year.  Things aren’t looking promising for the continuation of the low rates we have been enjoying since the start of summer.  Anticipate higher interest rates ahead.