Published on Monday, February 27, 2006 by CommonDreams.org
When Americans No Longer Own America
by Thom Hartmann
The Dubai Ports World deal is waking Americans up to a painful reality: So-called “conservatives” and “flat world” globalists have bankrupted our nation for their own bag of silver, and in the process are selling off America.
Through a combination of the “Fast Track” authority pushed for by Reagan and GHW Bush, sweetheart trade deals involving “most favored nation status” for dictatorships like China, and Clinton pushing us into NAFTA and the WTO (via GATT), we’ve abandoned the principles of tariff-based trade that built American industry and kept us strong for over 200 years.
The old concept was that if there was a dollar’s worth of labor in a pair of shoes made in the USA, and somebody wanted to import shoes from China where there may only be ten cents worth of labor in those shoes, we’d level the playing field for labor by putting a 90-cent import tariff on each pair of shoes. Companies could choose to make their products here or overseas, but the ultimate cost of labor would be the same.
Then came the flat-worlders, led by misguided true believers and promoted by multinational corporations. Do away with those tariffs, they said, because they “restrain trade.” Let everything in, and tax nothing. The result has been an explosion of cheap goods coming into our nation, and the loss of millions of good manufacturing jobs and thousands of manufacturing companies. Entire industry sectors have been wiped out.
These policies have kneecapped the American middle class. Our nation’s largest employer has gone from being the unionized General Motors to the poverty-wages Wal-Mart. Americans have gone from having a net savings rate around 10 percent in the 1970s to a minus .5 percent in 2005 - meaning that they’re going into debt or selling off their assets just to maintain their lifestyle.
At the same time, federal policy has been to do the same thing at a national level. Because our so-called “free trade” policies have left us with an over $700 billion annual trade deficit, other countries are sitting on huge piles of the dollars we gave them to buy their stuff (via Wal-Mart and other “low cost” retailers). But we no longer manufacture anything they want to buy with those dollars.
So instead of buying our manufactured goods, they are doing what we used to do with Third World nations - they are buying us, the USA, chunk by chunk. In particular, they want to buy things in America that will continue to produce profits, and then to take those profits overseas where they’re invested to make other nations strong. The “things” they’re buying are, by and large, corporations, utilities, and natural resources.
Back in the pre-Reagan days, American companies made profits that were distributed among Americans. They used their profits to build more factories, or diversify into other businesses. The profits stayed in America.
Today, foreigners awash with our consumer dollars are on a two-decades-long buying spree. The UK’s BP bought Amoco for $48 billion - now Amoco’s profits go to England. Deutsche Telekom bought VoiceStream Wireless, so their profits go to Germany, which is where most of the profits from Random House, Allied Signal, Chrysler, Doubleday, Cyprus Amax’s US Coal Mining Operations, GTE/Sylvania, and Westinghouse’s Power Generation profits go as well. Ralston Purina’s profits go to Switzerland, along with Gerber’s; TransAmerica’s profits go to The Netherlands, while John Hancock Insurance’s profits go to Canada. Even American Bankers Insurance Group is owned now by Fortis AG in Belgium.
Foreign companies are buying up our water systems, our power generating systems, our mines, and our few remaining factories. All because “flat world” so-called “free trade” policies have turned us from a nation of wealthy producers into a nation of indebted consumers, leaving the world awash in dollars that are most easily used to buy off big chunks of America. As http://www.economyincrisis.com notes, US Government statistics indicate the following percentages of foreign ownership of American industry:
· Sound recording industries - 97%
· Commodity contracts dealing and brokerage - 79%
· Motion picture and sound recording industries - 75%
· Metal ore mining - 65%
· Motion picture and video industries - 64%
· Wineries and distilleries - 64%
· Database, directory, and other publishers - 63%
· Book publishers - 63%
· Cement, concrete, lime, and gypsum product - 62%
· Engine, turbine and power transmission equipment - 57%
· Rubber product - 53%
· Nonmetallic mineral product manufacturing - 53%
· Plastics and rubber products manufacturing - 52%
· Plastics product - 51%
· Other insurance related activities - 51%
· Boiler, tank, and shipping container - 50%
· Glass and glass product - 48%
· Coal mining - 48%
· Sugar and confectionery product - 48%
· Nonmetallic mineral mining and quarrying - 47%
· Advertising and related services - 41%
· Pharmaceutical and medicine - 40%
· Clay, refractory, and other nonmetallic mineral products - 40%
· Securities brokerage - 38%
· Other general purpose machinery - 37%
· Audio and video equipment mfg and reproducing magnetic and optical media - 36%
· Support activities for mining - 36%
· Soap, cleaning compound, and toilet preparation - 32%
· Chemical manufacturing - 30%
· Industrial machinery - 30%
· Securities, commodity contracts, and other financial investments and related activities - 30%
· Other food - 29%
· Motor vehicles and parts - 29%
· Machinery manufacturing - 28%
· Other electrical equipment and component - 28%
· Securities and commodity exchanges and other financial investment activities - 27%
· Architectural, engineering, and related services - 26%
· Credit card issuing and other consumer credit - 26%
· Petroleum refineries (including integrated) - 25%
· Navigational, measuring, electromedical, and control instruments - 25%
· Petroleum and coal products manufacturing - 25%
· Transportation equipment manufacturing - 25%
· Commercial and service industry machinery - 25%
· Basic chemical - 24%
· Investment banking and securities dealing - 24%
· Semiconductor and other electronic component - 23%
· Paint, coating, and adhesive - 22%
· Printing and related support activities - 21%
· Chemical product and preparation - 20%
· Iron, steel mills, and steel products - 20%
· Agriculture, construction, and mining machinery - 20%
· Publishing industries - 20%
· Medical equipment and supplies - 20%
Thus it shouldn’t surprise us that the cons have sold off our ports as well, and will defend it to the bitter end. They truly believe that a “New World Order” with multinational corporations in charge instead of sovereign governments will be the answer to the problem of world instability. And therefore they must do away with quaint things like unions, a healthy middle class, and, ultimately, democracy.
The “security” implications of turning our ports over to the UAE are just the latest nail in what the cons hope will be the coffin of American democracy and the American middle class. Today’s conservatives believe in rule by inherited wealth and an internationalist corporate elite, and things like a politically aroused citizenry and a healthy democracy are pesky distractions.
Everything today is driven by profits for multinationals, supported by the lawmaking power of the WTO. Thus, parts for our missiles are now made in China, a country that last year threatened us with nuclear weapons. Our oil comes from a country that birthed a Wahabist movement that ultimately led to 14 Saudi citizens flying jetliners into the World Trade buildings and the Pentagon. Germans now own the Chrysler auto assembly lines that turned out tanks to use against Germany in WWII. And the price of labor in America is being held down by over ten million illegal workers, a situation that was impossible twenty-five years ago when unions were the first bulwark against dilution of the American labor force.
When Thomas Jefferson wrote of King George III in the Declaration of Independence, “He has combined with others to subject us to a jurisdiction foreign to our constitutions and unacknowledged by our laws, giving his assent to their acts of pretended legislation…” he just as easily could have been writing of the World Trade Organization, which now has the legal authority to force the United States to overturn laws passed at both local, state, and federal levels with dictates devised by tribunals made up of representatives of multinational corporations. If Dubai loses in the American Congress, their next stop will almost certainly be the WTO.
As Simon Romero and Heather Timmons noted in The New York Times on 24 February 2006, “the international shipping business has evolved in recent years to include many more containers with consumer goods, in addition to old-fashioned bulk commodities, and that has helped lift profit margins to 30 percent, from the single digits. These smartly managed foreign operators now manage about 80 percent of port terminals in the United States.”
And those 30 percent profits from American port operations now going to Great Britain will probably soon go to the United Arab Emirates, a nation with tight interconnections to both the Bush administration and the Bush family.
Ultimately, it’s not about security — it’s about money. In the multinational corporatocracy’s “flat world,” money trumps the national good, community concerns, labor interests, and the environment. NAFTA, CAFTA, and WTO tribunals can - and regularly do - strike down local and national laws. Thomas Paine’s “Rights of Man” are replaced by Antonin Scalia’s “Rights of Corporate Persons.”
Profits even trump the desire for good enough port security to avoid disasters that may lead to war. After all, as Judith Miller wrote in The New York Times on January 30, 1991, quoting a local in Saudi Arabia: “War is good for business.”
Thom Hartmann is a Project Censored Award-winning best-selling author of over a dozen books and the host of a nationally syndicated noon-3pm ET daily progressive talk show syndicated by Air America Radio. http://www.thomhartmann.com His most recent books are “What Would Jefferson Do?” and Ultimate Sacrifice.
Sunday, November 9, 2008
Wednesday, November 5, 2008
Wednesday--the day after
11/05/2008
Not unexpected based on polls leading to the election; Barak Obama will be the next US President. His plate will be full and not an easy one to chew. The US economy is in shambles, unemployment is increasing, the housing crisis continues, and the federal budget deficit will approach $1 trillion dollars in the current fiscal year. Most political analysts expect Obama to start quickly, before his inauguration, to push for a stimulus package that Bush can agree with. Beyond job creation and big investments in public works, Obama intends to shift the tax burden back toward the wealthy, roll back a quarter-century of deregulation, extend health-care coverage to all Americans and reassess the U.S. government's pursuit of free-trade deals. Sen. Obama will have all the tools with both houses of Congress with Democrat majorities. Given the voter turn out and the margin of victory, America is demanding big changes. Obama will have his work cut out as he tackles the worst economic decline since the Depression. Bush spent his time fighting wars; Obama will get back to the economy as his mandate, while also having to confront America's foreign policy initiatives.
What it means for the mortgage markets and interest rates in general. The key problem for expectations of substantially lower mortgage rates is the extremely high federal budget deficit. Treasury will have to fund it from borrowing from the private sector, foreign banks and foreign investors. To do so will likely keep longer term interest rates from declining much. Add that with home prices still not bottoming, would-be investors in mortgages will not likely have a big appetite for mortgages in the next six to 12 months. The 30 yr mortgage rate will likely swing in a 100 basis point range, from 6.50% to 5.50% over the next year.
We missed the call yesterday; the mortgage market is continuing to rally this morning. Didn't expect it at the end of the day yesterday after the strong move with mortgage prices jumping a full point. This morning the mortgage markets are adding to the rally yesterday; treasury prices are trailing the mortgage markets as the spread between 30 yr mtgs and the 10 yr note is narrowing. Mortgages are getting some traction on the belief there will be some sort of stimulus package coming soon from Treasury.
The number of job losses in Oct will likely be sizeable; this morning ADP stepped up with their estimates, down 157K jobs in the private sector (doesn't count government jobs as does the official BLS report coming on Friday). The estimates from economists for the non-farm jobs on Friday is a drop of 200K jobs with the unemployment rate increasing to 6.3% from 6.1% in Sept.
Oct ISM services sector index, expected at 47.0 frm 50.2 in Sept, hit at 44.4; new orders fell to 44.0 frm 50.8, prices fell to 53.4 frm 70.0 (energy and commodities), employment 41.5 frm 44.2. Any index lower than 50 is contraction.
Later today Treasury will announce the details of next week's quarterly refunding with a 10 yr note and 30 yr bond auction.
Mortgage applications were the worst in 8 yrs last week. The weekly MBA mortgage applications index plunged 20.3% last week with refis down 27.8% and purchasing applications down 13.9%. The fixed 30-yr mortgage rate rose to 6.47% (+21 basis points) while the 15-yr popped to 6.14% (+13 bps) and the 1-yr adjustable rate mortgages dipped to 6.86% (-4 bps).
Early trade in the stock market is driving the treasury and mortgage markets today. Interest rates are better, especially in the mortgage area. Yesterday the technical's turned more positive with the 10 yr note yield now trading below its 40 day moving average and all the momentum oscillators have turned slightly bullish. Rate markets in the short term are now looking to the employment report on Friday that is expected to reveal a big decline in non-farm jobs (200K); the stock market is also thinking about it this morning with the DJIA down about 200 points in the first 30 minutes after the open.
Not unexpected based on polls leading to the election; Barak Obama will be the next US President. His plate will be full and not an easy one to chew. The US economy is in shambles, unemployment is increasing, the housing crisis continues, and the federal budget deficit will approach $1 trillion dollars in the current fiscal year. Most political analysts expect Obama to start quickly, before his inauguration, to push for a stimulus package that Bush can agree with. Beyond job creation and big investments in public works, Obama intends to shift the tax burden back toward the wealthy, roll back a quarter-century of deregulation, extend health-care coverage to all Americans and reassess the U.S. government's pursuit of free-trade deals. Sen. Obama will have all the tools with both houses of Congress with Democrat majorities. Given the voter turn out and the margin of victory, America is demanding big changes. Obama will have his work cut out as he tackles the worst economic decline since the Depression. Bush spent his time fighting wars; Obama will get back to the economy as his mandate, while also having to confront America's foreign policy initiatives.
What it means for the mortgage markets and interest rates in general. The key problem for expectations of substantially lower mortgage rates is the extremely high federal budget deficit. Treasury will have to fund it from borrowing from the private sector, foreign banks and foreign investors. To do so will likely keep longer term interest rates from declining much. Add that with home prices still not bottoming, would-be investors in mortgages will not likely have a big appetite for mortgages in the next six to 12 months. The 30 yr mortgage rate will likely swing in a 100 basis point range, from 6.50% to 5.50% over the next year.
We missed the call yesterday; the mortgage market is continuing to rally this morning. Didn't expect it at the end of the day yesterday after the strong move with mortgage prices jumping a full point. This morning the mortgage markets are adding to the rally yesterday; treasury prices are trailing the mortgage markets as the spread between 30 yr mtgs and the 10 yr note is narrowing. Mortgages are getting some traction on the belief there will be some sort of stimulus package coming soon from Treasury.
The number of job losses in Oct will likely be sizeable; this morning ADP stepped up with their estimates, down 157K jobs in the private sector (doesn't count government jobs as does the official BLS report coming on Friday). The estimates from economists for the non-farm jobs on Friday is a drop of 200K jobs with the unemployment rate increasing to 6.3% from 6.1% in Sept.
Oct ISM services sector index, expected at 47.0 frm 50.2 in Sept, hit at 44.4; new orders fell to 44.0 frm 50.8, prices fell to 53.4 frm 70.0 (energy and commodities), employment 41.5 frm 44.2. Any index lower than 50 is contraction.
Later today Treasury will announce the details of next week's quarterly refunding with a 10 yr note and 30 yr bond auction.
Mortgage applications were the worst in 8 yrs last week. The weekly MBA mortgage applications index plunged 20.3% last week with refis down 27.8% and purchasing applications down 13.9%. The fixed 30-yr mortgage rate rose to 6.47% (+21 basis points) while the 15-yr popped to 6.14% (+13 bps) and the 1-yr adjustable rate mortgages dipped to 6.86% (-4 bps).
Early trade in the stock market is driving the treasury and mortgage markets today. Interest rates are better, especially in the mortgage area. Yesterday the technical's turned more positive with the 10 yr note yield now trading below its 40 day moving average and all the momentum oscillators have turned slightly bullish. Rate markets in the short term are now looking to the employment report on Friday that is expected to reveal a big decline in non-farm jobs (200K); the stock market is also thinking about it this morning with the DJIA down about 200 points in the first 30 minutes after the open.
Friday, October 31, 2008
Tuesday, October 28, 2008
Tuesday 10/28/2008
10/28/2008
Another bad day for the rate markets.
Yesterday mortgage prices plunged 30/32 with rates up about 50 basis points, today mortgages off 19/32 with another 25 basis point increase. The long end of the curve took the biggest hits, with the 10 yr note yield jumping 16 basis points. The stock market is very oversold and due for a strong bear market rally that we believe started today and gained momentum right into the close. Mutual fund selling is about over in equities but those hedge funds are still leveraged and difficult to tell if they are finished their forced selling for the moment. Looking at all of the technical's on the three key indexes, the selling recently has held the lows put in on Oct 10th. Not good news for the rate markets; with huge amounts sitting in treasuries if equities gain traction in the near term it will likely drag treasury and mortgage prices lower. That said, the strength of today's stock market move may have shot the wad for most of the potential rally.
Although the stock market is looking like it has put in a bottom at these levels; any rebound now isn't likely to last long or climb too high as the economy still has a lot of headwinds and not likely to see improvement for many months. We expect unemployment to increase to over 7.0% within the next four to five months (now 6.1%). Consumers are tapped and will pull in their spending, with the coming Christmas shopping season one of the worst in years. Today the Conference Board released their consumer confidence index; it plunged to one of the biggest month to month decline we have seen in years, from 61.4 in Sept to 38.0 in October----undoubtedly its the crashing equity markets and the losses in 401Ks and other retirement investments.
Markets continue to look for a 50 basis point cut from the FOMC meeting tomorrow when the statement is released at 2:15. Do not look for any major change in the rate markets however; this time a rate cut will have little impact on interest rates. Markets are well aware of the coming cut and have not reacted to it as is the usual case. We are more interested in rate cuts coming from the ECB and the bank of England when they meet.
Lenders of all types are keeping their purses shut; borrowing money for autos, homes and credit cards remains tight. To measure the potential length of the recession look at the residential real estate market and further to mortgage credit underwriting. Not anything being said these days about dealing with the mortgage market crisis, except to throw money at banks and open credit lines for banks to keep them floating. Obviously, that is necessary but it only goes so far. The US economy is built on consumers and consumers are motivated primarily on housing markets. Lets not take our eye off the ball with the alphabet soup of various bailout packages that the Fed has initiated. Treasury must step up and start buying mortgages!
The number of vacant houses for sale edged up to 2.23 million vacant units in the third quarter from 2.1 million units in the second quarter, according to a Census Bureau report, as foreclosures continue to bolster this inventory of unsold homes. The number of vacant houses on the market rose above 2 million in the fourth quarter of 2006 and has not retreated despite builders slashing construction of new homes to levels not seen in 26 years. (Nat'l Mtg News)
This afternoon's $34B 2 yr note auction was well bid but the rate was higher than in the WI trading prior to the 1:00 auction. A 1.6% rate against 1.57% trading in the WI market this morning, a solid 2.49 cover and a high 42% indirect bidder take (foreign investors). The previous auction saw a 2.115% rate and a 2.21 bid-to-cover with a 27.9% indirect bidder participation rate. Tomorrow $24B of 5 yr notes goes off.
Tomorrow expect the stock market to open better and rates under additional pressure. The stock market is starting a bear market recovery that shout increase the DJIA index 1000 to 1500 points in a choppy back and worth process. At 2:15 the FOMC announcement; if the Fed cuts only 25 basis points it will disappointment markets as most are fully expecting 50 BPs. At 8:30 Sept durable goods orders, a volatile series, is expected down 1.0%.
The dollar had a good day against the yen but weaker against the euro. Crude oilat about unchanged at $63.00. Gold traded up about $4.00.
Keep rate locks locked in overnight.
Another bad day for the rate markets.
Yesterday mortgage prices plunged 30/32 with rates up about 50 basis points, today mortgages off 19/32 with another 25 basis point increase. The long end of the curve took the biggest hits, with the 10 yr note yield jumping 16 basis points. The stock market is very oversold and due for a strong bear market rally that we believe started today and gained momentum right into the close. Mutual fund selling is about over in equities but those hedge funds are still leveraged and difficult to tell if they are finished their forced selling for the moment. Looking at all of the technical's on the three key indexes, the selling recently has held the lows put in on Oct 10th. Not good news for the rate markets; with huge amounts sitting in treasuries if equities gain traction in the near term it will likely drag treasury and mortgage prices lower. That said, the strength of today's stock market move may have shot the wad for most of the potential rally.
Although the stock market is looking like it has put in a bottom at these levels; any rebound now isn't likely to last long or climb too high as the economy still has a lot of headwinds and not likely to see improvement for many months. We expect unemployment to increase to over 7.0% within the next four to five months (now 6.1%). Consumers are tapped and will pull in their spending, with the coming Christmas shopping season one of the worst in years. Today the Conference Board released their consumer confidence index; it plunged to one of the biggest month to month decline we have seen in years, from 61.4 in Sept to 38.0 in October----undoubtedly its the crashing equity markets and the losses in 401Ks and other retirement investments.
Markets continue to look for a 50 basis point cut from the FOMC meeting tomorrow when the statement is released at 2:15. Do not look for any major change in the rate markets however; this time a rate cut will have little impact on interest rates. Markets are well aware of the coming cut and have not reacted to it as is the usual case. We are more interested in rate cuts coming from the ECB and the bank of England when they meet.
Lenders of all types are keeping their purses shut; borrowing money for autos, homes and credit cards remains tight. To measure the potential length of the recession look at the residential real estate market and further to mortgage credit underwriting. Not anything being said these days about dealing with the mortgage market crisis, except to throw money at banks and open credit lines for banks to keep them floating. Obviously, that is necessary but it only goes so far. The US economy is built on consumers and consumers are motivated primarily on housing markets. Lets not take our eye off the ball with the alphabet soup of various bailout packages that the Fed has initiated. Treasury must step up and start buying mortgages!
The number of vacant houses for sale edged up to 2.23 million vacant units in the third quarter from 2.1 million units in the second quarter, according to a Census Bureau report, as foreclosures continue to bolster this inventory of unsold homes. The number of vacant houses on the market rose above 2 million in the fourth quarter of 2006 and has not retreated despite builders slashing construction of new homes to levels not seen in 26 years. (Nat'l Mtg News)
This afternoon's $34B 2 yr note auction was well bid but the rate was higher than in the WI trading prior to the 1:00 auction. A 1.6% rate against 1.57% trading in the WI market this morning, a solid 2.49 cover and a high 42% indirect bidder take (foreign investors). The previous auction saw a 2.115% rate and a 2.21 bid-to-cover with a 27.9% indirect bidder participation rate. Tomorrow $24B of 5 yr notes goes off.
Tomorrow expect the stock market to open better and rates under additional pressure. The stock market is starting a bear market recovery that shout increase the DJIA index 1000 to 1500 points in a choppy back and worth process. At 2:15 the FOMC announcement; if the Fed cuts only 25 basis points it will disappointment markets as most are fully expecting 50 BPs. At 8:30 Sept durable goods orders, a volatile series, is expected down 1.0%.
The dollar had a good day against the yen but weaker against the euro. Crude oilat about unchanged at $63.00. Gold traded up about $4.00.
Keep rate locks locked in overnight.
Monday, October 27, 2008
Strategy
10/27/2008
STRATEGY We are finally seeing some signs of improvement
in the credit markets. Overnight Libor fell to 1.67% from 5.09% last
week. Overnight commercial paper rates fell to 1.05% from 3.50% last
week. Caveat Emptor- 1, 3 and 6 month Libor are still about 150
basis points higher than they should be reflecting the skittishness
and uncertainty over what the future brings us. Mortgage rates jumped
this past week. Just what we do not need. Until this uncertainty is
lessened or removed, the markets will continue to trade all over the
place.
COMMENTARY What are the issues that now need be
addressed as we move forward given that the fix is in for the financial
institutions? The US economy is not going to recovery quickly without
a recovery in housing. How do we accomplish this is the mill io n -
dollar question? We can begin by getting back to reality in terms of
underwriting standards. As long as the tightening continues, and we
see almost weekly another big lender tightening, we will prolong the
recovery. Obviously we never want to be where we were in say 2006
with the most insane(inane) lending that took place. We do however
expect that the complete reversal of lending s tandards from the Wild
West days to complete control freak days of today to find a balance
somewhere in between. It is human nature to go to extremes if cooler
heads do not prevail. We desperately need cooler heads to prevail
and the days of the tight wad need to be abandoned. The current
credit starvation is preventing long-term rates from coming down not
to mention our government’s huge borrowing needs. Now that the
government has control of the GSEs, they need to lead the pack and
start easing lending standards and others will follow suit and then
mortgage rates will come down.
The consumer has surprised us for so many years now that the
seeming change that we are experiencing in course is sending us
reeling. This may be the first time in perhaps 50 years that the
consumer is acting differently. We can no longer use our homes
as ATM machines. We are already so tapped out on our credit
cards. Where will money come from for the consumer to continue
spending? Another stimulus check? We certainly implore our
“geniuses” in Congress to learn from the recent past. The firs t
stimulus package was a one-up deal. We do not need to add to
our deficits with another one-up deal which will no t give the
consumer the shock treatment that our Congress seems to think
will work. Our senses are impaired and we are scared. The banks
are not the only one’s that are hoarding money. We do not hear
from a n yo n e we know that they are not tightening their belts
significantly regardless of their financial s ituation.
As for tax increases, they should be instituted in fat times, not
in times of severe dislocation. Yes, we understand that we cannot
continue to build on our deficits and that by raising taxes we can
help reduce them. Not now. We are too severely dislocated. We
are in a recession and making it harder for people and
businesses with increased taxes will only prolong this recession.
What is really needed is for our government to seriously downsize.
Lead by example has ne ver been more important. The budget
needs to be chopped everywhere. We need to create jobs. Instead
of s loshing money around for a one-up deal with another useless
consumer s timulus package, we should take that money to invest
in the rebuilding of our infrastructure which will create jobs and
thus create real productivity. The old ways do not work in this new
world we find ourselves in.
The week ahead does not bring us any s ignificant economic
data. Monday’s September leading indicators report is already old
news. Friday’s September existing home sales report is expected
to be unchanged from August. The markets are very jittery and until
we have some notion of what all the bad debt amounts to,
whenever that will be, we expect they will remain very volatile. We
also expect that Libor rates across the board will ease further.
STRATEGY We are finally seeing some signs of improvement
in the credit markets. Overnight Libor fell to 1.67% from 5.09% last
week. Overnight commercial paper rates fell to 1.05% from 3.50% last
week. Caveat Emptor- 1, 3 and 6 month Libor are still about 150
basis points higher than they should be reflecting the skittishness
and uncertainty over what the future brings us. Mortgage rates jumped
this past week. Just what we do not need. Until this uncertainty is
lessened or removed, the markets will continue to trade all over the
place.
COMMENTARY What are the issues that now need be
addressed as we move forward given that the fix is in for the financial
institutions? The US economy is not going to recovery quickly without
a recovery in housing. How do we accomplish this is the mill io n -
dollar question? We can begin by getting back to reality in terms of
underwriting standards. As long as the tightening continues, and we
see almost weekly another big lender tightening, we will prolong the
recovery. Obviously we never want to be where we were in say 2006
with the most insane(inane) lending that took place. We do however
expect that the complete reversal of lending s tandards from the Wild
West days to complete control freak days of today to find a balance
somewhere in between. It is human nature to go to extremes if cooler
heads do not prevail. We desperately need cooler heads to prevail
and the days of the tight wad need to be abandoned. The current
credit starvation is preventing long-term rates from coming down not
to mention our government’s huge borrowing needs. Now that the
government has control of the GSEs, they need to lead the pack and
start easing lending standards and others will follow suit and then
mortgage rates will come down.
The consumer has surprised us for so many years now that the
seeming change that we are experiencing in course is sending us
reeling. This may be the first time in perhaps 50 years that the
consumer is acting differently. We can no longer use our homes
as ATM machines. We are already so tapped out on our credit
cards. Where will money come from for the consumer to continue
spending? Another stimulus check? We certainly implore our
“geniuses” in Congress to learn from the recent past. The firs t
stimulus package was a one-up deal. We do not need to add to
our deficits with another one-up deal which will no t give the
consumer the shock treatment that our Congress seems to think
will work. Our senses are impaired and we are scared. The banks
are not the only one’s that are hoarding money. We do not hear
from a n yo n e we know that they are not tightening their belts
significantly regardless of their financial s ituation.
As for tax increases, they should be instituted in fat times, not
in times of severe dislocation. Yes, we understand that we cannot
continue to build on our deficits and that by raising taxes we can
help reduce them. Not now. We are too severely dislocated. We
are in a recession and making it harder for people and
businesses with increased taxes will only prolong this recession.
What is really needed is for our government to seriously downsize.
Lead by example has ne ver been more important. The budget
needs to be chopped everywhere. We need to create jobs. Instead
of s loshing money around for a one-up deal with another useless
consumer s timulus package, we should take that money to invest
in the rebuilding of our infrastructure which will create jobs and
thus create real productivity. The old ways do not work in this new
world we find ourselves in.
The week ahead does not bring us any s ignificant economic
data. Monday’s September leading indicators report is already old
news. Friday’s September existing home sales report is expected
to be unchanged from August. The markets are very jittery and until
we have some notion of what all the bad debt amounts to,
whenever that will be, we expect they will remain very volatile. We
also expect that Libor rates across the board will ease further.
Tuesday, August 5, 2008
Please define what a Windfall Profits tax is
August 4th, 2008 3:53 PM Eastern
Please Define What a ‘Windfall Profits’ Tax Is…
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By Betsy NewmarkHigh School History and Government Teacher/Blogger
Liberals like to bleat about the oil companies making “windfall profits” as if there is some point when making a profit is bad. So the Wall Street Journal asks what the definition is of a “windfall profit.” This is important to know because Senator Obama has proposed giving each American family a stimulus check of $1000 paid for by a windfall profits tax on the oil companies. He is presently running an ad touting his plan.
“After one president in the pocket of big oil we can’t afford another,” says the ad, referring to President Bush’s previous work in the oil industry.
Obama hoped to emphasize energy and the economy in campaign stops this week in Michigan, Ohio and Indiana, beginning with a speech Monday in Lansing, Mich. Gas prices over $4 a gallon have become a top issue in the presidential contest.
Obama’s spot trumpets his proposal to revive a windfall profits tax on energy companies and asserts that McCain favors tax breaks for the oil industry.
“A windfall profits tax on big oil to give families a thousand-dollar rebate,” an announcer in the ad says.
Obama has pushed for such a tax to fund $1,000 emergency rebate checks for consumers besieged by high energy costs.
Congress enacted a windfall profits tax in 1980, during an earlier era of high oil prices, but repealed it in 1988 amid concerns the tax was discouraging domestic oil development. Last year, the House approved $18 billion in new taxes on the largest oil companies, but they were blocked by Republicans in the Senate.
The new Obama ad opens with a driver pumping gas. The announcer says, “Every time you fill your tank, the oil companies fill their pockets.”
Some enterprising reporter should ask him how he defines windfall profits. Perhaps he has a similar approach to American business as his colleague from Illinois, Senator Durbin, who said that “The oil companies need to know that there is a limit on how much profit they can take in this economy.”
So what is the right amount of profit for an American company today? The WSJ tries out several definitions.
Take Exxon Mobil, which on Thursday reported the highest quarterly profit ever and is the main target of any “windfall” tax surcharge. Yet if its profits are at record highs, its tax bills are already at record highs too. Between 2003 and 2007, Exxon paid $64.7 billion in U.S. taxes, exceeding its after-tax U.S. earnings by more than $19 billion. That sounds like a government windfall to us, but perhaps we’re missing some Obama-Durbin business subtlety.
Maybe they have in mind profit margins as a percentage of sales. Yet by that standard Exxon’s profits don’t seem so large. Exxon’s profit margin stood at 10% for 2007, which is hardly out of line with the oil and gas industry average of 8.3%, or the 8.9% for U.S. manufacturing (excluding the sputtering auto makers).
If that’s what constitutes windfall profits, most of corporate America would qualify. Take aerospace or machinery — both 8.2% in 2007. Chemicals had an average margin of 12.7%. Computers: 13.7%. Electronics and appliances: 14.5%. Pharmaceuticals (18.4%) and beverages and tobacco (19.1%) round out the Census Bureau’s industry rankings. The latter two double the returns of Big Oil, though of course government has already became a tacit shareholder in Big Tobacco through the various legal settlements that guarantee a revenue stream for years to come.
In a tax bill on oil earlier this summer, no fewer than 51 Senators voted to impose a 25% windfall tax on a U.S.-based oil company whose profits grew by more than 10% in a single year and wasn’t investing enough in “renewable” energy. This suggests that a windfall is defined by profits growing too fast. No one knows where that 10% came from, besides political convenience. But if 10% is the new standard, the tech industry is going to have to rethink its growth arc. So will LG, the electronics company, which saw its profits grow by 505% in 2007. Abbott Laboratories hit 110%…..
General Electric profits by investing in the alternative energy technology that Mr. Obama says Congress should subsidize even more heavily than it already does. GE’s profit margin in 2007 was 10.3%, about the same as profiteering Exxon’s. Private-equity shops like Khosla Ventures and Kleiner Perkins, which recently hired Al Gore, also invest in alternative energy start-ups, though they keep their margins to themselves. We can safely assume their profits are lofty, much like those of George Soros’s investment funds.
So is Senator Obama planning to tax all these other businesses? Is his plan for growing America’s economy to say that we need to tax excess profits from any American business that grows fast and does well and then redistribute that money to average American folk? What does he think such a plan would do for the GDP over the long run? Does he not think that companies would react to such a tax plan and how would their reactions affect the growth of the overall economy? These are all questions that reporters who thought just a minute about what his demonization of the oil industry and his desire to tax their “windfall profits” would mean.
Perhaps the Democrats’ only concern is with companies that supply much-needed products to the American consumer such as oil. Well, by that definition, we could borrow from Jim Lindgren’s sarcastic proposal for a windfall profits tax on farmers. Farmers certainly have been doing well recently.
The U.S. Department of Agriculture estimates that net cash farm income nationwide will hit a record $96.6 billion this year — up 10% from last year and 40% from 2006
And companies that supply farmers have also had a good year.
Farmers aren’t the only ones making money from the run-up in commodity prices. Companies that sell things to farmers, everything from fertilizer to seed to tractors, are reporting healthy profits, too.
Terra Industries (TRA), a major fertilizer supplier, reported that its fourth-quarter 2007 profit jumped by six times over the year before.
Deere (DE)— which makes tractors, harvesters and other farm equipment — reported record quarterly earnings. Agricultural equipment sales were up 33%.
But rather than hearing demagogic attacks from Democrats on their nasty profits, Congress just voted them, over Bush’s veto, a pork-filled bill to give them more government money. As Bush said about the bill,
“Farm income is expected to exceed the 10-year average by 50% this year, yet Congress’ bill asks American taxpayers to subsidize the incomes of married farmers who earn $1.5 million per year,” he said in a statement Tuesday.
So the oil companies get demonized and the farmers get government handouts. Go figure.
As the WSJ concluded, the definition of a “windfall profit” is certainly case-dependent.
The point isn’t that these folks (other than Mr. Clinton) have something to apologize for, or that these firms are somehow more “deserving” of windfall tax extortion than Big Oil. The point is that what constitutes an abnormal profit is entirely arbitrary. It is in the eye of the political beholder, who is usually looking to soak some unpopular business. In other words, a windfall is nothing more than a profit earned by a business that some politician dislikes. And a tax on that profit is merely a form of politically motivated expropriation.
It’s what politicians do in Venezuela, not in a free country.
But that is the plan of Senator Obama and many of his Democratic supporters. They have a very skewed idea of how our economic system should work. The only constant seems to be to try to score political points in demagoguery without much concern for the overall effects of such a tax.
Perhaps it is time for a little history lesson before the Obama administration pushes through this return to Carter economics. The last time we had a windfall profits tax on oil was in 1980 and, as might have been predicted if the politicians then had understood a bit of economics, was exactly the opposite of what the country needed, as Jonathan Williams explained a couple of years ago when there was also talk of such a tax on the oil companies.
Numerous lawmakers, from Senate Minority Leader Harry Reid (D-Nev.) to Sen. Arlen Specter (R-Pa.), are lining up to support a new federal windfall profits tax, with the aim of redistributing profits from “greedy” oil companies.
But lawmakers could benefit from a history lesson. The last time this country experimented with such a tax was the Crude Oil Windfall Profit Tax Act of 1980. According to a 1990 Congressional Research Service study, the tax depressed the domestic oil industry, increased foreign imports and raised only a tiny fraction of the revenue forecasted. It stunted domestic production of oil by 3% to 6% and created a surge in foreign imports, from 8% to 16%.
Politicians calling oil companies “greedy” is more than a little ironic. Tax Foundation studies have shown that state and federal treasuries profit handsomely from oil industry sales. The average American motorist pays taxes of 46 cents a gallon on gasoline, of which 18.4 cents a gallon goes to the federal government. States and localities pocket the rest.
The nation’s energy companies are already providing a “windfall” of taxes. According to Department of Energy data, from 1977 to 2004, federal and state governments extracted $397 billion by taxing the profits of the largest oil companies and an additional $1.1 trillion in taxes at the pump. In today’s dollars, that’s $2.2 trillion – enough to buy a Toyota Prius for every household in the nation.
In fact, oil companies have paid in taxes more than three times what they earned in profits during those 28 years.
As the oil industry brings in record profits, it also pays record taxes that average 39% worldwide, even after accounting for special deductions and credits. That compares with a 33% average tax rate for other industries.
In 2005, Chevron, ConocoPhillips and Exxon Mobil paid more than $158 billion in total worldwide taxes. This gargantuan tax bill nearly equals the entire economic output of Iran and surpasses the total gross domestic product of 150 of the 184 countries ranked by the World Bank.
It would be unfair and absurd to tax workers at different rates, based merely on the industry they work in. Similarly, it makes no sense to tax an industry punitively based on the volatility of its profits. Oil will always be a boom-or-bust business.
I sure hope that someone will ask Obama, perhaps in a debate, why he supports the idea of a windfall profits tax on the oil companies even though the last time that happened, gas prices went up and our imports of foreign oil also increased. Perhaps Senator Obama would give a similar response that he gave in the ABC debate when Charlie Gibson asked him if he still supported an increase in capital gains taxes even though, in the past, a decrease in capital gains taxes has driven up the revenue the government gets. Senator Obama’s response was illuminating. He wasn’t interested in the economics of his proposed actions, but in the perceived “fairness” of taxes and business.
Economist Donald J. Boudreaux sums up Obama’s plan for tackling oil prices.
In other words, a critical part of Sen. Obama’s strategy for reigning in high gasoline prices is to subsidize gasoline consumption and more heavily tax its production. This plan - which increases the demand for gasoline and reduces its supply - makes as much sense as trying to put out a fire by dowsing it with jet fuel.
Folks, this is all a very dangerous approach to the economy. If we’re going to impose taxes based on some politician’s idea of fairness and whichever industry can be demonized to score partisan advantages, we will be endangering our entire economic system and minimizing economic growth. First it was Big Tobacco. Now Big Oil. Tomorrow perhaps, Big Pharmaceuticals. Can Big Tech or Big Food be far behind on the target list? And remember, companies don’t pay these taxes out of the goodness of their souls. They pass along the taxes to consumers. Soon Big Consumers will be paying for all this.
Please Define What a ‘Windfall Profits’ Tax Is…
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By Betsy NewmarkHigh School History and Government Teacher/Blogger
Liberals like to bleat about the oil companies making “windfall profits” as if there is some point when making a profit is bad. So the Wall Street Journal asks what the definition is of a “windfall profit.” This is important to know because Senator Obama has proposed giving each American family a stimulus check of $1000 paid for by a windfall profits tax on the oil companies. He is presently running an ad touting his plan.
“After one president in the pocket of big oil we can’t afford another,” says the ad, referring to President Bush’s previous work in the oil industry.
Obama hoped to emphasize energy and the economy in campaign stops this week in Michigan, Ohio and Indiana, beginning with a speech Monday in Lansing, Mich. Gas prices over $4 a gallon have become a top issue in the presidential contest.
Obama’s spot trumpets his proposal to revive a windfall profits tax on energy companies and asserts that McCain favors tax breaks for the oil industry.
“A windfall profits tax on big oil to give families a thousand-dollar rebate,” an announcer in the ad says.
Obama has pushed for such a tax to fund $1,000 emergency rebate checks for consumers besieged by high energy costs.
Congress enacted a windfall profits tax in 1980, during an earlier era of high oil prices, but repealed it in 1988 amid concerns the tax was discouraging domestic oil development. Last year, the House approved $18 billion in new taxes on the largest oil companies, but they were blocked by Republicans in the Senate.
The new Obama ad opens with a driver pumping gas. The announcer says, “Every time you fill your tank, the oil companies fill their pockets.”
Some enterprising reporter should ask him how he defines windfall profits. Perhaps he has a similar approach to American business as his colleague from Illinois, Senator Durbin, who said that “The oil companies need to know that there is a limit on how much profit they can take in this economy.”
So what is the right amount of profit for an American company today? The WSJ tries out several definitions.
Take Exxon Mobil, which on Thursday reported the highest quarterly profit ever and is the main target of any “windfall” tax surcharge. Yet if its profits are at record highs, its tax bills are already at record highs too. Between 2003 and 2007, Exxon paid $64.7 billion in U.S. taxes, exceeding its after-tax U.S. earnings by more than $19 billion. That sounds like a government windfall to us, but perhaps we’re missing some Obama-Durbin business subtlety.
Maybe they have in mind profit margins as a percentage of sales. Yet by that standard Exxon’s profits don’t seem so large. Exxon’s profit margin stood at 10% for 2007, which is hardly out of line with the oil and gas industry average of 8.3%, or the 8.9% for U.S. manufacturing (excluding the sputtering auto makers).
If that’s what constitutes windfall profits, most of corporate America would qualify. Take aerospace or machinery — both 8.2% in 2007. Chemicals had an average margin of 12.7%. Computers: 13.7%. Electronics and appliances: 14.5%. Pharmaceuticals (18.4%) and beverages and tobacco (19.1%) round out the Census Bureau’s industry rankings. The latter two double the returns of Big Oil, though of course government has already became a tacit shareholder in Big Tobacco through the various legal settlements that guarantee a revenue stream for years to come.
In a tax bill on oil earlier this summer, no fewer than 51 Senators voted to impose a 25% windfall tax on a U.S.-based oil company whose profits grew by more than 10% in a single year and wasn’t investing enough in “renewable” energy. This suggests that a windfall is defined by profits growing too fast. No one knows where that 10% came from, besides political convenience. But if 10% is the new standard, the tech industry is going to have to rethink its growth arc. So will LG, the electronics company, which saw its profits grow by 505% in 2007. Abbott Laboratories hit 110%…..
General Electric profits by investing in the alternative energy technology that Mr. Obama says Congress should subsidize even more heavily than it already does. GE’s profit margin in 2007 was 10.3%, about the same as profiteering Exxon’s. Private-equity shops like Khosla Ventures and Kleiner Perkins, which recently hired Al Gore, also invest in alternative energy start-ups, though they keep their margins to themselves. We can safely assume their profits are lofty, much like those of George Soros’s investment funds.
So is Senator Obama planning to tax all these other businesses? Is his plan for growing America’s economy to say that we need to tax excess profits from any American business that grows fast and does well and then redistribute that money to average American folk? What does he think such a plan would do for the GDP over the long run? Does he not think that companies would react to such a tax plan and how would their reactions affect the growth of the overall economy? These are all questions that reporters who thought just a minute about what his demonization of the oil industry and his desire to tax their “windfall profits” would mean.
Perhaps the Democrats’ only concern is with companies that supply much-needed products to the American consumer such as oil. Well, by that definition, we could borrow from Jim Lindgren’s sarcastic proposal for a windfall profits tax on farmers. Farmers certainly have been doing well recently.
The U.S. Department of Agriculture estimates that net cash farm income nationwide will hit a record $96.6 billion this year — up 10% from last year and 40% from 2006
And companies that supply farmers have also had a good year.
Farmers aren’t the only ones making money from the run-up in commodity prices. Companies that sell things to farmers, everything from fertilizer to seed to tractors, are reporting healthy profits, too.
Terra Industries (TRA), a major fertilizer supplier, reported that its fourth-quarter 2007 profit jumped by six times over the year before.
Deere (DE)— which makes tractors, harvesters and other farm equipment — reported record quarterly earnings. Agricultural equipment sales were up 33%.
But rather than hearing demagogic attacks from Democrats on their nasty profits, Congress just voted them, over Bush’s veto, a pork-filled bill to give them more government money. As Bush said about the bill,
“Farm income is expected to exceed the 10-year average by 50% this year, yet Congress’ bill asks American taxpayers to subsidize the incomes of married farmers who earn $1.5 million per year,” he said in a statement Tuesday.
So the oil companies get demonized and the farmers get government handouts. Go figure.
As the WSJ concluded, the definition of a “windfall profit” is certainly case-dependent.
The point isn’t that these folks (other than Mr. Clinton) have something to apologize for, or that these firms are somehow more “deserving” of windfall tax extortion than Big Oil. The point is that what constitutes an abnormal profit is entirely arbitrary. It is in the eye of the political beholder, who is usually looking to soak some unpopular business. In other words, a windfall is nothing more than a profit earned by a business that some politician dislikes. And a tax on that profit is merely a form of politically motivated expropriation.
It’s what politicians do in Venezuela, not in a free country.
But that is the plan of Senator Obama and many of his Democratic supporters. They have a very skewed idea of how our economic system should work. The only constant seems to be to try to score political points in demagoguery without much concern for the overall effects of such a tax.
Perhaps it is time for a little history lesson before the Obama administration pushes through this return to Carter economics. The last time we had a windfall profits tax on oil was in 1980 and, as might have been predicted if the politicians then had understood a bit of economics, was exactly the opposite of what the country needed, as Jonathan Williams explained a couple of years ago when there was also talk of such a tax on the oil companies.
Numerous lawmakers, from Senate Minority Leader Harry Reid (D-Nev.) to Sen. Arlen Specter (R-Pa.), are lining up to support a new federal windfall profits tax, with the aim of redistributing profits from “greedy” oil companies.
But lawmakers could benefit from a history lesson. The last time this country experimented with such a tax was the Crude Oil Windfall Profit Tax Act of 1980. According to a 1990 Congressional Research Service study, the tax depressed the domestic oil industry, increased foreign imports and raised only a tiny fraction of the revenue forecasted. It stunted domestic production of oil by 3% to 6% and created a surge in foreign imports, from 8% to 16%.
Politicians calling oil companies “greedy” is more than a little ironic. Tax Foundation studies have shown that state and federal treasuries profit handsomely from oil industry sales. The average American motorist pays taxes of 46 cents a gallon on gasoline, of which 18.4 cents a gallon goes to the federal government. States and localities pocket the rest.
The nation’s energy companies are already providing a “windfall” of taxes. According to Department of Energy data, from 1977 to 2004, federal and state governments extracted $397 billion by taxing the profits of the largest oil companies and an additional $1.1 trillion in taxes at the pump. In today’s dollars, that’s $2.2 trillion – enough to buy a Toyota Prius for every household in the nation.
In fact, oil companies have paid in taxes more than three times what they earned in profits during those 28 years.
As the oil industry brings in record profits, it also pays record taxes that average 39% worldwide, even after accounting for special deductions and credits. That compares with a 33% average tax rate for other industries.
In 2005, Chevron, ConocoPhillips and Exxon Mobil paid more than $158 billion in total worldwide taxes. This gargantuan tax bill nearly equals the entire economic output of Iran and surpasses the total gross domestic product of 150 of the 184 countries ranked by the World Bank.
It would be unfair and absurd to tax workers at different rates, based merely on the industry they work in. Similarly, it makes no sense to tax an industry punitively based on the volatility of its profits. Oil will always be a boom-or-bust business.
I sure hope that someone will ask Obama, perhaps in a debate, why he supports the idea of a windfall profits tax on the oil companies even though the last time that happened, gas prices went up and our imports of foreign oil also increased. Perhaps Senator Obama would give a similar response that he gave in the ABC debate when Charlie Gibson asked him if he still supported an increase in capital gains taxes even though, in the past, a decrease in capital gains taxes has driven up the revenue the government gets. Senator Obama’s response was illuminating. He wasn’t interested in the economics of his proposed actions, but in the perceived “fairness” of taxes and business.
Economist Donald J. Boudreaux sums up Obama’s plan for tackling oil prices.
In other words, a critical part of Sen. Obama’s strategy for reigning in high gasoline prices is to subsidize gasoline consumption and more heavily tax its production. This plan - which increases the demand for gasoline and reduces its supply - makes as much sense as trying to put out a fire by dowsing it with jet fuel.
Folks, this is all a very dangerous approach to the economy. If we’re going to impose taxes based on some politician’s idea of fairness and whichever industry can be demonized to score partisan advantages, we will be endangering our entire economic system and minimizing economic growth. First it was Big Tobacco. Now Big Oil. Tomorrow perhaps, Big Pharmaceuticals. Can Big Tech or Big Food be far behind on the target list? And remember, companies don’t pay these taxes out of the goodness of their souls. They pass along the taxes to consumers. Soon Big Consumers will be paying for all this.
Tuesday, May 13, 2008
Tuesday Market Conditions
06/13/2008
April retail sales, expected to have declined, did; down 0.2%. However, ex auto sales retail was expected to be up 0.2% but jumped +0.5%. Prior to the 8:30 report the 10 yr note traded up 4/32, the initial reaction to better retail sent the note down 10/32 to -6/32 at 3.82%. This data will help lessen concerns over slowing consumption in the weeks ahead. The data showed slowing purchases at gas stations, even with gas prices rising just 0.4% after a Mar bump of 1.6%. Also at 8:30 April import prices jumped 1.8% with yr/yr at +15.4%, mostly due to the increases in oil prices. Export prices were up a mere 0.3%. Mortgage prices were unchanged prior to 8:30 but the knee jerk reaction pulled prices down 9/32 on the day. In the equity markets, prior to retail sales the indexes were weaker, on the reaction the key indexes recovered going into the 9:30 open.
March business inventories were reported at 10:00, expected to +0.4%, inventories were up 0.1%. Sales were reported up 1.0% with the inventory to sales ratio at 1.27 months, down from 1.28 months in Feb. The increase in sales will add the the upward revision to Q1 GDP.
The dollar got a boost on retail sales; the buck is hanging in a trading range these days as traders speculate whether or not the dollar deserves a rally. Crude unchanged, but gold is being slapped down hard (-$20.00)
LIBOR rates have been questioned in the past few weeks and now there is something being done to address concerns that banks that set LIBOR were understating the risks in sub prime loans last year. The benchmark interest rate for $62 trillion of credit derivatives and mortgages for 6 million U.S. homeowners faces its biggest shakeup in a decade as lawmakers question if banks are understating borrowing costs. The BBA, an unregulated London-based trade group, sets Libor by polling 16 banks each day on the rates they pay for loans in dollars, British pounds, euros and eight other currencies. LIBOR rates hit the spotlight in early April. While the BBA set the one-month dollar Libor rate at 2.72% on April 7, the Federal Reserve said banks paid 2.82% for secured loans later that day. Secured loans typically yield less than unsecured debt. Since then banks reporting of loan rates appear to be telling the truth, but prior to that it looks like they were lying through their teeth.
Federal Reserve Chairman Ben S. Bernanke said financial markets remain unsettled and the central bank will increase its auctions of cash to banks as needed. While markets have improved, they remain ``far from normal,'' Bernanke said today in the text of a speech to an Atlanta Fed conference at Sea Island, Georgia. ``We stand ready to increase the size of the auctions if further warranted by financial developments.'' Bernanke's comments contrast with those by Treasury Secretary Henry Paulson and Wall Street leaders including Vikram Pandit, chief executive officer of Citigroup Inc., who say the worst of the credit crisis is over. The Fed chief said it will take ``some time'' for financial firms to resolve the crisis by raising new capital and strengthening their management of risk. (Bloomberg) More likely Bernanke also believes the worst is over, but his willingness to add as much as needed is a salve for markets.
The bellwether 10 yr note, driver for the mortgage markets, continues to trade in a narrow range with the bias remaining bearish at the moment. That said, the 10 has staunchly resisted climbing above 3.92% (close) and equally refuses to crack 3.70% where we have strong resistance at 3.68%. This morning's retail sales took the wind out of the markets and sent yields up and prices lower, but well-contained in the range that we expect to continue. One huge headwind for lower rates is hitting bank accounts now; the stimulus checks are being sent out and all of the direct deposit checks have hit their target bank accounts. No doubt $125B of spendable cash will pump up the economy for a few months and with inflation fears always there, the prospects for substantially lower rates in the next month or two does not look good at the moment. That said, the seasonal factors are in our favor, with interest rates typically declining in the summer months.
April retail sales, expected to have declined, did; down 0.2%. However, ex auto sales retail was expected to be up 0.2% but jumped +0.5%. Prior to the 8:30 report the 10 yr note traded up 4/32, the initial reaction to better retail sent the note down 10/32 to -6/32 at 3.82%. This data will help lessen concerns over slowing consumption in the weeks ahead. The data showed slowing purchases at gas stations, even with gas prices rising just 0.4% after a Mar bump of 1.6%. Also at 8:30 April import prices jumped 1.8% with yr/yr at +15.4%, mostly due to the increases in oil prices. Export prices were up a mere 0.3%. Mortgage prices were unchanged prior to 8:30 but the knee jerk reaction pulled prices down 9/32 on the day. In the equity markets, prior to retail sales the indexes were weaker, on the reaction the key indexes recovered going into the 9:30 open.
March business inventories were reported at 10:00, expected to +0.4%, inventories were up 0.1%. Sales were reported up 1.0% with the inventory to sales ratio at 1.27 months, down from 1.28 months in Feb. The increase in sales will add the the upward revision to Q1 GDP.
The dollar got a boost on retail sales; the buck is hanging in a trading range these days as traders speculate whether or not the dollar deserves a rally. Crude unchanged, but gold is being slapped down hard (-$20.00)
LIBOR rates have been questioned in the past few weeks and now there is something being done to address concerns that banks that set LIBOR were understating the risks in sub prime loans last year. The benchmark interest rate for $62 trillion of credit derivatives and mortgages for 6 million U.S. homeowners faces its biggest shakeup in a decade as lawmakers question if banks are understating borrowing costs. The BBA, an unregulated London-based trade group, sets Libor by polling 16 banks each day on the rates they pay for loans in dollars, British pounds, euros and eight other currencies. LIBOR rates hit the spotlight in early April. While the BBA set the one-month dollar Libor rate at 2.72% on April 7, the Federal Reserve said banks paid 2.82% for secured loans later that day. Secured loans typically yield less than unsecured debt. Since then banks reporting of loan rates appear to be telling the truth, but prior to that it looks like they were lying through their teeth.
Federal Reserve Chairman Ben S. Bernanke said financial markets remain unsettled and the central bank will increase its auctions of cash to banks as needed. While markets have improved, they remain ``far from normal,'' Bernanke said today in the text of a speech to an Atlanta Fed conference at Sea Island, Georgia. ``We stand ready to increase the size of the auctions if further warranted by financial developments.'' Bernanke's comments contrast with those by Treasury Secretary Henry Paulson and Wall Street leaders including Vikram Pandit, chief executive officer of Citigroup Inc., who say the worst of the credit crisis is over. The Fed chief said it will take ``some time'' for financial firms to resolve the crisis by raising new capital and strengthening their management of risk. (Bloomberg) More likely Bernanke also believes the worst is over, but his willingness to add as much as needed is a salve for markets.
The bellwether 10 yr note, driver for the mortgage markets, continues to trade in a narrow range with the bias remaining bearish at the moment. That said, the 10 has staunchly resisted climbing above 3.92% (close) and equally refuses to crack 3.70% where we have strong resistance at 3.68%. This morning's retail sales took the wind out of the markets and sent yields up and prices lower, but well-contained in the range that we expect to continue. One huge headwind for lower rates is hitting bank accounts now; the stimulus checks are being sent out and all of the direct deposit checks have hit their target bank accounts. No doubt $125B of spendable cash will pump up the economy for a few months and with inflation fears always there, the prospects for substantially lower rates in the next month or two does not look good at the moment. That said, the seasonal factors are in our favor, with interest rates typically declining in the summer months.
Monday, May 12, 2008
Monday Market Conditions
06/12/2008
Treasuries and mortgages started with some price declines early this morning, but both are now seeing improvement. The stock market looks weak so far even though at 10:00 the DJIA is holding a slight improvement. More selling in stocks will support the bond market. The bellwether 10 yr note at 3.74% at 10;00 has a path to test resistance at 3.68%.
Last week there wasn't much in the way of economic data to focus on; this week the calendar has a lot of substance. CPI, housing starts and permits, regional economic data, consumer sentiment and the weekly claims for unemployment are out there and will be forces after a week with nothing to measure.
Some support coming for the bond market this month? Treasury will pay out $71B in maturing notes on May 15 to holders of maturing 3-, 5-, and 10-year Treasuries, and $17.7B in interest on outstanding notes and bonds. Last week it raised $21B from its quarterly auction of 10-year notes and 30-year bonds, bringing the net payment to $71B. All that money has to be re-invested and there reasons to expect most of it will come back into treasuries as there is still a lot of fear out there that more losses will follow from the sub prime mess, and as the economy declines corporate bonds may lose some of their luster even though they pay higher rates. Based on historical evidence May and through the Summer is one of the best periods of the year for the Treasury bond and note markets; ten-year note yields declined an average of 50 basis points between May and October in 16 of the last 20 years, that compares with a 32 basis-point increase from the end of January to May for most of the past two decades. Mortgage-backed securities should benefit as most are now Fannie and Freddie offerings as well as GNMA products, although Fannie and Freddie don't carry the outright guarantee of the US government, the reality these days is that they will be supported by Uncle Sam no matter what Congress or regulators espouse.
This week's Economic Calendar:
Tuesday:
8:30 April retail sales (unch overall; ex auto sales +0.2%)
8:30 April import and export prices
10:00 Mar business inventories (+0.5%)
Wednesday:
8:30 Apr Consumer Price Index (+0.3% overall, ex food and energy +0.2%)
10:30 EIA Crude oil inventories
Thursday:
8:30 weekly jobless claims (unch at 365K)
8:30 NY Empire State manufacturing index (+1.0 frm +0.6 in Apr)
9:15 Apr industrial production (-0.2%)
9:15 Apr Capacity Utilization (80.2% frm 80.3% in Mar)
10:00 Philadelphia Fed business index (-20.0 frm -24.9 in Apr)
Friday:
8:30 Apr housing starts (-0.8% to 940K)
Apr building permits (-1.4% to 912K)
10:00 U. of Michigan consumer sentiment index (63.0 frm 62.6)
Crude oil is trading lower this morning but is already coming well off the early lows as traders are buying any dips these days. The dollar is better against the yen, unchanged against the euro. Gold off $2.00.
Treasuries and mortgages started with some price declines early this morning, but both are now seeing improvement. The stock market looks weak so far even though at 10:00 the DJIA is holding a slight improvement. More selling in stocks will support the bond market. The bellwether 10 yr note at 3.74% at 10;00 has a path to test resistance at 3.68%.
Last week there wasn't much in the way of economic data to focus on; this week the calendar has a lot of substance. CPI, housing starts and permits, regional economic data, consumer sentiment and the weekly claims for unemployment are out there and will be forces after a week with nothing to measure.
Some support coming for the bond market this month? Treasury will pay out $71B in maturing notes on May 15 to holders of maturing 3-, 5-, and 10-year Treasuries, and $17.7B in interest on outstanding notes and bonds. Last week it raised $21B from its quarterly auction of 10-year notes and 30-year bonds, bringing the net payment to $71B. All that money has to be re-invested and there reasons to expect most of it will come back into treasuries as there is still a lot of fear out there that more losses will follow from the sub prime mess, and as the economy declines corporate bonds may lose some of their luster even though they pay higher rates. Based on historical evidence May and through the Summer is one of the best periods of the year for the Treasury bond and note markets; ten-year note yields declined an average of 50 basis points between May and October in 16 of the last 20 years, that compares with a 32 basis-point increase from the end of January to May for most of the past two decades. Mortgage-backed securities should benefit as most are now Fannie and Freddie offerings as well as GNMA products, although Fannie and Freddie don't carry the outright guarantee of the US government, the reality these days is that they will be supported by Uncle Sam no matter what Congress or regulators espouse.
This week's Economic Calendar:
Tuesday:
8:30 April retail sales (unch overall; ex auto sales +0.2%)
8:30 April import and export prices
10:00 Mar business inventories (+0.5%)
Wednesday:
8:30 Apr Consumer Price Index (+0.3% overall, ex food and energy +0.2%)
10:30 EIA Crude oil inventories
Thursday:
8:30 weekly jobless claims (unch at 365K)
8:30 NY Empire State manufacturing index (+1.0 frm +0.6 in Apr)
9:15 Apr industrial production (-0.2%)
9:15 Apr Capacity Utilization (80.2% frm 80.3% in Mar)
10:00 Philadelphia Fed business index (-20.0 frm -24.9 in Apr)
Friday:
8:30 Apr housing starts (-0.8% to 940K)
Apr building permits (-1.4% to 912K)
10:00 U. of Michigan consumer sentiment index (63.0 frm 62.6)
Crude oil is trading lower this morning but is already coming well off the early lows as traders are buying any dips these days. The dollar is better against the yen, unchanged against the euro. Gold off $2.00.
Tuesday, May 6, 2008
Tuesday Market Conditions
05/06/2008
The bond and mortgage markets started better this morning on momentary safe haven moves as Europe's stock markets were soft and the US stock market opened lower. UBS reported a loss of $17.3B in the first-quarter at its investment-banking unit, and plans to cut 5,500 jobs and said clients withdrew a net $12.2B from its asset- and wealth-management divisions. As losses continue to hit it adds trade into treasuries but we seriously argue that it is only hot money; leaving the potential of unstable moves that can be quickly reversed in the rate markets if equities firm through the day.
The 10 yr note and mortgage rates are stuck in a narrow 18 basis point range for three weeks now, building a platform for another quick move when the range finally cracks. There is key technical support for the 10 yr note at 3.92% as we have been mentioning for three weeks; however the closest the note has gotten is 3.89%. With no economic data today and no Fed speakers to think about, the remainder of the day will be based on the equity markets perform. The market is set up for traders as volume is thin and most investors are standing down from playing the trade game. There is a hurdle out there; tomorrow Treasury will sell $15B of new 10 yr notes at its quarterly refunding, not likely that the 10 yr can rally much today with supply pressures; and that will keep a lid on how much mortgage prices can improve.
More bad news for the mortgage and housing industry; just what we don't need. Fannie Mae reported a wider loss than analysts estimated, cut its dividend and said it will raise $6B in capital as the worst housing slump since the Great Depression deepens. Its stock tumbled as much as 12% in early trading; and said its credit-market losses will be worse next year. The first-quarter net loss was $2.19B, or $2.57 a share, compared with a loss of 64 cents a share anticipated by analysts. The company, which sold $7B of preferred stock in December, may need as much as $15B to cope with the delinquencies and foreclosures.
Crude oil is up again, now over $121.00; Goldman Sachs is saying today crude could see a mega spike to $150.00 to $200.00/barrel within six to twenty four months. If that is correct the US economy is headed for a recession that will pale any past recession. $200.00 oil is $6.00+/gallon for gas. While we believe oil is going higher, to expect that kind of increase is hard to fathom, let alone anticipate the consequences. No wonder the stock market is trading lower this morning. There is no way the US economy, consumers or businesses can stand that kind of increase.
The dollar isn't adding to its gains last week as the bearish outlook remains firm in the forex trading world. Gold is also back on the climb after falling $150.00 from its highs, it is up today and has been increasing for the past three sessions.
The bond and mortgage markets started better this morning on momentary safe haven moves as Europe's stock markets were soft and the US stock market opened lower. UBS reported a loss of $17.3B in the first-quarter at its investment-banking unit, and plans to cut 5,500 jobs and said clients withdrew a net $12.2B from its asset- and wealth-management divisions. As losses continue to hit it adds trade into treasuries but we seriously argue that it is only hot money; leaving the potential of unstable moves that can be quickly reversed in the rate markets if equities firm through the day.
The 10 yr note and mortgage rates are stuck in a narrow 18 basis point range for three weeks now, building a platform for another quick move when the range finally cracks. There is key technical support for the 10 yr note at 3.92% as we have been mentioning for three weeks; however the closest the note has gotten is 3.89%. With no economic data today and no Fed speakers to think about, the remainder of the day will be based on the equity markets perform. The market is set up for traders as volume is thin and most investors are standing down from playing the trade game. There is a hurdle out there; tomorrow Treasury will sell $15B of new 10 yr notes at its quarterly refunding, not likely that the 10 yr can rally much today with supply pressures; and that will keep a lid on how much mortgage prices can improve.
More bad news for the mortgage and housing industry; just what we don't need. Fannie Mae reported a wider loss than analysts estimated, cut its dividend and said it will raise $6B in capital as the worst housing slump since the Great Depression deepens. Its stock tumbled as much as 12% in early trading; and said its credit-market losses will be worse next year. The first-quarter net loss was $2.19B, or $2.57 a share, compared with a loss of 64 cents a share anticipated by analysts. The company, which sold $7B of preferred stock in December, may need as much as $15B to cope with the delinquencies and foreclosures.
Crude oil is up again, now over $121.00; Goldman Sachs is saying today crude could see a mega spike to $150.00 to $200.00/barrel within six to twenty four months. If that is correct the US economy is headed for a recession that will pale any past recession. $200.00 oil is $6.00+/gallon for gas. While we believe oil is going higher, to expect that kind of increase is hard to fathom, let alone anticipate the consequences. No wonder the stock market is trading lower this morning. There is no way the US economy, consumers or businesses can stand that kind of increase.
The dollar isn't adding to its gains last week as the bearish outlook remains firm in the forex trading world. Gold is also back on the climb after falling $150.00 from its highs, it is up today and has been increasing for the past three sessions.
Monday, May 5, 2008
Wanted to share
5/5/2008
Here is a great weekly newsletter you can sign up for--it is an overall view of the economy from a great perspective.
I encourage all of you to sign up for this.
http://www.frontlinethoughts.com/learnmore
Jeremy
Here is a great weekly newsletter you can sign up for--it is an overall view of the economy from a great perspective.
I encourage all of you to sign up for this.
http://www.frontlinethoughts.com/learnmore
Jeremy
Monday Market Conditions
05/05/2008
Some rebound in the bond and mortgage markets this morning after selling Friday drove yields to levels that were very close to drop dead support; but by 10:00 all the early gains have been erased . The 10 yr yield hit 3.88% on Friday, settled at 3.86& and closed in one 3.92% that we still believe will be tested. Early volume in bond and mortgage trading this morning was paper thin as investors and traders were left with very little news to work from. Stock index trading prior to the 9:30 open added a little support to rate markets as the indexes were pointing to a lower open.
Markets in Japan and England are closed for holiday today, adding the thin trading activity. The only data this morning came at 10:00 with the ISM services sector report. The overall index was expected to be about unchanged at 49.5 frm 49.6 originally reported in March. The overall index jumped to 52.0 and March was revised to 50.2; new orders component at 50.0 from 50.2, price index at 72.1 frm 70.8, and employment index at 50.8 frm 46.9. Any index read over 50 indicates expansion. Treasury and mortgage prices resumed selling on the report.
This week's Economic Calendar is thin:
Wednesday:
8:30 Q1 productivity (+1.2%)
10:00 March pending home sales
1:00 $15B 10 yr treasury note auction
3:00 Mar consumer credit (+$6.3B)
Thursday:
8:30 weekly jobless claims (-12K)
10:00 Mar wholesale inventories (+0.4%)
1:00 $6B 30 yr bond auction
Friday:
8:30 Mar trade balance (-$61.3B)
The BofA/Countrywide deal is on shaky ground. Last week talk surfaced that BofA would not agree to guarantee all of Countrywide's debt, sending a clear message that the original deal will be re-negotiated. Talk this morning is that BofA, which originally offered $7.00/share may now only want to pay $2.00. Some analysts are suggesting BofA should just walk away from the deal altogether.
Back in the news: Former Federal Reserve Chairman Alan Greenspan said the U.S. has slipped into an "awfully pale recession'' and may continue to languish for the rest of the year. "We are clearly receding,'' with economic growth now at about zero percent, he said in an interview with Bloomberg News. Greenspan, who now consults for clients including Deutsche Bank AG, also said it was too soon to declare the end to the credit crisis stemming from the collapse in the subprime mortgage market. "Until there are stabilized prices of homes, and I think they have a good way to go down, you still have prospective losses'' for financial companies and investors. "It's too soon to tell'' if the worst of the credit crunch is over, he added.
Commodity prices are not going to decline as many have been recently espousing! Yes there has been speculation that has driven prices higher, and yes the dollar weakness has added to the increase of all commodity prices. However, demand for oil, grains and metals shows little signs of abating. Food shortages are are escalating and will continue as the formerly "under-developed countries expand economically. For food; the world is facing a serious shortage of ending stocks (stocks after harvest) and so far the US grain belt is well behind in planting this year. Crude oil is moving back to $120.00, trading now at $118.72 +$2.40; gold is up $13.00. The dollar is trading weaker this morning.
Some rebound in the bond and mortgage markets this morning after selling Friday drove yields to levels that were very close to drop dead support; but by 10:00 all the early gains have been erased . The 10 yr yield hit 3.88% on Friday, settled at 3.86& and closed in one 3.92% that we still believe will be tested. Early volume in bond and mortgage trading this morning was paper thin as investors and traders were left with very little news to work from. Stock index trading prior to the 9:30 open added a little support to rate markets as the indexes were pointing to a lower open.
Markets in Japan and England are closed for holiday today, adding the thin trading activity. The only data this morning came at 10:00 with the ISM services sector report. The overall index was expected to be about unchanged at 49.5 frm 49.6 originally reported in March. The overall index jumped to 52.0 and March was revised to 50.2; new orders component at 50.0 from 50.2, price index at 72.1 frm 70.8, and employment index at 50.8 frm 46.9. Any index read over 50 indicates expansion. Treasury and mortgage prices resumed selling on the report.
This week's Economic Calendar is thin:
Wednesday:
8:30 Q1 productivity (+1.2%)
10:00 March pending home sales
1:00 $15B 10 yr treasury note auction
3:00 Mar consumer credit (+$6.3B)
Thursday:
8:30 weekly jobless claims (-12K)
10:00 Mar wholesale inventories (+0.4%)
1:00 $6B 30 yr bond auction
Friday:
8:30 Mar trade balance (-$61.3B)
The BofA/Countrywide deal is on shaky ground. Last week talk surfaced that BofA would not agree to guarantee all of Countrywide's debt, sending a clear message that the original deal will be re-negotiated. Talk this morning is that BofA, which originally offered $7.00/share may now only want to pay $2.00. Some analysts are suggesting BofA should just walk away from the deal altogether.
Back in the news: Former Federal Reserve Chairman Alan Greenspan said the U.S. has slipped into an "awfully pale recession'' and may continue to languish for the rest of the year. "We are clearly receding,'' with economic growth now at about zero percent, he said in an interview with Bloomberg News. Greenspan, who now consults for clients including Deutsche Bank AG, also said it was too soon to declare the end to the credit crisis stemming from the collapse in the subprime mortgage market. "Until there are stabilized prices of homes, and I think they have a good way to go down, you still have prospective losses'' for financial companies and investors. "It's too soon to tell'' if the worst of the credit crunch is over, he added.
Commodity prices are not going to decline as many have been recently espousing! Yes there has been speculation that has driven prices higher, and yes the dollar weakness has added to the increase of all commodity prices. However, demand for oil, grains and metals shows little signs of abating. Food shortages are are escalating and will continue as the formerly "under-developed countries expand economically. For food; the world is facing a serious shortage of ending stocks (stocks after harvest) and so far the US grain belt is well behind in planting this year. Crude oil is moving back to $120.00, trading now at $118.72 +$2.40; gold is up $13.00. The dollar is trading weaker this morning.
Monday, February 25, 2008
Monday Market Conditions
02/25/2008
US rate markets opened somewhat weaker this morning on weekend developments that Ambac will get a $3B lifeline, and global demand for riskier assets perking back up. The 'bailout' of the bond insurers was widely expected lat Friday so the reaction this morning isn't as bond negative since a lot of the action took place late Friday.
Jan existing home sales hit a few minutes ago; markets were expecting a decline of 1.8% to 4.80 mil units (ann). As reported sales were down 0.4% to 4.89 mil units; sales in Jan were 23.4% lower than in Jan 2007, inventories increased 5.5% with a 10.3 month supply, the median home price fell 4.6%. Too soon to say just how the markets will take the report, but the initial reaction was selling in the stock market and minor selling in the treasury and mortgage markets.
This week's economic data and estimates:
Tuesday:
Jan PPI (overall +0.3%, core +0.2%)
Feb consumer confidence (82.5 frm 87.9 in Jan)
Wednesday:
Jan durable goods orders (-4.0%)
Jan new home sales (-0.7% to 600K units)
Thursday:
Q4 GDP prelim, (+0.8% frm +0.6%)
weekly jobless claims (+3K to 352K)
Friday:
Jan personal income (+0.2%0
Jan personal spending (+0.2%)
PCE core inflation (+0.2%)
Chicago purchasing mgrs index (50.0 frm 51.5 in Jan)
U. of Michigan consumer sentiment index (70.0 frm 69.6)
Not only economic data this week but supply hits with the monthly 2 yr note auction on Wednesday, expected to be $24B and Thursday the 5 yr note, expected to be $14B.
On Wednesday and Thursday Fed head Bernanke will go to the House and Senate to meet the semi-annual requirements to testify on monetary policy and the economy. He has spent a lot of time at Congress in the past few weeks so we are not expecting any real bombs from him; however, when the Fed chief speaks markets pay a lot of attention.
The proportion of economists who forecast a U.S. recession this year more than doubled in three months, to 45%, according to a survey by the National Association for Business Economics. Of those, a majority expect the downturn to be "relatively muted,'' according to the poll of 49 professional forecasters taken Jan. 25 to Feb. 13. Less than 20% predicted a downturn in the previous poll completed Nov. 6. The spillover from the biggest housing slump in a quarter century, turmoil in financial markets and higher energy prices will cause growth to slow to an annual pace of 0.4% this quarter and 1,0% in the second quarter, the survey found. (Bloomberg) Economists and analysts on The Street are historically reluctant to forecast recessions, and when they do it is generally understated as to the depth and longevity.
Trade in the equity and bond markets is likely to be contained in the early part of the week. With economic data, Bernanke's testimony, and two Treasury auctions, markets should carry a slight negative bias in both stocks and bonds. That said, we can have more confidence in how the rate markets will act and less confidence on how the stock market will perform. The stock market is more emotionally charged that the bond market, thus the swings are difficult to predict. Technically, the bond and mortgage markets have a slight bearish bias now with the bellwether 10 yr note holding into support at between 3.80% and 3.85%. As has been the situation for months, if selling in the equity markets increases money will flow to Treasuries on trading. The long end of the curve will have a hard time ignoring the potential outlook for increases in inflation as most major global central bankers (including our Fed) continue to beat the inflation worry drum.
Investors continue to avoid buying mortgages in the current environment, causing mortgage rates to increase against the 10 yr treasury note. Scared to death about the appraisals and what will happen to the junk they purchased in the sub prime mania that has devastated the mortgage and residential industries. Got a home equity loan? Lenders are increasingly cancelling them, pulling the rug out from borrowers that thought they had the credit. New appraisals are causing lenders to contact those with home equity loans and simply canceling them, particularly in areas where property values are under pressure.
US rate markets opened somewhat weaker this morning on weekend developments that Ambac will get a $3B lifeline, and global demand for riskier assets perking back up. The 'bailout' of the bond insurers was widely expected lat Friday so the reaction this morning isn't as bond negative since a lot of the action took place late Friday.
Jan existing home sales hit a few minutes ago; markets were expecting a decline of 1.8% to 4.80 mil units (ann). As reported sales were down 0.4% to 4.89 mil units; sales in Jan were 23.4% lower than in Jan 2007, inventories increased 5.5% with a 10.3 month supply, the median home price fell 4.6%. Too soon to say just how the markets will take the report, but the initial reaction was selling in the stock market and minor selling in the treasury and mortgage markets.
This week's economic data and estimates:
Tuesday:
Jan PPI (overall +0.3%, core +0.2%)
Feb consumer confidence (82.5 frm 87.9 in Jan)
Wednesday:
Jan durable goods orders (-4.0%)
Jan new home sales (-0.7% to 600K units)
Thursday:
Q4 GDP prelim, (+0.8% frm +0.6%)
weekly jobless claims (+3K to 352K)
Friday:
Jan personal income (+0.2%0
Jan personal spending (+0.2%)
PCE core inflation (+0.2%)
Chicago purchasing mgrs index (50.0 frm 51.5 in Jan)
U. of Michigan consumer sentiment index (70.0 frm 69.6)
Not only economic data this week but supply hits with the monthly 2 yr note auction on Wednesday, expected to be $24B and Thursday the 5 yr note, expected to be $14B.
On Wednesday and Thursday Fed head Bernanke will go to the House and Senate to meet the semi-annual requirements to testify on monetary policy and the economy. He has spent a lot of time at Congress in the past few weeks so we are not expecting any real bombs from him; however, when the Fed chief speaks markets pay a lot of attention.
The proportion of economists who forecast a U.S. recession this year more than doubled in three months, to 45%, according to a survey by the National Association for Business Economics. Of those, a majority expect the downturn to be "relatively muted,'' according to the poll of 49 professional forecasters taken Jan. 25 to Feb. 13. Less than 20% predicted a downturn in the previous poll completed Nov. 6. The spillover from the biggest housing slump in a quarter century, turmoil in financial markets and higher energy prices will cause growth to slow to an annual pace of 0.4% this quarter and 1,0% in the second quarter, the survey found. (Bloomberg) Economists and analysts on The Street are historically reluctant to forecast recessions, and when they do it is generally understated as to the depth and longevity.
Trade in the equity and bond markets is likely to be contained in the early part of the week. With economic data, Bernanke's testimony, and two Treasury auctions, markets should carry a slight negative bias in both stocks and bonds. That said, we can have more confidence in how the rate markets will act and less confidence on how the stock market will perform. The stock market is more emotionally charged that the bond market, thus the swings are difficult to predict. Technically, the bond and mortgage markets have a slight bearish bias now with the bellwether 10 yr note holding into support at between 3.80% and 3.85%. As has been the situation for months, if selling in the equity markets increases money will flow to Treasuries on trading. The long end of the curve will have a hard time ignoring the potential outlook for increases in inflation as most major global central bankers (including our Fed) continue to beat the inflation worry drum.
Investors continue to avoid buying mortgages in the current environment, causing mortgage rates to increase against the 10 yr treasury note. Scared to death about the appraisals and what will happen to the junk they purchased in the sub prime mania that has devastated the mortgage and residential industries. Got a home equity loan? Lenders are increasingly cancelling them, pulling the rug out from borrowers that thought they had the credit. New appraisals are causing lenders to contact those with home equity loans and simply canceling them, particularly in areas where property values are under pressure.
Friday, February 22, 2008
Banks Lose to Deadbeat Homeowners as Loans Sold in Bonds Vanish
Feb. 22 (Bloomberg) -- Joe Lents hasn't made a payment on his $1.5 million mortgage since 2002.
That's when Washington Mutual Inc. first tried to foreclose on his home in Boca Raton, Florida. The Seattle-based lender failed to prove that it owned Lents's mortgage note and dropped attempts to take his house. Subsequent efforts to foreclose have stalled because no one has produced the paperwork.
``If you're going to take my house away from me, you better own the note,'' said Lents, 63, the former chief executive officer of a now-defunct voice recognition software company.
Judges in at least five states have stopped foreclosure proceedings because the banks that pool mortgages into securities and the companies that collect monthly payments haven't been able to prove they own the mortgages. The confusion is another headache for U.S. Treasury Secretary Henry Paulson as he revises rules for packaging mortgages into securities.
``I think it's going to become pretty hairy,'' said Josh Rosner, managing director at the New York-based investment research firm Graham Fisher & Co. ``Regulators appear to have ignored this, given the size and scope of the problem.''
More than $2.1 trillion, or 19 percent, of outstanding mortgages have been bundled into securities by private banks, according to Inside Mortgage Finance, a Bethesda, Maryland-based industry newsletter. Those loans may be sold several times before they land in a security. Mortgage servicers, who collect monthly payments and distribute them to securities investors, can buy and sell the home loans many times.
Housing Boom
Each time the mortgages change hands, the sellers are required to sign over the mortgage notes to the buyers. In the rush to originate more loans during the U.S. mortgage boom, from 2003 to 2006, that assignment of ownership wasn't always properly completed, said Alan White, assistant professor at Valparaiso University School of Law in Valparaiso, Indiana.
``Loans were mass produced and short cuts were taken,'' White said. ``A lot of the paperwork is done in the name of the original lender and a lot of the original lenders aren't around anymore.''
More than 100 mortgage companies stopped making loans, closed or were sold last year, according to Bloomberg data.
The foreclosure rate, at 1.69 percent of all U.S. homeowners, is the highest since the Mortgage Bankers Association began tracking it in 1993. The foreclosure rate for subprime borrowers, who have bad or incomplete credit and whose mortgages typically are securitized by private banks rather than government-sponsored entities Fannie Mae and Freddie Mac, is at a four-year high, according to the mortgage bankers.
750,000 Homeowners
More than 1.5 million homeowners will enter the foreclosure process this year, said Rick Sharga, executive vice president for marketing at RealtyTrac Inc., the Irvine, California-based seller of foreclosure information. About half of them, 750,000, will have their homes repossessed, Sharga said.
Borrower advocates, including Ohio Attorney General Marc Dann, have seized upon the issue of missing mortgage notes as a way to stem foreclosures.
``The best thing to do is to keep people in their homes and for everybody to take steps necessary to make that happen,'' said Chris Geidner, an attorney in Dann's office. ``These trusts are purchasing these notes, and before they even get the paperwork, they foreclose on people. They become foreclosure machines.''
Lost-Note Affidavits
When the mortgage servicers and securitizing banks that act as trustees of the securities fail to present proof that they own a mortgage, they sometimes file what's called a lost-note affidavit, said April Charney, a lawyer at Jacksonville Area Legal Aid in Florida.
Nobody knows how widespread the use of lost-note affidavits are, Charney said. She's had foreclosure proceedings for 300 clients dismissed or postponed in the past year, with about 80 percent of them involving lost-note affidavits, she said.
``They raise the issue of whether the trusts own the loans at all,'' Charney said. ``Lost-note affidavits are pattern and practice in the industry. They are not exceptions. They are the rule.''
State laws generally make it difficult to foreclose because they favor the homeowner, said Stuart Saft, a real estate lawyer and partner at the New York firm Dewey & LeBoeuf LLP.
``All these loan documents are being sent to the inside of a mountain in the middle of America and not being checked very carefully,'' Saft said. ``The lenders can't find the paper. We're dealing with a lot of paper produced in a mortgage closing.''
`Waste of Time'
Requiring banks to produce the paperwork at a foreclosure hearing is a nuisance, said Jeffrey Naimon, a partner in the Washington office of Buckley Kolar LLP.
``It's a gigantic waste of time,'' Naimon said. ``The mortgage may have transferred five, six, eight times. It's possible that you don't have all the pieces of paper, but it was enough to convince the next guy in the chain. There's no true controversy over whether the owner owns the loan.''
Judges are becoming increasingly impatient with plaintiffs who produce no more proof of ownership than a lost-note affidavit or a copy of the note, said Michael Doan, an attorney at Doan Law Firm LLP in Carlsbad, California.
``Things are heating up,'' Doan said.
In Ohio, where RealtyTrac reported an 88 percent jump in foreclosures last year, Dann, the attorney general, is now arguing 40 foreclosure cases that challenge ownership of mortgage notes, according to his office.
`Cavalier Approach'
U.S. District Judge David D. Dowd Jr. in Ohio's northern district chastised Deutsche Bank National Trust Co. and Argent Mortgage Securities Inc. in October for what he called their ``cavalier approach'' and ``take my word for it'' attitude toward proving ownership of the mortgage note in a foreclosure case.
John Gallagher, a spokesman for Frankfurt-based Deutsche Bank AG, said the bank had no comment.
Federal District Judge Christopher Boyko dismissed 14 foreclosure cases in Cleveland in November due to the inability of the trustee and the servicer to prove ownership of the mortgages.
Similar cases were dismissed during the past year by judges in California, Massachusetts, Kansas and New York.
``Judges are human beings,'' said Kenneth M. Lapine, a partner at the Cleveland law firm Roetzel & Andress LPA. ``They no doubt feel the little guy needs all the help he can get against the impersonal, out of town, mega-investment banking company.''
Warning Plaintiffs
U.S. Bankruptcy Judge Samuel L. Bufford in Los Angeles issued a notice last month warning plaintiffs in foreclosure cases to bring the mortgage notes to court and not submit copies.
``This requirement will apply because developments in the secondary market for mortgages and other security interests cause the court to lack confidence that presenting a copy of a promissory note is sufficient to show that movant has a right to enforce the note or that it qualifies as a real party in interest,'' the notice said.
Quick foreclosures benefit communities because properties in default lose value and homeowners in financial distress don't maintain their houses or pay real estate taxes, said Saft of Dewey & Leboeuf.
Painted as the Enemy
``When banks originally made the loans they used people's money from pension funds and savings accounts and they should be allowed to foreclose the loan as quickly as possible before the property depreciates in value any more,'' Saft said. ``The mortgage industry has been painted as the enemy when all they did was make loans to enable people to buy homes. Now there's less money available for new borrowers to buy homes and that's what's causing the value of homes to go down.''
Lents is former CEO of Investco Inc., a Boca Raton, Florida-based developer of voice recognition software. In 2002, the U.S. Securities and Exchange Commission sanctioned Lents and others for stock manipulation, according to the SEC Web site. He lost his job, was fined and his assets were frozen. That's the reason he couldn't pay his mortgage, he said.
``If the homeowner doesn't object to the lost-note affidavit, the judge rubber-stamps it,'' Lents said. ``Is it oversight, or are they trying to get around the law?''
Washington Mutual spokeswoman Geri Ann Baptista said the bank had no comment.
Looking for Loopholes
``I can't believe the handling of notes is worse than it was five years ago,'' said Guy Cecala, publisher of Inside Mortgage Finance. ``What we didn't have back then were armies of attorneys out there looking for loopholes. People are challenging foreclosures and courts are paying a lot more attention to foreclosures than they ever did before.''
American Home Mortgage Investment Corp., the Melville, New York-based lender that filed for bankruptcy last August, said it was paying $45,000 a month to store loan paperwork and petitioned U.S. Bankruptcy Judge Christopher Sontchi in Wilmington, Delaware, for the right to toss it all. Sontchi ruled last week that American Home Mortgage could charge banks from $3 to $13 a file to retrieve documents.
The home-loan industry has had a central electronic database since 1997 to track mortgages as they are bought and sold. It's run by Mortgage Electronic Registration System, or MERS, a subsidiary of Vienna, Virginia-based MERSCORP Inc., which is owned by mortgage companies.
No Tracking Mechanism
MERS has 3,246 member companies and about half of outstanding mortgages are registered with the company, including loans purchased by government-sponsored entities Fannie Mae, Freddie Mac and Ginnie Mae, said R.K. Arnold, the company's CEO.
For about half of U.S. mortgages, there is no tracking mechanism.
MERS rules don't allow members to submit lost-note affidavits in place of mortgage notes, Arnold said.
``A lot of companies say the note is lost when it's highly unlikely the note is lost,'' Arnold said. ``Saying a note is lost when it's not really lost is wrong.''
Lents's attorney, Jane Raskin of Raskin & Raskin in Miami, said she has no idea who owns Lents's mortgage note.
``Something is wrong if you start from what I think is the reasonable assumption that these banks are not losing all of these notes,'' Raskin said. ``As an officer of the court, I find it troubling that they've been going in and saying we lost the note, and because nobody is challenging it, the foreclosures are pushed through the system.''
To contact the reporter on this story: Bob Ivry in New York at bivry@bloomberg.net.
Friday Market Conditions
02/22/2008
In very early trading this morning (7:00 AM) the 10 yr note traded 14/32 higher in price than the close yesterday; but by 9:00 the 10 was back to unchanged. Treasuries have nothing to work with today with just some Fed-speak hitting later. Trade is trying to add to yesterday's gains with the technical picture looking better providing these levels hold. The lack of drivers could weigh on bonds though with a recovery in stock land likely taking a bite out of the gains. All we have today is Dallas Fed Pres Fisher speaking at 1:30.
NY has a snow storm brewing, that may keep markets somewhat more orderly today as many won't make it in; and with no economic news until next week and being Friday the potential of a quiet day exists. That said, financial markets continue to demonstrate huge volatile ranges as investors and traders look for something to drive stocks and bonds.
Bloomberg has a story out today on the difficulties in foreclosing delinquent mortgages. The basis is that many lenders (servicers) that are attempting to foreclose on properties can't produce the mortgage note, without legal evidence attorneys for defendants are staving off foreclosure by arguing that since the lender can not produce to note there is no evidence the lender actually owns the mortgage. In the story there is one man highlighted that hasn't made a payment since 2002 and is still in his house as the judge refuses to grant the foreclosure since the note can not be produced. More losses for investors holding the mortgages, and that will add the investor reluctance to step back in the MBS markets. It seems that there is no end to the mess caused by the sub primes and other mortgages that were originated in the past six years.
Since there isn't any anticipated news or data today, the markets should stay quiet. Next week the economic calendar is full with existing and new home sales for Jan, the Jan PPI, personal income and spending and two treasury auctions (2 yr and 5 yr). Next week also has Bernanke headed to the House and Senate to meet the semi-annual requirements of what used to be known as Humphrey-Hawkins; the fed chief is required by law to testify on monetary policy and the economy twice each year (Feb and August). With all that next week, today should be a day of rest-----hopefully.
The rest of the day for the rate markets will be influenced by how the equity markets perform. At 10:00 the stock indexes are slightly better but show no enthusiasm with the data and Bernanke next week. So far this morning when the stock market futures were aiming at a strong opening the rate markets were unchanged, by 10:00 though the DJIA was sliding back to unchanged that added a little support to treasuries and mortgages.
Talk about poor thinking; in this environment with mortgage companies foreclosing on thousands of properties and the spotlight on everything coming from big mortgage companies; Countrywide is hosting a huge expensive ski resort conference in Colorado. Countrywide apparently doesn't know when to lay low, especially when the company is the poster boy for all that is wrong with mortgage lending.
Crude oil, after backing down yesterday on T. Boone Pickens's remarks, was up this morning, but unchanged at 10:00. The dollar is a little weaker this morning but also quiet.
In very early trading this morning (7:00 AM) the 10 yr note traded 14/32 higher in price than the close yesterday; but by 9:00 the 10 was back to unchanged. Treasuries have nothing to work with today with just some Fed-speak hitting later. Trade is trying to add to yesterday's gains with the technical picture looking better providing these levels hold. The lack of drivers could weigh on bonds though with a recovery in stock land likely taking a bite out of the gains. All we have today is Dallas Fed Pres Fisher speaking at 1:30.
NY has a snow storm brewing, that may keep markets somewhat more orderly today as many won't make it in; and with no economic news until next week and being Friday the potential of a quiet day exists. That said, financial markets continue to demonstrate huge volatile ranges as investors and traders look for something to drive stocks and bonds.
Bloomberg has a story out today on the difficulties in foreclosing delinquent mortgages. The basis is that many lenders (servicers) that are attempting to foreclose on properties can't produce the mortgage note, without legal evidence attorneys for defendants are staving off foreclosure by arguing that since the lender can not produce to note there is no evidence the lender actually owns the mortgage. In the story there is one man highlighted that hasn't made a payment since 2002 and is still in his house as the judge refuses to grant the foreclosure since the note can not be produced. More losses for investors holding the mortgages, and that will add the investor reluctance to step back in the MBS markets. It seems that there is no end to the mess caused by the sub primes and other mortgages that were originated in the past six years.
Since there isn't any anticipated news or data today, the markets should stay quiet. Next week the economic calendar is full with existing and new home sales for Jan, the Jan PPI, personal income and spending and two treasury auctions (2 yr and 5 yr). Next week also has Bernanke headed to the House and Senate to meet the semi-annual requirements of what used to be known as Humphrey-Hawkins; the fed chief is required by law to testify on monetary policy and the economy twice each year (Feb and August). With all that next week, today should be a day of rest-----hopefully.
The rest of the day for the rate markets will be influenced by how the equity markets perform. At 10:00 the stock indexes are slightly better but show no enthusiasm with the data and Bernanke next week. So far this morning when the stock market futures were aiming at a strong opening the rate markets were unchanged, by 10:00 though the DJIA was sliding back to unchanged that added a little support to treasuries and mortgages.
Talk about poor thinking; in this environment with mortgage companies foreclosing on thousands of properties and the spotlight on everything coming from big mortgage companies; Countrywide is hosting a huge expensive ski resort conference in Colorado. Countrywide apparently doesn't know when to lay low, especially when the company is the poster boy for all that is wrong with mortgage lending.
Crude oil, after backing down yesterday on T. Boone Pickens's remarks, was up this morning, but unchanged at 10:00. The dollar is a little weaker this morning but also quiet.
Friday, February 15, 2008
Friday Market Conditions
02/15/2008
The February Empire State index fell 21 pts to -11.7 as new orders fell to -11.9 and shipments fell -21 pts to -4.9. Prices paid rose as prices received edged lower as the lack of manufacturing pricing power doesn't provide much inflation risk. Markets were forecasting the index at +7.5; in Jan the index sat at 9.0. Any reading in the indexes under zero indicates contraction. Put this report with the Philly Fed business index last month and the evidence is undeniable that the US economy is slowing quickly and with the credit market seize-up the outlook for a recession is gaining more credibility.
Jan industrial production was on target, up 0.1% with factory usage (cap utilization) was slightly better at 81.5% from 81.4% in Dec.
The U. of Michigan consumer sentiment index, expected at 76.5 from 78.4 at the end of Jan, fell to 69.6---should be supportive to the bond market and a negative for stocks, however the initial reaction has not improved prices in the bond market.
Net foreign purchases of US treasury coupons totaled a meager $1.4B in Dec. However, over the year 2007 net purchases by foreign investors exceeded the total of treasury issuance less maturing issues by $100B. Foreign buyers of US treasuries is one of the many reasons US interest rates are lower than they may be otherwise.
Nothing left on the calendars today; the bond market will close at 2:00 this afternoon (equities trade usual hours) and markets will be closed on Monday for President's Day. The rest of the day will see mostly position adjustments going into the long week-end. After the quick increase in interest rates this week and the short-covering rally in stocks Monday through Wednesday, the markets will likely see bonds do a little better and stocks possibly some weakness. Hard to handicap the stock market on a moment to moment basis though. The strong link between action in equities and the interest rate markets has momentarily been weakened a little. Inflation fears still infect long term treasuries, and the mortgage market remains toxic to investors as sub prime issues and the collapse of credit markets is far from over.
Technically, the 10 yr treasury note has so far successfully held its key support at 3.80%; yesterday the yield intraday popped to 3.83% and ended at 3.82%, but no follow-through so far today is encouraging for technicians.
The February Empire State index fell 21 pts to -11.7 as new orders fell to -11.9 and shipments fell -21 pts to -4.9. Prices paid rose as prices received edged lower as the lack of manufacturing pricing power doesn't provide much inflation risk. Markets were forecasting the index at +7.5; in Jan the index sat at 9.0. Any reading in the indexes under zero indicates contraction. Put this report with the Philly Fed business index last month and the evidence is undeniable that the US economy is slowing quickly and with the credit market seize-up the outlook for a recession is gaining more credibility.
Jan industrial production was on target, up 0.1% with factory usage (cap utilization) was slightly better at 81.5% from 81.4% in Dec.
The U. of Michigan consumer sentiment index, expected at 76.5 from 78.4 at the end of Jan, fell to 69.6---should be supportive to the bond market and a negative for stocks, however the initial reaction has not improved prices in the bond market.
Net foreign purchases of US treasury coupons totaled a meager $1.4B in Dec. However, over the year 2007 net purchases by foreign investors exceeded the total of treasury issuance less maturing issues by $100B. Foreign buyers of US treasuries is one of the many reasons US interest rates are lower than they may be otherwise.
Nothing left on the calendars today; the bond market will close at 2:00 this afternoon (equities trade usual hours) and markets will be closed on Monday for President's Day. The rest of the day will see mostly position adjustments going into the long week-end. After the quick increase in interest rates this week and the short-covering rally in stocks Monday through Wednesday, the markets will likely see bonds do a little better and stocks possibly some weakness. Hard to handicap the stock market on a moment to moment basis though. The strong link between action in equities and the interest rate markets has momentarily been weakened a little. Inflation fears still infect long term treasuries, and the mortgage market remains toxic to investors as sub prime issues and the collapse of credit markets is far from over.
Technically, the 10 yr treasury note has so far successfully held its key support at 3.80%; yesterday the yield intraday popped to 3.83% and ended at 3.82%, but no follow-through so far today is encouraging for technicians.
Friday, February 8, 2008
Loan limits
02/08/2008
a loan originated between July 1, 2007 and December 31, 2008
may be purchased by Fannie and Freddie, as long as the loan amount does not
exceed the higher of $417,000 OR 125% of what HUD determines to be the area
median home price, with a maximum cap of $729,750. This will allow some loan
amounts higher than $417,000 to have significantly better pricing, at least for a
limited time frame.
a loan originated between July 1, 2007 and December 31, 2008
may be purchased by Fannie and Freddie, as long as the loan amount does not
exceed the higher of $417,000 OR 125% of what HUD determines to be the area
median home price, with a maximum cap of $729,750. This will allow some loan
amounts higher than $417,000 to have significantly better pricing, at least for a
limited time frame.
Thursday, January 24, 2008
Thursday 01/24/2008
01/24/2008
Yesterday's market volatility is about all that traders could stand; hopefully today won't be so stressed. The DJIA had a 650 point range, the treasury market sold off in swift fashion when the equity markets spiked higher in the afternoon and continued to be pounded right to the end; the 10 yr note at 4:00 yesterday was down 33/32 at 3.53%----it closed at -51/32 at 3.59% right on support. It was, to say the least, one of the most volatile market days we have had in months----and in this market these days that is saying a lot.
This morning weekly jobless claims were expected to be up 18K to 320K weekly filings; as reported claims were down 1K to 301K from the revised 302K last week. The back to back levels near 300K is inconsistent with the decline in December non-government payrolls, and the 350+ levels of initial claims seen in the fourth quarter and sets up for an interesting -- and probably much improved -- employment report next Friday. The 4-week average fell to 315K -- the smallest since early October. Continued claims (more reflective of hiring than the layoffs seen in initial claims) fell -75K to 2.672 mil as the 4-week average fell off.
At 10:00, a few minutes ago, Dec existing home sales were expected to be down 1.0% to 4.95 mil units (ann); sales were reported down 2.2% to 4.89 mil units. The NAR said there was a decline in unsold inventories, from 10.6 months in Nov to 9.6 month supply in Dec. In 2007 existing home sales fell 12.6% frm 2006. Prices fell 6.0% in Dec.
Too big to fail is a well worn phrase that is once again on the table with a potential bailout of bond insurers Ambac and MBIA. In the USA it is almost a given; make a huge blunder big enough and you will be helped as the financial brethren and regulators will ride to the rescue; the list of bailouts is growing and the precedent is now well established----not good but it is what it is. NY State regulators, who met with industry executives yesterday, is trying to bolster the bond insurers' ratings with help from banks and securities firms that posted $133B of writedowns and credit losses tied to mortgage securities. NY regulators received encouragement from Federal Reserve Bank of New York President Timothy Geithner. The talk yesterday of a possible bailout was one key reason the stock market put in the rally in the afternoon. Bond insures are in this trouble for one reason----greed! Fees were large to insure mortgage sub prime bonds, and they sucked them up like starving wolves; now because the alternative to not bailing them out is worse than letting them hang, it appears they will be saved.
After the existing home sales today there is nothing on the economic calendar now until Monday. Today and tomorrow markets will continue to be influenced by talk of bailouts, rumors, a fiscal stimulus package to aid consumers, and next week's two day FOMC meeting that concludes on Wednesday with another rate cut, the amount of which is debatable---50 or 25 BPs.
Stock market in Europe rallied today on the back of the improvement in US equities yesterday afternoon. The stock market is extremely oversold when measured on a short term basis and the bond market overbought. The larger perspective however continues to be bearish for stocks and bullish to interest rates. Both markets are very fragile with emotions more a driver than intelligent thought these days. We expect market volatility to continue to be at very high levels.
Another scandal---- Societe Generale SA, France's second largest bank, said unauthorized bets on stock index futures by an unidentified employee caused a 4.9 billion-euro ($7.2B) trading loss, the largest in banking history. The trading shortfall exceeds the $6.6B Amaranth Advisors LLC lost in 2006, and is more than three times the $1.8B of losses by Nick Leeson that brought down Barings Plc in 1995.
Yesterday's market volatility is about all that traders could stand; hopefully today won't be so stressed. The DJIA had a 650 point range, the treasury market sold off in swift fashion when the equity markets spiked higher in the afternoon and continued to be pounded right to the end; the 10 yr note at 4:00 yesterday was down 33/32 at 3.53%----it closed at -51/32 at 3.59% right on support. It was, to say the least, one of the most volatile market days we have had in months----and in this market these days that is saying a lot.
This morning weekly jobless claims were expected to be up 18K to 320K weekly filings; as reported claims were down 1K to 301K from the revised 302K last week. The back to back levels near 300K is inconsistent with the decline in December non-government payrolls, and the 350+ levels of initial claims seen in the fourth quarter and sets up for an interesting -- and probably much improved -- employment report next Friday. The 4-week average fell to 315K -- the smallest since early October. Continued claims (more reflective of hiring than the layoffs seen in initial claims) fell -75K to 2.672 mil as the 4-week average fell off.
At 10:00, a few minutes ago, Dec existing home sales were expected to be down 1.0% to 4.95 mil units (ann); sales were reported down 2.2% to 4.89 mil units. The NAR said there was a decline in unsold inventories, from 10.6 months in Nov to 9.6 month supply in Dec. In 2007 existing home sales fell 12.6% frm 2006. Prices fell 6.0% in Dec.
Too big to fail is a well worn phrase that is once again on the table with a potential bailout of bond insurers Ambac and MBIA. In the USA it is almost a given; make a huge blunder big enough and you will be helped as the financial brethren and regulators will ride to the rescue; the list of bailouts is growing and the precedent is now well established----not good but it is what it is. NY State regulators, who met with industry executives yesterday, is trying to bolster the bond insurers' ratings with help from banks and securities firms that posted $133B of writedowns and credit losses tied to mortgage securities. NY regulators received encouragement from Federal Reserve Bank of New York President Timothy Geithner. The talk yesterday of a possible bailout was one key reason the stock market put in the rally in the afternoon. Bond insures are in this trouble for one reason----greed! Fees were large to insure mortgage sub prime bonds, and they sucked them up like starving wolves; now because the alternative to not bailing them out is worse than letting them hang, it appears they will be saved.
After the existing home sales today there is nothing on the economic calendar now until Monday. Today and tomorrow markets will continue to be influenced by talk of bailouts, rumors, a fiscal stimulus package to aid consumers, and next week's two day FOMC meeting that concludes on Wednesday with another rate cut, the amount of which is debatable---50 or 25 BPs.
Stock market in Europe rallied today on the back of the improvement in US equities yesterday afternoon. The stock market is extremely oversold when measured on a short term basis and the bond market overbought. The larger perspective however continues to be bearish for stocks and bullish to interest rates. Both markets are very fragile with emotions more a driver than intelligent thought these days. We expect market volatility to continue to be at very high levels.
Another scandal---- Societe Generale SA, France's second largest bank, said unauthorized bets on stock index futures by an unidentified employee caused a 4.9 billion-euro ($7.2B) trading loss, the largest in banking history. The trading shortfall exceeds the $6.6B Amaranth Advisors LLC lost in 2006, and is more than three times the $1.8B of losses by Nick Leeson that brought down Barings Plc in 1995.
Conforming limit increase???
01/24/2008
Speaking of opportunity. We are hearing rumors that the conforming limit may
be raised on a somewhat temporary basis from $417,000 to $625,500, like it
already exists in Alaska, Hawaii, Guam and the Virgin Islands.. Now remember, this is still just a possibility and it may not even happen, but we have to be ready. We strongly recommend you start lining up all your Jumbo and ARM clients as this opportunity would in essence represent a 1% reduction in interest rates.
Monday, January 14, 2008
Mortgage-Rate Reset Doesn't Need to Be a Crisis: John F. Wasik
Jan. 14 (Bloomberg) -- This will be a brave new year for U.S. homeowners with adjustable-rate loans.
Terms will be tougher for the credit-challenged. Fewer bargain teaser rates will be offered. And for those facing higher resets on adjustable-rate mortgage payments, it's time to negotiate.
If your mortgage is ratcheting up to a monthly payment you can't afford, you may have some leverage in lowering the rate. Your lender may even welcome the move and allow you to do a low- cost loan modification.
To date, some $150 billion in adjustable loans have reset with $300 billion more in the pipeline, according to the Federal Deposit Insurance Corp. The greatest number of mortgage-rate increases is likely to hit borrowers this year.
In many cases, your lender may call you first to see if you want to modify your loan's terms. That's what happened to Dick Lepre, a loan officer for Residential Pacific Mortgage Corp. in San Francisco.
``I had a 5/1 adjustable at 4.25 percent and Chase Mortgage called me up to reset it at 5.625 percent for seven years,'' Lepre told me. ``Banks know you have an ability to go elsewhere for a loan. It's more costly for them to replace the loan than to keep it. They want to keep customers.''
Keep in mind that almost all adjustable-mortgage contracts can be modified -- if both parties agree to the terms. This avoids the hassle of refinancing and searching for new lenders.
Making the Call
The road to a modification may not be an easy proposition, though.
Your loan may be serviced by a company that doesn't hold the note and may not be able to change the terms. Nevertheless, your first call should be to the customer service department of the mortgage servicing company.
Is your loan held by a direct lender? If so, the bank may ask for extensive information on your credit history and earnings -- perhaps even more than when you first applied due to tighter loan rules.
Lenders mainly want to know if your financial situation has changed since you first obtained your mortgage.
``If your credit is good, the lender may want you to refinance,'' says Gerri Detweiler, credit adviser for the consumer Web site http://www.credit.com . ``They may even have a streamlined refinance program.''
Check Credit
Any change in your credit history, income stream or other variables will affect your chances of refinancing or getting a modification.
Generally the lowest rates are offered to those scoring 700 or above on the FICO scale, a universally used system of rating creditworthiness.
Once you get the green light from your lender, it's time to bargain. First, look around to see what rates are being offered for the timeframe you want.
While it's unlikely you will be able to lock in a low, introductory teaser rate you first financed at, do some math to see which monthly payment works with your budget.
An adjustable reset calculator at http://www.bankrate.com can help you find a rate and payment that you can afford. Also consider the FHA Secure program, a refinancing program available to borrowers with a steady income and payment history.
Shane Backer, a mortgage planner and broker at Robbins & Lloyd Mortgage Corp. in New York, says you may contract with a credit-repair service to improve your rating. ``Look into your credit report and work with a mortgage professional,'' he says. ``Know when your ARM expires and plan ahead.''
Negotiate
Like any negotiation, you probably won't get your ideal rate, nor will your lender. And you may encounter some roadblocks as loan officers are swamped with modification requests.
Is loan modification too good to be true? As with all things regarding credit, there are several caveats. Lenders will be happy to deal with you if your credit record is clean and your income is steady or increasing. Having more than 10 percent in home equity is also a plus.
If you obtained what the industry terms riskier ``Alt-A,'' ``B paper'' or subprime loans, it may be much more difficult to obtain a loan modification, even with a new government program called Hope Now designed to help those less creditworthy borrowers facing unaffordable resets.
Backer said he didn't know of anyone who was doing a loan modification through that program, largely because of the difficulties of getting investors to approve them.
No matter what kind of loan you have, it's best to call your mortgage service company to see if you have room to negotiate. It costs nothing to ask.
(John F. Wasik, author of ``The Merchant of Power,'' is a Bloomberg News columnist. The opinions expressed are his own.)
Terms will be tougher for the credit-challenged. Fewer bargain teaser rates will be offered. And for those facing higher resets on adjustable-rate mortgage payments, it's time to negotiate.
If your mortgage is ratcheting up to a monthly payment you can't afford, you may have some leverage in lowering the rate. Your lender may even welcome the move and allow you to do a low- cost loan modification.
To date, some $150 billion in adjustable loans have reset with $300 billion more in the pipeline, according to the Federal Deposit Insurance Corp. The greatest number of mortgage-rate increases is likely to hit borrowers this year.
In many cases, your lender may call you first to see if you want to modify your loan's terms. That's what happened to Dick Lepre, a loan officer for Residential Pacific Mortgage Corp. in San Francisco.
``I had a 5/1 adjustable at 4.25 percent and Chase Mortgage called me up to reset it at 5.625 percent for seven years,'' Lepre told me. ``Banks know you have an ability to go elsewhere for a loan. It's more costly for them to replace the loan than to keep it. They want to keep customers.''
Keep in mind that almost all adjustable-mortgage contracts can be modified -- if both parties agree to the terms. This avoids the hassle of refinancing and searching for new lenders.
Making the Call
The road to a modification may not be an easy proposition, though.
Your loan may be serviced by a company that doesn't hold the note and may not be able to change the terms. Nevertheless, your first call should be to the customer service department of the mortgage servicing company.
Is your loan held by a direct lender? If so, the bank may ask for extensive information on your credit history and earnings -- perhaps even more than when you first applied due to tighter loan rules.
Lenders mainly want to know if your financial situation has changed since you first obtained your mortgage.
``If your credit is good, the lender may want you to refinance,'' says Gerri Detweiler, credit adviser for the consumer Web site http://www.credit.com . ``They may even have a streamlined refinance program.''
Check Credit
Any change in your credit history, income stream or other variables will affect your chances of refinancing or getting a modification.
Generally the lowest rates are offered to those scoring 700 or above on the FICO scale, a universally used system of rating creditworthiness.
Once you get the green light from your lender, it's time to bargain. First, look around to see what rates are being offered for the timeframe you want.
While it's unlikely you will be able to lock in a low, introductory teaser rate you first financed at, do some math to see which monthly payment works with your budget.
An adjustable reset calculator at http://www.bankrate.com can help you find a rate and payment that you can afford. Also consider the FHA Secure program, a refinancing program available to borrowers with a steady income and payment history.
Shane Backer, a mortgage planner and broker at Robbins & Lloyd Mortgage Corp. in New York, says you may contract with a credit-repair service to improve your rating. ``Look into your credit report and work with a mortgage professional,'' he says. ``Know when your ARM expires and plan ahead.''
Negotiate
Like any negotiation, you probably won't get your ideal rate, nor will your lender. And you may encounter some roadblocks as loan officers are swamped with modification requests.
Is loan modification too good to be true? As with all things regarding credit, there are several caveats. Lenders will be happy to deal with you if your credit record is clean and your income is steady or increasing. Having more than 10 percent in home equity is also a plus.
If you obtained what the industry terms riskier ``Alt-A,'' ``B paper'' or subprime loans, it may be much more difficult to obtain a loan modification, even with a new government program called Hope Now designed to help those less creditworthy borrowers facing unaffordable resets.
Backer said he didn't know of anyone who was doing a loan modification through that program, largely because of the difficulties of getting investors to approve them.
No matter what kind of loan you have, it's best to call your mortgage service company to see if you have room to negotiate. It costs nothing to ask.
(John F. Wasik, author of ``The Merchant of Power,'' is a Bloomberg News columnist. The opinions expressed are his own.)
Wednesday, January 2, 2008
Wednesday Market Conditions
01/02/2008
Very early trade this morning had the rate markets open under a little pressure from Monday's early close. The holidays are over and its back to business, albeit with some minor football hangover. At 10:00 a huge rally.
The remainder of this week will be focusing on the Dec employment report on Friday; expectations are for the unemployment rate to increase to 4.8% from 4.7% with non-farm job growth at 70K. Tomorrow ADP will come with their estimate for jobs.
At 10:00 the ISM Dec manufacturing report; the overall index was expected at 50.5 from 52.86 (rev'd) in Nov---it hit at a weak 47.7; new orders at 45.7 from 52.6, employment at 48.0 from 47.8 and prices at 68.0 frm 67.5 The report is one of the weakest we have seen in over a year. The ISM index has now declined for six consecutive months and is certainly forcing the Fed's hand on more rate cuts in the future. Any read under 50 indicates contraction. The Initial; reaction has been as expected with this weak outlook for manufacturing, the 10 yr note has jumped 19/32 in five minutes and the 2 yr note yield has fallen to 2.92% from 3.05% on Monday. Mortgage prices are moving higher but it will take a few minutes for them to catch up.
Also at 10:00 Nov construction spending, expected to be down 0.4%, it was up just 0.1%----more evidence for those that are continuing to to talk bullish on the economic outlook.
Holiday Internet Sales Growth Slows as U.S. Consumers Hold Back Spending. Internet sales by U.S. retailers during the holiday season rose at the slowest pace on record as consumers grappled with $3-a-gallon gasoline and the worst housing slump in 16 years.
The U.S. dollar weakened against 13 of the 16 most-actively traded currencies as traders bet the Fed will reduce borrowing costs at least twice in 2008, extending last year's 10% decline of the buck. The dollar fell against the euro in 2007 as the Fed lowered its benchmark rate by 1.0% to 4.25% since September. The euro gained 10.6% last year as the European Central Bank raised its main refinancing rate twice to 4.0%, the highest in six years.
Most of the debate as the year gets rolling is on what the Fed will do as the US economy slows. The chance the Fed will cut its target rate for overnight lending between banks by a quarter-point to 4.0% at its Jan 30 meeting rose to 92% from 76% a week ago, according to futures contracts on the Chicago Board of Trade. The odds of a reduction to 3.75% at its March 18 meeting are 61%. As you know it is a moving target, and subject to huge sentiment changes on each key economic reading. That said, all recent data is pointing to an economic decline in 2008 with housing and foreclosures leading consumers to slow spending.
The first half of 2008 should see lower long term interest rates as the Fed is likely to continue lowering rates at each FOMC meeting through June. Inflation fears have increased recently as the Nov PCE (personal consumption expenditures) core rate (ex food and energy) jumped to +2.2% yr/yr---over the Fed's "comfort" level. The Fed however is likely to look more at economic weakness than the inflation increase as long as it doesn't continue to increase. That is however, a huge leap of faith at the moment with oil prices set to hit $100.00 before the end of this week. While the Fed is expected to cut rates; it isn't likely to be a smooth ride as there will be times when the outlook for more cuts gets wound up in contra economic data.
And we can't forget the sub prime mess; it hasn't gotten much ink the past few weeks but we expect a lot deeper losses as a result of the stupid attempt to paint low quality mortgages with a rose colored brush as was the case on The Street in 2005 and 2006. 2008 is also likely to ring in the next credit defaults in credit cards and auto loans. Credit card debt and auto loans were also bundled into packages and sold to investors not willing to be satisfied with low rates of returns on good debt.
Crude oil is on its way to try $100.00; this morning crude is up over $2.00 at about $98.00. Tomorrow the EIA will report last week's inventory levels and traders are expecting another drawdown.
Very early trade this morning had the rate markets open under a little pressure from Monday's early close. The holidays are over and its back to business, albeit with some minor football hangover. At 10:00 a huge rally.
The remainder of this week will be focusing on the Dec employment report on Friday; expectations are for the unemployment rate to increase to 4.8% from 4.7% with non-farm job growth at 70K. Tomorrow ADP will come with their estimate for jobs.
At 10:00 the ISM Dec manufacturing report; the overall index was expected at 50.5 from 52.86 (rev'd) in Nov---it hit at a weak 47.7; new orders at 45.7 from 52.6, employment at 48.0 from 47.8 and prices at 68.0 frm 67.5 The report is one of the weakest we have seen in over a year. The ISM index has now declined for six consecutive months and is certainly forcing the Fed's hand on more rate cuts in the future. Any read under 50 indicates contraction. The Initial; reaction has been as expected with this weak outlook for manufacturing, the 10 yr note has jumped 19/32 in five minutes and the 2 yr note yield has fallen to 2.92% from 3.05% on Monday. Mortgage prices are moving higher but it will take a few minutes for them to catch up.
Also at 10:00 Nov construction spending, expected to be down 0.4%, it was up just 0.1%----more evidence for those that are continuing to to talk bullish on the economic outlook.
Holiday Internet Sales Growth Slows as U.S. Consumers Hold Back Spending. Internet sales by U.S. retailers during the holiday season rose at the slowest pace on record as consumers grappled with $3-a-gallon gasoline and the worst housing slump in 16 years.
The U.S. dollar weakened against 13 of the 16 most-actively traded currencies as traders bet the Fed will reduce borrowing costs at least twice in 2008, extending last year's 10% decline of the buck. The dollar fell against the euro in 2007 as the Fed lowered its benchmark rate by 1.0% to 4.25% since September. The euro gained 10.6% last year as the European Central Bank raised its main refinancing rate twice to 4.0%, the highest in six years.
Most of the debate as the year gets rolling is on what the Fed will do as the US economy slows. The chance the Fed will cut its target rate for overnight lending between banks by a quarter-point to 4.0% at its Jan 30 meeting rose to 92% from 76% a week ago, according to futures contracts on the Chicago Board of Trade. The odds of a reduction to 3.75% at its March 18 meeting are 61%. As you know it is a moving target, and subject to huge sentiment changes on each key economic reading. That said, all recent data is pointing to an economic decline in 2008 with housing and foreclosures leading consumers to slow spending.
The first half of 2008 should see lower long term interest rates as the Fed is likely to continue lowering rates at each FOMC meeting through June. Inflation fears have increased recently as the Nov PCE (personal consumption expenditures) core rate (ex food and energy) jumped to +2.2% yr/yr---over the Fed's "comfort" level. The Fed however is likely to look more at economic weakness than the inflation increase as long as it doesn't continue to increase. That is however, a huge leap of faith at the moment with oil prices set to hit $100.00 before the end of this week. While the Fed is expected to cut rates; it isn't likely to be a smooth ride as there will be times when the outlook for more cuts gets wound up in contra economic data.
And we can't forget the sub prime mess; it hasn't gotten much ink the past few weeks but we expect a lot deeper losses as a result of the stupid attempt to paint low quality mortgages with a rose colored brush as was the case on The Street in 2005 and 2006. 2008 is also likely to ring in the next credit defaults in credit cards and auto loans. Credit card debt and auto loans were also bundled into packages and sold to investors not willing to be satisfied with low rates of returns on good debt.
Crude oil is on its way to try $100.00; this morning crude is up over $2.00 at about $98.00. Tomorrow the EIA will report last week's inventory levels and traders are expecting another drawdown.
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