Monday, 08 August 2011 12:53
QUOTE OF THE WEEK..."Every silver lining has a cloud."--Mary Kay Ash, founder of Mary Kay Cosmetics
INFO THAT HITS US WHERE WE LIVE...Last week's silver lining for housing came in the form of mortgage rates, pushed lower by the cloud of financial market turmoil. The average 30-year fixed rate stayed near historic lows, while the average 15-year fixed rate hit a new low for records back to 1991. The average rate for 5-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) also made a new low for records since 2005. The Mortgage Bankers Association (MBA) reported purchase loan applications UP 5.1% over the week before and UP 5.9% over a year ago.
But buyers shouldn't be complacent. The latest MBA forecast says rates on 30-year fixed-rate mortgages could rise the last three months of this year and continue to go up next year. Freddie Mac's Chief Economist sees the housing market "firming," citing CoreLogic's National House Price Index, up three months in a row. Another study showed the number of homes listed for sale in Q2 at its lowest level since 2007. Home values also fell at a slower pace in Q2 and 19 markets showed quarterly gains!
BUSINESS TIP OF THE WEEK...Focus on the details. Walt Disney himself specified the type of trash can for Disneyland and Steve Jobs obsessed over the trash can icon for the Macintosh. Little things do make a difference.
>> Review of Last Week
THUD!...You can't sugar coat last week's stock market performance, the worst drop in over two years. You also can't come up with a consistent explanation for why investors were so intent on selling. Congress and the President reached an agreement to raise the debt ceiling and it did have something for everyone. Government spending will still rise this year and continue for the next 10. Yet government size will also shrink, as federal spending is slated to drop by about 2% of GDP in the next 10 years. Some worried the U.S. would lose its AAA credit rating, which finally happened Friday night, but others think that will actually help Washington get fiscally serious.
Bearish Wall Streeters fretted about recession, with lower than expected ISM Manufacturing and Services readings. But these were still both above 50, indicating expansion, 24 months in a row for manufacturing. Personal Income also grew less than expected in June and Personal Consumption dipped a smidge. But in the past year income is UP 5% and spending UP 4.4%. The recessionistas were silenced by Friday's July Employment report -- 117,000 new jobs, plus May/June revisions adding 56,000, for a net gain of 173,000. The one bummer is still Europe. Italy says it's not about to default but investors acted like it might.
For the week, the Dow ended down 5.8%, to 11445; the S&P 500 was down 7.2%, to 1199; and the Nasdaq was down 8.1%, to 2532.
Italian debt probs helped bonds all week, though prices retreated on Friday after Italy said it would speed up fiscal reform if the European Central Bank bought its bonds. The FNMA 4.0% bond we watch ended the week up .98, at $102.16. As covered above, national average mortgage rates headed south for the week, hitting new lows in some cases, in Freddie Mac's weekly survey.
DID YOU KNOW?..."Consumer Discretionary" stocks include companies whose products or services are not necessities, so spending on these items varies by the individual. Examples are hotels, restaurants, high-end clothing, automobiles and luxury goods, and many of these are part of this week's Retail Sales reports.
>> This Week’s Forecast
WHAT WILL THE FED SAY?...With the tepid economy, no one expects the Fed to touch the Funds Rate. But everyone will be carefully analyzing the policy statement coming out of the August 9 FOMC meeting for any indication if new quantitative easing (QE3) might be in the offing -- another massive multi-billion dollar bond buying effort to kick-start the economy.
Observers do expect some positive economic news this week. Increased exports should shrink the June Trade Balance. On the consumer front, July Retail Sales are forecast stronger than a month ago, with and without auto sales.