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Sierra Pacific Mortgage, Lake Tahoe Office NMLS #245017
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Quiet Now, But Questions Abound Commentary ~ May 19, 2014

Very little obvious change in this past week’s economic indicators. International currencies continued to move in close proximity with one another; interest rates barely budged; the most influential mortgage rates moved hardly at all (again); and the minimal changes to monthly retail sales data told us little.

The MBA figures for mortgage applications, though they didn’t move much from last week, nonetheless suggested that the greater number of applications we’ve seen over the past two weeks aren’t just an anomaly. We will watch to see if mortgage applications continue to rise-as they very well may, as suggested by the recent break in the downward drift.

All told, it’s another of those slightly weeks with slightly positive data and the requirement that we wait to see if any of the incipient optimism we may be beginning to feel will pan out in better home sale data. The next data for existing home sales will be released on May 22…for new home sales on May 23. It’s possible that we’ll have better figures than in the recent past, and that the possibility of an improving real estate market will shake up the overall investment markets. Pay close attention to what the Pending Home Sales Index suggests on May 29 about the strength of future existing home sales.

The PPI-FD: It may take all of us a while to adapt to a newly-organized Producer Price Index. Readers will recall that we’ve worked (and continue to work) with a CPI-Consumer Price Index-that measures changes in consumer prices at the retail level. We have also had a Producer Price Index, though we’ve paid it less attention, and it has tended to tell us the level of inflation at the wholesale level. What we now have is the PPI-FD Index, which combines a larger number of product categories (food, energy, goods, services, etc.), and provides what the producer price index gave us, except that it does so at the “FD” or “final delivery” level. (There are also “intermediate delivery” levels and perhaps we can all soon understand these changes.)

FINAL NOTE: Since becoming director of the Federal Housing Finance Agency in January, Mel Watt hasn’t made specific comments about his plan to support the housing recovery. Until now. He recently said he will reverse a plan to reduce the size of Freddie Mac and Fannie Mae loans. He will also maintain the size of government support for multi-housing loans and, very importantly, will reduce the likelihood that lenders will have to repay the mortgages they write with government backing. Lenders are generally happy with these promises, saying they bode well for the health of the lending industry.
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To encourage academic excellence, prizes are often awarded for outstanding achievement. Turns out that at least for the Field's Medal (awarded every four years to the world's top mathematician under 40), winning isn't helpful. While winners and losing contenders have similar levels of productivity until the Medal is awarded, after the award is bestowed, output of Medalists drops significantly. Of course, some candidates stop working in anticipation! © 2014, Graphs & Laughs. www.financingtahoe.com
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The 4% coupon traded in a tight range today with little conviction to push prices higher. Today's better than expected Consumer Sentiment had little impact on Bonds. The 4% coupon rose by 12bp to end the week at 104.53 up 62bp for the week. The Dow fell by 140.19 points to 16,361.46, the S&P 500 lost 15.21 points to finish at 1,863.40, while the tech heavy Nasdaq fell by 72.77 points to end the week at 4,075.56. Oil was last seen at $100.61/barrel down $1.34 and down from $104.30 from the close on April 17. Next week's economic calendar is packed full of a broad array of reports that will touch on key segments of the U.S. economy capped off by next Friday's April Employment Report. April Non-farms expected at 210K. Have a great weekend! www.financingtahoe.com
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Copper is frequently referred to as Dr. Copper because of its perceived ability to predict future economic activity due its many industrial uses ranging from power generation to new home wiring. Sudden increases in demand can result in higher copper prices until additional supply is brought to market. Thus rising copper prices can be a sign of a growing global economy. Like your favorite economist, Dr. Copper is sometimes accurate. © 2014, Graphs & Laughs. www.financingtahoe.com
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Not much action in the capital markets today as volumes were low due to lingering spring vacationers and in the absence of any economic data. The 4% coupon rose by 9bp to end the session at 104.06. Stocks didn't see much action either, but the S&P 500 managed to close higher for the 5th straight session, a record for 2014. The S&P was up 7.04 points to 1,871.89, the Nasdaq gained 26.03 points 4,121,54. Oil was last seen at $104.32/barrel near unchanged. Existing Home Sales will be released tomorrow at 10:00am. The Treasury will sell $32B 2-yr Notes. www.financingtahoe.com
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