Archive for September, 2007

Investing In Your College Student’s Housing

David Kosmecki | September 28, 2007 in Uncategorized | Comments (0)

For parents with children in college, or nearing college age, this video from NBC’s Today Show is worth watching.

Investing in collegiate housing is not for everyone, but if the angle interests you, don’t forget to purchase an accompanying personal liability insurance for injuries that may occur on-site.

Market Update – September 27,2007

David Kosmecki | September 27, 2007 in Uncategorized | Comments (0)

Risks favor: Locking Bias as bonds remain beneath 200-day Moving Average

Current Price of FNMA 6.0% Bond: $100.06, + 6bp

“I’m addicted to ya babe, You’re a hard habit to break” – Chicago. Mortgage Bonds are having a hard time trying to break the habit of touching the 200-day Moving Average and moving lower. In fact, it has touched this level each of the past six days, but has been unable to close above this strong ceiling of resistance.

The final reading on Gross Domestic Product (GDP) for the second quarter showed the US economy growing at a 3.8% annual rate, which was essentially in line with expectations and is the quickest rate in more than a year. This report had little effect on the market as it is a second quarter number. Traders will be much more focused on 3rd Quarter GDP numbers which will be a more timely reflection of the economy.

Meanwhile, Initial Jobless Claims was reported at 298,000, which was well below expectations and the lowest level since early May. Traders have been making a living off the weak Job numbers of late, but the recent strength in jobless claims may signal that the streak of poor jobs reports may be turning – which would be bad for Bonds.

New Home Sales for August

was reported at 795,000 which was lower than expectations of 830,000.

The median price came in at $225,000, which was the lowest level since January 2005. The inventory of unsold New homes rose to a 8.2 month supply from last month’s 7.5 month reading. No matter how you look at it, this is a weak report. On the news, Bond prices moved slightly higher as Stocks were pressured lower. It remains to be seen if this lousy report can help bonds climb above the 200-day MA.

At 1pm ET today, the US Treasury will be selling $13 Billion in Five-year Notes. Yesterday’s 2-year Note auction didn’t impact Mortgage Bonds even though it went well. But today’s auction of slightly longer maturities could be more influential on MBS pricing.

The 200-day MA has been very difficult to break without strong news to help push through it. Tomorrow brings the release of the Core Personal Consumption Expenditure Index (PCE), the Feds favored inflation gauge. This report could cause a decisive move in Bonds because it may dictate if the Fed can cut again with inflation tame, or if the Fed needs to hold because inflation is on the rise. Both Stocks and Bonds could have sharp reactions.

Americans Will Spend $179 Million More On Gasoline Today Than One Year Ago

David Kosmecki | in Uncategorized | Comments (0)

Gasoline prices are 44 cents higher than they were last year at this time

Economists worry about rising oil prices because it tends to generate higher pump prices for Americans. With more money spent on gasoline, there’s (theoretically) less money available to spend on goods and services.

Today, says that the average price for a gallon of unleaded gasoline is $2.792, up from $2.344 last year at this time.

Now, as a country, it is estimated that we consume 146,000,000,000 gallons of gasoline annually. That converts to 400 million gallons each day.

Therefore, the 44.8-cent difference between today and last year at this time, costs Americans an additional $179,000,000 in fuel charges daily.

And this doesn’t account for premium gasoline or diesel fuel charges.

Consumer spending makes up roughly two-thirds of our economy so when gas prices rise, economists worry — it means that less money is available to pump back into businesses, and that the economy should slow down.

The good news in this type of story is that people in the market for a new home loan may benefit. A slowing economy tends to lead to lower mortgage rates.

As Hurricane Season rolls on and the post-Fed meeting chatter dies down, expect to hear more from the news on the price of oil and gasoline.

Market Update – September 26, 2007

David Kosmecki | September 26, 2007 in Uncategorized | Comments (0)

Risks favor: Locking, as 200-day Moving Average looms overhead

Current Price of FNMA 6.0% Bond: $99.91, -12bp

When it comes to the Bond Market, the rule is that good news is bad news and vice versa. So a lousy Durable Goods Report is bad economic news, which should be good for Bonds. But Bond prices have actually worsened because the 200-day MA ceiling is too difficult to break. Durable Goods was reported at -4.9%, which was lower than expectations of -3.5%.

At 1pm ET today, the US Treasury will auction off $18 Billion in Two-year Notes and this additional Bond supply could add selling pressure.

Technically, the 200-day MA is a powerful ceiling by itself, but the 25-day MA is also close by, making this dual ceiling of resistance too tough to break. A locking stance is best, as it appears bonds will drift lower towards support at the 50-day MA, about 25bp below present levels.

What Happens On The National Real Estate Scene Doesn’t Matter To You

David Kosmecki | in Uncategorized | Comments (0)

The National Association of Realtors® released its monthly Existing Home Sales report for August 2006 and, as usual, you should be ignoring it.

The report discusses real estate on a national level and we all know that real estate is a local phenomenon.

It’s not that the report isn’t helpful — it is. The Existing Home Sales report paints a broad picture of our nation’s housing market which has implications for the economy as a whole.

The reason why the EHS report is not helpful to individual homeowners is because the process of buying and selling real estate is not a national occurrence — it’s a very, very local one.

When you buy your next home, you won’t be buying a home that exists in all 50 states. You’ll be buying a very specific home on a very specific street in a very specific neighborhood.

So, when the NAR — a national group! — reports that home supply is up and home sales are down, it is lumping every street in every town together into one giant chunk of irrelevant data.

Again: real estate is a local business, not a national one.

On the “street” level, the story can be much different from what the general reports tells us. Locally, there are plenty of areas in which there is a shortage of homes and in which property values are increasing.

This is why “national” real estate stories in the papers are often wasted ink — accurate real estate stories are the local ones.

Can’t Find Your Cash? You Probably Ate It Or Drank It.

David Kosmecki | September 25, 2007 in Uncategorized | Comments (0)

Americans lose track of more than $2,000 each year in cash

In a study of 2,036 U.S. adults commissioned by Visa USA, nearly half of all Americans are losing track of their money.

An average of $45 in cash is “lost” each week in what Visa dubs “mystery spending”, Visa’s version of “I know I had this money in my wallet but I can’t figure out what I spent it on.”

Averaged out over the course of a year, mystery spending accounts for $2,340 — enough to fund a Roth IRA or other investment plan.

According to the study, events most likely to cause “mystery spending” include:

  • Out for a night on the town (58 percent)
  • Grocery shopping (55 percent)
  • Out with children (50 percent)
  • Shopping during a sale (40 percent)
  • Shopping with friends (33 percent)

How people spend money isn’t the point of the survey but it does raise an interesting point about how careless we can all be with our dollars.

On one hand, we wonder how will we fund retirement, or pay for college, or send our children to tennis lessons. On the other hand, we aren’t even aware of how much cash we’re spending and where we are spending it.

For example, if the average American saves the $2,340 annually at 8% instead of “mystery spending” it, that money could grow to $31,000 in 10 years, $91,000 in 20 years, and $204,000 in 30 years.

Being aware of your money is the best way to control it.

Half of All Americans Say They Lose Track of $2,000 In Cash Each Year
September 10, 2007

Market Update – September 24, 2007

David Kosmecki | September 24, 2007 in Uncategorized | Comments (0)

Risks favor: Cautiously Floating, as 200-day Moving Average support is tested

Current Price of FNMA 6.0% Bond: $100.09, -3bp

Mortgage Bonds are trading slightly lower, and right at important support at the 200-day Moving Average. Commodity prices, including gold and crude oil continue to move higher, which is a concern for bonds because of inflation pressure.

There are no economic reports set for release today, however, there are a few Federal Reserve officials scheduled to speak. Dallas Fed President Richard 'Loose Lips' Fisher is speaking this morning. He has been known to almost uncontrollably blurt out remarks about the state of the economy or Fed. Also on the “soap box” is new Chicago Fed President Charles “Call Me Chuck” Evans, who speaks at 12:30pm ET. And even Fed Chairman, Ben Bernanke will be giving a talk on education at 1:00pm ET.

There will be a lot of interest in the pits on what these officials say about inflation, since it is the fear of inflation which has been applying selling pressure on the Bond market.

Speaking of inflation – this Friday the Core Personal Consumption Expenditure Index (PCE), the Fed’s favored gauge of consumer inflation, is set for release. Economists are expecting the August read to come in at 0.2%, which would leave the more closely watched year over year Core rate within the Fed’s target zone of 1 to 2%.

Although the Report will give us a look at inflation before the last Fed cut, it will give the markets a baseline to compare any move up in inflation from the Fed’s actions.

We would like to see if prices can remain above the 200-day Moving Average, and for this reason we recommend Cautiously Floating until this floor is convincingly broken.

The Week In Review (September 24, 2007) : What To Watch For

David Kosmecki | in Uncategorized | Comments (0)

In a semi-surprise move last week, the Federal Reserve lowered the Fed Funds Rate by 0.500%.

The Fed wants to prevent a dramatic economic slowdown that started in the housing sector and appears to be spilling over into other sectors now, too.

According to some pundits, the half-point FFR drop was exactly what the markets needed — it restored confidence and promoted liquidity.

According to others, though, the Fed bailed out risk-takers and may have re-ignited the flames of inflation.

It’s hard to tell which side is correct, so we’ll have to believe that both sides have valid points worth considering.

And, like the market players themselves, the best course of action now is keep an eye on economic data and try to interpret what it foretells about the future.

This week, we’ll see a bevy of inflation-related data come down the pipe:

  • Consumer Confidence (Tuesday)
  • Existing Home Sales (Tuesday)
  • New Homes Sales (Thursday)
  • Consumer Sentiment (Friday)
  • Personal Consumption and Expenditures (Friday)

Each of these data points has an impact in its own right, but the PCE is a known favorite of the Fed. If PCE comes in higher than expected, mortgage rates will likely increase in response.

At least until the market regains a sense of balance, expect an over-reaction to most newly-released data. This could present some terrific (or terrible!) opportunities to lock in mortgage rates.

Want More Proof That The Fed Doesn’t Control Mortgage Rates?

David Kosmecki | September 21, 2007 in Uncategorized | Comments (0)

For more proof that the Fed does not control mortgage rates, consider this:

In the immediate aftermath of the Fed’s decision to lower the Fed Funds Rate by 0.50%, mortgage rates improved by about 0.125% on average.

But, in the two days since, mortgage rates have not only given back those gains, but have approached their highest levels of the month.

This is because post-rate cut, the U.S. dollar is trading at all-time lows against the Euro and other currencies. Therefore, buyers of dollar-denominated securities such as mortgage bonds are getting less return for their investment.

When an investment loses its return, buyers tend to become sellers and that pushes the supply-and-demand balance to the supply side.

Additional supply of mortgage bonds drives down prices and increase mortgage rates.

It can be a complicated web, of course, but consider it to be additional evidence that the Fed Funds Rate and mortgage rates are unrelated.

How Prime Rate Relates To The Fed Funds Rate

David Kosmecki | September 20, 2007 in Uncategorized | Comments (0)

Prime Rate moves in lockstep with the Fed Fuds Rate

Prime Rate is currently 7.750%.

Prime Rate is the “shorthand” name for the Wall Street Journal Prime Rate, a variable interest rate that is used in pricing many types of consumer loans.

These loans include:

  • Home equity lines of credit
  • Credit card loans
  • Auto loans

Prime Rate’s variable nature is tied to the Fed Funds Rate. Prime Rate moves in tandem with the FFR and is always three percentage points higher.

So, after the FFR’s 0.500% drop Tuesday, consumer loans tied to Prime Rate dropped by 0.500%, too.

Prime Rate was 4.000% in June 2004 before the Federal Reserve started a string of 17 rate hikes to 8.250%. Tuesday’s drop is the first reversal since the rate hikes began.