MMG Update + By The Number$ - Monday - September 29, 2014 - 9:44am ET
Current Trend Direction: Higher
Advise Your Clients: Carefully Floating
Current Price of FNMA 4.0% Bond: $105.50, +16p
Mortgage Bond prices continue to grind higher as Stock prices continue to drift lower.
Stocks, which lost a bit of ground last week, are slipping again as investors book profits with equity prices near all-time highs and the Fed on the QE3 exit ramp. Also helping the overall Bond Market is a fancy move in the 10-year Note with the yield dropping to 2.48% this AM and beneath the psychological 2.50% level. We are watching this move in the Bond Market carefully…as we said on Friday if Mortgage Bonds can break above this nearby ceiling with conviction (it has not happened yet) and the 10-year Note yield can form resistance at 2.50%...meaning that it moves lower each time it hits 2.50% (that has not happened yet either) - we may just see another leg lower in home loan rates.
Pro-democracy protesting in Hong Kong is reason for some of the safe haven move into Treasuries and the overall US Bond Market – but let’s be clear, QE3 is ending and Stocks don’t like it…remember that Stocks performed bad when QE1 and QE2 ended…we should expect the same with QE3. If you are invested in Stocks – it is definitely reason to be cautious.
Economic news is plentiful this week beginning this morning with the better than expected Personal Spending rising by 0.5% in August, just above the 0.4% expected. Personal Incomes rose by 0.3%, which was inline with estimates. On the inflation front, August Core PCE came in at 0.1%, just above the 0.0% expected, while the year-over-year PCE was 1.5%, matching the July number. Not much inflation pressures at this time as the 1.5% is well below the Fed's target of 2%.
At 10am ET, August Pending Home Sales will be released with expectations of a small decline of -0.2%. The rest of the week's calendar is packed with a flurry of economic data culminating on Friday with the September Jobs Report. There are no Treasury Note or Bond auctions this week.
Technically, as mentioned, the 4% coupon is attempting to “bust a move” above a very important resistance…if Bonds are successful, you may see some renewed refinance activity as rates could definitely revisit the best levels in years. However any pullback from this level could be swift. Gameplan – try and float this week until Thursday afternoon – at that point we may be looking to lock in advance of the Jobs Report. A lot will depend on what happens between now and Thursday…but at least we have a plan and something to talk about with clients and referral partners to start the week.
Have a great week!
Enjoy today's issue of By The Number$, and use a few of these talking points with your clients and referral partners throughout the week.
1. JUST OVER THREE MONTHS TO GO - The S&P 500 is up +8.9% YTD (total return) through last Friday 9/26/14. Over the last 25 years (i.e., 1989-2013), the S&P 500 has gained an average of +5.1% in the final 3 months of the year, i.e., October-November-December. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. It is a market value weighted index with each stock's weight in the index proportionate to its market value (source: BTN Research).
2. ALMOST HALF - 49% of the S&P 500’s total return achieved over the last 25 years (i.e., 1989-2013) has been produced in the final 3 months of the year (source: BTN Research).
3. ALL THE WAY BACK AND MORE - The earnings projected to be generated by the companies in the S&P 500 stock index in calendar year 2014 are +66% larger than the actual earnings of the 500 companies during calendar year 2007, i.e., before the financial crisis of September 2008 occurred (source: S&P).
4. NEW YEAR - Fiscal year 2015 (10/01/14 to 9/30/15) begins Wednesday. The most recent projection made by the government for the 2015 fiscal year anticipates a budget deficit of $525 billion (source: Treasury Department).
5. END OF LIFE - 28% of Medicare expenditures are generated by Americans in the final 6 months of their lives. 80% of deaths in the United States are Medicare beneficiaries (source: Medicare).
6. FRICK AND FRACK - 20% of the world’s natural gas is produced in the United States, the largest natural gas producer on the planet (source: U.S. Energy Information Administration).
7. A HEALTH CRISIS - An estimated 36.2% of US adults (i.e., individuals at least age 18) are pre-diabetic. Without the necessary changes in diet and exercise, approximately 30% of that pre-diabetic group will develop Type 2 diabetes within 5 years. Diabetes increases an individual’s risk of a heart attack, blindness, amputation and cancer (source: US Center for Disease Control and Prevention).
8. DON’T CRY FOR ME - Argentina has defaulted on its sovereign debt twice in the last 13 years and 8 times in the country’s 198-year history. Argentina was the 10th largest economy in the world in the year 1900 (source: Fordham University).
9. NEXT YEAR - The Janet Yellen-led Fed maintained its benchmark short-term interest rate at near zero following its 2-day meeting that ended on Wednesday 9/17/14. Technically, the Fed is continuing a target range of “0% to 0.25%” for the “fed funds rate.” Fed notes released following its mid-September 2014 meeting indicate the Fed expects that the target rate will be “1.25% to 1.50%” by 12/31/15, suggesting that 5 rate hikes of 0.25% each will occur between now and the end of next year (source: Federal Reserve).
10. FINAL ANSWER? - President Obama announced on 4/17/14 that 8.0 million Americans had signed up for health insurance coverage between 10/01/13 and 4/15/14 as a result of the Affordable Care Act, a number that was revised to 7.3 million enrolled Americans as of 9/18/14. The 700,000 reduction is a function of individuals losing coverage because they failed to pay their monthly health insurance premiums and individuals securing new jobs that offered employer-provided health insurance (source: White House).
11. DISCONNECT - Although the recession in the USA that accompanied the 2008 global financial crisis “officially ended” 5 ¼ years ago (on 6/30/09), 79% of 500 business owners surveyed in August 2014 believe the USA remains “in a recession” (source: National Bureau of Economic Research, Adecco USA).
12. UNION EMPLOYEES – Private sector employers of union workers pay 4 times as much money for retirement benefits (per hour worked by an employee) as compared to private sector employers of non-union workers (source: Department of Labor).
13. INCREASED LAST YEAR - Before the top marginal bracket paid by individual taxpayers was raised to 39.6% in 2013, the top rate had not been raised in 20 years or since 1993. 3 other changes to the top rate since 1993 had each been reductions in the rate. The top rate remains at 39.6% in 2014 (source: Internal Revenue Service).
14. MEXICO vs. CHINA - Through the first 7 months of 2014, US exporters sold $139.1 billion of goods and services to Mexico, double the $68.0 billion that Americans firms exported to China (source: Commerce Department).
15. MONEY – 100 professional male golfers and 7 professional female golfers have made at least $1 million in tournament prize money during the 2014 season. The men’s 2014 golf season is over and the women’s 2014 golf season has 8 events remaining (source: PGA, LPGA).
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