Mel's Blog

June 13, 2012 Market News

June 13th, 2012 9:09 AM by Mel Samick

The Federal Reserve earlier this year established a $400 Billion plan called “Operation Twist” to extend the maturity on the government’s balance sheet. The plan calls for selling some of the medium-term bonds the Fed owns (more than $1 trillion in bonds) that are due to mature in the next few years and purchase longer term bonds (such as Ten year Treasuries). These transactions will have the effect of lowering the rate on Ten-year Treasuries while causing other key interest rates to fall; for example, mortgage rates. The President of the Atlanta Federal Reserve Bank, Dennis Lockhart, speculated that there is a good chance that this “Operation” may be extended. He fears more negative effects on the United States economy coming from the problems that the European Union is continually facing. If those fears come true, and the modest growth that he expects slows further, then it may be time to play another game of “Twister.”

Apparently, there is a big discrepancy between the data from Lender Processing Systems and HUD. Officials from both parties are planning to meet to discuss the differences in FHA data. LPS is reporting that FHA foreclosure starts increased 73 percent to 63,000 in April while HUD reported that they fell to below 19,000. That reminds me of the saying, “Close enough for government work.”

Applications for FHA-insured mortgages were down 25% in April. This decrease comes after FHA raised its annual premium by 10 basis points and its upfront fee by 75 basis points. The GSEs also bought fewer loans. Fannie Mae reported a decrease of 45 percent from March equating to $52 Billion purchased. Freddie Mac purchased 39% fewer loans, or $26 billion.

Home prices increased in April by 2.2 percent. Compared to values from last April, values increased 1.1 percent. The values are rising due to a decreasing supply of homes for sale. The states with the leading gains were Arizona, the District of Columbia, Florida, Montana, and Utah. The states where values declined the most were Delaware, Illinois, Alabama, Rhode Island, and Georgia. All of these numbers include data from distressed sales.

There were a number of reports this week that suggested that the economy is slowing down again. The ISM concluded that companies are cutting back their hiring plans, despite the fact that the index was up slightly in May, from 53.5 percent to 53.7 percent. Executives that were surveyed are not optimistic about the future and are waiting to see what happens before hiring. First quarter productivity was also down by .9 percent and United States factory orders were down .6 percent in April. The Federal Reserve’s Beige Book survey found that the economy grew moderately in each of the 12 districts from April 3 to May 25. The number of applicants for initial unemployment benefits fell last week. Jobless claims remained at a level consistent with mediocre hiring trends.

The Fed’s Flow of Funds report showed that U.S. consumers increased their debt in April. All the increase in April comes from non-revolving debt; such as, auto, personal, and student loans. The U.S. Trade Deficit shrank by 4.9 percent in April.

The Fed Chairman, Ben Bernanke, testified before Congress on Thursday. He said that the Central Bank is ready to act if financial stresses from the European crisis escalate. He also predicts that the country’s growth will continue at a moderate pace. Investors were hoping for Bernanke to announce a plan for further policy easing measures.

In the upcoming week, the Federal Budget will be released on Tuesday. Retail sales and the Producer Price Index will be released on Wednesday. On Thursday, you can watch for the Consumer Price Index, the Current Account deficit reports and Weekly Jobless Claims. Friday’s releases include the Industrial Production and the University of Michigan Sentiment Index reports.

Mel

Information Provided by NYCB Capital Markets

Posted in:General
Posted by Mel Samick on June 13th, 2012 9:09 AM

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