HEADLINE NEWS WEEK ENDING 9/18/09
Overview
The steeper-than-expected increase in August retail sales signals that consumer spending may be on the road to recovery. more...
US MARKETS
Treasury/Economics
Treasuries traded lower this week, with 5-year yields underperforming all other maturities on the yield curve. more...
Large-Cap Equities
The stock market continued to rally this week on stronger-than-expected retail sales data and analyst earnings upgrades. more...
Corporate Bonds
Investment grade primary activity continued its blazing pace this week as investors bought anything they could get their hands on. more...
Mortgage-Backed Securities
Mortgages modestly outperformed Treasuries in the rally. Thirty-year current coupon spreads were tighter by 4 basis points from the previous week as steady demand trumped originator supply. more...
Municipal Bonds
Yields on municipal bonds moved lower across all maturities this week. Yields on bonds maturing in 10 years dropped 6 basis points, to 2.73%. more...
High-Yield
As the equity markets continue to counter the trend of historically weak Septembers and as the recent economic data has been largely positive, the high yield market is benefitting from these positive trends and has been able to maintain its strong momentum. more...
INTERNATIONAL MARKETS
Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) gained +3.4% this week, while the Russian stock index RTS went up +4.1%. more...
Global Bonds and Currencies
Most major non-US sovereign bond markets ceded ground over the past week, broadly in line with losses in US Treasuries. more...
Emerging-Market Bonds
Emerging market bonds continued to outperform US treasuries this week as spreads tightened by 35 basis points. more...
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Friday, September 18, 2009
Canadian Royalty Trusts General Information
Canadian Royalty trusts are a different animal than U.S. Royalty Trusts. First, they renew their holdings and operate more like an oil and gas company than does a U.S. Royalty Trust. Generally the Canadian trusts do not do exploratory drilling. When they do drilling it would generally be to increase production of their existing fields and holdings. Most of the Canadian royalty trusts provide dividend payments which are based on the oil and gas production. Royalty trusts pay monthly or quarterly income that varies over time as the production of their underlying assets varies. Payments to unitholders will also vary with the market price of oil and natural gas. As Canadian Royalty Trusts replenish their reserves (versus U.S royalty trusts that do not replenish their reserves), the distributions of Canadian royalty trusts are generally considered to be eligible for the 15% tax rate. We have not found any official confirmation of the eligibility of Canadian Royalty Trusts for the 15% tax rate and the potential investor should confirm this eligibility from other sources. On February 25, 2005 the Government of Canada passed Bill C-33. Under the terms of Bill C-33, commencing January 1, 2005 a non-refundable withholding tax of 15% will be applied to the entire distribution paid to U.S. residents by "Canadian Royalty Trusts", including both the taxable and return of capital portions of the distributions. Similarly, non-residents of countries with whom there is no reciprocal tax treaty with Canada will be subject to a non-refundable withholding tax of 25% on the entire distribution paid. These withholding taxes will be applied uniformly to units held in both taxable and home jurisdiction tax-exempt accounts. Non-resident unit holders are strongly advised to consult a resident tax advisor to determine the deductibility of these taxes in their resident jurisdiction. This Canadian law means that tax exempt accounts such as IRA's will be subject to the 15% withholding and that the recovery of the Canadian withholding amounts will be probably difficult or impossible to achieve making Canadian Royalty Trusts a questionable choice for tax exempt accounts such as IRAs. Taxable accounts should be able to claim the 15% Canadian withholding as a credit on their U.S. income tax return and therefore easily recover the withholding amount.
Thursday, September 17, 2009
Market Reflections 9/17/2009
Initial jobless claims came in well below expectations, leading to a run of revisions to monthly payroll forecasts which are centering at a decline a bit under 200,000 in what would be another incremental improvement. Housing starts data were mixed but aren't derailing expectations for continued recovery in housing.
The S&P 500 slipped 0.3 percent to 1,065 in narrow trading. Though markets were quiet during the session there's heavy debate whether the historic run from 666 is way too much. Many say yes but not Federated Securities which argues the "real" market low hit in October at 840, when the greatest number of shares hit extreme lows, not just financials as in March. Given the 840 base, Federated says the six-month gain is not outsized for the early stages of economic recovery. Commodities were steady with oil ending at $72.50 and gold at $1,016. The dollar index was little changed at 76.26.
The S&P 500 slipped 0.3 percent to 1,065 in narrow trading. Though markets were quiet during the session there's heavy debate whether the historic run from 666 is way too much. Many say yes but not Federated Securities which argues the "real" market low hit in October at 840, when the greatest number of shares hit extreme lows, not just financials as in March. Given the 840 base, Federated says the six-month gain is not outsized for the early stages of economic recovery. Commodities were steady with oil ending at $72.50 and gold at $1,016. The dollar index was little changed at 76.26.
Wednesday, September 16, 2009
Market Reflections 9/16/2009
Industrial production showed a second month of strong gains for manufacturing, pointing to recovery as early as July and echoing Ben Bernanke's comments that the recession is probably over. Manufacturing isn't the only sector on the mend. Housing data continue to show gains, this time it was the homebuilders index which posted a third straight monthly increase. The CPI was skewed higher by energy prices and didn't see much effect from cash-for-clunkers, leading a Bureau of Labor Department official to argue that dealers must have pocketed some of the stimulus.
The S&P rose 1.5 percent to an 11-month high of 1,068, but the central focus of the markets is probably the dollar which continues to decline. The dollar index fell 0.4 percent to end at a new 12-month low of 76.19. The weak dollar is helping commodities including gold which ended near $1,020 with silver continuing to outpace gold's gains, ending at $17.40 for a nearly $1 jump on the day. Oil, up more than $1 to $17.25, got a special lift from a large draw in weekly crude stocks.
The S&P rose 1.5 percent to an 11-month high of 1,068, but the central focus of the markets is probably the dollar which continues to decline. The dollar index fell 0.4 percent to end at a new 12-month low of 76.19. The weak dollar is helping commodities including gold which ended near $1,020 with silver continuing to outpace gold's gains, ending at $17.40 for a nearly $1 jump on the day. Oil, up more than $1 to $17.25, got a special lift from a large draw in weekly crude stocks.
Market Reflections 9/15/2009
Retail sales were expected to be strong -- and that's what they proved to be showing wide strength in August outside of cash for clunkers. But whether this strength will continue is uncertain given continuing losses in the jobs market. Producer prices showed a big jump but one related to month-to-month swings in oil. Equities got only a mild lift from the retail sales results with the S&P 500 up 0.3 percent to 1,052. Commodities firmed with oil regaining $2 to $71 and gold digging in above $1,000, ending at $1,008. The dollar index dipped 0.2 percent to 76.50.
Tuesday, September 15, 2009
Economic Results
The August Producer Price Index came in with a 1.7% month-over-month increase, which is better than the 0.8% monthly increase that economists, on average, had come to expect after the index posted a 0.9% month-over-month decline in July. Excluding food and energy, producer prices increased 0.2% month-over-month, which is a bit more than the 0.1% monthly increase that was widely expected. The previous month's data showed that prices had slipped 0.1%. Advance retail sales for August made a strong 2.7% increase. They had been expected to increase 1.9%. The increase marks a sharp upturn from the downwardly revised 0.2% decline that was registered in July. Excluding autos, retail sales were up a more modest 1.1% in August. The consensus called for a 0.4% increase. Still, the sales less autos figure marked a considerable improvement from the 0.5% decline that was made in July. Last on the list is the Empire Manufacturing Survey, which came in at 18.9 for September. That marks its sixth straight month of improvement. It was also better than the reading of 15.0 that was widely expected.
Market Reflections 9/14/2009
President Obama used the anniversary of the Lehman Brothers collapse to say the need for government involvement in the markets is waning. Boosted by building reports of possible mergers, the S&P rallied 0.6 percent to 1,049 and showed no reaction to a brewing trade dispute after the U.S. placed tariffs on Chinese-made tires. The dollar was little changed but at least didn't weaken further with the dollar index up 0.1 percent at 76.70. Most commodities were little changed with gold holding at $1,000 and oil ending at $69.00. Natural gas was an exception, jumping 15% off deep lows on short-covering ahead of winter and on upbeat comments from Goldman Sachs.
Monday, September 14, 2009
The China Tire Trade Dispute..a must read
Courtesy of Jack Crooks at Black Swan Trading
Monday 14 September 2009
www.blackswantrading.com
Key News
• A U.S. decision to impose special duties on Chinese tires could open the door to a host of trade complaints against Chinese products, creating tensions as Western nations seek Beijing's support at the G20 meeting. (Reuters)
• Euro zone industrial output fell in July and employment dropped again in the second quarter. (Reuters)
• U.K. banks are less than half way through posting 240 billion pounds ($398 billion) of losses on loans and securities, according to Moody’s Investors Service Ltd. (Bloomberg)
Quotable
“The conventional view is based on the notion that free trade is always a win-win proposition and that our trade with China fits the conditions of the traditional free-trade model. These include the assumptions that the markets are perfectly competitive, that exchange rates are not manipulated, that there are no economies of scale, that there is no cross-border investment or cross-border transfers of technology, and that there are no government subsidies or export requirements. If this were a true picture of our trade in tyres with China, then imposing tariffs would truly be harmfully protectionist and not be justified.
“But this is not even close to the reality of our trade with China, which far from embracing orthodox free trade has openly adopted a neo-mercantilist, export-led economic growth strategy. China keeps its renminbi undervalued against the dollar in order indirectly to subsidise its exports. Foreign direct investment in China is often induced by the use of special, targeted tax and financial incentives. Foreign companies investing in China are often required to export the bulk of their production as a condition of being allowed to enter the Chinese market. This is the case with Cooper Tires, which agreed to export 100 per cent of its production in return for being allowed to invest in a Chinese tyre factory. The tyre industry is characterised by enormous economies of scale and imperfectly competitive markets in which a few oligopolistic producers divide the market among themselves. It is Chinese industrial policies and not market forces that are currently determining the trade flows and the location of production and jobs to the detriment of the US tyre industry.
“Nor is the detriment only to the US industry. Orthodox unilateral free-traders argue that, even if the US tyre workers lose their jobs, the US economy will enjoy a net benefit from lower consumer prices. But this is true only if the shuttered US factories and laid-off workers quickly shift to some other equally productive and well-paid activity. If, as we know, they cannot, the entire economy will suffer a loss of productivity and wages.
Black Swan Capital’s Currency Currents is strictly an informational publication and does not provide personalized or
individualized investment or trading advice. Commodity futures and forex trading involves substantial risk of loss and may not be
suitable for you. The money you allocate to futures or forex trading should be money that you can afford to lose. Please carefully
read Black Swan’s full disclaimer, which is available at http://www.blackswantrading.com/disclaimer
“This kind of trade is not win-win. Rather it is a classic zero-sum game. It is well-known to game theorists that in such situations a tit-for-tat response is the optimal strategy. Unilateral acquiescence to the aggressive initiatives of another player (the orthodox unilateral free-trade response) is a sure way to lose.”
Clyde Prestowitz, Financial Times editorial 9/10/09
“The American press is Confucianizing itself. A key factor is that increasingly in the last twenty years, media professionals have been subjected to a litmus test on trade. Those who embrace laissez-faire ideology have seen their careers flourish. Those who don’t haven’t.”
“The litmus test is applied by various players with considerable power to influence a journalist’s career. Take, for instance, high-placed news sources in government, in business, in the think tanks, and on Wall Street. For top journalists, easy access to such sources have long been aggressively in Beijing’s camp. In the classic Confucian fashion know throughout East Asia, such sources seek to marginalize and indeed ostracize any reporter who tries to uphold the freedom of the press on China-related issues.”
“Even before reporters get the chance to talk to sources, they are already subjected to a litmus test by media proprietors…Proprietors who apply the litmus test include not only Ruper Murchoch’s News Corporation but General Electric (the ultimate owner of NBC) and Viacom. It is no coincidence that these companies have assiduously cultivated business links with China over the years.”
“…While not all corporate America’s socialization of media people is necessarily so Machiavellian, the fact is that literally trillions of dollar are at stake in the free-trade debate. The debate is of historic concern not only in China, and its corporate friends but also to all the Confucian nations—nations that, by no coincidence, have traditions going back millennia on the sort of politically motivated personnel management we have seen in the American in recent decades.”
Eamonn Fingleton, In the Jaws of the Dragon
FX Trading – Hats off to China—They have made their intentions clear.
It may at times be a cozy symbiotic relationship that has been beneficial for the US; especially as it relates to the US consumer getting increasingly higher quality and very inexpensive goods from China—that does increase domestic purchasing power. But, our relationship with China is not free trade in the “usual” sense. Based on empirical evidence, i.e. read real world not theory, if we continue down this road the US economy will be completely hallowed out of advanced manufacturing—which is important.
Granted the US has the lead in technology, but when US multi-nationals willy-nilly share that technology with key competitors, what’s the competitive advantage?
Black Swan Capital’s Currency Currents is strictly an informational publication and does not provide personalized or
individualized investment or trading advice. Commodity futures and forex trading involves substantial risk of loss and may not be
suitable for you. The money you allocate to futures or forex trading should be money that you can afford to lose. Please carefully
read Black Swan’s full disclaimer, which is available at http://www.blackswantrading.com/disclaimer
The most powerful interests in America will continue to try and convince us it is free trade and will invoke Adam Smith and David Ricardo blah, blah, blah…all in an effort to too keep the game going (there is likely a mix of true believers and those who know better but have the look of the Cat that swallowed the canary).
It won’t take much, except facing up to the most powerful entrenched interests in the world to at least convert the US-Chinese relationship into at least pseudo free trade; that should be the objective.
So, a full-court press of Obama trade policy bashing will likely be filling the airwaves. No Obama fans are we. No Union fans are we. But it is just plain stupid to continue to call our trade relationship with China free.
China has proven again and again to be many steps ahead of its Western counterparts. It is in their interest to do so—so their actions cannot be faulted in the game of great powers. Those going into China to manufacture know the rules (most of them), China has clearly established the ground rules both explicitly; and implicitly by actions. They make no secret of the fact they want to receive technology transfer as quid pro quo, requiring domestic production for access, instead of just shipping in goods, as happens in a trade relationship almost every place else on the planet. Chinese policymakers make no secret of the fact they want foreigners to establish a domestic partner so that said technology can be replicated by a Chinese domestic firm and sold into the Chinese domestic market. Western manufacturers volitionally accept this situation. A situation they don’t seem to accept anywhere else.
So we are not spinning China into the bad guy here. Hat’s off for playing the West like a violin.
That said, any disruption to the China-US trade relationship could rock markets big time. But, given the power behind the status quo, the tire dispute will likely fade from memory as just another Western anti-trade action. And so it goes.
Jack Crooks
Black Swan Capital LLC
www.blackswantrading.com
Monday 14 September 2009
www.blackswantrading.com
Key News
• A U.S. decision to impose special duties on Chinese tires could open the door to a host of trade complaints against Chinese products, creating tensions as Western nations seek Beijing's support at the G20 meeting. (Reuters)
• Euro zone industrial output fell in July and employment dropped again in the second quarter. (Reuters)
• U.K. banks are less than half way through posting 240 billion pounds ($398 billion) of losses on loans and securities, according to Moody’s Investors Service Ltd. (Bloomberg)
Quotable
“The conventional view is based on the notion that free trade is always a win-win proposition and that our trade with China fits the conditions of the traditional free-trade model. These include the assumptions that the markets are perfectly competitive, that exchange rates are not manipulated, that there are no economies of scale, that there is no cross-border investment or cross-border transfers of technology, and that there are no government subsidies or export requirements. If this were a true picture of our trade in tyres with China, then imposing tariffs would truly be harmfully protectionist and not be justified.
“But this is not even close to the reality of our trade with China, which far from embracing orthodox free trade has openly adopted a neo-mercantilist, export-led economic growth strategy. China keeps its renminbi undervalued against the dollar in order indirectly to subsidise its exports. Foreign direct investment in China is often induced by the use of special, targeted tax and financial incentives. Foreign companies investing in China are often required to export the bulk of their production as a condition of being allowed to enter the Chinese market. This is the case with Cooper Tires, which agreed to export 100 per cent of its production in return for being allowed to invest in a Chinese tyre factory. The tyre industry is characterised by enormous economies of scale and imperfectly competitive markets in which a few oligopolistic producers divide the market among themselves. It is Chinese industrial policies and not market forces that are currently determining the trade flows and the location of production and jobs to the detriment of the US tyre industry.
“Nor is the detriment only to the US industry. Orthodox unilateral free-traders argue that, even if the US tyre workers lose their jobs, the US economy will enjoy a net benefit from lower consumer prices. But this is true only if the shuttered US factories and laid-off workers quickly shift to some other equally productive and well-paid activity. If, as we know, they cannot, the entire economy will suffer a loss of productivity and wages.
Black Swan Capital’s Currency Currents is strictly an informational publication and does not provide personalized or
individualized investment or trading advice. Commodity futures and forex trading involves substantial risk of loss and may not be
suitable for you. The money you allocate to futures or forex trading should be money that you can afford to lose. Please carefully
read Black Swan’s full disclaimer, which is available at http://www.blackswantrading.com/disclaimer
“This kind of trade is not win-win. Rather it is a classic zero-sum game. It is well-known to game theorists that in such situations a tit-for-tat response is the optimal strategy. Unilateral acquiescence to the aggressive initiatives of another player (the orthodox unilateral free-trade response) is a sure way to lose.”
Clyde Prestowitz, Financial Times editorial 9/10/09
“The American press is Confucianizing itself. A key factor is that increasingly in the last twenty years, media professionals have been subjected to a litmus test on trade. Those who embrace laissez-faire ideology have seen their careers flourish. Those who don’t haven’t.”
“The litmus test is applied by various players with considerable power to influence a journalist’s career. Take, for instance, high-placed news sources in government, in business, in the think tanks, and on Wall Street. For top journalists, easy access to such sources have long been aggressively in Beijing’s camp. In the classic Confucian fashion know throughout East Asia, such sources seek to marginalize and indeed ostracize any reporter who tries to uphold the freedom of the press on China-related issues.”
“Even before reporters get the chance to talk to sources, they are already subjected to a litmus test by media proprietors…Proprietors who apply the litmus test include not only Ruper Murchoch’s News Corporation but General Electric (the ultimate owner of NBC) and Viacom. It is no coincidence that these companies have assiduously cultivated business links with China over the years.”
“…While not all corporate America’s socialization of media people is necessarily so Machiavellian, the fact is that literally trillions of dollar are at stake in the free-trade debate. The debate is of historic concern not only in China, and its corporate friends but also to all the Confucian nations—nations that, by no coincidence, have traditions going back millennia on the sort of politically motivated personnel management we have seen in the American in recent decades.”
Eamonn Fingleton, In the Jaws of the Dragon
FX Trading – Hats off to China—They have made their intentions clear.
It may at times be a cozy symbiotic relationship that has been beneficial for the US; especially as it relates to the US consumer getting increasingly higher quality and very inexpensive goods from China—that does increase domestic purchasing power. But, our relationship with China is not free trade in the “usual” sense. Based on empirical evidence, i.e. read real world not theory, if we continue down this road the US economy will be completely hallowed out of advanced manufacturing—which is important.
Granted the US has the lead in technology, but when US multi-nationals willy-nilly share that technology with key competitors, what’s the competitive advantage?
Black Swan Capital’s Currency Currents is strictly an informational publication and does not provide personalized or
individualized investment or trading advice. Commodity futures and forex trading involves substantial risk of loss and may not be
suitable for you. The money you allocate to futures or forex trading should be money that you can afford to lose. Please carefully
read Black Swan’s full disclaimer, which is available at http://www.blackswantrading.com/disclaimer
The most powerful interests in America will continue to try and convince us it is free trade and will invoke Adam Smith and David Ricardo blah, blah, blah…all in an effort to too keep the game going (there is likely a mix of true believers and those who know better but have the look of the Cat that swallowed the canary).
It won’t take much, except facing up to the most powerful entrenched interests in the world to at least convert the US-Chinese relationship into at least pseudo free trade; that should be the objective.
So, a full-court press of Obama trade policy bashing will likely be filling the airwaves. No Obama fans are we. No Union fans are we. But it is just plain stupid to continue to call our trade relationship with China free.
China has proven again and again to be many steps ahead of its Western counterparts. It is in their interest to do so—so their actions cannot be faulted in the game of great powers. Those going into China to manufacture know the rules (most of them), China has clearly established the ground rules both explicitly; and implicitly by actions. They make no secret of the fact they want to receive technology transfer as quid pro quo, requiring domestic production for access, instead of just shipping in goods, as happens in a trade relationship almost every place else on the planet. Chinese policymakers make no secret of the fact they want foreigners to establish a domestic partner so that said technology can be replicated by a Chinese domestic firm and sold into the Chinese domestic market. Western manufacturers volitionally accept this situation. A situation they don’t seem to accept anywhere else.
So we are not spinning China into the bad guy here. Hat’s off for playing the West like a violin.
That said, any disruption to the China-US trade relationship could rock markets big time. But, given the power behind the status quo, the tire dispute will likely fade from memory as just another Western anti-trade action. And so it goes.
Jack Crooks
Black Swan Capital LLC
www.blackswantrading.com
This Week's Market Moving Events...
A three-day extravaganza for indicators! On Tuesday, the barrage begins with PPI and retail sales. Mid-week brings us the CPI and industrial production. The indicator show ends with housing starts on Thursday—just before Friday’s quadruple witching.
Tuesday: PPI & retail sales 8.30am
Wednesday: CPI,Industrial Production, Petroleum Report
Thursday: housing starts, jobless claims, nat gas report
Simply Economics Trade, sentiment help recovery
By R. Mark Rogers, Senior U.S. Economist
Markets are continuing to adjust to the likelihood that the economy is in recovery. Equities rebounded further from lows earlier this year and there are signs of strengthening in the consumer sector and in international trade. (click to read entire article)
Tuesday: PPI & retail sales 8.30am
Wednesday: CPI,Industrial Production, Petroleum Report
Thursday: housing starts, jobless claims, nat gas report
Simply Economics Trade, sentiment help recovery
By R. Mark Rogers, Senior U.S. Economist
Markets are continuing to adjust to the likelihood that the economy is in recovery. Equities rebounded further from lows earlier this year and there are signs of strengthening in the consumer sector and in international trade. (click to read entire article)
Thursday, September 10, 2009
Market Reflections 9/10/2009
Talk is building that the economic recovery may prove stronger than expected. Thursday's economic data included strength in both imports and exports, a dip in jobless claims, and improvement in gasoline demand. Economic recovery would move forward the risk of inflation and the need to remove stimulus. These questions continue to weigh on the dollar with the dollar index down 0.3 percent to a new 12-month low at 76.80. Gold firmed $5 to $995 with bulls saying it's ready to make a run at $1,100. Oil ended over $72 with bulls talking about $75.
Company news is definitely upbeat as a run of companies raise guidance. This session's run included Texas Instruments, Procter & Gamble and General Mills. The S&P 500 rose 1 percent to 1,044.14. More and more are targeting 1,200 for the S&P twelve months out. Demand for Treasuries is definitely on the rise, indicating that retail investors are moving out of cash and seeking return, however limited. Today's 30-year bond auction was unusually strong and capped a week of strong auctions. The yield on the 30-year bond fell 14 basis points on the day to 4.19 percent, 4 basis points below the auction's high yield.
Company news is definitely upbeat as a run of companies raise guidance. This session's run included Texas Instruments, Procter & Gamble and General Mills. The S&P 500 rose 1 percent to 1,044.14. More and more are targeting 1,200 for the S&P twelve months out. Demand for Treasuries is definitely on the rise, indicating that retail investors are moving out of cash and seeking return, however limited. Today's 30-year bond auction was unusually strong and capped a week of strong auctions. The yield on the 30-year bond fell 14 basis points on the day to 4.19 percent, 4 basis points below the auction's high yield.
Option ARM Disaster Arrival
As I've been saying for several years, the second shoe to drop in the residential housing debacle, would be the Option ARM... and it has just hit the floor. Option ARMS... 70% of which will reset in the next two years... are weapons of financial destruction that have already detonated. The story, which isn't particularly long, is a must read. I thank Craig McCarty for sending it along
Option ARMs, the dubious name for a mortgage product of financial destruction, are back in the limelight showing that they have not gone away. Everyone by now has heard about option ARMs. These toxic mortgages allowed borrowers a buffet of payment options. However, in recent data released this week we are told that things are much worse than we had initially thought. Option ARMs have now become an oxymoron. In fact, they should be called minimum payment mortgages because 94 percent of those who took on these mortgages elected to go with the minimum payment.
These loans are having default rates comparable to subprime loans. In states like California with a decade long housing bubble, option ARMs were a lucrative and inviting mortgage for quick talking mortgage brokers chasing big yields. But one thing is certain and that is these mortgages are here for the next few years and will cause additional problems.
Many have speculated that most of these loans have been modified. Well in the recent report put out by Fitch Ratings, only 3.5% of the approximately 1 million option ARM loans have been modified. That is right, only 3.5% (or if you like, about 35,000 loans). And modifications are no panacea. In fact, of the tiny number of modified option ARMs 24 percent re-default after 90 days while the untouched loans default at a rate of 37 percent after 90 days. These numbers will increase. And why would anyone expect that a loan modification will help? For the most part, all that is done is the term is extended, or interest is cut, but the bank is still able to claim the home is worth the bubble price and therefore allows the bank to keep the “asset” on the books for full face value. What does this mean? More losses coming down the road. And look at how quickly these loans are going bad with new data:
As of today, 46 percent of option ARM loans are 30 days late! Nearly half the entire batch of these loans. And most of these loans were made by the likes of defunct Washington Mutual in states like California, Arizona, Nevada, and Florida. In fact, 75 percent of all outstanding option ARMs are in these states:
Of the currently $189 billion in option ARM loans outstanding, 70 percent will recast in the next two years. Some people wanted to believe that this problem was swept under the rug but it is anything but. In fact, expectations for losses range from 35 to 45 percent assuming home prices do not decline in the areas where these loans are made. Well if you look at California, the state with the most option ARMs it has an unemployment rate of 11.9 percent and just patched up $60 billion in budget deficits. The losses will be bad. Assuming the 45 percent loss ratio, we are looking at $85 billion in losses simply from option ARMs. So much for the optimistic banking scenario.
What makes these loans so insidious is banks are holding onto these mortgages as if they were at face value. Some banks have allocated loss reserves for these loans but nothing in the 45 percent range. They are overly optimistic as usual but these loans are defaulting in mass.
Another reason for the massive amount of defaults is the severity of their negative equity. When these loans were made, loan-to-value ratios were roughly at 79 percent. They are now at 126 percent. One thing about this data point. Many of these loans were made in conjunction with piggy-back products so that 79 percent is deceptive. Many option ARMs were combined as an 80/20 or 80/10/10 loan. So many of these loans are attached to homes with at least two mortgages. The second mortgage disaster is going to hit in full force soon as well and good luck trying to recover anything from the second loan after the foreclosure process happens.
Banks are delaying foreclosure as long as possible. They are stalling and wheeling and dealing with Washington praying that they can somehow artificially juice the market to unload these loans. Tax credits and other incentives are simply cheap methods of creating an artificial market to unload this junk to the average American. Banks simply do not want to come to terms with option ARMs and the public for the most part has assumed many of these loans were modified. 3.5% is nothing especially if we consider that a loan mod constitutes extending the loan term. All that does is makes the loan a longer term option ARM and gives the bank breathing room to devise of ways to offload the mortgage to the taxpayer.
All these loans are negatively amortizing. In fact, as the home values have plummeted the mortgage balance has increased. This is pure financial moonshine. When these loans will recast even with favorable interest rates thanks to the U.S. Treasury and Federal Reserve annihilating the U.S. Dollar, the typical payment will readjust to 63% higher than the original minimum payment. In many cases, it will double.
Referring back to our original chart, we see how many are already 30 days late and only 12 percent of all outstanding option ARMs have recast. As we enter 2010, many of these vintage loans from 2004-2007 will start hitting their 5 year explosion dates. Some have pointed out that Wells Fargo has some 10 year Pay Option ARMs but clearly that is a tiny part of the entire pool. Bottom line is this, 70 percent of these loans will recast in the next 2 years and banks are trying everything they can to offload this toxic mortgage potato to the taxpayer like every other mistake they have done during this decade
Option ARMs, the dubious name for a mortgage product of financial destruction, are back in the limelight showing that they have not gone away. Everyone by now has heard about option ARMs. These toxic mortgages allowed borrowers a buffet of payment options. However, in recent data released this week we are told that things are much worse than we had initially thought. Option ARMs have now become an oxymoron. In fact, they should be called minimum payment mortgages because 94 percent of those who took on these mortgages elected to go with the minimum payment.
These loans are having default rates comparable to subprime loans. In states like California with a decade long housing bubble, option ARMs were a lucrative and inviting mortgage for quick talking mortgage brokers chasing big yields. But one thing is certain and that is these mortgages are here for the next few years and will cause additional problems.
Many have speculated that most of these loans have been modified. Well in the recent report put out by Fitch Ratings, only 3.5% of the approximately 1 million option ARM loans have been modified. That is right, only 3.5% (or if you like, about 35,000 loans). And modifications are no panacea. In fact, of the tiny number of modified option ARMs 24 percent re-default after 90 days while the untouched loans default at a rate of 37 percent after 90 days. These numbers will increase. And why would anyone expect that a loan modification will help? For the most part, all that is done is the term is extended, or interest is cut, but the bank is still able to claim the home is worth the bubble price and therefore allows the bank to keep the “asset” on the books for full face value. What does this mean? More losses coming down the road. And look at how quickly these loans are going bad with new data:
As of today, 46 percent of option ARM loans are 30 days late! Nearly half the entire batch of these loans. And most of these loans were made by the likes of defunct Washington Mutual in states like California, Arizona, Nevada, and Florida. In fact, 75 percent of all outstanding option ARMs are in these states:
Of the currently $189 billion in option ARM loans outstanding, 70 percent will recast in the next two years. Some people wanted to believe that this problem was swept under the rug but it is anything but. In fact, expectations for losses range from 35 to 45 percent assuming home prices do not decline in the areas where these loans are made. Well if you look at California, the state with the most option ARMs it has an unemployment rate of 11.9 percent and just patched up $60 billion in budget deficits. The losses will be bad. Assuming the 45 percent loss ratio, we are looking at $85 billion in losses simply from option ARMs. So much for the optimistic banking scenario.
What makes these loans so insidious is banks are holding onto these mortgages as if they were at face value. Some banks have allocated loss reserves for these loans but nothing in the 45 percent range. They are overly optimistic as usual but these loans are defaulting in mass.
Another reason for the massive amount of defaults is the severity of their negative equity. When these loans were made, loan-to-value ratios were roughly at 79 percent. They are now at 126 percent. One thing about this data point. Many of these loans were made in conjunction with piggy-back products so that 79 percent is deceptive. Many option ARMs were combined as an 80/20 or 80/10/10 loan. So many of these loans are attached to homes with at least two mortgages. The second mortgage disaster is going to hit in full force soon as well and good luck trying to recover anything from the second loan after the foreclosure process happens.
Banks are delaying foreclosure as long as possible. They are stalling and wheeling and dealing with Washington praying that they can somehow artificially juice the market to unload these loans. Tax credits and other incentives are simply cheap methods of creating an artificial market to unload this junk to the average American. Banks simply do not want to come to terms with option ARMs and the public for the most part has assumed many of these loans were modified. 3.5% is nothing especially if we consider that a loan mod constitutes extending the loan term. All that does is makes the loan a longer term option ARM and gives the bank breathing room to devise of ways to offload the mortgage to the taxpayer.
All these loans are negatively amortizing. In fact, as the home values have plummeted the mortgage balance has increased. This is pure financial moonshine. When these loans will recast even with favorable interest rates thanks to the U.S. Treasury and Federal Reserve annihilating the U.S. Dollar, the typical payment will readjust to 63% higher than the original minimum payment. In many cases, it will double.
Referring back to our original chart, we see how many are already 30 days late and only 12 percent of all outstanding option ARMs have recast. As we enter 2010, many of these vintage loans from 2004-2007 will start hitting their 5 year explosion dates. Some have pointed out that Wells Fargo has some 10 year Pay Option ARMs but clearly that is a tiny part of the entire pool. Bottom line is this, 70 percent of these loans will recast in the next 2 years and banks are trying everything they can to offload this toxic mortgage potato to the taxpayer like every other mistake they have done during this decade
Gold Rally Signals Move Away From Currencies, Greenspan Says
I normally don't go out of my way to quote Alan Greenspan... but I'll happily make an exception here. The words that he utters are blasphemous in the hallowed halls of fiat currency. The headline hints, but the quotes from Sir Alan in this 6-paragraph story are astonishing. When he told Representative Ron Paul [R-Texas] many years back that he would never change a word of his Gold and Economic Freedom essay that he wrote for Ayn Rand in her 1966 book Capitalism: The Unknown Ideal... it appears that he wasn't kidding. The story, which is headlined "Gold Rally Signals Move Away From Currencies, Greenspan Says"... is linked http://www.bloomberg.com/apps/news?pid=20601083&sid=acrGvxBXPDfk.
Wednesday, September 9, 2009
Market Reflections 9/9/2009
Stocks rallied Wednesday but the gains are unconvincing to some who say the consumer is too weak to fuel a strong recovery. The Fed's Beige Book reports that retail conditions are "flat" as are wages. All eyes are now on President Obama and his healthcare address to a joint session of Congress.
The S&P 500 rose 0.8 percent to 1,033. Gold backed off $1,000, ending at $990. Oil ended at $71.50. Commodities didn't get a lift from continued weakness in the dollar with the dollar index at a new 2009 low, down 0.3 percent at 77.07.
The S&P 500 rose 0.8 percent to 1,033. Gold backed off $1,000, ending at $990. Oil ended at $71.50. Commodities didn't get a lift from continued weakness in the dollar with the dollar index at a new 2009 low, down 0.3 percent at 77.07.
Market Reflections 9/8/2009
Merger & acquisition activity gave stocks a lift on Tuesday after UK confectionary maker Cadbury rejected a $16.7 billion bid from Kraft Foods. Biogen's $350 million takeover bid for Facet Biotech was also rejected. Consumer credit could only pressure the market briefly despite showing gripping constriction and offering a warning to policy makers that stimulus efforts are not boosting consumer liquidity. The S&P gained 0.9 percent to 1,025.
Gold headlined the session, popping over $1,000 to $1,007 before settling at $995. Inflationary concerns, tied to economic recovery and high government debt, continue to drive up investment demand for gold as well as investment demand for other commodities including oil which jumped $3 to $71.25. Inflationary concerns continue to hurt the dollar with the dollar index hitting a 12-month low at 77.26 for a 1 percent drop.
Gold headlined the session, popping over $1,000 to $1,007 before settling at $995. Inflationary concerns, tied to economic recovery and high government debt, continue to drive up investment demand for gold as well as investment demand for other commodities including oil which jumped $3 to $71.25. Inflationary concerns continue to hurt the dollar with the dollar index hitting a 12-month low at 77.26 for a 1 percent drop.
Friday, September 4, 2009
Weekly Market Update (9/4/09)
HEADLINE NEWS WEEK ENDING 9/4/09
Overview
Employment Report - Nonfarm payrolls declined by 216,000 in August compared to an upwardly revised 276,000 drop in July. The unemployment rate rose to 9.7%, the highest level since June 1983 when the rate was 10.1%. more...
US MARKETS
Treasury/Economics
The US Treasury yield curve steepened in the last week of the summer, with 2-year yields dropping 10 basis points (bps) whereas Treasury yields of longer dated maturities remained relatively unchanged. more...
Large-Cap Equities
The stock markets pared back some of its recent gains this week on mixed economic data and a renewed concern of additional bank losses. more...
Corporate Bonds
Investment grade primary activity continued its subdued manner as we made our way through the last several weeks of summer. more...
Mortgage-Backed Securities
Mortgage bonds rallied to their highest level since late spring as the Federal Reserve signaled no end to accommodative monetary policy. more...
Municipal Bonds
The muni market continues its trend of tightening credit spreads and lower long-term yields as investors try to find yield in any avenue available. more...
High-Yield
The high yield market remained relatively quiet this first week of September, with many market participants on the sidelines. more...
INTERNATIONAL MARKETS
Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) lost -4.6% this week, while the Russian stock index RTS went down -2.4%. more...
Global Bonds and Currencies
Major non-US sovereign bond markets had a notably quiet week with most closing unchanged. more...
Emerging-Market Bonds
Emerging market dollar-pay debt spreads were marginally tighter this week as trading activity remained light ahead of the holiday weekend in the US. more...
For more information, please contact 800 5-PAYDEN or visit payden.com.
If you have difficulties viewing this e-mail and would prefer the Weekly Market Update in plain text format, please e-mail us at paydenrygel@payden-rygel.com. To unsubscribe from this email, please email us at unsubscribe@payden-rygel.com.
Have a great weekend!
All rights reserved. Legal terms. Payden & Rygel respects your privacy. Privacy policy.
The investment strategy and investment management information presented on this email and related Web site, payden.com, should not be construed to be formal financial planning advice or the formation of a financial manager/client relationship. Payden.com is an informative Web site designed to provide information to the general public based on our recommendations of investment management and investment strategies and is not designed to be representative of your own financial needs. Nor does the information contained herein constitute financial management advice. The firm makes no warranty or representation regarding the accuracy or legality of any information contained in this Web site, and assumes no liability for the use of said information. Be advised that as Internet communications are not always confidential, you provide our Web site your personal information at your own risk. Please do not make any decisions about any investment management or investment strategy matter without consulting with a qualified professional.
Overview
Employment Report - Nonfarm payrolls declined by 216,000 in August compared to an upwardly revised 276,000 drop in July. The unemployment rate rose to 9.7%, the highest level since June 1983 when the rate was 10.1%. more...
US MARKETS
Treasury/Economics
The US Treasury yield curve steepened in the last week of the summer, with 2-year yields dropping 10 basis points (bps) whereas Treasury yields of longer dated maturities remained relatively unchanged. more...
Large-Cap Equities
The stock markets pared back some of its recent gains this week on mixed economic data and a renewed concern of additional bank losses. more...
Corporate Bonds
Investment grade primary activity continued its subdued manner as we made our way through the last several weeks of summer. more...
Mortgage-Backed Securities
Mortgage bonds rallied to their highest level since late spring as the Federal Reserve signaled no end to accommodative monetary policy. more...
Municipal Bonds
The muni market continues its trend of tightening credit spreads and lower long-term yields as investors try to find yield in any avenue available. more...
High-Yield
The high yield market remained relatively quiet this first week of September, with many market participants on the sidelines. more...
INTERNATIONAL MARKETS
Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) lost -4.6% this week, while the Russian stock index RTS went down -2.4%. more...
Global Bonds and Currencies
Major non-US sovereign bond markets had a notably quiet week with most closing unchanged. more...
Emerging-Market Bonds
Emerging market dollar-pay debt spreads were marginally tighter this week as trading activity remained light ahead of the holiday weekend in the US. more...
For more information, please contact 800 5-PAYDEN or visit payden.com.
If you have difficulties viewing this e-mail and would prefer the Weekly Market Update in plain text format, please e-mail us at paydenrygel@payden-rygel.com. To unsubscribe from this email, please email us at unsubscribe@payden-rygel.com.
Have a great weekend!
All rights reserved. Legal terms. Payden & Rygel respects your privacy. Privacy policy.
The investment strategy and investment management information presented on this email and related Web site, payden.com, should not be construed to be formal financial planning advice or the formation of a financial manager/client relationship. Payden.com is an informative Web site designed to provide information to the general public based on our recommendations of investment management and investment strategies and is not designed to be representative of your own financial needs. Nor does the information contained herein constitute financial management advice. The firm makes no warranty or representation regarding the accuracy or legality of any information contained in this Web site, and assumes no liability for the use of said information. Be advised that as Internet communications are not always confidential, you provide our Web site your personal information at your own risk. Please do not make any decisions about any investment management or investment strategy matter without consulting with a qualified professional.
Thursday, September 3, 2009
Market Reflections 9/3/2009
Economic data on Thursday were mixed between flat and firm. Jobless claims show no improvement and point to still heavy payroll losses in tomorrow's big monthly report. The ISM's non-manufacturing report showed strength in output and an odd jump in prices but no change in new orders. The report's composite index points to continued though slowing contraction for the bulk of the economy. Chain-store sales were mostly but not uniformly positive, yet as a whole they point to long awaited, broad-based gains for the retail sales report at mid month.
Traders are reporting the appearance of fear, the result of equity losses in China. Demand for gold and silver are up in part due to concern that heavy profit taking may hit Chinese and U.S. equities this month and next and that talk may emerge for another wave of stimulus measures in the two nations. Gold flirted with $1,000 before settling over $990 for a more than $10 gain. Silver added 70 cents to $16.10. Base metals, which lack a premium as a monetary alternative, continue to fall back but only slightly with copper down a penny to $2.85. Oil ended slightly lower at $68, but natural gas was a big loser, down 50 cents to $2.50 following another weekly injection for inventories. The S&P 500 was little changed, hovering right around 1,000 and ending at 1,003. The dollar index was also little changed, ending under 78.50.
Traders are reporting the appearance of fear, the result of equity losses in China. Demand for gold and silver are up in part due to concern that heavy profit taking may hit Chinese and U.S. equities this month and next and that talk may emerge for another wave of stimulus measures in the two nations. Gold flirted with $1,000 before settling over $990 for a more than $10 gain. Silver added 70 cents to $16.10. Base metals, which lack a premium as a monetary alternative, continue to fall back but only slightly with copper down a penny to $2.85. Oil ended slightly lower at $68, but natural gas was a big loser, down 50 cents to $2.50 following another weekly injection for inventories. The S&P 500 was little changed, hovering right around 1,000 and ending at 1,003. The dollar index was also little changed, ending under 78.50.
Jobless Claims Released on 9/3/2009 8:30:00 AM For wk8/29, 2009
There has been very little change in initial jobless claims over the past seven weeks, pointing to little change in payroll losses for tomorrow's monthly employment report. Initial claims fell 4,000 to 570,000 in the Aug. 29 week (prior week revised 4,000 higher to 574,000). The four-week average is right at the current week, at 571,250. Continuing claims have been generally moving lower since early July, unfortunately reflecting the expiration of benefits and not necessarily new hiring.
But in a bad sign, continuing claims rose in data for the Aug. 22 week, up 92,000 to 6.234 million. The unemployment rate for insured workers rose 1 tenth to 4.7 percent. There was no significant reaction to the report.
But in a bad sign, continuing claims rose in data for the Aug. 22 week, up 92,000 to 6.234 million. The unemployment rate for insured workers rose 1 tenth to 4.7 percent. There was no significant reaction to the report.
Market Reflections 9/2/2009
FOMC minutes show that policy makers are as confident as the financial markets that the recession has bottomed. But policy makers do worry that the consumer is weak and so have kept their rate policy and asset-purchase policy on hold. Data included a worse-than-expected jobs forecast from ADP, one that got the stock market off to a slow start. The S&P slipped 0.3 percent on the day to end at 994.75.
Gold was the big mover of the day, up nearly $25 to $980 in a major breakout from two months of narrow trading centered at $950. Middle East accounts were behind the gain, buying ahead of seasonal jewelry demand there and in Asia. Silver rose with gold, ending at $15.40 for a 70 cent gain, but other commodities, including copper and oil, were little changed.
Gold was the big mover of the day, up nearly $25 to $980 in a major breakout from two months of narrow trading centered at $950. Middle East accounts were behind the gain, buying ahead of seasonal jewelry demand there and in Asia. Silver rose with gold, ending at $15.40 for a 70 cent gain, but other commodities, including copper and oil, were little changed.
Tuesday, September 1, 2009
Market Reflections 9/1/2009
Buy on the rumor and sell on the fact was Tuesday's theme. A very strong ISM manufacturing report, getting an appreciable boost from cash for clunkers, shot past 50 to 52.9, sounding the beginning of recovery in the sector. But a plus 50 reading was already expected and whether cash for clunkers merely pulled activity from future months is an open question. The session's housing data were also strong with another big gain for pending home sales and a big jump for single-family construction. Unit vehicle sales rounded out the good news, jumping more than 20 percent and pointing, tentatively, to gains for the August retail sales report.
But the market wasn't impressed as the S&P fell 2.2 percent to just below 1,000. But the drop isn't worrying investment strategists who say a 5 to 10 percent correction may be in store and would in fact be healthy, setting the market up for big gains further down the road. The dollar benefited from the move out of equities and toward safety with the dollar index up 0.8 percent to 78.84. Most commodities moved lower in line with equities and in line with the rise in the dollar with oil losing about $1-1/2 to end at $68 and copper losing nearly a nickel to $2.80. But strong dollar or not, gold keeps holding firm, ending at $957.
But the market wasn't impressed as the S&P fell 2.2 percent to just below 1,000. But the drop isn't worrying investment strategists who say a 5 to 10 percent correction may be in store and would in fact be healthy, setting the market up for big gains further down the road. The dollar benefited from the move out of equities and toward safety with the dollar index up 0.8 percent to 78.84. Most commodities moved lower in line with equities and in line with the rise in the dollar with oil losing about $1-1/2 to end at $68 and copper losing nearly a nickel to $2.80. But strong dollar or not, gold keeps holding firm, ending at $957.
ISM Mfg Index Released on 9/1/2009 10:00:00 AM For August, 2009
The ISM's manufacturing index burst over the dead-even 50 level for the first time since the beginning of the recession, at 52.9 in August vs. 48.9 in July. New orders led the advance, at 64.9 vs. August's 55.3 and pointing to rising business activity in the months ahead. Production was also very strong in August, at 61.9 for a 4 point gain and pointing to gains in durable goods shipments and total manufacturing sales. Backlogs also increased, at 52.5 vs. 50.0 in July. But manufacturers are not stocking up, instead they continue to draw down inventories where the index is a very weak 34.4 vs. 33.5 in July. Note that future gains in the inventories index, a seeming necessity given rising production needs, will help give the overall index a big boost. Respondents in fact think inventories at their customers' firms are too low, with the customer inventories down 3.5 points to 39.0. Deliveries slowed substantially, up more than 5 points to indicate that current production needs are stressing what has become a pared down supply chain. Production activity and the gain in orders has yet to boost employment where the index only inched forward to a still sub-50 level of 46.4.
All the strength here is flowing through to prices where the prices paid index jumped 10 points to 65.0, an indication that buyers are bidding up prices for raw materials. No doubt boosted by cash-for-clunkers and gains in transportation, the manufacturing recovery is on the way and together with the gain in the pending home sales index indicate that two key sectors are on the acceleration. Stocks jumped in immediate reaction to today's 10 o'clock data.
Construction Spending
Released on 9/1/2009 10:00:00 AM For July, 2009
Prior Consensus Consensus Range Actual
Construction Spending - M/M change 0.3 % 0.0 % -0.5 % to 0.3 % -0.2 %
Construction outlays fell in July but showed significant divergence among components as residential outlays rebounded while public and nonresidential construction declined. Overall construction spending edged down 0.2 percent in July after making a partial comeback of 0.1 percent in June. The dip in July came in below the consensus projection for no change. The decline in spending in July was led by a 1.2 percent decrease in private nonresidential outlays while public spending also fell-by 0.7 percent. The good news in the report was that private residential outlays added to the view that the housing sector is recovering with a 2.3 percent boost in July after declining 0.4 percent in June.
The July construction spending report was not as good as expected but equities liked the better-than-expected ISM manufacturing index and pending home sales index which were released at the same time as construction outlays. Overall, housing appears to have turned the corner and likely is in slow recovery. Meanwhile, the public and nonresidential sectors continue their downtrends.
Pending Home Sales Index
Released on 9/1/2009 10:00:00 AM For July, 2009
Prior Actual
Pending Home Sales Index - Level 94.6 12.0 %
Pending Home Sales Index - M/M 3.6 % 3.2 %
Pending home sales continue to improve pointing to extending gains for existing home sales. The pending home sales index rose 3.2 percent extending a long streak of gains and compared with a 3.6 percent rise in June. The year-on-year is very strong at 12.0 percent. Nearly all indications on the residential side, including today's construction spending report, point to accelerating gains in what is very good news for the economic recovery.
All the strength here is flowing through to prices where the prices paid index jumped 10 points to 65.0, an indication that buyers are bidding up prices for raw materials. No doubt boosted by cash-for-clunkers and gains in transportation, the manufacturing recovery is on the way and together with the gain in the pending home sales index indicate that two key sectors are on the acceleration. Stocks jumped in immediate reaction to today's 10 o'clock data.
Construction Spending
Released on 9/1/2009 10:00:00 AM For July, 2009
Prior Consensus Consensus Range Actual
Construction Spending - M/M change 0.3 % 0.0 % -0.5 % to 0.3 % -0.2 %
Construction outlays fell in July but showed significant divergence among components as residential outlays rebounded while public and nonresidential construction declined. Overall construction spending edged down 0.2 percent in July after making a partial comeback of 0.1 percent in June. The dip in July came in below the consensus projection for no change. The decline in spending in July was led by a 1.2 percent decrease in private nonresidential outlays while public spending also fell-by 0.7 percent. The good news in the report was that private residential outlays added to the view that the housing sector is recovering with a 2.3 percent boost in July after declining 0.4 percent in June.
The July construction spending report was not as good as expected but equities liked the better-than-expected ISM manufacturing index and pending home sales index which were released at the same time as construction outlays. Overall, housing appears to have turned the corner and likely is in slow recovery. Meanwhile, the public and nonresidential sectors continue their downtrends.
Pending Home Sales Index
Released on 9/1/2009 10:00:00 AM For July, 2009
Prior Actual
Pending Home Sales Index - Level 94.6 12.0 %
Pending Home Sales Index - M/M 3.6 % 3.2 %
Pending home sales continue to improve pointing to extending gains for existing home sales. The pending home sales index rose 3.2 percent extending a long streak of gains and compared with a 3.6 percent rise in June. The year-on-year is very strong at 12.0 percent. Nearly all indications on the residential side, including today's construction spending report, point to accelerating gains in what is very good news for the economic recovery.
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