Market Commentary

08.07.2015

Mortgages declined this week on comments from Atlanta Fed Chairman Dennis Lockhart, although weak earnings reports, and trades’ confidence that the Fed rate hikes will be slow, mitigated some of the sell-off in mortgages.

The bond market got a bit of a wake-up call on Tuesday when Atlanta Fed Chairman Dennis Lockhart said regarding Fed rate hikes that there was a “high bar right now to not act, speaking for myself.” Although he clearly qualified that he was just speaking of his viewpoint, not other members of the FOMC, the bond and mortgage markets quickly turned downward raising yields. Chairman Lockhart is widely regarded as a centrist so his comments were taken by investors and traders as a signal that there is a significant chance of the Fed tightening in September. As the week progressed there were several economic releases, but none of them were particularly out of line with expectations. Thursday’s weak earnings reports for companies led to downturn in the equities markets with bond and mortgages benefiting as investors moved to a bit more security. Currently based on the effective fed funds rate, traders are pricing a 56 percent probability of a September rate hike.

Economic Indicators that beat expectations included: Personal Income at 0.4% vs estimates of 0.3%, Personal Spending at 0.2% vs estimates of 0.2%, Markit US manufacturing PMI at 53.8 vs estimates of 53.8, Factory Orders at 1.8% vs estimates of 1.8%, Initial Jobless Claims at 270K vs estimates of 272K, Manufacturing Payrolls at 15K vs estimates of 5K, Unemployment Rate at 5.3% vs estimates of 5.3%, Average Hourly Earnings (MOM) at 3.4% vs estimates of 3.2%, and Underemployment Rate at 10.4% vs estimates of 10.5%. Economic Indicators that missed expectations included: Construction Spending at 0.1% vs estimates of 0.6%, ISM Price Paid at 44.0 vs estimates of 49.0, ADP Employment Change at 185K vs estimates of 215K, Trade Balance at -$43.84B vs estimates of -$44.00B, Continuing Claims at 2255 vs estimates of 2249, Nonfarm Payrolls at 215K vs estimates of 225K, and Average Hourly Earnings (YOY) at 2.1% vs estimates of 2.3%.

Happy Investing!

Thanks to Sarah Riley, Caliber Home Loans for this blog post.

Why We Should Abolish the Federal Reserve

Some shocking statistics from Creature from Jekyll Island:

•  In 2001, national debt consumed 19% of all federal revenue, or $5000 per American household
• By 1992, more than half of all federal outlays went for what are known as entitlements....Entitlements are expenses...(Social Security, Medicare) which are based on the promise of future payments.
• Federal taxes now take 40% of our private incomes. State, county and local taxes are on top of that...Real wages in America have declined.

Reasons to abolish the Federal Reserve:

• It is incapable of achieving its stated objectives.
• It is a cartel operating against the public interest.
• It is the supreme instrument of usury.
• It generates our most unfair tax.
• It encourages war.
• It destabilizes the economy.
• It is an instrument of totalitarianism.

What you can do to protect yourself from the next downturn:

• Get out of debt.
• Pick a sound bank.
• Diversify your investments....Study the fields in which you invest. Personal knowledge is indispensable....Stay with what you know
• Avoid the most recent "best performers...." They have no bearing on future performance....They may now be overpriced.
• Maintain a stash of cash...food and water....Hope for the best; prepare for the worst.