The January FOMC Minutes

The apparent evolving change in the sentiment of a growing number of FOMC members seems to be moving toward ‘normalization’ of their policy moves and away from the free flow that we have experienced over the last several years….a look at yesterday’s reaction to the release of the meeting minutes that moved the market (both stock and yield curve – both downward) was very interesting.

My take – volatility will continue to lead the way, yield curve fluctuations will most likely be many and often, between monetary and fiscal policy we are still in for a bumpy ride so keep your seatbelts fastened…and don’t bet long on the curve.

The January FOMC Minutes did contain a surprise yesterday (evidenced by the subsequent market moves), that a group of FOMC Members are leaning toward slowing or ending asset purchases before there has been substantial improvement in the labor market.

According to the Minutes, “A number of participants stated that an ongoing evaluation of the efficacy, costs, and risks of asset purchases might well lead the Committee to taper or end its purchases before it judged that a substantial improvement in the outlook for the labor market had occurred.”

“A number” of Members does not imply a majority in Fedspeak, but it does imply more than a few which means this sentiment is gaining steam. There were still “several” other Committee Members who said that “the Committee should be prepared to vary the pace of asset purchases, either in response to changes in the economic outlook or as its evaluation of the efficacy and costs of such purchases evolved.”

It is not uncommon for FOMC Members to voice disagreement with policy decisions, but this chorus of concern is growing.

The Market Today ONLINE

Economists and Public Opinion

Theory and Practice Frequently Diverge

Economics has long been called the dismal science. Some would disagree, however, and say the dismal part applies to the economists and not to the discipline itself.

Dismal or not, economists seem to agree more often than they disagree on major economic issues, according to a recent report in The Economist.

However, even though economists may generally agree on major economic issues – especially if there is a comprehensive body of literature on the issue itself – the public usually has a quite different opinion.

For example, economists uniformly believe it is very difficult for individual investors to out-perform stock market indices. Only 55% of the public agrees with that consensus. Further, 93% of economists contend that a carbon tax is a less costly method for cutting emissions than increasing automobile fuel efficiency. On this issue, only 23% of the public agrees.

The divergence in opinion has interesting policy implications. If public opinion differs markedly from economists' opinion, the policies favored and supported by the majority of economists have scant hope of gaining traction in the real world of politics.

One problem the economists face in establishing their credibility is that the solution to virtually all issues they address involves government intervention and action of one sort or another. At a point in time in which confidence in government – and, particularly, confidence in Congress – is on life support, there may be little doubt why the public hardly cares what economists think, individually or collectively.

from Shockproof! Training

10Y treasury channel

Interesting graphic representing the recent movement in the 10 year treasury yield….

Will the channel continue its upward trend or will we hit a plateau soon? Will 2.00% become the new normal!

for pondermenting....

No. 500: SPECIAL COMMENTARY U.S. Government GAAP-Based 2012 Financial Data

February 5th, 2013

• GAAP-Based Federal Budget Deficit Hit Record $6.6 Trillion in 2012
• Five-Year Average Annual Shortfall at $5.2 Trillion
• With U.S. Facing Mortal, Long-Range Solvency Issues, Hyperinflation Remains a Virtual Certainty

Shadow Government Statistics

http://www.shadowstats.com/

a driver for the housing market....​.

For consideration……

By Margaret Collins, John Gittelsohn and Heather Perlberg -Feb 4, 2013

JPMorgan Chase & Co. (JPM) is giving its wealthiest clients the chance to invest in the single-family rental market after other investments linked to the U.S. housing recovery jumped in value.
The firm’s unit that caters to individuals and families with more than $5 million,put client money in a partnership that bought more than 5,000 single family homes to rent in Florida, Arizona, Nevada and California, said David Lyon, a managing director and investment specialist at J.P. Morgan Private Bank.Investors can expect returns of as much as 8 percent annually from rental income as well as part of the profits when the homes are sold, he said.
The bank’s wealthy clients are joining a growing number of private-equity firms and individuals buying rental homes in the regions hardest hit by the U.S.housing crash.Blackstone Group LP (BX)has spent $2.7 billion, and said last month it accelerated purchases as home prices rise faster than anticipated. Even after home values in November gained by the most in six years, investors are wagering on rental properties as an alternative to housing-relatedstocks and mortgage debt that’s already soared.

Harder Mortgages

“It’s hard to find a private-equity firm on the planet that doesn’t have a strategy in this space,” Gary Beasley, chief executive officer at Waypoint Homes, said last week at the American Securitization Forum’s annual conference in Las Vegas. The Oakland, California-based company has bought homes in California, Arizona, Illinois and Georgia.
Since the 2008 financial crisis, lenders have required higher credit scores and larger down payments to qualify for mortgages. Borrowers whose loans for purchases closed in 2012 had an average credit score of 740, according to data compiled by real estate data service CoreLogic Inc., up from 716 in 2006. That’s contributed to a decline in the U.S. home ownership rate to 65.4 percent at the end of 2012 from a peak of 69.2 percent in June 2004, the Commerce Department reported.
The number of renter-occupied residences increased an estimated 1.1 million last year while the number of owner- occupied households fell by 106,000, according to a Commerce Department report.

Beaten Down

Buying single-family homes to rent in some locations has become more attractive to bond investors in the past year as mortgage-backed securities without the backing of the U.S. government have become more expensive, said Sandeep Bordia, head of residential and commercial credit strategy at Barclays Plc.
“If you look at some of the really beaten down areas -- Miami, Orlando, Vegas, Tampa -- we do think the return on that asset, if you just buy a home, collect the rent and do whatever you need to do on the cost side, you’re getting a return of somewhere between 6 percent and 8 percent,” Bordia said. Non- agency mortgage-backed securities are generally yielding 4 percent to 6 percent, he said.
The “sweet spot” in many areas would be homes prices between $100,000 and $150,000, Bordia and other analysts wrote in a Feb. 1 report. While smaller homes can provide the highest gross rental yields, there are fixed costs and the risk of higher tenant delinquencies, they wrote.

Getting Crowded

Even as the housing market probably will do well across the nation, areas where property prices already are high such as San Diego, Los Angeles, Denver and San Francisco, will see lower rental yields, of 4 percent to 5 percent, Bordia said.
Jumping into the single-family home market now carries the risk that it’s already getting crowded, and the bargains in the best locations are dwindling, said Craig Pastolove, a managing director at New York-basedMorgan Stanley. (MS)
“There’s a lot of capital out there that is chasing these investments,” so there may be price inflation, Pastolove said.
While buying single-family homes to rent is among “the smarter ways to invest going forward,” Pastolove advises wealthy clients to buy the properties to rent themselves if they are able. Morgan Stanley isn’t purchasing homes or managing them; instead it’s making loans to high-net-worth customers at rates lower than a typical mortgage, and using their investment portfolios as collateral. That provides people the capital to purchase investment properties, he said
http://www.bloomberg.com/news/2013-02-04/jpmorgan-joins-rental-rush-for-wealthy-clients-mortgages.html

points to ponder

The Fed’s Senior Loan Officer Survey, released yesterday, shows that while loan standards at large bank were mostly unchanged over the past three months,some banks did lower standards. Auto loan standards were decreased and demand increased.C&I standards were also decreased on increased competition while demand picked up at year-end. [pendulum swinging back?]

Gasoline prices are taking a larger chunk out of consumer pocketbooks than they have at any point since 1983. According to a new report from the EIA, gasoline expenditures accounted for 3.97% of American’s pre-tax income. The average price per gallon of gasoline rose last week to $3.52, according to AAA, and is on the rise higher. [more spent on gas, less for other stuff!]

in a world of medicated money...

Former Reagan budget director warns of new housing bubble

By Betsi Fores, Daily Caller News Foundation

The market may be rising, but according to one expert, all is not well on the home front.

David Stockman, former director of the Office of Management and Budget in the Reagan administration, insists that the housing market outlook is not as cheery as some say.

“I would say we have a housing bubble … again,” Stockman told the Daily Ticker. “We don’t have a real organic sustainable recovery, because in a world of medicated money by the central bank, things aren’t what they appear to be.”

Stockman pointed to artificially low interest rates and speculation in the real-estate market as culprits.

“It’s happening in the most speculative subprime markets,where massive amounts of ‘fast money’ is rolling in to buy, to rent, on a speculative basis for a quick trade,” he said. “And as soon as they conclude prices have moved enough, they’ll be gone as fast as they came.”

Any kind of interest-rate increase will lead to a bust, Stockman said.

“As soon as the Fed has to normalize interest rates, housing prices will stop appreciating and they’ll probably head down,” he explains. “The fast money will sell as quickly as they can and the bubble will pop almost as rapidly as it’s appeared. I don’t know how many times we’re going to do this, and the only people who benefit are the top one percent – the hedge funds, the LBO funds, the fast money people who come in for a trade, make a quick buck, and move along to the next bubble.”

Two major buyers are missing from the current real estate market, according to Stockman: first-time buyers and trade-up buyers. High unemployment and burdensome student loan debt, he said, will restrict the younger generation from entering the market.

Armed with their limited savings, the baby-boomer generation heading into retirement is more likely to trade down their homes, not up, said Stockman.

Coinciding with the potentially troubling housing market outlook is the Federal Housing Administration’s imminent taxpayer bailout.

“FHA is still in denial … but it’s a slow-motion train wreck,” Edward Pinto, visiting fellow at the American Enterprise Institute and author of studies on the housing industry,told The Daily Caller News Foundation earlier. A report last November revealed that agency was projecting a $16.3 billion loss — one that, unless agency policies changed, would require them to ask the administration for money to cover their losses.

“As my colleagues and I always say, ‘They are one recession away from a catastrophic loss to the taxpayers,’” Pinto added.

Mortgage rates rose Thursday from an average of 3.42 percent to 3.53 percent, according to Freddie Mac, the government-backed mortgage company. While it was the sharpest rise in 10 months, mortgage rates are still hovering around 30-year lows.

change in personal income

What a distortion the last two quarters experienced related to dividends…..as this graphic so vividly points out the fiscal cliff had a rather dramatic effect on the change in personal income growth……

bubbles upon bubbles...​.

What a time we live in….so many bubbles, so little time!

Australia's economy continues to struggle to find its legs.

The mining-driven economy got slammed as soon as its emerging market export partners like China slowed down.

And despite a pick up in China, Australia has yet to see the benefits.

It's "a credit bubble built on a commodity market built on an even bigger Chinese credit bubble," wrote strategist Dylan Grice in a note last year.

Read more: http://www.businessinsider.com/australia-manufacturing-pmi-2013-1#ixzz2Jep6ReNH