July 22nd Newsletter

For the week of July 22nd, 2013 – Vol. 11, Issue 29

>> Market Update

QUOTE OF THE WEEK… “If you fell down yesterday, stand up today.” –H.G. Wells, British author

INFO THAT HITS US WHERE WE LIVE… There was a bit of falling down in the home building market last week, as June Housing Starts and Building Permits registered disappointing declines. Housing Starts dropped 9.9% to an 836,000 unit annual rate, versus the 958,000 predicted. New Building Permits sank 7.5%, to a 911,000 annual rate, well short of the 1 million pace forecast. But the dip in starts was mostly due to multifamily units, as single-family starts edged down a miniscule 0.8% for the month, and are still up 11.5% versus a year ago. Permits for single-family homes are up 24.6% over a year ago.

We also need to note that home building is weather dependent. June was exceptionally wet, with 18 states in the South and East experiencing rain totals for the month that were among their 10 highest on record. Wet ground makes it hard to move dirt and lay foundations, driving down the number of starts. Finally, John Paulson, whose Paulson & Co. hedge fund made a pile betting against subprime mortgages, now says that as an investment, you can’t beat buying a house. Check out his complete explanation here: http://buzz.money.cnn.com/2013/07/17/john-paulsons-housing/?iid=HP_River.

BUSINESS TIP OF THE WEEK… Start the day focused on you. Beginning with your emails lets others direct what you’ll achieve. For the first hour, avoid emails and key on what you need to accomplish today.

>> Review of Last Week

MIXED MESSAGES… Economic data has been delivering mixed messages for quite some time, and last week corporations and Wall Street joined in. Financial companies reported strong Q2 earnings growth, sending the Dow up 0.5% and the S&P 500 up 0.7% to close the week at another record high. But earnings reports weren’t too terrific in the tech sector, so the Nasdaq dropped for the week. Following the same mixed message theme, Moody’s upgraded its outlook on our country’s Triple-A credit rating from negative to stable, while Detroit became the largest city in U.S. history to file for bankruptcy. You got that?

Meanwhile, mixed economic data had Retail Sales up for June, but less than expected, and Housing Starts and Building Permits dropping for the month. On the plus side, New York Empire Manufacturing beat estimates, while the Philadelphia Fed Index surprisingly spiked to its highest reading since March 2011, showing strong manufacturing growth in those regions. The Fed’s latest Beige Book noted “modest to moderate” growth. New weekly jobless claims unexpectedly dropped by 24,000, to 334,000, the fewest since early May.

The week ended with the Dow up 0.5%, to 15544; the S&P 500 up 0.7%, to 1692; and the Nasdaq down 0.3%, to 3588.

The negative economic news sent enough investors to the safe haven of bonds to push prices up. The FNMA 3.5% bond we watch ended the week up 1.02, to $101.10. National average mortgage rates eased for the week ending July 18, according to Freddie Mac’s Primary Mortgage Market Survey. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up to the minute information. The Mortgage Bankers Association’s Purchase Loan Index was up 1% for the week ending July 12 and up 5% over a year ago.

DID YOU KNOW?… This week’s University of Michigan Consumer Sentiment Index is based on a monthly survey of 500 households. Sentiment is seen as a precursor to increasing or slowing consumer demand. The preliminary report is on the second Friday, the final on the fourth.

>> This Week’s Forecast 

HOME SALES CLIMB, DURABLE GOODS OK, CONSUMERS FEELING BETTER… Not a super packed week for economic data, but we will get a good look at the housing recovery. All should be fine on that front. Existing Home Sales are forecast up in June, and they’re now solidly above the 5 million unit annual rate threshold. New Home Sales are also expected to edge ahead in June, to a 481,000 unit annual rate.

Durable Goods Orders are predicted up for June, although not by as much as the month before. This report tracks the purchases of a range of large ticket items, from washing machines to jet aircraft. The final reading of the University of Michigan Consumer Sentiment Index for July should reveal consumers continuing to feel better about things economic.

>> The Week’s Economic Indicator Calendar

Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.

Economic Calendar for the Week of July 22 – July 26

>> Federal Reserve Watch 

Forecasting Federal Reserve policy changes in coming months… Last week, Fed Chairman Bernanke told Congress he expects the Fed Funds Rate to remain at its super low level for quite some time. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.

Current Fed Funds Rate: 0%–0.25%

Probability of change from current policy: