Mortgage Financial Markets
August 18, 2008
One year ago today, Americans were paying $2.76 a gallon for gasoline and the price of oil was $72 a barrel. Those numbers look small in the rear-view mirror compared to today's prices of $3.75 a gallon for gasoline and $114 a barrel for oil. Ironically, consumers are feeling optimistic as gas prices have fallen for 31 consecutive days (through yesterday) and the price of oil has dropped during 4 of the last 5 weeks. Rumors surfaced in the commodities market last week that China had been stockpiling barrels of oil leading up to the Beijing Olympics, possibly part of the reason as to why the price of oil had risen so dramatically this year (source: BTN Research).
Stock investors have proved to be bigger buyers than sellers recently. Weekly advancers on the New York Stock Exchange have exceeded decliners for each of the last 5 weeks, its best consecutive streak since mid-October 2007. The biggest concern for investors going forward may be inflation which has advanced +1.9% in just the last 2 months alone (June and July). As recently as calendar year 2003, inflation for the entire year was +1.9% (source: Barron's, Department of Labor).
The final days of the 2008 Beijing Olympics take place this week. USA's team will be attempting to improve on its performance of 36 gold medals and 102 total medals in Athens, Greece at the 2004 Games (source: Beijing Olympics).
Notable Numbers for the Week:
1. ON THE SIDELINES - US investors have $449 billion more in cash today than they did at the beginning of calendar year 2008 (source: Investment Company Institute).
1. RECORD PACE - The 13-nations that make up OPEC had $671 billion of oil revenue in calendar year 2007, an all-time 1-year record for the cartel. For the first 6-months of 2008, OPEC countries generated $645 billion of revenue (source: Financial Times).
2. NEED TO DO MORE - 44% of working Americans are on pace to receive post-retirement income that is less than 90% of the target amount they have identified as their annual need during retirement (source: Center for Retirement Research).
3. TAX STAT - The top 1% of US taxpayers is responsible for the payment of 40% of all federal income tax. Ten years ago (1998), the top 1% of taxpayers paid 35% of all federal income tax. Twenty years ago (1988), the top 1% of taxpayers paid 28% of all federal income tax (source: Tax Foundation, IRS).
August 11, 2008
Stocks bounced back last week as the S&P 500 rose to 1296, its highest Friday close in 7 weeks. Falling oil prices (down 22% in the last month) get credit for providing the fuel behind stock investor optimism, a confidence that has been missing throughout the year. The oil industry was not taking any chances with tropical storm Edouard as it was bearing down on Texas and Louisiana last week after the $1 billion of damages inflicted by Hurricane Dolly just 2 weeks earlier. Companies evacuated platform and rig workers from the Gulf of Mexico, but by Tuesday the storm had weakened significantly and no serious damage was sustained (source: BTN Research, USA Today).
The Fed, as expected, left short-term interest rates unchanged at their meeting last Tuesday. Although they will have 1 more meeting before the November presidential election, the Fed has historically been reluctant to either raise or lower rates so close to a national vote, having done so just 1 time in the last 20 years (source: Federal Reserve).
The weakness or strengthening of the US dollar is oftentimes a direct result of how our economy is viewed in relation to other economies throughout the world. A surprising admission of economic weakness from Ben Bernanke's counterpart in Europe pushed the US dollar on Friday to its highest 1-day gain against the euro in 8 years (source: FT).
Notable Numbers for the Week:
1. TOP DECILE - The top 10% of US taxpayers earn at least $108,904 in adjusted gross income, have 47% of the total income of all taxpayers, and pay 71% of all federal income tax (source: Tax Foundation, IRS).
2. WHAT'S REALLY IMPORTANT - More than 7 out of every 10 Americans (71%) would accept a job that pays less but provides health insurance and includes a defined benefit pension plan rather than take a job that pays more income but lacks both health insurance and a pension benefit (source: Time Magazine).
3. NO CHANGE - 69% of financial advisors have not changed the asset allocation of their clients' investment portfolios as a result of the stock market volatility of the last 10 months (source: Curian Capital).
4. THE DOCTOR WILL NOW SEE YOU - The average American aged 65 or older makes 7.4 visits per year to a doctor, a hospital and/or an emergency room (source: Center for Disease Control).
August 4, 2008
President Bush signed a housing bill last week that may save thousands of Americans from losing their homes. The legislation gives struggling homeowners the ability to refinance their existing, higher interest-rate loans into new, fixed-rate mortgages issued by the Federal Housing Administration. The banks holding the existing debt, however, are not required to release the borrowers to refinance with the government, and may choose to keep the mortgages in place. The banks run the risk that frustrated homeowners end up walking on their existing debt, leaving the banks no option other than to foreclose on the properties (source: BTN Research).
While US equity investors wait for the earnings strength of companies to come back, stocks continue to benefit from the fall in oil and gas prices. In just the last 3 weeks, the price of oil has fallen $20 a barrel (from $145 to $125) and the price of gasoline has dropped nearly 22 cents a gallon nationwide (from $4.11 to $3.89). Since every penny decrease at the gas pump saves Americans $3.9 million per day, a 22 cent price drop equates to $86 million of money not being spent at the gas pumps per day (source: AAA).
Americans will elect their next president 3 months from today (11/04/08). They will choose either Barack Obama (making him the 4th youngest elected president ever) or John McCain (making him the oldest elected president ever) to occupy the White House on 1/20/09 (source: BTN Research).
Notable Numbers for the Week:
1. WE CAN CONSERVE - American drivers put 255 billion miles on their cars and light trucks in May 2008, but that total was down 9.7 billion miles from the total miles driven in May 2007 (source: DOT).
1. TAX STAT - The top 5% of US taxpayers have adjusted gross incomes of at least $153,542. This group pays 60% of all federal income taxes paid by individuals (source: Tax Foundation, IRS).
2. OUTDATED - Even though 78% of business owners have an estate plan in place, 89% of this group have failed to update their document due to a marriage, divorce, birth or a death (source: Bank of America).
3. AVOIDING FORECLOSURE - In order for a homeowner to qualify for assistance under the housing bill signed by President Bush last week, the individual or couple must be spending at least 31% of their monthly income on their mortgage payment and they must be living in the home (source: Library of Congress).
July 29, 2008
Even though the S&P 500 was down slightly for the week, investors were encouraged by the continuing fall of oil and gas prices last week. The price of oil was down $5.62 a barrel last week (after falling $16.20 the week before) and the price of gasoline dropped back under $4 a gallon for the first time since June 7th, down nearly 11 cents a gallon for the week. The oil industry was bracing for trouble in the Gulf of Mexico from tropical storm Dolly, but it never got above a Category 2 storm (out of a possible rating of 5), causing fewer pipeline disruptions than originally anticipated (source: BTN Research).
The Senate worked into the weekend to pass a bill that will provide assistance to 400,000 homeowners who have fallen behind in their monthly mortgage payments. The legislation will allow the financially strapped Americans to refinance their existing home loans into more affordable, lower interest rate loans backed by the US government. The House passed the same legislation on Wednesday and only President Bush's expected signature is required to put the bill into law (source: AP).
The government's first projection on the growth of our economy during the 2nd quarter of 2008 will be released on Thursday. On Friday, the country's employers are likely to report a 7th consecutive monthly decline in the number of workers currently on payrolls nationwide (source: Commerce Department, Labor Department).
Notable Numbers for the Week:
1. PREPARED - 61% of Americans (both workers and retirees) have an emergency fund set aside that would carry them financially for no more than 6 months (source: Principal Financial).
2. MORE THAN MOST - To rank in the top 1% of all US taxpayers, an individual would have to earn $388,806 of adjusted gross income (source: IRS, Tax Foundation).
3. NOT MUCH HAS CHANGED - The production of crude oil that occurs in the USA today (5.1 million barrels a day) is the same level of production domestically as it was in 1949 (source: Department of Energy).
4. JUMP HIGHER, RUN FASTER - The 2008 Summer Olympic Games begin 1 week from this upcoming Friday (8/08/08) at 8:08 p.m. in Beijing, China. The number "8" is considered lucky in China since the pronunciation of the number "8" in Mandarin and Cantonese sounds similar to the word used for "wealth." The games will last for 17 days through Sunday 8/24/08 and will hold competition in 28 different sports, including 5 new Olympic events. Beijing is 12 hours ahead of the Eastern time zone of the USA (source: Beijing2008 website).
July 23, 2008
After dropping to a calendar year low last Tuesday night, the S&P 500 staged a mini-comeback, advancing during the final 3 trading days of the week. Tuesday's close of 1215 pushed the S&P 500 into "bear market" territory as the stock index fell to 22.4% below its all-time closing high from last October. Considering the tone of Fed Chairman Ben Bernanke's sobering comments before Congress (on Tuesday and Wednesday) and the release of June's inflation number (up +1.1% in just the last month), the brief market rally may be a sign that equity investors are focusing on long-term prospects rather than short-term problems (source: BTN Research).
The change in sentiment for the stock market may have been driven by the rapid decline in the price of oil during the week. Just 5 days after setting an intraday record price of $147.27, the price of a barrel of oil closed last Friday at $128.88, its lowest daily finish since June 5th (source: New York Mercantile Exchange).
Congress will vote on a housing bill this Wednesday designed to aid Freddie Mac (Federal Home Loan Mortgage Corporation) and Fannie Mae (Federal National Mortgage Association). Both Freddie and Fannie buy mortgages from banks, thus providing lenders with new money to loan to home buyers. The 2 entities own or provide financial guarantees to 49% of all the mortgages in the country (source: USA Today).
Notable Numbers for the Week:
1. GOING UP? - 92% of economists surveyed believe the next action by the Federal Reserve will be to raise interest rates rather than cutting rates, suggesting that rising inflation is a larger concern to our nation's central bank than our slowing economy (source: Wall Street Journal).
2. ADD AND SUBTRACT - There were 4.3 million births of American babies during calendar year 2007. There were 2.4 million deaths of American citizens last year (source: Center for Disease Control).
3. HOW MUCH OF THE PIE? - 16% of the market capitalization of the S&P 500 was energy-related as of the end of last month, up from 13% at the end of calendar year 2007 (source: S&P).
4. STICKY ISSUES - Oil and gas companies have not been allowed to build new off-shore drilling facilities since a 1981 Congressional moratorium became effective (however pre-existing drilling facilities have continued in operation to the present day). The off-shore areas currently unavailable for drilling are believed to contain as much as 18 billion barrels of oil. The US consumes 21 million barrels of oil a day (source: USA Today).
July, 07 2008
In a storyline that has been repeated far too many times in 2008, the price of oil rose (setting another 4 record closes) and the stock market fell last week. At $145.29 a barrel, the price of oil is up +51% YTD. The S&P 500 dropped to a 2008 low last Wednesday (1262), finishing the trading week down 19.3% from the index's all-time record high set in October 2007 (source: BTN Research).
The country's employers reported 62,000 fewer jobs in June from a month earlier. The 8.5 million unemployed Americans is the largest total of idled workers nationwide since November 2003 (source: Department of Labor). The global threat of inflation forced the hand of the European Central Bank to raise its key benchmark interest rate last week. Their rate-tightening action runs contrary to that of the US Federal Reserve which may straddle the fence for some length of time, i.e., neither raising rates to slow our rising inflation nor lowering rates to spur on our slowing economy (source: BTN Research).
The companies in the S&P 500 will begin to report their 2nd quarter earnings during the upcoming week, results that are expected to be 9% less than the actual totals reported for the same 3-month period in 2007. Such an outcome would be the 4th straight quarterly earnings decline, a streak that is projected to end when 3rd quarter results are made public in October (source: Financial Times).
Notable Numbers for the Week:
California Home Loans
1. SOMETHING IS OUT OF WACK - Assuming proven oil reserves of 264 billion barrels, the value of Saudi Arabia's oil "in the ground" as of 6/30/08 (valued at $140 a barrel) was $37 trillion, more than 2 ˝ times the value of the total US stock market ($14.1 trillion) as of the end of last month (source: BP Global, Wilshire).
2. COAL, NOT OIL, FOR NOW - 80% of the power produced in China is generated from coal (source: Financial Times).
3. MORE NEED TO DO MORE - Only 19% of working Americans are saving enough to allow them to maintain their current standard of living into their retirement years (source: BusinessWire.com, Hewitt Associates).
4. SEPARATE FROM MEDICARE - A 65-year old couple would need to set aside $215,000 today (i.e., a present value amount) in order to cover their out-of-pocket health care expenditures over the subsequent 15-year period (source: Fidelity, Barron's).
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