Incline Village Nevada,   Economic News and Re-Cap:


We're right in the middle of summer. This should be the time to drink lemonade while lying by the pool, but the economy--as is indicated by the record price of an ounce of gold--offers us little reason to relax.

Maybe it's time to declare a political holiday--that is, a holiday from politics. Anyone who wants to talk about politics will be sent to his (or her) room with a copy of the latest Dave Barry book.

May you find reasons to laugh deeply in these weeks. The worst thing that can happen is to take the world and its economy far too seriously. We will, though, continue to make it as clearly understood as possible.

The Good, The Bad, and the Incomprehensible

 

July 23, 2011

Gold (see below) climbed to a new record high, exceeding $1600 an ounce last week for the first time. Silver also rose to a new high (40.61). But the prices of most other commodities, oil included, edged down.

This tells us that the markets are very nervous—uncertain, in particular, about the debt crisis in the European Union and the debt ceiling deadlock in the U.S. There is a fear of negative outcomes in these economic melodramas, and that makes investments with any element of risk (which even includes stocks) anathema to world investors. So stocks lose value, and in this case, many commodities are hit as well.

As for interest rates…we’ve noticed time and again that bad or worrisome news for the overall economy translates into lower interest rates. The obvious reason is that money needs to be as available as possible to businesses, investors, and private individuals if the economy slows or weakens. So we’ve seen the yield on the 6-month Treasury bill fall all the way to 0.04%, which is like leaving your money with someone for six months and getting it back eventually with a free sip of coffee as a reward.

The 10-year Treasury note, which 30-year mortgage rates track very closely, has also fallen—making its way to 2.93%. The weekly Freddie Mac average rate for 30-year loans fell last week by 9 basis points to 4.51%. It may hover at its current level for a few days, but it’s reasonably likely to ease slightly more in the coming week.

But the big question, of course, is what will happen in the debt ceiling negotiations. Experts see the possibility of an interest rate spike if Congress fails to avoid a default (or, perhaps more likely, a partial default). The jury is out, though, on what exactly the effects could be. Still, it will be well to keep in mind that there is a possibility of rising rates a few weeks out. This could be significant for financing that is being processed.

The Producer Price Index—the measure of wholesale inflation—displayed a wide gap between its headline fall of 0.4% and its core rate (with food and energy prices removed from the computations) of a 0.3% rise. The Consumer Price Index behaved similarly. Both displayed the fact that food and energy costs fell somewhat sharply this past month, and that could have a good effect on disposable income and the retail purchases that could be made.

If the data for new unemployment insurance claims has any stay-power to it, this too could help people feel more confident about making retail purchases.

It is a tense time. No doubt about it. But the underlying fundamentals continue to grind out fairly good indicators of recovery (notice housing starts below)—slow though it is.

 

KEY INDICATORS
[07/19/11]

Gold
$1599.90/ounce [up, slight pullback]

Crude Oil (Brent)
$117.71/brl [down but rising]

U.S. Dollar to…
Euro   .7043 [down]
Japanese Yen   78.954 [down]
Chinese Yuan   6.464 [down slightly]
Canadian Dollar  .9498 [down]

6-mo Treasury Bill Yield  0.06%

10-yr Treasury Note Yield  2.94%
6-month recently up 2 bps
10-yr up 1 bp

11th Dist Cost of Funds  1.360% [up 1 bp]

HSH average mortgage rates including jumbo rates

30-yr Fixed-rate Mortgage  4.77%

15-yr Fixed-rate Mortgage  4.00%

1-yr ARM  3.50%  
30-yr down 11 bps
15-yr down 9 bps 
1-yr ARM up 2 bps

Freddie Mac weekly average rate
4.51% [down 9 bps]

Mortgage Bankers Association

Mortgage Applications Index
week ending  7/8

Overall

Down 5.1%;
[Down 5.2% the week prior]

Purchase Money Loans
Down 2.6%;
[Up 4.8% the week prior]

Refinancing Loans
Down 6.2%;
[Down 9.2% the week prior]

Jobless Claims  7/9
405,000
[prior week 427,000]
4-week moving average 423,250

Producer Price Index (PPI) June

    Down 0.4% - core (with volatile food and energy costs removed) up 0.3%

 

Monthly Retail Sales June

    Up 0.1% - (without auto sales data) unchanged

 

Consumer Price Index (CPI) June

    Down 0.2% - core (with volatile food and energy costs removed) up 0.3%

 

NAHB Housing Market Index July

    Up from 13 to 15

 

Housing Starts June

    Up 14.6% - up 16.7% year-to-year – permits up 2.5%

 

COMING INDICATORS

Wednesday, July 20

    Existing-home Sales

 

Thursday, July 21

    Index of Leading Indicators

 

Tuesday, July 26

    S&P/Case-Shiller Index

    New Home Sales