But if I knew how to manage my portfolio safer and smarter than most hedge fund managers, I could realistically grow my wealth.
Inflation remains well-anchored: Good news for mortgage REITs
The Fed prefers to use the Personal Consumption Expenditure (or PCE) Index as its measure of inflation over the Consumer Price Index, which is more familiar to most people. There are a few differences between the two.
Ever since the crisis, the Fed has been consistently high in its GDP forecasts. In many ways, the Fed has been modeling this recession as a garden-variety recession driven by high inventory.
Usually, at the March, June, September, and December FOMC (Federal Open Market Committee) meetings, the Fed releases its economic forecast for the current year and the upcoming two years.
Yesterday, the Federal Reserve ended its September Federal Open Market Committee meeting and decided to continue to reduce asset purchases. It will reduce purchases of Treasuries by $5 billion a month.
Most people don’t think industrial data affects office real estate investment trusts (or REITs). But it does influence the top-line growth of commercial REITs like SL Green Realty Corporation (SLG).
The front-month Ginnie Mae TBAs were bid up as bonds rallied eight basis points. Ginnie Mae TBAs began the week at 106 8/32 and fell to 105 26/32. The underlying bond market sold off 15 basis points.
Fannie Mae MBS sold off a bit on a weak bond market. The Fannie Mae 4% TBA started the week at 105 17/32 and lost about 5/8 to close at 104 28/32.
There’s an old Wall Street saw that says you should buy the rumor, sell the fact. Essentially, this means that the market prices in an event before it actually happens.
On Tuesday, we had the NFIB Small Business Optimism Report and also the JOLTS job openings report. Interestingly, job openings are at their highest levels since 2001.
The upcoming week has some important economic data, like housing starts and industrial production, but the FOMC meeting will dominate. Further tapering is more or less assured. The taper should completely finish by the end of the year.
The Thomson Reuters/University of Michigan Consumer Confidence Index is an important indicator of the consumer’s perception of the U.S. economy.
Consumption is the U.S. economy’s biggest driver, and it accounts for 70% of GDP (or gross domestic product). Consumption has been relatively subdued since the recession began, as Americans have boosted their savings rate and spent only on essentials.
The MBA reported that the share of refinance applications decreased to 55.4%. Going forward, home price appreciation will drive refinance activity as previously underwater homeowners eventually get back to positive equity and take advantage of lower rates.
The MBA Applications Index fell 7.2% after rising 0.2% the week before. This is the lowest reading for the MBA Mortgage Applications Index since early 2001.
Mortgage applications are relevant to a number of industries—from banks to non-banks, to mortgage REITs like Annaly (NLY) and American Capital (AGNC), to homebuilders like KB Home (KBH), Lennar (LEN), and Toll Brothers (TOL).
Homebuilders like Lennar use the survey to measure consumers’ attitude towards future home price appreciation. Mortgage REITs like Annaly use the survey to help forecast prepayment speeds and also to gauge consumer sentiment.
New York State has started to examine the issue of “zombie homes”—where the home is no longer occupied by the borrower but responsibility hasn’t transferred to the bank.
The federal government has taken numerous steps to reduce foreclosures, starting with loan modification programs and also encouraging servicers to pursue other means of dealing with a delinquent borrower.
The Bureau of Labor Statistics (or BLS) compiles data from a random sample of private non-farm businesses. Job openings are one piece of the report. The other is hires versus separations.
The Employment Cost index (ECI) is prepared quarterly by the Bureau of Labor Statistics. It’s the counterpart to the Consumer Price Index (CPI). One way of thinking about ECI is that it is the “wage” side of the wage-price spiral, while CPI is the “price” side.