Wednesday, August 14, 2013

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

Interested In Buying Gold? Why Wait?

Posted: 14 Aug 2013 06:41 PM PDT

The title of this post is a play on the Yahoo! Finance video Wait for Further Pullback in which Jeff Macke asked Options Monster founder Jon Najarian if this rally was the "real deal".
Najarian says gold is looking good so far but it's still locked in a range. Where others see resistance in the $1,325 area, Najarian is more optimistic. "It was $1,425 in June of this year. I think that's the next stopping point."

Najarian says the trade here is to chill and wait for a pullback. If it gives up the ghost again and drops below $1,300 he's a buyer. If not he's happy to let others chase.
Gold "Looking Good" So Why Wait?

Najarian says "gold is looking good". He also thinks "$1,425 is the next stopping point".

But low and behold,  Najarian wants another pullback to $1300 first. Good grief. Why does anyone think they can time anything to that degree?

I suggest it cannot be done. If you think $1,425 is the next stopping point, does it matter that much if you buy at $1300 vs $1325?

Here's the deal: I do not know what the "next stop" is for gold, nor does anyone else.  What I do know is that micro-managing entry points, hoping for a $25 pullback when you believe the price is headed $100 or more higher is silly.

By the way, I also think "gold is looking good" here, but I am talking my book as well as my belief. That aside, I am pleased to see all these wimpy bulls. One of these breakouts is going to hold, and I will not be hoping for a pullback when it happens.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Mortgage Applications Decline 13th Time in 15 Weeks; Are Mortgage Rates Cheap? What's Next For Housing?

Posted: 14 Aug 2013 10:00 AM PDT

Here are a couple of charts courtesy of Bankrate. The annotations are mine.

15-Year Fixed Rate Mortgages



30-Year Fixed Rate Mortgages



Explaining the Rebound in Housing

If you are looking for what fueled the rebound in home sales and the increase in home prices, look no further than the above chart.

In the two-year period from December 2010 until December 2012, the rate on popular 30-year mortgages fell from 4.97% to 3.42%, a decline of 155 basis points (1.55 percentage points). In April, rates were still near record lows at 3.56%.

Are Mortgage Rates Cheap?

From the record low in December 2012, 30-year fixed rate mortgages have risen 97 basis points to 4.39%.

While still low historically, it's the direction of the trend that is important, not the absolute number. A one percentage point increase in rates decreases housing affordability by 10-11%.

US Treasury Rates

Mortgage rates are generally tied to rates on 10-Year US treasuries. Here is a chart that explains the rise in mortgage rates.



click on chart for sharper image

  • $TYX: 30-Year Treasury Yield - Green
  • $TNX: 10-Year Treasury Yield - Orange
  • $FVX: 05-Year Treasury Yield - Blue
  • $IRX: 03-Mnth Treasury Yield - Brown


The above chart from yesterday's post Treasury Yields Rise Following .2% Rise in Retail Sales; Fed Tapering Begins in September?

Treasury Yields and Housing Affordability

On June 24, in 10-Year Treasury Yield Up 100 Basis Points Since May; What's That Mean for Mortgage Rates and Housing Affordability? I commented ...
Anyone who stretched to buy is no longer qualified unless they locked some time ago.

Refinancing will soon be dead in the water (anyone who has not already locked no longer has any incentive) and new home affordability has taken a big hit.

Mainstream media talking heads say this will not affect the housing recovery. Assuming this trend sticks (even if rates simply level off now), how can this bond revolt not affect housing?
Mortgage Applications Decline 13th Time in 15 Weeks

From the latest Mortgage Bankers Association Weekly Application Survey ...

  • Mortgage applications decreased 4.7 percent from the previous week
  • The Refinance Index decreased 4 percent from the previous week
  • The seasonally adjusted Purchase Index decreased 5 percent from the previous week
  • The unadjusted Purchase Index decreased 6 percent compared with the previous week


One week does not make a trend, but the trend looks ominous. The weekly application surveys show a decline in mortgage applications for the 13th time in 15 weeks.

What's Next For Housing?

Curiously, refinance applications although trending lower, still account for about 63% of applications.

I spoke with my friend Michael Becker, a mortgage broker at WCS Funding Group and he commented that he is still refinancing people with rates over 6%. Some people just now have the equity available to refinance.

Yet, with rising rates, the drop in affordability, the pent-up demand to buy declining, and the decline in the number of applications, don't expect too much more (if any), rise in home values. And don't expect mortgage applications to break this trend either.

OK Ben, you still going to taper?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Egypt Police Storm Pro-Mursi Camps; Deadly Clashes; Stocks Lower, Market Closed Until August 18

Posted: 14 Aug 2013 07:25 AM PDT

Violence in Egypt took a turn for the worse as Police Storm Pro-Mursi Camps.
Egypt's security forces stormed two sit-ins in Cairo where Islamist supporters of former President Mohamed Mursi have been protesting his overthrow. Bursts of gunfire rang out, and reports of casualties varied widely.

At least 15 people were confirmed dead as security forces moved into the camps at Rabaa and Nahda in the capital, according to Mohamed Sultan, head of the ambulance authority. State TV said the casualties included five police. An e-mailed claim, which couldn't be independently verified, from a Muslim Brotherhood-led alliance that backs Mursi said more than 2,200 protesters were killed at Rabaa alone.



Image from  El Watan/EPA

Protesters' tents burn as Egyptian security forces move in to clear one of the two sit-in sites of supporters of ousted president Morsi, near Rabaa Adawiya mosque, in Cairo, Egypt, on August 14, 2013.

"What happened isn't the end of instability," Ziad Akl, a senior analyst with Cairo-based Al Ahram Centre for Political and Strategic Studies. "Dispersing the sit-in just means the Muslim Brotherhood will seek other ways to protest and put pressure on the government."

Economic Picture 'Hideous'

"The economic picture remains hideous by any standards," said Crispin Hawes, head of the Middle East program at the New York-based Eurasia Group, which monitors political risk. "One of the major pillars of the Egyptian economy is tourism. The longer that the violence goes on, the longer it will take for Egypt to recover the type of tourism revenues it was generating before the revolution in 2011. It has all the potential for a major disaster, so much can go wrong."
Stocks Lower, Market Closed Until August 18

Bloomberg reports Egyptian Stocks Lower, Bourse Closed.
All but two stocks on the index fell as police stormed the camps at Rabaa and Nahda in the capital, where Mursi supporters have congregated since he was overthrown by the military last month. The death toll reported by the Health Ministry was disputed by the Muslim Brotherhood, which claims hundreds were killed by security forces. The group and its allies had vowed to maintain demonstrations until Mursi is restored to office.

"The biggest concern is things on the streets may be getting out of hand and no one knows what the consequences will be," said Ashraf Akhnoukh, Cairo-based manager for Middle East and North Africa markets at Commercial International Brokerage Co. "For investors, it's unclear whether this operation can be completed today or if it will be protracted into a street battle that results in a state of emergency or a curfew."

Bourse Closing

The bourse's decision to close tomorrow is the first since January 2011, the start of the revolt against former President Hosni Mubarak, when trading was suspended for almost two months. Trading will resume Aug. 18, the bourse said in a statement.

'Much Worse'

"We now believe that things in Egypt have the strong potential of getting much worse, pushing through the positive aura that has comforted local investors hoping of a business-friendly environment and no MB in combination with pressured fundamentals," Emad Mostaque, a strategist at Noah Capital Markets, said in the e-mailed note.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Posted by Blogku at 11:17 PM

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