Initial Jobless Claims rose by 554,000, essentially in-line with expectations of 557,000, but still a high number. Continuing Claims fell to 6.22 million down from 6.31 million the prior week. On the surface, this looks to be a positive, as a reduction in individuals who are receiving unemployment benefits sounds good. But remember, unemployment benefits don't last forever. And individuals who are unable to find work may see their unemployment beneits expire, and still not have a job...but are now not being counted in the Continuing Claims number. I feel that is a more likely scenario than the headline being touted by the media. And the Fed's revised unemployment forecast (which granted, hasn't been something you can take to the bank), also shows high unemplyment through 2011. It will be hard for consumer spending to regain traction and for the economy to turn higher with momentum if the labor market continues to struggle.
Mortgage Bonds are down a bit this week, but remain above a triple-decker floor of support provided by the 25, 50, and 200 day Moving Averages. While thisis somewhat comforting, I'm concerned about Treasury Auctions that will be hitting next week, as an additional $110B of supply will need to be absorbed by the markets.
One may ask the question why doesn't the administration look to the past to help repair the economy. Remember Jimmy Carter? Remember 18% interest rates, and close to 11% unemployment? Remember we even had a "Misery Index?" Ronald Reagan fixed all of this in less than two years by stimulating the economy with tax cuts and freeing up the private sector to put people to work. It worked then and it would work now. Why oh Why doesn't President Oboma see this?
Friday, July 24, 2009
Tuesday, July 14, 2009
It Still Makes Sense to Purchase a Home!
Nearly a full third of households are still renting. If you’re one of them, you could be paying a hefty price.
Before talking about purchasing a house, it’s important to note two things. First—and this is extremely important—the housing market is actually localized. So the outlook in your hometown may be different than another city across the state or on the other side of the country. Second, home prices are tied to employment. For example, if someone feels like their job is in jeopardy, it might be enough to stop them from making a move. So, if your local job market is feeling a pinch, the home prices in your area may be down as well.
But with all those factors under consideration, it still makes sense to buy instead of rent. In fact, renting may be costing you a bundle.
Let's look at an example…
If you are paying rent at $1,500 per month and your landlord increases your payment by a modest 5% each year, you would wind up paying just about $100,000 over a 5-year period! Worse yet, after forking over $100,000, you still would have nothing to show for it.
And speaking of having nothing to show for it, how about any improvements you might make to a rental property? It's not uncommon for renters to freshen up the paint, install new light fixtures or plant some nice flowers outside. But guess what… all your efforts, labor and the benefit of that improvement belong to the landlord, not to you.
With convenient down payment options still available for qualified buyers, affordable home prices and low interest rates, the very same money could have been used towards home ownership.
Even using a standard 30-year fixed program, a mortgage of $300,000 could be obtained with a total monthly mortgage payment—including property taxes and insurance—of around $2,200. Assuming a 25% tax bracket, this would be equivalent to the average amount spent on rent during the same period after your tax benefit.
And the benefits of home ownership are quite considerable. Because the mortgage is being paid down each month, equity is being built. After 5-years, the $300,000 mortgage could be reduced to $279,000, adding $21,000 to your net worth!
But if laying out the initial increase in monthly payment and having to wait for your tax benefit to show up next April is a tough nut to crack, the IRS wants to help. Instead of waiting to file for the tax benefits derived from your new home purchase, you can simply adjust the amount of your withholding. This allows you to have less tax withheld from each paycheck so you can handle the new mortgage payment more comfortably throughout the year. In essence, you are taking your tax refund as you go instead of letting Uncle Sam hold it all year, interest free.
Visit www.irs.gov and use the IRS withholding calculator. This very handy tool can quickly show you the impact that a change in withholding will do to your net paycheck. Remember to balance this with the expected refund and it is always a good idea to check with your tax advisor.
Before talking about purchasing a house, it’s important to note two things. First—and this is extremely important—the housing market is actually localized. So the outlook in your hometown may be different than another city across the state or on the other side of the country. Second, home prices are tied to employment. For example, if someone feels like their job is in jeopardy, it might be enough to stop them from making a move. So, if your local job market is feeling a pinch, the home prices in your area may be down as well.
But with all those factors under consideration, it still makes sense to buy instead of rent. In fact, renting may be costing you a bundle.
Let's look at an example…
If you are paying rent at $1,500 per month and your landlord increases your payment by a modest 5% each year, you would wind up paying just about $100,000 over a 5-year period! Worse yet, after forking over $100,000, you still would have nothing to show for it.
And speaking of having nothing to show for it, how about any improvements you might make to a rental property? It's not uncommon for renters to freshen up the paint, install new light fixtures or plant some nice flowers outside. But guess what… all your efforts, labor and the benefit of that improvement belong to the landlord, not to you.
With convenient down payment options still available for qualified buyers, affordable home prices and low interest rates, the very same money could have been used towards home ownership.
Even using a standard 30-year fixed program, a mortgage of $300,000 could be obtained with a total monthly mortgage payment—including property taxes and insurance—of around $2,200. Assuming a 25% tax bracket, this would be equivalent to the average amount spent on rent during the same period after your tax benefit.
And the benefits of home ownership are quite considerable. Because the mortgage is being paid down each month, equity is being built. After 5-years, the $300,000 mortgage could be reduced to $279,000, adding $21,000 to your net worth!
But if laying out the initial increase in monthly payment and having to wait for your tax benefit to show up next April is a tough nut to crack, the IRS wants to help. Instead of waiting to file for the tax benefits derived from your new home purchase, you can simply adjust the amount of your withholding. This allows you to have less tax withheld from each paycheck so you can handle the new mortgage payment more comfortably throughout the year. In essence, you are taking your tax refund as you go instead of letting Uncle Sam hold it all year, interest free.
Visit www.irs.gov and use the IRS withholding calculator. This very handy tool can quickly show you the impact that a change in withholding will do to your net paycheck. Remember to balance this with the expected refund and it is always a good idea to check with your tax advisor.
Monday, July 6, 2009
Testing Resistance
The financial markets are back in full swing today after the long holiday weekend. Mortgage Bonds are slightly lower, and still dancing just under the thick overhead resistance formed by both the 50-day Moving Average and recent highs for Bonds.
Coming later this week, Traders will be turning their attention to the start of the earnings season for the Second Quarter, carefully looking for clues as to the pace of economic recovery. Aluminum company Alcoa (AA) will be kicking off earnings season after the close on Wednesday.
As mentioned earlier, Bonds remain under a thick celiing of overhead resistance. As I talked last week, the last time Bonds traded near these levels, they reversed sharply nad lost about 250bp over just a few days. Bonds appear to be "overbought", which means we need to exercise caution, especially if you are seeking a lower rate to purchase that dream home or simply wanting to refinance at a lower rate or take some cash out for repairs etc. Prices can remain overbought, especially at resistance levels, which can be troublesome. I will monitor this carefully, at the same time allowing for prices to either tread water or move higher in case the decline in Stocks accelerates.
On another note, many traders and investors may be taking the next few days off as an extension of the holiday weekend, which can lead to exaggerated moves as a result of lower trading volume. Have a good week!
Coming later this week, Traders will be turning their attention to the start of the earnings season for the Second Quarter, carefully looking for clues as to the pace of economic recovery. Aluminum company Alcoa (AA) will be kicking off earnings season after the close on Wednesday.
As mentioned earlier, Bonds remain under a thick celiing of overhead resistance. As I talked last week, the last time Bonds traded near these levels, they reversed sharply nad lost about 250bp over just a few days. Bonds appear to be "overbought", which means we need to exercise caution, especially if you are seeking a lower rate to purchase that dream home or simply wanting to refinance at a lower rate or take some cash out for repairs etc. Prices can remain overbought, especially at resistance levels, which can be troublesome. I will monitor this carefully, at the same time allowing for prices to either tread water or move higher in case the decline in Stocks accelerates.
On another note, many traders and investors may be taking the next few days off as an extension of the holiday weekend, which can lead to exaggerated moves as a result of lower trading volume. Have a good week!
Wednesday, July 1, 2009
Jobs Report Strategy
Handicapping this month's Jobs Report is made a bit difficult currently due to a wild card - the temporary hires being made to conduct the US Census. The government is planning to hire 1.4 million part time workers to run the 2010 Census, but it isn't clear exactly when or how many of these hires will be or have been made in any given month. However, when these "job creations" hit, they could possibly skew the real employment picture by painting a much more rosy scenario than what actually exists, and last month's Jobs number was an example.
From a fundamental standpoint, we have to peel back last month's Jobs Report and saw that the "birth-death" ratio added 217,000 jobs to the reading, thereby helping provide a better than expected loss of "only" 345,000 jobs. Do you really think that 217,000 new jobs were added by the creation of new businesses last month? Bottom line...without this birth-death estimation by the Bureau of Labor Statistics jobs losses would in reality have eclipsed a half a million last month. I don't think the economy is adding many jobs right now, and there will likely be higher job loss revisions down the road which will lead to a continued uptick in the unemployment rate.
With the slack in the labor market, many are forced to find part-time employment. And upon an economic recovery, many businesses may just take these part-time workers and make them full-time employees...which would keep unemployment rates high for a longer amount of time. This is where the phrase "jobless recovery" comes from...we could see the economy start to pick up, but new hiring can lag for behind.
I expect tomorrow's report to be ugly, and will likely include some revisions to prior reports showing more job losses, as well as an uptick in the unemployment rate.
From a fundamental standpoint, we have to peel back last month's Jobs Report and saw that the "birth-death" ratio added 217,000 jobs to the reading, thereby helping provide a better than expected loss of "only" 345,000 jobs. Do you really think that 217,000 new jobs were added by the creation of new businesses last month? Bottom line...without this birth-death estimation by the Bureau of Labor Statistics jobs losses would in reality have eclipsed a half a million last month. I don't think the economy is adding many jobs right now, and there will likely be higher job loss revisions down the road which will lead to a continued uptick in the unemployment rate.
With the slack in the labor market, many are forced to find part-time employment. And upon an economic recovery, many businesses may just take these part-time workers and make them full-time employees...which would keep unemployment rates high for a longer amount of time. This is where the phrase "jobless recovery" comes from...we could see the economy start to pick up, but new hiring can lag for behind.
I expect tomorrow's report to be ugly, and will likely include some revisions to prior reports showing more job losses, as well as an uptick in the unemployment rate.
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