It was very interesting to have
the Fed Chairman back track from what was said in May and June. The
yields on government bonds reacted much more than the fed anticipated and too
high of bond yields will not only hurt housing/banking but it makes the cost of
running a business more and would eventually hurt stocks. It was no
coincidence either that the speech was on the same day as the fed
minutes. Half the members want to end all stimulus by the end of
2013. The fact Bernanke said after the market closed that he sees
stimulus continuing for the foreseeable future was a huge plus for the market
and bonds in particular. Most economists had speculated that tapering of
MBS and bonds would start in September. After Wednesday, September is now
out. Also, even though the fed again has a two day meeting at the end of
July, Bernanke only speaks after every other one. We will not hear him
talk after a fed meeting until September. That may be a good thing after
May and June. :o)
Now the market battle is between
the Chairman and the fed members that believe we should end QE3 this
year. The Chairman will get his way. I also liked the fact that he
admitted that the job picture is not as strong as the numbers reflect. Do
you guys know that many of the new jobs being reported are part-time jobs in
low paying positions? That is NOT a significant help to our
economy. In fact when the job market does get better, the unemployment
rate gets worse because people that have given up looking for a job, get back
in the job market thinking maybe they can get one. I came from
Homebuilding prior to lending and I have friends that were land entitlement
people with degrees from USC and they have been unemployed for 5 years and had
given up years ago. One is in his mid forty’s with two kids. He
doesn’t think the economy is so great. One of the drivers of this change
is due to the coming health care changes. Businesses are saying why hire
a full time worker and pay for health care when I can hire two part timers and
not provide health care. The government didn’t anticipate this and will
have to adjust.
Next week rates will be affected
by the China GDP numbers on Monday (Sunday night for us), Bernanke testimony
Wed and Thursday and earnings all week. The China numbers could be the
weakest in years and if so, it could spook the market. The question will
be whether the numbers are real. The Chinese government has a way of only
letting the world see what it wants us to see. They are expected to be
bad and that could help rates on Monday. If Bernanke reinforces to
congress what he said in his speech last week, that could be great for us
too. Earnings will be the main driver for the next month. If they
are weak, as expected, we could see rates improve. Analysts lowered their
growth estimates so they may still beat projections, but it will be greatly reduced
projections. We will have to see how this plays out.
Something to think about.
Many want to know by September if Bernanke will be done after his term ends in
Jan 2014. If so, most people feel like Janet Yellen will be his
replacement. Guess what? She is even a bigger supporter of stimulus
than Bernanke and any announcement that she will be the new Fed Chairman, could
be good for rates. There will be on-going speculation about this.
The attached is a good article
about rates and housing. The commentators think as I do, that we may have
seen the highs for now. The Bond King, Bill Gross, thinks the 10 year
treasury yield will slowly find its way back to 2.2%. We shall see, but I
think there could be enough fireworks this summer to see that happen or
lower. It totally depends on how much people believe in the economy and
the world economy.
Thanks
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