This week after a week with little domestic economic data, there are a number of key data points on Tuesday, Wednesday and Thursday. April reports for the most part; retail sales, CPI, housing starts and permits, industrial production and factory use, the Philly Fed May index. The minutes from the 4/25 FOMC meeting will get a lot of focus, looking for clues about another possible QE; we still hold the Fed will not initiate another QE but there are many analysts and economists thinking the Fed will ease one more time. If the Fed were to ease again it would likely have to happen at the next FOMC meeting in June, after that the Fed will likely refrain with elections coming in November.

Blessings,

This week has Treasury auctioning a total of $72B of notes and bonds with 3 yr, 10 yr and 30 yr auctions beginning on Tuesday. Last week key US tock indexes were down after the strong rally over the last six weeks. Many traders are thinking a large correction is overdue with recent economic reports on manufacturing and services sectors slowing. China and Europe also seeing a decline in growth. Europe is the prime suspect as its economy is falling deeper into recession with little reason to expect much improvement. Last Friday the 10 yr note broke what we saw as strong resistance when it fell below 1.90%, from a technical perspective the 10 yr now likely to move to 1.80%; mortgage rates are also expected to decline further. Interest rates are now at levels that since last September have not been able to sustain them. This time may be different, leaving the question of how low can US interests go?

INFO THAT HITS US WHERE WE LIVE… Happily, it’s becoming easier to believe the housing market is turning around, although in fits and starts. For example, the Q1 Advanced GDP report showed that home building increased for the period at a 19% annual rate, its fourth consecutive quarterly gain. In line with this, several home builders have recently reported higher sales and orders. The National Association of Realtors (NAR) projects new home sales UP 31.6% for 2012.

More evidence: as of March, Realtor.com put the median list price of homes up 5.56% for the year. The NAR’s chief economist offered, “The housing market has clearly turned the corner. Rising sales are bringing down inventory and creating much more balanced conditions around the country, which means home prices will be rising in more areas as the year progresses.” The NAR forecasts existing home sales UP nearly 10% for 2012, to 4.68 million units.

Blessings,

Treasuries going for their biggest monthly gain since September as slowing U.S. economic growth and concern Europe’s debt crisis is worsening, increased demand for the relative safety of US treasuries. Ten-year notes are slightly higher for a third day with Spain going into its second recession since 2009 and economists said U.S. reports this week will show growth in manufacturing and services slowed. Not only Spain, the UK is in a double-dip recession since the 1970s as its longest peacetime slump for a century persists; UK GDP declined in the last two quarters. The increasingly serious question for Europe is whether the massive austerity cuts demanded have failed to gain support and are for a number of countries unachievable, leading to further deterioration of economies and dragging other global economies down with it. In the US economists predict Labor Department data this week will indicate U.S. hiring increased in April, though not enough to reduce the jobless rate. Consumer spending climbed in March, but a little weaker than estimates. The concern we have for the 10 yr is that it still has not shown the ability to hold under 1.90% on rallies going back to October.

This week may point to a slowdown in manufacturing, services and construction. A gauge of factory activity (ISM manufacturing) will fall to 53.0 from 53.4 in March, according to the median forecasts. An index of services (ISM services sector), the largest part of the economy, will decline to 54.1 from 56.0, while a construction measure will also fall, economists said in separate surveys. A reading above 50 indicates expansion. We won’t put much confidence on the estimates that recently have been more dart tossing than accurate assessments. This week is more about employment than any other report; however the data this weeks has a number of key points.

The 10 yr note is approaching 1.90%, since last October the 10 yr has fallen below it on three occasions but in each case the note was unable to hold under it. Not sure what will occur now but history does have an impact; a sustained decline under 1.90% would embolden traders to push rates lower, the next technical resistance under 1.90% at 1.80%.

Blessings,

Data this week includes March new home sales, consumer confidence and durable goods orders; all key data points. Also this week treasury will auction 2 yr, 5 yr and 7 yr notes for a total of $99B beginning Tuesday through Thursday. Concern that the euro-area debt crisis is deepening after a first round of French elections ended with President Nicolas Sarkozy trailing his Socialist rival and the Dutch government split over austerity plans. Spain and Italy’s debts and their economies are also adding safety moves by investors to US treasuries.

INFO THAT HITS US WHERE WE LIVE… People say home building can’t recover any time soon. Yet the signs continue to mount that a recovery is underway. Off 5.8% for March, Housing Starts are up 10.3% from a year ago, to a 654,000 unit annual rate. The monthly drop came from volatile multi-family starts, while single-family units were down only 0.2%. And the number of homes under construction was up for the seventh month in a row! Even Building Permits are up 30.1% versus a year ago. It’s early in the home building recovery, but some are saying we could get to 1.5 million units by 2016.

More signs the housing market is recovering slowly but surely came with March Existing Home Sales. Although off 2.6% for the month, at 4.48 million units, they’re up 5.2% over a year ago. In addition, the median price rose in March to $163,800 and is up 2.5% over a year ago, while the months’ supply of inventory stayed at 6.3. Frankly, no one expects a big bump in home sales soon, but the market is definitely beginning to heal, as it’s obviously a great time to buy.

Blessings Upon Blessings,

The 10 yr note at 2.00% has the potential to fall to 1.90% but at this point we don’t think it will go much lower than that. Mortgage rates are within 10 basis points of their best levels. Europe’s debt issues, a present view that global economies will slow has increased the belief the Fed will likely do more easing; it all depends on the data we see this week. Next week the FOMC will meet on Tuesday and Wednesday with the policy statement that is expected to confirm the Fed is thinking about easing. The previous meeting’s policy statement disappointed as there was no mention that the Fed was thinking an easing move.

INFO THAT HITS US WHERE WE LIVE… When people tell you the housing market isn’t showing many positive signs, here are some facts that may change their minds. As of January, the National Association of Realtors (NAR) reported the housing inventory of for-sale homes has fallen to its lowest level since March 2005 — 2.3 million homes, about a six-month supply. Meanwhile, total home sales rose 13% in the last six months, according to another industry survey.

The NAR also reports that sales of second homes in 2011 shot up to their highest market share since the height of the housing boom. This includes both vacation and investment homes. A survey of real estate economists and analysts reported home prices should stabilize this year, rebound in 2013 and accelerate in 2014. Finally, Freddie Mac’s weekly survey revealed that national average mortgage rates hit new all-time lows for 15-year fixed-rate loans and were just above the record low for 30-year mortgages.

Blessings,

Not just the March employment report that is sending US rates lower; Europe’s debt problems, after being somewhat benign for the last few weeks, is back. Spain now the poster child with concern it can’t make it without another EU bailout. The prime minister of Spain set up the concern when he said last week the country was in “extreme difficulty”. Comments like that has renewed safety moves into treasuries as was the case with Greece that took the long rates down.

On Wednesday the Fed Beige Book will get a lot of attention after the weak employment report on Friday. The Book is a staff report on the economy with details from each of the 12 Fed districts. The employment report will likely increase the talk of another easing by the Fed; QE 3 has been debated now for the last month and the Fed, while not Saying anything at the 3/13/FOMC about another ease, is still not willing to completely discount it if necessary.

INFO THAT HITS US WHERE WE LIVE… Hopefully, more people will be taking a shot at buying a home, with home ownership regaining its appeal as rents head higher. A real estate research firm reported average apartment rents UP 2.7% last year, while the national vacancy rate went below 5% for the first time since 2001. Increasing rents, plus very affordable home prices and near record low mortgage rates, have made home buying cheaper than renting in most areas, spurring on first-time buyers.

A major bank housing analyst said apartment rental costs have historically been about 10% lower than after-tax home ownership costs. That difference began shrinking in 2010 and now apartment rents are about 15% higher than home ownership costs. A new survey found that twice as many real estate professionals, compared to three months ago, expect home values to rise. The housing market appears to be stabilizing as home sales trend upward and homebuilders are more optimistic than they’ve been in years.

Blessings,

There are many that expect the Fed will do another easing move, equally about the same that don’t expect it. The Fed will not ease again unless the US economy reverses the current positive outlook. We caution though that even another easing by the Fed isn’t going to help the long end of the curve that much. Another easing move (printing more money) will likely increase inflation concerns.

INFO THAT HITS US WHERE WE LIVE… Last week’s housing reports supported the fact there are great opportunities in today’s real estate market, as long as you don’t look at just part of the data and jump to conclusions. For example, February Pending Home Sales, measuring contracts on existing homes, were off 0.5% for the month. But wait a second, Pending Home Sales are now UP 13.9% over a year ago!

In the same vein, the S&P/Case-Shiller Home Price Indices slipped a non-seasonally adjusted 0.8% for January and 3.8% from a year ago. But the seasonally-adjusted index of home prices in the 20 largest metro areas was unchanged for the month. And nine of the twenty metros showed price increases! The National Association of Realtors (NAR) expects home prices to rebound in 2012 with existing home sales up 7%-10%, to their highest level in five years.

Blessings,

INFO THAT HITS US WHERE WE LIVE… The Polish physicist and chemist, famous for her pioneering work on radioactivity, could have been describing the U.S. housing market. But we are making progress. Realtor.com reported that the U.S. median list price of homes they track was almost 7% higher in February than a year ago. The web site of the National Association of Realtors (NAR) also reported that the inventory of U.S. for-sale housing is 22% lower than a year ago. Additional progress was seen in the median age of inventory of homes on the site dropping almost 10%, year over year.

Realtor.com summarized the situation this way: “The nation’s housing markets as a whole are in better shape today than at any time since the 2009-2010 tax credits.” But it should be noted that although current inventory levels are near a two-year low, they’re likely to grow a bit during the spring selling season.

Euro-area finance ministers meet to sign off on the latest Greek bailout and discuss crisis-fighting measures in Spain and Portugal. Greece got its funds to avoid default but based on definition the bailout with bond holders taking huge losses is considered defaulting. The bond market continues to move in a very tight range with no particular direction; interest rates have been little changed since late October, in a 15 to 20 basis point range on the 10 yr note and 6 to 10 basis points on 30 yr mortgage rates. With the fed keeping short rates at zero there is little likelihood the long end (10 yr and mortgages) will increase much. That said, we still hold that rates have seen their lows and any significant move lower is also unlikely as long as the economy is seen as recovering.

INFO THAT HITS US WHERE WE LIVE… It shouldn’t take a particularly observant eye to see the historic affordability available to home buyers, thanks to current home prices and mortgage rates. The National Association of Realtors (NAR) Housing Affordability Index reached a 42-year high in January. An index of 100 represents a median-income family’s ability to afford a median-priced, existing single-family home, with a 20% down payment and mortgage payments at 25% of gross income. January’s record reading was 206.1!

Freddie Mac’s chief economist commented, “the typical family had more than double the income needed to purchase a median-priced home in January.” There’s also talk about prices finally bottoming out. Data aggregator CoreLogic’s National Home Price Index in January was at its lowest level since January 2003, and their chief economist noted prices are “not far from the bottom.” Finally, the NAR forecasts existing home sales UP 6.8% for the year.

Blessings,

The bond and markets are in narrow trading ranges, they will likely continue there until another new fresh fundamental comes along. We continue to believe interest rates have seen their lows, however we are not expecting any significant increase in rates in the near future. Last week Bernanke made it clear the Fed was not thinking about another easing move at the moment, that kind of roiled the equity markets momentarily. The differences of opinion remain between the Fed and private forecasters. The Fed remains concerned the economy is not on solid footing, while private investors continue to bid up equity prices on belief the US economy is slow but solid.

INFO THAT HITS US WHERE WE LIVE… Buffett, one of the world’s most successful investors, appeared live on CNBC last Monday and told viewers: “… if I knew where I was going to want to live the next five or 10 years, I would buy a home and finance it with a 30-year mortgage, and it’s a terrific deal.” He added, “… if I was an investor that was a handy type… I could buy a couple of them… and find renters… and again take a 30-year mortgage…. I think that’s probably as an attractive an investment as you can make now.” Check out the video: http://www.youtube.com/watch?v=vkx57Ifein8&feature=share

Later that morning, as if on cue, January Pending Home Sales came in UP 2% from December and UP 8% over a year ago. This measure of homes under contract from the National Association of Realtors (NAR) hit its highest level since April 2010. The NAR’s chief economist commented, “the trend in contract activity implies we are on track for a more meaningful sales gain this year.”

Blessings,