The Fed Does It Again!

I just got this from our Fifth Third Investment Advisor Group

Summary at Midday:
The Fed lowered the Fed Funds Rate by 50bps today to 3.00% as expected. This brings that rate to its lowest level since May 2005 and represents 1.25% of cuts over the past 7 days (…very aggressive). In their statement, the Fed notes that ‘financial markets are under considerable stress, and credit has tightened further for some businesses and households”. The next Fed meeting is March 18th.
Here is a copy of that Fed statement:
The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 3 percent.
Financial markets remain under considerable stress, and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets.
The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.
Today’s policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.
For most of the day, prior to this announcement, stock, bond and gold prices, as well as the US Dollar Index, had all been slightly lower. About 1:30pm eastern, stocks started to sneak a little more towards positive ground – led by Industrials, Staples and Utilities.
The economic news today was very mixed – with the preliminary Q4-GDP number at only a 0.6% annual rate – which matched the number from Q1-07. This weak economic news was mixed with a report by payroll firm ADP that private sector payroll additions in January were a very positive 130,000 (…now we will wait for the government’s payroll numbers on Friday).
In addition today, crude oil inventories rose by 3.6 million barrels for the week ending January 25 according to the Energy Information Administration, exceeding expectations of a 2.0 million barrel build. Distillate supplies fell by 1.5 million barrels, in line with expectations. Gasoline inventories rose by 3.6 million barrels, surpassing expectations of a 2.0 million barrel build. Refinery operating capacity fell sharply to 85% from 86.5%. The reaction to this report so far is that crude oil is slightly higher, but wholesale gasoline is slightly lower.
The initial reaction of the markets to the Fed rate cuts was one of selling in longer-term bonds & gold, with buying in stocks (2:25pm eastern). The US Dollar Index is steady to slightly lower. Buying in stocks has now turned to Financials, Materials and Industrials.
Comment
There is a sense of relief that the Fed has moved aggressively to defend the economy. One can feel that in the positive reaction of Financial, Consumer Discretionary, Small Caps, REITs and Value stocks over the past week – and early this afternoon.
We would not be surprised if we see some profit-taking later this afternoon, and then a reassessment of important economic reports due over the next two days (personal income/spending and employment reports). After all, the Dow has now recovered 900 points from its intraday low last Tuesday.
Though we still understand there could be downside risks to the economy if consumers pullback spending in the first quarter and the housing market continues to stumble, we still suggest that finance or refinance activity needed to be done get started and completed in the first half of this year before the Fed changes its mind about supporting the economy.
For investors, the trend so far this year has been to rotate back into what was most beaten-up in the second half of last year – since the Fed did its 75bps surprise rate cut last week. We continue to be incremental buyers versus sellers – but respect the downside potential noted above to the economy (…hence incremental…).
This is good news today for borrowers and investors, not so much for savers.
We hope this information is useful to you and…
Have a great day,

Where have all the buyers gone?

It reminds me of the Pete Seeger song from WAY before my time, “Where have all the flowers gone?”

Seriously, where have all the buyers gone? The Census Bureau released a report today which said that the number of home owners dropped by 1.1% in 2007. According to some statistics that I found on the web (google is a wonderful thing), that means that the number of home owners dropped by over 1 million in 2007.

No wonder inventories are up.

No wonder sales are down.

Where have all the buyers gone? And when will they come back?

Seriously, I think a lot of the buyers who have gone away shouldn’t have been buyers in the first place…..

What do you think?

Mixed Bag of Economic News….

So far this morning (and it’s still early) we’ve had a mixed bag of economic news….

Durable goods orders for December were up 5.2%. That’s the biggest gain in 5 months.

But at the same time, foreclosures were up 75% in 2007 compared to 2006.

It’s a wild ride……

A justified pay cut?

According to this report, the CEO of Countrywide agreed to forgo part of his compensation plan. A pretty substantial part, to the tune of $37.5 million.

In light of what’s been happening at Countrywide and the losses they have experienced, I think it’s justified. What do you think?

December Home Sales

I had what I would consider was a “good” conversation with a builder over the weekend. She said that one of their clients probably would have started building their new home except for the negative “drumbeat” in the media about how awful things are.

When I look at what shows up on the mainstream media and what shows up on blogs like www.blownmortgage.com, www.calculatedrisk.blogspot.com, and www.housingwire.com, I’ve got a couple of responses:
1. The national media always likes to make everything look worse. People don’t read the newspaper to find out that everything is calm and normal, they read it to find out what’s going on that’s not good.
2. The “spokespeople” for the National Association of Realtors, the National Association of Home Builders and the National Association of Mortgage Bankers have not done themselves any favors by pushing their “agenda” too much. I think they need to combine a dose of reality with the sales pitch.
3. The majority of the information that I try to pass on is not one person’s opinion, but actual facts. It’s true that home sales hit a low last month.

It seems to me that the nature of a Realtor’s position is to sell houses, a builder wants to build houses, a mortgage “broker” (and I use the term loosely) wants to sell mortgages and a mortgage professional (without distinction of whether they work at a bank or a mortgage company) wants to help a customer manage their finances well and achieve the goals their customer has as far as real estate and mortgages are concerned and they give advice and present information appropriate to that goal. That’s the goal that I strive for.

What do you think?

Volatility – Week #2

Check out what www.money.cnn.com says here. It looks like it’s going to be another wild ride!

I’m back on here!

Hi all,

I’m back! The creator of www.blownmortgage.com decided that he wanted to take Blown Mortgage back to a single author site, so I’m going to move my blogging about the mortgage and real estate industry back to this site.

So stay tuned!

Tom

I’m back on here!

Hi all,

I’m back! The creator of www.blownmortgage.com decided that he wanted to take Blown Mortgage back to a single author site, so I’m going to move my blogging about the mortgage and real estate industry back to this site.

So stay tuned!

Tom

I’m back on here!

Hi all,

I’m back! The creator of www.blownmortgage.com decided that he wanted to take Blown Mortgage back to a single author site, so I’m going to move my blogging about the mortgage and real estate industry back to this site.

So stay tuned!

Tom

I’m back on here!

Hi all,

I’m back! The creator of www.blownmortgage.com decided that he wanted to take Blown Mortgage back to a single author site, so I’m going to move my blogging about the mortgage and real estate industry back to this site.

So stay tuned!

Tom

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