Today - Thursday, January 29, 2015
- Maybe helping stocks along to what's become a sizable rally, Fed boss Janet Yellen - apparently in a private meeting with Congressional Democrats - told the group the economy has a ways to improve and that no rate hike is imminent.
- Those thoughts could be taken to be at least slightly in contrast to the FOMC statement from yesterday which highlighted strength in the job market and the economy, and that a rate hike could come as soon as June.
- Given the history, did those inside the closed-door meeting do some buying before Charles Schumer made Yellen's thoughts public?
- The DJIA (DIA +1.2%) is now higher by 230 points.
- ETFs: DIA, DOG, DXD, UDOW, SDOW, DDM
- Comparing the U.S. economy to the game of Monopoly, Bill Gross says capitalism depends on those with capital hoping they can earn a positive return, and that by holding rates too low for too long, the Fed has crushed that hope.
- The central bank, however, has begun to recognize the distortions it's created, and will begin hiking "the Monopoly board's interest rates" late this year, "hoping to avoid landing on the figurative Park Place and Boardwalk in the process."
- "Bonds, despite their ridiculous yields, will not be easily threatened with a new bear market."
- Investment Outlook
- ETFs: AGG, BND, BOND, SCHZ, LAG, SAGG, GBF, FBND, IUSB, VBND
- Mortgage rates rose slightly in the past week, according to Freddie Mac's latest survey, following positive reports on new home sales and existing home sales.
- The 30-year fixed-rate mortgage averaged 3.66%, up from a 20-month low 3.63% in the prior week, while the 15-year fixed-rate mortgage averaged 2.98%, up from 2.93% a week ago.
- A year ago, the 30-year and 15-year rates averaged 4.32% and 3.40%, respectively.
Wednesday, January 28, 2015
- The 10-year Treasury yield sinks all the way to 1.75% following the FOMC statement which shows the central bank continuing on a path to rate hikes around mid-year. TLT +0.95%, TBT -1.9%
- Yields at the short end aren't moving a lot and continue to price in a 25 basis point hike by the fall.
- Stocks remain modestly higher, but financials (XLF -0.6%) - contemplating an even flatter yield curve - continue to underperform. KBE -1.1%, KRE -1.2%
- Indirect bidders took down nearly 50% of today's $25.7B two-year Treasury note auction, with direct bidders winning 8.8% of the notes vs. a recent 16%. The bid-to-cover ratio of 3.74 stands against the average of 3.40 over the last four auctions.
- The two-year yield slipped to 0.51% after the auction vs. 0.515% earlier in the session.
- Treasury auction results
- Citing "solid" growth and "strong" job gains, the FOMC shows no sign of backing away from its near-pledge for a mid-year rate hike, but does say it can be "patient" - code for nothing coming in the next two policy meetings and thus meaning June would be the earliest date for tightening.
- As for inflation, it's expected to decline further in the near term, but then rise back towards the 2% target as the labor market strengthens and the transitory effects of lower energy prices dissipate.
Tuesday, January 27, 2015
- Recalling the Fed's premature tightening of policy in 1937, Jeff Gundlach is worried the Yellen Fed could do the same. A June rate hike is "particularly dangerous," says Gundlach, as the data - particularly inflation numbers - look to be going in the opposite direction. The reason for the Fed's zeal to hike rates, says Gundlach, is its desire not be at zero when the next recession hits.
- "The consensus is that [10-year yields] will end the year 100 basis points higher ... It's amazing the triumph of hope over experience ... I think it's obvious the world is dealing with a deflation situation."
- Inside ETFs Conference notes
- As for the ECB's QE, count Gundlach as unimpressed ... No surprise given his opinion of the U.S. and Japanese QE efforts.
- ETFs: IEF, PST, IEI, TYO, DTYS, UST, STPP, PLW, VGIT, GOVT, FLAT, TBX, GSY, SCHR, DTYL, TYD, ITE, DFVL, TBZ, FIVZ, DFVS, TYNS, TAPR, SYTL
- December new home sales coming in at a seasonally adjusted annualized rate of 481K was the strongest print since June 2008, notes the WSJ's Nick Timiraos, but the 2014 total of 435K only edged higher from 2013's 429K.
- In 2007, new home sales totaled 776K. At the bottom in 2011, they were 306K.
- ITB -1.2%, XHB -0.6%
- Previously: New home sales strong in December (Jan. 27)
- Jan. State Street Investor Confidence Index: -5.5 to 106.7 vs.112.2 (revised) in Dec.
- The read from Redbook on retail sales through a good portion of the month indicates sales might decline around 3% M/M from December after the impact of auto and gas are backed out.
- The December retail sales showed a small decline from November.
- The Weekly Retail Chain Store Sales Index released today fell 0.6% W/W in another indication of softness in the retail sector, although on a year-over-year comparison the reading was up 2.6%.
- Related ETFs: XLP, XLY, VDC, XRT, VCR, RTH, RETL, FXG, IYK, FXD, IYC, FDIS, RHS, SCC, FSTA, UCC, PMR, UGE, RCD, PSCD, SZK
- "With the spring home buying season, and spring training, still a month or two away, the housing recovery is barely on first base," says S&P Dow Jones' David Blitzer, after U.S. home prices edged lower in November. "Prospects for a home run in 2015 aren't good."
- On a year-over-year basis, the 20-city composite index was higher by 4.3% vs. 4.5% in October.
- Blitzer notes most of the strong home price gains are concentrated in California, Florida, the Pacific Northwest, Denver, and Dallas.
- Full report
- Previously: S&P Case-Shiller Home Price Index (Jan. 27)
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