Weekly Recap & Outlook – 11.30.12

Tower Private Advisors


  • Fiscal Cliff dominates markets
  • Got carried away with housing

Capital Market Recap

This Week’s Cartoon

(With apologies to real cartoonists)

This Week

Bullet point update…

  • Q3 Gross Domestic Product revised up, from 2.0% to 2.7%, on the back of inventory restocking…not the most solid of GDP improvements
  • Initial Jobless Claims fell from upwardly-revised 416,000 to 393,000
  • Personal Spending falls by -0.02% in October

Wanna know why the Federal Reserve won’t be raising interest rates for a while?

It seems a foregone conclusion that a budding revival in housing is going on, but it’s fragile.

Consider this…with 30-year mortgage rates at 3.40%–on a national basis even; local markets may be lower, a rebound is almost indistinguishable. Check out this chart of New Home Sales and Pending Home Sales. One would be hard pressed to say the former is in rally mode.

Still, Mortgage Delinquencies are coming down sharply, although they remain elevated.

This week’s Case-Shiller 20-city Composite of house prices showed them having risen at the fastest 12-month growth rate since 2010. That took the index through the downtrend and leaves it set to exceed that 2010 high.

The Federal Reserve has attempted to goose the housing market by pushing down interest rates–or at least that’s been a byproduct of their extraordinary monetary policy actions, and it hasn’t gotten them much. But you can be assured that they won’t let these efforts be made for naught with an increase in rates. The white line below is Mortgage Applications for new purchases, and it’s been flat for almost three years now; it’s difficult to discern a rising trend. Refi applications (orange line) have certainly put more cash into consumers pockets, but it’s hard to imagine that repeating.

But at what cost?

The chart below plots the decline in the 30-year Mortgage Rate (dark red line) over the last five years, but primarily after September 2008. Against that is plotted the increase ($1.947 trillion) in the Federal Reserve’s Balance Sheet (white histogram). So, how much did it cost to lower the 30-year mortgage rate by 3% (from 6.41% to 3.41%)? Here’s the formula:

$1.947,235,000,000 / 30 (0.10%s) = $65,000,000,000 per 0.10%

Graig P. Stettner, CFA, CMT
Chief Investment Officer
Tower Private Advisors



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