Wednesday, December 13, 2006

All That Glitters is Not Gold

Before the market opened on Wednesday, we learned that retail sales for November were up a very surprising 1%.  Even with expectations of only a 0.2% increase, we were certainly not even expecting that given what we’ve already heard from several retailers but the number is now in front of us.  The stock futures popped a little on the news but the bonds predictably dropped.  By the end of the day, bonds were down pretty hard (yields rose) while the dollar liked the retail sales number and rallied.

The stock futures were only up going into the trading day and as soon as trading started we saw the high of the day with prices drifting down into mid-morning and just bouncing around in a fairly narrow range the rest of the day.  Stocks were pretty flat at the end of the day with the Dow up a buck ninety two, so not much going on there.  

We did find a couple of interesting items in the news that we thought we would highlight this evening.  The first is the one about pennies and nickels.  We find it amazing that as commodity prices have been moving up over the past couple of years that the US Mint doesn’t want to mint any more pennies.  You might ask why that is and the answer they tell us is that the cost of making a penny costs more than a penny is worth as currency.  

So, for the first time in a very long time you can actually have something valuable in your pocket or purse, pennies.  Now, it seems that the US Mint is trying to institute new rules about preventing the melting down of said pennies for their metal value.  Here for the last several years we thought you had to buy gold coins in order to have something more valuable then the face amount.  

The more serious item is the one about homeowner “equity extraction”.  The online WSJ article entitled “Homeowners Borrow Less Against Equity in Their Homes, Data Show” says that homeowners only took $113.5 billion of equity out in the form of loans.  This amount is the lowest quarterly amount since the fourth quarter of 2003.  In the third quarter of 2005 homeowners extracted a high of $235.9 billion.  These numbers don’t sound all that big given some of the numbers we see about the economy but the way the article puts it is that the $113.5 billion is 4.7% of households’ after tax-income and the $235.9 billion is 10.4%.  This is like a 10% raise only this one you have to pay back.

Meanwhile, mortgage delinquencies continue to rise.  The article points out that the delinquency rate for one-to-four residential units rose to 4.67% in the third quarter up 23 bps from the third quarter of 2005 and up 28 bps from 4.39% in he second quarter.  That means, says the article, that roughly one out of 20 mortgage holders is at least 30 days behind in their payments.  For subprime adjustable-rate mortgages, the rate is 13.84% delinquent, more than one in eight.  As this is going on, the volume of mortgage applications climbed to the highest level in more than a year.  

Dow Industrials:  12,317.50  +1.92 (just another big day)
VIX: 10.18
QQQQ:  43.88
RYVNX:   17.27
RYAIX:  21.68
RYCWX:  36.19
TLT:  90.01
BEGBX:  14.21 (dollar stronger after retail sales report)


Anonymous said...

I think we could change the posting title to 'Everything glitters'. It seems that the markets care about little else other than going up.
100 points up, 12 points down, 80 points up, 27 points down. Puzzling.


Glenn said...

Don't I know what you mean!!! The market feels like a gas with upward bound written on it. The trouble is that it is tired and not very powerful. Bull runs start with power and never give you a chance. This move is on very low volume and will end within a month. Thanks for the comment--take care.