Morning Report: Existing home sales jump

Vital Statistics:

 

Last Change
S&P futures 3377 -3.6
Oil (WTI) 41.94 -0.82
10 year government bond yield 0.64%
30 year fixed rate mortgage 2.89%

 

Stocks are flattish this morning on no real news. Bonds and MBS are up.

 

Exiting home sales increased 24.7% in July, according to NAR. “Homebuyers’ eagerness to secure housing has helped rejuvenate our nation’s economy despite incredibly difficult circumstances,” said NAR President Vince Malta, broker at Malta & Co., Inc., in San Francisco, Calif. “Admittedly, we have a way to go toward full recovery, but I have faith in our communities, the real estate industry and in NAR’s 1.4 million members, and I know collectively we will continue to mount an impressive recovery.”  The annualized pace of sales puts it at 5.86 million units. The median home price increased 8% to $280k. First time homebuyers were up 35%.

 

The 50 basis point LLPA will wipe out millions in mortgage banking profit, according to an article in American Banker. “The way they did this is very, very damaging to banks and other mortgage bankers and brokers who have loans in the pipeline,” said Scott Buchta, head of fixed-income strategy at Brean Capital. “In the first month, the bulk of the fee will come out of the pockets of bankers and brokers that locked in a lot of loans.”

 

More than three dozen ex-Fed officials have signed a letter urging the Senate to reject Fed nominee Judy Shelton. Her crime is having the audacity to say something positive about the gold standard. Perhaps that is out of step with today’s army of progressive economists who are trying to fine-tune the economy by intervening directly in markets. If so, that is a good thing. The US Federal Reserve is thick in the biggest economic experiment the world has ever seen, and is highly susceptible to groupthink. The last think we need is a bunch Janet Yellens all saying the same thing.

 

The Fed has increased its balance sheet almost tenfold in the last twelve years. The US debt-to-GDP ratio (a measure of how leveraged the economy is) has increased from 67% to 107%. This should be massively stimulative to the US economy, yet the best we have been able to muster is “meh” for most of the past 10 years. Why is that? The velocity of money (basically how many times a dollar gets used) has fallen off a cliff. This has kept inflation in check, but the downside is that the US is slouching towards Japan, where disinflation (or outright deflation) has taken hold.

 

velocity of money

 

 

Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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