Housing And Coal
Stocks opened down, and went steadily upward all day ending up 177 points. This is the exact opposite action that happened last Friday. It looks like we are in the “big sideways” move by the stock market. The market certainly didn’t go up because of the poor housing data. It went up on the “hope” of another rate cut by the Feds this week. We’ll see.
Bonds moved sideways too. The market has built in a 0.50% reduction in the Fed Funds rate this Wednesday. Anything other than 0.50% and the market will just be very unhappy.
Gold, on the other hand, didn’t wait for anyone to move up. Gold bugs are making money this year. Another commodity that has been moving upwards very rapidly is coal. Someone must know something that everyone else doesn’t know – as you don’t see any mention of this move in the press. Most people think coal is not very environmental friendly, and it hasn’t been for the multiple centuries of its use. However,
In the news today…..
New home sales came in at 774,000 houses, down 26.4% - the biggest drop ever. Amazingly enough, the median price rose 0.2% to $246,900. This was dramatically bad news for the stock market. However, the market appears to be de-sensitized to news like this.
This is good news – bad news. The bad news is that the housing industry is going into the tank, and this will have a significant drag on the
It wasn’t the housing industry who got us into this mess. It was our financial institutions. The housing industry just provided the supply of houses as the demand “bubbled” out of control by the undisciplined
No for the real bad news in housing. Cover your eyes if you get frightened from graphs.
Here are today’s Numbers:
Dow Jones 30 Industrial - 12,384 (Up 177 points)
10 Year Treasury Bond - 3.58% (no change)
Euro - $1.4783
Gold - $927 (up $16) - and hit $929 during the day.
Oil - $90.99 (up $0.28)
Gasoline - $2.33 (up $0.01)
Tom, are you trying to say that financial players in the markets know something about coal that we should be concerned about? or is the fact that it’s going up just a reflection of increased world demand?
Wow, that is a precipitous drop in home sales! I guess the fact that New Starts dropped shields us somewhat from this, but it looks like a long road ahead. I guess the only good news for real estate investors is that the rate dropped and refinancing will save $$$!
Hi Tom, I have enjoyed your comments very much and I thought of you when I was speaking to a mortgage loan officer today. In anticipation of the Fed making a move this week, this gentleman warned me not to anticipate a drop in mortgage loan rates. In fact, he assured me, if the prime rate went down, bond rates would go down, but mortgage rates were very likely to go up.
After a moment of incredulity, I told him that would suggest that mortgage rates follow the fate of the stock market (bonds up, stocks down and visa versa). He thought this made me very clever, but now I am confused. Can this be true?
I am looking forward to your Wednesday teleconference, Louise McDonald, FL
Cyrus - regarding coal, I think there is something going on here that could be profitable to an investor if he had some inside information. Prices don’t significantly increase without a significant demand, and plan for coal’s use.
Liz - Yes, the drop in home building is a good thing, but a better sign would be when the sales of new home exceed the production of new homes. As long as production outpaces sales, the inventory will increase, and that’s real BAD news.
Louise - I am VERY pleased you are questioning the important things that people tell. First the facts - mortgage rates and 10 year treasury rates are independent markets, and can move in different directions. However, the long term trend is for mortgages like 30 year fixed to follow the 10 year treasury bond. We are approaching the bottom of the decrease in the Fed Funds rate. How low it goes depends on how bad the “recessions” gets. The 10 year treasury has a problem. It wants to follow the Fed Funds rate down, and it wants to build in a “risk cost” for inflation. Even though you don’t see inflation talked about in the press, it is discussed daily in bond circles. My gut feeling is that the 10 year will drop again in the near future providing the Fed cuts the Fed Funds rate by 0.50%, and declares a “downward bias” - meaning that it thinks we aren’t our of the recessionary woods yet. Having said all that, i know you are looking at a mortgage, so my business advice is to lock in a mortgage rate when YOU think it is a good number.