MBA Mortgage Applications, Week of July 20th

TRADEX GLOBAL INTERNAL COMMENTARY

Well, this was not surprising.  Mortgages for new homes dropped 1%, and mortgages for refinancing was up 2%!  This was not surprising based on the amount of new homes built, the existing homes stuck in foreclosure or the ones that no one wants!  HARP 2 is working as less credit-worthy borrowers and homes with negative equity are allowed to refinance at a lower rate.  We believe that we are close to the final innings of refinancing as most homeowners that can, already have done so.  We do own IO’s, and this didn’t have much impact on the markets, but we are watching closely.  Keep nimble – Michael Beattie

EXTERNAL RESEARCH COMMENTARY

Applications for U.S. home mortgages increased last week as record-low interest rates spurred demand for refinancing, although loans for purchases slipped, an industry group said on Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, rose 0 .9 percent in the week ended Jul y 20. The MBA's seasonally adjusted index of refinancing applications rose 1.8 percent, while the gauge of loan requests for home purchases, a leading indicator of home sales, fell 2.8 percent. The refinance share of total mortgage activity rose to 80.8 percent of applications from 8 0.1 percent the week before. Fixed 30-year mortgage rates held steady at 3.74 percent, the lowest rate in the survey's history. The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.

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New Home Sales, July 2012

TRADEX GLOBAL INTERNAL COMMENTARY

What a difference six years makes!  In July 2006 we had 570k new houses on the market; now in July 2012 we have 144k.  No wonder "new sales" dropped 9%, no one can find one!  With record low interest rates we would like to see a bigger number.  I think this trend may be the "new norm" for most industries: make less, carry less inventory, have higher gross margins, etc. (you get the drift).  This is not good for employment or the economy, but maybe it is a way to stay in business.  If anyone cares, I would make it mandatory for a certain amount of homes (the teardowns) to be leveled and property to be sold at a discount if a new home is built on it (or a tax credit).  This might have a positive effect on neighborhoods and could create construction jobs!  Well, it’s July and maybe it is just a summer dream of mine to help all Americans... Back to business - the number was bad, but we do not put too much emphasis on it.  Keep nimble - Michael Beattie

EXTERNAL RESEARCH COMMENTARY

Sales of new U.S. homes unexpectedly dropped in June from a two-year high, a sign the market is being held back by a lack of inventory after builders curtailed projects. Purchases fell 8.4 percent to a 350,000 annual rate, the weakest since January, the Commerce Department reported today in Washington. The median estimate in a Bloomberg News survey of 74 economists was 372,000. The decline was led by a record plunge in the Northeast, where the number of properties available last month was the fewest for any June. “A dearth of construction has led to a very significant inventory shortage,” said Carl Riccadonna, a senior U.S. economist at Deutsche Bank Securities Inc. in New York, who forecast sales would drop to a 345,000 rate, the lowest of those surveyed. “If you want to buy a newly built home, good luck finding one.” Record-low mortgage rates and stabilizing home prices have spurred buyer traffic, even as unemployment and strict lending standards remain obstacles for the industry that precipitated the last recession. Among companies betting that construction will pick up is Caterpillar Inc. (CAT), which today raised its full- year earnings forecast on improving sales of excavators, scrapers and dozers as builders replace aging equipment. Stocks dropped following the housing data and as Apple Inc. paced a decline among technology shares. The Standard & Poor’s 500 Index fell 0.2 percent to 1,336.14 at 12:04 p.m. in New York. The S&P Supercomposite Homebuilding Index decreased 2.2 percent.

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Len Chaikind, Tradex marketing specialist and CEO of IICC, speaks on Clear Channel's "The Traders Network"

Listen to Leonard Chaikind, former Administrator of Shell Oil's $12B pension plan and current marketing specialist for Tradex, do a radio interview with Michael Yorba.  Len discussed current trends in institutional investments, why he sees advantages in FoF investing, and why if he was still at Shell, he would make a significant allocation to Tradex!  Follow this link:

http://www.yorbamedia.com/component/k2/item/294-traders-network-2-3pm-tue-july-10

Tradex Weekly Insight: Jobless Claims Number

TRADEX GLOBAL INTERNAL COMMENTARY

First time jobless claims fell by 26k to a low of 350k (the lowest number since March 2008). The biggest factor was autos, yes autos!  The auto companies are keeping more plants open than normal for this time of year. Who said the rust belt can’t make a big comeback? Most economists’ estimates were for 372k, but they are in the Hamptons or the South of France and don’t see cars rolling off the assembly line in Ohio. This number is very volatile and we do not pay that much attention to it (neither did the market at the time of this writing, equities were under attack). Prices of imported goods decreased in June as well, the 2.7% decrease was the biggest drop since December 2008. The lack of inflation, stubbornly high unemployment and slowing growth will probably force the Fed to QE3 and maybe QE4! At some point, banks will not write mortgages under a certain level, so I’m not convinced that the QE’s will continue to have a major effect going forward. I have been having this reoccurring nightmare that the only way out of the 30 year credit party is with some large defaults (I hope it is only a dream). We are staying well hedged for tail events and our smaller number of managers are holding up well. Keep very nimble. – Michael Beattie

EXTERNAL RESEARCH COMMENTARY

Fewer Americans than forecast filed first-time claims for unemployment insurance payments last week, reflecting the volatility of applications during the annual auto-plant retooling period. Applications for jobless benefits decreased by 26,000 in the week ended July 7 to 350,000, the fewest since March 2008, Labor Department figures showed today. Economists forecast 372,000 claims, according to the median estimate in a Bloomberg News survey. Last week’s distortion is likely to unwind slowly over coming weeks, a Labor Department spokesman said as the data was released to the press. Automakers including Chrysler Group LLC, Ford Motor Co. and Nissan Motor Co. are keeping more plants than normal open during this time of year to fulfill demand and replenish inventories. For that reason, it may take time to determine if the labor market is making any progress. “You can never take claims at face value because of the July shutdowns,” said Jonathan Basile, an economist at Credit Suisse in New York, who projected the number of applications would drop to 355,000. “We are in a period of uncertainty. This makes for a situation where businesses will hold off on taking risks regarding investment and payrolls.” Prices of imported goods decreased more than forecast in June as declining energy costs curbed inflation, another Labor Department report showed. The 2.7 percent plunge in the import- price index was the biggest since December 2008 and followed a 1.2 percent drop in May. Prices excluding fuel fell 0.3 percent, the most in almost two years.

Tradex Global Advisory Services, LLC

investorrelations@thetradexgroup.com 

203-863-1500

@Tradex_Global

TGA Commentary: MBA Mortgage Applications 6/2-6/6

TRADEX GLOBAL INTERNAL COMMENTARY

Mortgage applications fell 2.1% last week.  The share of applications to refinance fell to 77% from 78% the week before.  The weekly numbers are volatile, but we do believe, based on our conversations with mortgage derivative hedge funds, that the major refinancing wave from HARP2 is past us (This is positive news for our MBS derivative strategies, but less positive for homeowners who were unable to refinance). 30 Year Fixed Rate Mortgages averaged 3.79% last week, the lowest rates in the HISTORY of the survey. The market is waiting on the Fed minutes this afternoon, and we are maintaining our cautious stance with tail hedges. – Richard Travia

EXTERNAL RESEARCH COMMENTARY

Applications for home mortgages fell last week due to a drop in refinancing activity even as interest rates hit record lows, an industry group said on Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell 2.1 percent in the week ended July 6. The results were adjusted to account for the July 4 holiday. The MBA's seasonally adjusted index of refinancing applications fell 3.4 percent, but the gauge of loan requests for home purchases, a leading indicator of home sales, rose 3.3 percent. The refinance share of total mortgage activity fell to 77 percent of applications from 78 percent the week before. Fixed 30-year mortgage rates averaged 3.79 percent in the week, down 7 basis points from 3.86 percent the week before and the lowest in the history of the survey. Fixed 30-year mortgage rates for loans backed by the Federal Housing Administration were also at record lows of 3.63 percent, down 6 basis points from the previous week. The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.

Tradex Global Advisory Services, LLC

investorrelations@thetradexgroup.com 

203-863-1500

@Tradex_Global

Tradex Commentary: Jobless Claims

TRADEX GLOBAL INTERNAL COMMENTARY

First time unemployment claims dropped in the week through June 30th 14k to 374k, a number that is still higher than we need to get excited.  Private employers expanded payrolls by 176k, and according to ADP this exceeds even the most optimistic economists' expectations. The numbers in the past few months had all sorts of market pundits talking about the imploding jobs market and this number will bring a sense of calm (for the moment). Two bright spots are that “services sector” and “small businesses “ that look to have been very strong and might signal that even with a lousy ISM number, companies are still hiring. Markets are taking the reports with modest excitement, and I would bet most market watchers who are having some time to think it over will come to the same conclusion I have come to: Europe is broke and cannot pay its debts and China is slowing fast with a huge potential for a property bubble burst (ouch). In that scenario, I believe we are in for a bumpy ride through the end of the year. I see correlations between HF’s and S&P extremely high and correlations between HF strategies also higher than normal. We will have the lowest amount of managers we have ever had and will focus on our extremely uncorrelated managers to keep making good returns. Keep nimble. Michael Beattie

EXTERNAL RESEARCH COMMENTARY

Fewer Americans filed first-time claims for unemployment insurance payments and companies added more workers than forecast, easing concern the labor market is faltering further. Applications for jobless benefits fell 14,000 in the week ended June 30 to 374,000, Labor Department figures showed today. Private employers expanded payrolls by 176,000 last month, according to figures released today by Roseland, New Jersey- based ADP Employer Services, exceeding the most optimistic estimate in a Bloomberg News survey of economists. “Before today it was pretty clear the labor market had softened over the past few months,” said Daniel Silver, an economist at JPMorgan Chase & Co. in New York. “Today’s reports show a little bright spot. The fear of a much weaker payroll number has been reduced.” Labor Department data tomorrow may show the pace of hiring accelerated in June while remaining at less than half the average for the first quarter of the year. The report covers both private and government employers. Other figures today showed service industries expanded at a slower pace in June, underscoring Federal Reserve concern that economic growth isn’t strong enough to reduce unemployment. U.S. stocks fell, snapping a three-day advance for the Standard & Poor’s 500 Index, as disappointment over the European Central Bank’s efforts to tame the debt crisis overshadowed improving American employment data. The S&P 500 declined 0.4 percent to 1,368.56 at 12:33 p.m. in New York. Treasuries gained, pushing the yield on the 10-year note down to 1.59 percent from 1.63 percent late on July 3.

Tradex Global Advisory Services, LLC

investorrelations@thetradexgroup.com 

203-863-1500

@Tradex_Global