Case-Shiller Index (Home Prices), July

TRADEX GLOBAL INTERNAL COMMENTARY

The Case-Shiller Index increased 0.5% from June 2011.  This is the first year-over-year increase since September 2010!  Prices jumped last quarter greater than any quarter in the last six years.  This is with no spin and no seasonality effect (as it is year-over-year).  I looked at the individual cities and it is pretty evenly spread across the board, with almost every large city posting solid increases.  I have waited for this type of news to confirm our overweight positions in MBS and I/Os.  The Portfolio will certainly benefit from this report, as we have exposure to bonds sensitive to home prices.  It may be just around the corner that higher rates and slowing refinancings will push the I/Os up also. Keep nimble – Michael Beattie

EXTERNAL RESEARCH COMMENTARY

Home prices in 20 U.S. cities climbed in June for the first time since a tax credit boosted sales in 2010, indicating the industry at the heart of the worst recession in the post-World War II era is starting to rebound. The S&P/Case-Shiller index increased 0.5 percent from June 2011 after falling 0.7 percent in the year to May, a report from the group showed today in New York. The last 12-month increase took place in September 2010. Nationally, prices jumped last quarter by the most in more than six years. The lowest mortgage rates on record and a decline in sales of distressed properties may help the market contribute to the economic expansion that is now in its fourth year. A more sustained rebound may require easier lending conditions, which would also give consumers a lift after a report today showed household confidence sank to the lowest level of the year. “Finally, the housing market is forming a bottom,” Mohamed El-Erian, chief executive officer and co-chief investment officer of Pacific Investment Management Co., said on Bloomberg Television’s “In the Loop” with Betty Liu. “That should be welcome. It is not surprising because affordability is so attractive right now.” Stocks were little changed as investors weighed the economic reports ahead of Federal Reserve Chairman Ben S. Bernanke’s speech on the economy in three days. The Standard & Poor’s 500 Index fell less than 0.1 percent to 1,409.76 at 1:55 p.m. in New York. Overseas, housing markets aren’t faring as well. Sales of newly built homes in Australia dropped in July to the second- lowest level on record, a report today showed.

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Tradex Featured on "The Traders Network" Radio Show

Michael Beattie, CIO, and Richard Travia, Director of Research, were featured yesterday on the radio show "The Traders Network".  Follow this link to listen in on their analysis!

http://www.yorbamedia.com/images/stories/audio/TN082112SEG2.mp3

Housing Starts, 1st Week of August

TRADEX GLOBAL INTERNAL COMMENTARY

Housing starts fell 1.1% to a annual rate of 746k.  The consensus estimate was 756k, so starts were slightly negative.  The better news was the strong “building permits” number, which rose to an 812k annual rate.  This was better than consensus and is the highest level in four years (The glass half-full!).  We still believe that we will need to see fewer foreclosures, easier access to credit and a much stronger job market in order to see this trend get stronger.  From the ground level, I see a lot of private equity money buying foreclosed homes and renting them out.  This inventory reduction combined with slowing new delinquencies shows promise for homebuilders.  Keep nimble. – Michael Beattie

EXTERNAL RESEARCH COMMENTARY

New-home construction in the U.S. fell in July, while the number of building permits jumped to the highest level in four years, indicating the industry will keep improving in the second half of the year. Starts fell 1.1 percent to a 746,000 annual rate from June’s 754,000 pace, Commerce Department figures showed today in Washington. The median estimate of 79 economists surveyed by Bloomberg News called for 756,000. Building permits, a proxy for future construction, rose to an 812,000 pace, the most since August 2008. Less costly properties combined with record-low mortgage rates are reviving demand, helping builders like PulteGroup Inc. (PHM) boost profits. A drop in foreclosures, increased hiring and easier access to credit may be required to foster a more pronounced and sustained rebound in the industry that triggered the recession. “It looks like things have turned up for housing,” said Brian Jones, a senior U.S. economist at Societe Generale in New York, whose permits forecast of 805,000 was the highest in the Bloomberg survey. “We are moving in the right direction. We are coming off such a low base that we still have a long ways to go.” Starts estimates in the Bloomberg survey ranged from 730,000 to 800,000. The prior month was revised down from a previously reported 760,000 pace.

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Tradex Featured on FinAlternatives

Read the article here: http://www.finalternatives.com/node/21304

 

Tradex’s Original Segregated Portfolio has gained 3.92% year to date compared to the 2.88% gain of the average single-strategy fund, as measured by the HFRI Fund Weighted Composite Index.
The Tradex fund of funds has also outperformed its peers, as measured by the HFRI Fund of Funds Composite Index, which is up only 1.75% through July.

Established in 2005, the Original Segregated Portfolio is currently focused on the housing recovery within the RMBS, CMBS and mortgage derivative sectors as well as in niche equity strategies. Tradex also focuses on smaller hedge funds in the belief they tend to produce higher rates of alpha. The firm also stresses the importance of liquidity and says that 83% of the underlying securities currently in the portfolio can be liquidated within 30 days.

Tradex Global separately manages the Liquid 50 Portfolio, up 0.56% YTD and the Liquid Real Estate Portfolio, up 7.15% YTD, which represents the carved-out real-estate exposure within the Original Segregated Portfolio. Tradex is actively marketing the Liquid Real Estate Portfolio to be opened as a stand-alone fund.

Unemployment Applications - "The Glass Half-Full"

TRADEX GLOBAL INTERNAL COMMENTARY

The number of Americans filing for unemployment was little changed from the previous week.  This brought the July/August average to the lowest level since March.  Claims were up 2k, in line with the forecasts of 45 economists surveyed by Bloomberg.  This is the natural progression, as the employment numbers also have been trending higher.  There are still many hurdles in the economy, but today we are going to look at “the glass half-full” again.  Keep nimble and enjoy the rest of summer. – Michael Beattie

EXTERNAL RESEARCH COMMENTARY

The number of Americans filing applications for unemployment benefits was little changed last week, bringing the average over the past month to the lowest level since late March, a sign the labor market has stabilized after employment picked up in July. Jobless claims climbed by 2,000 to 366,000 in the week ended Aug. 11, Labor Department figures showed today in Washington. The median forecast of 45 economists surveyed by Bloomberg News called for an increase to 365,000. The four-week moving average, a less volatile measure, dropped to 363,750, the fewest since the week ended March 31. Employers may be limiting firings as the pace of sales warrants keeping current staff levels, which will probably underpin consumer spending. A pickup in demand and an agreement to forestall the fiscal cliff of tax increases and government spending cuts following the presidential election will probably be needed to induce an increase in hiring. “It’s certainly further evidence the labor market doesn’t look like it’s in danger of falling off a cliff,” said Jeremy Lawson, senior U.S. economist at BNP Paribas in New York. “At the same time, the hiring rate is still fairly soft.” Estimates in the Bloomberg survey ranged from 350,000 to 375,000. The Labor Department revised the previous week’s figure up to 364,000 from an initially reported 361,000. A spokesman for the Labor Department said there was nothing unusual in the data last week.

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MBA Mortgage Applications, Week of 8/6 - 8/10

TRADEX GLOBAL INTERNAL COMMENTARY

Mortgage applications fell 4.5% last week; loan requests for home purchases fell 2% and refinancing applications fell 5.1%.  The share of applications for refi’s fell slightly to 81% from 81.2%.  HARP 2 continues to work, but could be seeing diminishing impact.  Although the 10 Year Treasury is back up to 1.78%, rates remain at historic lows and likely are here to stay for awhile.  As the refinancing and shadow inventory foreclosure purchases fade, new home loan applications should see an uptick.  In the meantime, our interest-only mortgage derivative exposure should benefit from the slightly higher interest rates and potentially slower prepayment speeds that are implied by the last 5 weekly numbers.  – Richard Travia

EXTERNAL RESEARCH COMMENTARY

Applications for U.S. home mortgages tumbled last week, with demand for new loans down for the fifth week in a row as interest rates held steady, 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 4.5 percent in the week ended Aug 10. The gauge of loan requests for home purchases, a leading indicator of home sales, dropped 2.0 percent. The measure of applications for refinancing fared even worse and was down 5.1 percent. The refinance share of total mortgage activity eased to about 81 percent of applications from 81.2 percent the week before. Fixed 30-year mortgage rates were unchanged but still at historically low levels at an average 3.76 percent. The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.

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Unemployment Applications, First Week of August

TRADEX GLOBAL INTERNAL COMMENTARY

First time jobless claims fell by 6k to 361k, beating consensus expectations of 370k. Last week’s payrolls grew more than forecast and there were less firings. The Labor Department said that there were no extraordinary factors behind the surprise. Of course, to remain painfully consistent, last week’s claims were revised higher by 2k. Perhaps the trend is stepping down from May & June’s 380k claims, which would be welcomed, but this is quite often a volatile number. The market is flat right now after an early rally petered out. – Richard Travia

EXTERNAL RESEARCH COMMENTARY

Fewer Americans filed applications for unemployment benefits last week, a sign the labor market may keep improving after employment picked up in July. Jobless claims unexpectedly dropped by 6,000 to 361,000 in the week ended Aug. 4, Labor Department figures showed today in Washington. The median forecast of 43 economists surveyed by Bloomberg News called for an increase to 370,000. A spokesman for the agency said there was nothing unusual in the data. Fewer firings mean employers are seeing enough demand to retain staff, indicating the world’s largest economy is sustaining the recovery from the recession. Labor Department data last week showed payrolls rose more than forecast in July. “Today’s report is a mild positive for the labor market,” Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, said in an e-mail to clients. “Assuming we do not see a large uptick in claims over the next two weeks, we would expect August payroll growth to at least match that of July, if not exceed it.” Stocks rose for a fifth day, giving the Standard & Poor’s 500 Index its longest rally since March. The S&P 500 climbed 0.2 percent to 1,404.56 at 11:21 a.m. in New York. Estimates in the Bloomberg survey ranged from 359,000 to 385,000. The Labor Department revised the previous week’s figure up to 367,000 from an initially reported 365,000. A Labor Department spokesman said last week that today’s data should be clear of any influence from the annual auto plant retooling closures that make it difficult to adjust the data for seasonal variations.

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MBA Mortgage Applications, Week of 7/30-8/3

TRADEX GLOBAL INTERNAL COMMENTARY

Mortgage applications fell 1.8% last week, and refinancing applications rose to its highest level in three years.  The share of applications for refi’s held steady at 81%, still the highest level since January.  HARP 2 is working, as less credit-worthy borrowers and those owning homes with negative equity are allowed to refi at lower rates.  I read an article this morning that said 1/3rd of all Fannie & Freddie refinancing in June was attributable to HARP 2.  The proportion of those refinancing with very high LTVs also increased significantly.  Perhaps this indicates that we are not yet at the peak of refinance-ability? New home mortgage applications are still not picking up in a major way, but the shadow inventory is being decreased significantly.  Rates remain at historic lows and likely are here to stay for awhile…and we are monitoring this space very closely because of our significant exposure to mortgage IO derivatives. – Richard Travia

EXTERNAL RESEARCH COMMENTARY

Mortgage applications decreased 1.8 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 3, 2012. The Market Composite Index, a measure of mortgage loan application volume, decreased 1.8 percent on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index decreased 2 percent compared with the previous week.  The Refinance Index decreased 2 percent from the previous week.  The seasonally adjusted Purchase Index decreased 1 percent from a week earlier.  The unadjusted Purchase Index decreased 2 percent compared with the previous week and was 12 percent lower than the same week one year ago. The refinance share of mortgage activity was unchanged from last week at 81 percent of total applications. The adjustable-rate mortgage (ARM) share of activity decreased to 4.0 percent from the previous week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.76 percent from 3.75 percent, with points decreasing to 0.46 from  0.51 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.  The effective rate decreased from last week. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) increased to 4.04 percent from 4.01 percent, with points increasing to 0.35 from 0.32 (including the origination fee) for 80 percent LTV loans.  The effective rate increased from last week. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.54 percent from 3.52 percent, with points decreasing to 0.49 from 0.55 (including the origination fee) for 80 percent LTV loans.  The effective rate increased from last week. The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.08 percent from 3.09 percent, with points decreasing to 0.41 from 0.49 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week. The average contract interest rate for 5/1 ARMs decreased to 2.72 percent from 2.73 percent, with points decreasing to 0.40 from 0.41 (including the origination fee) for 80 percent LTV loans.  The effective rate decreased from last week.

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Unemployment Report, July 2012

TRADEX GLOBAL INTERNAL COMMENTARY

Nonfarm payrolls rose more than expected in July, an increase of 163k.  The average gain in the 2nd quarter was 73k and consensus was an increase of 100k, so the number was a very positive surprise.  Other parts of the report were not as positive, with the unemployment rate rising to 8.3%, flat work weeks and minimal wage gains.  As you can see, although the number of jobs added was strong, overall the report was mixed.  In this “good is bad” and “bad is good” environment, the report is not likely to change the view that the economy is weak, growth is slow and joblessness remains stubbornly high. Keep looking towards the September FOMC meeting for potential QE3 action… – Richard Travia

EXTERNAL RESEARCH COMMENTARY

Payrolls in the U.S. climbed more than forecast in July, boosted by a pickup in employment at automakers, even as the jobless rate unexpectedly rose to a five-month high. The increase of 163,000 followed a revised 64,000 gain in June payrolls that was less than initially reported, Labor Department figures showed today in Washington. The median estimate of 89 economists surveyed by Bloomberg News called for a gain of 100,000. Unemployment rose to 8.3 percent. Uneven hiring may hold back consumer spending, the biggest part of the economy, as a global slowdown and impending U.S. tax changes weigh on businesses. Job cuts at companies from Morgan Stanley (MS) to Cisco Systems (CSCO) Inc. mean unemployment may remain elevated, one reason the Federal Reserve this week said it is prepared to take new steps if needed to boost growth. “It’s good to see hiring pick up a little bit,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “Some of the details don’t make it an unequivocally good report. The labor market is expanding but at a slower pace. The Fed is still very much in play for the September meeting.” Stock-index futures extended gains after the figures, with the contract on the Standard & Poor’s 500 Index rising 1.1 percent to 1,376.5 at 8:52 a.m. in New York. Estimates in the Bloomberg survey ranged from increases of 50,000 to 165,000 after a previously reported 80,000 gain in June. Revisions to prior reports subtracted a total of 6,000 jobs to payrolls in the previous two months.

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Job Creation Statistics, July 2012

TRADEX GLOBAL INTERNAL COMMENTARY

The private sector added 163,000 jobs last month, above consensus expectations which was 120k.  This gain was primarily concentrated in service providing firms, and pretty evenly distributed over small and medium sized firms, with large firms showing a smaller increase.  Remember that ADP is extremely volatile and has not been an accurate predictor of the BLS number on a week-to-week basis.  Friday’s BLS Employment number is expected to be 110k, which would be a positive sign, but not enough to bring down the unemployment rate in any meaningful way.  All eyes were on the Fed today, which gave stronger signals of coming action without actually doing anything… – Richard Travia

EXTERNAL RESEARCH COMMENTARY

Companies in the U.S. added more workers than projected in July, indicating the job market was holding up entering the second half of the year, a private report based on payrolls showed. The 163,000 increase in employment followed a revised 172,000 gain the prior month, Roseland, New Jersey-based ADP Employer Services said today. The median estimate of 38 economists surveyed by Bloomberg News called for an advance of 120,000. A pickup in hiring is needed to generate the wage gains that would spur consumer spending, which accounts for about 70 percent of the world’s largest economy. A Labor Department report due in two days may show private payrolls rose by 110,000 in July, and unemployment held at 8.2 percent, according to the median projection in a Bloomberg survey. “It’s an encouraging sign that suggests there is growth and companies are looking to hire,” said James Knightley, a senior economist at ING Bank NV in London, who had projected a gain of 150,000. “Job growth is still not rapid enough to bring down the unemployment rate significantly.” Estimates in the Bloomberg survey ranged from 75,000 to 180,000. Stock-index futures rose as investors awaited the outcome of the Federal Reserve’s meeting for clues on more stimulus measures to support the economy. The contract on the Standard & Poor’s 500 Index expiring in September climbed 0.4 percent to 1,380.5 at 9:10 a.m. in New York. Another report today showed a measure of U.S. manufacturing decreased in July to 51.4 from 52.5 a month earlier, according to London-based Markit Economics.

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MBA Mortgage Application Numbers, Week of July 23-27

TRADEX GLOBAL INTERNAL COMMENTARY

Mortgage applications rose 0.2% last week, and refinancing applications rose to its highest level in three years.  The share of applications for refi’s rose to 81%, the highest level since January.  HARP 2 is working, as less credit-worthy borrowers and those owning homes with negative equity are allowed to refi at lower rates.  That being said, we do believe that we are close to the peak of refinance-ability as most of the homeowners that can refinance, have refinanced.  New home mortgage applications are still not picking up in a major way, but the shadow inventory is being decreased significantly as flippers and other cash buyers are stepping in.  Once this supply is worked out, home prices should at least see a bottom and new home applications will pick up.  Don’t worry, the Fed reaffirmed today that it will keep rates “exceptionally low through at least late 2014”. – Richard Travia

EXTERNAL RESEARCH COMMENTARY

The number of total mortgage applications filed in the U.S. last week edged up 0.2% as refinance applications rose to its highest level in three years, the Mortgage Bankers Association said Wednesday. The refinance index increased 0.8% from the previous week to its highest level since April 2009, according to the MBA's weekly survey, which covers more than three-quarters of all U.S. retail residential mortgage applications. On a seasonally adjusted basis, the purchasing index slipped 2% from a week earlier, MBA said. Concerns about the macroeconomic environment have weighed on interest rates of late, though rates crept higher in the latest week. While low rates have convinced many homeowners to refinance their mortgages, tougher lending requirements still keep many prospective home buyers from taking out new debt. The share of applications filed to refinance an existing mortgage increased to 81% of total applications to its highest level since January. Adjustable-rate mortgages made up 4.1% of total activity. The average rate on 30-year fixed-rate mortgages with conforming loan balances increased to 3.75% from 3.74% in the prior week. Rates on similar mortgages with jumbo loan balances rose to 4.01% from 3.99% a week earlier. The average rate on FHA-backed 30-year fixed-rate mortgages was unchanged from the prior week at 3.52%, which is the lowest rate in the survey's history. The average for 15-year fixed-rate mortgages rose to 3.09% from 3.07% a week earlier. The 5/1 ARM average increased to 2.73% from 2.68% in the prior week.

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Case-Shiller Home Prices Report for May

TRADEX GLOBAL INTERNAL COMMENTARY

The Case-Shiller Index, which is a key measure of home prices in large US cities, rose 0.9% in May.  This was better than consensus, which was +0.4%. Home prices declined 0.7% YoY.  We continue to see a stabilization of prices as the massive shadow inventory is eaten into. Shadow Inventory is down 28% from its peak overall, and is down 52% from its peak in the West.  Interest rates continue to be at historic lows, and are expected to remain low for at least another year or two, adding to the affordability of homes. This news was relatively positive, inside an up & down earnings season.  Keep your hedges on… – Richard Travia

EXTERNAL RESEARCH COMMENTARY

U.S. home prices rose during May--the second straight month of improvement after a long streak of declines, according to Standard & Poor's Case-Shiller home-price indexes. During May, the Case-Shiller index of 10 major metropolitan areas and 20-city index each rose 2.2% from April. On a seasonally-adjusted basis, the improvement was 0.9%. On a year-to-year basis, the 10-city index and 20-city index were down 1% and 0.7%, respectively. U.S. home prices had risen 1.3% during April, reversing seven consecutive months of falling home prices. Demand for homes has continued to show some signs of stabilization, as record low mortgage rates, some loosening of credit conditions and improved job growth have pulled some buyers back to the market. Still, prices through May are down by about a third from their peak in June/July of 2006. "We have observed two consecutive months of increasing home prices and overall improvements in monthly and annual returns; however, we need to remember that spring and early summer are seasonally strong buying months so this trend must continue throughout the summer and into the fall," said David Blitzer, chairman of S&P's index committee. "The housing market seems to be stabilizing, but we are definitely in a wait-and-see mode for the next few months. Atlanta was the only city to post a double-digit decline during May, off nearly 15% from a year earlier, while Phoenix--one of the hardest hit cities during the downturn--again reported that stronger annual growth, up nearly 12%. However, prices remain down by more than half from their June 2006 peak.

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