Jobless Claims 11-29-12

TRADEX GLOBAL INTERNAL COMMENTARY

Jobless claims decreased by 23k to 393k in the week ended November 24th.  The Mid-Atlantic states hit hard by Sandy have stabilized.  The after effects of the storm will create some volatility in the claims numbers, but probably will shrink payrolls in the next month because of the lackluster economic growth base.  Economists had forecasted 393k in claims, so the number is a little better than consensus…Who cares though?  The job picture still stinks, the private sector in general still stinks and is in no shape to replace the Fed as the growth and liquidity engine.  I have said this for 3 years and still do not see any reason to change my tune…The Fed will step up its QE to 80 billion a month or so for the foreseeable future, rates will stay low and the economy will sputter along at 2% GDP.  I like the improvement in housing and see this bright spot in the economy as a tailwind for our Liquid Real Estate Portfolio.  Keep nimble – Michael Beattie

EXTERNAL RESEARCH COMMENTARY

Fewer Americans filed first-time claims for unemployment insurance payments last week as the labor market disruptions wrought by superstorm Sandy ebbed. Applications for jobless benefits decreased by 23,000 to 393,000 in the week ended Nov. 24, Labor Department figures showed today. Economists forecast 390,000 claims, according to the median estimate in a Bloomberg survey. The drop in claims indicates the job market in the mid- Atlantic region, which employs about 14 percent of U.S. workers, may be stabilizing after Sandy put some area residents out of work at the start of the month. Apart from the storm-related damage,job creation will probably be limited as companies navigate the global economic slowdown and U.S. fiscal outlook. Claims are “going to be distorted for a period of time by the after-effects of the storm,” said James Shugg, a senior economist at Westpac Banking Corp. in London, who forecast applications would drop to 395,000. “We’ve been surprised by the strength of hiring, but we’re anticipating a sharply lower number for the payrolls in the next month because there’s not going to be a strong enough economic growth base.” Estimates for first-time claims ranged from 350,000 to 430,000 in the Bloomberg survey of 49 economists. The previous week’s figure was revised to 416,000 from a previously reported 410,000.

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MBA Mortgage Applications 11-28-12

TRADEX GLOBAL INTERNAL COMMENTARY

Total mortgage applications fell last week!  The total application activity dropped 0.9%.  The Index of Refinancing Applications had a bigger drop of 1.5%, but the percent of refinancing activity still held up at 81%.  The gauge of loan requests for “home purchases” rose 2.6% from the previous week.  This goes hand-in-hand with rising home prices, according to the latest Case-Shiller survey.  Mortgage rates averaged 3.53% in the last week, down 1 basis point from the prior week and closer to the historical lows.  We have been saying that we believe the refinancing wave is probably cresting and will taper off slowly in the next two quarters.  This is all good news for our Liquid Real Estate Portfolio.  Keep nimble – Michael Beattie

EXTERNAL RESEARCH COMMENTARY

Applications for U.S. home mortgages fell last week, though demand for mortgage purchases rose for a fourth straight week, 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, dropped 0.9 percent in the week ending November 23. The MBA's seasonally adjusted index of refinancing applications slipped 1.5 percent, while the gauge of loan requests for home purchases, a leading indicator of home sales, rose 2.6 percent. The refinance share of total mortgage activity was unchanged at 81 percent of applications. Fixed 30-year mortgage rates averaged 3.53 percent in the week, down 1 basis point from 3.54 percent the week before. The drop brought rates closer to historical lows in the wake of the Federal Reserve's September announcement that it would move to boost the economy through the purchase of mortgage-backed securities. The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.

Housing Starts 11-20-12

TRADEX GLOBAL INTERNAL COMMENTARY

Housing starts skyrocket!!!  October’s starts were up 3.6% from September, and were the strongest since July 2008.  The 894k annualized rate was sharply higher than economists expected.  The multi-family sector was the biggest surprise, 300k vs 268k in September.  Single family starts dropped slightly.  The Western region had the sharpest monthly rise, 232k vs 198k in September.  The broad improvement in housing is a much needed boost for the slowing economy.  The sector has gone from most hated to most loved.  We have been focused on liquid real estate for the past few years and believe that we are entering the best risk/reward timeframe since we began that focus in 2010.  House prices inching up will help our investments in distressed RMBS; potential for higher interest rates will give a big boost to our IOs (interest-only strips of mortgages) as pre-payments will slow); and finally as the mortgage sector normalizes and the Fed stops manipulating the market, there will be a great opportunity to be short lower-coupon mortgages that have risen way too far in price!  This is a good showing for the sector and we expect more good news in the future.  Keep nimble and we hope you had a wonderful Thanksgiving - Michael Beattie

EXTERNAL RESEARCH COMMENTARY

Housing starts rose to their highest rate in more than four years in October, suggesting the housing market recovery was gaining steam, even though permits for future construction fell. The Commerce Department said on Tuesday housing starts increased 3.6 percent to a seasonally adjusted annual rate of 894,000 units -- the highest since July 2008. The report was the latest to show the broadening housing market recovery was now entrenched. Economists, who had expected groundbreaking to slow to an 840,000-unit rate, said the housing strength laid a foundation for faster economic growth next year. "The broad improvement in home prices, home equity, starts, and inventory clearing are key developments that position the economy for stronger growth next year, and beyond," said Eric Green, chief economist at TD Securities in New York. The housing market has decisively turned around after an unprecedented collapse that landed the economy in its worst recession since the Great Depression. The recovery, marked by rising home sales, prices and building activity is being driven by pent-up demand and record low mortgage rates. Homebuilding is expected to add to gross domestic product growth this year for the first time since 2005. Though home construction accounts for only about 2.5 percent of GDP, economists estimate that for every new house built, at least three new jobs are created. Last month's data led some economists to raise their fourth-quarter growth estimates. Even so, growth in the last three months of the year is expected to be soft, largely because businesses appear reluctant to invest given the prospect for deep government spending cuts and higher taxes next year. Fourth-quarter growth forecasts currently range between an annual rate of 1 percent and 2.2 percent. The Commerce Department said superstorm Sandy, which slammed the East Coast in late October, had a minimal impact on the data. Economists expected the storm to weigh on homebuilding in November, with rebuilding in the months ahead mitigating the impact. The upbeat homebuilding report buoyed housing-related shares on Wall Street, with PulteGroup Inc -- the second-largest U.S. homebuilder -- soaring more than 6 percent. The overall housing sector index was up 2.5 percent in early afternoon trade, outperforming a broadly weak shares market.

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MBA Mortgage Applications - 11/14/12

TRADEX GLOBAL INTERNAL COMMENTARY

Mortgage applications rebounded.  The Mortgage Bankers Association said that its seasonally adjusted index of mortgage application activity (which includes both refi’s and home purchase) rose 12.6% in the week ended November 9th.  States hit by Sandy were up more than 60% after almost no activity from the week before.  The refinance component was up 13.1% and the new home purchase index was up 11%.  The share of refi’s to the total was 81%, up from 80% last week.  The 30-year conventional mortgage averaged 3.52%, down 9 bps.  As I have been saying, we believe refinancings are probably cresting and we should see pre-payments at peak speeds in the next 2 months, followed by a dramatic slowing in the first quarter of 2013.  We are bullish on IO securities as part of our Liquid Real Estate Portfolio.  We also think that the RV strategy in the portfolio has some exciting opportunities ahead as some lower coupon MBS has gotten overpriced in the secondary market and could sell off dramatically with any hint of a rate move or a change in policy on principal forgiveness.  Both of these would be negative for the lower coupon bonds.  Markets are not reacting to anything positive and we are seeing another round of red on the screen.  We increased hedges and believe “prudent” is the word of the day.  Keep nimble – Michael Beattie

EXTERNAL RESEARCH COMMENTARY

Applications for U.S. home mortgages jumped last week, rebounding after a massive storm depressed applications on the East Coast and as a fall in interest rates to a new low spurred demand, data from an industry group showed on Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, rose 12.6 percent in the week ended Nov 9. Application volume in New Jersey more than doubled over the week, while volume in Connecticut and New York increased more than 60 percent, Mike Fratantoni, MBA's vice president of research and economics, said in a statement. The seasonally adjusted index of refinancing applications surged 13.1 percent, while the gauge of loan requests for home purchases, a leading indicator of home sales, climbed 11 percent. The refinance share of total mortgage activity rose to 81 percent of applications from 80 percent. Fixed 30-year mortgage rates averaged 3.52 percent, down 9 basis points from 3.61 percent the week before. Interest rates had hit new lows following the Federal Reserve's September announcement of its latest aggressive stimulus plan, though rates had edged back up in subsequent weeks. The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.

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NFIB Small Business Optimism Index

TRADEX GLOBAL INTERNAL COMMENTARY

“Steady as she goes” was the phrase for small businesses in October, according to NFIB.  The monthly index tipped up a little to 93.1 from 92.8, and there was little change to any of the components making up the index.  The index remains in a narrow “recession” level range.  Overall, the sentiment in small and large businesses is “do nothing until the government shows its hand”!!!  I have been very focused lately looking at the hi yield space as we get ready to launch our short-biased HY fund.  It is amazing that with very slow growth, a fiscal cliff down the road and Europe mired in a depression, the companies rated “junk” have the ability to raise capital in the bond markets at crazy, historically low yields.  I hate to say this, but I really believe the HY credit market will start cracking very soon and this NFIB report helps confirm it.  Keep nimble – Michael Beattie

EXTERNAL RESEARCH COMMENTARY

Economic conditions faced by small business owners were little changed in October, amid continued anxiety about the future, fueled largely by political uncertainties. On Tuesday, the National Federation of Independent Business reported its monthly index tipped a touch higher to 93.1, from 92.8 the month before. There was little change in any of the components making up the index, with the report saying the overall index remained “in a small, narrow ‘recession’ level range.” The October NFIB survey was compiled before elections that saw President Barack Obama hold his office, amid continued Democratic control of the Senate, and Republican control of the House of Representatives. The uncertainty at the heart of the NFIB survey arises largely from the inability of lawmakers to tackle what’s called the fiscal cliff.

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MBA Mortgage Applications 11-7-12

MBA Mortgage Applications 11-7-12

TRADEX GLOBAL INTERNAL COMMENTARY

Mortgage activity fell 5% for the week ending November 2nd.  Sandy was a good part of the decline in applications in the East, as activity was off more than 50% in the tri-state area.  The refinance share of the activity was still 80% of applications, though.  The fixed 30-year mortgage rate was down to 3.61% from 3.65% the week before.  The election result may cause us to see mortgages in the 3.50% range and bottoming there, but we also still believe that the “refi-wave” is cresting and that we are close to the end.  We believe that IO securities are really starting to look attractive and we will take advantage of that opportunity as we have in the past.  Keep nimble – Michael Beattie

EXTERNAL RESEARCH COMMENTARY

Applications for home mortgages fell last week as Superstorm Sandy battered the East Coast and disrupted normal business activity for millions of people, an industry group said on Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity fell 5 percent in the week ended November 2. The group's seasonally adjusted index of refinancing applications and its index for loan requests for home purchases both dropped about 5 percent as well. The storm had "a significant impact on application volumes in the East" said Mike Fratantoni, MBA's vice president of research and economics, in a statement. Fratantoni said that applications fell more than 60 percent in New Jersey, nearly 50 percent in New York and almost 40 percent in Connecticut, with other nearby states seeing smaller declines. Certain states in other parts of the country showed increases in loan application volume last week, Fratantoni said. The refinance share of total mortgage activity stayed at 80 percent of applications, and fixed 30-year mortgage rates averaged 3.61 percent in the week, down 4 basis points from 3.65 percent the week before. The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.

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Bubble Time!

The Basel Committee is considering allowing banks to hold single A credits for coverage ratios.  If this is approved, BBB and lower credits will reprice and make a stronger case for shorting high yield. Wow!  Basel  cranking up the risk!  Currently single A credits are priced to yield 2.2%, down from a yield last year of 4.0%.  They could possibly be headed below 2%.  Bubble Time!

Tradex Global Advisory Services, LLC

investorrelations@thetradexgroup.com 

203-863-1500

@Tradex_Global