Jobless Claims 6/27/13

TRADEX GLOBAL INTERNAL COMMENTARY

Jobless claims fell by 9,000 last week to 346k, down from 355k the prior period. The median estimates from economists were just short at 345k. I have said this the last few weeks, but unfortunately need to repeat myself; firings are leveling off and slightly declining, but we are only seeing 150-200k new jobs, and that is not enough to really get us excited. Contrary to many, I believe that higher rates will have more of an effect on the economy. We also believe that the Fed may have to use different language in August or September if GDP and employment continues to disappoint. Keep nimble – Michael Beattie

EXTERNAL RESEARCH COMMENTARY

Jobless claims decreased by 9,000 to 346,000 in the week ended June 22 from a revised 355,000 the prior period, the Labor Department reported today in Washington. The median estimate in a Bloomberg survey of economists called for 345,000 claims.  Smaller reductions in headcounts indicate employers are confident enough that demand will be sustained as the housing market improves and consumers grow more optimistic. Bigger gains in sales may encourage companies to step up hiring and help reduce an unemployment rate the Federal Reserve says “remains elevated.”  “The broad trend still remains lower” for jobless claims, said Jacob Oubina, senior economist at RBC Capital Markets LLC in New York. “That’s going to continue to support net payroll gains.”  Stock-index futures maintained gains after the data on jobless claims and another report showing consumer spending rebounded in May. The contract on the Standard & Poor’s 500 Index expiring in September rose 0.6 percent to 1,604.7 at 8:41 a.m. in New York.  Household purchases, which account for about 70 percent of the economy, rose 0.3 percent after a 0.3 percent decline the prior month that was the biggest since September 2009, according to the Commerce Department’s figures. Incomes advanced 0.5 percent, more than projected.

Tradex Global Advisory Services, LLC

investorrelations@thetradexgroup.com 

203-863-1500

@Tradex_Global

MBA Mortgage Applications - 6/26/13

TRADEX GLOBAL INTERNAL COMMENTARY

US mortgage applications fell 3% last week according to MBA. The refinance component fell 5% in the latest week and is continuing its trend of decreasing refinancings. MBA also reported a 2% rise in the “purchase” index from the previous week. The share of applications to refinance an existing mortgage was down to 67%, this is the lowest level we have seen in months. The average rate on a conforming 30 year fixed rate mortgages was 4.46%, the highest rate since August 2011, up from the previous week of 4.17%. I have been saying the greatest refinance wave in history was close to the end and with this report from MBA I am more convinced whoever could have refinanced or wanted to refinance had already done so. For all others it may be too late to take advantage of those rates from earlier in the year.  Owning IO (interest only) securities has been difficult, but now the upside to this positively convex security is looking very good. We are not seeing price appreciation so far this month, but we believe it is only a matter of a month or two before we see gains in IO's. We felt some pain in 2008 and were a little early to increase our IO allocation, but with more than a 100% return from our IO investments we were more than rewarded!!. The general improving fundamentals in real estate have been great for our non-agency RMBS and CMBS securities, although there was some volatility as the Fed announced “tapering”. We are constructive in both sectors and believe the bout of volatility was a good opportunity for our managers to add on to existing securities at slightly better prices. Keep nimble – Michael Beattie

EXTERNAL RESEARCH COMMENTARY

The total number of mortgage applications filed in the U.S. last week slipped 3% from the prior week as interest rates jumped, the Mortgage Bankers Association said Wednesday. The refinance index fell 5% for the week ended June 21 from the previous week, according to the weekly survey covering more than three-quarters of all U.S. residential-mortgage applications. MBA also reported the seasonally adjusted purchasing index rose 2% from a week earlier. Interest rates have increased in recent weeks amid stronger economic data, curbing some individuals' appetite to buy a new home. "Interest rates moved up sharply following the Federal Reserve's press conference last Wednesday where it was indicated that the Fed could begin tapering their asset purchases later this year," said Mike Fratantoni, MBA's vice president of research and economics. "Mortgage rates increased by the most in a single week since 2011, and refinance-application volume dropped to its lowest level in almost two years." The share of applications filed to refinance an existing mortgage decreased to 67%, the lowest level since July 2011, from the prior week's 69%. Adjustable-rate mortgages, or ARMs, made up 7% of total applications. The Home Affordable Refinance Program share of refinance applications slipped to 30% from 31% in the prior week. The average rate on 30-year fixed-rate mortgages with conforming loan balances increased to 4.46%, the highest rate since August 2011, from the prior week's 4.17%. Rates on similar mortgages with jumbo-loan balances rose to 4.52%, the highest rate since March 2012, from 4.23% a week earlier. The average rate on 30-year fixed-rate mortgages backed by the Federal Housing Administration jumped to 4.2%, the highest rate since August 2011, from 3.85% a week earlier. The average rate for 15-year fixed-rate mortgages climbed to 3.55%, the highest level since November 2011, from 3.3% a week earlier. The 5/1 ARM average rate rose to its highest level since October 2011, jumping to 3.06% from 2.81% a week earlier.

Tradex Global Advisory Services, LLC

investorrelations@thetradexgroup.com 

203-863-1500

@Tradex_Global

Case-Shiller - 6/25/13

TRADEX GLOBAL INTERNAL COMMENTARY

Home Prices Beat Expectations:

The S&P Case-Shiller property values increased 12.1% from April 2012; the biggest year-over-year gain since March 2006. A short supply of homes and record low mortgage rates have fueled a substantial rise in home prices. This is very positive for the non-agency RMBS bonds we own in the Liquid Real Estate Portfolio. Most of the economists estimated that the increase would be lower than 12.1%, so this was a surprise even to the experts. The 20 cities in the index all showed gains, the largest gains were 23.9% in San Francisco and 22.3% in Las Vegas. The smallest gain was in the already robust market of NY, with a 3.2% rise. We are very constructive on RMBS and CMBS as household formations are increasing again and these new young buyers or renters will need places to live. In CMBS the pace of new construction in the last 5 years (other than multifamily) has been almost nonexistent. This maintains a low vacancy rate for businesses and retail outlets. The numbers this morning are positive and important, as the Fed has indicated it will try to pass the economy off to the private sector.  Keep nimble – Michael Beattie

EXTERNAL RESEARCH COMMENTARY

Home prices climbed more than forecast in the 12 months through April, rising by the most in more than seven years and showing further strength in the U.S. housing market. The S&P/Case Shiller index of property values increased 12.1 percent from April 2012, the biggest year- over-year gain since March 2006, after advancing 10.9 percent a month earlier, a report showed today in New York. The median forecast in a Bloomberg survey of 28 economists called for a 10.6 percent advance. Short supply, record-low mortgage rates and an improving job market combined to boost housing demand and spark the rebound in prices. The recovery is probably far enough along to overcome the recent surge in borrowing costs after Federal Reserve policy makers said they may trim unprecedented accommodative measures meant to spur the expansion. “Housing’s doing really well and I don’t think the backup in mortgage rates to date is going to derail it,” said Brian Jones, senior U.S. economist in New York at Societe Generale, who projected a 12.3 percent rise in home prices. “We’re still well off the highs, but price increases could continue for the next several years.” Bloomberg survey estimates ranged from increases of 9.9 percent to 12.3 percent. The S&P/Case-Shiller index is based on a three- month average, which means the April data were influenced by transactions in February and March.

Jobless Claims - 6-20-13

TRADEX GLOBAL INTERNAL COMMENTARY

Jobless claims climbed 18k in the latest week. The labor department reported 354k new claims in the week ended June 15 from a revised 336k the previous period. The Bloomberg survey of 46 economists called for a number in the 340k range, so this was a disappointing number. Firings have slowed dramatically but “new” hiring’s are still too low to reduce the unemployment rate. The more disappointing number is the four week moving average, jumping to 348k from the previous four week period of 345k. This number is a more accurate reading and is a reason why we believe the Fed will not do as much as the market is worried about. Keep nimble – Michael Beattie

EXTERNAL RESEARCH COMMENTARY

More Americans than forecast filed applications for unemployment benefits last week, showing progress on reducing joblessness remains uneven amid slower growth this quarter. Jobless claims climbed by 18,000 to 354,000 in the week ended June 15 from a revised 336,000 the prior period, the Labor Department reported today in Washington. The median forecast of 46 economists surveyed by Bloomberg called for 340,000. No states were estimated and there was nothing unusual in the data, a Labor Department spokesman said as the figures were released.  Employers will need to limit firings before the world’s largest economy can show bigger gains in payrolls. Federal Reserve officials announced yesterday that they would maintain the central bank’s $85 billion in monthly asset purchases until the expansion shows further signs of strengthening. “Firms have just been very cautious in their hiring and they remain so,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. Stanley projected a rise in claims to 346,000. Still, “by and large, the conditions in the labor market are pretty steady.” Stock-index futures held earlier losses after the report. The contract on the Standard & Poor’s 500 Index maturing in September declined 0.9 percent to 1,609.6 at 8:45 a.m. in New York after the Fed said it may start paring stimulus measures later this year.

Tradex Global Advisory Services, LLC

investorrelations@thetradexgroup.com 

203-863-1500

@Tradex_Global

Existing Home Sales - 6-20-13

TRADEX GLOBAL INTERNAL COMMENTARY

Sales of existing homes increased 4.2% in April to an annualized rate of 5.18 million, compared to the previous annual rate of 4.97 million. With home prices rising and mortgage rates still close to historic lows this is a welcome and confirming sign for the economy.  This is good news for our RMBS traders, the faster sales and higher prices will also increase the value of non-agency bonds, as loss severities are improving and more cash is coming in than was modeled when the security was purchased. The housing improvement is filtering down to consumers feeling wealthier and retail sales are growing (the wealth effect) and confidence is building in most sectors. The good news also brings realization that the Fed will not print money forever and the markets today are more focused on that than the better than expected numbers in housing. Keep nimble - Michael Beattie

EXTERNAL RESEARCH COMMENTARY

Sales of previously owned U.S. homes climbed more than forecast in May to the highest level since November 2009 and prices jumped, indicating more progress for residential real estate.  Purchases (ETSLTOTL) of existing houses increased 4.2 percent to an annualized rate of 5.18 million from 4.97 million in April, the National Association of Realtors figures showed today in Washington. The median forecast in a Bloomberg survey called for a 5 million rate of sales. The median selling price surged from a year ago by the most since October 2005, the group said.  Rising home values and mortgage rates within a percentage point of all-time lows will help encourage Americans to put their properties on the market and trade up. The increase in wealth from housing is also bolstering confidence and sustaining consumer spending that will keep fueling the economy.  “The residential real-estate market in the U.S. is on fire,” said Brian Jones, senior U.S. economist in New York at Societe Generale, who projected a 5.17 million annual rate for home sales. “Ultimately, I think it’s a sign of confidence in the U.S. economy.”  Stocks maintained losses after the Federal Reserve said yesterday that it may start paring record monetary stimulus. The Standard & Poor’s 500 Index dropped 1.3 percent to 1,607.56 at 10:24 a.m. in New York.  Other figures today showed manufacturing in the Philadelphia area unexpectedly grew in June at the fastest pace in two years as factories showed resilience in the face of slowing overseas markets.

Tradex Global Advisory Services, LLC

investorrelations@thetradexgroup.com 

203-863-1500

@Tradex_Global

MBA Mortgage Applications - 6-19-13

TRADEX GLOBAL INTERNAL COMMENTARY                                                                             

Mortgage applications dropped 4% in the last week.

The MBA reported this morning that the total number of mortgage applications dropped 4% and that the seasonally adjusted composite index dropped 3.3%.  The refinance index and the purchasing index both fell at the same rate of 3% (seasonally adjusted).  The share of applications to refinance was 69% of total applications, unchanged from the previous week.  The average rate on a 30-year conforming mortgage was 4.17%, the highest rate since March 2012.  The prior week was 4.15%.  The percentage of total refinancings due to the HARP program was 31%, slightly up from 29% in the previous week.  The weekly numbers are volatile and we are much more interested in the trend of refinancings and HARP programs.  In our view, the trend is our friend as we see refi’s slowing dramatically, which is very positive for our IO portfolio.  The big difference this cycle as compared to 2008 is that there is almost no forced selling of IO securities and leverage in the system is minimal.  The dealers gave “low” marks to IO securities in May based on light trading and we believe that we are very close to the bottom in prices.  The last time we were at these levels, the IO securities more than doubled in the next 18 months.  We are excited about this asset class and believe it is one of the most positively convex securities that an investor can own.  The non-agency IOs have held up extremely well and still offer a terrific carry after hedging costs.  We will continue to monitor that sector, as well as our non-agency RMBS and CMBS portfolios where prepayments are treated as principal repayments when received.  The two strategies of owning IOs and P&I bonds are expected to continue to perform well with upcoming higher interest rates and improving fundamentals in real estate.  Keep nimble – Michael Beattie

EXTERNAL RESEARCH COMMENTARY

The total number of mortgage applications filed in the U.S. last week slid 4% from the prior week as several interest rates crept higher, the Mortgage Bankers Association said Wednesday. The market composite index fell 3.3% on a seasonally adjusted basis for the week ended June 14 from the previous week, according to the weekly survey covering more than three-quarters of all U.S. residential-mortgage applications. The refinance index and the seasonally adjusted purchasing index both fell 3% from a week earlier. Interest rates have increased in recent weeks amid stronger economic data, curbing some individuals' appetite to buy a new home. The share of applications filed to refinance an existing mortgage was unchanged from the prior week at 69%. Adjustable-rate mortgages, or ARMs, was also unchanged a week earlier at 7% of total applications. The Home Affordable Refinance Program share of refinance applications rose to 31% from 29% in the prior week. The average rate on 30-year fixed-rate mortgages with conforming loan balances increased to 4.17%, the highest rate since March 2012, from the prior week's 4.15%. Rates on similar mortgages with jumbo-loan balances slipped to 4.23% from the prior week's 4.25%. The average rate on 30-year fixed-rate mortgages backed by the Federal Housing Administration rose to 3.85%, the highest rate since April 2012, from 3.81% a week earlier. The average rate for 15-year fixed-rate mortgages slid to 3.3% from 3.32% a week earlier. The 5/1 ARM average rate rose to its highest level since last June, jumping to 2.81% from 2.78% a week earlier.

Tradex Global Advisory Services, LLC

investorrelations@thetradexgroup.com 

203-863-1500

@Tradex_Global

MBA Mortgage Applications 6-5-13

MBA Mortgage Applications 6-5-13

TRADEX GLOBAL INTERNAL COMMENTARY

Mortgage Bankers Association Reports Large Drop in Mortgage Applications Last Week. 

The index of all mortgage applications dropped 11.5% in the latest week.  The real story, the one which is most important to the Tradex Global Liquid Real Estate Portfolio, is the whopping 15% drop in “refinance applications”.  The total share of re-fi applications dropped to 68%, the lowest level we have seen in a very long time.  As recently as January the re-fi percentage was close to 90%!  I would love to fist pump and beat my chest for making this call months ago, but will reserve that enthusiasm for when we see the 9 dollar IO’s go back to 25 dollars and when the carry normalizes to double digits.  As I do not want to repeat word-for-word what we have been saying for months, let’s just say we believe the greatest re-fi wave is winding down quickly.  Mortgage rates hit an average of 4.07%, a large move from 3.50% (or lower) in the recent past.  It may be a “goldilocks” scenario for our mortgage strategy - as housing fundamentals improve, our RMBS and CMBS bonds will do well; and, as the re-fi wave winds down our agency IO’s will  do very well.  We have made large amounts of money for investors on IO’s before when prices went to these levels and we believe we will repeat that in the near future.  We still understand that our government is lurking, so we will tread carefully in allocations, but all in all this is a great number for our strategy.  We have seen other fixed income strategies that are just “levered” vehicles get hit hard and now know that our steady performance is looking pretty good.  Keep nimble – Michael Beattie

EXTERNAL RESEARCH COMMENTARY

Interest rates on U.S. mortgages continued to surge last week, rising above four percent for the first time in a year and driving down demand from homeowners to refinance, data from an industry group showed on Wednesday. Fixed 30-year mortgage rates climbed 17 basis points to average 4.07 percent in the week ended May 31, the Mortgage Bankers Association said. Rates have risen by 48 basis points in the last four weeks, with the most recent upswing driven by nervousness that the Federal Reserve could slow its economic stimulus efforts sooner than had been anticipated. Last week's interest rate was the highest since April 2012 and the first time rates have been above 4 percent since early May of last year. With the Fed keeping borrowing rates low through its massive bond buying program, historically cheap mortgages have been one of the drivers of the recovery in the housing sector as the affordability lured in buyers. But the recent rise in rates could test potential buyers' resolve. MBA's seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, tumbled 11.5 percent last week. Demand for refinancing was hit hardest by the acceleration in rates, with applications slumping 15.0 percent. The refinance share of total mortgage activity fell to its lowest level since July 2011 at 68 percent of applications from 71 percent the week before. The gauge of loan requests for home purchases - a leading indicator of home sales - held up relatively better, falling just 1.6 percent. The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA. Along with low interest rates, rising prices, a decrease in foreclosures and a tighter supply of available homes have all helped the housing sector get back on its feet. Fed chairman Ben Bernanke said last month the Fed could scale back the pace of its bond purchases at one of the "next few meetings" if the economic recovery looked set to maintain forward momentum. The Fed is currently buying $85 billion a month in bonds and mortgage-backed securities. Along with some improving economic data, the comments sowed concerns among investors that the Fed's ultra-loose policy could end sooner than expected.