Thursday, September 18, 2014

Dow rises to new record on hopes interest rates will remain low

Dow shot up 109 closing near the highs, advancers over decliners a modest 3-2 & NAZ gained 31.  The Alerian MLP index rose 3 to 534 & the REIT index lost 2+ to the 297s.  Junk bond funds edged higher & Treasuries declined as the stock market rose.  Oil fell as a stronger dollar curbed the appeal of commodities to investors looking for a store of value & gold continued sinking, taking in near 4 year lows .

AMJ (Alerian MLP Index tracking fund)

CLV14.NYM....Crude Oil Oct 14....92.98 Down ...1.44  (1.5%)

Live 24 hours gold chart [Kitco Inc.]

US household wealth climbed in Q2, reflecting stock-market gains that are mostly benefiting upper-income Americans. Net worth for households & non-profit groups increased $1.39T from Apr thru Jun, or up 1.7% from the previous 3 months, to $81.5T, according to the Federal Reserve (FED).  The S&P Index’s longest streak of quarterly gains since 1998 combined with home-price appreciation helped to bolster Americans’ finances.  A strengthening job market also is giving households the means to sustain their purchases.  The value of financial assets owned by American households, including stocks & pension-fund holdings, increased by $1.27T in Q2.  The S&P 500 completed a 6th quarterly gain in Q2, climbing 4.7% & it has advanced further since then.  Household real-estate assets climbed $202B.  Owners’ equity as a share of total household real-estate holdings increased to 53.6% in Q2 from 53.2% in Q1.  A cooling housing market may limit the gains in household wealth. The S&P/Case-Shiller index of property values rose 8.1% in the year ended in Jun, the smallest 12-month increase since Jan 2013.  A strengthening labor market will help provide an offset.  Unemployment in Aug fell to 6.1%, matching the lowest level since Sep 2008.  Monthly payrolls have grown an average 215K so far this year, up from 197K for the same period in 2013.  Gains in household wealth are giving Americans more confidence to borrow as household debt increased at a 3.6% annualized rate.  Consumer credit, including auto & student loans, climbed at an 8.1% pace, while mortgage borrowing increased at a 0.4% rate.  Today’s report also showed that total non-financial debt advanced at a 3.8% annualized pace, with a 6.3% gain in business borrowing.  State & local gov debt increased at a 1.2% pace & obligations of federal agencies climbed 2.5%.  Household net worth also is getting help from the FED accommodative stance.  Policy makers maintained a commitment to keep interest rates near zero for a “considerable time” after asset purchases are completed, saying the economy is expanding at a moderate pace & inflation is below its goal.

Household Wealth Increases in U.S. as Stock Prices Advance

New-home prices in China fell in all but 2 cities monitored by the gov last month as tight credit damped demand even as local home-purchase restrictions were eased.  Prices dropped in 68 of the 70 cities in Aug from Jul, including in Beijing & Shanghai, the National Bureau of Statistics said, the most since Jan 2011 when the gov changed the way it compiles the data.  Home sales slumped 11% in the first 8 months of 2014 amid an economic slowdown after banks tightened property lending to curb default risks.  While 37 of the 46 cities that imposed limits on home ownership since 2010 have removed or eased such restrictions to stem the decline in sales, a wait-and-see attitude is still prevalent among homebuyers, according the nation’s biggest property agency.  Private data also point to continued price declines. The average new-home price fell 0.59% in Aug from Jul, the 4th consecutive month of declines, according to the nation’s biggest real estate website.  New-home sales in the first 2 weeks of Sep in 40 cities fell 4.7%, when measured by the combined space of homes sold, from the same period in Aug.  That trailed expectations for a traditionally strong month.

China Home Price Drop Spreads as Housing Demand Weakens

Bank of America is turning to Fannie Mae & Freddie Mac to guarantee more than $6B of older mortgages in what analysts say is probably a strategy to help it comply with tougher banking regulations.  The lender pooled the loans, which were granted to borrowers from 2010-2013, into new securities insured by the companies in the past 2 months.  The issuance fueled a jump in bonds tied to older, or “seasoned,” loans.  Creation of such bonds in Sep is more than twice the previous monthly high in the year thru Jul.  The most likely explanation: after originally retaining the high-quality mortgages as investments, the banks are transforming them into gov-backed securities to meet capital or liquidity rules.  That could come from selling & using the cash to buy assets deemed safer, or just by holding onto the debt, based on its own favorable regulatory treatment.  A bank might earn more on mortgages without turning them into securities because Fannie Mae & Freddie Mac charge annual insurance fees of about 0.5%, meaning the guarantors seized by the US in 2008 could also see more revenue.  Limited supply has helped the $5.4T market for gov-backed mortgage securities withstand the FED's reduction of its bond purchases this year, contributing to lower interest rates on new mortgages.  The creation of additional bonds comes with the FED poised to end its new asset purchases, probably next month.  Commercial banks boosted holdings of closed-end home loans to $1.59T as of Sep 3, from $1.56T on Jan, even as they disposed of more soured mortgages, Fed data show.  They own about $1.3T of agency, or gov-backed, mortgage securities.  BAC held $237B of residential mortgages as of Jun 30 & about $230B of agency mortgage bonds, which compares with $2.2T of assets.  BAC stock went up 27¢.  If you would like to learn more about BAC, click on this link:

BofA Gets $6 Billion Bond Boost From Fannie and Freddie

Bank of America (BAC)

Alibaba's (BABA) IPO is tomorrow & excitement from the largest IPO in history is bleeding over to the rest of the stock market.  Of course stretching out the days of easy money also encourages buyers.  But global troubles do not bother the bulls.  The US economic recovery is only so-so, falling US fiscal deficits will end as wars (in the MidEast & in Ebola) start, the Chinese economy is nothing to write home about & Europe is struggling to emerge from its recession.  For the time being, the bulls are in command.  Sep has been a tough year for stocks but so far Dow is up 167 this month.  Not bad!!

Dow Jones Industrials

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