Financial Update #2/ Week of September 14, 2009

Good Morning Everyone and Happy Tuesday! We’ve been in a “trough” in equity markets for several days now. The Dow, for example, closed at 9,627 on Thursday, and we closed at 9,626 yesterday afternoon. This morning we’ve been all over the unchanged mark with some major economic reports hitting the wires earlier today. One has to ask, this trough won’t last for long . . . and when we break out of it (considering the last 8 weeks of gains) which way are we going to break? Chances are leaning toward downward, with the history of September trading as we know it.

One evidence for the argument that stocks are not going to break higher is the reaction to this morning’s retail sales report. It was reported this morning that August retail sales rose 2.7%, well ahead of the 1.9% increase anticipated by the experts. We all know that the Cash for Clunkers program had much to do with this big jump, but analysts were already taking that into account. The retail sales numbers less the auto industry still showed impressive gains. Since consumer spending makes up 2/3 of the GDP, you’d think the stock market would rally off the charts.

This sales report was somewhat tempered by the August PPI which came in with a 1.7% increase over July’s figures. This was quite a surprise to the experts also who were looking for an increase of .8%. Inflation is a big worry for economists and investors going forward, and a big number like this on the producer side means that they will be passing this cost on to the consumer in the months to come. The Empire Manufacturing Survey posted it’s 6th straight monthly improvement at 18.9 for September, better than the 15.0 for which analysts were looking.

All of this is having a mixed reaction in both markets . . . we’ll call it basically flat. Pricing for us, unfortunately, has worsened about .25 to .375 in rebate from yesterday morning’s note offerings. Financial institutions do not want to hear anything about inflation when they are getting locks in at 4.75% interest rate on 30 year commitments! A healthy 3% inflation year over year would nearly wipe out the profit on these securites in a matter of a few years, and then these mortgage notes will basically be worthless, and consumers won’t want to refinance to give up their great rate. Last week was a good week for rates even with the stock market on the rise. This week, it’s just not the case.

I will be in the office all day today for your pricing and loan scenario questions. Call me here or better yet email me if I can help you in any way. Have a terrific Tuesday!