Weekly Good News Wrap

Why Some Homeowners Are Cheering the LIBOR
Posted: Sat, 20 Jun 2009 16:11:00 +0000
One reader contacted me last week with her good news. She said, "Have a look at the letter from my bank. It looks like good news to me!"

I later found out that this reader originated her adjustable rate loan five years ago on a new California home purchase. She was aware at the time that the interest rate would adjust in 2009. "Back then, 5 years seemed like a long time. I can't believe it is now 2009."

I quote directly from her bank's letter with her permission:
This notice is to inform you of upcoming changes to your adjustable rate mortgage loan interest rate and payment. The rate change date for your loan is July 01, 2009, with a new payment effective date of August 01, 2009. The next adjustment will occur in 6 months.

The installment due on your loan will be adjusted from $1,329.83 to $886.55.

The index value used to determine the interest rate has changed from your origination rate to 1.24000%. The current index value was published on 06-01-09. This is the selected index value for the index known as the "6 MONTH LIBOR 1ST BUSINESS DAY (WALL ST. JOURNAL)." Effective with your August 01, 2009 payment, your interest rate will be adjusted from 5.25000% to 3.5000%.

If you have any questions regarding this notice please contact our Customer Service Department.
She further commented, "Even though the market value appears to have dropped for my home in the last five years, this monthly adjustment to my budget is quite welcome. I may use some of that $450/month toward a new car payment or toward paying down additional principal on that mortgage. This month, I am just going shopping."

LIBOR index rates continue their historical lows. This week's 6 month LIBOR is down even further at 1.16% and the 1 month LIBOR at 0.32%. It appears likely that our cheerful reader may have additional monthly funds available at her next adjustment six months from now.

When ask what she would do with even a further decrease in her monthly housing costs in late 2009 she said, "It could be a very Merry Christmas."

If anecdotal news and letters like this become at all wide-spread, it could mean further gains for retail summer sales, continued foreclosure declines, and may give the beleaguered auto industry something toreally cheer about.
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Employment, Manufacturing, and Leading Indicators Flash Positive Signs
Posted: Fri, 19 Jun 2009 06:47:00 +0000
June 18 was yet another good news Thursday. Three independent reports showed positive surprises in employment, manufacturing and leading economic indicators.

Perhaps the biggest news of the day showed that continuing claims for unemployment has now started to fall. It was the first time that continuing claims have fallen since Jan 3. The four week moving average for initial claims also continues to fall further clarifying the lagging peak for those claims for the recession just ended.That lagging peak was in March at 674,000. Thursdays report shows initial claims now at 608,000.

(click to enlarge)
(Chart Source Haver Analytics)

The good employment news was rivaled by a huge surge in the Philadelphia Fed on regional manufacturing. The Philly reading improved to negative 2.2 from negative 22.6 last month. Economists expected a reading of negative 17. Among the sub-indexes manufacturing shipments actually turned positive for the first time since May of last year. More good news is found in the 6-month outlook where the general business conditions index rose more than 10 points. Respondents also pointed to employment continuing to picking up six months down the road.

(click to enlarge)
(Source: Econoday)

The Conference Board's index of leading economic indicators (LEI) rose 1.2% in May adding to the 1.1% gain in April. Further the index has now risen 1.2 percent (a 2.4 percent annual rate) between November 2008 and May 2009. That represents the first time the index has increased over a six-month period since July 2007.

(click to enlarge)
(Source: The Conference Board)

Commenting on Thursday's good news and its effect on stocks, Bill Webb of Gluskin Sheff summarized, "We've already priced in an end of the recession and the start of the recovery."
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Chrysler Restarts Production; Ford Confirms Profit Plans
Posted: Thu, 18 Jun 2009 04:31:00 +0000
As the 2009 recovery gets underway, Chrysler and Ford (F) may be leading renewed optimism for US automakers.

About a week after emerging from bankruptcy protection and finalizing a deal with the Fiat Group, Chrysler confirmed on Wednesday that the company plans to resume production of vehicles at seven assembly plants in the US, Canada, and Mexico by the week of June 29. Two facilities are in Michigan, one in Missouri and another in Ohio. Three other assembly plants are in Canada and Mexico.

The Dodge Viper's Conner Avenue factory in Detroit reopened on Monday,

"A restart of production at other Chrysler assembly plants will be announced at a later date," the company said in a statement. Chrysler had shut down all of its North American operations for a period of two months as it entered Chapter 11 bankruptcy protection in May.

Separately Ford's CEO Alan Mulally stated that his firm is on track to get back to profitability. "Over the last couple of months we’ve reduced our debt by over $10 billion, we also (on the strength of our business plan) went to the equity markets and raised over $1.6 billion in fresh equity... so we’ll continue to look for opportunities along the way here (as we march back to profitability) to improve the balance sheet."

These among other developments will likely continue to have positive implications for an improved employment picture in the US.
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Housing Starts Rachet Up in May
Posted: Wed, 17 Jun 2009 02:19:00 +0000
U.S. home builders started construction on many more residencies than expected in May. The Commerce Department reported that housing starts increased by 17%. Building permits also rose 4% -- significantly more than expected. The increase in starts was punctuated by a 29% surge in the West.

As this recovery begins we've continued to look to strength in the housing sector as an indication of how strong this recovery will be. Sales of new and existing homes increased in April and buyers signing contracts to buy previously owned homes has now risen for three straight months.

Home prices are now at record affordability levels across the country. First time home buyers are also rushing to take advantage of the $8,000 tax credit included in Obama's stimulus plan.
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A Giant Sucking Sound Lurking Beneath the Empire Index?
Posted: Tue, 16 Jun 2009 03:28:00 +0000
The Empire State manufacturing economic index fell in June, but a closer look reveals that the majority of Monday's headlines over-extenuated the negative implications of that reading.

In fact an examination of the underlying commentary in the report reveals that manufacturing leaders have now turned much more optimistic about their futures. The index measuring their outlook rose to 47.8, the highest reading since July 2007.

In the report, the New York Fed reports that new factory order measures also increased. The index used to measure employment health also increased.

Unlike other manufacturing reports the overall survey number is not a composite of the other underlying measures. Such a decoupling of measurements suggests that their may be other factors in play beyond the overall general index reading.

John Ryding, chief economist at RDQ Economics, wrote to his clients on Monday, "The details of the report were not as weak as the headline." Several large, noteworthy New York firms illustrate Ryding's assertion.

New York-based IBM (IBM) continues to maintain it is "ahead of pace" to meet its 2010 earnings forecast.

And Empire based, Alcoa (AA) recently claims that is distributors of aluminum are showing increased buying interest. In fact, Alcoa CEO Klaus Kleinfeld reports that distribution channels are now speculating that they will be unable to adequately supply a revived global demand.

Distributors "know if the green shoots turn over to become demand, they will not be able to supply." If that happens Kleinfeld says, Our "distribution chain will generate this giant sucking sound of demand."

It would not be the first time we've seen aluminum's silver lining.
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