Q2 GDP Reading Surprises Most

On Friday, the Commerce Department confirmed that Q2 GDP growth was 1.6%. Many of the details pointed to good news for the U.S. Economy. With inflation almost non-existent the report also shows that year over year the economy is up 3.0% Reading surprised almost all analysts to on the upside.

Many stock traders focused on the U.S. final sales number of the report. Real final sales to domestic purchasers was revised up to 4.3% from the initial estimate of 4.1%

So even though overall economic growth slowed from the first quarter's 3.7% pace, domestic demand was actually stronger-4.3% compared to 1.3% in the first quarter.

In summary, the latest GDP revisions report is quite supportive of continued recovery for the U.S. economy for the foreseeable future.

30 year fixed rates -- now below 4.4% -- Should you refi yet again?!

How low can they go?

Mortgage rates managed to reach yet another low this week, with the 30-year fixed rate now costing borrowers less than 4.4% for the first time in history.

Freddie Mac (FMCC) said on Thursday that the average rate for traditional 30-year fixed mortgages fell to an average of 4.36%, the ninth decline over the past 10 weeks.

Fixed mortgages with a 15-year duration also fell to a historic low of 3.86% and adjustable-rate mortgages, which have shorter terms of one or five years continue hovering near 3.5%.

Additionally those folks who need a payday loan are also likely to find the lowest rates in quite some time. Folks wishing to take a personal payday loan may be surprised at just how easy it is.

The sharp decline is a reflection of three factors: Ongoing stress in the housing market, regulatory policies aimed at spurring demand and an increasing belief on Wall Street that deflation (and inflation) is basically non-existent.

"...long-term bond yields fell to the lowest levels since January 2009, allowing fixed mortgage rates to ease to new record lows this week," said Amy Crew Cutts, Freddie's deputy chief economist.

In response to the low rate that Mortgage Bankers Association reported on Wednesday that in its Weekly Mortgage Applications Survey for the week ending August 20, 2010 the Market Composite Index, a measure of mortgage loan application volume, increased 4.9% on a seasonally adjusted basis from one week earlier.

"The volume of refi applications last week was up 26% over their level four weeks ago. Mortgage rates dropped to their lowest level in the survey, going back to 1990," said Michael Fratantoni, MBA’s Vice President of Research and Economics. "We are at a new 15 month high for the Refinance index. With rates this low, many borrowers who refinanced in the past two years may well have an incentive to refinance again, and this is likely increasing refi application activity."

Stimulus May Have Added 3.3M Jobs

The economic stimulus package may have added as many as 3.3 million jobs to the economy during the second quarter of this year and according to the independent Congressional Budget Office (CBO) may have prevented the nation from lapsing back into recession. The report was released by the CBO on Tuesday.

The details of the CBO report said that the stimulus lowered the unemployment rate by between 0.7 and 1.8% in the second quarter and increased the number of people employed by between 1.4 million and 3.3 million.

The budget office said the act also increased the nation's GDP by between 1.7% and 4.5% in the second quarter of the year.

Leveraged Buyouts Reach $42B Year to Date

The big banks are now openly seeking out deals to back once again. And in response, some savvy private equity firms have sought to accelerate what they do best -- acquiring firms and then reselling those companies at a premium.

Following retrenchment in activity in 2009, this year buyout firms have been seeking to put their billions of dollars in untapped investor capital to use by taking on additional risk.

For instance on Friday, the Blackstone Group, one of the largest private equity holding companies, agreed to buy Dynegy, the Houston power company. The price tag -- $4.7B -- the largest of the year.

According to Thomson Reuters that brings the total for leveraged buyouts to just over $42B in calendar year 2010.

Friday's transaction continues to remind us that big money is betting on a world economy that grows steadily well into next year.

General Motors: "Extraordinary Turnaround"

On Thursday, General Motors Corp. posted its best quarterly profit in six years in one of the clearest signs yet the ailing automaker (and its beleaguered industry) is on a road to recovery.

The record profits were posted slightly more than 12 months after a steep drop-off in sales caused by the financial crisis of 2008/2009.

GM says that the strong profits will pave the way for the company file for an IPO and begin to rid itself of a more than US$50-billion taxpayer liability -- company equity that is majority owned by the U.S. government.

Total second-quarter earnings came in at US$1.3-billion, a huge reversal from the US$12.9-billion it lost in the same period a year ago. Revenue jumped 44% to US$33.2-billion during the quarter.

Last year the government had estimated that it would take perhaps 8 years for the GM to pay taxpayers back. The quick GM rebound however has surprised even the most optimistic of forecasts.

“Given the extraordinary turnaround — frankly, faster and better than what we had imagined — I think the IPO could be very successful if the overall markets co-operate,” Steven Rattner, the Obama administration’s former Car Czar, said in an interview on Bloomberg Television.

Retail Sales Continue at a Steady, Healthy Year over Year Rate

Retail sales continued at a steady pace in the Aug. 7 week according to Redbook's tally on Tuesday. The Redbook report shows a plus 3.0% year-on-year pace, unchanged from the prior week.

According to a similar measure from ICSC-Goldman on Tuesday the year-on-year pace currently is at 3.7%. The Goldman report sees the full-month pace coming in at a year-on-year rate of plus 3.0%.

Retail sales under-girds much of U.S. GDP growth. In July (and now into August), the growth rate has been quite steady in the moderate 3% range.

Fears Continue to Subside As Positive Data Kick-starts August

Market fear continues to subside drastically following a peak six weeks ago. Fear about the insolvency of European banks -- which was a basic staple of bear analysts has now proven itself to be grossly overblown. And as the fear about Europe has subsided so has the VIX S&P Volality Index

(chart source: yahoo finance)

The index -- which appeared to be on its way to 50 at the height of the European Crisis -- now appears to be headed for the teens again.

And there were plenty of signs this week that August news will continue to calm the markets.

1.  The Institute for Supply Management released 2 reports this past week.  Pointed to continued growth in both the manufacturing and non-manufacturing service sectors.

2.  Construction spending -- which was forecast to decrease -- actually increased during the June reporting period.

3.  Domestic motor vehicle sales for July came in stronger than most economists had predicted.

4.  According to the most reliable retail indices, the retail sector (which accounts for nearly three quarters of the US GDP) continues to growth at a healthy rate between three and four percent year over year.

5.  The mortgage purchase index for the purchase of new homes has now been up for three weeks in a row.  Refinancing and purchase interest rates continue to fall.

6.  Although jobs creation is always the last sign of a healthy recovery, the private sector is now clearly beginning to add jobs -- ADP reports + 42,000 private sector additions and the U.S. government calculated 71,000 additions in July.  The return to jobs growth can be argued as the quickest return to growth from a recession than at any point in modern U.S. history.

7.  It is now clear -- as evidenced by earnings calls and transcripts -- that the majority of U.S. businesses have returned to profitability.  Not only have the majority report Q2 results better than expected, but the majority now forecast continued growth and profitability into the end of the year.

And investors are finally starting to agree with the positive business assessment.  Not only is the VIX index on a steady decline, but stock markets finished the first week of August up nearly 2 percent for the week and over 6 percentage points year to date.

U.S. Manufacturing Grows 12m Straight; Jobs Up in Sector 8m in a Row

The ISM released its manufacturing report on business on Monday. Their index continued to show healthy growth in the sector. Perhaps even more encouraging is the employment growth measured in the report. It now registers an increase in jobs for 8 straight months and now at an accelerated pace.

Manufacturing continued to grow in July as their PMI registered 55.5 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

According to their report on business: "The past relationship between the PMI and the overall economy indicates that the average PMI for January through July (58 percent) corresponds to a 5.4 percent increase in real gross domestic product (GDP). In addition, if the PMI for July (55.5 percent) is annualized, it corresponds to a 4.5 percent increase in real GDP annually."