The Dow closed down 27 points, the S&P lost 5, and the NASDAQ dropped 15 points. I wish there was something to say about today, but there was no distinguishing characteristics. 

Bonds did do well today. Still not sure what the drive was, but buyers were relatively active. The 2-year ended at .29%, the 5-year .86%, and the 10-year added 15/32s to yield 2.01%. The 30-year bond jumped over a point to yield 3.15%.

Tomorrow’s lone economic number will be Weekly Jobless Claims. After dropping to 348k, traders will be anxious to see if claims can remain below the 350k level.

After such an extended time of dull markets, I’m not sure what it would take to bring some energy into this market.

Update 12:00 p.m.:

Heading into the last hour of trading, stocks remain quiet (Dow -15), but bond prices continue to move higher. The 2-year is .29%, the 5-year .86%, and the 10-year is now higher by 17/32s to yield 2.00%. The 30-year bond is up 1&10/32s to yield 3.14%. There seems to be no explanation for the performance today in bonds, but clearly some investor accounts aren’t worried about stocks drawing money away from bonds.

Update 10:10 a.m.:

The Treasury’s 5-year note auction received very good demand. Bond prices were higher heading into the auction and are little changed. The 2-year is .30%, the 5-year .88%, and the 10-year is up 12/32s to yield 2.02%. The 30-year bond has added almost a point to yield 3.16%.

Stocks continue to trade aimlessly. The Dow did get as low as -50 and is now -26 points. The S&P is down 3 and the NASDAQ off by 12 points. Ho-hum.

Update 8:30 a.m.:

The Dow has drifted in an extremely narrow range today of -27 and +12. I keep expecting a return to volatility this year, but maybe this world has changed. The Dow is currently down 15 points.

The headline jump in Existing Home Sales looked okay until you read the details. The jump came because the previous month was revised sharply lower. The number was actually lower than forecast. I still contend this number by the NAR is something that should be consigned to the waste bin.

Bond prices remain higher. The 2-year is .30%, the 5-year .89%, and the 10-year is up 1/4 point to yield 2.03%. The 30-year bond is higher by 24/32s to yield 3.17%.

Update 6:40 a.m.:

Stocks have opened very quietly again today. The Dow opened down 18 points but is now unchanged. The S&P is also unchanged and NASDAQ is off by 3 points. European stock indexes were down early but are coming back. That is probably helping to keep our markets in place. 

Bond prices are holding slim gains. The 2-year is .30%, the 5-year .89%, and the 10-year is up 8/32s to yield 2.03%. The 30-year bond is higher by 23/32s to yield 3.17%.

I’ll be back with updates.

Morning Comment:

After the 13,000 celebration fizzle yesterday, stocks look set to open slightly lower today. Dow futures are lower by 15 points. A closely watched manufacturing index in China was released last night, but the index fell just short of rising back into growth territory. The only number we have today will be Existing Home Sales. That report is unlikely to have any market impact.

Bond prices are slightly higher to start the day. The 2-year is .30%, the 5-year .90%, and the 10-year is higher by 3/32s to yield 2.05%. The 30-year bond is higher by 10/32s to yield 3.19%. The Treasury will auction a new 5-year note today. The demand for yesterday’s 2-year note was better than expected, but that doesn’t necessarily mean the 5-year will see the same.

After the two-second celebration of Dow 13,000 yesterday I took a quick look back at the last time the Dow hit 13,000. That was back in May 2008, and the Dow is now breakeven after almost four years. This is a reason to celebrate? The real celebrants should be the 2008 buyers of gold and stuffy old bonds. Had you bought gold instead of stocks, you would have roughly a 75% profit. Gold too risky? For the buyers of 10-year notes, they realized a profit of 15-20% plus four years of 4% interest each year. The 30-year buyers racked up a 30-35% profit plus four years of 4.5% interest. Telling investors to buy gold and treasury bonds doesn’t take a legion of analysts, strategists, and overpaid investment bankers. Think maybe that’s why the focus is to trumpet Dow 13,000?

While stock traders are celebrating mediocrity, oil traders from May 2008 are just hoping to achieve that level. In May 2008 the price of a barrel of oil was $126. Let’s hope those traders don’t get a chance to celebrate.

The rest of this comment is about the dreaded low-rate environment we’re in and the one I expect to remain for another 5 years or so. Maybe it won’t be so bad.

A week ago the cover of Barron’s Magazine trumpeted Dow 15,000! This actually frightened some traders and investors. Barron’s has a reputation akin to the Sports Illustrated jinx. In fairness to Barron’s, the article was a reporting of the case for a bull market made by a few “mavens” of the industry. The actual prediction was the Dow would hit 15,000 if not 17,000 in two years. The case made was not on fundamentals of a strong economy and great earnings, although that was implied, but one based primarily on the reverse of the age-old wisdom – What was up must come down. The forecasters flip this and say what goes down must go up. The seers said that stocks have underperformed for so long; surely it’s time for equities to rise.

Even with the year-end 2011 rally, the last 5-year and 10-year comparison cycles were in the lowest quartile in stock market history. Basically stocks have done nothing for over ten years. The article goes on to say that investors are now under-invested in stocks and should be piling in for the inevitable bounce. But the forecasters forgot one possibility – the world has changed. Investors have suffered through the 2000 tech bubble collapse, the 2008-2009 stock market meltdowns, the near death experiences in the market in 2010 and 2011, and an additional meltdown in home equity. People just aren’t as confident any longer that we’re “due” for a rebound. Certainly most people near in or in retirement are in survival mode, preserving the remaining principal after so much destruction.

The pundits point out how investors are under-invested in stocks. Maybe so, maybe not. A lot of investors were scared out of stocks at the worst times, and they simply have less money for stocks. They simply cannot afford to risk anymore “shocks” to the system. In recent data regarding individual investor flows revealed that inflows into bond funds relative to pure stock funds is now up cumulatively since 2001 at a nine to one pace in favor of bonds. The shift was dramatic beginning in 2008. The world has changed. People have changed. This is a secular shift, not a cyclical shift. Stocks might do very well over the next two years, but the investing public will not suddenly shift back into stocks. The repeated beatings taken by investors have left deep scars, and this is fundamental change. How long will this last? No one knows. Gold, silver, and oil suffered meltdowns in the early 1980’s, and it was twenty years later before the new bull market in commodities began. After 22 years, the Japanese stock market is still down roughly 75% from its peak. I’m sure a lot of people in those markets once thought what goes down must go up too.

For the past three years those same market mavens who have said stocks are “due” to rally since they have been down so long have also said rates are certain to rise because rates have been so low for so long. Despite what Barron’s experts and other Wall Streeters say, there is no law of nature or finance that says what goes down must go up. Again, just look at Japan. If rates do stay low for years to come, as I expect, credit unions can benefit a great deal. Yes, it will hurt investment portfolio earnings, but there will still be some spread left. But, credit unions can benefit even more by developing deeper relationships with members. Members with money won’t be eager to rate shop for c.d.s, nor will they be looking for the first opening to step into stocks. The secret of success is how to stay connected with members and deepen the relationships. In that, credit unions have a huge advantage over banks. For those of you who listened to Callahan’s Trendwatch webcast yesterday you saw that in the numbers. Credit unions grew profits last year in the low-rate environment, but more importantly grew market share. A low rate environment certainly has its challenges, but credit unions have the upper-hand.   

I’ll be back with updates.

Traders didn’t even have time to don those Dow 13,000 caps before the index fell back below 13,000. The Dow was -10 points with twenty minutes left in trading, but the Dow did manage to close higher by 16 points at 12,966. Volume was low. The S&P gained 1 point and the NASDAQ lost 3 points.

Bond prices closed lower but off the worst levels of the day. Although yields did rise somewhat today, the bond market is signaling that real investors in bonds were not impressed by the Greek deal. The 2-year ended at .30%, the 5-year .90%, and the 10-year lost 14/32s to yield 2.05%. The 30-year bond lost one point to yield 3.20%.

Gold and oil were the winners today. Gold gained $32 an ounce and oil added roughly $2.50. The other loser today was the consumer.

Tomorrow’s lone economic number will be Existing Home Sales for January. Economists are predicting a modest rise. Remember this data comes from the National Assoc. of Realtors, and the credibility of this number is very much in doubt.

While some sales will be our economic number, there is another economic number that traders are more likely to respond to. Tonight a closely watched Chinese purchasing managers survey will be released. The index has been in a mini-slump the past few months. Traders are hoping to see this index jump.

Mercifully, one thing we shouldn’t be hearing about tomorrow will be Greece. What a relief. Just hope it lasts a few weeks or months.

Update 11:40 a.m.:

After touching 13,000 much earlier this morning, the Dow has drifted lower. Apparently Dow 13,000 didn’t generate the enthusiasm or momentum that traders had hoped for. The Dow is currently down 7 points, the S&P is flat, and the NASDAQ has slipped by 11 points.

Bond traders aren’t reacting much to the sag in stocks. The 2-year is .30%, the 5-year .91%, and the 10-year is lower by 1/2 point to yield 2.06%. The 30-year bond is down one point to yield 3.20%.

I’ll be back with the close and a look ahead at tomorrow.

Update 10:05 a.m.:

The first party for the Dow moving above 13,000 lasted about a second, but the Dow didn’t fall far. The Dow is currently higher by 40 points at 12,990.

The bond selloff has picked up some steam. The 2-year is .30%, the 5-year .91%, and the 10-year is down 19/32s to yield 2.07%. The 30-year bond is down 1&1/4 point to yield 3.21%. The Treasury auctioned a new 2-year note today, and the auction results were surprisingly good. Without the imminent threat from Greece or Europe, dealers feared a drop in demand.

Update 8:25 a.m.:

Stocks have traded very sluggishly for the first two hours, but the Dow has just hit 13,000. Party! This really doesn’t have any technical meaning, but it makes people feel good. Nothing wrong with that.As mentioned earlier, only 1,000 points to get back to where we were almost 5 years ago.

Bond prices have continued to slide. The 2-year is .29%, the 5-year .90%, and the 10-year is lower by 13/32s to  yield 2.05%. The 30-year bond is down 25/32s to yield 3.19%.

Update 6:40 a.m.:

The Dow opened higher by 32 points at 12,982. Traders have those 13,000 caps nearby.

Bond prices have edged lower. The 2-year is .29%, the 5-year .89%, and the 10-year is down 10/32s to yield 2.04%. The 30-year bond is off by 20/32s to yield 3.18%.

I’ll be back with updates.

Morning Comment:

In the wee hours of the morning, the EU finance ministers finally signed off on the latest bailout for Greece. Now it’s up to Greece to execute the austerity plan – perfectly. An internal EU report was leaked last night that revealed that the 130 billion euro bailout might not be enough. Even small failures by Greece could run the tab to 245 billion euros. But the ministers decided to take the risk. There are still a few hurdles yet remaining for Greece to get the money to make bond payments on March 20, but it does appear that Greece will leave the stage for a few weeks at least. The Greek elections begin in March, and we’ll likely start hearing promises by the candidates to “change” the deal. We’re not done with Greece yet, and the markets will soon likely be facing problems in Portugal, Spain, and Italy. I’ll stick with my call that the wheels in Europe start coming off in March-April.

The euro and European stock indexes rallied yesterday, but those markets are off a bit this morning. Dow futures are playing catch-up to yesterday’s rally and are higher by 35 points in the early going.

Bond prices are lower as speculative accounts are selling. Some leveraged traders were long bonds just in case the deal did not go through. Those are the sellers today. The 2-year is .29%, the 5-year .88%, and the 10-year is down 6/32s to yield 2.02%. The 30-year bond is down 10/32s to yield 3.16%. Bond dealers are worried about this week’s Treasury auctions. The Treasury will hit the market with 2-year, 5-year, and 7-year notes, and dealers are unsure about demand with the calming in Europe.

While the Greek deal is getting the headlines, the big story in California at least is gasoline prices. I filled up with gas on Friday for $3.91. Passing by the same station on Monday the price was $4.01. The Los Angeles Times front page headline screamed “Rising gas prices stoke fear and anger!” I can’t say that I felt either of those emotions. Maybe a little p-oed, but that was all. But, gasoline prices are clearly rising nationwide. Some analysts believe this is the year we’ll see $5 a gallon.

We don’t need this. For those on the paycheck-to-paycheck living plan, there will be immediate adjustments. While a lot of consumers can pay the tab without adjusting other expenditures, that hasn’t been the history when gasoline prices jump. Higher gas prices hurt consumer psychology. This wouldn’t matter as much in a strong economy with rising wages, but that is clearly not the case at this moment in time. It’s too early to see any impact from the rise in prices. But, if prices continue to rise, you can expect the impact to start showing up in the numbers come April and May. Wall Street mavens are already making the case that gasoline prices won’t stall the economy. Of course these are the same people riding the subway or sitting in limousines.

The Dow closed Friday at 12,949. Despite the muted early reaction in the markets, traders will still likely make a run at a close of 13,000. Break out those Dow 13,000 caps! This doesn’t really seem like much to celebrate, but you can bet the headlines tomorrow will be screaming this if it happens today. Fantastic. The Dow will be only 1,000 points lower than it was almost five years ago. Yippee.

After a lumbering trade with a median price of +30 points on the Dow, traders made a late push to close the Dow over 13,000. But the trade fizzled after reaching 12,968, and the Dow closed up 46 points at 12,950. Need to save something for Tuesday. The S&P gained 3 points and the NASDAQ lost 8 points.

Bond prices closed lower on the day but well off the lows. Some traders apparently decided to take out some weekend insurance. The 2-year ended at .29%, the 5-year .86%, and the 10-year lost 6/32s to yield 2.01%. The 30-year bond dropped 7/32s to yield 3.15%.

Next week’s economic calendar is light with only New and Existing Home Sales of much interest.

When we come back Tuesday we have:  A.) A Greek debt pact. B.) A Greek debt pact delay. C.) A Greek debt pact failure. At this point, I really don’t care, but the markets will.

Have a great long weekend. See you Tuesday.

Update 10:25 a.m.:

The Dow is up 33 points as the day drags on. Volume is light, and it appears a lot of traders have checked out for the long weekend.

Bond traders are also exiting quickly today. Prices are stuck at the lower levels. The 2-year is .29%, the 5-year .89%, and the 10-year is down 11/32s to yield 2.02%. The 30-year bond is down 15/32s to yield 3.16%.

Update 8:25 a.m.:

Based on the first two hours of tradings, it looks like stock and bond traders aren’t willing to bet too much on the outcome in Europe on Monday. The Dow has traded very quietly between +20 and +50. The index is currently up 22 points. The S&P is flat, but the NASDAQ is off by .5%.

Bond prices remain lower on the day but off of the lows. The 2-year is .29%, the 5-year .88%, and the 10-year is down 8/32s to yield 2.01%. The 30-year bond is also down only 8/32s to yield 3.15%.

Update 6:40 a.m.:

The Dow is up 25 points in the early going, creeping closer to the 13,000 level.  The index is 12,929, and 13,000 is an easy jump from there. The S&P is up 2 points and the NASDAQ is down 3 points.

Bond prices are edging lower. The 2-year is .30%, the 5-year .89%, and the 10-year is down 14/32s to yield 2.03%. The 30-year bond is down 22/32s to yield 3.18%.

Morning Comment:

Yesterday’s good economic data, Weekly Jobless Claims and Housing Starts, was almost wasted on the squabble in Europe. But the clouds parted during the day when “sources” revealed that Big Daddy (the European Central Bank) decided to step in to separate the warring siblings. The ECB will do something it said it would not do and enter a bond swap that would effectively fill a gap in financing the Greek debacle. This put the “deal” back on track for approval Monday.

Dow futures are adding to yesterday’s gains. Futures are higher by 40 points in the early going. But, traders have to decide whether or not they should trust that everything will go smoothly on Monday. With our markets closed that day, most traders would not be able to react to any new snag.

Bond prices are lower as traders are betting that a Greek deal on Monday will set off the long overdue seasonal rise in rates. The 2-year is .30%, the 5-year .89%, and the 10-year is lower by 12/32s to yield 2.02%. The 30-year bond is down 20/32s to yield 3.17%. Seeing a “3” instead of a “2” to the right of the decimal point on the 2-year note isn’t really exciting, but it’s been a long time since we’ve seen that. I doubt that will inspire much buying, but perhaps a further rise will let some portfolio managers add a bit of spread in this area.

The Consumer Price Index rose in January by .2%, with the Core CPI rising by the same amount. The year-over-year rate of CPI is 2.9%, down from the 3.9% peak. The y-o-y rate on the Core is 2.3%. Apparel prices was the biggest category gainer, along with the rental equivalent measure. Remember that CPI is not the inflation measure the Fed uses. The Fed uses the Personal Consumption Expenditure index. They use this because the PCE is less influenced by the rental equivalent factor. But traders are still focused on CPI, and a 2.3% core rate does weaken any case for the Fed to even consider QEIII. The markets had no reaction to this number.

Today should be relatively quiet unless traders really decide to roll the dice on Greece. Greece is still a very bad bet on the long-term, but remember that Greece has given us some our best stock rallies and bond selloffs on the series of bailouts.

Stocks closed out the best day in several weeks. The economic data was good today, but the cherry on top was the rally in the euro from 1.292 to 1.313. Last night’s insult fest between Greece and others turned into a verse of kumbaya by the end of the day. The Dow closed higher by 123 points, the S&P gains 1.1%, and the NASDAQ added 1.5%.The Dow close of 12,904 puts the Dow within striking distance of 13,000. That level doesn’t really have any technical significance, but I’ll bet people would feel good about seeing that print again. 

Bond prices closed at the lows of the day. The 2-year ended at .29%, the 5-year .86%, and the 10-year lost 1/2 point to yield 1.96%. The 30-year bond dropped just under a point to yield 3.14%.

Tomorrow’s economic calendar includes Leading Indicators and the Consumer Price Index. Neither of these is likely to receive more than a passing glance. Based on the strong close today and the happy talk from Europe, tomorrow should be another good day for stocks and a bad one for bonds. But traders will have to decide just how much they want to believe Greece and Europe are on the same page to cut a deal. The EU ministers are scheduled to meet Monday, but our markets will be closed that day and traders will be left just hoping this goes smoothly. If stocks keep racing ahead tomorrow, that means traders are buying into the suddenly good vibrations from Europe. Sounds kind of dangerous.

Update 11:30 a.m.:

Stock trading is quiet, but it’s quiet at some very nice levels. The Dow is up 124 points, the S&P is higher by 1.0%, and the NASDAQ has added 1.4%. Volume is light but one-way.

Bond prices continue to slide. The 2-year is .29%, the 5-year .86%, and the 10-year is down 17/32s to yield 1.99%. The 30-year bond is down a point to yield 3.14%.

I”ll be back with the close and a look ahead at tomorrow.

Update 10:00 a.m.:

The Dow is up 104 points as the euro has climbed from the early morning low of 1.292 to 1.312. The big push came after those dreaded “sources” said the ECB was going to somehow bridge the financing gap to Greece to make the deal work. Whatever.

Bond prices are working lower. The 2-year is .29%, the 5-year .85%, and the 10-year is down 1/2 point to yield 1.98%. The 30-year bond is off by 20/32s to yield 3.12%.

Update 8:25 a.m.:

With the euro back above 1.30 and European stock indexes losses cut back to .4% or so, U.S. equities have managed to improve. The Dow is up 56 points, and the NASDAQ and S&P are both higher by roughly .3%. Volume is very light.

Bond prices are steady at the lower levels. Bond traders reacted more to the better data today than the silly spats in Europe. The 2-year is .28%, the 5-year .82%, and the 10-year is now off by 9/32s to yield 1.96%. The 30-year bond is down 12/32s to yield 3.12%.

Update 6:40 a.m.:

Stocks have opened higher after the euro climbed back above 1.30. Stocks should have opened better on the economic news, but stock prices didn’t improve until the euro bounced. The Dow is up 20 points in early trading, and the S&P and NASDAQ are each close to unchanged. 

As mentioned below, bond traders initially shrugged off the economic news, but prices have started to retreat. The 2-year is .28%, the 5-year .82%, and the 10-year is lower by 8/32s to yield 1.96%. The 30-year bond is down 12/32s to yield 3.11%.

I’ll be back with updates.

Morning Comment:

It’s getting personal now. There was a lot of mud-slinging between officials of Greece and France last night, with both sides hurling insults. At least they haven’t started insulting each other’s mothers yet, but it’s getting ugly. Nobody is singing kumbaya now. But, another meeting to seal the deal is still on tap for Monday – unless there are more delays. This cha-cha dance has a few more days to run and will unavoidably impact the markets. In early morning trading, the euro fell below 1.30 vs. the dollar, European stock indexes were down about 1%, and Dow futures were down about 40 points ahead of the economic news of the day.

The two major economic indicators this morning are out now and both were better than expected. Weekly Jobless Claims fell to 348k from 361k. There appears to be no unusual factors at play. If so, this is a very good number. It doesn’t say businesses are hiring, but it does tell us fewer businesses are paring payrolls. This bodes well from the next jobs report. Housing Starts were forecast to be 675k annualized but rose to 699k annualized. The previous month was revised from 657k to 689k. The housing numbers were very good, but we need to give this a few more months to make sure that seasonal factors didn’t balloon the figures. PPI was also released and the headline number rose by only .1%, but the core rate rose by .4%. This is currently an irrelevant number.   

If it weren’t for the European cat fight, the market would likely be flying on this news. Instead, Dow futures have so far moved only from -40 points to unchanged. The market could do much better today, but it’s going to require some happy talk from Europe.

Bond traders are shrugging off the upbeat economic news. The 2-year is .27%, the 5-year .80%, and the 10-year is up 2/32s to yield 1.93%. The 30-year bond is unchanged at 3.09%.

There is a Wall Street Journal article this morning on subprime mortgage securities. The market is heating up for the dregs of the mortgage backed securities realm. This isn’t the first rally in these securities, but some of the big leveraged (and very daring) players are back in scooping up the kitty litter of housing. The index of the formerly AAA bonds has moved from a low of 25 back in the darkest days to 49, with a 14% jump this year. The players believe that after the passage of a several years now the mortgages that have or will take full losses are known and the rest will heal. This could be another false start for this class of bonds, but I hope it’s real this time. This doesn’t signal a return of private mortgage securitization, but this still might matter to you. Perhaps those dire estimates of losses by the NCUA from the corporates’ holdings will not be realized.    

The rest of this lengthy Morning Comment is something I was just thinking about last night regarding the future of the housing market. Don’t be afraid to read it. It’s actually kind of upbeat.  

Yesterday’s National Homebuilders sentiment index jumped to 29, the highest level in four years. The 29 level is still below the 50 mark that represents the dividing line between growth/optimism and contraction/pessimism. While there is no reason to set off fireworks and declare the beginning of new age of housing growth, this is one more sign that progress is being made.

Being raised in the farm belt of Texas, I can’t help but think of housing in terms of farming. After years of overplanting, the soil can become depleted and the last crop turns up a bust. Farmers then must “lay out” land, planting no new crops for a period of time and using various methods of treatment to replenish the soil. In housing, after years over overplanting of homes, there was a massive crop failure. The land lay fallow for years, but now we’re seeing some signs of preparing the soil for the next new crop.

In many areas the rent/own equation now favors owning. If you saw our recent webinar, I presented a slide showing how home prices in many bubble real estate markets over-corrected to the downside using historical trends. Affordability is the best in years in very many years.

Builders have under-built for almost five years now, but that was certainly necessary given the over-built nature of bubble. Consider the history of auto sales. Auto sales were in a three-year slump, during which consumers ignored the normal replacement cycle and effectively “under-bought” cars. Once some confidence was restored, consumers slowly began to return to the market. Ignoring the huge cash-for-clunkers aberration, we see that car sales turned positive in a very slow but steady nature. Car sales are still short of what we used to think of as “normal,” but auto sales are up by roughly 50% from the bottom.    

We’re also seeing strong growth in investor buying of homes. Sure, there are still some flippers out there and there are “investor groups” who are really nothing more than holders for a year or two. But, the data show that individual investors are taking up a growing share of the investor market. For the most part, these investors are the ones we need. They are buying for long-term investments that cash flow out. Many of these people are simply tired of being burned in stocks and can’t stomach low bond yields. Even so-called dividend stocks carry a lot of risk for only modest returns. For these investors who do their homework, buying rental properties makes a lot of sense. This can help soak up some foreclosure supply. This is an area in which many credit unions can be effective. You know your local market, and you know your members. This won’t necessarily work in all markets. In some markets rental properties still do not cash flow out. Investors are only in it for capital gains that might not come. But, for the rest of you, this is something worth exploration if you aren’t already involved. One big benefit is that these loans can command a higher interest rate.

The groundwork is being done to enrich the soil for housing. Affordability is better, quality investors are active, builders have under-built for the long-term, and consumers have stayed out of the market for an extraordinarily long period of time. Of course an ill-wind could blow in from Europe and strip away the top soil, but conditions are getting favorable again for planting a new crop. Sure, we must see a better job market and rising wages for a bountiful harvest, but this could be the last year of “lay out” for housing.

The Dow hit a low of -123 with 30 minutes left in trading, but traders again fought against closing the Dow with its first triple-digit loss of 2012. The Dow closed down only 97 points, the S&P lost .5%, and the NASDAQ fell .6%. Even Apple wasn’t immune to the selling. Maybe I cursed Apple today. In the 8:25 a.m. Update I mentioned the Apple story in the WSJ today about the piling into Apple by money managers. Apple was up $14 at $526 earlier today; Apple closed down by $12 at $497.

Bond traders did not react strongly to the fall in stocks, especially since this was mostly a rumor-driven move. The 2-year ended at .27%, the 5-year .79%, and the 10-year gained 1/32s to yield 1.93%. The 30-year bond lost 5/32s to yield 3.10%.

Unfortunately today’s price action in stocks dispels the illusion the market was becoming bulletproof to Greek news. I’m sure we’ll have more of that tomorrow. While a resolution is still more likely than not, I’m beginning to wonder if perhaps we will see the dreaded Greek default in March.

Tomorrow’s calendar includes PPI, Housing Starts, and Weekly Jobless Claims. Housing Starts are expected to jump largely due to favorable weather conditions. Claims should remain near 370+, plus/minus 10k.  

Update 11:50 a.m.:

The Dow hit a low of -108 points but has rebounded to -80 heading into the last hour to trading. The S&P is down .4% and the NASDAQ is lower by only .2%. Trading is light as the Greek rumor mill has died down.

 Bond prices have retreated to close to unchanged on the day. The 2-year is .28%, the 5-year .79%, and the 10-year is now higher by 4/32s to yield 1.92%. The 30-year bond is higher by only 1/32 to yield 3.09%. 

I’ll be back with the close and a look ahead at tomorrow.

Update 11:05 a.m.:

There was not much of interest from the FOMC minutes, but the minutes did make it clear there was a lot of debate about putting out a rate target date. We already know that a few were very much against that. The minutes also revealed that some members were ready for another round of QE money and others were “open” to it. It’s always worth remembering that these minutes are carefully edited before publication; they don’t tell the full story of these secretive meetings. One member, Lacker, said the Fed was likely to need a pre-emptive tightening move long before 2014.

The Dow is still struggling at -91 points. The 2-year is .27%, the 5-year .78%, and the 10-year is up 8/32s to yield 1.91%. The 30-year bond is higher by 11/32s to yield 3.07%.

Update 10:10 a.m.:

The Dow was down slightly and the NASDAQ was up strongly on Apple, but the market has hit a bump in the road. The Dow is now down 90 points, and the NASDAQ is now off by 3 points. Apple was up $14 and is now down $4 a share. Why? You know it has to be more European worries. I won’t bother reporting the latest round of rumors. They will likely be replaced later today with some other rumors. Unfortunately, the markets aren’t ready to put Greece in the closet.

Bond prices are higher. The 2-year is .27%, the 5-year .78%, and the 10-year is now higher by 10/32s to yield 1.91%. The 30-year bond is up 12/32s to yield 3.07%.

Update 8:25 a.m.:

Stocks continue to trade sluggishly with the whole Greek issue seemingly clouding the outlook. The Dow is down 30 points, mostly due to the drag from Deere’s poor earnings. The S&P is flat,but the NASDAQ is up .5% on the pull of Apple. The Wall Street Journal had an interesting analysis of the stock price and earnings performance of the S&P and NASDAQ without Apple. The results are dramatically lower. There was also a report that money managers without Apple are piling in and those with Apple are ramping up their positions. Looks like a red flag, but I guess as long as Apple continues to roll out new products to its cult like following, there is no reason to doubt Apple.

The National Association of Homebuilders index jumped from 25 to 29. That is the best level in four years, although 50 is the dividing line between growth/optimism and contraction/concern. Most components rose. The only caveat is that better than usual weather played a factor.

Bond prices have moved little today but are currently higher. The 2-year is .27%, the 5-year .79%, and the 10-year is up 6/32s to yield 1.91%. The 30-year bond is up 7/32s to yield 3.08%.

Update 6:40 a.m.:

The early enthusiasm for stocks cooled by the opening. Dow futures had been as much as 80 points higher but the Dow is down 7 points in early trading. The cooling came from a very cool Industrial Production number. The index was expected to rise by .7% but was flat for the month. But the headline was a bit deceiving. Much of the downside was due to warmer weather, which lowers output from utilities. Also, December’s number was revised from +.4% to +1.0%. The other slight negative, and I hesitate to mention it, was that a “source” in the EU said that the EU doesn’t trust the last-hour pledge of cooperation by that Greek leader.

Bond prices are close to unchanged. The 2-year is .29%, the 5-year .82%, and the 10-year yield is 1.94%. The 30-year bond is down 2/32s to yield 3.09%.

Next up will be the homebuilder’s survey. Economists are expecting a one-point increase, but I just read a comment from a highly respected real estate consulting firm that is looking for a much larger increase.

Morning Comment:

Early pre-opening trading in stocks is pointing to a sharply higher opening. Dow futures are higher by 70 points. But none of the early noises has anything to do with the U.S. The farce being played out in Europe over Greece is continuing. After a game of chicken between the EU ministers and the Greek leader who had hinted at agreeing to austerity measures but not implementing the measures, the Greek leader blinked as the EU ministers canceled the meeting to approve the pact. After the Greek leader promised to send a letter of commitment, the EU said it would meet “soon” to consider the measures. What is this? Junior high? Also in Europe, 4^th quarter GDP was “less bad” for the euro zone than expected. Growth fell for the members by .3% instead of .4%.

China is getting the lion’s share of the credit for the rally today with yet another vague promise to come to the aid of Europe. China has been very effective at this game. The country comes in at select times and hints at aid. This cheers everyone up that the rich kid on the block is coming to play, and then no one seems to notice when he never shows up.

Far more instructive to us is that the Japanese central bank announced a new round of QE style purchases. The bank will buy Japanese bonds as a way to pump more money into an economy awash in liquidity. This is either QE VI or QEVII for the Bank of Japan. After all of the other QE’s the Japanese 10-year note is still 1%, the overnight rate is 0%, and the country is still wrestling with deflation and no growth for almost two decades. Are you paying attention Ben Bernanke? Time to get a new playbook instead of following the Japanese game plan.

We will get news for the U.S. today when Industrial Production and the National Association of Homebuilders sentiment index are released. Economists are looking for a pretty good bounce in production. This is mostly based on normal cyclical patterns. Later today the minutes of the last FOMC meeting will be released. The minutes will not reveal anything we don’t know, but analysts will dissect the minutes in an effort to discern just how close the Fed might be to another round of QE here.

There was some good news today in the U.S. when Congress decided to play nice and approve the extended unemployment benefits and payroll tax cut until the end of the year. These were to expire at the end of the month. Republicans apparently decided not to play games with the inevitable passage and risk more political fallout.

The bond market is taking the “good news” of the day in stride. Prices are very close to unchanged to start the day. Stocks have had a great run, though not exciting. But here is something to note. Twice last year, in April and June, stocks essentially rallied close to the current levels. In those rally cycles, the 10-year yield rose to 3.45% and 3.10%, respectively. Yet here we are in 2012 with stocks at or above those levels and the 10-year yield is 1.94%. And this comes after huge amounts of Treasury issuance. Bond investors seem to have little interest in the stock market. Bond buyers seem very resolute in what they expect the future to look like. Let’s hope bond traders have it wrong this time. The 2-year is .29%, the 5-year .82%, and the 10-year is up 2/3s to yield 1.93%. The 30-year bond is up 4/32s to yield 3.08%.

I’ll be back with updates.

What a goofy end to a goofy day. I feel almost embarrassed for Wall Street to report on this. They should be ashamed.

As mentioned in the Morning Comment, it didn’t seem likely that the EU ministers would sign off on the Greek deal after the comment by a Greek party leader. Sure enough, the meeting tomorrow by the EU ministers was cancelled. The EU said more “technical” details need to be worked out before approval. I think “technical” means they just realized Greece had no intention of rebooting austerity measures. The next date mentioned for approval is March 1.

But, hold on. About 10 minutes before the close the Greek leader that caused the stir with his comments about “negotiable” austerity measures apparently decided the EU was serious about holding Greece’s feet to the fire. Now he says that not only will he agree to assurances about the austerity, he will sign something tomorrow to indicate compliance. Sounds like a very trustworthy sort of leader to have. Remember he is the leading candidate for Premier of Greece. If the EU ministers had any sense at all, they would simply walk away and let Greece default instead of guaranteeing them at least another $130 billion. Let Greece default then work on how to save the salvageable parts of the euro.  The sooner the EU is willing to admit this and prepare, the better. 

After a low of -87 points, traders rallied stocks in those last minutes to close the Dow up 4 points. The S&P fell whole point, and NASDAQ was dead even on the day.  

Bond traders had a good day today and didn’t lose much ground at the end. The 2-year ended at .29%, the 5-year .81%, and the 10-year gained 12/32s to yield 1.93%. The 30-year bond closed up 26/32s to yield 3.08%.  

Tomorrow’s primary economic report will be Industrial Production. There is also the homebuilders sentiment survey, but this is mostly primarily another opinion poll. Of some interest will be the release of the minutes of the last FOMC meeting. Maybe we’ll find out which color darts the Fed officials used to predict the first interest rate tightening.

Update 11:40 a.m.:

As the markets head toward the final hour stocks remain lower and bonds continue to creep higher. The Dow is now down 80 points. The 2-year is .28%, the 5-year .81%, and the 10-year is up 15/32s to yield 1.92%. The 30-year bond is up a point to yield 3.07%.

Update 10:25 a.m.:

Stocks have started trading lower and bonds higher still. This comes after news that the EU ministers have postponed any consideration of the Greek bond deal to sort out “technical” difficulties. The circus never ends. The Dow is down about 60 points, the S&P and NASDAQ are each down .6%.The market is clearly tired of reacting to Greece as these smaller moves indicates. But, it’s not a topic they are willing to ignore completely.

The 2-year is .29%, the 5-year .81%, and the 10-year is up 14/32s to yield 1.93%. The 30-year bond is up just less than one point to yield 3.07%.

Update 8:20 a.m.:

Bond traders are having a much happier Valentine’s Day than stock traders, but I don’t think anyone is getting married to the moves today. The 2-year is .29%, the 5-year .82%, and the 10-year is higher by 10/32s to yield 1.94%. The 30-year bond is up 24/32s to yield 3.08%.

The Dow is down 36 points and has been stuck in a range of -25 to -50 all morning.

Update 6:40 a.m.:

The Dow is down 30 points in early trading, the S&P is off by .3%, and the NASDAQ is down .4%. Volume is again very light. 

Bond prices remain higher. The 2-year is .29%, the 5-year .82%, and the 10-year is now higher by 8/32s to yield 1.94%. The 30-year bond is up 17/32s to yield 3.09%.

In the comment below I mentioned that tomorrow is a key day for EU ministers to sign off on the Greek deal, but apparently even that meeting might not be the final say. This meeting will be to generally approve the deal or suggest changes. Apparently there is another meeting on March 1 that will be the final stamp of approval. 

Morning Comment:

It’s Valentine’s Day, but there isn’t much love for stocks today after the Retail Sales report. Retail Sales were expected to rise by .7%, but January sales rose by only .4%. December was revised from +.1% to flat. While the headline number was weaker, the government said the headline number was pulled down by autos and gasoline.  Retail sales ex-autos and ex-gasoline rose by .6%. The government said that autos subtracted from the headline number, but auto makers said sales were higher in January. There was some mumbo jumbo about this being related to fleet sales downwardly biasing auto sales. This doesn’t make much sense, but what does when it comes to some of these statistics? Year-over-year retail sales rose by 5.8%, not adjusted for inflation, the weakest y-o-y gain since mid-2010.

Stocks were higher overnight but not dramatically. There was one good economic indicator from Germany and a good Italian bond auction. This offset the news of Moody’s downgrades of several European countries. The reaction to the Retail Sales report was not significant, but Dow futures are down about 30 points since the number.

Bond prices are higher on the news. The 2-year is .28%, the 5-year .82%, and the 10-year is higher by 5/32s to yield 1.95%. The 30-year bond is up 8/32s to yield 3.10%.   

This is from last night’s close in case you missed it. This is still kicking around today. I know Greece is supposed to be off the radar for a few weeks or months, but there are a couple of details still to be wrapped up by Wednesday. To make the pact official and wire Greece its next installment payment on the disaster, the full European Union finance minister representatives must sign off on this Wednesday. Yes, this is still likely to happen, but there is some room for doubt. The German minister has made some noise that even more austerity measures for Greece might be demanded. On the Greek side, the leader of one of the parties made a comment that probably raised the hackles of the EU ministers. This party leader is the front-runner for the Premier’s post in the April elections. While he voted for this austerity plan, he made reference to the possibility that the austerity measures were “negotiable.” I don’t think that is what the EU folks have in mind. Let’s just hope this nothing more than idle talk.

I’ll be back with updates. This has been a pretty dull stretch we’ve been stuck in. I hope something more interesting happens today.

The Dow reached +86 points in the last hour but faded just a bit toward the close to end the day with a 72 point gain. Traders were hoping to recover Friday’s loss of 89 points but fell short of that goal. The S&P ended higher by .6%, and the NASDAQ added .9%. Volume was light.

Bond prices closed unchanged to higher. The 2-year ended at .28%, the 5-year .84%, and the 10-year added 3/32s to yield 1.98%. The 30-year bond gained 12/32s to yield 3.12%.   

Tomorrow’s economic highlights will be the Producer Price Index and Retail Sale. PPI shouldn’t get much attention, but traders will likely respond to the Retail Sales number. After a weak December number economists are guessing sales will pop .7% or more in January.

I know Greece is supposed to be off the radar for a few weeks or months, but there are a couple of details still to be wrapped up by Wednesday. To make the pact official and wire Greece its next installment payment on the disaster, the full European Union finance minister representatives must sign off on this Wednesday. Yes, this is still likely to happen, but there is some room for doubt. The German minister has made some noise that even more austerity measures for Greece might be demanded. On the Greek side, the leader of one of the parties made a comment that probably raised the hackles of the EU ministers. This party leader is the front-runner for the Premier’s post in the April elections. While he voted for this austerity plan, he made reference to the possibility that the austerity measures were “negotiable.” I don’t think that is what the EU folks have in mind. Let’s just hope this nothing more than idle talk.

Update 11:50 a.m.:

Stocks are picking up a bit heading toward the last trading hour. The Dow is up 80 points, the S&P up .7%, and the NASDAQ is better by .9%.

Bond prices aren’t far from unchanged on the day but have slipped. The 2-year is .28%, the 5-year .84%, and the 10-year note is 1.99%. 

I’ll be back with the close a look ahead at tomorrow.

Update 10:20 a.m.:

The Dow is back up to the opening levels. The index is up 72 points in very light trading.

Bond prices have retreated from the rally. The 2-year is .27%, and the 5-year is .83%. The 10-year and  30-year are back to unchanged on the day at 1.99% and 3.14% respectively.

Update 8:20 a.m.:

Stocks remain modestly higher in very sluggish trading. The Dow is up 46 points, and the NASDAQ and S&P are both up roughly .5%.

Although Buffett calls bonds “dangerous,” traders are daring to add to positions. The 2-year is .27%, the 5-year .81%, and the 10-year is now higher by 8/32s to yield 1.96%. The 30-year bond is higher by 20/32s to yield 3.11%.

Update 6:40 a.m.:

Stocks opened higher as expected, but it’s clear that traders have already moved on from Greece. The Dow is up 72 points in the early going, the S&P higher by .6%, and the NASDAQ has added .8% as Apple has jumped the $500 barrier.

Bond prices were lower earlier but are back to unchanged. The 2-year is .27%, the 5-year .83%, and the 10-year is unchanged at 1.99%. The 30-year bond is stable at 3.14%.

There are no economic statistics today. I’ll be back with updates.

Morning Comment:

You know that E-trade baby commercial who sarcastically shows his shocked face when the dad didn’t win the lottery? That’s the face I made last night. The Greek Parliament did vote in favor of the austerity package Sunday night, ending the drama. There was never any real doubt, and it could not have been less of a surprise. This farce was merely a remake of the 2011 version of the movie. Less than a year ago the Greek Parliament had to pass a batch of austerity measures, and the bailout hung in the balance. In the eleventh hour, the Parliament passed the measure, giving Greece the money that was supposed cure all ills and the markets a reason to rally on the cure. Here we are less than a year later after a colossal failure of that last bailout, and the same script is being played out. Greece gets more money to pour down the rat hole. A few thousand Greeks celebrated the vote by rioting and burning down buildings. Here in America we reserve those celebrations for sports championship.   

The markets are having the expected reactions to the “news” but the moves are not they significant. This is an old and very tired story. Traders seem less amused this time around. Dow futures are roughly 80 points higher in pre-opening trading, and bond prices are slightly lower. The 2-year is .27%, the 5-year .82%, and the 10-year is down 4/32s to yield 2.00%. The 30-year bond is down 15/32s to yield 3.15%.  

 This coming week we’ll get a lot of economic news. The biggest number of the week will be Retail Sales on Tuesday. We should see a sizeable jump after a weak December report. Car sales were strong in January, and those Christmas gift cards were spent. Looking a bit ahead, sales this month should be good as tax refunds begin to hit. The other two economic headline economic releases will be the Consumer Price Index and Housing Starts. These two will not be game-changers, but they do get a lot of attention and ink in business journals.

Finally, a comment about last week’s epic smackdown, Buffet vs. Gross. It wasn’t actually a smackdown, but on the same day it was revealed that Bill Gross had ramped up the holdings of U.S. treasuries in his mega-bond fund to 38% of assets, Warren Buffett said that treasuries was the most “dangerous” asset class in investments. Warren has a point. At this level of rates, the price risk in longer-term treasuries is huge. Investors can buy high-quality dividend stocks at yields well above bond rates and can participate stock rallies. I am certainly not one to argue with Buffett, nor am I a huge fan of Bill Gross. But Buffet is forgetting one thing.  

After the double knock-out blows of stock market and home equity meltdowns, for many investors it’s all about return of principal, not return on principal. You’ve probably heard that before. Many individuals, especially those in or near retirement, simply cannot afford to risk money on stocks. At least with bonds, you know you will get your money back on a fixed date. That’s simply not true for stocks. It’s entirely conceivable, given the European risk, that stocks could fall by 40-50% from this point. And, there is no guarantee that stocks would bounce back this time. Consider Japan. Over twenty-two years ago the double collapse of stocks and home equities struck, and today the Japanese stock market index remains at roughly 25% of its peak and the 10-year note rate in Japan has been stuck near 1% for over a decade. Bond investors are actually earning more on a deflation adjusted basis. Investors at first resisted switching to all Japanese bonds for the first ten years, but surrendered to staying in bonds after countless false starts.

It’s not just individuals who opted for return of not on principal. Global institutions and central banks also gorged on our mortgage backed bonds. Today those entities still want the safety of U.S. assets but not the risk. Those huge funds have flowed into treasuries at the sacrifice of returns. Pension funds could be next, but there will have to a revolution in re-writing pension benefits first.

We are likely in a different world in which a once in a lifetime secular event has taken place. In the Buffett/Gross smackdown it’s awfully tempting to bet on Buffett, but this could be a Gross world.    

Obviously this has big implications for both sides of the balance sheets of credit unions. For the last few years I’ve been on my soapbox about the need for credit unions to spend time envisioning what the credit union would look like in a permanently low rate environment. Hard choices and big forward thinking is in order.     

I’ll be back with updates.

The Dow was down about 130 points with 15 minutes left in trading, but traders came in very late to avoid the first triple-digit loss day of 2012.  The Dow closed down 89 points but was down well over 100 points the entire day until the last few seconds of trading. The S&P lost .7.%, and the NASDAQ dropped  by .8%. For the week, all three indexes closed with small weekly losses.  

Bond prices closed near the best levels of the day. Once again it looks like bond bears were on the run, and that seasonal uptrend in rates is looking less likely. The 2-year closed at .27%, the 5-year .80%, and the 10-year added 22/32s to yield 1.96%. The 30-year bond gained 1&1/2 points to yield 3.11%. Those buyers of the Treasury auctions this week must be very happy.

As much as I detest S&P, those ratings downgrades of those 34 Italian banks might matter more to European markets Monday than Greece.

As mentioned below, the Greek Parliament might vote Sunday night on the measures that the party leaders agreed to, or they might follow the usual pattern and delay the vote a day or two. I still believe this passes. Otherwise, no money. No money, no euro for Greece. The Greek people favor staying in the euro by 70%; they just don’t like the cost of staying in the game.   

After a bare economic calendar this week, we’ll get a full slate of numbers next week. Probably the most important number of week will be on Tuesday with the release of Retail Sales. After weak .1% rise in December, economists are guessing a .7% jump is in store. The inflation indexes, Housing Starts, Industrial Production, Weekly Jobless Claims, and the NY and Philly regional manufacturing indexes.

Have a great weekend, but it will be a sad one for many of us. This is the first weekend of no football. What are we to do?

Update 11:10 a.m.:

The Dow settled in around -100 points and seemed content there, but then S&P struck again. The ratings agency ogre (with apologies to Shrek) downgraded 34 of the 37 Italian banks it rates. This was enough push the Dow back down to -140 points.

Bond prices were already up sharply, and this news kicked it even higher. The 2-year is .26%, the 5-year .79%, and the 10-year is higher by 24/32s to yield 1.96%. The 30-year bond is now up 1&17/32s to yield 3.11%. 

Update 10:05 a.m.:

Stocks continue to trade quietly, but some of the losses are being pared back. The Dow is down 109 points, the S&P is off by .7%, and the NASDAQ is off by .6%.

On the bond side, prices continue to creep higher. Apparently some traders want to take treasuries home for the weekend, just in case. The 2-year is .27%, the 5-year .81%, and the 10-year is up 20/32s to yield 1.97%. The 30-year bond is higher by 1&1/4 point to yield 3.13%.

Update 8:30 a.m.:

The Dow dipped as low as -147 points but is now down only 112 points. Volume was relatively heavy early but has dwindled rapidly. Europe is getting ready to close and some of those indexes have cut some losses. Maybe that will help the tone of our market later. But, I think traders would prefer to just head out for the weekend.

Bond prices remain at the best levels of the day. The 2-year is .27%, the 5-year .82%, and the 10-year is up 1/2 point to yield 1.98%. The 30-year bond is up over a point to yield 3.13%. 

The Greek Parliament is scheduled to vote on the austerity measures Sunday night. It could fail on the first vote or the vote could be delayed, but I still expect this measures to pass. This doesn’t mean that Greece will actually follow-through, as we have learned over and over again. But, this annoying story has a few more days to run.

Update 6:40 a.m.:

The Dow has been down as much as 120 points in very early trading, and the index is now down 105 points. The selloff is mostly due to Greece, but some selling might be related to the fact that the market has been up a lot this year and perhaps just needs to back and fill a bit. 

Bond prices remain higher on the day with most of the action on the longer-end. The 2-year is .27%, the 5-year .82%, and the 10-year is higher by 1/2 point to yield 1.98%. The 30-year bond is up just over a point to yield 3.13%.

Morning Comment:

Not so fast….  Greece isn’t quite ready to leave the stage of the euro-drama for a few scenes. Yesterday the Greek debt deal was done, so most people thought. But the European finance ministers said they must wait to sign off on the deal until Greece actually passes the agreed austerity measures. In the midst of huge public protests and demonstrations in Greece today, some Greek leaders are threatening to back away from the measures. These measures must be passed by next Wednesday. The opposition voices are getting a lot of attention in the market today, but those outspoken leaders control only a small slice of the Greek government. The measures are still likely to pass, but this doubt is leading to some market reactions today.

The euro is down, European stock indexes are off by roughly 1-2%, and Dow futures are down almost 100 points in pre-opening trading. This story feels more like an excuse to trade in an extremely dull market than any significant development. The bond market is having a more subdued reaction. Prices are only slightly higher. The 2-year is .26%, the 5-year .81%, and the 10-year is higher by 18/32s to yield 1.97%. The 30-year bond is higher by more than a point to yield to yield 3.13%. In the auctions this week the 10-year came at 2.02% and the 30-year at 3.24%. Once again buyers in the auctions are being rewarded.    

Later today we’ll get the University of Michigan consumer sentiment survey. This is unlikely to cause any market reaction given the awful track record of consumer confidence translating into spending.

There was one economic number that caught my eye today, but this one was from China. January Chinese exports fell by .5% and imports by 15%. This is perhaps an indication of weakness in China. But of more relevance to Californians especially is the possible implication for our port business. Trade and transportation is a huge factor for any state with ports. It impacts all sorts of jobs in the transport line and fills warehouses that employ many people. Increased port business has been one of the bright spots for California the past two years. Let’s hope this doesn’t dim the lights.

In the absence of any meaningful data today, I thought a follow-up to yesterday’s big mortgage settlement was in order. I heard from one reader who thought the biggest impact would be an acceleration in the pace of foreclosures to hit the market. That seems to the general consensus. After reading a broad range of opinions, here are a few general impressions I came away with. 1. The deal is good for banks as it eliminates the threat of facing 49 law suits from state attorney generals. 2. There will be little to no immediate positive impact on housing. The banks will have three years to meet the requirements to spend the settlement money. 3. Money for principal reductions to borrowers already delinquent might do little but merely delay foreclosure. The amount to be sliced up seems too small to make a serious dent for borrowers in way over their heads. 4. There is little help for borrowers who are current on payments but at risk. 5. The deal will do no harm to the long-term housing outlook but is unlikely to have a significant impact. I think it comes down to this. This program will help if it comes in an environment of an improving job market and rising wages.

In my webinar on Tuesday, I mentioned the decline in real household median income. Last night new figures were released, and there was a 4% increase in median income in the fourth quarter – not adjusted for inflation. The surge came on the better job growth. (Don’t forget that record government transfer payments are included as well). Despite this surge, median incomes are still down 7% from 2007. But, at least this is some progress.  If you missed the live webinar it is available for viewing. You should have received a notice on how to access the recording. Let us know if you missed that notice.

I’ll be back with updates.