If Wal-Mart is lowering prices
every day, how come nothing
is free yet?
The stock market keeps rallying,
but the yield on the 10-yr
ended last week at 4.95%. Although this morning it is
down to 4.94%, according
to some, the next target is 5.00%... then what? The
market may be justified in
its view for stronger growth ahead, and concern that
the foreign interest in
buying our debt has declined, but that perhaps is what
has got us to this
point. Much of the strong data is behind us, and this
week is light – see
below. Many analysts feel that if we stay above
5.0% on the 10-yr, then the
risk will become 5.25%, which is where we were a
year ago.
On Friday prices worsened (rebates
declined) after a series
of reports showed strength in the U.S.
economy: more jobs were
created in May than economists forecast, and
manufacturing unexpectedly
accelerated. The increase in employment adds to
evidence the economy may be
picking up steam after a moderate first quarter. The
10-year note's yield
reached 4.94%, the highest since 5.003% in mid-August.
What is housing up to? Home
prices appreciated 4.3% in the first quarter of 2007
from one year earlier,
but the pace
of year-to-year
price appreciation slowing. Seven states, including Florida
and California,
saw price depreciation from the end of last year to
the first quarter of 2007.
And two states (Massachusetts
and Michigan)
experienced
year-over-year price declines for the first time in
seven years. And an index
of pending sales of existing homes in the U.S.
unexpectedly fell to the
lowest level in more than four years in April, a
further sign the real-estate
slump may linger.
Most generally agree that rates
are still low historically,
but are likely to creep higher. The bond
and mortgage markets are
increasingly oversold technically and both are in
store for some kind of
consolidation. For months analysts thought that rates
were going lower once the
Fed began to cut, but now the chance of a Fed increase
outweigh a rate cut.
This is disappointing for many. In April, for example,
PIMCO’s Bill Gross
was forecasting four rate cuts from the Fed by year
end.
Week
of June 04 - June 08
