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Profentia: February 25th, 2015

Today’s data: January New Home Sales limp their way higher to a lofty (not) 481,000.

When I see the media running stories like some I endured today where the news is portrayed as something far more than it is, I have to wonder who writes and who edits this stuff? Today’s report came in just over its mundane at best forecast and this report is one that represents ten percent of the whole marketplace for homes. Ten percent and that is it. This is not the big dog on the porch, it is the little guy out in the front yard and how it goes for this little guy is not the issue. But even so some will want to suggest it is. The news of the day, the stuff the markets are seeing as the important matters is the testimony by our Fed Chair Janet Yellen given yesterday and resumed again today. The Yellen news is this — the Fed thinks they know where the economy is going, and they know what hopes they hold for our economic future. The Fed will act as the strengths and weaknesses develop in the months just ahead. At this point they have insufficient evidence that the inflation/price stability mandate they have been tasked is meeting even its most minimal target. They do know that the next six months will likely move matters even further away from the minimum which really complicates their desire to claim victory by pointing to the jobs sector.

The Big Picture: Banking reg’s, already obscene in their over-reach now move to do real harm.

We were taught when we were quite young that good fruit does not come from rotten trees; I will twist that to opine that we don’t get good legislation from a corrupt Congress and we are about to all feel the truth of it. Dodd-Frank is a quintessential example of deeply flawed legislation that creates even more egregiously flawed regulatory intrusion and over-reach. I am speaking of the new capital and liquidity ratios that will soon go into effect and their consequences. I don’t know if you happened to hear that RBS will exit, as soon as it can, 13 nations completely as it continues to contract and rebuild its capital or if you have heard that JPM Chase has decided to reduce its asset base by a modest amount, like $100 BILLION. I have worked with depository institutions for all of my 35+ years as a bond geek, I have met with Boards all that time, I have written policies for de novo (start-up) banks and I have been on the Boards of both State and National Charter Banks. I mean to offer up the self-image of a guy who knows his way around the world of banking and can offer an informed opinion on the banking business. I love, far beyond like, I love very strong capital ratios and I equally treasure an abundance of liquidity on the balance sheet. But as with all in life, there are wise and unwise ways to create both, and due to limited time and space I will simply say that the new reg’s couldn’t do a more harmful job of creating liquidity and strong capital than they are about to do.

Investment Portfolio: What happens to V, our friendly velocity of money when banks contract?

Anyone class, what happens to V (from the Fisher Equation) and what happens to lending when banks shed assets; particularly in an economic time in which there is a lamentable lack of assets worth holding? If the question stumps you, let me help. Look at banks in the EU and what they’ve done, are doing now, after the crisis on 2008. Lending shrank and with that all the economies shrank and V fell off a cliff as a consequence. Now, thanks to the inmates running the asylum in Congress we are probably going to see a repeat just ahead for our economy. Barnie’s legacy!

Weekly Market Data

  • Wednesday
    02/25
    Open:Close:
  • Tuesday
    02/24
    Open:Close:
  • Monday
    02/23
    Open:Close:
  • Friday
    02/20
    Open:Close:
  • Thursday
    02/19
    Open:Close:

Current Market Levels from Bloomberg daily

  • Monday: 2/23
    Jan. Existing Home Sales expected at 4.95mm >> 4.82mm reported
  • Tuesday: 2/24
    CS 20 city home sales expected at +4.30% >> +4.46%
  • Wednesday: 2/25
    Jan. New Home Sales excepted at 0.47mm >>0.48mm
  • Thursday: 2/26
    Weekly Claims expected at 290k >> Jan. CPI expected at -0.6% >> Jan. Durable Goods Orders expected at +1.6% >> Durable Goods Orders expected at +1.6% >>
  • Friday: 2/27
    4Q GDP expected at +2.0% >>

Data is taken from sources considered to be accurate, most often that of an agent of the US Government; no guarantee of accuracy is suggested.

Past performance is not a guarantee or a reliable indicator of possible future results. Investing in the bond markets is subject to certain risks including credit (worthiness of the issuer), market (interest rate changes), inflation uncertainties over time and the possibility that investments may be worth more or less than the purchase cost when they are redeemed. U.S. Treasury Bills, Notes and Bonds are backed by the full faith and credit of the Government, certain U.S Agencies are also backed in a similar manner and certain other Agency Issuers are backed solely by the Issuing Agency itself. Portfolios that invest in those securities are not guaranteed and they will fluctuate in value with time. High-yield low rated securities involve greater risks than higher-rated securities and portfolios that invest in lower-rated issues will incur more risks than portfolios of higher-rated only securities.

This article contains the current opinions of the author, but not necessarily that of Alfstad Capital, LLC, and a branch office of Commonwealth Financial Network. The opinions of the author are subject to change without notice. This article is distributed for informational purposes only. Here-in contained forecasts, opinions and estimates are based upon proprietary research or from publicly published sources and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.

Information contained here-in has been obtained from sources believed to be reliable, but not guaranteed. No part of this article may be reproduced in any form or referred to in any other publication without written express permission of Alfstad Capital, LLC and Commonwealth Financial Network.

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