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Cheat Sheet Q & A:

Topic:  Mortgage rates

I'm presently waiting to lock in the rate on my $200,000 new home mortgage. My closing date is mid-July so I planned on monitoring the rate changes and was hoping to get it down to 3.5% or close. After listening to you though, perhaps that would be unwise. Do you have any further advice or info I can check out on the web?

Bottom Line:  Timing financial markets is always tricky.  Unfortunately this is no different but I do have information for you to consider. 

To quickly recap, yesterday I shared my observation that since the Federal Reserve “Minutes” for May for released last Wednesday, May 22^nd, we’ve seen mortgage rates rise from about 3.5% to 3.9% yesterday and 4% as I type this.  We’re seeing this sudden uptick in rates as a direct result of the commentary of the Fed.  The report indicated that multiple Federal Reserve Governors disagreed with the current policy of QE and 0% interest rates.  Both of those policy measures work to suppress mortgages rates and are the only reason we’ve seen 30 year fixed rate mortgages hit sub 4% levels.  So what should you consider for a mid-July close?

The next Federal Reserve meeting will take place June 18^th and 19^th with the report being released at 12:30 on June 19^th.  We don’t know what that report will indicate but it represents a big risk.  If they do change policy or mention that they likely will, you are likely to see rates rise, perhaps significantly.  For that reason I do think that the risk/reward equation suggests that you should consider rate locking prior to June 19^th.  As for the chance of seeing a 3.5% mortgage rate…  I think it’s unlikely that you’ll have that opportunity before your closing (if ever again)and I’d be happy at this point with any mortgage at a rate under 4%.  Because timing is part skill and part luck it’s wise to consider risk/reward.  Historic mortgage rates have averaged 8%.  The lowest level on record is 3.3% with an all time-high of 18%.  Cleary the biggest risk, historically, is to the upside.    

I hope that’s helpful.

If you have a question or topic you’d like me to address email me:  brianmudd@clearchannel.com

Evidence that reducing Government spending and growing economy can occur:

Bottom Line:  I’m sure you recall the dire cries from many in Washington in the days leading up to the sequester.  We heard stories of how basic functions of Government wouldn’t be possible and mass layoffs would ensure, etc.  Clearly that was way overdone.  But still what about the economy?

Part of the Sequester argument was that the economy could slip into recession without the additional Government spending.  While it’s true that Government spending will impact the overall economy, you have to ask yourself, if increased Government spending is good for the economy why not just double or triple spending and watch the economy boom!?  That type of thinking was actually tried with the stimulus and you saw how well that worked. 

If the Government were spending actual money it would be potentially net beneficial to the economy (though I could effectively argue it would be far better to return that money to the taxpayers for them to spend more effectively).  Instead the increased Government spending is debt spending.  Debt spending historically has proven to be far less effective at growing the economy because of the issues associated with creating new debt to conduct everyday business.  Just think of your own personal financial situation when you are loaded down with debt.  Even if you can service the monthly debt payments how does it weigh on your ability to have financial flexibility?  Debt spending limits economic potential. 

Let’s go through the numbers for the GDP report. 

Overall 4^th quarter GDP:  0.4%

Overall 1^st quarter GDP (revised):  2.4%

So the economy grew at a 2% faster rate in the first quarter that included the onset of the sequester cuts limiting growth in Government spending.

Rate of reduction in Government spending in the 1^st quarter:

• 4.9% annualized

So the rate of Government spending was reduced in the first quarter at a near 5% rate and yet the economy improved over last year.  So what happened?

Consumer spending edged up to just over 3% and corporate spending was up over 4%.  This is more along the lines of the way it should be.  Less Government influence and debt.  More private sector activity.  It’s not a coincidence either.

Uncertainty and debt problems in Washington coupled with endless regulations create a tepid business environment.  Certainty and increased fiscal responsibility by the Government leads to more confidence for companies to take risk, spend money and expand – which is what built this country in the first place.  It’s critical to remember that free enterprise built the United States of American into the world’s top economy.  Not the Federal Government.

http://www.reuters.com/article/2013/05/30/us-usa-economy-idUSBRE94T0HI20130530?feedType=RSS&feedName=topNews

Pending home sales data indicates big prices increases in housing this summer:

Bottom Line:  Yesterday we received the monthly pending homes sales data from the Nation Association of Realtors.  At first blush the increase doesn’t look so impressive.  Pending home sales were 0.3% higher.  But these numbers are impressive:

• 3 year high in pending home sales (best since 1^st time home buyer tax credit juiced sales short-term)
• Inventory was down by nearly 20% year over year

We’ve seen the housing recovery play out for 15 months.  We’ve seen the increases in price continue to rise and the pace of prices increase as well.  I believe that we’re about to see the next leg higher still.

Pending home sales haven’t been higher than they already are because of a shortage of supply.  Many potential buyers have been delaying buying decisions hoping something comes on market they they’re interested in.  The summer buying season doesn’t allow for many families to wait.  Many summer buyers need to be in place by the start of the new school year and thus will settle on a home an buy.  This should drive prices higher as supply remains low during the summer. It also should be an awfully good time to sell if you’re so inclined.

http://www.usatoday.com/story/money/business/2013/05/30/pending-home-sales/2371983/

Corporate America eyeing 3D printing:

Bottom line:  Thus far in the 3D printing conversation, the biggest name in 3D printing has been the upstart company, Makerbot.  In the not-so-distant future the names will likely become much bigger.   

I’ve presented a couple of stories regarding the cost savings associated with 3D printing over non 3D printed devices in certain medical circumstances.  If you can save money in medicine with 3D printing, you likely can save money elsewhere as well. 

Yesterday Jeffrey Immelt, GE’s CEO said he has his eye on 3D printing and indicated they planned on heavily investing in 3D printing going forward.  He cited an example of being able to 3D print a jet engine in the future. 

We’ve recently seen some companies reconsider manufacturing in the US as costs of manufacturing overseas has become more expensive and there is a desire among many Americans to “buy American”.  3D printing could be a key component of the US manufacturing renaissance. It could also help reduce costs of many hard goods in the future as well.

http://allthingsd.com/20130529/ges-jeffrey-immelt-would-love-to-3-d-print-jet-engine-parts-someday/?reflink=ATD_yahoo_ticker

Microsoft has created an interactive view of Mount Everest:

Bottom Line:  Even if you’re an avid outdoors’ man (or woman) and love to hike and climb, the closest you’re likely to ever come to the summit of Mt. Everest is watching National Geographic.  Until now.

No it’s not getting easier to climb Everest but Microsoft in conjunction with Eco-group Glacier Works is providing a website with comprehensive views in HD of Everest.  They’re also demonstrating the changes with Mt. Everest over the decades (they have pictures going back to the 20’s). 

If this is of interest to you click the link below:

http://www.theverge.com/2013/5/29/4374004/glacierworks-mount-everest-interactive-site-microsoft

Smart locks are the next big thing in security:

Bottom Line:  Keys are such a pain aren’t they?  Ok even if they’re not bothering you, they potentially being made obsolete.  Startup August has team with lock company Quickset, to produce keyless dead bolts for home and business use. 

These keyless locks require only a mobile device to lock and unlock. Thus far we’ve had home security systems that have enabled you to turn security on or off using a mobile device but this is the first time that we’ve actually been able to lock or unlock using them. 

The locks start at $199 and for more info click the link below:

http://www.engadget.com/2013/05/29/august-smart-lock/

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Cheat Sheet Q & A:

Tooic:  The Fed’s impact on the stock market

Bottom Line:  Today’s question comes from an investor who is nervous about the stock market and its potential for a downturn if the Federal Reserve changes its policy.

The stocks market’s impressive run thus far in 2013 has been called the most hated rally in the history of Wall Street, in part because many investors are exceedingly nervous about what lies around the corner.  Fear of the near term future has many feeling as though they must time the stock market just right to lock in gains and protect themselves from something dire, potentially fall 2008 like, going forward.  So I’ll dig in.

First the bad news:

The potential bad news is that the stock market could be considered over valued at current levels given historical norms.  The best metric to measure stock valuations on a historical basis is their P\E (price to earnings) ratio.  On a historical basis the P\E ratio of the S&P 500 is 14.5.  Currently its 19 meaning that the market is 20+% more expensive than it historically has been.  So using history as a guide you could argue that the stock market has room to fall if/when the Federal Reserve changes its policy that currently favors housing and the stock markets.

Now the good news:

The economy is growing, our banking system is well capitalized and personal debt is as relatively low as we’ve seen in over a decade.  We’re not looking at a near term future that would play out like the fall of 2008.  In other words the worst case scenario in the market would likely take us back to historical averages in the stock market rather than the free fall during the financial crisis in the fall of 2008. 

The pragmatic approach:

Ideally the earnings of companies would rise to catch up with the current stock values as the Federal Reserve slowly changes its policy.  This would enable relative stability in the stock market as company fundamentals would take on a greater role for evaluating stock market.  If this occurs it will become more of a stock pickers market rather than the broad based rally we’ve experienced for the past four years. 

Most importantly it’s important to have a plan and purpose for any changes to your investments.  This is something you’ll want to discuss with your investment advisor if necessary.  You’ll also want consider any potential tax consequences of changing investments in taxable accounts. 

Ideally I’d like to the see the stock market level off for awhile and allow earnings to grow and catch-up with their current values as the Fed slowly backs out of the equation. 

If you have a topic or question you’d like me to address email me:  brianmudd@clearchannel.com

The cost of borrowing has been on the rise over the last week – especially mortgages:

Bottom Line:  The fear of the Fed changing policy later this year which could include the ending of buying mortgage debt and raising interest rates has had an immediate impact.  The cost of borrowing has risen over the past 5 days.  While the percentages may seem small at first glance, the impact isn’t over the long run on large sized loan like mortgages.  Here is an example:

Amount financed:  $200,000

Term 30 years

Rate last week:  3.5%

Rate today (as I type this) 3.92%

Last week the monthly payment would have been $48 per month cheaper than today.  If you were to pay on the mortgage over 30 years you’d pay $17,000 more today vs. just a week ago.  Obviously the more you finance the bigger the difference in outcome. 

We don’t know when the Fed will change its policy and rates but since a little can mean a lot, it may be a good idea to rate lock if you’re in the market to finance a home this summer.  A tenth of a point here or there can mean thousands, even tens of thousands over the long run.

Worst states for disasters and why our insurance costs continue to rise:

Bottom Line:  A great frustration of many Floridians is the persistent annual increases in home insurance costs, even as they don’t make claims and hurricanes aren’t hitting Florida. 

While it’s true that a hurricane hasn’t hit Florida since 2005, history still isn’t on our side.  Bankrate has complied a list of the ten riskiest states for natural disasters.  The bad news…   We’re still in the top 5.  Here are the top 5:

• Florida
• New York
• Oklahoma
• California
• Texas

Bankrate used data for major disaster declarations for a given state since 1953.  Since 1953 Florida has experienced 65 disaster declarations or an average of more than one per year.  Insurance prices reflect this long term trend along with the rising costs of disasters, like hurricanes as they’re hitting other states.  It’s not an excuse for all increases for all

insurance companies but it is instructive to understand why we’re faced with this annual issue even as we’ve been more fortunate with regard to hurricanes in recent years.  For the complete list click the link below:

http://finance.yahoo.com/news/10-states-most-at-risk-for-major-disasters-173801433.html

Social Media and our kids:

Bottom Line:  If you have kids and are friends with them on Facebook this story is for you.  70% of parents who have children on Facebook have created their own accounts and are friends with them on Facebook.  A common reason parents will “friend” their children is to see what’s really going on with their kids and have an idea of what’s going on with them.  If this describes your situation…  You may be surprised. 

It turns out that about half of kids who have parents as friends on Facebook are using other forms of social media to truly be themselves.  Increasingly young social media users view Facebook as a way to portray a persona that they want their parents to see and will even manipulate the items shared on Facebook to paint a reality that may not be true.  Often these kids will use other forms of social media and texting to tell, as Paul Harvey once said, the rest of the story…

Ready to lend - bank profits hit record high:

Bottom Line:  If you’ve been turned down for a loan recently and believe that you are a good candidate for a loan.  The denial really may have been more about the bank than you.  With earnings season having recently concluded, the FDIC is reporting that the banking industry set a quarterly profit record.  That could be good news for you if you’re looking for a loan. 

Bank profits topped $40 billion in the first quarter but there is a specific story within the profit numbers.  Less than 40% of banks are reporting improved results over last year and many fewer than that are turning record profits.  In other words the divide between the most successful banks and the average bank has grown considerably.  What these could lead to is a good deal of variance in the lending standards and requirements from bank to bank.  So if you get turned down for a loan but generally believe that you’re a good risk for a lender, shop around.  There is a good chance you’ll find a loan – you may just have to find one of the banks that is performing well and is ready to lend.

http://www.cnbc.com/id/100754284

Facebook verified accounts:

Bottom Line:  Have you ever tried to friend a celebrity or public figure but couldn’t figure out if the Facebook page you’re looking at is really the person you want to connect with?  That problem is being fixed. 

Facebook has introduced a new verification system.  The verification system will only be available for celebrities, notable and public figures that are prone to having fan pages set up in their name or imposter pages.  When you find the real Facebook page of a notable, you’ll see a check next to their name. 

http://mashable.com/2013/05/29/facebook-launches-verified-accounts/

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Cheat Sheet Q & A:

Topic - FTC inquiry on telemarketers

Bottom Line:  If you’re still not happy with the practices of telemarketers or have been a victim of a telemarketing scheme this is an opportunity for you to speak out. 

Today’s topic was submitted by my friends at Debthelper that wanted me to help spread the word about a new FTC inquiry seeking public comment on telemarketing practices. 

In particular the Federal Trade Commission is considering two new rules for telemarketers.  They are:

• Stop telemarketers from dipping directly into consumer bank accounts by using unsigned checks and “payment orders” that have been “remotely created.”  These instruments can make it easy for unscrupulous telemarketers to debit bank accounts without permission, according to the FTC. 

• Bar telemarketers from getting paid with traditional “cash-to-cash” money transfers, as well as “cash reload” mechanisms, that scammers rely on to get money quickly and anonymously from consumer victims. 

The FTC has identified those two practices as tactics used to obtain payment from consumers because they’re largely unregulated and lacking in consumer protection.  If you’d like to make your voice heard to the FTC they are seeking comment on these proposed changes until July 29^th.  Here is a link to the form for you submit your comments to the FTC:

https://ftcpublic.commentworks.com/FTC/tsrantifraudnprm/

If you have a question or topic you’d like me to address email me:  brianmudd@clearchannel.com

The housing recovery continues to gain steam:

Bottom Line:  The latest Case-Shiller Index measuring the twenty largest metro markets shows an average home price increase of 10.9% in March.  It’s worth noting that while we now have 15 straight months of increase in the Case-Shiller Index, the average price from the peak of the housing boom is still lower by 29% nationally. 

So the top three appreciating markets were:

• Phoenix at 22.5%
• San Francisco at 22.2%
• Las Vegas at 20.6%

Closer to home our region hubbed out of Miami showed:

• A 10.7% increase

It’s worth noting that it’s the first time since the national housing recovery began over a year ago that our region actually trails the national average.  However even closer to home that isn’t the case.

Palm Beach County Real-Estate prices were 19.7% higher in April as compared to a year ago (info courtesy of the Treu Group), so continue to see that our local real-estate market continues to outperform the region and national price growth trend.  It is worth noting that the Case-Shiller report is always a month delayed and reflects March info.  Palm Beach County showed 28% year over year appreciation in March.  For the complete Case-Shiller report click the link below:

http://www.standardandpoors.com/indices/sp-case-shiller-home-price-indices/en/us/?indexId=spusa-cashpidff--p-us----

Have employer sponsored health coverage? - Expect less for more going forward:

Bottom Line:  Many employers are just beginning to find out what the full effects of the Affordable Care Act will mean to them as we approach 2014.  The more they find out the more we see companies planning significant changes in the coverage they will provide for next year. 

A year ago, 11% of employers who offered health care coverage to employees, said they planned to drop coverage or reduce benefits prior to the new 2014 mandates.  Today that number is up to 17% of employers and as we approach benefit renewal season this fall that number could jump further.   It’s estimated that 10% of employers who offer healthcare coverage currently will drop it altogether and pay the tax instead. 

If you have a company that offers health care coverage and aren’t versed on what the ACA means to you and your company, you should seek information sooner rather than later.  Many companies will likely be scrambling this fall when they are hit with average increases of 30% (estimated by the Association of Actuaries).

http://www.cnbc.com/id/100768749

Looking for employment?  Look outside of the US:

Bottom Line:  We continue to hear about labor shortages in the US in highly specialized fields including engineers, medical positions, etc.  That’s frustrating for many Americans who have been part of the long term un or underemployed.  If that’s you or someone in your family you might take a look outside of the US.  In several countries more than half of employers that are hiring are reporting problems locating talent to fill positions within their companies.  Those countries are:

• Japan with 85% of employers reporting shortages
• Brazil at 68%
• India at 61%
• Turkey and Hong Kong at 58%

As for the most common fields needed:

• Trade workers
• Engineers
• Sales reps
• Accountants
• Management

Aside from engineering those are fairly broad based fields that could represent excellent opportunities for many state-side that aren’t finding the same to be true closer to home.

http://www.cnbc.com/id/100767657

Need timely investment info…  You need social media:

Bottom Line:  The SEC (Securities and Exchange Commission) just changed the investment info game.  Publically traded companies must disclose information that is pertinent to their company in a manner that is equitable to all investors.  In other words, you as an individual investor must have equal access to information released by a company in real-time (so that Wall Street pros don’t have an advantage over you).  So if you rely on timely investment information you should:

1. Have a Facebook and Twitter account
2. Follow and like all of the companies you invest in

That will position you to receive the information from your companies if they decide to utilize social media to release material information.

http://www.usatoday.com/story/money/markets/2013/05/27/sec-social-media-twitter-netflix/2104389/

 Wow...  yeah now there's even an app for that...

Bottom Line:  As a Cheat Sheeter you know that there are already apps that allow you to test your blood.  This app may go a little too far though…

A new app called uChek that’s designed for the iPhone allows you to check your urine.  How does it work? 

• Produce a sample
• Dip a test strip in the sample
• Take a picture with the iPhone of the test strip

Sit back and await the results.  This has attracted the attention of the FDA however and may be subject to regulation the app maker hadn’t accounted for.  It’s clear to see that this could present a bit of a health risk if not handled properly.  If you are actually interested in this app click the story below:

http://www.bloomberg.com/news/2013-05-23/iphone-urinalysis-draws-first-fda-inquiry-of-medical-apps.html