Speaking of danger, how about this economy? The volatility has certainly increased, with one day rates going up because “the worst is behind us” and then the next day rates dropping because “the economy is still failing”. Obviously the newscasters don’t know. But in traveling around the Northeast (Boston today, Maine this evening), it appears that although the economy is still doing poorly, and given our housing and commercial problems it will continue to do so for a while, people are hopeful that we have seen the worst of it. And psychology plays a large part in decision making!

We’re certainly not getting much economic news, or supply, this week to guide us, although earnings news continues to come out. Today we have Leading Economic Indicators for June, Thursday we have Jobless Claims and Existing Home Sales, and then on Friday Michigan’s Consumer Sentiment survey. That is it – and no auctions! Unfortunately oil prices are back on the rise, but it appears that CIT might be moving away from bankruptcy after their board of directors approved a $3 billion deal with bondholders (which include PIMCO). The money could strengthen CIT's finances and allow more time for the 101-year-old lender to small- and mid-sized businesses to restructure its debt. Currently the yield on the 10-yr Treasury is up to 3.68%, and the 5-yr Treasury and mortgage prices are worse by .125-.250.

Last week, more specifically at the end of last week, we had quite a bit of economic news: Housing Starts rose 3.6% in June, as did Building Permits., and this was the fourth consecutive increase in single family starts. But on the flip side the Philadelphia Fed Survey continued to show weakness, the FOMC minutes showed that the Fed doesn’t think that we are out of the woods, and there were 1.9 million foreclosure filings in the first half of 2009! This is a 9% increase in total properties from the previous six months and a nearly 15% increase in total properties from the first six months of 2008. The report also shows that 1.19% of all U.S. housing units received at least one foreclosure filing in the first half of the year. The mixed news continues…

Wall Street trading desks are really seeing the typical summer trading. “Some activity in the morning on light volume.” “MBS prices have been stuck in a tight range all afternoon.” “Origination around $2 billon today and the Fed bought their daily $4-5 billion, mostly in 4.5% coupons and about 20% FHA/VA securities.” “Asia closed for holiday Sunday night.” “Treasury prices seem like they’re in quicksand.”

Both Bank of America and Citi released their earnings. BofA earned $3.2 billion, but critics quickly noted that the company generated over $9 billion from selling a stake in China Construction Bank and a merchant processing business, and those helped offset large losses in commercial loans and real estate, along with losses in their credit card division. “The home loan and insurance unit lost $725 million, even as revenue tripled, on credit costs and expenses to help homeowners modify their loans.” “Bank of America saw its residential mortgage income increase more than fivefold in the second quarter to $2.6 billion as it originated $110 billion worth of home loans.” Citigroup made $4.3 billion in the second quarter, also helped by a $6.7 billion after-tax gain from the sale of Smith Barney to Morgan Stanley.

And continuing with company-related news…

If you want a phone job and to work in Iowa (actually a pretty nice place!), Wells Fargo has a job for you. They have increased their mortgage servicing staff by 54% since the beginning of the year and have implemented mandatory overtime as it adjusts to rising demand for loan modifications, according to their EVP of servicing.

MGIC was downgraded by Moody's Investors Service. They warned of a possible further downgrade further into junk territory in the wake of MGIC's plan to fund another unit with $1 billion to write new mortgage-insurance policies. This came from MGIC’s announcement of “the Office of the Commissioner of Insurance for the State of Wisconsin ("OCI") has authorized a contribution of up to $1 billion to the capital of a wholly owned subsidiary, MGIC Indemnity Corporation ("MIC"), to support new mortgage insurance business. The subsidiary will assume the MGIC name and plans to begin writing new business as of January 1, 2010, pending all required approvals. MGIC will continue to issue mortgage insurance policies through December 31, 2009. On January 1, 2010, MGIC will be renamed, and its insurance in force will be placed into run-off, meaning, it will continue to collect premiums and pay claims on that business, but will no longer write new business. At the same time, "new" MGIC will become operational and will offer substantially the same programs, premium rates and guidelines and use similar underwriting, risk management, claims and other operational processes.”

Union Bank of California, after next Monday, will go along with the Reg Z changes: “Borrowers may NOT pay any fees – other than a reasonable credit report fee – to any party until 3 business days after Union Bank has mailed the initial disclosures. If the borrower has paid any fees, regardless of date loan was originated by Broker, the loan cannot be submitted to Union Bank, unless fees were collected in compliance with Reg. Z as covered in Bulletin W09-0709. Broker will be required to certify that each loan submitted to UB complies with these new requirements.”

I love tools, but they don’t love me…

CRAFTSMAN 1/2 x 24-INCH SCREWDRIVER: A very large pry bar that inexplicably has an accurately machined screwdriver tip on the end opposite the handle.

OXYACETYLENE TORCH: Used almost entirely for lighting various flammable objects in your shop on fire. Also handy for igniting the grease inside the wheel hub out of which you want to remove a bearing race.
TABLE SAW: A large stationary power tool commonly used to launch wood projectiles for testing wall integrity.
HYDRAULIC FLOOR JACK: Used for lowering an automobile to the ground after you have installed your new brake shoes, trapping the jack handle firmly under the bumper.
EIGHT-FOOT LONG YELLOW PINE 2X4: Used for levering an automobile upward off of a trapped hydraulic jack handle.
E-Z OUT BOLT AND STUD EXTRACTOR: A tool ten times harder than any known drill bit that snaps neatly off in bolt holes thereby ending any possible future use.
BAND SAW: A large stationary power saw primarily used by most shops to cut good aluminum sheet into smaller pieces that more easily fit into the trash can after you cut on the inside of the line instead of the outside edge.
TWO-TON ENGINE HOIST: A tool for testing the maximum tensile strength of everything you forgot to disconnect.

Rob

(For archived commentaries, check www.robchrisman.com, or to subscribe/unsubscibe write to rchrisman@robchrisman.com. The commentary is produced every business day, but there always seem to be vague e-mail “issues”, so if you don’t receive it, let me know.)