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THINGS ARE DEFINATELY GETTING BETTER, BUT…..

THINGS ARE DEFINATELY GETTING BETTER, BUT…. Presented by : Elliot F. Eisenberg, Ph.D. President: GraphsandLaughs , LLC October 8, 2014 Dallas, TX. Inflation? What Inflation!. Consumer Price Index: No Inflation Anywhere!!.

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THINGS ARE DEFINATELY GETTING BETTER, BUT…..

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  1. THINGS ARE DEFINATELY GETTING BETTER, BUT….. Presented by: Elliot F. Eisenberg, Ph.D. President: GraphsandLaughs, LLC October 8, 2014 Dallas, TX

  2. Inflation? What Inflation!

  3. Consumer Price Index: No Inflation Anywhere!!

  4. Core PCE Price Index: No Inflation Anywhere!!If it hits 2% that would be good news and does NOT mean the Fed will slam the breaks!

  5. Total Compensation: No Inflation Anywhere!!

  6. Inflation Expectations? None, Anywhere!

  7. Fed Balance Sheet Grows, But Not the Money Supply

  8. Monetary Velocity Drops Like a RockCorporation have huge cash hoards, etc…

  9. Therefore Money Supply Growth is Flat

  10. Federal Reserve Behavior • Yellen & Fischer are excellent • New appointees are possible more dovish • Bye byePlosser and Fischer • Tapering ends 10/29/14 • Short-term rates stay @ zero “for a considerable time” after tapering ends meaning maybe 6/1/15. • As long as: • inflation is “below 2% longer-run goal and inflation expectations remain well anchored.” And, what exactly does that mean?

  11. Federal Reserve Behavior • Short–term rates rise by 25 BP every 3 months starting 6/16/15. By 12/31/15 they reach 1.25%. By 12/31/16 2.65% • Except for UK, Central Banks not raising rates • Rates continue rising S-L-O-W-L-Y till they hit 3.75% by the end of 2017. The Fed will employ many tools to raise rates. • The Fed will use them carefully. • Fed Funds and IOER, and also ON-RRP, • Balance Sheet shrinking will take till 2020! Via principal repayment only.

  12. Thus Low, but Rising Interest Rates!

  13. Refinance Activity is Just 50% of Total Applications! Down 76% from peak in 2013, lowest level since November 2008. Bye byerefi.

  14. MBA Mortgage Purchase Apps – Very Weak1st time applications are weak, 4-week MA down 11% Y-o-Y, at level of the mid 1990!

  15. Interest Rates & Volume (BANK) • By Year end 10-Yr Treasuries @ 2.75%. Thus……. • Refi activity is temporarily dead but will return & • Servicing rights will continue rising in value. Looking Forward I Think I See • New Products!!!! Refiafter closing, HELOCs, 10-Yr Mtgs, ARMs, Non-QM, Jumbos, New homes loans, LIHTC, MF rental/Condo, New products! • Warehouses and Destination malls, (Volker & Basel III) • Big data, Cyber threats, Compliance costs, Risk mgt! • Capital erosion as rate rise, Ruinous competition • Risks: US gets better faster, Geopolitcal problems, Europe, China, BRICs

  16. The Economy? It’s Finally Improving!

  17. GDP Growth Drivers – Contractionary Fiscal Policy

  18. Fewer of Us are Working in State and Local Gov’t! But, These Losses are Now Reversing at both the state and local levels

  19. But Not Quite Factory Utilization Rates

  20. The Labor Market is Improving Very S-L-O-W-L-Y!

  21. Historical Job Growth Y-o-Y Total Employment Change

  22. STEADY Labor Market Improvement: Involuntary Separation Long Term Trends: 1967-2014

  23. Working Part Time and Unhappy About It! Stubbornly high and a large percentage of all new jobs created

  24. Hiring and Separation Rates Are WeakOpenings, layoffs at pre-recession levels. Not so for hires and quits

  25. Historical Rate of Change in Temporary Job Growth Month over Month Percent Change: Not a Good Leading Indicator

  26. Households Get Stronger but Wages are Stagnant!

  27. Households Deleveraging is Almost Done!!!!!! Lack of income growth is hurting

  28. Households Deleveraging is Almost Done!!!!!! Household payment behavior returns to normal

  29. Households are Repairing their Balance SheetsTrillions in Net Worth Recovered, at a New Record Level

  30. Households are Repairing their Balance SheetsMore Income to Spend Elsewhere

  31. The Stock Market is Rocking

  32. Real Per Capita Disposable Inc. is Slowly Growing

  33. Median Household Income is Slowly Recovering!

  34. Household Income Growth by Quintile

  35. Household Income Growth by Education

  36. Higher % of Workers with College and Grad Degrees!

  37. Cumulative Change in Household Income

  38. Change in Wealth by Median Household 2003 -20113 Credit Source: Russell Sage Foundation

  39. Annual Y-o-Y Percent Change in PCEDisappointing growth of late

  40. Annual Y-o-Y Percent Change in GDP

  41. Best of All, No Recession is in the Cards!Yield Curve Inversion Test: 1-Year Treasury Yield – 10-Year Treasury Yield

  42. Housing? It’s Improving but In Fits and Starts!

  43. Household Formation is Not Happening

  44. Household Formation is Not Happening

  45. Credit is Very Hard to Get Especially Below 720Lots of room for mortgage origination expansion if risk appetite grows.Credit is much harder to get now than it was in 2004!

  46. Credit is Very Hard to Get Especially for MinoritiesBlacks and Hispanics are way behind, fair housing testing anyone?

  47. Non Conforming MBS Market is Essentially Dead! In 2013 there was about $20 billion, yes $20 billion of Jumbo activity

  48. House Prices Bottomed 2 Years Ago…….Really! Nominal house prices are now rising slowly

  49. And, Median House Size is Growing Again! HOUSTSFLAM1FQ

  50. New Home Prices Are Recovering Nicely

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