Well the 10 year treasury has spent the whole month of July in he 2.80’s% and we would not be surprised to see the trend continue, although rates are trading at the 2.88% level right now.
I think it is becoming pretty obvious that interest rates in the U.S. will stay fairly low–until they don’t. As silly as this sounds when you are competing against foreign securities that are essentially still yielding nothing certainly there should be reasonable demand. I mean the German 30 year is at 1.01%–who the heck wants to lock in 30 years for 1%?
As we mentioned on Monday individual economic news items used to have the power to move markets, but that seems to no longer be the case. Yesterday we had housing numbers that were really lousy–no huge surprise. It isn’t interest rates, but when there is very little in the way of wage increases for a large chuck of the population something has to give. If the “haves” want to build a new custom house they need to sell their current house–a typical buyer being the “have nots”. Housing prices are too high for many to purchase–in spite of high employment and solid consumer spending paying $180,000 for a small 1,300sf rambler in our little town is out of reach for most folks. We believe that generally speaking housing prices have peaked–not everywhere likely, but in the midwest.
The Philly Fed manufacturing report today came in very strong–the overall economy is still ramping up a bit. The Philly Fed report also showed a good bit of inflation—and inflation as measured by the CPI is one item that could move markets. Thus far CPI has been tame and may well continue to be tame, but a surprise 3% year over year print would throw markets (equity and bonds) for a loop.
For now we continue to sit back and collect dividends and interest since we are so busy at our ‘real work’ that we have no choice. We look forward to January when I have decided to start drawing my social security (and Medicare in November) and will have the option to do what I love (writing and publishing) instead of what I feel I have to do given the cost of our health insurance.