Fannie Mae: Mortgage Serious Delinquency rate declined in February, Lowest since November 2008

Fannie Mae reported today that the Single-Family Serious Delinquency rate declined in February to 2.27% from 2.33% in January. The serious delinquency rate is down from 3.13% in February 2013, and this is the lowest level since November 2008.

The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Last week, Freddie Mac reported that the Single-Family serious delinquency rate declined in February to 2.29% from 2.34% in January. Freddie's rate is down from 3.15% in February 2013, and is at the lowest level since February 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

Note: These are mortgage loans that are "three monthly payments or more past due or in foreclosure".

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

The Fannie Mae serious delinquency rate has fallen 0.86 percentage points over the last year, and at that pace the serious delinquency rate will be under 1% in late 2015.

Note: The "normal" serious delinquency rate is under 1%.

Maybe serious delinquencies will be back to normal in late 2015 or 2016.

Q1 Snapshot of the Dow 30

The Dow Jones Industrial Average finished the first quarter down about 120 points from where it ended 2013, which represents a minimal decline of 0.7%.  As of the close today, 18 of the 30 Dow stocks are in the red for the year, while 12 are in the black.

Below is a look at the year-to-date performance numbers for the Dow 30, and we also provide where each member is currently trading within its normal range (overbought, oversold or neutral).  A detailed description of how to read the screen is provided at the bottom of this post, but basically, the dot is where the stock is currently trading, while the tail is where it was trading one week ago.  Moves into the red zone mean the stock is "overbought," or extended above its normal range, while moves into the green zone mean the stock is "oversold," or extended below its normal range. 

Merck (MRK) was the top Dow stock in Q1 with a gain of 13.43%.  Microsoft (MSFT) ranked second at +9.57%, followed closely by Caterpillar (CAT) at +9.43%.  On the downside, Boeing (BA) fell the most at -8.06%, with General Electric (GE) and Goldman Sachs (GS) not far behind at -7.6%.  Nike (NKE) was the fourth worst Dow performer in Q1 at -6.41%.

While the majority of Dow stocks are in the red for the year, they have actually been doing well lately.  You can see the upside momentum in the screen because most of the dots are green and to the right of their tails, meaning they are up versus where they were a week ago.  17 of the 30 Dow stocks are currently "overbought," or more than one standard deviation above their 50-days, while just 1 of 30 is oversold (Visa).  Stocks like Cisco (CSCO), Intel (INTC), Chevron (CVX), McDonald's (MCD), 3M (MMM), Procter & Gamble (PG), Microsoft (MSFT), United Tech (UTX) and Exxon Mobil (XOM) all had strong finishes to Q1.

Become a Bespoke Institutional member today and run your portfolio through Bespoke's custom trading range screen on a regular basis.

Inequality: Echoes of the Past

This sounds familiar:

Should we care about inequality?, by David Stasavage, Monkey Cage, Washington Post: ...As a firm believer that commercial societies would witness an inexorable increase in inequality, [Jean-Jacques] Rousseau in his “Discourse on Political Economy” wrote of the corrupting influence of inequality and “luxury” and of the need to levy taxes on the rich to curb the problem. ...
Rousseau’s text was originally published in Denis Diderot’s famous Encyclopedia as the entry for “Political Economy.” ... Jean-François de Saint-Lambert was commissioned by Diderot to write the article on “Luxury” for the encyclopedia. The interest of such a text was obvious; at the time the pundits of the day were fiercely debating the virtues and vices of “luxury” and its potentially corrupting effect on nations. Take our 21st century debates, substitute the word “inequality” for “luxury,” and you get a sense of the tone.
Saint-Lambert was among the first to move the debate in a new direction. He suggested that luxury itself was not the problem; what mattered was how luxury was generated. If luxury was earned thanks to institutionalized privilege, or by those who had gamed the system, then it would inevitably have a corrupting influence. The effects for the nation would be disastrous. ...
Now in cases where luxury is instead acquired through industriousness, Saint-Lambert argued that it would not have these nefarious effects. ...

Principles of Economics: Problems: „Say’s Law“: Inflation

Suppose that in the area around Euphoric State University in the state of Euphoria there are 1500 workers: 500 potters, 500 baristas, and 500 yoga instructors. On January 1, every worker has $4,000 in cash on hand. produces $4,000 worth of their goods each month, which they then send off to the consignment store which sells their goods for them and pays them (in cash) at the very end of the month. Every worker gradually spends their cash on hand down steadily during the month so that they run out of cash just as the month ends--at which point in time the consignment shop pays each of them $4000.

Bearing in mind that everyone's income is someone else's expenditure, suppose that the consignment shop announces on February 1 that it won't require cash for purchases in the last quarter of the month--that people can settle up by having their last quarter of the month's purchases deducted from their start-of-the-month payment:

  1. How much do you think each of the 1500 workers will plan to spend in February?

2. How large do you think will be the payments that each worker receives on March 1, and how much cash does each of the workers have on hand at the end of March 1?

  1. How much do you think each of the 1500 workers will plan to spend in March?

Principles of Economics: Problems: „Say’s Law“: Depression

Suppose that in the area around Euphoric State University in the state of Euphoria there are 1500 workers: 500 potters, 500 baristas, and 500 yoga instructors. On January 1, every worker has $4,000 in cash on hand. produces $4,000 worth of their goods each month, which they then send off to the consignment store which sells their goods for them and pays them (in cash) at the very end of the month. Every worker gradually spends their cash on hand down steadily during the month so that they run out of cash just as the month ends--at which point in time the consignment shop pays each of them $4000.

Bearing in mind that everyone's income is someone else's expenditure, suppose that all 1500 workers decide on February 1 that they need to be safer in their financial transactions--that they need to start the month of March not with $4000 in cash but with $4500 in cash:

  1. How much do each of the 1500 workers plan to spend in February?

  2. How much cash on hand do each of the 1500 workers have on February 28?

  3. How large are the payments that each worker receives on March 1, and how much cash does each of the workers have on hand at the end of March 1?

  4. How much do you think each of the 1500 workers will plan to spend in March? "5. How large do you think the payments that each worker receives on April 1 will be?

Principles of Economics: Problems: Income-Expenditure Framework: Disequilibrium III

Consider an economy like the U.S., only with all planned spending categories in round numbers:

  • C--consumption spending on domestically-produced goods--$9 trillion/year
  • I--business investment spending--$2 trillion/year
  • G--government purchases--$2 trillion/year
  • X--exports of goods and services--$2 trillion/year

    1. What is total planned spending E in this economy this year?

    2. If the economy is in equilibrium--if people are actually able to buy all the currently-produced goods and services they plan to--what will total income Y be in the economy this year?

3. Suppose that less is produced than was planned to spend. What will happen to inventories?

Principles of Economics: Problems: Income-Expenditure Framework: Income and Expenditure Disequilibrium II

Consider an economy like the U.S., only with all planned spending categories in round numbers:

  • C--consumption spending on domestically-produced goods--$9 trillion/year
  • I--business investment spending--$2 trillion/year
  • G--government purchases--$2 trillion/year
  • X--exports of goods and services--$2 trillion/year
  • Y--total projected income--$15 trillion/year

    1. What is total planned spending E in this economy this year?

    2. Suppose irrational exuberance pushes business investment spending up to $3 trillion/year this year as businesses decide they can spend down their cash reserves. What do you expect to happen?

3. Suppose irrational pessimism pushes business investment spending down to $1 trillion/year this year as businesses decide they need to cut back and build up their cash reserves. What do you expect to happen?

Principles of Economics: Problems: Income-Expenditure Framework: Income and Expenditure Disequilibrium

Consider an economy like the U.S., only with all planned spending categories in round numbers:

  • I--business investment spending--determined by business executives' "animal spirits"--$3 trillion/year
  • G--government purchases--determined by politics--$3 trillion/year
  • T--net taxes and transfers--determined by politics--$3 trillion a year
  • X--exports of goods and services--determined by foreigners--$3 trillion/year
  • C--consumption spending on domestically-produced commodities--determined by households according to the equation: C = c0 + cy(Y - T)
  • Y--total projected income--$14T

    1. Suppose c0 = 0 and cy = 0.6. What is total planned expenditure E = C + I + G + X? Is it equal to planned income? What are people planning to do with respect to their holdings of cash?

    2. Suppose c0 = $3 trillon and cy = 0.4. What is total planned expenditure E = C + I + G + X? Is it equal to planned income? What are people planning to do with respect to their holdings of cash?

    3. Suppose c0 = $3 trillion and cy = 0.6. What is total planned expenditure E = C + I + G + X? Is it equal to planned income? What are people planning to do with respect to their holdings of cash?

4. Suppose c0 = 0 and cy = 0.4. What is total planned expenditure E = C + I + G + X? Is it equal to planned income? What are people planning to do with respect to their holdings of cash?

Principles of Economics: Problems: Income-Expenditure Framework: Equilibrium

Consider an economy like the U.S., only with all planned spending categories in round numbers:

  • I--business investment spending--determined by business executives' "animal spirits"--$3 trillion/year
  • G--government purchases--determined by politics--$3 trillion/year
  • T--net taxes and transfers--determined by politics--$3 trillion a year
  • X--exports of goods and services--determined by foreigners--$3 trillion/year
  • C--consumption spending on domestically-produced commodities--determined by households according to the equation: C = c0 + cy(Y - T)

    1. Suppose c0 = 0 and cy = 0.6 and suppose that the economy is in equilibrium with E = Y. What is total planned expenditure E = C + I + G + X?

    2. Suppose c0 = $3 trillion and cy = 0.4 and suppose that the economy is in equilibrium with E = Y. What is total planned expenditure E = C + I + G + X?

    3. Suppose c0 = $3 trillion and cy = 0.6 and suppose that the economy is in equilibrium with E = Y. What is total planned expenditure E = C + I + G + X?

    4. Suppose c0 = 0 and cy = 0.4 and suppose that the economy is in equilibrium with E = Y. What is total planned expenditure E = C + I + G + X?

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