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Schmohl Talk:  Weekly Bullets

October 22, 2012

Economic themes: housing, CPI, earnings, employment, Europe, Japan.

  • Housing: existing home sales fell 1.7% to a 4.75 million pace in September, inline with estimates, with the year-over-year median price down slightly from August, though still up 11.3%.  Median days on the market fell to 70, from 101 days a year ago.  Home sales are being greatly aided by low interest rates, though some consumers continue to struggle to obtain credit.  Housing starts increased in September to a 872k pace, above estimates of a 765k pace, up 34.8% from a year ago.  Permits increased to a 894k pace, above estimates of 810k, up 45.1% from a year ago. 
  • Consumer price index: increased 0.6% in September, above estimates of 0.5%, led by gasoline prices, and is up 2.0% year-over-year.  Excluding food and energy, the CPI was up 0.1% in September, below estimates of 0.2%.  Shelter, medical, apparel, and airline prices increased, though vehicles, personal care, furnishings, and operations fell. 
  • Earnings: with Q3 earnings season in full swing, 69% of S&P 500 companies that have reported have exceeded estimates, though sales of 59% of reported companies missed forecasts, implying that cost cutting measures are in full effect. 
  • Jobless claims: increased 46k to 388k for the week ended 10/13/2012, above estimates of 365k, though is attributed to seasonal adjustments.  The four-week average declined 29k to 3.276 million.
  • Europe: leaders met late last week to discuss how to proceed with Greece, Cyprus, and a banking union.  Spain tempered credit rating downgrade fears in the near-term, though a bailout continues to be anticipated.
  • Japan: exports declined 10.3% in September, as the island nation continues to recover from a deadly tsunami 1.5 years ago, and disagreements with China in the East China Sea.
  • Economic highlights for the week ahead:
    • Wednesday 10/24/2012: FOMC Meeting Announcement, New Home Sales.
    • Thursday 10/25/2012: Jobless Claims, Durable Goods, Pending Home Sales.
    • Friday 10/26/2012: GDP, Consumer Sentiment.

Municipal market themes: recovery, market themes, Fernley

  • Fitch: a weak housing market could slow the recovery of certain municipalities due to their dependence on property tax revenues.
  • BondBuyer Public Finance Conference: in a meeting of public finance professionals, many view a wave of municipal bankruptcies as highly unlikely, though investors should remain vigilant of their holdings.
  • Fernley, NV: the IRS is performing a routine examination of the City’s water/sewer general obligation bonds, to ensure compliance with federal requirements.

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