Tuesday, December 29, 2009


Came accross the following article this morning from CNBC. The first question which came to mind was, are we really at a 10% unemployment or much worse. Who's adding the numbers...


When I published "Gotcha Capitalism" two years ago, I was in for a big surprise. As I talked about systemic hidden fee fraud all around the country, many, many friends (and even co-workers) found me and asked in hushed tones, “What’s a mutual fund?” “What’s comprehensive and collision?” “What’s a mortgage point?”

It was obvious from these conversations that millions of Americans are severely lacking in financial basics, and this shortcoming played a major role in the housing bubble and the resulting economic collapse. I wanted to know why.

I'm the hidden fee guy, the “Gotcha” guy. People like me usually rant about dreadful banks are and how unfair big companies are, about how corporate greed caused our economic collapse and about how rampant unfairness built the house of cards that just collapsed all around us and sent the world into a global recession.

But it's impossible to ignore the fact that individual consumers made a lot of really bad choices in the past decade. They bought homes with $2,000 mortgages when they only earned $3,000 a month. They borrowed money at 30 percent interest to buy granite countertops. Aren’t they to blame for their own demise? To be an honest journalist, I had to ask: Why are American consumers so gullible, so seemingly out of control? Is there something wrong with us?

Yes, several things. But most important is this: Americans are terrible at math.
I know you know that. But my research shows we are far worse at math than you think.
Exhibit A: Think about the last time you had lunch with four or more friends. What happened when the bill came? Everyone pulled out calculators, there was a lot of murmuring and head scratching and still some of your friends just ended up throwing down a $20 bill and hoping for the best. Now, imagine that crowd in a car dealership or with a mortgage broker. They wouldn’t stand a chance.

Turns out, there's an entire field of study -- albeit a small one -- devoted to this subject. It's called “innumeracy” -- or mathematical illiteracy. It’s a hidden epidemic in our society. And the consequences are dire.

Just as there is a hidden epidemic of people who are functionally illiterate in our country, there is big problem (bigger, by my reckoning) with people who can’t do basic math. There’s no way to function in our society without understanding money, percentages, interest calculation and so on. Yet in a recent government study, less than one in seven American adults ranked “proficient” at math.

Here are a few examples of innumeracy in action:
According to the Department of Education’s National Assessment of Adult Literacy, U.S. adults are terrible at solving real-world math problems, like calculating tips or comparing prices in grocery stores. Some dismal results:
*Only 42 percent were able to pick out two items on a menu, add them, and calculate a tip.
*Only 1 in 5 could reliably calculate mortgage interest.
*1 in 5 could not calculate weekly salary when told an hourly pay rate.
*Only 13 percent were deemed “proficient.” Worse yet, only 1 in 10 women, 1 in 25 Hispanics and 1 in 50 African Americans made the grade.
*Americans are terrified of numbers when it counts most: 20 million Americans pay someone to file their 1040EZ, a one-page tax form with around 10 blanks to fill out.
Also, these numbers show up in U.S. student math scores, which are abysmal:
*The U.S. ranks 25th among 30 industrialized nations in math scores, down near Serbia and Uruguay. U.S. students thought they had the highest grades of any nation in the study, however.

*Half of 17 year olds couldn't do enough math to work in an auto plant, according to President's National Mathematics Advisory Panel.
*Study after study shows U.S. achievement falls off the cliff during middle school, when subjects like fractions and percentages are introduced -- exactly the skills you need as a consumer or, for that matter, to move on to algebra, calculus and advanced sciences.
But here’s another essential point. How can Johnny learn to add if Johnny’s teachers can’t?
*In 18 U.S. states, not even one elementary math class is required for certification.
*Some teaching colleges allow admittance as long as students have math skills equal to their future students -- that is, as long as they could pass a 5th grade math test.
*It's possible in some states to pass the teacher certification exam (Praxis) without answering a single math question correctly.
*In Massachusetts, there's a special program to reacquaint teachers with math. The man who runs the program says half of teachers can't answer basic questions involving fractions and has concluded that many elementary teachers are "phobic" about math.
*Teachers seem to be math-averse from the start. College bound seniors headed for elementary education have math SAT scores significantly lower than the national average (483 vs. 515).
There are many, many other reasons why U.S. consumers tripped and fell down a mine shaft during the past two years. In my new book, "Stop Getting Ripped Off," I lay out a series of other explanations: Greed, laziness, lack of government regulation and magical thinking. And I offer up my own handy guide to solving today’s consumer puzzles, from buying a home to saving for retirement. But innumeracy is the biggest culprit.
Two years ago, I would have had to lay out a doomsday scenario to draw attention to this ticking time bomb. Well, the bomb’s gone off. People who were bad at math could hardly have been expected to see through the consequences of an adjustable-rate mortgage, or to make a sound bet on their future earnings potential. These consumers didn’t stand a chance against mortgage brokers, real estate agent and an overheated market. They can’t fight with financial planners over fees that are swallowing one-third of their retirement savings. Heck, they can’t even stop taking out 250 percent APR payday loans, 1,000 percent overdraft protection loans or paying tax preparation firms $100 for three minutes work to fill out simple tax forms. Now, millions of individuals are losing their homes and are on pace to become destitute in old age.

If I only shine a light on only one topic with this book, I hope it will be the hidden epidemic of innumeracy in America. Because if we can’t add, if we continue suffer from an extreme lack of mathematical self-confidence, any recovery we begin is surely doomed.

Tuesday, December 8, 2009

Foreign Markets a Boon for US Fixed Assets

This evening, Greece's credit rating was lowered by Fitch which has sparked a fairly noticeable change in after hours trading (out of equities). This comes almost one year after S&P lowered the sovereign nation's rating to an A-. As a fledgling recovery takes hold across most of the US and Europe, the deterioration of some government balance sheets represents a continuing risk which may help fuel fixed income trades over the coming days. This is somewhat noteworthy because the Fed has pretty much spent their allotment of $300 billion for the direct purchase of government debt instruments and most recent non farm payroll data showed the economy came with 11,000 jobs of moving into positive job creation mode. These two conditions have many fretting that Uncle Sam will have to offer higher yields on the stacks of 10-year notes and 30-year bonds to attract the capital he is after. We may see foreign funds continue to seek a flight to quality "interestingly enough" just in time.

Release Date & Time
Economic Indicator
Consensus Estimate
My Analysis

Mon. Dec. 7, 12:45 p.m. ET
Nothing of importance

Tues. Dec. 8, 1:00 p.m. ET
Treasury auctions
$40 billion of 3-year notes
The participation levels from domestic and foreign investors was on target.

Wed. Dec. 9, 10:00 a.m. ET
Oct. Wholesale Inventories
-0.5% vs. last -0.9%
This old stale data will likely have little, if any direct impact on the trend trajectory of mortgage interest rates today.

Wed. Dec. 9, 1:00 p.m. ET
Treasury auctions
$21 billion of 10-year notes
Based on this evening's activities thanks to Fitch', this offering may find more aggressive than the technical indicators were initially flashing as an increased number of signs that an interest rate bottom may be near. If I am right, we may see a fairly strong rally in fixed equities supporting lower interest rates.

Thurs, Dec. 10,
Most mortgage-backed securities “roll” to January delivery.

Thurs. Dec. 10, 8:30 a.m. ET
Initial jobless claims for the week ended 12/5
Up 3,000
There are few who doubt the labor sector’s recuperation will be excruciatingly slow. The anticipated uptick in last week’s jobless claims will probably be largely shrugged off by mortgage investors resulting in little, if any change to the current level of mortgage
interest rates.

Thurs. Dec. 10, 1:00 p.m. ET
Treasury auctions
$13 billion of 30-year bonds
This is a key indicator. Investors will be watching very closely to see how this offering fares now that the Fed won't be a direct buyer of this debt obligation.

Fri. Dec. 11, 8:30 a.m. ET
Nov. Retail Sales
Ex. auto
+0.6% vs. last +1.4%
+0.4% vs. last +0.2%
Consumer spending is a major driving force behind economic growth and it will be virtually impossible for the recovery to gain traction without it. Report numbers that match or fall below the consensus estimate will tend to support steady to perhaps fractionally lower mortgage rates. The risk is that Nov. Retail Sales prove stronger than expected.

Fri. Dec. 11, 10:00 a.m. ET Oct.
Business Inventories
-0.3% vs. last -0.4%
Nothing worth noting here.

Tuesday, December 1, 2009

What Happened to November?

Better yet, what happened to October? The last 60 days have been a flash and have left the Efinity Report void of updates. Perhaps my New years resolution will include a more time spent on submitting these valuable nuggests. That said, thank you to many of you for the emails inquiring on the Efinity Report.

Release Date & Time
Economic Indicator
My Analysis

Mon. Nov. 30
Nothing of any significance.

Tues. Dec. 1, 10:00 a.m. ET
Nov. Institute of Supply Mgmt.
55.0 vs. last 55.7
Because auto manufacturing is contributing less to growth this measure of factory activity is expected to post a modest decline. Most mortgage investors will likely show little reaction to this data. This report to exert little, if any influence on the direction of the markets today. I would suggest to see how the Dubai World problem plays itself out. Given the lengthy and continued run up in fixed income pricing, it would not surprise me to see a fairly strong pull pack in late afternoon trading.

Wed. Dec. 2, 2:00 p.m. ET
Fed Beige Book released
This report, named for the color of its cover, is a compilation of economic reports from all 12 Federal Reserve districts. The brighter tones of recovery in most districts will likely be offset by still grim news in terms of employment. The chance any of the data in this report will surprise investors is small. Look for this data to be essentially “toothless” with respect to its impact on the trend trajectory of mortgage interest rates.

Thurs. Dec. 3, 8:30 a.m. ET
Revised Q3 Productivity & Unit Labor Costs
+8.6% vs. last +9.5%
-4.2% vs. last -5.2%
If the consensus estimate proves correct, this report may be a little unsettling for mortgage investors. A downward adjustment in productivity gains and an upward revision in labor cost is not typically the “stuff” that lower mortgage interest rates are made

Thurs. Dec. 3, 8:30 a.m. ET
Initial jobless claims for the
week ended 11/28
Up 14,000
According to data provided by the Dismal Scientist initial jobless claims have shown a tendency to rise in the week including the Thanksgiving holiday in 7 of the past 10 years.
There is little reason to expect this phenomenon will not prevail once again this time around. Look for this data to draw little more than a passing glance from mortgage investors.

Thurs. Dec. 3, 10:00 a.m. ET
Nov. Institute of Supply Mgmt.
Service Sector Index
51.5 vs. last 50.6
The fractional improvement in the month-over-month value for this measure of activity in the largest segment of the economy is broadly anticipated. A reading that matches or lands close to the consensus estimate will likely result in little change to mortgage interest rates. Only in the most unlikely event that the ISM Service Sector Index falls below a reading of 50.0 would mortgage interest rates be expected to move noticeably lower as a direct result of this report.

Thurs. Dec. 3, 10:00 a.m. ET
Senate Banking Committee holds confirmation hearing on the nomination of Fed Chairman
Bernanke to a second term as chief of the U.S. central bank. Look for Committee members to attempt to lay complete blame for the swoon in the economy at the feet of Mr. Bernanke (a
hack job on a bureaucratic scapegoat is always a far better political option as opposed to accepting responsibility directly – especially with mid-term elections so close at hand). The exchanges here have the potential to be heated – but nothing in the way of market moving rhetoric is likely.

Fri. Dec. 4, 8:30 a.m. ET Nov.
Nonfarm payrolls
Jobless rate -130,000
10.2% vs. last 10.2%
Businesses accross most channels are still shedding workers. The headline nonfarm payroll number may have improved but the first-quarter average monthly loss still reflects loss of 691,000 jobs. It will likely take a headline job loss of 150,000 or more and/or a jobless rate of 10.3% or more to create enough stir in the markets and interest rates lower.