Today's oil price

 $ 91.86  per barrel Daily change of  10/12/12 ( 91.16% ) Oil Quote Updated Oct-13-12 1:30 PM

Predictions and causing prices to invest economy: Oil Prices Set to Fall Through 2017

Oil prices are expected to fall over the next five years as demand slumps and a ramp-up in production helps boost supplies, the International Energy Agency (IEA) said Friday.
The group, which represents the world’s 28 richest countries, said the combination will help “redefine the refining industry and transform global oil trade,” though it noted geopolitical risks will continue to loom over the oil supply chain.
The Paris-based IEA sees global oil product capacity growing to 101 million barrels of oil a day by 2017, above its earlier forecast of 95.7 million barrels.
Global demand is forecast to grow at an annual average of 1.1 million barrels a day over the next five years, compared with the IEA's earlier projection of 1.2 million barrels.
More of the growth in oil supply is expected to come from the Americas, buoyed by new drilling technologies in U.S. and Canadian oil sands. Growing output from reserves like the Bakken and Eagle Ford shales has helped propel U.S. domestic oil production to the highest level since 1995.
Looking to capitalize on the jump in production, oil major BP recently secured a license to ship U.S. crude oil to Canada and Royal Dutch Shell is reportedly applying for U.S. export licenses.
Oil production in Middle Eastern countries like Iraq is expected to continue ramping up despite diminishing appetite in North America, and that could help feed growing regional demand there.
“Iraq stands out as its production capacity is expected to enter a new growth phase, which may continue even beyond the forecast period,” the IEA said.
However, in other areas, such as Libya, security concerns may continue to constrain production growth over the next few years.
While some Western companies like BP (BP) have announced plans to return or ramp up production in Libya since the killing of long-time dictator Moammar Qaddafi a year ago,

the killing of a     U.S. envoy there last month resurrected safety fears. 
The IEA, though, said it expects new supply sources to more than offset any decline in rates or outages elsewhere in the world, as well as the tough international sanctions on Iran.
At the same time, the spreading of refining capacity to emerging regions like Asia is expected to help offset decreases in other areas of the world.
Internationally traded crude volumes are projected to decline sharply, but the IEA said product trade is forecast to growth in both volume and scope.
Sweet crude oil was down about 0.50% Friday afternoon to $91.52 and is down about 6.84% from the start of year. It’s still up about 9.3% from 12 months ago.

Today's oil price

$91.36 per barrel

Daily change of 0.11 ( 0.12% )

Oil Quote Updated Oct-10-12 4:00 PM

Beyond The Fiscal Cliff: The Dollar At Risk?

Looking beyond the fiscal cliff, we are afraid the greenback may be at risk no matter who wins the election. We examine the risk to the U.S. dollar in the context of the likely policies pursued under either an Obama or Romney administration.

Some context: The budget deficit as a percentage of Gross Domestic Product (GDP) in the U.S. is worse than that of some of the weak eurozone countries (Portugal, Italy); the eurozone as a whole has a far lower deficit. If the "fiscal cliff" were to take place -- that is, if the tax hikes and government spending cuts were to take effect as currently scheduled -- the U.S. would still face a deficit exceeding 3% of GDP before factoring in any economic slowdown as a result of the cliff. The fiscal cliff the U.S. is facing would impose eurozone style austerity measures and -- just as in the eurozone -- not eliminate the deficit.

Why does it matter? Unlike the eurozone, the U.S. has a significant current account deficit. The current account deficit is exactly the amount foreigners must buy in U.S. dollar denominated assets to keep the dollar from falling. As a result, the U.S. dollar may be vulnerable should foreigners reduce their appetite for U.S. bonds. In contrast, the fallout from the eurozone debt crisis has had a limited effect on the euro because the eurozone as a whole does not need inflows from abroad to keep the currency stable.

U.S. bond market at risk: Foreigners don't need to sell U.S. bonds for there to be a risk to the U.S. dollar: they simply need to include fewer Treasuries in their purchases going forward. Should the decades-old bull market in U.S. bonds turn into a bear market, foreigners might be inclined to deploy fewer of their reserves into U.S. Treasuries. We see three primary scenarios that could lead to a sell-off in the U.S bond market:

A return to normal times
Strong economic growth
A crisis of confidence in U.S. bonds
Normal times: Why would "normal" times be a threat to the U.S. bond market? In our analysis, one of the best bubble indicators is below-average volatility in an asset or asset class. When tech stocks seemingly went nowhere but up in the late 1990s, when housing prices seemingly went nowhere but up last decade, when we had the hallmarks of a "goldilocks" economy -- respective asset price volatilities were below their historic norms. The 2008 crisis was triggered by a return of risk to the markets: as investors had to price in rising volatility -- for no apparent reason -- banks had to de-lever to make their sophisticated value-at-risk models work. Similarly, as investors more broadly pared down their risk, the credit bubble burst. With regard to the bond market, we only need to return to historic levels of volatility for there to be a potentially rather rude awakening: we have had many yield chasers going out ever further on the yield and credit curves (buying longer-dated and less creditworthy securities) that might run for the hills as volatility picks up in the bond market.

Strong economic growth: Some argue that we can outgrow our challenges, but the looming explosion of entitlement spending makes relying on growth unfeasible. However, our concern is with the fallout higher growth might have on the bond market. We got a glimpse of that earlier this year as a couple of economic indicators came in better than expected, leading to a sharp sell-off in the bond market. Good luck to the Federal Reserve in containing fallout in the bond market if indeed we get the sort of growth Fed Chairman Ben Bernanke is advocating.

Crisis of confidence: If there is one lesson to be taken from the eurozone debt crisis, it is that the only language policy makers appear to be listening to is that of the bond market. Policy makers decide between the political cost of acting versus the political cost of not acting. As such, we are not very optimistic that we will implement true entitlement reform unless and until the bond market forces us to. As indicated, however, should that happen, the risk to the U.S. dollar might be significant.

Obama versus Romney: A key difference promoted between Obama's and Romney's view of the world is the level of government spending. But independent of our political preferences, any level of government spending must be financed through revenue and borrowing. And that's where we have a problem:

Obama's slowing spending growth: Listening to budget experts in support of Obama's policies, we hear a lot about how spending growth has slowed since 2008. The problem with that argument is that spending levels at the outset of President Obama's administration were unsustainably high. Trillion dollar deficits are simply not good enough, even if the rate of growth of such deficits is low. When quizzed on the sustainability of the deficit considering the risk to the bond market, we hear that the U.S. dollar is a reserve currency and, as such, we have plenty of time to get to a more sustainable path. We certainly don't have a crystal ball, and we know that it may be all but impossible to time if and when the U.S. bond market will tell the government that enough is enough. Forecasting when the tech or housing bubbles would burst was also extremely difficult, although the warning signs were there for all to see. However, relying on the bond market behaving is, in our view, bad policy. Any policy maker who agrees that there's a potential risk should set policy to mitigate that risk sooner rather than later. Conversely, any investor who agrees that there's a risk to the bond market should consider taking it into account in his or her portfolio allocation now.

Romney's sustainable budget: Supporters of a Romney presidency are quick to point out how a Romney/Ryan budget leads to a sustainable budget over time. Indeed, the most positive aspect of the proposal is that it puts a budget on healthcare. Many are not aware that the current healthcare system in the U.S. does not have a budget -- it simply lists entitlements: not surprisingly, costs are exploding. One can argue about how one goes about introducing a budget, but the fact that Romney wants to introduce a healthcare budget is extremely important for long-term fiscal sustainability. Because kid you not: Medicare as we know it won't be around in 20 years -- it's mathematically impossible -- there aren't enough rich folks out there to tax to make it work. But the Romney/Ryan budget plan has a key flaw: we believe it's most unlikely to be implemented (before those opposing a Romney/Ryan budget breathe a sigh of relief, please re-read the section on Obama's spending growth). Our pessimism is based not on current polls favoring an Obama/Biden administration, but on the likely stalemate in Congress. Good luck getting a budget through Congress without it being watered down rather severely. But even if Romney/Ryan principles were to prevail, Romney has already made so many concessions, from continued subsidization of student loans to preserving defense spending, that a Romney/Ryan budget is at risk of looking very much like the sort of budget we see anywhere in the world: one that replaces the faces, cuts "wasteful" spending and replaces it with "worthy" spending. Clearly, what is "wasteful" and "worthy" is in the eye of the beholder. But don't worry, as in four years, citizens have the opportunity to vote for change yet again. Unfortunately, we might replace the faces, but the deficits may remain.

Real wages haven't gone anywhere over the past decade. Voters are frustrated. In such an environment, politicians able to distill their messages into Tweets may have better chances of being elected. That is, we believe more populist politicians may increasingly become members of Congress. In that context, the rise of the Tea Party on the right, as well as Occupy Wall Street on the left, is no coincidence. As far as policies are concerned, however, the implication may be that real entitlement reform -- key to making our budgets sustainable -- remains elusive. In the U.S., just as in the eurozone, we may be tempted to "kick the can down the road" until the bond market forces us to tackle our problems.

Until then, we believe inflation is the path of least resistance: the government nominally delivers on promises made, but the real value of entitlements received is eroded. We just point to the most recent debt ceiling discussion where both Democrats and Republicans appeared open to changing the definition of the Consumer Price Index (CPI) to do just that. Investors may want to consider these risks in their portfolio allocation.

Disclaimer: This report was prepared by Merk Investments LLC, and reflects the current opinions of the authors. It is based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any investment security, nor provide investment advice.

Happy Anniversary To The All-Time Highs

Five years ago, on October 11, 2007, the Dow Jones Industrial Average (DIA) and the S&P 500 (SPY) reached their all-time highs. On that day, the Dow topped out at 14,198.10, and the S&P 500 topped out at 1576.09. The Nasdaq, of course, reached its all-time high in March of 2000 at 5,132.52. That is a level that, more than 12 years later, the Nasdaq is still more than 40% below.

Interestingly enough, prior to 2007, October was the month investors could most rely on to end bear markets, not start them. According to the "Stock Trader's Almanac 2012," bear markets ending in 1946, 1957, 1960, 1962, 1966, 1974, 1987, 1990, 1998, and 2002 all occurred in October. Additionally, the roughly 20% selloffs that occurred in the major market indices in 2011 also ended in October.

But while October was historically known as the month to end bear markets, it has also been known as the month of nasty surprises. The stock market crashes of 1929, 1987 and 2008 each occurred during October, as did brutal selloffs in 1978 and 1979, and single-day surprises in 1989 and 1997. Moreover, the bull market ending in 2007 peaked in October.

For one reason or another, October has historically marked inflection points in the major U.S. stock market indices. With the fiscal cliff fast approaching, earnings growth for the S&P 500 at its slowest since the bull market began, and forward earnings estimates on a downward path, it is a good time for investors to be mindful of October's role in stock market history. Maybe all the previously mentioned inflection points and brutal selloffs occurring in October is merely a coincidence. And with unconventional monetary policy distorting prices in many parts of the financial markets, perhaps it is futile to spend time discussing seasonalities.

But also worth noting is that as much as investors like to think the stock market prices in known unknowns ahead of time, that is not always the case. Five years ago, when major stock market indices were making new all-time highs, the U.S. economy was just weeks away from officially entering a recession. Furthermore, at that time, financial market stresses from the declining housing market had already appeared. But then, much like today with respect to troubles in Europe and slowing worldwide economic growth, hope ruled the day. Hoping that central banks and policy makers can forever protect the financial markets, driving asset prices ever higher is something in which financial market participants are well versed. Yet when hope in the abilities of central banks and politicians to successfully navigate investors through troubled financial waters becomes the primary driver of rising asset prices, which I contend it is today, then shifts in sentiment can happen suddenly and appear irrational.

Incidentally, for those who find October's role in stock market history of interest, you may like to know that the Dow Jones Industrial Average recently made a new bull market high on October 5 before turning lower, and the S&P 500 challenged its bull market high before turning lower. Will this October join others as a major inflection point?

It appears to me that the U.S. economy and the S&P 500 are far too reliant on three things: unconventional monetary policy, corporate cost cutting initiatives, and Apple's (AAPL) earnings growth. Quantitative easing has been ongoing for more than three-and-a-half years. The goal of quantitative easing is to prop up financial asset prices until a self-sustaining economic recovery takes hold. Yet the diminishing asset price returns from each round of QE appears to indicate that investors are losing patience. In order to continue propping up financial markets, including stocks, the Fed will need to print money in ever greater amounts. Or corporate earnings growth can ramp up and remove from the Fed the responsibility of propping up asset prices. Yet after a few years of impressive cost cutting, corporations are and will continue to become more reliant on revenue growth to boost earnings.

With anemic wage growth in the United States, a slowing economy in China, and very serious structural problems in Europe, at this time, betting on enough revenue growth to drive stock prices significantly higher from here does not seem appropriate from a risk-reward standpoint. One caveat to that would be if Apple were to crush earnings expectations. Given its top weighting in the S&P 500, its near 20% weighting in the Nasdaq 100, and the fact that Apple's earnings growth has masked widespread weakness in the broader growth of S&P 500 earnings, its earnings report later this month will be the one to watch.

If you are an investor with a time horizon measured in years rather than weeks or months, it makes very little sense to put new money to work in broad market indices at this time. Before doing so, I would want to see not only a clean, consensus-crushing earnings report from Apple, but also some indication that the fiscal cliff and the fast-approaching debt ceiling debate will be dealt with in a way that helps markets avoid the same type of brutal selloff experienced last summer. Traders find short-term opportunities each and every day. But if you are one of the millions of investors with multi-year time horizons, using index funds as a means of gaining exposure to stocks, now is not the time to put your foot on the accelerator.

There is virtually no chance that stocks have priced in the earnings declines that would result from a failure to resolve the fiscal cliff. Likewise decisions made during the upcoming debt ceiling debate could also have serious consequences on future corporate earnings growth. It is also highly unlikely that stocks have priced in any type of negative outcome regarding the European situation. Those are all very real risks in the months ahead.

What stocks have priced in is a Fed willing to do moderate levels of QE on an ongoing basis. Stocks have also priced in the expectation that politicians will not allow the fiscal cliff to occur on a permanent basis. While it is hard to believe that Congress will accomplish anything in December, there is widespread discussion about the fiscal cliff happening on a temporary basis in January. Finally, stocks have also priced in current forward earnings growth projections of 13.41% over the next twelve months.

Unless we get a stellar earnings season including guidance that gives investors reasons to put new money to work, investors are really just buying on the hope for continued money printing. In that case, I would rather buy gold (GLD). And when the time does come to once again invest heavily in stocks, it will likely correspond with some sort of resolution out of Europe. In that case, investors will likely make more money buying the more-than-4%-yielding MSCI EAFE Index Fund (EFA) than they would buying the S&P 500.

For now, remain on hold, patient, attentive to the upcoming challenges, and mindful of October's role in history.

Today's oil price

$92.41 per barrel

Daily change of 0.02 ( 0.02% )

Oil Quote Updated Oct-10-12 9:00 AM

Fed chose mortgage bonds consolidate the gains of Housing

Restructuring of the Federal Reserve its latest stimulus program on the purchase of mortgage bonds after members agreed to help the nascent housing recovery was a good way to lift the broader economy.

Meeting Minutes Fed September 12-13 published on Thursday also shows that most of the members now agree that linking an increase in interest rates in the short-term future economic measures, such as the unemployment rate specific, can be effective. But members agreed to hold off on the change to work on the details.

After the meeting, the Fed said it will keep buying mortgage bonds until the labor market showed a significant improvement. Fed also extended its plan to keep the benchmark interest rate on short-term interest near zero until 2015 and mid-left open the possibility of taking further steps.

The Fed bought already more than $ 2 trillion in bonds since the financial crisis of 2008. The latest program seeks to spend $ 40 billion a month to buy mortgage securities without the end of the deadline.

Many participants agreed at the meeting that more purchases of bonds that would provide support to the economy through downward pressure on long-term interest rates. To encourage more borrowing and spending, which drives growth.

According to the minutes, members of the Fed compared the effectiveness of buying Treasuries to mortgage-backed securities.

"Some participants suggested that all things being equal, (mortgage bonds) purchases could be better because it is more directly support the housing sector, which is still weak, but showed some signs of improvement in recent times," according to the minutes.

The few members uncertainties buy additional bonds would help. And raised fears that buying more bonds could increase the risk of higher inflation later.

And mortgage rates were less than 4 percent throughout the year. While rising home sales, they remain much lower than healthy levels.

On Monday, he defended Chairman Ben Bernanke aggressive policies during a speech to the Economic Club of Indiana. Bernanke said the Federal Reserve needs to cut borrowing rates in the long term, because the economy is not growing fast enough to reduce the high rates of unemployment.

He also sought to reassure investors about the timetable for the Fed to save them in the short term rate is very low. He said the plan does not mean that the Fed is expected to be weak economy until 2015, indicating that policy makers plan to keep rates low well after the economy strengthens

Today's oil price

$89.46 per barrel

Daily change of 0.42 ( 0.47% )
Oil Quote Updated Oct-08-12 12:00 AM

Dollar and precious metals at a glance

Key currency exchange rates Monday, compared with late Friday in New York:
Dollar vs: Exchange Rate Pvs Day
Yen 78.34 78.69
Euro $1.2967 $1.3025
Pound $1.6036 $1.6140
Swiss franc 0.9330 0.9300
Canadian dollar 0.9766 0.9790
Mexican peso 12.8115 12.7968
Metal Price (troy oz.) Pvs Day
NY Merc Gold $1773.50 $1778.60
NY HSBC Bank US $1775.00 $1775.00
NY Merc Silver $33.982 $35.516

Weekly outlook for financial markets 8 to 12 October

Monday, October 8th


All Day – Eurogroup Meeting: The Eurogroup Meeting will be held in Brussels and the EU ministers of finance will meet and converse about the recent political and monetary changes in Europe

11:00– German Industrial Production: This report will present the developments in the industrial production of the German for August; in the previous report the German industrial production rose by 1.3% (M-O-M) during July

00:30 – Japan Current Account: this report will show the changes in the difference between exports and imports for Japan during last month; this news may affect the strength of the Japanese Yen

Tuesday, October 9th

08:30 – ECB President Speaks: Mario Draghi will talk in Committee on Economic and Monetary Affairs of the European Parliament, in Brussels. In his speech he might refer to the future monetary steps the ECB. This speech might affect the Euro to US dollar exchange rate

09:30 – Great Britain Manufacturing Production: this report will present the yearly rate of GB’s manufacturing production for August; in the last report regarding July the index rose by 3.2% (M-2-M); this news may affect the British Pound

Wednesday, October 10th

All Day – European Council Meeting: In the European Council Meeting the EU ministers of finance will meet and talk about the recent monetary developments in Europe

05:00 – SNB Chairman Jordan Speaks: Swiss National Bank President will give a speech. This speech might affect the Swiss franc currency

Tentative – China New Loans: This report will report the recent changes in China’s new loans given during the recent month. According to the last report, the total loans increased  as the People Bank of China BOC had cut the interest rate and eased the restrictions on commercial banks regarding new loans; this report is another indicator for the economic progress of China

15:30 – U.S Crude Oil Stockpiles Report: the EIA (Energy Information Administration) will publish its weekly update on the U.S oil and petroleum stockpiles for the week ending on October 5th; in the recent weekly update for September 28th, stockpiles fell again by 2.4 million bl to 1,796 million bl

18:00 – U.S 10 Year Bond Auction: the U.S government will issue another bond auction; in the recent bond auction, which was held at the second week of September, the average rate reached 1.76%

00:50 –Minutes of the recent Japanese monetary policy meeting: Following last week’s BOJ monetary policy meeting – the Bank members decided to leave the interest rate at 0 to 0.1 percent and didn’t expand its stimulus– the Bank of Japan will publish the minutes of last week’s meeting. The minutes may offer some insight behind the Bank’s latest decision that could affect the Japanese yen and consequently commodities prices

02:30 – Australia Employment Report: in the recent report regarding August 2012 the rate of unemployment edged down to 5.1%; the number of employed (seasonally adjusted) slightly fell by 8,800 people; the number of unemployed decreased by 10,600 during August compared with July‘s numbers. This report could affect the Australian dollar

Tentative –OPEC Monthly Report: this report will show the main developments in crude oil and natural gas’s supply and demand worldwide; the report will also refer to the developments in the production of OPEC countries during September 2012; this news may affect oil prices

Thursday, October 11th

All Day – G7 Summit: the G7 Summit will be held in Tokyo in which the ministers of finance of the G7 will talk about the recent financial developments in the leading economies. In the Summit the ministers may talk about the “fiscal cliff” in the U.S and the European debt crisis. If there will be big headlines from this Summit it may have some effect on the financial markets

All Day – IMF Meetings: the IMF Meeting will span over three days

13:30 –Canadian Trade Balance: In the recent report regarding July 2012, exports fell by 3.4% and imports declined by 2.2%; as a result, the trade deficit expanded from a $1.9 billion deficit in June to $2.3 billion deficit in July; this report may affect the Canadian dollar which tends to be strongly correlated with prices of commodities

13:30 –American Trade Balance: This monthly report for August 2012 will show the recent changes in imports and exports of goods and services to and from the U.S, including commodities such as oil, natural gas and gold; according to the recent American trade balance report regarding July 2012 the goods and services deficit edged up during the month to $42 billion

13:30 – U.S. Jobless Claims Weekly Report:  this report will refer to the weekly shifts in the initial jobless claims for the week ending on September 28th; in the latest report the jobless claims rose by 4k to 367,000; this upcoming weekly report may affect the U.S dollar and consequently the prices of commodities

15:00 – FOMC member Stein Speaks: The title of the speech is “Evaluating Large-Scale Asset Purchases

15:30 – EIA U.S. Natural Gas Storage Update: the EIA weekly update of the U.S. natural gas market will pertain to the latest news in natural gas production, storage, consumption and rates as of October 5th; in the previous weekly update, natural gas storage increased by 77 Bcf to 3,653 Bcf

19:00 –U.S. Federal Budget Balance: this upcoming publication will present the changes in the U.S federal balance for September 2012; this report indicates the government debt growth and thus may affect the U.S dollar. In the recent report regarding August the deficit rose by $190 billion to a deficit of $1,164 billion for the fiscal year of 2012; this is a decrease of 5% compared to 2011

Friday, October 12th

10:00– Euro Area Industrial Production: This report will present the changes in the industrial production of the EU for August; in the recent report the EU industrial production rose by 0.6% (M-O-M) during July

13:30 – U.S. Producer Price Index: This report will show the progress in the PPI during September 2012, i.e. the inflation rate from the producers’ stand point. In the recent report regarding August this index for finished goods hiked by 1.7% compared with July’s rate and rose by 0.5% in the last 12 months; this news might affect commodities prices

14:55 – UoM Consumer Sentiment (preliminary): University of Michigan will issue its preliminary consumer sentiment report; this survey could offer another insight to recent developments in U.S consumers sentiment about the economy; last time the sentiment index increased again to 79.2

17:35 – FOMC member Lacker’s Speech: The title of the speech is “Challenges to Economic Growth

Tentative –IEA Monthly Oil Report: this upcoming monthly update will present an updated (as of September) outlook and analysis for the global crude oil and natural gas market for 2012 and 2013

Saturday, October 13th

Tentative –China’s Trade Balance: according to the recent monthly report, China’s trade balance rose to a $26.7 billion surplus; if the surplus will further expand, it could indicate that China’s economic growth is rising and thus may positively affect prices of commodities.

Dollar and precious metals at a glance

Key currency exchange rates Friday, compared with late Thursday in New York:
Dollar vs: Exchange Rate Pvs Day
Yen 78.69 78.50
Euro $1.3025 $1.3018
Pound $1.6140 $1.6185
Swiss franc 0.9300 0.9308
Canadian dollar 0.9790 0.9807
Mexican peso 12.7968 12.7556
Metal Price (troy oz.) Pvs Day
NY Merc Gold $1778.60 $1794.10
NY HSBC Bank US $1775.00 $1791.00
NY Merc Silver $35.516 $35.041

US rate on 30-year mortgage hits record 3.36 pct.

WASHINGTON  Average U.S. rates on fixed mortgages fell to fresh record lows for the second straight week. The declines have led more homeowners to refinance, a trend that could help jumpstart the economy.
Mortgage buyer Freddie Mac said Thursday that the rate on the 30-year loan dropped to 3.36 percent. That's down from last week's rate of 3.40 percent, which was the lowest since long-term mortgages began in the 1950s.
The average on the 15-year fixed mortgage, a popular refinancing option, dipped to 2.69 percent, down from last week's record low of 2.73 percent.
Rates are falling after the Federal Reserve started buying mortgage bonds to help strengthen a housing recovery that began earlier this year. The Fed plans to continue the program until there is substantial improvement in the job market.
Sales of both previously occupied and newly built homes are up from last year. Home prices are rising more consistently. And builders are more confident in the market and are starting to build more homes.
Lower rates are also driving more people to refinance. Mortgage applications surged 16.6 percent last week, the Mortgage Bankers Association reported Wednesday. Of those applications, 83 percent were to refinance existing loans.
Growth in refinancing could help the broader economy. When people refinance their mortgages at lower interest rates, their monthly payments typically decline. That leaves them with more money to spend. Consumer spending drives nearly 70 percent of economic activity.
Still, some economists question whether further decline in rates will make much of a difference. The average rate on the 30-year fixed mortgage has been below 4 percent since early December. Yet home sales remain below healthy levels. And most people who can qualify have likely already taken advantage of the lower rates.
Many people who would like to refinance or buy a home can't because they fail to meet stricter lending requirements or don't have enough money to make a down payment.
To calculate average rates, Freddie Mac surveys lenders across the country on Monday through Wednesday of each week.
The average does not include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.
The average fee for 30-year loans was 0.6 point, unchanged from last week. The fee for 15-year loans slipped to 0.5 point from 0.6.
The average rate on one-year adjustable-rate mortgages fell to 2.57 percent from 2.60 percent. The fee for one-year adjustable rate loans held steady at 0.4 point.
The average rate on five-year adjustable-rate mortgages rose to 2.72 percent from 2.71 percent. The fee remained at 0.6 point.

News Summary: Commodities prices fall broadly

BROAD DECLINE: Most commodities prices fell Friday. Crude oil gave up $1.83 to $89.88 per barrel on the New York Mercantile Exchange. Most other energy contracts, with the exception of wholesale gasoline, also fell.
GOLD SOLD: Gold edged further away from $1,800, a day after rising to its highest level since February. Gold for December delivery gave up $15.70 to $1,780.80 an ounce.
COFFEE CREAMED: Coffee prices slumped 4 percent, giving up 6.95 cents to settle at $1.6810 per pound

Fed choice mortgage bonds to bolster housing gains

WASHINGTON  The Federal Reserve structured its latest stimulus program around the purchase of mortgage bonds after members agreed that helping a nascent housing recovery was a good way to lift the broader economy.
Minutes of the Fed's Sept. 12-13 meeting released Thursday also show that most members now agree that tying a future increase in short-term interest rates to economic measures, such as a specific unemployment rate, could be effective. But members agreed to hold off on the change to work out the details.
After the meeting the Fed said it would keep buying mortgage bonds until the job market showed substantial improvement. The Fed also extended its plan to keep its benchmark short-term interest rate near zero until mid-2015 and left open the possibility of taking other steps.
The Fed has already purchased more than $2 trillion in bonds since the 2008 financial crisis. The latest program seeks to spend $40 billion a month to buy mortgage bonds without an end date set.
Many participants agreed at the meeting that more bond purchases would provide support to the economy by putting downward pressure on longer-term interest rates. That encourages more borrowing and spending, which drives growth.
According to the minutes, Fed members compared the effectiveness of buying Treasury bonds to that of mortgage-backed securities.
"Some participants suggested that, all else being equal, (mortgage bond) purchases could be preferable because they would more directly support the housing sector, which remains weak but has shown some signs of improvement of late," according to the minutes.
A few members expressed skepticism that additional bond purchases would help. And they raised concerns that more bond buying could increase the risk of higher inflation at a later time.
Mortgage rates have been below 4 percent all year. While home sales are rising, they remain well below healthy levels.
On Monday, Chairman Ben Bernanke defended the aggressive policies during a speech to the Economic Club of Indiana. The Fed needs to drive down long-term borrowing rates because the economy isn't growing fast enough to reduce high unemployment, Bernanke said.
He also sought to reassure investors about the Fed's timetable for keeping its short-term rate ultra-low. The plan doesn't mean the Fed expects the economy to be weak through 2015, he said, noting that policymakers plan to keep rates low well after the economy strengthens.

Today's oil price

$89.92 per barrel

Daily change of 1.59 ( 1.74% )

Oil Quote Updated Oct-07-12 2:00 PM