Home Prices Higher in 2013

U.S. home prices in 2013 likely rose at the fastest pace in eight years, with almost half of states recently within 10% of peak levels, according to data released Tuesday.

In November, monthly home prices ticked up 0.1%, with annual growth of 11.8%, CoreLogic, an Irvine, Calif.-based analysis firm, reported. CoreLogic expects growth for all of last year to hit 11.5%, which would be the fastest pace since 2005.

Relatively few homes on the market and pent-up demand led to fast price appreciation last year. Also, some borrowers rushed to take advantage of the ultra-low interest rates for fixed-rate mortgages that started rising in early May.

Looking forward, economists expect home-price growth to cool down for several reasons. Price gains over the past year will make more sellers willing and able to place their homes on the market, and encourage builders to ramp up construction, thereby raising inventory. Also, home-price growth that outpaces income gains is unsustainable. And interest rates are expected to continue to rise, cutting some demand, though economists say expected increases won’t derail the market’s recovery.

New mortgage rules this year and ongoing housing-finance reform could also curb some lending.

“The outlook for 2014 looks a bit less robust as regulatory complexities and tight credit can be expected to cool the housing market,” Anand Nallathambi, CoreLogic’s CEO, told Marketwatch.

But slowing home prices aren’t all bad. Certain borrowers, such as first-time purchasers, who had trouble competing with investors and other buyers last year, may have a better shot at buying a home in 2014. Housing-market participation by first-time buyers is key because it helps young families grow their savings and enables repeat buyers to move into a new place.

By state, Nevada saw the fastest annual home-price growth in November, reaching above 25%. However, Nevada was hit particularly hard when the housing bubble burst, and prices there remain 40% below peak. Meanwhile, Arkansas saw annual home-price growth fall 1.1% in November, making it the only state with a year-over-year contraction. Other states, such as Nebraska, North Dakota and Texas, set new home-price peaks in November.

Trade Deficit Slumps to 4-Year Low

Falling imports of foreign oil pulled the U.S. trade deficit down in November to its lowest level in four years, offering further evidence that the economy grew faster in the final months of 2013 than previously projected.

The nation’s trade deficit dropped to a seasonally adjusted $34.3 billion from a revised $39.3 billion in October, the Commerce Department said Tuesday. Economists polled by MarketWatch had forecast a deficit of $40 billion.

Before the trade report, economists were forecasting U.S. growth of 2.3% in the fourth quarter, according to the MarketWatch survey. Afterward, some firms raised their projections to 3% or even higher.

A smaller trade deficit increases gross domestic product because it means Americans are selling more U.S.-produced goods and services overseas while buying less from foreign nations.

The big story in November was oil. Petroleum exports climbed 5.5% in November to $13.3 billion. Just a year earlier, U.S. oil exports were 23% less at $10.79 billion. Petroleum imports, by contrast, shrank 11.2% to $28.5 billion to mark the lowest level in three years.

The U.S. continues to benefit from a booming energy industry that is exporting more petroleum than ever, the result of new technologies that have unlocked large oil deposits that were previously unrecoverable.

“Not only is the American energy boom underpinning export growth, it is reducing American demand for foreign oil,” Jay Bryson, global economist at Wells Fargo Securities, told Marketwatch.

Demand for foreign oil — and the price per barrel — also tends to fall after the end of the summer driving season.

In November, overall U.S. exports rose 0.9% to a record $194.9 billion, also spurred by sales of industrial supplies, business equipment and autos. Higher exports of American-made goods add to other reports indicating that U.S. manufacturers are experiencing a rebound in sales both at home and abroad.

Oil Bucks Losing Streak, Freeze Lifts Nat Gas

Oil futures rebounded on Tuesday, with prices looking to break a losing streak that has spanned five-straight sessions as traders continued to mull a potential recovery in Libyan oil output.

Natural-gas futures, led the percentage gains in the energy market, as freezing weather in much of the U.S. boosted demand for the heating fuel.

Crude oil for February delivery rose 51 cents, or 0.6%, Tuesday to $93.94 a barrel on the New York Mercantile Exchange.

Prices on Monday shed 53 cents, or 0.6%, to $93.43 a barrel, on Nymex, marking their lowest settlement in about five weeks as the possible increase in Libyan oil output weighed on the markets.

“Libya is still expected to increase exports in the very near future, which will obviously add to global supply,” said Tyler Richey, an analyst for the 7:00’s Report, which offers daily markets commentary.

But overnight, various news reports said that Libya’s navy barred on an oil tanker from loading crude at a militia-controlled port.

“The lack of oil revenues has apparently left Libyan government coffers close to empty, and the government may not be able to pay civil servants in the near future, which will lead to even more unrest,” said analysts at the Kilduff Report.

Meanwhile, “Iraq is in turmoil, again, just as their oil output was seen rising,” the analysts said.

“The central government is said to be readying an assault to thwart the uprising in Fallujah,” they said. “If the operation is unsuccessful, then the security that has been generated, of late, will dissipate.”

On ICE Futures, February Brent crude gained 45 cents, or 0.4%, at $107.18 a barrel.

The American Petroleum Institute’s report on U.S. petroleum supplies will be followed by more closely-watched figures from the U.S. Energy Information Administration later today.

Although the EIA figures last week showed a fifth-consecutive , the market “seems to have shrugged this off as a normal seasonal effort by refiners targeting lower year-end stock levels,” Timothy Evans, an energy analyst for Citi Futures, wrote in a recent note.

Data Monday showed that the U.S. trade deficit dropped to a seasonally adjusted $34.3 billion in November from a revised $39.3 billion in October. Petroleum exports climbed 5.5% in November while petroleum imports shrank by 11.2% to mark the lowest level in three years. “The increase in crude-oil production has had major ramifications for the trade balance,” said economists at Scotiabank Economics.

“The increase in domestic crude production has : a) allowed U.S. refiners to be more selective about the crude that they import in terms of source, quality, and price and b) it has allowed U.S. refiners to dramatically increase their exports of refined petroleum products.”

Cold weather boost

Natural-gas futures led the gains in the energy-futures market on Tuesday, with prices up by more than 1% on the back of a deep freeze in many parts of the U.S.

Natural gas for February delivery advanced 5.5 cents, or 1.3%, to $4.36 per million British thermal units on Nymex.

On Monday, Bentek Energy, Platts’ oil and natural-gas analytics unit said U.S. natural-gas demand set a record that day, with total natural gas nominated to consumers rising to 125.7 billion cubic feet per day — 3.4 bcf higher than the previous record set on Jan. 16, 2009. Bentek at the time said demand on Tuesday could be just as high or set another record.

Senate Confirms Yellen as Fed Chair

The Senate on Monday approved Janet Yellen to be the first chairwoman of the Federal Reserve in the central bank’s 100-year history.

The vote was 56 to 26. Many senators missed the vote because of the severe winter weather, a Senate aide said. Eleven Republicans voted with 45 Democrats to support Yellen, who will be the first Democrat to run the Fed since Paul Volcker left in 1987.

“Janet is committed to the Fed’s dual mandate of keeping inflation in check while also addressing our most important economic challenge by reducing unemployment and creating jobs. And she understands that fostering a stable financial system will help the overall economy and protect consumers,” President Barack Obama said in a statement.

“The American people will have a fierce champion who understands that the ultimate goal of economic and financial policymaking is to improve the lives, jobs and standard of living of American workers and their families,” he added.

Yelllen’s term will begin on Feb. 1. Fed Chairman Ben Bernanke will lead the Fed’s next rate-policy committee meeting in late January.

Yellen, 67, has been at the center of monetary policy deliberations over most of the past 20 years.

Her first stint on the Fed board started in 1994 during the Clinton administration where she served under former Fed Chairman Alan Greenspan for three years before joining the Clinton White House in 1997.

Yellen’s second stint at the central bank began in 2004 when she was picked to be the president of the San Francisco Federal Reserve Bank. She left that job only to return to Washington in 2010 to serve as Bernanke’s No. 2.

There was little debate on the Senate floor over the nomination prior to this evening’s vote.

Sen. Rand Paul, a Republican from Kentucky and a leading critic of the Fed, gave his speech against Yellen after the vote because his flight was delayed due to weather. While noting the widespread support for Yellen, Paul said the Senate will “rue the day” that it supported her.

The lack of drama belied the often tumultuous process of selecting a replacement for Bernanke.

Chris Krueger, a senior policy analyst at Guggenheim Washington Research Group, said the Obama administration’s quest for a new Fed chairman was “bizarre.” “From beginning to end, this has not been a particularly elegant process,” Krueger said.

First, President Barack Obama caught financial markets off guard this summer when he strongly hinted that Bernanke was going to step aside.

This started a public competition for the top Fed job between supporters of Yellen and backers of Lawrence Summers, the former Treasury Secretary and Obama confidente and top economic advisor.

Summers eventually pulled his name from consideration after some liberal Democrats in the Senate signaled their strong support for Yellen.

Yellen managed to stay above the fray. In November, she sailed through her nomination hearing in the Senate Banking Committee.

“She hit a home run,” Krueger said.

Economists said Yellen will come under immediate pressure, as the central bank continues to fall short on both of its policy objectives for full employment and stable inflation.

The unemployment rate fell to 7% in November, but remains above the 5.5% rate considered to be full employment by Fed officials.

Armed with an optimistic forecast for 2014, the Fed decided last month to start to taper its controversial bond-buying program, scaling it back by $10 billion to a pace of $75 billion per month.

Financial markets generally expect the Yellen Fed to continue to continue to scale back purchases this year, with an eye to ending the program entirely before 2015.

One big challenge for Yellen will be deciding how to refine its new “forward guidance” tool, where the central bank tells the market about when it expects to raise short-term interest rates.

Many economists are skeptical the central bank can keep long-term interest rates from rising as it tapers its bond purchases.

In December, the Fed said it would hold rates at zero “well past” the time that the unemployment rate declines below 6.5%.

Robert Brusca, chief economist at FAO Economics, said he does not think that forward guidance works.

James Glassman, economist at J.P. Morgan Chase, said the Fed has the final say on short-term rates, but is “just a player” in setting long-term rates.

Glassman said that low inflation could be Yellen’s biggest challenge.

The Fed’s favorite measure of inflation, the personal consumption expenditure index, rose only 0.9% over the past 12 months ending in November, well below the Fed’s 2% target.

“The Fed keeps saying it is going to go back up but I think it is going to be a bigger challenge than they think,” Glassman said.

Wall Street thinks that creating inflation is easy, he said, but the history of Japan over the past two decades shows that this view is simplistic, Glassman said.

Brusca said that Yellen’s biggest challenge may be to help bring down the unemployment rate further now that the central bank is pulling back its stimulus program.

Yellen may also face pressure to scale back bank regulation enacted under Dodd-Frank if the economy stays tepid, Glassman added.

Macau Gambling Industry Dwarfs Vegas

Forget about Las Vegas and Atlantic City. Macau has cemented its status as the undisputed heavyweight champion of the gambling industry.

The Chinese territory reported gambling revenue of 360 billion patacas ($45 billion) for 2013, an increase of almost 20% over the previous year.

If that sounds like a lot of cash, it is. Las Vegas will be lucky to make $6.5 billion, or 15% of Macau's total. Atlantic City's haul is likely to be even lower.

The former Portuguese outpost has been gaining momentum for years, fueled by a loosening of regulations and a Chinese populace that is eager to gamble. When restrictions on foreign operators were lifted in 2002, new casinos opened in droves as international firms joined the rush.

Macau is the only location in China where gambling is legal, and millions of tourists flock to the territory each year. Rapid growth has attracted the biggest players in the industry, including Las Vegas Sands (LVS, Fortune 500) and Wynn Resorts (WYNN, Fortune 500).

The boom has reverberated across the Pearl River Delta. In Hong Kong, home to some very devoted gamblers, the government is scrambling to build a bridge to Macau that will cross some of the world's busiest shipping lanes. Hong Kong gamblers currently rely on a fleet of ferries to reach the territory.

Yet Macau, with a population just under 600,000, is not merely an imitation Vegas. Chinese gamblers favor games like baccarat over poker and blackjack. And Nevada still has the edge when it comes to entertainment, offering a greater variety of dining options and shows led by stars such as Britney Spears.

Despite its runaway success, Macau's boom has not been without cost.

The territory is almost entirely dependent on gambling. When the industry booms, tax revenue jumps and residents -- most of whom are employed in the business -- receive payouts from the government. As a result it's vulnerable to changes in policy and would suffer greatly if China repeated a 2008 clampdown on the number of mainland visitors.

The city has also attracted unsavory elements often associated with the industry, including money launderers looking to evade limits on moving cash out of China.

Beijing limits the amount of money Chinese can take out of the country to $50,000 per year. For those looking to skirt the rules, Macau provides an attractive option.

By working with a junket operator -- which performs the basic functions of a tour company -- visitors use yuan to buy casino chips, but cash out their winnings in foreign currencies, including dollars. The money can then be moved abroad and used to make purchases in Europe and the United States.

Despite efforts to restrict this activity, the practice has attracted plenty of criticism, including from the U.S. Congressional-Executive Commission on China.