If Your Mortgage Rate Is Meaningfully Above 4.3%, Consider Refinancing Now

Lots of hedge funds are having a very difficult start to 2014. Many were short long-term bonds as a hedge against a correction in U.S. stocks. Despite profit-taking in equities this month, bond prices are surging and yields are falling. The benchmark 10-year treasury bond has seen its yield drop from 3.03% on January 1st to 2.65% today. Mortgage rates have followed suit, dropping to 4.31% (30-year fixed) according to bankrate.com. A 15-year mortgage now costs about 3.35%, nearly a full point lower.

If you have a mortgage with a rate significantly higher (say, 5% or above), I would recommend crunching some numbers to see if refinancing would make sense. I don’t expect rates will stay below 4.5% for very long so this pay be one of the last chances to lock in a great rate. Also, people tend to ignore the 15-year mortgage option (the payment is typically about 50% higher than a 30-year mortgage, despite a lower interest rate), but it could very well be an attractive option for some people, especially if your current payment does not make up a large portion of your discretionary income.

For instance, let’s say you currently have 20 years and $200,000 remaining on a 30-year mortgage at 5% (monthly payment of ~$1,075). If you could handle a payment of ~$1,425 you could refinance into a 15-year mortgage at 3.5% and have your house paid off 5 years early. The increased cost might not be workable for many, but for those looking to cut monthly expenses or retire as soon as possible, a refinance might aid in the process.

Here’s What Not To Say If Carl Icahn Is Breathing Down Your Neck

Ben Reitzes, Analyst, Barclays: “And I guess there’s been a lot of things in the media about your potential to buy back more stock, and shares are around $500 tonight. I was wondering if you thought this was a good level, and whether it was time to accelerate the buyback from current levels. You obviously generated a ton of cash in the quarter, and what are your latest thoughts there?”

Tim Cook, CEO, Apple: “We’ve been buying back stock. As you know, last year we increased the program overall, our cash return, doubling it to $100 billion. And $60 billion of that is buyback, and we’ve been progressing on that. Luca can give you the precise numbers of it. So we’re a big believer in buying back the stock, and that doesn’t change today, whether the stock goes up or down [emphasis added].”

Apple now has $159 billion of cash. That is $177 per share, versus a share price of $510 per share, so more than 1/3 of the value is in the bank, not within its corporate offices, inventory, retail stores, or supply chain. The core operations are trading at around 9 times earnings, nearly a 50% discount to the S&P 500. We know Carl Icahn is begging for an accelerated buyback and is completely justified in asking for one. I’d bet he is buying more stock today. And yet, despite knowing all of this, Tim Cook casually states on the conference call that his willingness to do stock buybacks does not change at all depending on where the stock is trading. I can’t wait to read Carl’s next letter to the board. And you thought the first one was unapologetically critical.

Full Disclosure: Long shares of Apple, but positions may change at any time.

Why the January Barometer Drives Me Crazy

You can find the “January Barometer” mentioned in dozens of media articles and it has been referenced a ton on CNBC so far this year, as it is every January. Here’s a recap from the Financial Post in case you have been lucky enough not to hear about it:

“Stock performance in January can say a lot about where the markets are headed for the rest of the year. At least, that’s the premise behind the January Barometer, a theory that the performance of the S&P 500 during the first month will set the tone for the rest of the year… The Stock Trader’s Almanac points out that since 1950, the Barometer has been right 76% of the time.”

Sounds harmless enough; If January is up, then the market will finish up for the year three times out of four. Good odds, right? So why does this so-called barometer drive me crazy every time I hear it? Because you need context to really determine if this indicator has any value.

Forget January entirely for a second. Would it not be helpful to know how often the market goes up in a given year regardless of any particular month? I certainly think so. In fact, since 1957 (the year the S&P 500 index was created — don’t ask me how they claim to have data from 1950-1956) there have been 56 calendar years and the S&P 500 index has risen 44 times and fallen 12 times. Why is that important? Because 44 divided by 56 equals 78%. The market goes up 78% of the time no matter what!

But if January is up then the market goes up 76% of the time. So what? Actually, that tells me that January has essentially no influence at all. In fact, we could go a step further and say that if January is up, the odds the market will rise for the full year actually go down slightly compared with the historical average. So really, January is irrelevant. It tells us nothing on its own.

It’s sort of like saying if you play blackjack in Vegas in January then the house edge is only 1%. That might sound like great odds, until you do some digging and realize that the house edge in blackjack, assuming you follow perfect basic strategy, is actually less than 1% regardless of when you play.