Tuesday, December 29, 2009

WHY AMERICAN CONSUMERS CAN'T ADD

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...

http://redtape.msnbc.com/2009/12/when-i-published-gotcha-capitalism-two-years-ago-i-was-in-for-a-big-surprise-as-i-talked-about-systemic-hidden-fee-fraud-al.html

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
Consensus
Estimate
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
of.

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.

Thursday, October 1, 2009

Where do you Fit?

Forbes takes a look at common threads in the lives of America’s wealthiest
By Duncan Greenberg
Forbes
updated 6:35 a.m. CT, Thurs., Oct . 1, 2009

Want to become a tech titan or hedge fund tycoon? Up your chances by dropping out of college or going to Harvard and working at Goldman Sachs.

Are billionaires born or made? What are the common attributes among the uber-wealthy? Are there any true secrets of the self-made?

We get these questions a lot, and decided it was time to go beyond the broad answers of smarts, ambition and luck by sorting through our database of wealthy individuals in search of bona fide trends. We analyzed everything from entrepreneurs' parents' professions to where they went to school, their track records in the early stages of their careers and other experiences that may have set them on the path to extreme wealth.

Our admittedly unscientific study of the self-made members of the Forbes 400 yielded some interesting results.

First, a significant percentage of them had parents with a high aptitude for math. The ability to crunch numbers is crucial to becoming a billionaire, and mathematical prowess is hereditary. Some of the most common professions among the parents of Forbes 400 members (for whom we could find the information) were engineer, accountant and small-business owner.

Consistent with the rest of the population, more American billionaires and near-billionaires were born in the fall than in any other season. However, relatively few of them were born in December, historically the month with the eighth-highest birth rate.

Of the 274 self-made tycoons on the Forbes 400, 14 percent either never started or never completed college. The number of precocious college dropouts is highest among those who forged careers as technology entrepreneurs: Bill Gates of Microsoft, Steve Jobs of Apple, Michael Dell of Dell, Larry Ellison of Oracle and Mark Zuckerberg of Facebook.

Forbes 400 members who derive their fortunes from finance make up one of the most highly educated sub-groups: half of them have graduate degrees. Roughly 70 percent of those with M.B.A.s obtained their master's degrees from one of three Ivy League schools: Harvard, Columbia or the University of Pennsylvania's Wharton School of Business.

Goldman Sachs has attracted a large share of hungry minds that went on to garner 10-figure fortunes. At least 11 current and recent billionaire financiers worked at Goldman or one of it subsidiaries early in their careers, including Edward Lampert, David Tepper, Daniel Och and Leon Cooperman.


Several Forbes 400 members suffered bitter professional setbacks early in their careers that heightened their fear of failure. Pharmaceutical tycoon R.J. Kirk's first venture was a flop — an experience he regrets but appreciates. "Failure early on is a necessary condition for success, though not a sufficient one," he told Forbes in 2007.

According to a statement read by Phil Falcone during a congressional hearing in November 2008, his botched buyout of a company in Newark, N.J., in the early 1990s taught him "several valuable lessons that have had a profound impact upon my success as a hedge fund manager."

Several current and former billionaires rounded out their Yale careers as members of Skull and Bones, the secret society portrayed with enigmatic relish by Hollywood in movies like The Skulls and W. Among those who were inducted: investor Edward Lampert, Blackstone co-founder Stephen Schwarzman, and FedEx founder Frederick Smith.


© 2009 Forbes.com
URL: http://www.msnbc.msn.com/id/33110048/ns/business-forbescom/

Monday, September 14, 2009

Balance of Power - DC rises as new Financial Center

There was an intriguing article in the Washington Post this weekend in which Wall Street's major players are very aggressively repositioning its attorney's and in some instances executives all to our nation's capital. JP Morgage Chase, Citibank, BN Mellon and many, many others have taking sizable leases in DC. While it may indeed be a prudent move on behalf of our banking and financial intuitions, I find this troubling for many obvious reasons. Let's just hope these are 4 year lease contracts.


Release Date & Time
Economic Indicator
Consensus Estimate
My Analysis

Mon. Sept. 14
Nothing of importance

Tues. Sept. 15, 8:30 a.m. ET
Aug. Producer Price Index
Core Rate
+0.8% vs. last +2.0%
+0.2% vs. last -0.0%
The Aug. Producer Price Index will probably register only a very slight gain as energy and food prices post significant declines during the month. The modest increase in the core rate of the producer price index shows that inflation pressure at the wholesale level remains exceptionally benign.

Tues. Sept. 15, 8:30 a.m. ET
Aug. Retail Sales
Ex. Auto
+2.0% vs. last -0.1%
+0.4% vs. last -0.6%
The government’s “Cash for Clunkers” program was a big hit. Outside of autos -- sales were modestly higher powered by lackluster “back-to-school” contributions. This data will not likely influence the direction of interest rates or equities one way or the other.

Tues. Sept. 15, 10:00 a.m. ET
July Business Inventories
-0.9% vs. last -1.1%
This stale data will likely have little, if any direct impact on the trend trajectory of market today.

Tues. Sept. 15, 10:00 a.m. ET
Fed Chairman Bernanke speaks in Washington, D.C. This is an encore performance of a speech Mr. Bernanke made at a Federal Reserve event in Jackson Hole, Wyoming back in late August. Market participants will be listening intently to Mr. Bernanke’s presentation to see what he has to say about the tricky task of gradually turning off the tap of the government’s massive economic stimulus initiatives. The Fed Chairman is unlikely to add anything new -- rendering this event meaningless.

Wed. Sept. 16, 8:30 a.m. ET
Aug. Consumer Price Index Core Rate
+0.3% vs. last +0.5%
+0.1% vs. last +0.1%
Assuming the core rate of this index posts a reading of 0.2% or less -- investors will likely give this data little more than a passing glance.

Wed, Sept. 16, 9:15 a.m. ET
Aug. Industrial Production Capacity Utilization
+0.6% vs. last +0.5%
69.0 vs. 68.5
The uptick in both production and capacity utilization is likely to be largely a function of increased auto production and business inventory rebuilding. This data will not likely draw much more than an interested glance from investors.

Thurs. Sept. 17, 8:30 a.m. ET
Initial jobless claims for the week ended 9/12
Up 5,000
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 investors resulting in little, if any change to the current level of equity or bond rates.

Thurs. Sept. 17, 8:30 a.m. ET
Aug. Housing Starts & Building Permits
+3.2%
+0.7%
The modest uptick for both housing starts and building permits will likely draw nothing more than a passing glance from investors.

Fri. Sept. 18

Monday, September 7, 2009

Much Needed Day Off

I hope this blog finds you and your family enjoying this holiday weekend. While I spent most of it indoors catching up, it's a good feeling to spend a little time at the office without taking a hundred phone calls.

Economic Calendar

Release Date & Time
Economic Indicator
Consensus Estimate
My Analysis

Mon. Sept. 7,
The mortgage market is closed for the Labor Day Holiday

Tues. Sept. 8, 1:00 p.m. ET
Treasury auctions $13 bil. of 3-year notes
The relatively short duration of this offering against a backdrop of near-term benign inflation concerns should draw strong participation levels from domestic as well as foreign investors.

Wed. Sept. 9, 1:00 p.m. ET
Treasury auctions $20 bil. of 10-year notes
The Treasury should have little problem unloading this supply. That said, investors may demand a little higher yield than marketed. If so, anticipate bonds and MBS yields to creep higher as well.

Thurs. Sept. 10, 8:30 a.m. ET
Initial jobless claims for the week ended 9/5
Down 5,000
The anticipated decline 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 interest rates.

Thurs. Sept. 10, 1:00 p.m. ET
Treasury auctions $12 bil. of 30-year bonds
This offering will likely need a little buying support from the Fed to keep the yield from skipping higher. A poorly bid auction here will almost certainly put some upward pressure on all kinds of interest rates.

Thurs. Sept. 10 before the close (Mortgage Foced)
The current delivery month of most mortgage-backed securities will “roll” to Oct.
The roughly 37.5 basis-point price reduction associated with this standard monthly adjustment has already been factored into most rate sheets.

Fri. Sept. 11, 10:00 a.m. ET
July Wholesale Inventories
-1.0% vs. last -1.7%
This old stale tidbit of macro-economic data will likely have little, if any direct impact on the trend trajectory of mortgage interest rates today.

Look for a more lengthly BLOG later this week on where I believe the US Housing market is headed in 2010.

Sunday, August 16, 2009

Quick Weekly Update

The last four weeks have been a boom for the equity markets while the fixed income markets have taken it in the mouth. In it's wake, bond and fixed income markets have retreated to levels no seen in 6 months. While we may have been oversold, I believe the run up is overdone and has very little supporting data suggestiong our economy is headed in the right direction.

Release Date & Time
Economic Indicator
Consensus Estimate
My Analysis

Mon. Aug. 17

Tues. Aug. 18, 8:30 a.m. ET
July Housing Starts & Building Permits
Up 3.0% Up 1.7%
If the consensus estimates prove accurate, this data will likely cause interest rates fractionally higher. There is an outside chance both of these values will fall into negative territory as rising unemployment, higher interest rates, and stiffer underwriting standards combined to take a toll on demand. If so, the prospects for a near-term move to fractionally lower rates will brighten considerably.

Tues. Aug. 18, 8:30 a.m. ET
July Producer Price Index Core Rate
-0.3% vs. last +1.8% +0.1% vs. last +0.5%
The overall index probably fell as energy and food prices posted significant declines during the month. The modest increase in the core rate of the producer price index shows that inflation pressure at the wholesale level remains exceptionally benign.

Wed. Aug. 19
Thurs. Aug. 20, 8:30 a.m. ET
Initial jobless claims for the week ended 8/15 Down 3,000
Initial weekly jobless claims remain stubbornly high.

Thurs. Aug. 20, 10:00 a.m. ET
July Leading Indicators
+0.6% vs. last +0.7%
This forward looking indicator of growth in the economy is expected to show an improving outlook for growth six months down-the-line. If so, this report will likely exert some modest upward pressure on fixed income rates with the equity markets taking the benefit of this report.

Fri. Aug. 21, 10:00 a.m. ET
July Existing Home Sales
Up 2.5%
Large volumes of distress sales, improved homebuyer sentiment, and a slowly stabilizing economy are supportive factors. Should we see a solid advance for existing home sales, the equity markets should rally with a large percentage of the brunt force being applied to to the bond and fixed income markets.

Fri. Aug. 21, 10:00 a.m. ET
Fed Chairman Bernanke speaks on “Reflections on a Year of Crisis,” at a Fed conference in Jackson Hole, Wyoming Market participants will be listening intently to Mr. Bernanke’s presentation to see what he has to say about the tricky task of gradually turning off the tap of the government’s massive economic stimulus initiatives. The Fed Chairman is unlikely to add anything beyond what was included on this subject in the written statement released following last week’s Fed meeting. If this assessment is accurate, this will be a non-event in terms of its influence on the trend trajectory of mortgage rates

Mon. Aug. 24

Monday, August 3, 2009

Which Way Is Up?

Several years ago I was in Hawaii for my honeymoon. Several years before that, I lived and grew up in San Diego where I spent most of my time playing tennis and surfing. It was the latter which this story is based upon. You see, there not much surfing in Fort Worth. Not unless you consider the Trinity River in a serious thunderstorm where you might get swept east. So it had been years since I had doned a board and hit the waves. Late October starts the surfing season in Hawaii. Needless to say, my Gen X attitude thought this would have been a perfect reason to reconnect with mother earth. It didn't take me long to realize that: a) I was not in surfing shape when, b) after my first (and only) set (a larger waive) ended quickly with me summersalting down the wave and over the falls. After a lengthly time underwater I hopped up for breath only to realize there were three more sets enroute. After being underwater so for long it's best you orient yourself so as I opened up my eyes and headed to what I thought was air, I smacked straight into the sandy beachhead. I infact was swimming down not up. The moral of this story; like myself, our markets have been down for so long now, it's easy to get excited about what appears to be "the end". Our equity markets have been rallying and as American's, I believe we tend to see things as "glass half full".

While I too am excited at the thoughts of a stabilization of our economy there are several things which must happen first; none of which I am convinced is indeed occuring. First our economy must stop losing jobs. There's very little consistent evidence that this is happening. Secondly, we need housing to rebound. So much of this country's economy is derived around housing that (like auto) I've not yet seen much in the way of anything postive.

So, enjoy these levels but keep things into perspective. There's so much money on the sidelines, it has to go somewhere. With a ever-decreasing price for Treasuries, Bonds & MBS, rates are likely to head north which will slow borrowing even further. To paraphrase the Most Interesting Man Alive (www.dosequis.com)... "Stay Cautious My Friends."

Economic Calendar
Date
Economic Reading
My Analysis

Mon. Aug. 3, 10:00 a.m. ET
July Institute of Supply Mgmt.
Manufacturing Index
46.2 vs. last 44.8
Investors will pick through the components of this report – particularly the measure of employment activity in the manufacturing sector -- looking for anything that will help finetune expectations for Friday’s much more important July nonfarm payroll report. In the unlikely event the actual numbers show a surge in manufacturing employment growth and/or the aggregate index exceeds 47.0 – look for this report to put some modest pressure on interest rates. If one or both of those conditions are not met -- this report will likely have little discernable impact on the trend trajectory of mortgage rates.

Tues. Aug. 4, 8:30 a.m. ET
June Personal Income Spending
PCE index
-1.0% vs. last +1.4%
+0.3% vs. last +0.3%
+0.2% vs. last +0.1%
If, as expected, the personal consumption expenditure index component of this report (one of the Fed’s favorite measures of inflation at the consumer level) post a reading of 0.2% or higher
look for mortgage investors to register their displeasure by nudging interest rates fractionally higher.

Wed. Aug 5, 10:00 a.m. ET
June Factory Orders
+0.2% vs. last 1.2%
This stale data will likely have little, if any direct impact on anything.

Wed. Aug. 5, 10:00 a.m. ET
July Institute of Supply Mgmt.
Service Sector Index
48.2 vs. last 47.0
The fractional improvement in this index will likely have little impact on anything.

Thurs. Aug 6, 8:30 a.m. ET
Initial jobless claims for the
week ended 8/1
Up 16,000 This time around first-time jobless benefit claims are expected to post a small increase. For most investors it is still too early to conclude the worst of this recession’s employment erosion is behind us. Look for this data to have little, if any meaningful impact on the markets today.

Fri. Aug. 7, 8:30 a.m. ET
July Nonfarm Payroll
Jobless Rate
Avg. hourly earnings
-340,000
9.7% vs. last 9.5%
+0.1% vs. last 0.0%
Numbers that closely approximate the consensus estimate will have little, if any impact on mortgage interest rates. In the unlikely case that the headline payroll figure does not fall as
dramatically as projected and/or if the jobless rate posts a reading less than 9.5% look for mortgage investors to react to the unsettling news by pushing interest rates higher and continue the rally in the equity markets.

Mon. Aug. 3

Wednesday, July 8, 2009

Thanks to the 10yr!!!

Fixed-income investors have been doing a DAMN good job of absorbing all the supply the government has been pumping into the market place this week. Yesterday's 3-year note auction result was decent - just not as strong as at the previous auction of these securities. But...Today's Treasury 10yr sell of the 19 billion was reflected a 3.365% yield was a home run!

This is critical for many reasons. What this shows me is the lack of confidence investors have in a near term rally. This is great for mortgage pricing. Many of those refinance transactions which fell out of many pipelines will come back in play.

As for the equities, the Dow will find a bottom (between 8200 and 8130) from which to launch a counter-trend rally before the market close on Friday afternoon. If my assessment proves accurate, rising stock values will tend to produce fractionally higher mortgage interest rates as investors move capital (out of the relative safety of Treasury obligations and mortgage-backed securities) into riskier but higher yielding investments such as stocks.

The Mortgage Bankers of America released their seasonally adjusted index of mortgage application activity for the week ended July 3rd this morning. The MBA's total application index rose 10.9% during the latest reporting period after slumping last week to its lowest level since November. Refinance applications were up 15.2% while purchase application activity posted a more modest gain of 5.34%. The average 30-year mortgage rate stayed at 5.34% last week. That was up from the record low of 4.61% in late March but well below the year-ago mark of 7.04%.

Monday, June 29, 2009

4th of July - Reflecting on this Country's Greatness

Before you bemoan all of the challenges facing America at the present moment, may I suggest you take a few minutes and examine our Country's place in History. On so many levels we are the most dominate, most successful and will should be the most admired country in the History of Mankind.

It's not for our what we have acquired in my opinion which will demonstrate America's greatness but what this country has chosen not to do that will differentiate itself from the rest of the great "empires". As I view it, we are the last remaining superpower which choose NOT to acquire additional riches through our will or military might on other countries. Regardless of our existing challenges in Iraq and Afghanistan, we have the means to suppress most countries.

America didn't get lucky and fall into this position of greatness. It was through the dedication and sacrifices of our forefathers. Our men and woman who dedicated themselves to something much larger than themselves. The great Ronald Regan quoted the following regarding the 4th: "Let the Fourth of July always be a reminder that here in this land, for the first time, it was decided that man is born with certain God-given rights; that government is only a convenience created and managed by the people, with no powers of its own except those voluntarily granted to it by the people. "

Economic Calendar

Release Date & Time
Economic Indicator
Consensus Estimate
My Analysis


Mon. June 29
Big bag of nothing.

Tue. June 30
Ditto here.

Wed. July 1, 10:00 a.m. ET
June Institute of Supply Mgmt.
44.5 vs. last 42.9
Many analysts may see the improvement in this index as a clear indication the manufacturing sector is on track to resume growth in the second half of the year. I anticipate investors to nudge fixed income rates fractionally higher if the actual numbers match or exceed this forecast.

Thurs. July 2, 8:30 a.m. ET
Initial jobless claims for the week ended 6/27
Down 8,000
Initial weekly jobless claims remain stubbornly high. The expected 8,000 or so decline for last week will not do much to convince market participants that the largest swoon in the labor sector in post WWII history is over. This data set will be completely overshadowed by the far more important June nonfarm figures that will be released concurrently.

Thurs. July 2, 8:30 a.m. ET
June Nonfarm Payrolls Jobless Rate Average hourly earnings
Down 355,000 9.6% vs. last 9.4% +0.1% vs. last +0.1%
The payroll data has shown a declining number of job losses in each of the past four months. If the sequence continues uninterrupted this time around – look for mortgage interest rates to edge incrementally higher. A headline number showing a larger decline in nonfarm payrolls than projected, together with a national jobless rate of 9.6% or higher -- and/or large upward revisions to prior months payroll figures -- will tend to support steady to fractionally lower interest rates.

Thurs. July 2, 10:00 a.m. ET
May Factory Orders
+0.8% vs. last +0.7%
The expected rise in this metric of manufacturing activity is somewhat of "no-brainer." Already released data shows that durable goods orders (items manufactured to last three-year or more) rose 1.8% in May. Inventory levels are at such low levels that it is almost a certainty that factory activity had to kick-in to gear to fill the outstanding orders for durable goods. In any case, this old stale bit of macro-economic data will be sharply overshadowed by the earlier release of the June nonfarm payroll figures.

Thurs. July 2,
Mortgage market operating on normal schedule – no early close
In April, the Securities Industry and Financial Markets Association (SIFMA), the regulatory body for the bond and mortgage-backed securities markets, reduced the number of recommended early market closes it issues each year from twelve to five, Early close recommendations around the Good Friday, Memorial Day, Thanksgiving (day after), Christmas and New Year’s Day holidays remained unchanged

Fri. July 3
The mortgage market is closed for the July 4th Holiday

Mon. July 6, 10:00 a.m. ET June Institute of Supply Mgmt. Service Sector Index 45.5 vs. last 44.0 This broad barometer of economic activity is expected to show business conditions in the nation’s non-manufacturing sectors continued to improve slightly in June. Should the actual number fall close to the consensus estimate (a reasonable expectation) the impact of this data on the current level of mortgage interest rates will likely be negligible.

If you have an American flag, fly it this weekend.

Monday, June 22, 2009

Summer Solice

Summer has begun and with it a reality check for the equity markets. I personally moved out of equities into safer instruments. I anticipate a negative trading range through mid-September. We've had a nice seven week run, but with little positive economic news supporting this position, we are due for a correction. No mentioned this week of Jobs. Keep an eye on these reports going forward. If the employment figures don't improve over the next three months, things might turn for the worse.

Release
Date & Time
Economic Indicator
Consensus Estimate
My Analysis

Mon. June 22
Nothing of relevance

Tue. June 23, 9:00 a.m. ET
First day of a two-day Fed meeting

Tue. June, 23, 10:00 a.m. ET
May Existing Home Sales Up 2.7%
The pace of the decline for existing home sales continues to soften – suggesting to some analysts that the housing sector may be within months of reaching a meaningful bottom. Look for this report to have little influence on the market until/unless the pace of sales shows a trend of positive gains.

Tue, June 23, 1:00 p.m. ET
Treasury auctions $40 bil. of 2-year notes
The relative short maturity of this security should be attractive to a large number of investors. If so, this event will likely have little, if any meaningful impact on the direction of rates.

Wed. June 24, 8:30 a.m. ET
May Durable Goods Orders Ex. Transportation
-0.7% vs. last +1.7% -0.4% vs. last +0.4%
These figures will likely draw little more than a passing glance from market participants.

Wed. June 24, 10:00 a.m. ET
May New Home Sales
Up 2.2%
Big price concessions from builders and relatively low mortgage interest rates likely combined to nudge the pace of new home sales fractionally higher.

Wed. June 24, 1:00 p.m. ET
Treasury auctions $37 bil. of 5-year notes
The yield on this security is just a whisper below 3.0% -- a level likely high enough to draw solid bids from both domestic and foreign investors. If so, this event will tend to be supportive of steady to perhaps fractionally lower mortgage note rates.

Wed. June 24, 2:15 p.m.
The Fed releases its post meeting statement
No change to short term interest rates The Fed’s post-meeting statement will probably be upbeat regarding recent signs of improving economic conditions even though further deterioration in the labor market is expected. There is only a minuscule chance the Fed will choose to expand its plans to purchase mortgage-backed securities or Treasury obligations.

Thurs. June 25, 8:30 a.m. ET
Initial jobless claims for the week ended 6/25
Down 8,000
For most investors it is still too early to conclude the worst of this recession’s employment erosion is behind us. Look for this data to have little, if any meaningful impact on the mortgage market.

Thurs. June 25, 8:30 a.m. ET
Final revision Q1 GDP -5.7% vs. last -5.7%
Gross Domestic Product, a statistical measure of the value of all goods and services produced in the country, will post its first back-to-back quarterly decline in more than 50 years. A GDP reading of -5.7% is already priced into the markets. It will likely take an unexpected reading of -5.0% or better to put any upward pressure on interest rates resulting directly from this release.

Thurs. June 25, 1:00 p.m. ET
Treasury auctions $27 bil. of 7-year notes The result of this auction will likely exert a significant amount of pressure on the trend trajectory of mortgage interest rates for the balance of the week. A well bid auction will tend to support steady to note rates for bonds and mortgages while a poorly bid auction will probably lead investors to nudge interest rates incrementally higher.

Fri. June 26, 8:30 a.m. ET
May Personal Income Spending
PCE Index +0.3% vs. last +0.5% +0.3% vs. last -0.1% +0.1% vs. last +0.3%
If, as expected, the personal consumption expenditure index (one of the Fed’s favorite measures of inflation at the consumer level) matches or falls below the forecasted value -- this report will tend to be supportive of steady to fractionally lower rates.

Monday, June 15, 2009

Weekly Economic News Only

Given the madness in the equity markets the last three weeks I think investors take a breather and take-it-all-in. I see stocks declining for the week, bonds improving. Mortgage rates should continue to recover some and perhaps peek by Wednesday.

Release Date & Time
Economic Indicator
Consensus Estimate
My Analysis

Mon. June 15
Big Bag of Nothin'

Tue. June, 16 8:30 a.m. ET
May Producer Prices
Core Rate
+0.4% vs. last +1.5%
+0.1% vs. last +0.1%
The modest expected rise in the headline producer price index will not likely create much concern among investors. More importantly the core rate, a value excluding the volatile food and energy components, likely remained extremely low.

Tue. June 16, 8:30 a.m. ET
May Housing Starts &
Building Permits
+6.0%
+0.4%
The outsized gain in the May housing starts figure will be largely offset by the fact that building permits, an indication of future construction activity, remains within a whisper of its lowest level since 1959.

Tue. June 16, 9:15 a.m. ET
May Industrial Production &
Capacity Utilization
-0.5% vs. last -0.5%
68.6 vs. last 69.1
The massive decline in the manufacturing sector is expected to continue unabated during the month of May.

Wed. June 17, 8:30 a.m. ET
May Consumer Price Index
Core rate
+0.3% vs. last +0.6%
+0.2% vs. last +0.3%
Gasoline prices surged in May resulting in a modest gain for headline consumer inflation. Excluding the volatile food and energy components, core inflation at the consumer level remains near multi-month lows.

Thurs. June 18, 8:30 a.m. ET
Initial jobless claims for the week ended 6/13
Down 10,000
Look for this data to have little, if any meaningful impact investors discount today’s decline in the face of ramped-up expectations for a strong surge in jobless claims once the ramifications of the auto industry bankruptcies begin to work through the economy.

Thurs. June 18, 10:00 a.m. ET
May Leading Indicators
+0.8% vs. last 1.0%
This index, created by the private Conference Board, is considered by many to provide an indication of the economy’s likely path over the next three- to six-months. The majority of the upward surge in this index was likely created by the strong rally in the stock markets. If stock prices are falling to this point in the week, it is likely most mortgage investors will shrug off this report. If, on the other hand, stock prices show strength in the early part of the week, a reading of 0.8% or higher for this index will likely encourage mortgage investors to push interest rates incrementally higher.

Fri. June 19,

Friday, June 12, 2009

What Come Up, Must Come Down

Given the craziness in the fixed income markets I thought an updated commentary which focused just that market is warranted. I'll keep this brief and simple.

In part, the massive run-up in mortgage rates was set-in-motion last month by whispers in the credit markets suggesting the United States might be on the verge of losing its prized AAA credit rating.

On Wednesday, Russia and Brazil put the world on notice that they each will begin investing in International Monetary Fund securities rather than the debt instruments of Uncle Sam. No sooner than these announcements hit the news wires - the yield on Treasury debt obligations and mortgage-backed securities skyrocketed as weaker, less experienced credit market participants bailed out of dollar-denominated assets.

Noteworthy, but this is more about political justling than anything else.

In Mortgages, 10-year notes and the Fannie Mae 5.0% 30-year fixed rate mortgage-backed securities are putting the finishing touches on a 200 basis-point two-day rally. A rally initiated by the fact that indirect bidders, which include foreign central banks, took home 49% of yesterday's $11 billion 30-year Treasury bond offering - marking the largest foreign investor participation rate at a U.S. debt auction since the Treasury Department reintroduced the 30-year bond in 2006. 49% indirect participation rate is a particularly telling statistic - coming as it does within hours of Russia's announcement that they intend to take their rubles and go play in credit markets elsewhere.

It takes two to tango. In response to Russia and Brazil, I am fairly confident a request was made to the Japanese (and other) to make some "line in the sand" comments. So, this morning the Japanese Finance Minister said his country's confidence in U.S. government debt is "unshakeable." His comments provided a nice little start to the trading day - as global investors responded to the solid endorsement from the second largest financer of American debt (behind the Chinese). In the coming week there will be no supply issues to deal with and the Fed will be active with a couple of small planned buybacks -- which leaves credit market participants with an opportunity to consider other influences effecting the trend trajectory of interest rates.

Next week's battery of macro-economic data ranging from the measures of inflation at the factory gates (Tuesday's May Producer Price Index) as well as prices paid at the front-door of every American (Wednesday's May Consumer Price Index) -- will likely be overshadowed by trading action in the stock markets. If, Corporate America falls short of generating the net income current stock valuations as I believe - stock values will fall and capital will flow back into the relative safe haven of Treasury obligations and mortgage-backed securities. That's a scenario that will be supportive of steady to fractionally higher fixed income prices. If I'm wrong, and the stock markets continue to soar - stock market gains will likely come at the expense of incrementally worsing mortgage interest rates. Those of you floating a fairly significant mortgage production pipeline may consider cashing in those loans (back to zero) as possible.

Monday, June 8, 2009

US Economy: Simply Not Sustainable

There was plenty of reasons to be optimistic with last week's unemployment report showing a sizable slow down in initial unemployment claims. This week's blog is going to be brief but I would like to present 5 reasons why our Economy may be headed for a substantial slowdown over the next 18 months. Let me repeat: I believe things may get much worse from here should any combination of the following happen:
  1. China begins to back away from buying our debt
  2. China's growth continues to drive up the demand (and price) for oil
  3. Consumer spending slows as the cost of capital is driven higher because of the continued US Treasury drive for capital
  4. Discussions continue in the global market about replacing the US dollar as the currency of choice to be replaced by the Euro
  5. Housing slows even further as a huge backlog of REO properties makes its way onto the market. Add the large number of adjustable rate and negative arm mortgage products (most with negative HPA) and this appears to be the one most likely baked in the cake.
As you can see, we have a lot riding on another Country to facilitate us moving beyond this recession. The question I keep asking myself is, "what drives this next waive of growth?". From 2001 through 2007, it was housing. In all likelihood it appears that government spending will be the answer. So, what will facilitate that? Borrowing more money. Problem not solved.

As it relates to housing, I am afraid it will have many more dark days ahead of it. Rates are going up as is the cost of home ownership. Unlike the unemployment report, I am not seeing many things to get excited about. Unfortunately, I have more questions today than I did in August 2007 when I predicted a paradigm shift in our economy.

Release Date & Time
Economic Indicator
Consensus Estimate
My Analysis

Mon. June 8
Tue. June, 9. 10;00 a.m. ET
Apr. Wholesale Inventories
-1.1% vs. last -1.6%
This old stale data.

Tue. June 9, 1:00 p.m. ET
Treasury auctions $36 bil. of
3-year notes
The relative short maturity of this security should be attractive to a large number of investors. If so, this event will likely have little, if any meaningful impact on the direction of mortgage interest rates today.

Tue. June 9, before the end of the day
Most mortgage-backed securities "roll" to July delivery
This is a standard monthly administrative function of the mortgage market. The price impact of this event is already reflected on most investors’ rate sheets.


Wed. June 10, 1:00 p.m. ET
Treasury auctions $19 bil. of
10-year notes
The yield on this security has climbed above 3.9% - probably making this offering very attractive to a broad array of investors. If my comments above prove accurate, this will support higher mortgage interest rates.

Wed. June 10, 2:00 p.m. ET
Fed "Beige Book" is released
This report, named for the color of its cover, will provide an assessment of economic conditions in all 12 Federal Reserve districts. Most analysts anticipate the data will show that recessionary pressures are moderating in most of the country.

Thurs. June 11, 8:30 a.m. ET
Initial jobless claims for the week ended 6/06
Down 6,000
Look for this data to have little, if any meaningful impact on the market as investors discount today’s decline in the face of ramped-up expectations for a strong surge in jobless claims once the ramifications of the auto industry bankruptcies begin to work through the economy.

Thurs. June 11, 8:30 a.m. ET
May Retail Sales
Ex. auto
+0.5% vs. last -0.4%
+0.2% vs. last -0.5%
The government’s one time payment to Social Security recipients combined with tax refunds and other fiscal stimulus likely contributed strongly to the gains for both of the components of this report. If the consensus estimates proves accurate, mortgage investors will likely shrug the May Retail Sales gains off as a statistical aberration. Look for this data to have little, if any meaningful influence on the direction of equity markets today.

Thurs. June 11, 10:00 a.m. ET
Apr. Business Inventories
-1.0% vs. last -1.0%
This old stale bit of macro-economic news will likely do nothing more than take up space on this week’s calendar.

Thurs. June 11, 1:00 p.m. ET
Treasury auctions $11 bil. of
30-year bonds
The yield on this offering is above 4.5% -- a level that will hopefully be attractive to a large number of investors. If not, this event will likely serve to push fixed long term interest rates higher before the end of the day. This is not good news for mortgage rates as many a client are sitting out there waiting for things to turn around.


Fri. June 12,

Tuesday, May 26, 2009

World and Economic News Affects

Investors are going to be under stress during the first three days of the week as the Treasury Department dumps a whopping $101 billion worth of supply into a market place already suffering a major case of indigestion. Add North Korea's repeated nuclear tests over the weekend and yesterday is adding confusion to the markets.

Case-Shiller reports this morning a 19.1 percent drop in HPA (home-price appreciation) in March. This is an all-time record pointing that we are not out of the housing decline woods yet. Because of this, I'll focus this post primarily on the mortgage markets.

Economic Calendar

Release Date & Time
Economic Indicator
Consensus Estimate
My Analysis


Tue. May 26, before the end of the day
The Fed will be buying inflation-indexed Treasury obligations maturing between 2010 and 2032. This event will probably have little influence on the trend trajectory of mortgage interest rates this trading session.

Tue. May 26, 10:00 a.m. ET
May Consumer Confidence
42.3 vs. last 39.2
The expected modest increase in this month’s measure of consumer confidence will probably not have much of an impact on the direction of mortgage interest rates today.


Tue. May 26, 1:00 p.m. ET
Treasury auctions $40 billion of 2-year notes
The yield on these securities is below 1.0% so investors are unlikely to push them lower. If my assessment proves accurate, this event will likely put some slight upward pressure on mortgage interest rates for the balance of the afternoon.

Wed. May 27, before the end of the day
The Fed will be in the credit markets looking to buy an unspecified amount of conventional Treasury debt maturing from 2012 to 2013. If the Fed leaves a large number of sellers standing around with unfilled orders this event will tend to put upward pressure on mortgage rates. A strong buying appetite by the Fed will likely do little more than support steady trading action in the mortgage market.


Wed. May 27, 8:30 a.m. ET
April Existing Home Sales
Up 2.0%
The pace of decline for existing home sales continues to soften – suggesting to some analysts that the housing sector may be within months of reaching a meaningful bottom. Affordability at its best levels in more than 17-years and 30-year mortgage rates within a whisper of their March record lows likely contributed to a solid gain in sales last month. If so, look for mortgage interest rates to struggle in any effort to move higher today.

Wed. May 27, 1:00 p.m. ET
Treasury auctions $35 billion of
5-year notes
The yield on these securities (above 2.0%) is probably high enough to draw solid demand from investors. If so, look for this event to be supportive of steady mortgage interest rates.


Thurs. May 28, 8:30 a.m. ET
Initial jobless claims for the week ended 5/23
Up 4,000
The number of people filing first-time claims for jobless benefits is expected to post a very small increase. Look for this data to have little, if any meaningful impact on the market today.

Thurs. May 28, 8:30 a.m. ET
Apr. Durable Goods Orders
Ex. Auto
+0.4% vs. last -0.8%
-0.3% vs. last -0.7%
These figures will likely draw little more than a passing glance from market participants.


Thurs. May 28, 1:00 p.m. ET
Treasury auctions $26 billion of
7-year notes
The yield on these securities (above 2.9%) is probably high enough to draw solid demand from investors and should therefore prove supportive of at least steady mortgage interest rates. In the unlikely event the results from this auction are weaker-than-expected – look for mortgage interest rates to edge higher.

Fri. May 29, 8:30 a.m. ET
Revised Q1 GDP
-5.5% vs. last -6.6%
This revised estimate of overall economic activity is expected to show some slight improvement – an event that is already priced into the mortgage market. If the revised GDP were to post a reading of -5.0% or better (a possible but not very probable outcome) it will probably spawn a rally in the stock markets at the expense of fractionally higher mortgage interest rates.

Wednesday, May 20, 2009

It's Memorial Holiday Already?

I have a question. How did we get to May already and what the hell happened to the first 4 months of 2009? We are quickly moving into housing season and while inventories may appear at historic levels, keep in mind that many of the largest banks are only now working through their inventory.

I expect levels to raise even further. I believe the next 4 months will be critical in how quickly or extended this recession will end/last. If inventories move, capital and purchase confidence will move forward to recovery. Should the press make a big deal of the historic inventory levels and potential home buyers sit on the sidelines waiting for "free houses" our economy could be in for a real challenge if not to fall directly into a recession. Keep in mind, we are still sitting at almost 10% unemployement.

Economic Calendar

Release Date & Time
Economic Indicator
Consensus Estimate
My Analysis

Wed. May 20, before the end of the day
The Fed wraps up three-days of announced purchases in the Treasury market. Prior to this week’s operations -- the Fed has spent $101 billion of the $300 billion they have authorized for direct Treasury security purchases. Today’s event should prove to be supportive of steady to perhaps incrementally lower mortgage interest rates.


Wed. May 20, 2:00 p.m. ET
The Fed releases the minutes of their April 28-29 meeting
This event will likely do nothing more than take up space on this week’s calendar. The Fed chose to leave short-term interest rates unchanged and refrained from increasing the size of their “war chest” for the direct purchase of Treasury obligations and mortgage-backed securities during last month’s meeting. It doesn’t get much more boring than that.

Thurs. May 21, 8:30 a.m. ET
Initial jobless claims for the week ended 5/16
Down 7,000
This time around first-time jobless benefit claims are expected to post a very small decline. Look for this data to have little, if any meaningful impact on the mortgage market today.


Thurs. May 21, 10:00 a.m. ET
Apr. Leading Indicators
Up 0.8% vs. last -0.3%
This index, created by the private Conference Board, is considered by many to provide an indication of the economy’s likely path over the next three- to six-months. The majority of the upward surge in this index was likely created by the strong rally in the stock markets. If stock prices are falling to this point in the week, it is likely most mortgage investors will shrug off this report. If, on the other hand, stock prices show strength in the early part of the week, a reading of 0.8% or higher for this index will likely encourage mortgage investors to push interest rates incrementally higher.

Fri. May 22, 2:00 p.m. ET
The equity markets (including bonds) closes early for the Memorial Day Holiday

Mon. May 25,
The markets is closed for the Memorial Day Holiday


If you have an American Flag, display it this weekend. If you don't, go buy one.
Be proud and thank the men and women who serve our country.

Tuesday, May 12, 2009

For My Mortgage Readers

If yesterday's MBS trading is any indication, this could prove is an interesting week as for the first time in two weeks, credit market investors won’t be dealing with a new round of massive incoming supply from Uncle Sam. Look for the trend trajectory of mortgage prices over the next five business days to be most influenced by Wednesday’s April Retail Sales figures and the trading action in the stock markets.

There's some debate in my capital market circles regarding the sustainability of the recent upturn in the underlying trend of the retail sales numbers and the lowing of the CPI (cause of gas prices). Some argue that the better-than-expected series of monthly retail sales data is more a function of the “Circuit City effect” – a one-time event where consumers run out to buy items at sharply discounted prices from stores going out of business. Other analysts (one being a good friend of mine) are concerned that the impact of temporary factors like tax rebate and fiscal stimulus checks has created a false picture of activity in the retail sector. I happen to disagree and leaning toward the prior analysis.

Mortgage investors will look to Wednesday’s April Retail Sales report to help sort things out. A report that matches or exceeds the consensus estimate will be viewed as an indication that the recent bounce in consumer confidence may be sustainable – a view that will tend to be mortgage interest rate unfriendly. A round of weaker-than-expected sales numbers will likely create a chill in the stock markets – sending stock prices lower to the direct benefit of steady to perhaps fractionally lower mortgage interest rates.

Economic Calendar
Release Date & Time
Economic Indicator
Consensus Estimate
My Analysis

Mon. May 11, before the end of the day
The Fed will be conducting the first of a three-day outright purchase of Treasury obligations. This event proved to be highly positive for lower mortgage interest rates.

Tue. May 12, before the end of the day
This is the second-day of a three-day Treasury purchase operation by the Fed. Normally I would suggest this event prove to be at least a slight positive for the prospect of steady to perhaps fractionally lower mortgage interest rates. But given yesterday's massive rally, I am a little more hesitant to call anything higher.


Wed. May 13, 8:30 a.m. ET
Apr. Retail Sales
Ex. Auto
0.0% vs. last -1.2%
+0.2% vs. last -0.9%
If the actual numbers match or exceed the consensus estimate this report will tend to be mortgage interest rate unfriendly. In the unlikely event that either of the two components of this report proves to be weaker than expected -- look for equities and interest driven vehicles to creep fractionally lower.

Wed. May 13, 8:30 a.m. ET
Mar. Business Inventories
-1.0% vs. last -1.3%
This old stale bit of macro-economic news will likely do nothing more than take up space on this week’s calendar.

Wed. May 13, before the end of the day
The Fed will make one more foray into the credit markets as they wrap up a three-day operation of direct purchases of Treasury obligations (part of their $300 billion effort keep the lid on consumer and business interest rates).

Thurs. May 14, 8:30 a.m. ET
Initial jobless claims for the week ended 5/9
Up 9,000
The census around first-time jobless benefit claims are expected to post a very small increase. Should this be accurate, look for this data to have little, if any meaningful impact on the fixed income market today.


Thurs. May 14, 8:30 a.m. ET
Apr. Producer Price Index
Core Rate
+0.1% vs. last -1.2%
+0.1% vs. last 0.0%
The modest expected rise in the headline producer price index will not likely create much concern among investors. More importantly the core rate, a value excluding the volatile food and energy components, likely remained extremely low.

Fri. May 15, 8:30 a.m. ET
Apr. Consumer Price Index
Core Rate
-0.1% vs. last -0.1%
+0.1% vs. last +0.2%
Given the much larger issues in the market, this data will likely exert little, if any influence on the direction of mortgage interest rates today. Gasoline prices slumped in March resulting in a drop in headline consumer inflation. Excluding the volatile food and energy components, core inflation at the consumer level remained near multi-month lows.


Fri. May 15, 9:15 p.m. ET
Apr. Industrial Production &
Capacity Utilization
-0.6% vs. last -1.5%
68.8 vs. last 69.3
The continued massive decline in the manufacturing sector is expected to have unabated during the month of April. This data will likely have little, if any influence on the direction of market interest rates today.

Have a productive week.

Tuesday, April 28, 2009

Remember the Misdirection Play in Football?

That's what the US economy will be showing most of us over the next several weeks. Consumer sentiment will most likely improve for no other reason than Americans in our every here-and-now attitude don't like dealing with prolonged stresses. All the while large public companies (mostly banks) will be looking at another round of funding to keep their bloated balance sheets afloat. I believe we'll have one last sinking ship before this economy turns some time in 2010'.

Release Date & Time
Economic Indicator
Consensus Estimate
My Analysis

Tue. April 28, 9:00 a.m. ET
First day of a two-day Fed meeting

Tue. April 28, 10:00 a.m. ET
Apr. Consumer Confidence
30.0 vs. last 26.0
While welcome – the expected uptick as mentioned above in the consumer confidence index will likely take a distant back-seat to this afternoon’s big 5-year note Treasury auction.

Tue. April 28, 1:00 p.m. ET
Treasury auctions $35 bil. of
5-year notes
The yield on this security is just a whisper below 2.0% -- a level likely high enough to draw solid bids from both domestic and foreign investors. If so, this event will tend to be supportive of steady lower mortgage note rates.
Those of you floating your mortgage pipelines will be pleased. You should expect a heavy discount in investor rate sheets today.

Wed. April 29, 8:30 a.m. ET
1st estimate of Q1
Gross Domestic Product
-5.0% vs. last -6.3%
It is broadly expected GDP will post its first back-to-back quarterly decline in more than 50 years. That’s the bad news. The good news is that the pace of decline is abating – with a large part of the Q1 drop driven by inventory reduction. The massive inventory reduction expected for Q1 will likely set the stage for an improvement in the manufacturing sector in the second half of the year. A GDP reading of -5.0% is already priced into the fixed income markets. It will likely take an unexpected reading of -4.8% or better to put any upward pressure on interest rates.

Wed. April 29, 1:00 p.m. ET
Treasury auctions $26 bil. of
7-year notes
The result of this auction will likely exert a significant amount of pressure on the trend trajectory of mortgage interest rates for the balance of the week. A well bid auction will tend to support steady to lower bond & mortgage note rates while a poorly bid auction will probably lead investors to nudge those rates a small increment higher.

Wed. April 29, 2:15 p.m. ET
The Fed releases its post-meeting statement
No change to short-term interest rates
The Fed’s post-meeting statement will probably not be upbeat about the economy’s near-term prospects, which remain clouded by continued deterioration in the labor market. There is only a minuscule chance the Fed might choose to expand its plans to purchase mortgage-backed securities or Treasury obligations. Overall, this meeting will likely be a non-event with respect to its impact on the trend trajectory of mortgage interest rates.

Thurs. April 30, 8:30 a.m. ET
Initial jobless claims for the week ended 4/25
Up 2,000
This time around first-time jobless benefit claims are expected to post a very small increase. For most investors it is still too early to conclude the worst of this recession’s employment erosion is behind us. Look for this data to have little, if any meaningful impact on the mortgage market today.

Thurs. April 30, 8:30 a.m. ET
Q1 Employment Cost Index
+0.4% vs. last +0.5%
It is highly likely the sharp job losses of the past three months have resulted in a virtually non-existent increase in the employment cost index. Investors will likely give this data little more than a passing glance.

Thurs. April. 30, 8:30 a.m. ET
Mar. Personal Income
Spending
PCE Index
-0.2% vs. last -0.2%
-0.1% vs. last +0.2%
0.0% vs. last +0.2%
If, as expected, the spending and personal consumption expenditure index (one of the Fed’s favorite measures of inflation at the consumer level) match or fall below the fore casted values this report will be supportive of steady to fractionally lower rates.

Fri. May 1, 10:00 a.m. ET
Mar. Factory Orders
-0.8% vs. last +1.8%
This stale data will likely have no impact on the equity markets.

Fri. May 1, 10:00 a.m. ET
Apr. Institute of Supply Mgmt.
38.0 vs. last 36.3
The modest expected uptick in manufacturing is not likely strong enough to cause much, if any concern among market watchers.

Tuesday, April 21, 2009

Bank of America warns' as it posts first-quarter profit of $2.81 billion

There were a several interesting quotes which came from BofA's 1st quarter release yesterday afternoon. I thought I should share some of the more noteworthy comments.

"Credit is bad and we believe credit is going to get worse before it will eventually stabilize and improve." Chief Executive Ken Lewis said during a conference call with analysts, noting that the bank continues to face challenges. "Whether that turn is later this year or in the first half of 2010, I'm not going to hazard a guess."

"Like it or not, capital markets is now a core business for Bank of America, and that has more volatile returns than other businesses."

"Bank of America is no longer exclusively a retail bank and there can be more fluctuations."

This week's economic calendar

Release Date & Time
Economic Indicator
Consensus Estimate
My Analysis

There's nothing to mention until Thursday.

Thurs. April 23, 8:30 a.m. ET
Initial jobless claims for the week ended 4/18
Up 23,000
The out sized drop in last week’s first-time claims for jobless benefits probably reflected the impact of the Good Friday holiday closing of the government’s employment offices. This time around first-time claims are expected to post a rather sharp move to the upside. This week’s data is also being gathered during the survey period for the April non farm payroll report. Becuase of this, I expect a notable increase in the weekly initial jobless claims number which should support fractionally lower mortgage/fixed income interest rates.

Thurs. April 23, 10:00 a.m. ET
Mar. Existing Home Sales
Down 0.6%
The pace of the decline for existing home sales continues to soften – suggesting to some analysts that the housing sector may be within months of reaching a meaningful bottom. Affordability is at its best levels in more than 17-years and 30-year mortgage rates are within a whisper of their record lows. Look for this report to have little influence on the mortgage market until/unless the pace of sales shows positive gains.


Thurs. April 23, first half of the trading day
As usualy, expect the Fed will be an active participant in the credit market. Most of the purchase will be centered around treasuries with maturities ranging from 3- to 10-years. The continued Fed presence in the credit market tends to be supportive of steady to fractionally lower mortgage rates.

Thurs. April 23, 1:00 a.m. ET
Treasury auctions
5-year inflation-indexed securities
The relative short term together with the “adjustable” feature of this security will likely make it very appealing to a broad spectrum of investors. This event will not influence the direction of rates.


Fri. April 24, 8:30 a.m. ET
Mar. Durable Goods Orders
Ex-transportation
-1.5% vs. last +3.5%
-1.2% vs. last +3.7%
These figures will likely draw little more than a passing glance from market participants.

Fri. April 24, 8:30 a.m. ET
Mar. New Home Sales
+0.8%
Big price concessions from builders and historically low mortgage interest rates likely combined to nudge the pace of new home sales fractionally higher. That’s nice – but mortgage investors will likely give this data little more than a passing glance.


Mon. April. 27

Thursday, April 16, 2009

I wish I were this smart...

Check out this insightful commentary by Steve Forbes. Think, he too ran for president. CNBC got what their paid for this interview.

Steve Forbes: How The Fed Can Save Economy
Posted By:CNBC.com

Steve Forbes offered CNBC his insights into the markets, the economy — and what the government is doing wrong. "There certainly seems to be a bottoming out" in equities and other markets, Forbes said. "But the key thing is getting the credit markets truly working again," he cautioned.
Without credit improvement, no real and sustainable recovery can happen, he told CNBC's Maria Bartiromo.
"It you're prime credit, double-A, triple-A, those handful [of entities], you're able to borrow in this market. But others are still having a real hard time." What must the government do — if anything?
"The Federal Reserve should be pumping out a lot more liquidity, most especially in the mortgage market," the president and CEO of Forbes, Inc. declared. He believes the Obama administration must create an environment of eased regulations and lower-capital gains taxes that would spur investors to "aggressively buy" mortgage-backed securities.

http://www.cnbc.com/id/30232495

Tuesday, April 14, 2009

It's TRUE!!!

On several occations over the last 3 months I have found the following statement is indeed a fact: There are only 24 hours in a work day.

This weeks Economic Report(s)

Release Date & Time
Economic Indicator
Consensus Estimate
My Analysis

Tue. April 14, 8:30 a.m. ET
Mar. Producer Price Index
Core Rate
+0.1% vs. last +0.1%
+0.1% vs. last +0.2%
The modest expected rise in the headline producer price index can be attributed almost exclusively to the rise in energy prices during the month. Excluding the more volatile food and energy components, core inflation at the producer level probably remained extremely benign. Most investorswill give this data little more than a passing glance.

Tue. April 14, 8:30 a.m. ET
Mar. Retail Sales
Ex. autos
+0.2% vs. last -0.1%
-0.1% vs. last +0.7%
A sharp acceleration in the nation’s unemployment rate has no doubt taking a toll on retail sales. This data will be nothing more than an exercise in defining the degree of weakness in the retail sector. If the actual numbers match or exceeds the consensus estimate this report will tend to be mortgage interest rate neutral to slightly friendly. In the unlikely event either of the two components of this report proves to be stronger than expected look for perhaps a mid-day rally in stocks and things like mortgage interest rates to creep fractionally higher.

Tue. April 14, 10:00 a.m. ET
Feb. Business Inventories
-1.0% vs. last -1.1%
This old stale bit of macro-economic news will likely do nothing more than take up space on this week’s calendar.

Wed. April 15, 8:30 a.m. ET
Mar. Consumer Price Index
Core Rate
+0.2% vs. last +0.4%
+0.2% vs. last +0.2%
Gasoline prices crept higher in February, contributing to the increase in headline consumer inflation. Excluding the more volatile food and energy components, core inflation at the consumer level continued its multi-month trend to lower levels. This data will likely exert little, if any influence on the direction of mortgage interest rates today.

Wed. April 15, 9:15 a.m. ET
Mar. Industrial Production &
Capacity Utilization
-1.0% vs. last -1.5%
69.6 vs. last 70.2
The massive decline in the manufacturing sector is expected to have continued unabated during the month of March. This data will likely have little, if any influence on the direction of mortgage interest rates.

Thurs. April 16, 8:30 a.m. ET
Mar. Housing Starts &
Building Permits
-5.6%
-2.4%
The housing market is still months away at best. The expected decline in these two measures of housing activity will come as no surprise -- and therefore their impact on the trend trajectory of mortgage interest rates will probably be negligible.

Thurs. April 16, 8:30 a.m. ET
Initial jobless claims for the week ended 4/11
Down 3,000
Today’s figures will likely draw little more than a passing glance from market participants.

Fri. April 17

Mon. April 20

Monday, April 6, 2009

HARP Program - Our Government's Next BIG Idea

This week, the Big 4 Mortgage Servicers/Investors (BofA, Citibank, Wells Fargo and Chase) release their varations of our governmment's
Making Home Affordable Program. The GSE's (Fannie Mae & Freddie Mac) have seperate versions of this program. Freddie Mac Relief Refinance MortgageSM and the Fannie Mae DU Refi PlusTM.

The concept behind these programs are to support potential borrowers who are under water on their home loans compared to their equity. Homeowners who might benefit from this action are the almost 50% of the homeowners who have loans secured by either GSE.

Some of the highlights are as follows:
Max LTV/CLTV -
105% LTV
Unlimited TLTV/CLTV

Loan Amount
Payoff of the first mortgage balance, including accrued interest
Actual closing costs, financing costs, pre-paids, and escrows
The borrowers may not receive any cash at closing
Note: No limit on closing costs, financing costs, pre-paids and escrows.
Example:
Payoff amount: $352,006
Actual closing costs, etc.: $3,672
Maximum loan amount: $355,678

I could go on but with most of the government's misguided programs, there's a kicker. Mortgage Insurance, which is required for the home loan where the Loan to Value is above 80% on the first mortgage would usually typify this potential client. Homeowners who are under water with the equity of their home loans usually had put down more than 20% (or took out a second). Either way, both GSE programs are currently not available for loans with MI; altough they may be offered at a later date.

So don't get too excited about the "latest" offering from our federal government.

This week's short economic calendar

Mon. April 6

Tue. April 7, 1:00 p.m. ET
Treasury sells $6 billion of
10-year inflation indexed securities
The “adjustable” feature of these securities should draw solid investor demand. If so, this will be a non-event in terms of its impact on the trend trajectory of fixed income interest rates.

Wed. April 8, 10:00 a.m. ET
Feb. Wholesale Inventories
-0.6% vs. last -0.9%
This old tidbit of macro-economic news will likely do nothing more than take up space on this week’s calendar.

Wed. April 8, 1:00 p.m. ET
Treasury sells estimated
$34 billion of three-year notes
The relative short-life of this security will likely result in a well bid offering. If so, this event will have little, if any impact on the direction of mortgage interest rates.

Wed. April 8, 2:00 p.m. ET
Minutes of the Federal Open Market Committee March meeting

Market participants will peruse this document for details surrounding committee members’ decision to commit $300 billion to the direct purchase of Treasury obligations as well as expanding their purchase of mortgage-backed securities by $750 billion. It will be an interesting read -- but in the end it will not likely influence the direction of interest rates.

Thurs. April 9, 8:30 a.m. ET
Initial jobless claims for the week ended 4/4
Down 9,000
Here's the report of the week. Further erosion in the employment sector is broadly anticipated by investors and has already been deeply priced into the current market. If this report proved lighter than anticipated, those still engaged with the equity markets in this shortened week may see a substaintial mid-morning rally in equities and a free fall in bonds, mortgage prices, ect.

Thurs. April 9, 1:00 p.m. ET
Treasury sells estimated
$18 billion of 10-year notes
This offering will likely require strong support from the Fed to keep the yield from skipping noticeably higher. A poorly bid auction here will almost certainly put some upward pressure on interest rates.

Thurs. April 9, 2:00 p.m. ET
The mortgage market will close early today for the Good Friday Holiday

Fri. April 10
The mortgage market is closed today for the Good Friday Holiday

Mon. April 13

Tuesday, March 3, 2009

"We're Almost There"...

Dow 6500. I should post some of the comments I received when I made that statement back in December. Perhaps not. As the futures look to rebound this morning I thought I would encourage many of you to step back from the ledge. Should we actually reach the 6500 level not all is lost. Keep in mind, the meek run in a corner and hide or jump. Stay the course

This economy will rebound. It'll take some time see me in 2010. We have all taken lumps. Fiscal lumps, credibility lumps, business lumps. Lumps. Leadership is key through these difficult time. Develop your strategy (trading, buying, business, personal) and stay with it. Migrating from one concept to another will only get you in trouble. Stay wise.

This week's economic indicator(s)

Release Date & Time
Economic Indicator
Consensus Estimate
My Analysis

Mon. Mar. 2, 8:30 a.m. ET
Jan. Personal Income
Spending
PCE Index
-0.2% vs. last -0.2%
+0.4% vs. last -1.0%
+0.1% vs. last 0.0%

Further erosion in the employment sector has undoubtedly taken a toll on personal incomes. Rising energy prices likely nudged the spending component of this report fractionally higher. The personal consumption expenditure index, one of the Fed’s favorite measures of inflation pressure at the consumer level, is expected to remain benign. This collective body of data is already priced into the mortgage market rendering these numbers essentially toothless with respect to their influence on the trend trajectory of fixed interest rates.

Mon. Mar. 2, 10:00 a.m. ET
Feb. Institute of Supply Mgmt.
33.8 vs. last 35.5
Market participants are well aware that the manufacturing sector is under pressure as last week’s durable goods orders report showed demand has contracted for six consecutive months while inventories continue to rise.

Tue. Mar. 3, 10:00 a.m. ET
Fed Chairman Bernanke testifies on the Economic Outlook and the Federal Budget Situation to the Senate Budget Committee
Mr. Bernanke spoke to both chambers of Congress last week. I would not expect much (if anything) different here. There will be a Q&A session to follow his formal comments which will be monitored by investors – but few expect this event to generate much, if any noticeable movement in the markets.

Wed. Mar. 4, 10:00 a.m. ET
Feb. Institute of Supply Mgmt.
Service Index
41.0 vs. last 42.9
This broad barometer of economic activity is expected to show business conditions remained challenging in February. No market changes here.

Thurs. Mar 5, 8:30 a.m. ET
Revised Q4 Productivity &
Unit Labor Costs
+1.5% vs. last +3.2%
+3.4% vs. last +1.8%
Declining productivity and rising unit labor cost will likely be slightly unsettling for mortgage investors. Should we have some unsettling numbers here, equities may fall and fixed income, say mortgage levels will move fractionally higher.

Thurs. Mar. 5, 8:30 a.m. ET
Initial jobless claims for the week ended 2/28
Down 17,000
Further erosion in the employment sector is broadly anticipated by investors and has already been deeply priced into the mortgage market. Today’s figures will likely draw little more than a passing glance from investors as they await tomorrow’s much more important February nonfarm payroll report.

Thurs. Mar. 5, 10:00 a.m. ET
Jan. Factory Orders
-3.5% vs. last -3.9%
This old stale bit of macro-economic news will likely do nothing more than take up space on this week’s calendar.

Fri. Mar. 6, 8:30 a.m. ET
Feb. Nonfarm Payrolls
Jobless Rate
Average hourly earnings
-648,000
7.9% vs. last 7.6%
+0.2% vs. last +0.3%
Mortgage investors are keenly aware the labor market has fallen off of a cliff. A really nasty series of numbers have already been priced into the market here -- which means this report will likely have little, if any meaningful impact on the trend trajectory of interest rates if the actual numbers reasonably approximate the consensus estimate.

Sunday, February 22, 2009

Obama's Mortgage Plan Doesn't Help Most People I Know

In this housing market any plan is a good plan right? Well maybe. The proverbial "Let's throw money at the problem" may not work here.
Let me start by focusing on what I do like about the Obama Mortgage Bailout Plan. Yes I added a work. The national economist's vary greatly on the number of homes this plan might save or how many homeowners this plan might help. As to not fuss about the size of the plan or benefit, I thought we'd look at the merrits of it soley by each section.

Obama's focus on those individuals who are and have continued to make their mortgage payments is important and it shows that in part, he get's it.
There is a a "Shared Effort to Reduce Monthly Payments" section which allows for a homeowner with current housing payments adding up to 43 percent of his or her monthly income to be reduced to 38 percent. The existing lender (in many cases this would include Fannie Mae or Freddie Mac) would first be responsible for bringing down interest rates so that the borrower’s monthly mortgage payment is no more than 38 percent of his or her income. The challenge here is the large number of Alt-A and Subprime mortgages which have private ownership who many not be as "interested" in reducing their rate of return. Obama's initiative would match further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31 percent. If that borrower had a $220,000 mortgage, that could mean a reduction in monthly payments by more than $400. That reduction won't be in the form of principal reductions more than interest reductions to the end investor. This gracious "temporary" lower interest rate must be kept in place for five years, after which it would gradually be stepped up to the conforming loan rate in place at the time of the modification. The lenders will also be able to bring down monthly payments by reducing the principal owed on the mortgage, with Treasury sharing in the costs.

There a "Pay for Success” Incentives to Servicers: Servicers will receive an up-front fee of $1,000 for each eligible modification meeting guidelines established under this initiative. They will also receive “pay for success” fees -- awarded monthly as long as the borrower stays current on the loan -- of up to $1,000 each year for three years. This is at present servicing levels much more than they recieve today for the loan unless the firm refinances it.

The next one if my favorite and I'll be sure to ask my mortgage servicer about it: The "Incentives to Help Borrowers Stay Current" provision. Here the plan is to provide an extra incentive for borrowers to keep paying on time, the initiative will provide a monthly balance reduction payment that goes straight toward reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.

This one will surely ake at the mortgage brokers turned loan modification expert, the "Reaching Borrowers Early" section. Here, the goal is to give lenders a little more incentive keep lenders focused on reaching borrowers who are trying their best to stay current on their mortgages, an incentive payment of $500 will be paid to servicers, and an incentive payment of $1,500 will be paid to mortgage holders, if they modify at-risk loans before the borrower falls behind. So homeowners not yet behind but deemed "at- risk"will be prompted to modify and "get there's".

My biggest challenge and the lone reason this Mortgage Plan would have not received my vote (had I one to give) is what I am calling the "rewrite" provision. Here local judges can modify home mortgages without permission of the lender. While this requires congressional approval, the "promoted" and continued judicial interference into existing market-making policies serviously concerns me. How much longer will investors participate in next generation investments deemed "fixed" and "secure" if those investments can be rewritten at the whim of a judge?

Wednesday, February 4, 2009

Back of the Mountain

I've been buried by mountain of things at work. Much of the economic drivers have taken a backseat to Macro-Economic events. If the President's decision to limit bank executive pay comes to fruition, this could be a VERY interesting development over the next several years. Always follow the money....

This week's economic calendar:

Release Date & Time
Economic Indicator
Consensus Estimate
My Analysis


Mon. Feb. 2, 8:30 a.m. ET
Dec. Personal Income
Spending
PCE Index
-0.4% vs. last -0.2%
-0.9% vs. last -0.6%
Unchanged
Further erosion in the employment sector has taken a toll on personal incomes and the pace of spending. The personal consumption expenditure index, one of the Fed’s favorite measures of inflation pressure at the consumer level, is expected to remain benign. This data is already priced into the fixed income market.

Mon. Feb. 2, 10:00 a.m. ET
Jan. Institute of Supply Mgmt.
32.6 vs. last 32.9
Market participants are well aware that the manufacturing sector is under pressure as last week’s durable goods orders report showed demand has contracted for five consecutive months while inventories continue to rise. This data drew nothing more than a passing glance from investors.


Tue. Feb. 3
Empty

Wed. Feb. 4, 10:00 a.m. ET
Jan. Institute of Supply Mgmt.
Service Index
39.0 vs. last 40.1
This broad barometer of economic activity is expected to show business conditions remained slack in January. Should the actual number fall close to the consensus estimate (a reasonable expectation) the impact of this data on the current level of mortgage interest rates will be negligible.

Thurs. Feb. 5, 8:30 a.m. ET
Initial jobless claims for the week ended 1/31
Down 5,000
Further erosion in the employment sector is broadly anticipated by investors and has already been deeply priced into the current market. Today’s figures will likely draw little more than a passing glance from market participants.


Thurs. Feb. 5, 8:30 a.m. ET
1st estimate Q1 Productivity
Unit Cost
+1.1 vs. last +1.3
+2.9 vs. last +2.8
Declining productivity and rising unit labor cost will likely be slightly unsettling for fixed income investors. Probably not unsettling enough to cause homeowner mortgage rates to move notably higher but enough to make it difficult for rates to make much headway in any effort to move lower.

Thurs. Feb. 5, 10:00 a.m. ET
Dec. Factory Orders
-3.0% vs. last -4.6%
This old stale bit of macro-economic news will likely do nothing more than take up space on this week’s calendar.


Fri. Feb. 6, 8:30 a.m. ET
Jan. Nonfarm Payrolls
Jobless Rate
Average hourly earnings
-524,000
7.5% vs. last 7.2%
+0.2% vs. last +0.3%
Bond investors are keenly aware the labor market has fallen-off-of-a-cliff. A really nasty series of numbers have already been priced into the market here -- which means this report will likely have little, if any meaningful impact on the trend trajectory of interest rates if the actual numbers reasonably approximate the consensus estimate.

Tuesday, January 6, 2009

My Crystal Ball Says 2009' .......

will be rockey and more of the same for banking, finance, and the housing industry. The mortgage industry (which this report will focus mostly on) is realing. New Home Sales appear to be heading south, and that's saying something given the current pace. The National Assocation of Realtors says pending new home sales fell to the lowest level on record in November, falling another 4% to a 82.3 index. Please don't ask me how to disect the index, these are their report(s) not mine. Either way, as in many future report(s) this doesn't bode well for 2009'.
That said, there is some good news which was reported today, the Fed actually made their first purchase of mortgage-backed securities this morning. The total amount of the purchase will not be known until it is announced on Thursday, January 8th. The Fed intends to keep a running tally of its aggregate purchases and will update its figure every Thursday until they’ve spent the allotted $500 billion. It is worth noting that the money the Fed will spend to support the mortgage and housing market is not attached to any debt – the Fed just printed it up.
While this capital solves the near-term problem of providing attractive financing to stimulate home buying – it comes with a price that will be paid later – in the form of higher inflation levels. That is a concern for a different day.

The Fed’s mortgage-backed securities purchases could not have come at a better time. Sure interest rates are at historic low's. I know you have heard that before, but trust me they are!!! Treasury prices have “taken-it-on-the-chin” since Friday as a growing number of investors are pacing the floor and wringing their hands over the massive $1.5 to $2.0 trillion worth of debt Uncle Sam plans to issue to support the financial markets and the economy in general this year.
The Obama administration have made it abundantly clear that the risk of doing too little to re-fire the country’s economic engines poses a greater risk to our collective financial well being than the risk associated with doing too much.

Outside of today's pending home sales report, the central feature on this week’s economic calendar will be Friday’s December nonfarm payroll report. The market has already priced in the expected loss of 485,000 jobs together with the likelihood the national jobless rate ratcheted up to 6.9% from last month’s 6.7% level. Chances are the actual numbers will match or fall within shouting distance of the consensus estimate values. If so, the report’s impact on the trend trajectory of mortgage interest rates will not be large, if it registers at all. In the off-chance the headline December payroll shows a job loss of 470,000 or less and/or the national jobless rates posts a reading of 6.7% or less look for mortgage interest rates to edge fractionally higher. Here's to a brighter 2009'!

Economic Releases

Release Date & Time
Economic Indicator
Consensus Estimate
Analysis

Mon. Jan. 5,
Treasury auction announcement
The Treasury Department will announce the dollar size of the 3- and 10-year note auctions scheduled for Wednesday and Thursday respectively. Big numbers here will likely put some modest upward pressure on mortgage interest rates.

Tue. Jan. 6, 10:00 a.m. ET
Nov. Factory Orders
-2.5% vs. last -5.1%
The erosion in November factory orders will likely go largely unnoticed today. Look for this data to have little, if any direct impact on the trend trajectory of mortgage interest rates.

Tue. Jan. 6, 10:00 a.m. ET
Dec. Institute of Supply Mgmt.
Service Index
37.0 vs. last 37.3
Fixed Income MBS Traders have already priced-in expectations that this index of activity in the service sector slumped to an all-time record low last month. If the consensus estimate proves accurate, the reaction in the mortgage market will likely be limited. In the highly unlikely event this index posts a reading of 38.0 or higher -- look for mortgage interest rates to move fractionally higher as well.

Wed. Jan. 7, 1:00 p.m. ET
Treasury auctions 3-year notes
Most analysts believe this offering and tomorrow’s 10-year note offering will be an excellent early-year gauge of global investors’ perception of risk. Strong demand for both offerings will tend to be supportive of steady to fractionally lower mortgage interest rates. If the yield on the 3-year note climbs above 1.165% and/or the 10-year note posts a yield higher than 2.430% on a closing basis look for mortgage interest rates to creep higher as well.

Thurs. Jan 8, 8:30 a.m. ET
Initial jobless claims for the week ended 1/3
+48,000
Further erosion in the employment sector is broadly anticipated by investors and has already been deeply priced into the current market. Today’s figures will likely draw little more than a passing glance from market participants.

Thurs. Jan. 8, 1:00 p.m. ET
Treasury auctions
10-year notes
Should the 10-year note posts a yield higher than 2.430% -- look for mortgage interest rates to creep higher as well.

Fri. Jan. 9, 8:30 a.m. ET
Dec. Nonfarm Payroll
Jobless Rate
Avg. Hourly Earnings
-500,000
7.0% vs. last 6.7%
+0.2% vs. last +0.4%
This data set will only be a threat to the prospects of steady to fractionally lower mortgage interest rates if the headline number posts a job loss of 470,000 or less and/or if the national jobless rate posts a reading of 6.7% or less. The probabilities are very low that one or both of these conditions will occur.

Fri. Jan. 9, 10:00 a.m. ET
Nov. Wholesale Inventory
-0.8% vs. last -1.1%
There is little doubt that slumping demand has taken a heavy toll on the wholesale inventories – so this report will only measure the degree of weakness. This old, stale bit of macro-economic news will likely draw nothing more than a disinterested glance from mortgage invertors today.