Daily Commentary by Larry Baer 11.30.2011

Daily Commentary by Larry Baer:  Stock prices around the world soared and interest rates crept higher following a surprise emergency move by the U.S. Federal Reserve, the European Central Bank, the Bank of Japan, and the central banks of Britain, Canada and Switzerland to stabilize the global banking system.  The coordinated effort will make it easier and cheaper for liquidity starved European banks to swap Euros for dollars.  This facility will, at least temporarily, stave off a return of the 2008 credit freeze that plunged most of the world's major economies into recession.

The start of the day was full of surprises.  Not to be outdone, earlier this morning China's central bank cut the reserve requirement ratio for its commercial lenders for the first-time in nearly three years to ease credit strains there and to shore up an economy running at its weakest pace since 2009. 

Here at home the private ADP National Employment report indicated the pace of job growth accelerated by a stronger than expected 206,000 jobs in November.  This data is notorious for falling widely on either side of the government's far more important nonfarm payroll figures.  Even so, many analysts took the ADP at face value and ramped up their forecasts for Friday's headline November nonfarm payroll figure to 127,000.  These refigured forecasts were just strong enough to cause mortgage investors to nudge mortgage interest rates fractionally higher in today's early going.

The Labor Department's release of the revised third-quarter Productivity and Unit Labor Costs figures also suggested hiring may be accelerating more than many now anticipate.  Nonfarm productivity in the third-quarter rose 2.3% rather than the 3.1% gain initially reported.  The drop in productivity, many times an early sign of growing inflation pressures, was largely offset by a drop in Unit Labor Cost of 2.5% -- even lower than the 2.4% decline first reported.  The "so what" factor behind all this mumbo-jumbo is that companies are likely to boost hiring into 2012 since demand remains high, balance sheets are pristine and labor costs remain well below their peak set in late 2008.

For those that may be interested - the Mortgage Bankers of America have released their Mortgage Application Survey for the week ended November 25^th.  The composite index fell 11.7% for the period - pulled down by a 15.3% drop in the number of refinance applications taken.  The number of purchase applications slipped 0.8% lower.  The contract rate for 30-year fixed-rate conforming mortgages finished at 4.21%, down 2 basis-points from the prior week and down 11 basis-points from the month-ago mark.  Refinance requests accounted for 7 out of every 10 applications taken during the survey period.       

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 11.29.2011

Daily Commentary by Larry Baer:  There was nothing of significance on the economic calendar today so mortgage investors are largely taking directional cues for mortgage interest rates from trading action in the stock markets.  Higher stock prices tend to drag mortgage interest rates fractionally higher while lower stock prices often prove supportive of steady to perhaps fractionally lower mortgage interest rates. 

Credit market participants will also keep a wary eye on news headlines from Europe as the financial drama there is unfolding almost on an hour-to-hour basis.  Global investors are fleeing the euro zone bond market, European banks are dumping euro-zone government debt and deposits are draining from south European banks.  The majority of all that money is finding its way into dollar-denominated assets like U.S. Treasury debt obligations and mortgage-backed securities. As long as the European debt crisis continues it will almost single-handedly allow mortgage interest rates here in the states to hover near record all-time lows.   That is the good news. 

The bad news is that once global investors sense the European debt crisis is approaching a conclusion - whether that conclusion involves a recasting of the countries allowed to participate in the single currency -- or the implementation of a major overarching financial rescue of some design for all the euro-zone countries - it will be virtually certain you and I will have been witness to the coming and going of the lowest single-family mortgage interest rates available in our country over the last 50 years.  While such an event is not imminent - it is important to bear-in-mind that fixed-income investors the world over live in the future - not the present -- and in their world perception is a far stronger driver of interest rate movement than is fact.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 11.28.2011

Daily Commentary by Larry Baer:  Mortgage investors' nudged rates higher this morning on a trio of really good excuses including record Black Friday sales, a rumored 600 billion euro International Monetary Fund rescue plan for Italy and talk Germany is willing to issue a common European bond with its poorer neighbor. 

The sketchy details surrounding the developing stories from Europe are suspect in my mind - but nonetheless have been considered enough of a step-in-the-right-direction by enough credit market participants to undermine some of the safe-haven allure of Treasury debt obligations and mortgage-backed securities.     

News from the Commerce Department indicating the pace of October New Home Sales posted its best performance in five months was also took a little glimmer off of investors' willingness to push mortgage rates meaningfully lower.  The 1.3% month-over-month gain for the headline number together with other details including the 8.9% year-over-year gain for new home sales created a flicker of hope suggesting the housing sector may be finally establishing a long awaited bottom.

From this point through the release of the November Nonfarm Payroll figures at 8:30 a.m. ET on Friday the ebb and flow of headlines related to the European debt crisis will be the "wild card" which most significantly influences the trend trajectory for mortgage interest rates.   

Be patient -- be disciplined -- and consider using the numbers provided above as a blueprint for your risk management strategies this week.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 11.23.2011

Daily Commentary by Larry Baer:  The collective impact of this morning's barrage of macro-economic reports left the few investors' still at their desks with a sense that it is likely far better to be OUT of the market now and perhaps wind-up wishing you were IN - as opposed to being IN the market and wind up wishing to heck you were OUT.   Thin trading volumes ahead of a significant holiday contributed to the slightly interest rate unfriendly tone in the mortgage market. 

News that initial jobless claims for the week ended November 19^th rose by 2,000 was completely shrugged off by market participants. 

In a separate report the government said personal income rose 0.4% and spending posted additional gains of a weaker-than-expected 0.1% in October. Inflation, as measured by the core personal consumption expenditure index, was up a very tame 0.1%.

The Commerce Department joined the chorus of economic data with the release of their October Durable Goods Orders figures.  Durables orders, (goods manufactured to last three-years or more) fell 0.7% in October, pulled down by a drop in civilian aircraft orders. Otherwise, durables orders were up a moderately positive 0.7%.   

I suspect many readers are stifling a yawn right about now - and that's exactly the same reaction most mortgage investors had for this morning's deluge of economic mumbo-jumbo.

The Treasury Department will conduct a $29 billion 7-year note auction today which will conclude their three-part, $99 billion dollar borrowing spree this week.  Yesterday's disastrous German bond sale will likely sustain enough of a "flight-to-quality" flow of capital out of Europe into the relative safety of dollar denominated assets to support decent, but not necessarily spectacular demand for today's Treasury debt auction.  At best, I think this event will prove supportive of steady mortgage interest rates.

As they do every Wednesday, the Mortgage Bankers of America have released their Mortgage Application Survey figures for the week ended November 18^th.  Overall loan demand declined 1.2% from the previous week -- led by a fall in refinance requests.  The refinance component of the index dropped by 4.0% while the number of loans applications taken for the purchase of a home were up by 8.2%. 

The contract rate for 30-year fixed rate conforming mortgages finished the week at 4.23%, unchanged from the week ago level, and down by 10 basis-points from four weeks ago.

Be patient . be disciplined . and consider using the numbers provided above as a blueprint for your risk management strategies this week.

Daily Commentary by Larry Baer 11.22.2011

 Daily Commentary by Larry Baer:  Revised third-quarter Gross Domestic Product figures released earlier this morning showed the economy growing a little slower than most market participants had anticipated.  While the revision fell below expectations, the composition of the GDP report, especially the components showing still-firm consumer spending, the first drop in business inventories since the fourth quarter of 2009, and very benign inflation pressures at the consumer level all suggest the economic performance this quarter will be solid.  This outlook has been priced into the mortgage market for sometime so today's news did not exert any discernable influence on the trend trajectory of mortgage interest rates.

The Treasury Department will conduct a $35 billion 5-year note auction today followed by a $29 billion 7-year note auction tomorrow.  That is a lot of supply coming into the market at a time when many participants will have likely slipped away from their desks for an early start on the holiday. If either of the two remaining scheduled Treasury auctions are poorly bid it will tend to put upward pressure on mortgage interest rates.

Be patient . be disciplined . and consider using the numbers provided above as a blueprint for your risk management strategies this week.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME