Daily Commentary by Larry Baer: The
most noteworthy event of the day in terms of its impact on the current trend
trajectory of mortgage interest rates came from comments European Central Bank
President Draghi made to an investment conference in London
to mark the beginning of the Olympics.
Draghi told his audience -- and by extension the global investment
community -- ". the European Central Bank is ready to do whatever it takes
to preserve the euro. And believe me, it
will be enough."
The reason I bring this event to your
attention is that Mr. Draghi rode to the rescue in a similar manner and at a
similar moment of major stress for euro-zone countries back in late December of
last year. The Central Bank launched a
program that eventually pumped more than 1 trillion euros into the area's
cash-strapped banks - a strategy that all but dried up the
"flight-to-quality" buying of U.S. dollar denominated assets like
Treasury debt obligations and agency-eligible mortgage-backed securities for
roughly three months or so.
The "so what" factor is pretty
significant. Within 30-days of the
beginning of the European Central Banks intervention - the price of agency
eligible mortgage-backed securities here in the states began a six-week slide
that erased roughly 400 basis-points from investors' rate sheets for
agency-eligible mortgage-backed securities.
As I am sure you are keenly aware -- mortgage
interest rates have been powered to the lowest levels in modern recorded
history largely on the safe-haven flow of capital out of sovereign debt
strapped Europe. The primary motivation for foreign investors
transferring their capital to dollar denominated assets has not been based on a
particularly enthusiastic perception of value - but rather on the pure desire
for preservation of investment principal.
If/when this primary pillar supporting the prospects for steady to
perhaps fractionally lower mortgage interest rates on Main Street begin to show
signs of erosion -- it won't likely take long before mortgage investors begin
shoving rates notably higher. I'll keep
you posted on this developing story.
The number of Americans filing new claims for
government jobless benefits fell 35,000 to a near four-year low last week. The prior week the Labor Department reported
initial jobless claims exploded upward by 36,000. A Labor Department official told reporters,
"Our data has been quite volatile lately." My, my, my -- where would we all be without
this depth of insight from the government?
The real reason these weekly glimpses at
labor market conditions have been "all-over-the-board" for the past
two or three weeks is that automakers are carrying out fewer temporary plant
shutdowns, throwing off the model the Labor Department uses to smooth the claims
data for typical seasonal patterns. It
will be several more weeks before the claims data is free of unusual seasonal
swings. It will likely be mid-August
before most mortgage investors assign higher levels of creditability to this
data set.
In a separate report the Commerce Department
said new orders for long-lasting U.S.
manufactured goods rose 1.6% in June - higher than most observers had expected
as a result of a strong surge in aircraft orders. Factoring out transportation, new orders
dropped 1.1%.
Today's collective economic news did nothing
to change the broadly held view among credit market participants that the
economy is barely managing to register a heartbeat.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
