Daily Commentary by Larry Baer 8.30.2012

Daily Commentary by Larry Baer:   Consumer spending got off to a relatively strong start in the third-quarter, posting a 0.4% gain in July after a flat reading in June.  Personal Income grew by 0.3% during the reporting period - an indication that a part of the uptick in spending is currently being fueled by a reduction in savings and/or an increase in credit card use.  In either case, the data suggests the surge in spending will not likely last long without a notable pick-up in household cash flow from rising incomes.  The government's report show inflation at the consumer level has increased a very modest 1.3% on a year-over-year basis - the slowest pace of inflation since October 2009.    

In a separate report, the Labor Department said the number of Americans standing in line to file first-time claims for jobless benefits did not change from the prior week.  

Today's economic news headlines were not strong enough to prevent the Fed from launching "QE3" by mid-September if they so choose.

The market spotlight is now focused exclusively on Fed Chairman Bernanke who is scheduled to make a key-note address Friday morning at 10:00 a.m. ET at the Kansas City Fed's Economic Symposium in Jackson Hole, Wyoming.  There is a growing sense that too many market participants may be expecting too much from Mr. Bernanke's speech.  Allen Sinai, chief executive office of Decision Economics Inc. says Bernanke will make it "crystal clear" that the Fed is poised to take action if necessary - but from there his talk will likely be about possible options and otherwise very short on timing indications.  When I think about it -- there is really no reason for Mr. Bernanke to do anything other than describe all the tools still available in the Fed's fiscal and monetary policy arsenal should they choose to use them - but to defer any meaningful action at least until after the next big national employment report due on Friday, September 7^th.     

If Mr. Bernanke provides any hint in his address the Fed is "on-go" to launch "QE3" before the end of September --mortgage interest rates will likely slide notably lower even as the stock markets soar.  On the other hand, if no such hint is forthcoming and/or if Mr. Bernanke indicates such a move would be premature in front of pending Congressional action, or lack thereof, to avert the looming "fiscal cliff" -- stock prices will likely march lower while mortgage interest rates move nervously sideways to fractionally higher.

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

Daily Commentary by Larry Baer 8.29.2012

Daily Commentary by Larry Baer:   The economy faired slightly better than initially thought during the second-quarter of the year.  Government data wonks said their second "quesstimate" of the value of all the goods and services produced in the country from April to June expanded at a 1.7% annual pace - up from their first guess at 1.5%.  While the composition of economic activity during the period was fairly stable, growth remains well below the 2.0 to 2.50% rate required every quarter to hold the unemployment rate steady - a condition which certainly leaves the door wide open for more fiscal stimulus from the Fed at anytime if they so choose.

The market spotlight is now focused exclusively on Fed Chairman Bernanke who is scheduled to make a key-note address Friday morning at 10:00 a.m. ET at the Kansas City Fed's Economic Symposium in Jackson Hole, Wyoming.  There is a growing sense that too many market participants may be expecting too much from Mr. Bernanke's speech.  Allen Sinai, chief executive office of Decision Economics Inc. says Bernanke will make it "crystal clear" that the Fed is poised to take action if necessary - but from there his talk will likely be about possible options and otherwise very short on timing indications.  When I think about it -- there is really no reason for Mr. Bernanke to do anything other than describe all the tools in the Fed's fiscal and monetary policy arsenal prior to the next big national employment report due on Friday, September 7^th.     

If Mr. Bernanke provides any hint in his address the Fed is "on-go" to launch "QE3" before the end of September --mortgage interest rates will likely slide notably lower even as the stock markets soar.  On the other hand, if no such hint is forthcoming and/or if Mr. Bernanke indicates such a move would be premature in front of pending Congressional action, or lack thereof, to avert the looming "fiscal cliff" -- stock prices will almost certainly plummet while mortgage interest rates move sideways to fractionally higher.

In other news of the day the National Association of Realtors said contracts to buy previously owned homes in July rose to their highest level since April 2010, suggesting the housing market may be gaining some traction.  

The Realtors' report fits with data from the Mortgage Bankers of America's weekly Mortgage Application Survey.  According to the MBA, total loan originations (both refinance and purchase money) declined by 4.3% in the week ended August 24^th - its fourth consecutive decline.  Refinance loan demand fell by 5.7% on a week-over-week basis while purchase-money loan application traffic edged up by 1.4%.  The contract rate for 30-year fixed-rate mortgages fell by 6 basis points during the period to 3.8%.  The interest rate is up 5 basis points from this time one-month-ago but its down 57 basis points from the year-ago mark.

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

Daily Commentary by Larry Baer 8.28.2012

Daily Commentary by Larry Baer:   Uncle Sam will sell $35 billion worth of 2-year Treasury notes at auction today.  The auction will conclude at 1:00 p.m. ET and I'll provide results on my website as soon as possible once the final gavel falls.  Most observers expect this debt sale to go well with little need for the Treasury Department to raise yields in order to attract the required capital.  If so, this event will have little, if any noticeable impact on the current trend trajectory of mortgage interest rates.

The media drama meter surrounding the Kansas City Fed's Economic Symposium running this week in Jackson Hole, Wyoming has dropped by roughly half this morning.  Fed Chairman Bernanke is still scheduled as a key-note speaker on Friday - but European Central Bank president Mario Draghi will be a no-show.  The European Central Bank has a critical meeting of its own coming up on September 6^th and Mr. Draghi's workload in preparation for that meeting prohibits travel at this time.   The market spotlight is now focused exclusively on Mr. Bernanke.

If Mr. Bernanke provides any hint in his address the Fed is "on-go" to launch "QE3" before the end of September --mortgage interest rates will likely slide notably lower even as the stock markets soar.  On the other hand, if no such hint is forthcoming and/or if Mr. Bernanke indicates such a move would be premature in front of pending Congressional action, or lack thereof, to avert the looming "fiscal cliff" -- stock prices will almost certainly plummet while mortgage interest rates move sideways to fractionally higher.

Volatility in the mortgage market has the potential to ramp up significantly this week and next - driven by Bernanke's speech on Friday and the release of the August nonfarm payroll data on Friday, September 7^th.  These two upcoming events pack enough market "punch," individually as well as combined, to influence the trend trajectory of mortgage interest rates into the first month or two of 2013.

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

Daily Commentary by Larry Baer 8.27.2012

Daily Commentary by Larry Baer:   Trading activity in the mortgage market is light and sporadic this morning as investors wait to see whether Fed Chairman Bernanke and his fellow central bankers are poised to inject the economy with an additional $500 billion dose of fiscal stimulus in the form of "QE3."

The coming week's three-part $99 billion Treasury auction, revised "guesstimate" of Q2 Gross Domestic Product and July Personal Income and Spending data will all take a distant backseat to Friday mornings 10:00 a.m. CT speech by Fed Chairman Bernanke to the invited delegates at the Kansas City Fed's Economic Symposium in Jackson Hole, Wyoming.  

If Mr. Bernanke provides any hint in his address the Fed is "on-go" to launch "QE3" before the end of September --mortgage interest rates will likely slide notably lower even as the stock markets soar.  On the other hand, if no such hint is forthcoming and/or if Mr. Bernanke indicates such a move would be premature in front of pending Congressional action, or lack thereof, to avert the looming "fiscal cliff" -- stock prices will almost certainly plummet while mortgage interest rates move sideways to fractionally higher.

Volatility in the mortgage market has the potential to ramp up significantly this week and next - driven by Bernanke's speech on Friday and the release of the August nonfarm payroll data on Friday, September 7^th.  These two upcoming events pack enough market "punch," individually as well as combined, to influence the trend trajectory of mortgage interest rates into the first month or two of 2013.

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

Daily Commentary by Larry Baer 8.24.2012

Daily Commentary by Larry Baer:   Mortgage investors largely shrugged off this morning's news from the Commerce Department indicating durable goods orders rose 4.2% in July - a very sharp improvement over the 1.6% in June.  As usual, the devil is in the details.  Orders for goods such as machinery and communications equipment, a component of the report the economists call "core capital orders", fell a surprising 3.4%.  It was the strongest decline in this measure of durable goods orders in eight months and is indicative of the significant toll the uncertainty surrounding current government plans to slash spending and raise taxes is taking on business confidence.

Credit market participants will now have to wait and see whether today's sign of slowing in the manufacturing sector will be the catalysts that induces Fed Chairman Bernanke and his fellow central bankers to inject the economy with an additional $500 billion dose of fiscal stimulus in the form of "QE3."

The coming week's three-part $99 billion Treasury auction, revised "guesstimate" of Q2 Gross Domestic Product and July Personal Income and Spending data will all take a distant backseat to Friday mornings 10:00 a.m. CT speech by Fed Chairman Bernanke to the invited delegates to the Kansas City Fed's Economic Symposium in Jackson Hole, Wyoming.  

If Mr. Bernanke provides any hint in his address the Fed is "on-go" to launch "QE3" before the end of September --mortgage interest rates will likely slide notably lower even as the stock markets soar.  On the other hand, if no such hint is forthcoming and/or if Mr. Bernanke indicates such a move would be premature as the country waits for Congress to take action to avert the looming "fiscal cliff" associated with current plans to slash government spending and raise taxes -- stock prices will almost certainly plummet while mortgage interest rates move sideways to fractionally higher.

Volatility in the mortgage market has the potential to ramp up significantly over the course of the next two weeks with Bernanke's speech next Friday and the release of the August nonfarm payroll data on Friday, September 7^th packing enough combined inherent power to set the trend trajectory of mortgage interest rates into the first month or two of 2013.

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