Daily Commentary by Larry Baer: Trading
activity is thin and sporadic in the mortgage market - though sellers seem to
be dominating the action as I write.
While mortgage rates have certainly edged
higher since the late days of July -- I see at least two major reasons to
believe they are unlikely to move significantly higher from current levels - a
least in the near-term.
(1) The European debt crisis is far from
resolved and expectations the European Central Bank will intervene in a major
way at their upcoming September 6th meeting is likely to prove
little more than an exercise in wishful thinking. If this assessment proves accurate, global
credit market investors will likely register their sharp disappointment by
driving huge amounts of capital back into U.S. dollar denominated assets like
Treasury debt obligations and agency eligible mortgage-backed securities - good
news for the prospects of steady to perhaps fractionally lower mortgage
interest rates on Main
Street, USA.
(2) While some economic indicators have shown
marginal improvement, others continue to indicate the economy is far, far away
from achieving "escape velocity" from the gravitational pull of the
Great Recession. In my opinion, the
lack of additional cash injections into the economy from the Fed together with
the stalemate in Washington
over taxes and spending is poised to take a substantial toll on the stock
markets. My models are flashing an
increasing number of signals suggesting the Dow is very vulnerable to a
profit-taking sell-off this week.
Without an obvious source of strength -- current valuations will be
increasingly hard to justify - and that is a condition almost sure to start
building a "take-the-money-and-run" thought process in the mind of
previously big and bold stock investors.
If my assessment proves accurate, the top of the
Dow's 11 week rally from the early June lows will be achieved in a range
between 13,245 and 13,400. The ensuing
sell-off in the stock markets, should it actually develop, will likely prove
supportive of the prospects for steady to fractionally lower mortgage interest
rates in the near-term. Don't
jump-the-gun here -- in my judgment it is imperative the Fannie Mae 3.0%
30-year mortgage-backed security close above 102.375 before you choose to
initiate an aggressive "floating" loan position - even if the Dow
happens to be selling-off hard.
Be patient - be disciplined - and play it by
the numbers outlined above.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
