Daily Commentary by Larry Baer: Last
Friday's headline news regarding the lack of headway putting Americans back to
work is probably the last piece of puny economic data the Fed needs to see before
authorizing another massive dose of financial stimulus for the economy.
If my assessment proves accurate, we are
probably looking at a developing "buy the rumor - sell the fact"
event. The expected modest impact of QE3
is already largely priced into the mortgage market -- which means further
declines for mortgage interest rates will be difficult to come by.
Deutsche Bank strategist have delved into the
history books and discovered 10-year Treasury bond yields hit their lowest mark
in July since data began in 1790. If our
economy has not been able to gain notable traction with interest rates at
historical lows - investors have to question how printing money to try to push
rates even lower will do much more than tick off our foreign U.S.
debt holders and expand the inflation pressures waiting for all of us just
around the corner. I may be way off
base here - and quite frankly I hope I am.
If I'm not wrong - the implementation of QE3 may cause mortgage interest
rates to tick briefly lower for a few days -- or even a few weeks -- before
reality sets in and dollar denominated assets of all kinds begin to lose value
on an accelerating basis.
Looking ahead to next week the Federal Open
Market Committee begins two days of monetary policy deliberations on
Wednesday. Wednesday is also the day Germany's
constitutional court is set to rule on whether the euro zone's permanent
bailout fund is compatible with German law, a vital condition to opening Germany's
big checkbook as a major contributor in the ongoing efforts to head-off a
dramatic financial meltdown in much of Europe.
On Thursday the member of the Federal Open
Market Committee will release their post-meeting statement - and volatility in
the mortgage market will likely ratchet up - with or without a QE3
announcement.
Uncle Sam will be in the credit markets
looking to peddle $66 billion of 3- and 10-year notes together with a stack of
30-year bonds at three separate auctions running from Tuesday through Thursday.
The economic calendar includes Thursday's
August Produce Price Index and Friday's Consumer Price Index and Retail Sales
reports for August.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
