Daily Commentary by Larry Baer: Second verse same as the first.
Keeping the nation
in suspense down to a white-knuckle deadline has become the rule rather than the
exception in Congress in recent years. Persistent worries about the lack of
progress in Washington to avert the economically crippling effects of the
looming "fiscal cliff" continues to underpin the near-term prospects
for steady to perhaps fractionally lower mortgage interest rates. The
"sticking points" in the negotiations appear to be the impasse
created by the president's call for $1.6 trillion in new tax revenue and the
fact there has not been any serious discussions with regard to Republicans' call
for changes to entitlement programs. The clock is ticking.
Uncle Sam will be in
the credit market looking to borrow $29 billion in the form of 7-year notes
today. The yield on these notes may have to ratchet higher this time
around to draw sufficient demand from both foreign and domestic
investors. If so, this event will likely exert some slight upward
pressure on mortgage interest rates before the end of the day.
All that glitters is
not golden. The government reported earlier this morning they had revised
their first-estimate of third-quarter Gross Domestic Product (the statistical
"guesstimate" of the value of all the goods and services produced in
the country) higher to 2.7% from the initially reported 2.0%. While on
its face the revised number looked significantly better -- a closer evaluation
of the components of the report makes it abundantly clear to mortgage investors
the apparent improvement is nothing more than a statistical distortion.
The economy got a
big boost from defense spending in the third-quarter that is highly unlikely to
last. Military outlay's surged 12.9% after falling in the previous three
quarters. It was the largest positive contribution to growth from
government spending in three-years. And if that was not enough to make
investors discount the big reported GDP gain - inventory accumulation accounted
for more than 40% of the improvement, a surge which is both unsustainable and a
negative for forward looking quarters.
A separate report
from the Labor Department showed initial claims for state unemployment benefits
dropped 23,000 to a seasonally adjusted 393,000. Hurricane Sandy
continues to distort this data currently rendering it of little use to mortgage
investors in terms of their attempt to take the pulse of the labor sector.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
