Daily Commentary by Larry Baer: The "wildcard" of the week will be Fed
Chairman Ben Bernanke's speech at the University
of Michigan this
afternoon at 4:00 p.m. ET. Mr. Bernanke will be talking about monetary policy
and his outlook for the U.S.
economy. There is a chance he may use the opportunity to more clearly
define how much longer the Fed intends to be aggressively engaged in its
current quantitative easing efforts.
The credit markets
in general - and the mortgage market specifically - experienced a strong
sell-off on Thursday, January 3rd when the minutes of the last
Federal Open Market Committee meeting showed some members expected the Fed's
heavy support of lower interest rates to be wound down before the end of the
year.
Bernanke will likely
make every effort to reassure investors the Fed will continue to support the
economy with its massive checkbook until undeniable signs of a sustained
recovery have clearly manifested themselves. If his argument is
convincing enough, which I personally think it will be,
the prospects for steady to perhaps fractionally lower mortgage interest rates
will get a welcome shot in the arm.
Concerns in Washington
over coming battles to cut federal spending, reduce the deficit and raise the
debt ceiling will likely add a new shine to "flight-to-quality"
buying of Treasury debt obligations and agency eligible mortgage-backed
securities over the coming weeks. If my assessment proves accurate, this
renewed flow of capital into the credit markets at the expense of the stock
markets will almost certainly prove supportive of the prospects for steady to
perhaps fractionally lower mortgage interest rates.
This week's economic
calendar will be a busy one featuring December Retail Sales and the Producer
Price Index on Tuesday, the Consumer Price Index on Wednesday followed by
December Housing Starts and Building Permit figures on Thursday. Trading
activity will become exceptionally light on Friday afternoon as many market
participants slip away to get an early start on the following Monday's Martin
Luther King Holiday.
Be patient - be
disciplined - and use the strategies outlined above as a blueprint as you go
about the business of managing your borrowers' interest rate expectations this
week.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
