Daily Commentary by Larry Baer: Mortgage investors are busy trying to determine what to do next as
they consider a warning by Fed Chairman Bernanke on the economic effects of any
failure by the White House and Congress to agree on raising the national debt
ceiling, a condition the Treasury Department predicts could be hit by
mid-February.
President Obama's
insistence the matter is not open for debate and the Republican demand any
expansion of the national debt limit must be balanced against meaningful cuts
in government expenditures has set the stage for another long drawn-out season
of political theater. The coming confrontation will almost
certainly once again be bitterly fought and the resolution will ultimately not
satisfy anyone. 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.
My models are suggesting
the stock markets are fast approaching a major sell-off that will probably
drive the value of the Dow Jones Industrial Average into the 12,300 to 12,200
range or lower by the end of July, 2013. If I'm anywhere close to
right the traditional "flight-to-quality" flow of capital out of the
riskier assets classes into the safe haven of Treasury debt obligations and
agency eligible mortgage-backed securities will once again be a major feature
of trading activity around the globe. That is good news for the refinance
side of your business -- but the pounding consumer confidence will take under
the influence of a major swoon in the stock markets will almost certainly
create a very significant drag on purchase money mortgage demand.
December Retail sales
numbers released earlier this morning by the Commerce Department were a little
better than expected. Overall retail sales edged up 0.5% last month on
strong auto sales. Removing the volatile auto sales component revealed
consumer sales rose 0.3%, slightly above most economists' expectations for a
gain of 0.2%. While it was nice to see the year end on a positive note -
for the entire year the pace of retail sales gained 5.2% in 2012 -- notably
lower than the annualized gain of 7.2% in 2011.
In a separate report the
Labor Department said prices paid at the gate of the nation's farms and
factories fell 0.2% in December, sliding lower for the third straight
month. Excluding the volatile food and energy components, the so call
"core" rate of inflation at the producer level edged up a very mild
0.1%. The data clearly demonstrates the inflationary threat from
wholesale sources remains exceptional benign.
Mortgage investors noted
the slight improvement in December retail sales but not choose to make a
substantive move to influence the current trend trajectory of mortgage interest
rates.
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
