Daily Commentary by Larry Baer 2.28.2013

Daily Commentary by Larry Baer:  The economy grew in the fourth-quarter - but just barely.  Government data wonks issued their final "guesstimate" of the pace of economic growth for the fourth-quarter earlier this morning.  The economy expanded at a 0.1% pace during the last three months of 2012, better than the initially reported decline of 0.1% -- but well below the third-quarter pace of 3.1%. 

The media's talking heads are enthusiastically declaring economic growth for the balance of the year will build rapidly after the slowdown at the end of 2012.  Perhaps -- but in my book there is a big difference between what is possible - and what is probable.  

It seems to me the combined "whammy" of a 2 percent payroll tax and the implementation of tomorrow's $81 billion "sequestration" government spending cut will not contribute to improvement in overall economic growth for the balance of this year.  The bi-partisan Congressional Budget Office has issued a forecast that suggests the minimum "sequestration" impact will likely take a 1.5% bite out of 2013 economic growth.  Add that number to the expected 0.5% hit economic growth is anticipated to take as a result of the increase in payroll tax -- and it becomes very difficult to jump on the surging economic growth bandwagon.    The good news is slower economic growth will tend to support steady to fractionally lower mortgage interest rates - the bad news is slower economic growth will almost certainly hamstring new and existing home sales.

Mortgage investors completely shrugged off a separate report from the Labor Department this morning which showed the number of Americans filing first-time jobless claims fell by 22,000 during the week ended February 23^rd.  Large federal employment furloughs are coming in subsequent weeks -- so any near-term improvement will almost certainly soon be eclipsed by significant numbers.  In the convoluted world of mortgage interest rates - deteriorating conditions in the labor sector tend to be supportive of steady to perhaps fractionally lower mortgage interest rates.   

 

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 2.27.2013

Daily Commentary by Larry Baer:  The January Durable Goods Orders report was somewhat of a "mixed bag" with a soft transportation component created by a sharp decline in aircraft orders offset by a notable pick-up in business equipment orders.  Mortgage investors largely shrugged off the slightly better than expected report - but they will undoubtedly keep a sharper eye on the data in coming months -- with another strong gain for ex. transportation durable goods orders almost sure to put some upward pressure on mortgage interest rates.

The government will auction $29 billion of seven-year notes later today - the final sale of $99 billion in new debt offered this week.  Foreign investors are expected to be stronger bidders at this auction than they have been over the past couple of months -- driven in large part by revived concerns related to the survivability of the single currency European Union.  If so, decent demand at today's Treasury note auction should prove supportive of the prospects for steady to perhaps fractionally lower mortgage interest rates.  The auction will conclude at 1:00 p.m. ET and I'll post the result on my website as soon as possible once the final gavel falls.

As they do every Wednesday, the Mortgage Bankers of America have released their Mortgage Application Survey for the week ended February 22^nd.  For the third straight week, mortgage application activity fell.  The composite index declined by 3.8%.  Refinance application volume retreated by 3.3% and purchase application traffic was 5.2% lower.  For the week, refinance applications accounted for 77% of all applications and 72% of the perspective loan volume.

The contract rate for 30-year fixed rate conforming mortgages fell by 1 basis point to 3.77%.  The interest rate is 10 basis points higher from four weeks ago, but still 30 basis-points lower from the year ago mark.   

 

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 1.26.2013

Daily Commentary by Larry Baer:  As expected, Fed Chairman Bernanke strongly defended the central bank's quantitative easing programs during this testimony before the Senate Banking Committee earlier this morning.  Mr. Bernanke left no doubt in anyone's mind that the benefits of the programs have clearly exceeded possible costs.  The Fed Chairman told members of the Senate Banking Committee Fed policymakers are keenly aware of potential risks from their extraordinary support for the economy and reassured them the Fed has all the tools it needs to retreat from its monetary support positions in a timely and controlled fashion.

Mr. Bernanke went on to urge lawmakers to avoid the sharp spending cuts set to go into effect on Friday because the cuts, combined with earlier tax increases, would create "significant headwinds" to an economy already struggling to gain traction.  The Senators nodded gravely and then returned to their iPads to finish making travel reservations for their next taxpayer sponsored junket to some exotic world destination.  Sorry -- I made that last part up - excuse me just a moment while I climb down off of this soapbox and get back to finishing this morning's commentary.

In other news of the day the government reported new home sales soared 15.6% in January - it was the fastest sales pace since the summer of 2008.  The month-over-month gain was the largest since the early 1990's.  The supply of homes at the current sales rate dropped to 4.1 months, the lowest since March 2005.  Newly constructed homes accounted for about 7.0% of the residential market in 2012.   Mortgage investors largely shrugged off today's rock solid new home sales report.  If the robust new home sales trend continues through the end of February -- look for mortgage investors to begin to nudge mortgage interest rates fractionally higher.

Uncle Sam will be in the credit markets this afternoon looking to sell $35 billion of 5-year notes.  Foreign investors are expected to be stronger bidders at this auction than they have been over the past couple of months as yesterday's voting results in Italy revive concerns related to the survivability of the single currency European Union.  If so, decent demand at today's Treasury note auction should prove supportive of the prospects for steady to perhaps fractionally lower mortgage interest rates.  The auction will conclude at 1:00 p.m. ET and I'll post the result on my website as soon as possible once the final gavel falls.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 2.22.2013

Daily Commentary by Larry Baer:   Mortgage interest rates are "treading water" today with nothing in the way of economic data to influence trading action one way or the other.  Investors' worries about the economic impact of automatic government spending cuts set to begin March 1^st is currently fueling what I would consider rather anemic "flight-to-quality" buying of Treasury debt obligations and agency eligible mortgage-backed securities.  The increased demand is not strong enough to drive mortgage interest rates notably lower -- but it is certainly sufficient to retard any threat of an immediate upward move.

The next big potential market moving event will be Fed Chairman Bernanke's semi-annual testimony to Congress on monetary policy issues.  Mr. Bernanke will appear before the Senate Banking Committee on Tuesday, February 26^th at 10:00 a.m. ET and the House Financial Service Committee on Wednesday, February 27^th at 10:00 a.m. ET.   Mortgage investors will be listening intently to determine if the Fed Chairman will provide any clues as to when the central bank might consider winding down its $85 billion per month of Treasuries and agency eligible mortgage-backed securities purchases.  I think it is highly probable Mr. Bernanke will stick to his guns, reinforcing his long held position that quantitative easing will continue for the foreseeable future.  If my assessment proves accurate, this event will likely cause an uptick in price volatility on Monday, and into early trading on Tuesday -- before it dissolves to the point that it does not exert any significant influence on the trend trajectory of mortgage interest rates.

The coming week will be a busy one - both in terms of economic news, Treasury auctions, and events.  Uncle Sam will be in the credits markets looking to borrow $99 billion in a three-part auction series that begins with 2-year notes on Monday, 5-year notes on Tuesday, and wraps-up with 7-year notes on Wednesday.  As I mentioned earlier, Fed Chairman Bernanke will capture investors' attention as he testifies on monetary policy issues on Tuesday and Wednesday.  $81+ billion of automatic government spending cuts will likely begin on Friday.

The economic calendar will include Tuesday's 10:00 a.m. release of January New Home Sales figures - Thursday's 8:30 a.m. ET release of the final revision to 4^th quarter Gross Domestic Product - and the busy week will conclude when Friday's Institute of Supply Management's Manufacturing Index hits the news wires at 10:00 a.m. ET.   

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 2.21.2013

Daily Commentary by Larry Baer:   More Americans than expected filed first-time claims for government jobless benefits last week and consumer prices were flat in January. Both conditions support the argument of those who expect the Fed to maintain it's every accommodative monetary policy stance for the foreseeable future.  As long as this thinking is predominate among mortgage investors -- look for mortgage interest rates to hold relatively steady near current levels.

Initial weekly jobless claims for unemployment benefits increased 20,000 to a seasonally adjusted 362,000, according to data released by the Labor Department.  It was the first increase in this measure of activity in the labor sector in three weeks.  Mortgage investors gave the data nothing more than a disinterested glance.

In a separate report, the Labor Department said consumer prices were generally flat for a second consecutive month in January.  Consumer prices excluding food and energy - the so called "core" rate of inflation at the consumer level - posted a gain of 0.3% last month - the largest increase in this measure since May 2011.   Mortgage investors shrugged this essentially benign data off too -- but the pace of consumer inflation will draw more attention over the course of coming months as gasoline and food costs continue to rise at an uncomfortable rate.

The National Association of Realtors said the pace of sales of existing homes was stable in January - posting a 0.4% gain from December's downwardly revised gain.  Today's report also included annual revisions - which indicate that the pace of sales has been slightly slower during the past three years than originally thought.  Even so, the trend of improving sales remains intact.  Existing home sales, tabulated when a contract closes, have recovered since reaching a 13-year low of 4.11 million in 2008.  The market peaked at a record 7.08 million units sold in 2005.  Resales accounted for about 93% of the residential market in 2012.    

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME