Daily Commentary by Larry Baer 10/14/2009

Daily Commentary
By Larry Baer, Market Alert

SHORT-TERM TREND (10 days or less). Favors higher rates and lower investor prices.

LONG-TERM TREND (11 days or more) Favors higher rates and lower investor prices.

Commentary: The mortgage market is getting slapped around this morning by the combination of strong stock market performance and data showing the pace of September retail sales was healthier than expected. These two developments combined to reduce the appeal of safe-haven investments like government debt obligations and agency eligible mortgage-backed securities.

Retail sales actually increased for a second straight month in September once the volatile auto component is stripped put. This was a strong retail sales report with few segments showing sales declines. It appears many mortgage investors are viewing the broad-based improvements as an indication Americans are becoming more confident the economy is recovering -- even as job losses persist. It is worth noting that most of the gain in retail sales (excluding autos) was lead by warehouse clubs and supercenters -- which is evidence that consumers are trading down in their purchases. Rather than shopping at department stores consumers are shopping at warehouse clubs and rather than going out to eat at restaurants -- sales at grocery stores are increasing. The "so what" factor here is the data clearly shows consumers remain financially constrained. Consumers simply lack the cash to spend aggressively -- which by extension is an indication that overall economic growth will almost surely remain limited until job creation and the attendant wage and salary growth improves significantly.

In a separate report the Mortgage Bankers of America said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, decreased 1.8% during the week of October 9th. Applications to buy a home, seen as a tentative indicator of sales, dropped 5.0% while refinance applications slipped 0.1% lower. Borrowing costs on 30-year fixed-rate agency eligible mortgages, excluding fees, averaged 5.02 percent, up 0.13 percentage points from the pervious week. The 30-year rate remained above the all-time low of 4.61 percent set during the week ended March 27th but well below the year-ago level of 6.47%.

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