Daily Commentary by Larry Baer 10/16/2009

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: Fortunately for the prospects of steady to perhaps fractionally lower mortgage interest rates -- the selling pressure in the stock markets is providing a strong counter-balance to this morning's mortgage market unfriendly surge in the September Industrial Production and Capacity Utilization figures.

Industrial production rose last month more than three times as much as even the most optimistic analyst had anticipated. Most observers were expecting a modest 0.2% gain in this measure of manufacturing activity and were stunned to find that the September gain was actually 0.7%. It was the third consecutive gain for this index and marks the first period of sustained increase since 2007. While auto production accounted for about half the increase - solid gains were also registered by most other industries. Excluding autos, manufacturing output rose 3.8% in the third quarter, the biggest increase since the first quarter of 2006. The fly-in-the-ointment with respect to the latest upbeat news from the manufacturing sector is that the surge in activity on the factory floor has yet to translate to a notable increase in hiring. Experienced investors are also taking the September capacity utilization figure, a measure of slack in the economy, with a grain-of-salt. Capacity utilization rose to 70.5% in September from the prior month level of 69.9%. The improvement is welcomed - but it really doesn't mean much -- since the index is slightly more than 10 percentage points below its 1972-2008 average.

The coming week doesn't offer much in the way of potentially mortgage market moving economic data. Tuesday's September Housing Starts and Building Permits numbers together with the September Producer Price Index figures will likely draw little more than a passing glance from mortgage investors. Friday's September Existing Home Sales numbers might generate some upward pressure on mortgage interest rates if it shows a gain of more than 5.0% -- while certainly possible -- such an outcome is not currently considered very probable.

It is highly likely that trading action in the stock markets will exert the strongest influence on the trend trajectory of mortgage interest rates next week. For what is worth, from a technical perspective I think there is a strong chance that the DOW put in a multi-day high yesterday. Should the stock markets indeed succumb to additional selling pressure -- such an event will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates.

Be patient - be disciplined - and play it by the numbers.

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