Daily Commentary by Larry Baer 10/27/2009

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 off to a friendly start today after the Conference Board, a private research group, said its barometer on consumer confidence slipped to 47.7 in October from a revised 53.4 in September.

Detail in this morning's report showed consumers' assessment of present conditions dropped to its lowest level since February 1985 while the number of people who said jobs are hard to get increased to a reading of 49.6 -- its highest level since 1983. Consumers are obviously "bummed" in a big way - reviving worries among market participants about the sustainability of the economic recovery. The folks on Main Street are obviously still very fearful about their ability to get and hold a job, which is a clear threat to spending - and by extension - to the nation's prospects for recovery from the Great Recession.

In the convoluted world of the mortgage market -- slumping economic activity tends to reduce the demand for capital - which in-turn tends to be supportive of steady to perhaps fractionally lower rates. The growing likelihood of "Grinch-like" holiday sales may soon begin to take an increasingly large toll on stock valuations. If so, a significant amount of the capital fleeing these riskier asset classes will likely find its way into the "safe-harbor" of government debt obligations and mortgage-backed securities - and that's never a bad thing from a rate sheet perspective.

Uncle Sam will be in the credit market looking to borrow $44 billion in the form of 2-year notes today. The short-duration of these debt obligations -- together with the fact their yield is near its highest level in more than a month -- will likely combine to draw solid demand from global and domestic investors alike. Look for this event to have little, if any noticeable impact on the trend trajectory of mortgage interest rates today. I'll provide an update on the auction results as soon as possible after the final gavel falls at 1:00 p.m. ET.

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