Daily Commentary by Larry Baer 11/03/2009

SHORT-TERM TREND (10 days or less). Tilted slightly in favor of higher rates and lower investor prices

LONG-TERM TREND (11 days or more) Tilted slightly in favor of lower rates and higher investor prices.

Commentary: Market participants will likely spend the next day holding their collective breath as they await the release of the Federal Open Market Committee's post-meeting statement scheduled for 2:15 p.m. ET tomorrow.

The members of the Federal Open Market Committee convened the first of a two-day monetary policy strategy session earlier this morning. Mortgage investors will be keenly interested to see what, if anything has changed in the Fed's thinking about the economy, government economic stimulus tactics and the appropriate level of short-term interest rates. In each of their post-meeting statements since March, the Fed has said it plans to keep interest rates "exceptionally low" for an "extended period."

There is a small chance the Fed may choose to do a little wordsmithing to the verbiage of their post-meeting statement this time around -- by dropping the phrase "exceptionally low" and/or "extended period" -- to clearly set the stage for a change in monetary policy in coming months. If this event were to occur -- holding out hope for notably lower mortgage interest rates would almost certainly be akin to betting on the worm to beat the feathers off of the robin.

Sooner or later the Fed is going to have to remove enough monetary policy support from the economy to see if it can stand on its own. In my opinion, as well as that of the vast majority of other analysts, the Fed will avoid any substantive change to their current strategies until the trend trajectory of employment turns higher for a least three consecutive months.

The likelihood that Friday's October nonfarm payroll report proves to be stronger than expected ramped up a couple of notches yesterday when detail in the October Institute of Supply Management report showed the manufacturing sector employment indexed jumped a sharp 6.9 points higher to 53.1. The "so what" factor here is significant. It was the first time this economic metric has been above the expansionary threshold since July 2008, and it was the highest reading since 2006 -- and all of that sharply increases the risk of a "knee-jerk" reaction to the employment data that sends mortgage interest rates higher. Heads up.

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