Daily Commentary by Larry Baer 11/05/2009

SHORT-TERM TREND (10 days or less). Tilted ever so 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: Mortgage investors will likely spend the balance of the day putting the finishing touches on their risk management strategies before moving to the safety of the sidelines in front of tomorrow morning's October nonfarm payroll report.

News from the Labor Department earlier today indicating third-quarter productivity surged 9.5% on an annualized basis spawned a rally in the stock market while data contained in the same report showing unit labor costs plunged 5.2% ignited some buying interest in the mortgage market. Mortgage investors view the very powerful productivity gain and super-low labor costs as conditions reinforcing the Fed's ability to forgo any increase in their benchmark short-term interest rates for an "extended period of time" - and that is a condition that tends to be supportive of steady to perhaps fractionally lower mortgage interest rates.

In a separate report the Labor Department said the number of people receiving first-time jobless benefits fell by 20,000 last week to the lowest level since March. That is the good news portion of the current story from the labor market. The bad news is that during the week of October 17th enrollment in extended benefits programs increased by 24,600 while the Emergency Unemployment Compensation program enrollment rose by 90,000+. In recovery, businesses generally first expand existing worker hours and hire temporary workers before more permanently expanding payroll size. Neither of these trends has shown signs of picking up yet, implying the near-term prospects for the job market remain fairly bleak. The "so what" factor here is that against such a backdrop -- the power of a "surprise" improvement in the headline October nonfarm payroll figure to create a "Maalox Moment" in the mortgage market featuring rising rates and falling investor prices -- looses much of its potency.

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



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