Friday, January 22, 2010
I moved my blog to my new website http://www.davidkimmer.com
I moved my blog to my new website. To view my blog please follow this link http://www.davidkimmer.com and click on "View My Blog" on the right side of the page.
Wednesday, January 20, 2010
Daily Commentary by Larry Baer 1/20/2010
Commentary: The Commerce Department reported this morning that housing starts fell 4.0% in December. Most investors shrugged the slump in home construction off - noting that much of the country was in the grips of a major cold snap during the month -- making the digging of footings and the pouring of concrete almost impossible. Even though builders were not at their construction sites they were busy - filing new building permits. Building permits soared 10.7% higher in December - strongly suggesting home builders will be very busy once the spring thaw begins.
The Mortgage Bankers of America chimed in with their standard Wednesday report regarding loan demand for the past week. The MBA said their figures showed overall mortgage loan demand surged 9.1% higher. The increase was driven by a 10.7% increase in refinance requests, while home purchase demand rose 4.4%. The contract rate for 30-year fixed rate mortgages finished at 5.0%, down 13 basis points from the prior week level.
A separate report from the Labor Department showed producer prices rose 0.2% last month as food prices rose, leading the overall index to its largest year-over year gain since October 2008. The more important core rate of inflation at the wholesale level (a value stripped of the more volatile food and energy components) was unchanged in December -- effectively counterbalancing the headline gain in the produce price index. Mortgage investors gave the bit of inflation news nothing more than a passing glance and a disinterested yawn this morning.
Much of today's price improvement is likely due to positive mortgage investor reaction regarding the news that Scott Brown, a Republican, had defeated Democrat Martha Coakley in the political race to fill the vacant Massachusetts Senate seat left by the late Senator Edward Kennedy. Partisan politics aside - most mortgage investors are keenly aware that without filibuster-proof control of the Senate by one party, approval for new programs - such as an overhaul of the healthcare system - which could require heavy government spending -- will be harder to obtain. The "so what" factor here is straightforward. Uncle Sam is the mortgage market's biggest competitor in terms of attracting capital from both global and domestic investors. The possibility that the capital demand coming from Uncle Sam may be diminished in coming months tends to be supportive of at least steady mortgage interest rates.
It is likely mortgage investors will take at least a passing glance at tomorrow's December Leading Economic Index presented by the private Conference Board. The Conference Board's Leading Indicator Index is intended to forecast likely economic conditions three to nine months in the future. If, as expected, the index posts a gain of 0.7% or higher, it will have fully reversed the decline seen during the Great Recession - a condition that will almost certainly exert some upward pressure on mortgage interest rates.
With nothing else to capture their attention during the run-up to Thursday's release of the Leading Economic Index - look for mortgage investors to take their interest rate directional cues from trading activity in the stock markets. Rising stock prices will tend to drive mortgage interest rates higher -- while falling stock prices 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
The Mortgage Bankers of America chimed in with their standard Wednesday report regarding loan demand for the past week. The MBA said their figures showed overall mortgage loan demand surged 9.1% higher. The increase was driven by a 10.7% increase in refinance requests, while home purchase demand rose 4.4%. The contract rate for 30-year fixed rate mortgages finished at 5.0%, down 13 basis points from the prior week level.
A separate report from the Labor Department showed producer prices rose 0.2% last month as food prices rose, leading the overall index to its largest year-over year gain since October 2008. The more important core rate of inflation at the wholesale level (a value stripped of the more volatile food and energy components) was unchanged in December -- effectively counterbalancing the headline gain in the produce price index. Mortgage investors gave the bit of inflation news nothing more than a passing glance and a disinterested yawn this morning.
Much of today's price improvement is likely due to positive mortgage investor reaction regarding the news that Scott Brown, a Republican, had defeated Democrat Martha Coakley in the political race to fill the vacant Massachusetts Senate seat left by the late Senator Edward Kennedy. Partisan politics aside - most mortgage investors are keenly aware that without filibuster-proof control of the Senate by one party, approval for new programs - such as an overhaul of the healthcare system - which could require heavy government spending -- will be harder to obtain. The "so what" factor here is straightforward. Uncle Sam is the mortgage market's biggest competitor in terms of attracting capital from both global and domestic investors. The possibility that the capital demand coming from Uncle Sam may be diminished in coming months tends to be supportive of at least steady mortgage interest rates.
It is likely mortgage investors will take at least a passing glance at tomorrow's December Leading Economic Index presented by the private Conference Board. The Conference Board's Leading Indicator Index is intended to forecast likely economic conditions three to nine months in the future. If, as expected, the index posts a gain of 0.7% or higher, it will have fully reversed the decline seen during the Great Recession - a condition that will almost certainly exert some upward pressure on mortgage interest rates.
With nothing else to capture their attention during the run-up to Thursday's release of the Leading Economic Index - look for mortgage investors to take their interest rate directional cues from trading activity in the stock markets. Rising stock prices will tend to drive mortgage interest rates higher -- while falling stock prices 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
Tuesday, January 19, 2010
Daily Commentary by Larry Baer 1/19/2010
Commentary: The coming week's economic calendar doesn't offer much of substance for mortgage investors to chew-on during the coming four-day holiday shortened trading sessions. There are no scheduled government debt auctions and members of the Federal Open Market committee have entered their "period of silence" in front of their two-day meeting next week.
It is likely mortgage investors will take at least a passing glance at Thursday's December Leading Economic Index presented by the private Conference Board. The Conference Board's Leading Indicator Index is intended to forecast likely economic conditions three to nine months in the future. If, as expected, the index posts a gain of 0.7% or higher, it will have fully reversed the decline seen during the Great Recession - a condition that will almost certainly exert some upward pressure on mortgage interest rates.
With nothing else to capture their attention during the run-up to Thursday's release of the Leading Economic Index - look for mortgage investors to take their interest rate directional cues from trading activity in the stock markets. Rising stock prices will tend to drive mortgage interest rates higher -- while falling stock prices 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
It is likely mortgage investors will take at least a passing glance at Thursday's December Leading Economic Index presented by the private Conference Board. The Conference Board's Leading Indicator Index is intended to forecast likely economic conditions three to nine months in the future. If, as expected, the index posts a gain of 0.7% or higher, it will have fully reversed the decline seen during the Great Recession - a condition that will almost certainly exert some upward pressure on mortgage interest rates.
With nothing else to capture their attention during the run-up to Thursday's release of the Leading Economic Index - look for mortgage investors to take their interest rate directional cues from trading activity in the stock markets. Rising stock prices will tend to drive mortgage interest rates higher -- while falling stock prices 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
Friday, January 15, 2010
Daily Commentary by Larry Baer 1/15/2010
Commentary: Credit market investors are breathing a huge sigh of relief now that Uncle Sam has wrapped up his $84 billion, four-part auction and is not expected to be back in the credit markets for a couple of more weeks.
Today's rally in the mortgage market is also being supported by news from the Labor Department that inflation pressures at the consumer level remain benign. The headline Consumer Price Index rose 0.1% last month from November as food and energy costs gained only modestly and housing-related expenses held steady. Stripping out the more volatile food and energy prices, the Labor Department said the core rate of the consumer price index edged up 0.1% in December after being flat the prior month. Compared with December 2008, the core inflation rate rose 1.8% -- well within the Fed's stated tolerance level of 2.0%. Fed Chairman Bernanke and his fellow central bankers are likely walking around Washington with a look of relief on their faces - since there is certainly nothing in today's inflation data to suggest an imminent change to their current monetary policy is necessary - and that's a good thing for the prospects for steady to perhaps fractionally lower mortgage interest rates ahead.
Considering all of the cross-currents created by this week's very active schedule of government debt auctions - mortgage interest weathered the storm rather well. According to Freddie Mac, the rate for 30-year fixed home loans dropped to 5.06% for the week (ended yesterday) from 5.09% the prior week.
Looking ahead to the upcoming holiday shortened week the economic calendar offers the December Producer Price Index figures and December Housing Starts and Building Permit stats on Wednesday together with the standard weekly initial jobless claims data on Thursday. The consensus estimate for all three reports calls for their respective values to fall within mortgage market neutral ranges.
Be patient . be disciplined . and play it by the numbers.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Today's rally in the mortgage market is also being supported by news from the Labor Department that inflation pressures at the consumer level remain benign. The headline Consumer Price Index rose 0.1% last month from November as food and energy costs gained only modestly and housing-related expenses held steady. Stripping out the more volatile food and energy prices, the Labor Department said the core rate of the consumer price index edged up 0.1% in December after being flat the prior month. Compared with December 2008, the core inflation rate rose 1.8% -- well within the Fed's stated tolerance level of 2.0%. Fed Chairman Bernanke and his fellow central bankers are likely walking around Washington with a look of relief on their faces - since there is certainly nothing in today's inflation data to suggest an imminent change to their current monetary policy is necessary - and that's a good thing for the prospects for steady to perhaps fractionally lower mortgage interest rates ahead.
Considering all of the cross-currents created by this week's very active schedule of government debt auctions - mortgage interest weathered the storm rather well. According to Freddie Mac, the rate for 30-year fixed home loans dropped to 5.06% for the week (ended yesterday) from 5.09% the prior week.
Looking ahead to the upcoming holiday shortened week the economic calendar offers the December Producer Price Index figures and December Housing Starts and Building Permit stats on Wednesday together with the standard weekly initial jobless claims data on Thursday. The consensus estimate for all three reports calls for their respective values to fall within mortgage market neutral ranges.
Be patient . be disciplined . and play it by the numbers.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Thursday, January 14, 2010
Daily Commentary by Larry Baer 1/14/2010
Commentary: A report earlier today from the Commerce Department showed retail sales unexpectedly fell 0.3% in December after posting an outsized 1.8% gain in November.
In a separate report the Labor Department indicated the number of Americans standing in line to file for first-time jobless benefits rose by a surprising 11,000 last week.
Limited pricing power among retailers and continued labor market weakness are strong indications inflation concerns are not yet even a blip on investors' radars -- and that is a story that solidly reinforces the consensus belief that the Fed will not make a move to raise short-term interest rates anytime soon.
The credit market's next task is to underwrite and distribute the $13 billion of 30-year bonds Uncle Sam has on the auction block today. These securities are currently carrying their highest yields in the last six months - so the potential is high this debt offering will draw decent investor demand. If so, look for this event to be supportive of steady to perhaps fractionally lower mortgage interest rates. A poorly bid auction today will almost certainly put some noticeable upward pressure on 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
In a separate report the Labor Department indicated the number of Americans standing in line to file for first-time jobless benefits rose by a surprising 11,000 last week.
Limited pricing power among retailers and continued labor market weakness are strong indications inflation concerns are not yet even a blip on investors' radars -- and that is a story that solidly reinforces the consensus belief that the Fed will not make a move to raise short-term interest rates anytime soon.
The credit market's next task is to underwrite and distribute the $13 billion of 30-year bonds Uncle Sam has on the auction block today. These securities are currently carrying their highest yields in the last six months - so the potential is high this debt offering will draw decent investor demand. If so, look for this event to be supportive of steady to perhaps fractionally lower mortgage interest rates. A poorly bid auction today will almost certainly put some noticeable upward pressure on 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
Wednesday, January 13, 2010
Daily Commentary by Larry Baer 1/13/2010
Commentary: Different day - same story.
Uncle Sam is once again thrashing around in the credit markets today looking to borrow $21 billion in the form of 10-year notes. These securities are currently carrying their highest yields in the last six months - so the potential is high this debt offering will draw decent investor demand. If so, look for this event to be supportive of steady to perhaps fractionally lower mortgage interest rates. A poorly bid auction today will almost certainly put some noticeable upward pressure on mortgage interest rates.
The economic calendar offers little of significance today. Under these conditions trading action in the stock markets will likely exert more than normal influence on the trend trajectory of mortgage interest rates. Look for falling stock prices to be supportive of steady to perhaps fractionally lower mortgage interest rates while rising stock prices will have an inclination to nudge mortgage interest rates higher.
Be patient . be disciplined . and play it by the numbers.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Uncle Sam is once again thrashing around in the credit markets today looking to borrow $21 billion in the form of 10-year notes. These securities are currently carrying their highest yields in the last six months - so the potential is high this debt offering will draw decent investor demand. If so, look for this event to be supportive of steady to perhaps fractionally lower mortgage interest rates. A poorly bid auction today will almost certainly put some noticeable upward pressure on mortgage interest rates.
The economic calendar offers little of significance today. Under these conditions trading action in the stock markets will likely exert more than normal influence on the trend trajectory of mortgage interest rates. Look for falling stock prices to be supportive of steady to perhaps fractionally lower mortgage interest rates while rising stock prices will have an inclination to nudge mortgage interest rates higher.
Be patient . be disciplined . and play it by the numbers.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Tuesday, January 12, 2010
Daily Commentary by Larry Baer 1/12/2010
Commentary: Uncle Sam is in the credit markets today looking to borrow $40 billion in the form of 3-year notes. Demand for this debt offering will likely be solid - since the big run-up in yields last month left prices at very attractive levels. Bigger test of investors' appetite for more government debt will come tomorrow when Uncle Sam looks to off-load a $21 billion stack of 10-year notes followed by a $13 billion wad of 30-year bonds on Thursday.
The economic calendar has nothing to offer today. Under these conditions trading action in the stock markets will likely exert more than normal influence on the trend trajectory of mortgage interest rates. Look for falling stock prices to be supportive of steady to perhaps fractionally lower mortgage interest rates while rising stock prices will have an inclination to push mortgage interest rates higher.
Be patient . be disciplined . and play it by the numbers.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
The economic calendar has nothing to offer today. Under these conditions trading action in the stock markets will likely exert more than normal influence on the trend trajectory of mortgage interest rates. Look for falling stock prices to be supportive of steady to perhaps fractionally lower mortgage interest rates while rising stock prices will have an inclination to push mortgage interest rates higher.
Be patient . be disciplined . and play it by the numbers.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Monday, January 11, 2010
Daily Commentary by Larry Baer 1/11/2010
Commentary: Uncle Sam will be wading into the credit markets this week looking to borrow a total of $84 billion dollars. He'll kick-off his four-part borrowing spree by warming up with today's $10 billion 10-year inflation-index security sale before really hitting his stride with tomorrow's $40 billion 3-year note auction followed by Wednesday's sale of a $21 billion stack of 10-year notes. He'll wrap the whole thing up on Thursday with the sale of $13 billion worth of 30-year bonds.
Investors remain unsure whether the economic recovery glass remain half-full - or half empty - so this big round of government supply will likely churn the credit market up a bit. Even so, when the auction totals are finally tallied -- demand for each of these government debt offerings will probably prove to have been strong enough to support steady to perhaps fractionally lower mortgage interest rates. Just in case take your Dramamine now -- and don't forget to buckle your seat belt.
Be patient . be disciplined . and play it by the numbers.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Investors remain unsure whether the economic recovery glass remain half-full - or half empty - so this big round of government supply will likely churn the credit market up a bit. Even so, when the auction totals are finally tallied -- demand for each of these government debt offerings will probably prove to have been strong enough to support steady to perhaps fractionally lower mortgage interest rates. Just in case take your Dramamine now -- and don't forget to buckle your seat belt.
Be patient . be disciplined . and play it by the numbers.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Friday, January 8, 2010
Daily Commentary by Larry Baer 1/8/2010
Commentary: The Labor Department reported earlier this morning that 85,000 more jobs were lost in December than were created. Revisions to prior month's figures showed the economy actually added 4,000 jobs in November rather than losing 11,000 as was initially reported. The government's "do-over" for October resulted in reported job losses of 127,000.
The majority of economists had projected a headline payroll loss in December of 8,000. These same economists are now blaming their wide miss on December job market conditions on the weather - pointing out two major storms blanked the Northeast and Midwest during the data survey period.
In my judgment, the fact the national jobless rate reminded at 10.0% in December is the most significant and telling element of the entire report. The detail in this morning's report showed there were 929,000 "discouraged workers" who had given up looking for a job, up from 642,000 a year earlier. The bid "so what" factor behind all this mumbo-jumbo is significant. If these people were still actively looking for work and had been counted as unemployed in the latest survey period -- the national jobless rate would have been 10.4% or higher. Since the current story from the labor sector strongly suggests employment growth will remain puny for sometime yet to come - today's job report is supportive of steady to potentially lower mortgage interest rates.
Looking ahead to next week -- Uncle Sam will take center stage from Monday to Thursday. He'll be in the credit markets looking to borrow roughly $100 billion in the form of inflation index 10-year notes on Monday, 3-year notes on Tuesday, 10-year notes on Wednesday and 30-year bonds on Thursday. Wednesday's 10-year notes and Thursday's 30-year bonds will likely exert the most potential upward pressure on mortgage rates.
In terms of macro-economic data Thursday's December Retail Sales figures and Friday's December Consumer Price Index will attract the most attention from mortgage investors. Both reports are expected to be mortgage market neutral.
Be patient . be disciplined . and play it by the numbers.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
The majority of economists had projected a headline payroll loss in December of 8,000. These same economists are now blaming their wide miss on December job market conditions on the weather - pointing out two major storms blanked the Northeast and Midwest during the data survey period.
In my judgment, the fact the national jobless rate reminded at 10.0% in December is the most significant and telling element of the entire report. The detail in this morning's report showed there were 929,000 "discouraged workers" who had given up looking for a job, up from 642,000 a year earlier. The bid "so what" factor behind all this mumbo-jumbo is significant. If these people were still actively looking for work and had been counted as unemployed in the latest survey period -- the national jobless rate would have been 10.4% or higher. Since the current story from the labor sector strongly suggests employment growth will remain puny for sometime yet to come - today's job report is supportive of steady to potentially lower mortgage interest rates.
Looking ahead to next week -- Uncle Sam will take center stage from Monday to Thursday. He'll be in the credit markets looking to borrow roughly $100 billion in the form of inflation index 10-year notes on Monday, 3-year notes on Tuesday, 10-year notes on Wednesday and 30-year bonds on Thursday. Wednesday's 10-year notes and Thursday's 30-year bonds will likely exert the most potential upward pressure on mortgage rates.
In terms of macro-economic data Thursday's December Retail Sales figures and Friday's December Consumer Price Index will attract the most attention from mortgage investors. Both reports are expected to be mortgage market neutral.
Be patient . be disciplined . and play it by the numbers.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Thursday, January 7, 2010
Daily Commentary by Larry Baer 1/7/2010
Commentary: Nothing to do now but wait. As I am sure you are well aware by now, the Labor Department is scheduled to release the December nonfarm payroll statistics tomorrow morning at 8:30 a.m. ET.
In the past few days economists have been busy revising their analysis of labor market conditions during the last month of '09. Earlier guesstimates suggesting tomorrow's headline jobs number will show the economy shed 20,000 more jobs than it created last month - have been sharply revised to today's forecast projecting the headline jobs number will show the economy came within 5,000 jobs of experiencing positive job growth for the first time in two-years.
Today's initial weekly jobless claims data added no clarity to the overall labor market picture - as it showed the number of people standing in line to file for first-time unemployment benefits rose by 1,000. I've heard a couple of media talking heads hyping the fact that the four-week moving average of claims has now dropped by 10,250, its 18th consecutive weekly decline and its lowest level since mid-September. It is important to note that the primary reason the four-week moving average is showing such steady improvement is not due to the creation of new employment opportunities as implied by breathless reporters - but to the tragedy of benefit exhaustion by the unemployed. For the week ended December 19th, enrollment in the government's Emergency Unemployment Compensation program rose by 235, 600. In a nutshell, while it is true the pace of layoffs have slowed significantly from its torrid pace in early 2009 -- hiring has not yet improved anywhere close enough to put a dent in the dismal labor market conditions.
In my judgment, it will take a December nonfarm payroll showing a loss of 25,000 jobs or more together with a jobless rate of 10.2% or higher to spawn a rally in the mortgage market powerful enough to push interest rates significantly lower from current levels.
Be patient . be disciplined . and play it by the numbers.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
In the past few days economists have been busy revising their analysis of labor market conditions during the last month of '09. Earlier guesstimates suggesting tomorrow's headline jobs number will show the economy shed 20,000 more jobs than it created last month - have been sharply revised to today's forecast projecting the headline jobs number will show the economy came within 5,000 jobs of experiencing positive job growth for the first time in two-years.
Today's initial weekly jobless claims data added no clarity to the overall labor market picture - as it showed the number of people standing in line to file for first-time unemployment benefits rose by 1,000. I've heard a couple of media talking heads hyping the fact that the four-week moving average of claims has now dropped by 10,250, its 18th consecutive weekly decline and its lowest level since mid-September. It is important to note that the primary reason the four-week moving average is showing such steady improvement is not due to the creation of new employment opportunities as implied by breathless reporters - but to the tragedy of benefit exhaustion by the unemployed. For the week ended December 19th, enrollment in the government's Emergency Unemployment Compensation program rose by 235, 600. In a nutshell, while it is true the pace of layoffs have slowed significantly from its torrid pace in early 2009 -- hiring has not yet improved anywhere close enough to put a dent in the dismal labor market conditions.
In my judgment, it will take a December nonfarm payroll showing a loss of 25,000 jobs or more together with a jobless rate of 10.2% or higher to spawn a rally in the mortgage market powerful enough to push interest rates significantly lower from current levels.
Be patient . be disciplined . and play it by the numbers.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Wednesday, January 6, 2010
Daily Commentary by Larry Baer 1/6/2010
Commentary: Different day - same story.
Looming on the horizon is Friday's December nonfarm payroll report, which some expect to show the first month of job growth since December 2007 - a condition should it prevail -- will almost surely push mortgage interest rates higher and prices lower.
Other mortgage investors are absolutely convinced the December sell-off in the mortgage market pushed rates too high and prices too low - a condition that suggests these high-quality assets can currently be acquired at "garage-sale" prices.
One of these two groups of mortgage investors is headed for a spanking behind the financial woodshed - and the other will likely be calling random people in the phonebook to brag about their financial market genius.
Overhanging all of them is the fact that the direct government buying of mortgage-backed securities that drove 30-year fixed rate mortgages to historical lows in 2009 - is coming to an end in less than 90 days. To get to their total purchase authorization of $1.25 trillion by March 31st - the Fed will need to buy about $8.5 billion a week in agency eligible mortgage-backed securities. The "so what" factor here is significant. From mid-November through mid-December the Fed's weekly net purchases of these securities totaled $16.5 billion - meaning Uncle Sam, the benevolent benefactor of the mortgage industry, is rapidly morphing from the most dominant player in the market into nothing more than a ghost of days gone by.
As I write, market chatter regarding the possibility the Fed will choose to expand and/or extend their direct mortgage-backed security purchase program is nothing more than just idle talk.
The probabilities are high that the rotation from a big-buyer spending taxpayers' money to a buyer spending private capital will initially result in higher mortgage interest rates and lower prices - no matter what the prevailing macro-economic data happens to be.
Bear-in-mind fixed income investors (those that actually buy and hold the mortgage-backed securities created from the loans you originate) live in the future - not the present. Trading decisions these investors make on a daily basis are largely predicated on market conditions they expect to prevail in the weeks and months yet to come - not the market conditions that may happen to develop between 10:00 a.m. ET and the close of trading for the day.
In other news of the day the Mortgage Bankers said their index of mortgage applications for the week ended January 1st rose 0.5% from the previous week. The purchase application component of the index was up 3.6% while refinance loan requests fell 1.6%. Refinance applications accounted for 68.2% of all loan requests during the reporting period.
Be patient . be disciplined . and play it by the numbers.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Looming on the horizon is Friday's December nonfarm payroll report, which some expect to show the first month of job growth since December 2007 - a condition should it prevail -- will almost surely push mortgage interest rates higher and prices lower.
Other mortgage investors are absolutely convinced the December sell-off in the mortgage market pushed rates too high and prices too low - a condition that suggests these high-quality assets can currently be acquired at "garage-sale" prices.
One of these two groups of mortgage investors is headed for a spanking behind the financial woodshed - and the other will likely be calling random people in the phonebook to brag about their financial market genius.
Overhanging all of them is the fact that the direct government buying of mortgage-backed securities that drove 30-year fixed rate mortgages to historical lows in 2009 - is coming to an end in less than 90 days. To get to their total purchase authorization of $1.25 trillion by March 31st - the Fed will need to buy about $8.5 billion a week in agency eligible mortgage-backed securities. The "so what" factor here is significant. From mid-November through mid-December the Fed's weekly net purchases of these securities totaled $16.5 billion - meaning Uncle Sam, the benevolent benefactor of the mortgage industry, is rapidly morphing from the most dominant player in the market into nothing more than a ghost of days gone by.
As I write, market chatter regarding the possibility the Fed will choose to expand and/or extend their direct mortgage-backed security purchase program is nothing more than just idle talk.
The probabilities are high that the rotation from a big-buyer spending taxpayers' money to a buyer spending private capital will initially result in higher mortgage interest rates and lower prices - no matter what the prevailing macro-economic data happens to be.
Bear-in-mind fixed income investors (those that actually buy and hold the mortgage-backed securities created from the loans you originate) live in the future - not the present. Trading decisions these investors make on a daily basis are largely predicated on market conditions they expect to prevail in the weeks and months yet to come - not the market conditions that may happen to develop between 10:00 a.m. ET and the close of trading for the day.
In other news of the day the Mortgage Bankers said their index of mortgage applications for the week ended January 1st rose 0.5% from the previous week. The purchase application component of the index was up 3.6% while refinance loan requests fell 1.6%. Refinance applications accounted for 68.2% of all loan requests during the reporting period.
Be patient . be disciplined . and play it by the numbers.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Tuesday, January 5, 2010
Daily Commentary by Larry Baer 1/5/2010
Commentary: Looming on the horizon is Friday's December nonfarm payroll report, which some expect to show the first month of job growth since December 2007 - a condition should it prevail -- will almost surely push mortgage interest rates higher and prices lower.
Other mortgage investors are absolutely convinced the December sell-off in the mortgage market pushed rates too high and prices too low - a condition that suggests these high-quality assets can currently be acquired at "garage-sale" prices.
The capital market is an arena in which losers pay winners every day. One of these two groups of mortgage investors is headed for a spanking in the financial woodshed - and the other will likely be calling random people in the phonebook to brag about their financial market genius.
Overhanging all of them is the fact that the direct government buying of mortgage-backed securities that drove 30-year fixed rate mortgages to historical lows in 2009 - is coming to an end in less than 90 days. To get to their total purchase authorization of $1.25 trillion by March 31st - the Fed will need to buy about $8.5 billion a week in agency eligible mortgage-backed securities. The "so what" factor here is significant. From mid-November through mid-December the Fed's weekly net purchases of these securities totaled $16.5 billion - meaning Uncle Sam, the benevolent benefactor of the mortgage industry, is rapidly morphing from the most dominant player in the market into nothing more than a ghost of days gone by.
The probabilities are high that the rotation from a big-buyer spending taxpayers' money to a buyer spending private capital will initially result in higher mortgage interest rates and lower prices - no matter what the activity levels in the manufacturing sector happen to be or whether the economy is creating or destroying jobs.
Bear-in-mind fixed income investors (those that actually buy and hold the mortgage-backed securities created from the loans you originate) live in the future - not the present. Trading decisions these investors make on a daily basis are largely predicated on market conditions they expect to prevail in the weeks and months yet to come - not the market conditions that may happen to develop between 10:00 a.m. ET and the close of trading for the day.
Be patient . be disciplined . and play it by the numbers.
Other mortgage investors are absolutely convinced the December sell-off in the mortgage market pushed rates too high and prices too low - a condition that suggests these high-quality assets can currently be acquired at "garage-sale" prices.
The capital market is an arena in which losers pay winners every day. One of these two groups of mortgage investors is headed for a spanking in the financial woodshed - and the other will likely be calling random people in the phonebook to brag about their financial market genius.
Overhanging all of them is the fact that the direct government buying of mortgage-backed securities that drove 30-year fixed rate mortgages to historical lows in 2009 - is coming to an end in less than 90 days. To get to their total purchase authorization of $1.25 trillion by March 31st - the Fed will need to buy about $8.5 billion a week in agency eligible mortgage-backed securities. The "so what" factor here is significant. From mid-November through mid-December the Fed's weekly net purchases of these securities totaled $16.5 billion - meaning Uncle Sam, the benevolent benefactor of the mortgage industry, is rapidly morphing from the most dominant player in the market into nothing more than a ghost of days gone by.
The probabilities are high that the rotation from a big-buyer spending taxpayers' money to a buyer spending private capital will initially result in higher mortgage interest rates and lower prices - no matter what the activity levels in the manufacturing sector happen to be or whether the economy is creating or destroying jobs.
Bear-in-mind fixed income investors (those that actually buy and hold the mortgage-backed securities created from the loans you originate) live in the future - not the present. Trading decisions these investors make on a daily basis are largely predicated on market conditions they expect to prevail in the weeks and months yet to come - not the market conditions that may happen to develop between 10:00 a.m. ET and the close of trading for the day.
Be patient . be disciplined . and play it by the numbers.
Monday, January 4, 2010
Daily Commentary by Larry Baer 1-4-2010
Commentary: Mortgage investors will likely spend the majority of the week jockeying for position in front of Friday's much anticipated December Nonfarm Payroll report. Today's slightly higher than expected activity levels in the manufacturing sector as measured by the Institute of Supply Management is really little more than a side show.
Traders seem to be almost equally divided with respect to their views of what Friday's job report will reveal.
One group of traders believes for the first time in two years, the economy may have experienced a month in which more jobs were created than were destroyed. If Friday's December employment report shows positive growth in headline payrolls (a long shot but not totally out of the question in my opinion) it will provide a powerful jolt to what has otherwise been a very sluggish recovery - and that's a condition almost certain to put notable upward pressure on mortgage interest rates.
The opposing group of traders look for businesses to take their sweet time resuming hiring, if for not other reason than the uncertainty surrounding the impact of heath care, taxation and regulation issues still being debated in Congress. Even if businesses are ready to rehire sooner, this group of traders believe fixing the labor market will not be a quick process. Since the start of the recession (estimated as late 2006 early 2007 -- depending on which economist you happen to talk to) about 7.9 million jobs have been lost. To put that number in perspective, there were 2.5 million jobs created in 2005, which was at the peak of the housing boom and a year in which the economy grew at a healthy 3.1% pace. Few economists expect that level of sustained economic growth over the next few years - and even if economic growth accelerated at that rate - it would take at least three years to recoup the lost jobs.
The sharp rise in mortgage interest rates over the last two-weeks of the year was largely created by conservative risk managers choosing to take a "safe-rather-than-sorry" approach to Friday's first major economic report of the new year -- by pricing-in expectations for the first increase in payroll growth since December 2007. Should this outlook prove too optimistic -- with December payrolls posting a loss of 20,000 or more -- a fairly large number of market participants will get caught leaning in the wrong direction - probably resulting in a relatively short-lived but nonetheless welcomed move to fractionally lower mortgage interest rates and higher prices.
Be patient . be disciplined . and play it by the numbers.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
Traders seem to be almost equally divided with respect to their views of what Friday's job report will reveal.
One group of traders believes for the first time in two years, the economy may have experienced a month in which more jobs were created than were destroyed. If Friday's December employment report shows positive growth in headline payrolls (a long shot but not totally out of the question in my opinion) it will provide a powerful jolt to what has otherwise been a very sluggish recovery - and that's a condition almost certain to put notable upward pressure on mortgage interest rates.
The opposing group of traders look for businesses to take their sweet time resuming hiring, if for not other reason than the uncertainty surrounding the impact of heath care, taxation and regulation issues still being debated in Congress. Even if businesses are ready to rehire sooner, this group of traders believe fixing the labor market will not be a quick process. Since the start of the recession (estimated as late 2006 early 2007 -- depending on which economist you happen to talk to) about 7.9 million jobs have been lost. To put that number in perspective, there were 2.5 million jobs created in 2005, which was at the peak of the housing boom and a year in which the economy grew at a healthy 3.1% pace. Few economists expect that level of sustained economic growth over the next few years - and even if economic growth accelerated at that rate - it would take at least three years to recoup the lost jobs.
The sharp rise in mortgage interest rates over the last two-weeks of the year was largely created by conservative risk managers choosing to take a "safe-rather-than-sorry" approach to Friday's first major economic report of the new year -- by pricing-in expectations for the first increase in payroll growth since December 2007. Should this outlook prove too optimistic -- with December payrolls posting a loss of 20,000 or more -- a fairly large number of market participants will get caught leaning in the wrong direction - probably resulting in a relatively short-lived but nonetheless welcomed move to fractionally lower mortgage interest rates and higher prices.
Be patient . be disciplined . and play it by the numbers.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
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About Me
- David Kimmer
- Beaverton, OR, United States
- David is a loan officer for American Pacific Mortgage. He has worked in the lending industry since 2000. Prior to that he invested 19 years in the insurance industry. He enjoys helping people finance the purchase of their dream home.