Market Commentary for 12/30/10

Rates worsened a bit today as mortgage bonds fail to sustain yesterday’s gains and Treasuries lose ground after more positive economic data was released today.  The bond market views positive economic data leading to inflationary pressure which destroys the value of bonds.  Jobless claims decreased, business activity increased and pending home sales rose.  Origination is light and trading conditions remain thin and choppy as 2010 come to a close.  Stock markets are negative this morning but that can hardly take away the massive gains made this year.  Looks like the little guys are piling back into equities hoping not to miss the rally … that they missed … and insiders are beginning to pare back their exposure to equities … so look out for a correction. 

Let’s hope a bid reemerges (increased demand) for US Treasury bonds in 2011 to help get the housing market back on its feet.  I guess hope springs eternal for a housing market rebound but the only way to turn it around is for unemployment to dramatically fall.  Given our governments undeclared war on capital formation through high taxes on multiple levels and its war on business through confiscatory taxes and massive regulation, business will be less likely to take the risks required to grow and hire people. 

As for renewed demand pushing Treasuries prices up and yields down…don’t hold your breath.  The handwriting is on the wall and it appears, despite the destructive actions of the Federal Reserve and its massive QE1,2,3 etc. etc. money creating schemes, that interest rates will continue to rise as bonds get pinched by inflationary pressures created the Fed and the increasing threats of bond defaults.  Keep your eye out in 2011 for increased chatter about Municipal Bond defaults and outright Muni Bond defaults and cities being forced into bankruptcy.  The cities and the states are strapped with bond debt used to finance everything from Taj Mahal style schools (remember the $500 million dollar high school in California?) all for the children of course (not a union payoff?) to lavish retirement benefits for city and state workers.  What is conspicuously missing from the massive increase in city and state bond issuances is economically stimulating and efficiency increasing infrastructure development projects.  Unfortunately most of the proceed from massive city and state bond issuances of the last two decades was used to pad budget shortfalls and for immediate consumption and not economy facilitation infrastructure projects like bridges, ports, dams, nuclear power plants, super modern power grids and super highways … all of which lower the costs and increase efficiencies for business which in turn facilitates economic development and job creation in the private sector.    

In the news today…        For more detail, click on the Market-Headlines attachment

- Jobless Claims in U.S. Decreased to (only) 388,000 Last Week (we need to produce 150,000 just to break even)

- Business Index in U.S. Increases to Two-Decade High (especially with the cash flush “too big to fail”… go figure)

- Pending Sales of U.S. Previously Owned Homes Rise (just wait for those higher rates to work in)

- Mortgage Rates for U.S. Loans Climb to 7-Month High (how’s that QE2 working out for ya?)

Suggested Reading for Today… Who Moved My Cheese?:  An Amazing Way to Deal with Change in Your Work and in Your Life - Spencer Johnson and Kenneth Blanchard

Market Commentary for 12/28/10

Rates are slightly improved today.  Mortgage bond prices are lower than yesterday afternoons close, but higher than when lenders were setting rates and publishing rates early this morning.  Consumer Confidence seems to be fading along with the Christmas spirit; the economic reading came in 3.5% lower than expected, but also lower than November's level.  Couple that with rising inflation expectations, a less than stellar 2yr Treasury auction yesterday with little if any indirect bidder participation, the home price index showing home prices have fallen once again, and the rosy economic recovery picture that's being painted by the teleprompter readers on Bloomberg and on CNBC may need a touch up. 

So what does all this really mean in regular people language?  All the happy talk about economic recovery isn’t being born out in the real economy as many of us have been saying for quite some time now.  Your government and Wallstreet are just feeding you a line of bull to get you to go out and SPEND, SPEND, SPEND.  If you were being told the truth about what the real economic reality was … you would be SAVING YOUR MONEY.  Remember people … it isn’t consumer spending that creates wealth and economic growth … spending is simply a function of savings and investment and without savings and investment THERE IS NO WEALTH CREATION ….  The BS emanating out of government agencies generating the economic prognostications is highly suspect at best and a deliberate manipulation of our “animal spirits” at worst.  Additionally, the “less than stellar” 2 yr auction simply means that no one was beating down the door to buy our Treasury debt but for the Federal Reserve that simply prints the money to buy it.  Maybe nobody wants our Treasury debt because they (China, Brazil, Germany, Saudi Arabia et all) have finally realized that WE HAVE NO INTENTION OF EVER PAYING IT BACK. 

Just think about it people … in just 35 years the US has gone from the world’s greatest creditor nation (meaning we were the lender to the world), to the world’s biggest DEBTOR nation (meaning we are the biggest borrower in the HISTORY OF THE WORLD).  To put it another way … the USA has taken out the biggest Interest Only, Adjustable Rate, Subprime Mortgage IN THE HISTORY OF THE WORLD and its getting bigger by almost 3.5 billion dollars PER DAY.  It’s almost impossible to believe that we have chosen not to pick up pitch forks to stop our country from getting deeper into debt and to stop QE2 and all the other manipulations and rip off’s of the Federal Reserve and the resulting destructive monetary effects.  It appears that we have lost our national survival instinct.  Know that what we are witnessing threatens the very existence of our nation and … here we sit collectively as a people quietly in our lazy boy recliners staring at the flicker of our flat screen TV’s  … COMATOSE … DISCONECTED. 

UGGG … back to the markets.  Trade is still relatively thin this morning, with many big wig traders still using their 'out of office' replies and many little wigs traders that can't seem to drudge through the snow and make it to the trading floor.  Smaller trades can move the market when trading is this thin so WATCH YOUR LOCKS.  The 5yr Treasury note auction is on tap for later today which should be interesting.  Keep those pipelines tight, and make sure all of your active locks get extended if needed. 

In the news today…Click on the Market Headlines attachment for more detail on these stories

- Survey Shows Consumer Confidence Slips in December

- U.S. Home Prices Drop 1.3% From September to October

- U.S. Crude Oil Supplies Probably Fell Last Week, Survey Shows

Reading Suggestion for Today … “The Day After the Dollar Crashes”, Damon Vickers

Market Commentary for 12/28/10

Rates are slightly improved today.  Mortgage bond prices are lower than yesterday afternoons close, but higher than when lenders were setting rates and publishing rates early this morning.  Consumer Confidence seems to be fading along with the Christmas spirit; the economic reading came in 3.5% lower than expected, but also lower than November's level.  Couple that with rising inflation expectations, a less than stellar 2yr Treasury auction yesterday with little if any indirect bidder participation, the home price index showing home prices have fallen once again, and the rosy economic recovery picture that's being painted by the teleprompter readers on Bloomberg and on CNBC may need a touch up. 

So what does all this really mean in regular people language?  All the happy talk about economic recovery isn’t being born out in the real economy as many of us have been saying for quite some time now.  Your government and wallstreet are just feeding you a line of bull to get you to go out and SPEND, SPEND, SPEND.  If you were being told the truth about what the real economic reality was … you would be SAVING YOUR MONEY.  Remember people … it isn’t consumer spending that creates wealth and economic growth … spending is simply a function of savings and investment and without savings and investment THERE IS NO WEALTH CREATION ….  The BS emanating out of government agencies generating the economic prognostications is highly suspect at best and a deliberate manipulation of our “animal spirits” at worst.  Additionally, the “less than stellar” 2 yr auction simply means that no one was beating down the door to buy our Treasury debt but for the Federal Reserve that simply prints the money to buy it.  Maybe nobody wants our Treasury debt because they (China, Brazil, Germany, Saudi Arabia et all) have finally realized that WE HAVE NO INTENTION OF EVER PAYING IT BACK. 

Just think about it people … in just 35 years the US has gone from the world’s greatest creditor nation (meaning we were the lender to the world), to the world’s biggest DEBTOR nation (meaning we are the biggest borrower in the HISTORY OF THE WORLD).  To put it another way … the USA has taken out the biggest Interest Only, Adjustable Rate, Subprime Mortgage IN THE HISTORY OF THE WORLD and its getting bigger by almost 3.5 billion dollars PER DAY.  It’s almost impossible to believe that we have chosen not to pick up pitch forks to stop our country from getting deeper into debt and to stop QE2 and all the other manipulations and rip off’s of the Federal Reserve and the resulting destructive monetary effects.  It appears that we have lost our national survival instinct.  Know that what we are witnessing threatens the very existence of our nation and … here we sit collectively as a people quietly in our lazy boy recliners staring at the flicker of our flat screen TV’s  … COMATOSE … DISCONECTED. 

UGGG … back to the markets.  Trade is still relatively thin this morning, with many big wig traders still using their 'out of office' replies and many little wigs traders that can't seem to drudge through the snow and make it to the trading floor.  Smaller trades can move the market when trading is this thin so WATCH YOUR LOCKS.  The 5yr Treasury note auction is on tap for later today which should be interesting.  Keep those pipelines tight, and make sure all of your active locks get extended if needed. 

In the news today…Click on the Market Headlines attachment for more detail on these stories

- Survey Shows Consumer Confidence Slips in December

- U.S. Home Prices Drop 1.3% From September to October

- U.S. Crude Oil Supplies Probably Fell Last Week, Survey Shows

Reading Suggestion for Today … “The Day After the Dollar Crashes”, Damon Vickers

Market Commentary for 12/21/10

Interest rates are level to a touch worse this morning from yesterday’s re-price for the worse as mortgage bonds fail to hold onto Monday’s closing levels, taking their cue from Treasuries which are trending negative with the 10-year yield moving back up to 3.375% but still off the highs approaching 3.50% of last week.  Stock market indices are all positive, continuing the year-end Santa Claus rally, but all markets have very thin volumes as is the case this time of year with fewer participants--the stock markets appear over bought and the bond markets appear over sold—so it’s difficult to draw too much significance from current price action as traders appear more interested in eggnog and sugar plums at the moment.  ABC consumer confidence is the only scheduled data point to be dumped today and will be released later this afternoon.  Tomorrow and Thursday squeeze all the weeks’ news into two days so it could be a bumpy ride to close out this shortened holiday week.  Stay tuned … and monitor your locks!

In the news today … For more detail, click on the Market-Headlines attachment

- Fed Extends Swap Lines With ECB, Other Central Banks (bailing out foreign banks again…what about me Mr. Fed?)

- EU to Sell as Many as Eight Bonds Issuances for the Destitute Ireland in 2011 (money that will never be repaid)

- Portugal May Be Cut by Moody’s on ‘Sluggish’ Growth (the same Moody’s that rated subprime MBS AAA?)

- Foreclosures in Most States Bypass Judges, Making Evictions Easier (as those same banks get mega bail outs and free Fed loans)

- Bond Market Rejects Fed’s QE2 as Long Term Yield RISE!!!! (that’s not gonna stop Mr. Ben B. and the Fed however)

Suggested Reading for Toda y … Ayn Rand, The Capitalist Manifesto

Market Commentary 12/20/10

Rates improved again today as mortgage bonds continue to rally from Thursday and Friday as the same thin trading conditions that took us negative are now paring some losses.  Interest rate markets continued to rally for a second day Friday (the first two day rally of December), backing well off of six month high reached in the middle of last week. This two day rally culminated in a 9.5 basis point improvement in the ten year Treasury to 3.33% as of week’s end and a 3 basis point strengthening in the two year to 0.61%. One of the biggest trends in play, though both the early-December selloff and more recent rally, has been a massive flattening in the yield curve between the ten and thirty year maturities.  From its November high of 160 basis points, the 10s/30s spread has retreated nearly 50 basis points to 111 basis points as of early Monday activity, driven by ten year yields rising much more rapidly than thirty year yields.  Converging inflation expectations are the culprit, as the markets’ forecasts of thirty year inflation has declined while the markets’ forecasts of ten year inflation have risen.  The 5-year Treasury repos (another Fed purchase program with fake money) are helping as no auctions are scheduled this week and very light origination is giving mortgages a bid despite underperforming versus Treasuries. 

No major economic data is for scheduled today or tomorrow but we get a double-barrel full on Wednesday and Thursday with GDP, existing home sales, durable goods, inflation numbers, jobless claims, consumer confidence and new home sales.  Let’s hope we can sustain this rally in spite of a likely $99 Billion in Treasury Bond auctions next week to be financed and purchased by the Federal Reserve with newly minted money printed out of thin air. 

In the news today…     (Click on the Market Headlines attachment for more details)

- Chicago Fed National Activity Index for November Decreased -.46% from -.25 in October (don’t worry be happy)

- Yields Flatten QE2 Critics With Curve Showing Fed End (we’ll see who gets flattened)

- Fed Places 70% Per-Security Limit on Treasury Debt Holdings (it was 30%)

- ECB Bond Purchases Drop to Lowest in Almost Two Months (but still MASSIVE)

- France’s AAA Grade at Risk as Euro Debt Catastrophe Spreads (this will not end well)

- Band of Eengland Forecast to Raise Interest Rate Within Six Months (gulp!)

Reading Suggestion for Today…    Free to Choose, Milton Friedman.

Your Takeaway… Come to work every day with the knowledge that the incredibly low interest rates we all have enjoyed for years now will not last indefinitely and one tiny market or geopolitical event can change everything overnight.  Re-double your efforts to build purchase loan referral sources and don’t forget about reverse mortgages.

Market Commentary for 12/17/10

Rates improved today as mortgage bonds continue their upward price movement from yesterday as demand for US Treasury debt increases somewhat…from what appears to be risk averse money coming out of Europe.  Today brought some positive economic news with Leading Economic Indicators showing marked improvement in a number of areas within the economy … of course the continuing housing mess and high unemployment aside.  Pundits are viewing the passage of the pork laden tax-cut extension plan by the much maligned and gridlocked congress (the one that President Obama is scheduled to sign later today) as a positive for business and for equities but much less certain for the debt markets. 

It is very hard to get a read on the bond market this morning as the positive economic growth data dump should provide upward pressure to rates…but that has not materialized as of yet … thankfully.  Although the US has its own looming and massive sovereign debt crisis of its own and a central bank hell bent on destroying the US Dollar and monetizing our government debts, the growing sovereign debt mess in Europe should drive safety seekers back to the US dollar temporarily and increase the demand for Treasuries….pushing up prices and driving down yields.  At some point, however, in this evolving, slow motion sovereign debt and monetary crisis, the market will not whiplash back and forth between the crises on opposite sides of the Atlantic but will merge its view of the overall crisis into one singularity.  That transition will telegraph the next phase of the crisis. 

The tax rate extensions (in existence for 10 years now), the small new tax rate reductions and the pork spending should be a boon for stocks in the very short term, but so far today the DOW is trading in negative territory.  Go figure.  The Fed has made it clear that the improving economic indicators are not strong enough to withdraw QE2 or the proposed QE3 or the myriad of other schemes the Fed has employed to pump up the money supply.  As we have discussed before, these Fed schemes are highly inflationary and form the argument on broader macro-economic trends that still look to be very negative for the longer term value of the US dollar and for bonds in general and mortgage rates in specific.  The bond market really is ground zero in this war..so pay close attention and learn all you can about the debt markets.   Remember … only 7 shopping days left people! 

In the news today…(Click on the Market Headlines attachment for more detail)     

- Congress Passes $858 Billion Tax-Cut Extension Plan

- Leading Indicators in U.S. Gain by Most in 8 Months

- Fed policy makers said economic growth isn’t strong enough to bring down the unemployment rate

- Moody’s Puts 6 Greek Banks on Review for Possible Cut

Reading Suggestion for Today… Constitution of Liberty, Friedrich A. Hayek
In this classic work, Hayek restates the ideals of freedom he believes have guided, and must continue to guide, the growth of Western civilization. Hayek's book, first published in 1960, urges us to clarify our beliefs in today's struggle of political ideologies.

Mortgage Update for 12/15/10

Re-price for the WORSE!!: 

Mortgage bonds selloff another POINT today as the general bond market selloff continues.  The 10-year Treasury yield has pushed above the 3.625% mark.  YIKES!!  The bond market is the “canary in the proverbial inflationary coal mine”  and is chirping its head off.  The little birdie is telling us that the Federal Reserve QE2 scheme has NOTHING to do with jobs, price stability and a little “good inflation and helping the economy and everything to do with DEBT MONITIZATION!   Hold on to your hats people. 

Market Commentary for 12/15/10

Interest Rates improved slightly this morning as mortgage bonds recover some losses from yesterday’s extensive battle damage.  Treasuries found a bid overnight as talk of a Spanish credit rating downgrade gains steam and as the economic data released today was close to expectations.  However, the consensus on the street is that any moves in the bond market will be technical in nature and the likely trend is a continuation of the selloff … unfortunately.  So be prepared for more re-prices for the worse!  Mortgages are lagging Treasuries so far this morning although still improved in outright price.  However, stocks are continuing to make gains as the bulls are in control and the bond market appears to have a millstone tied around its collective neck, going ever deeper into negative territory.  The Fed appears to be in the twilight zone and in a willful form of denial in its statement yesterday, omitting any acknowledgement of recent positive economic data to the consternation of some economists.  Acknowledgement of any economic recovery would put the Feds entire QE2 scheme at risk and that cannot happen because the monetization game the Fed is playing has nothing to do with lowering interest rates and creating “good” inflation, contrary to the line of bull the Fed is selling, and everything to do with financing the government and its out of control spending by purchasing treasuries with hot money printed out of thin air and backed by nothing.  What is even more concerning was the total absence in the Feds statement yesterday of any comments regarding the sharp rise in interest rates we have all been dealing with in the last few weeks.  Don’t think for a moment the Fed just missed the apparent improving economic indicators and the sharp rise in interest rates … that just doesn’t happen.  

In an interview yesterday, Market commentator and CNBC analyst Rick Santelli remarked …

“The Fed’s direct action in the Treasury market has been nothing short of historic. The logic of the Fed’s various purchase programs was “sold” to the marketplace as a means to keep mortgage and treasury rates low…or at least well-behaved and to create some “controlled” inflation.” 

“Yet, since the last meeting 10-year rates are up close to 100 basis points! I am not sure what amazes me more — the fact that the Fed didn’t even MENTION the rate rise in today’s statement, or that many believe the various purchase plans have been “successful.”

“How can a program that was designed to drive rates lower be deemed a success if rates are now sharply higher? Why is there so little clarity from an entity (The Fed) that is now the largest holder of US Treasury securities?”

“My conclusion is that the goal of Chairman Bernanke and the Federal Open Market Committee was to monetize the growing U.S. debt and generate future inflation. On the last score…. generating inflation…. I think time will prove the Fed highly successful.”

From the Feds point of view it still sees the obvious:  jobs and housing are nowhere near recovery and, until they do, true economic recovery is not possible.  The problem is that the actions of the Fed, with its cloaked debt monetization scheme (QE2), run in direct opposition to its stated goals of price stability and job growth.  Its actions are damaging the debt markets by inflating the currency and pushing bond prices down and the yields (interest rates) up.  The Feds action also create price instability by massively increasing the supply of money and credit, which devalues the dollar and drives prices up through monetary inflation.  The rising prices as seen in record oil, cotton, copper, silver, gold, cold rolled steel prices etc. etc. etc. are a monetary phenomenon and not caused by demand as we see very tepid global demand for these commodities.  As these rising commodity inputs work their way into the economy and into consumer finished goods and services (air fares), the effect on job creation will be damaging as business will be forced to survive on compressing margins and weak consumer demand.  So what in the heck is the Fed doing? 

I think the comments by Rick Santelli and others are spot on.  The real goal of the Fed isn’t creating jobs and keeping rates and prices stable …. It is to keep the doors of a desperate and out of options government open by providing financing for the 47 cents of every dollar the government spends by the Fed slipping its some cash through purchases of Treasuries with newly minted fiat dollars.  It appears that the typical buyers of treasuries, China, India, Saudi Arabia, Japan, Brazil and others are really net sellers of dollars and Treasuries and appear to be no longer willing to play the ponzi scheme anymore and may have finally come to the realization that the US government has no intention of actually pay them back but with ever less valuable dollars.  The fix to get the dollar up and demand back for Treasury debt could be extreme …  so watch out for low flying “black swans”.  Data dumps on deck for tomorrow:  housing starts / building permits, jobless claims, and the Philly Fed.  Stay tuned to the bond market as bonds are continuing to groan under pressure at the moment, losing much of earlier gains.  It appears volatile and re-prices are going to be the norm for a while….

In the news today…       

- Fed Signals Stronger Economy Won’t Slow $600 Billion QE2 “Stimulus” Debt Monetization Scheme

- U.S. MBA Mortgage Applications Index Dropped 2.3% Last Week (even on purchase transactions)

- U.S. Consumer Prices Rose 0.1% in November, Core Rate Up 0.1% (But don’t worry there is no inflation)

- New York Region Manufacturing Growth Beats Forecasts

- Global Demand for U.S. Assets Slowed in October, Treasury Says (hmmm…who’s gonna buy all our Treasury debt?)

- U.S. Industrial Production Rises More Than Forecast

- U.S. Homebuilder Confidence Index Held at 16 in December

Suggested Reading for Today…   The Fountain Head, Ayn Rand
Considered by many to be Ayn Rand's best book. It presents the struggles of architect Howard Roark to design buildings true to his architectural principles. Along the way Rand illustrates the moral virtue of capitalism and the questionable ethics of those in the government who claim to act in the public interest.

Your Take Away… Get out there and tell the world that the historically low mortgage rates that we enjoyed are an endangered species … now is the time to get off the fence and refinance …  now is the time to purchase a home before rates rise further.  Use the market headlines and the fear it imparts to your advantage and communicate with confidence and clarity that NOW is the time to transact!

Market Commentary for 12/13/10

Rates worsened somewhat today at the open as mortgage bonds continue to lose ground in overall bond market softness. The benchmark 10-year yield was up as high as 3.391% (Really UGLY) but has since fallen back down around 3.30% as Treasuries get a bid (from the Fed with HOT money printed out of thin air) and turn positive.  Wasn’t the idea behind the QE2 scheme to bring rates down?  I guess “Mr. Market” isn’t convinced that the long term effects of QE are as benign as Ben B. and the Fed would have us all believe.  In the absence of the Feds distorted demand, the market will revert to its longer term worries over the corrosive effect of QE monetary policy promulgated by our central bank and then, as if almost by magic, when the Fed swoops in to purchase debt, the market will promptly forget its well founded long term fears and rates will come off a bit.  Watch this dynamic today as the Fed moves in to purchase…  MBS have begun to pare earlier losses but lenders will be slow to re-price for the better as volatility has eroded confidence that the price will stick.  Stock markets are positive today given China didn’t raise rates as expected to cool off imported inflation from the Federal Reserve resulting from the boat loads of fiat money it is creating.  No economic data is scheduled for release today but tomorrow brings quite a data dump that will impact markets with the Fed rate decision (no change), retail sales, producer price index and business inventories.  This week is the last full trading week of 2010.  Expect volatility to remain high, as thin trading volumes will only amplify market movements. 

In the news today…     

- Stocks, Dollar Advance as China Refrains From Rate Increase (they raised reserve ratios instead)

- European Leaders to Debate Permanent Crisis Mechanism (= less sovereignty & more centralized power for the EU)

- China Said to Extend Increase in Reserve Ratio for Some Banks (inflation fighting response less raising rates)

- ‘Shadow Lenders’ Emergency Fed Loans Benefited Biggest Banks & FOREIGN BANKS (what a shocker…our Fed is now the central bank of the world…and you are on the hook for it)

Reading Suggestion for Today… Capitalism: The Unknown Ideal, Ayn Rand
“One of the most revolutionary and powerful works on capitalism--and on politics--that has ever been published.”  --Professor Leonard Peikoff, Barron's magazine.

Your Takeaway…     

- Lock in your profit as quickly as possible and DON’T PLAY THE MARKET.  We all need to become experts in all maters economic with specific emphasis on the bond market.  Your clients rely on your expertise and you being well read and very well informed as a valued and trusted advisor to them.  Dig in and continue to develop yourselves with an aggressive self-imposed reading and studying regime.

Market Commentary for 12/9/10

Mortgage rates improved today as mortgage bonds make gains this morning despite losing some of their earlier gains after better than expected jobless claim and wholesale inventory data was released.  The jobless claims are still quite bad at 421,000 and markets really do appear to be grasping at straws to find some optimism out there.  With such a weak underpinning to bond market optimism, and the myriad of significant and serious issues impacting the broader debt market in general (QE from most all central banks), its important to keep a very close eye on the bond market, your pipelines and your lock expirations.  Buyers have emerged (Fed Reserve) after recent massive losses, allowing mortgages to tighten with Treasuries but trade is choppy and highly volatile.  Treasuries initially up have fallen to near unchanged in the short end to slightly better in the longer end at the moment after the data releases, putting the 10-year yield around the 3.249% mark (OUCH!) which is at a 6 month high.  Today brings the final leg of this week’s Treasury auctions with $13 Billion of 30-year “long bonds” on the block—results due out around 10am.  As the headline “House Democrats did not approve the compromise tax bill in its current form” came we are seeing some bond gains.  Check out the second to last story in the “In the News Today” section—Google the story … its an interesting piece on whether the bond vigilantes of the late 80s and 90s that, some say, forced both the first President Bush and Bill Clinton to raise taxes to get budgets in line are doing the same thing to Obama. 

In the news today…     

- U.S. Initial Jobless Claims Fell 17,000 to 421,000 Last Week

- U.S. Wholesale Inventories Rose 1.9% in October, Sales Up 2.2%

- BOE Maintains Bond Plan as Economy Sustains Momentum

- Bond Vigilantes Awoken by Obama Tax Plan, Deficit, Yardeni Says

- Ron Paul, Author of ‘End the Fed,’ to Lead Panel Overseeing Fed

Reading Suggestion for Today… Cicero:  The Republic 

Take Away… Watch Those Pipelines!  Due to recent market volatility now more than ever be sure to keep track of your lock expirations!

Market Commentary for 12/7/10

Mortgage rates worsened today as mortgage bonds give up all of yesterday’s price gains and more.  Both mortgage bonds and Treasuries are taking a beating as the risk trade is back on this morning and the Dow is up over 50-points at the moment as money swings back into equities and away from debt instruments. 

Who knows how long this will last and expect whiplashes back and forth as the market tries to make sense of the distortions created by government through easy money policy initiatives and the Quantitative Easing (government debt monetization) scheme. 

As we discussed yesterday, bond traders will begin to demand a higher yield on bonds (higher interest rates) to offset the perceived risk of default as government heaps on massive amounts of debt that just may not be able to be repaid.  Bond traders also have a deep fear of inflation which, if left unchecked, would literally destroy the value of their bond holding as government allows their currencies to be debased by massive increases in money and credit through the Quantitative Easing Schemes of the world’s central bankers.  

The bond picture is getting clearer and clearer as the days go by.  As governments manically issue huge amounts of debt just to keep their welfare programs afloat and the doors of government open and their enablers in the central banks create massive amounts money out of thin air to purchase those government debts, it is beginning to be obvious that the bond markets and paper currencies just may be the last great bubble to go POP. 

Governments are realizing that their options to keep the game rolling are becoming very limited…. print and inflate or default … both bad.  Reasons for the bond sell off and an equity rally this morning also range from Obama reaching a compromise on the tax cut extensions to concerns over the deficit and to higher than expected prepayment speeds on the underlying mortgages that make up the mortgage bonds themselves. 

Economic news was of little import as its … sell, sell, sell in bond land this morning, pushing the 10-year yield up to 3.08% at the moment.  Today brings the first of three Treasury auctions with $32 Billion in 3-year bonds on the block today—results due out around 10am and you all know who they buyer will be …. That’s right … the Federal Reserve.  Mortgage bonds are yielding less than 30-year Treasury bonds 

WWW.AGORAFINANCIAL.COM 

What does it mean?

The answer is not immediately apparent. On the surface, this chart indicates that the average American mortgage-holder is a better credit risk than the US government.  After digging a little deeper, the picture doesn't change very much.  The average American mortgage-holder is genuinely trying to repay his debts. The US government isn't. 

Treasury bonds remain the global benchmark for safety and reliability.  But at the same time, Federal Reserve Chairman, Ben Bernanke, is busy establishing a new global benchmark for dumb ideas.  He is busy printing up dollars in the name of dollar stewardship. 

The man considers it a good idea to sacrifice the dollar's hard-won reputation in the pursuit of a lower unemployment rate.  He considers it prudent to exchange America's world-leading credit-worthiness for short-term economic benefits.

But the global economy does not operate according to the wacky theories of academia.  It follows the common sense principles of the real world. Chairman Bernanke does not seem to grasp the fact that the Federal Reserve does not create jobs; the private sector does.

Nevertheless, the night before last on 60 Minutes, Bernanke defended his Quantitative Easing scheme as an essential assault against unemployment.

"At the rate we're going," said the Chairman, "it could be four, five years before we are back to a more normal unemployment rate."  Therefore, Bernanke continued, additional Quantitative Easing is "certainly possible... It depends on the efficacy of the program."

In other words, the Chairman will continue to debase the dollar for as long as it takes to revive economic growth...or to destroy it. According to the academic theories that Bernanke embraces, the Federal Reserve can stimulate the economy by printing dollars and buying Treasury bonds, thereby lowering interest rates...and facilitating capitalistic ventures.

In the real world, however, currency debasement is just that, currency debasement...which is just a form of wealth destruction. And notwithstanding Ben Bernanke's theories, destroying wealth never creates it.

Bernanke believes he is waging a war against economic malaise and unemployment.  Unfortunately, his arsenal features a falling dollar and a rising inflation rate.

These dynamics are not lost on bond investors ... or at least not completely lost.  Yields on long-term Treasury securities have been climbing since August.  Last week, the 10-year T-note yield pushed above 3.0% for the first time in months and its 3.08% this morning.  30-year bond yields have also been climbing.

So Bernanke's tactics are working, right?  Hardly.

The economy added a paltry 39,000 jobs in November, as the unemployment rate jumped to 9.8%, the highest level since April.

So if you're keeping score at home, it's...

Bad Economy: One

Dumb Ideas: Zero

In the news today…       

- IBD/TIPP Consumer confidence down in December

- Job Openings in U.S. Increased to Two-Year High

- Obama Agrees to Tax-Cut Extension, Lower Payroll Tax

- EU Rules Out Aid Boost, Banks on ECB to Fight Crisis

- Mortgage Prepayments Rise Faster Than Some Analysts Forecast

Reading Suggestion for Today…Forgive us Our Debts:  The Intergenerational Dangers of Fiscal Irresponsibility, by Andrew L. Yarrow.  

Take away… It may sound like a broken record, but rates are just not going to go lower and the trend as outlined and defended above is for them to go higher and to do so in the medium term.  Dig in deep and understand the dynamics in the economy in general and the bond market in specific so that you can clearly and accurately articulate to your borrowers the delicate and transitory nature of today’s historically low mortgage rates.  Your goal is to properly motivating your borrowers with hard facts so that they will see you as an expert and so that they will lock in those super low rates WITH YOU as their expert loan originator before those rates are gone for what may be a very long time.     

Market Commentary for 12/6/10

Rates improved this morning as mortgage bonds and Treasuries got a boost from Fed Chairman Ben Bernanke’s comments on CBS citing additional Quantitative Easing (QE) is certainly possible if necessary.  QE3 Anyone?  Interesting to see the bond market respond so positively to Ben’s intentions when the very QE that he is promoting will ultimately destroy bonds as it destroys their value by debasing the underlying currency they are denominated in as it massively increasing the supply of money and credit.  QE makes bonds feel good in the short term because it creates distorted demand for the debt instruments, pushing up their price and holding down their yields.  Its all a very misguided approach to our economic problems and one that has been implemented many, many times throughout history and every time, without question, it ends in the tears of an inflationary induced monetary and bond market collapse.  Anyone ever hear of the historic inflation created in the Weimar Republic of post WW1 Germany? 

Our fearless Fed Chairman indicated that without QE and the Fed’s response to the crisis, unemployment could be 25%, not the 9.8% currently (was 9.6%) and that it is likely not to decrease down to the normal 5%-6% for 4 or 5 years.  It is his strategy to scare people with these apocalyptic retrospect views without anyway of actually proving his claims with the goal of manipulating public opinion to accept the economic medicine (QE) that he is peddling.  He sees inflation concerns overstated, won’t allow it to go above 2%, and believes the tax code must be revised.  Fat chance on reforming the tax code.  It will be very interesting to hear him explain how the massive money and credit creation he is instituting in the form of QE actually isn’t inflationary and exactly how he is going to ensure inflation doesn’t go beyond 2%.  Hmmm  … all of this from a man that was completely blindsided by the current economic and credit collapse and now he is in charge of fixing a problem that he didn’t have the foresight or intelligence to see coming?  

Lets examine his contention that inflation concerns are overstated … take a look at oil prices…. up over $90.00 per barrel…. Cotton at 130 year high and wheat, soybeans, gold, silver…. etc. etc. etc.  All of these commodities are traded in dollars and have seen their prices soar as the value of the dollars they are traded in has been debased through massive money and credit creation.  Inflations is already here people and your illustrious central banker, “helicopter Ben”, knows it.  Remember the Consumer Price Index (CPI) excludes energy and food and when they are squished back into the inflation algorithm…. it’s running close to 8% right now.  Take a look at the following chart from “Shadow Government Statistics”. 

You can see where the numbers began to diverge in the early 80’s as our government began to “cook the books” with the intention of understating the real inflation rate to avoid the political blow-back on policy and to avoid paying hefty cost of living increases for a myriad of government programs not the least of which is Social Security.  The blue line represents the traditional inflation algorithm used by government for many years prior to 1983 and represents a far more accurate measure of real inflation.  So when the Fed Chairman says he won’t let inflation go above 2% and will protect us all against the corrosive effects of his QE monetary scheme, you can see we are already way past that point as most of us in the real world feel every time we fill out gas tanks up or go through the check-out line at Costco.   

There is no economic data scheduled for release today as stocks are slightly negative and the 10-year Treasury yield is near the 2.95% mark.  This week brings another round of Treasury auctions as our bankrupt government borrows billions to keep its doors open.  In that spirit, the Treasury will issue $32 billion in 3-year debt on Tuesday, $21 billion of 10-year Treasuries on Wednesday and $13 billion of 30-years T-Bills on Thursday.  The Federal Reserve bought another $2 billion this morning and will purchase most all of the debt set for auction this week… anyone know where the Federal Reserve will get the money to buy those Treasury Bonds?  Remember the Federal Reserve is no more Federal than Federal Express and there is no Reserve. All money the Fed uses to buy this debt is “brought into existence” with the stroke of a key on a computer … as this continues, it won’t even be worth the paper its not printed on.

In the news today…       

- Bernanke Says More Fed Purchases ‘Certainly Possible’

- Treasuries, Dollar Rise on Prospect of Fed Buying; Euro Weakens

- ECB’s Quaden Says He Favors Increasing Size of EU Rescue Fund

- Germany Snubs Pleas to Boost Aid, Sell Joint Bonds

- Obama Calls Hu to Urge China to Assist in Restraining North Korea

Reading Suggestion for today:  The Federalist Papers by Alexander Hamilton, James Madison and John Day. 

Take away:  The pronouncements that all our economic woes will be miraculously fixed by massively creating money and credit are going to ultimately drive bond prices up as investors demand a premium to offset the risk that the bonds may default or that the currency the bonds are denominated in will be debased effectively paying back the bond debts with worthless paper money.  All this means mortgage interest rates will NEVER, EVER be this low in a very long time.  How long can rates stay low is anyone’s guess but the actions of central banks around the world with collective QE will ultimately drives rates much higher.  Use this information to get your reluctant borrowers off the fence and to new attract borrowers.

Market Commentary for 12/3/10

Rates improved today as mortgage bonds and Treasuries get a boost from a very disappointing Non-Farm Payroll report released this morning.  Bond prices moved up and yields (rates) have moved down as the bond market sees future economic activity contracting (so much for “green shoots” and the “Summer of Recovery”) and inflation pressures easing thus creating more demand for bonds.  Our official U-3 unemployment rate is now 9.8%, up two tenths from 9.6% and much higher than the promised 8% unemployment rate promoted by POTUS (President of the United States) while he was selling his trillion dollar “stimulus plan” almost two years ago (what is now feeling like a lifetime ago). The real unemployment rate, calculated using the old fashioned method prior to the Clinton administration cooking the books in the early 90’s, also known as U-6 unemployment, is now approaching 17% and, according to John Williams at “Shadow Government Statistics”, a non-governmental think tank, the real unemployment rate is closer to 22%.  

The markets were expecting a much larger jobs creation number based on earlier prognostications that served to pushed up equities, send bond prices down and yields up over the last 3 weeks.  It should be noted that the same analysts that didn’t see the “greatest recession” looming in late 2007 are the same pundits that expected more job creation today (why do we still listen to these people).  Given that the market was looking for 160k in added jobs and the economy only generated 39K, it is a bit surprising we are not seeing much of an equity market sell off at this point (hold onto your hats … that could be next).  The markets are somehow still convinced that the promised recovery is underway despite a contracting jobs outlook, a housing market still declining and the sovereign debt bomb blowing up all over Europe.  Adding fuel to the fire of increased economic uncertainty is the specter of allowing the “Bush Era” tax cuts to expire for upper income individuals and entrepreneurial companies.  While it may feel good to “stick it to the rich”, it is the upper income demographic that actually employs most of us by investing their capital, taking the risks to actually create wealth and in that process create jobs (radical thinking I know).  Without a structural shift away from consumption dependency and a radical change in tax policy that encourages capital in-flows and supports capital formation, it is hard to see how we can get out of this fix.  Remember that consumer spending (70% of the economy) is the result of savings and investment and thus it is savings and investment that we as a nation must encourage or there really is no way out of a permanent economic decline.  Given that more economic stimulus is politically impossible and won’t work anyway, the Fed gave us QE2, and in that spirit gulped up another $6.8 billion in Treasury debt this morning in a misguided effort to keep the recovery going and rates low.  Let’s hope this distortion is successful because quantitative easing (QE2), money creation and currency devaluation is all that’s left for the Federal Reserve and our government.  On tap for next week: more Treasury debt to be purchased by the Federal Reserve and the Irish budget vote.  Stay tuned for more rate/price volatility people…

In the news today

- U.S. Adds Fewer Jobs Than Forecast, Unemployment up two tics to 9.8%

- ISM Index of Service Industries in U.S. Increased to 55

- U.S. October Factory Orders, Shipments and Inventories up

- Trichet Keeps Up EU Pressure as ECB Buys Bonds to Calm Investors

- Cross Section of Rich Invested With the Fed

Take Away:  All things being equal, rates should ease as economic activity continues to stagnate.  Remember, all things are never equal and un-anticipated “black swan” events could actually push rates up so lock in your profit as quickly as possible.   

Reading Suggestion for Today:  Intellectuals and Socialism by Friedrich A. Hayek

Market Commentary for 12/1/10

Rates worsened significantly this morning as mortgage bonds follow Treasuries down deep into negative price territory after strong domestic and overseas economic data was released this morning (Mr. Market sees inflation).  Stocks are rallying big and bonds are tanking from better than expected U.S. private sector job numbers, positive Chinese and British (wow they still make stuff) manufacturing data, and comments from European Central Bank head Trichet suggesting significant measures “may be taken soon” to shore up the Euro-zone solvency concerns (by printing more Euros out of thin air I expect).  In other news, mortgage applications plunged last week by the most this year, productivity increased and manufacturing activity continued to show signs of expansion.  The Federal Reserve (now the largest holder of Treasury Debt … Not China anymore) bought back another $8.174 billion in Treasuries (with more MAGIC $$) but you wouldn’t know it looking at rates today.  Given the preliminary jobs number released today, some analysts are revising expectations for Friday’s big payroll report, so bonds could be in for more rough waters before the week is over (price for T bills down and rates up).  In addition to Novembers better than expected job estimates, October numbers were revised up, suggesting job growth is beginning to take hold (we will see).  Still these numbers are not enough to move the needle on the Unemployment rate (we have to create 150,000 jobs per month to just keep up with normal attrition).  A big surprise to the upside in Friday’s numbers could be the tipping point traders are looking for.  On tap later today:  Fed beige book and auto sales figures, tomorrow: jobless claims and home sales data. 

In the News Today:

- U.S. MBA Mortgage Applications Index Plunged 16.5% Last Week (Huge borrower rate sensitivity)

- Employers in U.S. Announce More Job Cuts in the Next Eight Months (Don’t believe everything in the latest jobs report)

- ADP Estimates Companies in U.S. Added 93,000 Jobs (Could be a temporary Christmas bump)

- U.S. Productivity Rises More Than Estimated Earlier (Paranoid employees working themselves to death)

- U.S. Manufacturing Expands for 16th Straight Month (Huge dollar devaluation making exports cheap)

- U.S. October Construction Spending Report to be Released (Be suspicious if this increases given drop in home sales)

- BofA’s ‘Sloppy’ Prime Mortgages Add to Pressure for Buybacks (This “too big to fail” bank will be protected by Uncle Sam)

Take Away:  Massive decrease in mortgage applications reveal just how rate sensitive prospective borrowers really are.  Develop referral sources for purchase transactions and reverse mortgages NOW!  What are you going to do in the next 15 minutes to begin to accomplish this goal?

Suggested Reading:  The 5000 Year Leap:  A Miracle That Changed the World by W. Cleon Skousen

Market Commentary for 11/30/10

o_Rates improved in trading this morning as mortgage bonds eked out some gains against Treasuries, helped by growing Euro sovereign debt fears in a flight to the relative quality of the debt peddled by our government.  Treasuries are rallying given month end buying and lack of supply (no auctions) further boosted by the Federal Reserve buyback (QE2) of $6.8 billion this morning.  Mortgages however are lagging and are not benefitting fully from these gains that pushed the 10-year yield down to 2.759% at the moment as hedge fund/money managers sell lower coupons.  Stock market indices were down significantly to start today’s session but have since pared some losses after better than expected consumer confidence and business expansion data offset worse than expected home price figures.  Tomorrow brings the start of employment data along with housing market and manufacturing figures…expect rate/price volatility.

In the news today…     

- Home Prices Fell Compared to Forecasted October Gain

- Businesses in U.S. Grow at Faster Pace Than Forecast

- Consumer Confidence in U.S. Rises to Five-Month High

- Milwaukee Purchasers Manufacturing Index for November Rose

- EU Faces More Bailouts as Irish Contagion Spreads: Is Spain Next?

- Spanish Banks Face Funding Hurdle Amid Bailout Threat … crisis looming

- Banks Resisting Fannie, Freddie Demands to Buy Back Mortgages  

- Bank of America Mortgage Morass Deepens After Employee Says Notes Not Sent

Recommended Reading….

- Atlas Shrugged by Ayn Rand

Your Takeaway for Today….

- 30 year fixed rate mortgage has a lower interest rate than a 30-year Treasury bond.  Rates will never be this low in a very long time if ever.  Motivate you recalcitrant borrowers with this knowledge and tell them that NOW is the time to lock in a historically low 30 year fixed rate mortgage before this distortion is corrected by “Mr. Market”.

Market Commentary 11/23/10

Rates are lower today as a worried world pours into the relative safety of US Treasuries this morning as a result of shelling in Korea, fears associated with the sovereign debt crisis in Ireland and a potential bank run in that nation and the other PIIGs.  Stronger than expected GDP numbers were overshadowed this morning by these events and as a result equity markets are down about 1.2% so far today.  Very poor home sales data was released today helping to underpin the equity sell off this morning and Treasury bonds are seeing strong demand in early trading helping to push down the yield on the 10 year T Bill to 2.744%.  Today’s scheduled 5 year Treasury Bill auction is expected to go well given the geopolitical tension so we will see if the falling yield trend will continue. Federal Reserve minutes from this months FOMC meeting will be released this morning around 11 am so stay tuned people. 

In the News Today:

-          - The US economy expanded at a 2.5% pace in the third quarter

-          - Existing home sales fell more than forecast in October

-          - Richmond Fed manufacturing survey due out for November

-          - Irish rescue plan now shifts focus to Portugal, Spain and overall EURO stability

-          - China’s banks report near the end of their loan quotas and begin to halt lending

-          - Freddie Mac raises mortgage fees as it attempts to staunch losses

Market Commentary for 11.22.10

Rates are lower today and bond prices are rising due to increased sovereign debt worries revolving around Ireland and other debt laden and trouble nations within the EU.  Although the US is still in very deep economic trouble and laboring under an astronomical and growing sovereign debt load of its own and actually rivaling and surpassing many of the trouble nations in Europe in that regard, market attention has whipsawed back to the mess in the EU and will serve to push the dollar higher and rates lower as investors and money managers run to relative safety (total illusion) of US government debt.  Economic data is very light today in anticipation of a heavy release of info Tuesday and Wednesday before the Thanksgiving holiday.  It would appear that the PIIG nations (Portugal, Ireland, Italy and Greece) are running into a debt wall and one by one requesting a bailout from the European Central Bank (ECB), the International Monetary Fund (IMF) and World Bank.  Ireland relented and asked the ECB for the bitter bail out pill this morning with Italy, Portugal and Spain teetering on the brink.  The cost will be massive for the ECB and will continue to push investors back into dollar denominated assets until the US has another negative economic or geopolitical headline event herding the sheep investors back into the EURO.  What a mess!  Treasury prices moved higher off the news with mortgage bonds following suit.  Both seem to be holding fairly well so far this morning but given the last few days of incredible market volatility we shouldn’t be surprised by anything that this market may throw at us. 

Economic News Today:

-          - Treasuries rallied, as Moody’s appears ready to downgrade Ireland after ECB bailout plan acceptance

-          - US commercial real estate prices jumped most on record

-          - Portugal reiterates commitment to debt repayment as social unrest rises

-          - Irish bonds rise as its government requests ECB/IMF emergency bailout funds