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