1/29/2009
My New Spread the Wealth Grading Policy
by Mike S. Adams
Good afternoon students! I’m writing you this email to announce that I’m making some changes in the grading policies I announced two weeks ago when I sent an email with an attached course syllabus. As you know, we now have a new president and I thought it would be nice to align our class policies with some of the policies he will be implementing over the next four years. These will be changes you can believe in and, I hope, changes that will inspire hope, which is our most important American value.
Previously, I announced that I would use a ten-point grading scale, which means that 90% of 100 is an “A,” 80% is a “B,” 70% is a “C,” and 60% is enough for a passing grade of “D.” I also announced that I will refrain from using a “plus/minus” system – even though the faculty handbook gives me that option.
The new policy I am announcing today is that those who score above 90 on the first exam will have points deducted and given to students at the bottom of the grade distribution. For example, if a student gets a 99, I will then deduct nine points and give them to the person with the lowest grade. If a person scores 95 I will then deduct five points and give them to the person with the second lowest grade. If someone scores 93 I will then deduct three points and give them to the next lowest person. And so on.
My point, rather obviously, is that any points above 90 are really not needed since you have an “A” regardless of whether you score 90 or 99. Nor am I convinced that you need to “save” those points for a rainy day. Those who are failing, however, need the points – not unlike the failing banks and automakers that need money to avoid the danger of bankruptcy.
After our second examination, I intend to take a more complex approach to the practice of grade redistribution. I will not be looking at your second test scores but, instead, at the average of your first two test scores. In the process, I may well decide to start taking some points from students in the “B” range. For example, if someone has an average of 85 after two tests I may take a few points and give them away to someone who is failing or who is in danger of failing. I think this is fair because the person with an 85 average is probably unlikely to climb up to an “A” or fall down to a “C.” I may be wrong in some individual cases but, of course, my principal concern is not the individual.
By the end of the semester I will abandon any formal guidelines and just redistribute points in a way that seems just, or fair, to me. I will not rely upon any standards other than my very strong and passionate feelings concerning social justice. In the process, I will not merely seek to eliminate inequality. I will also seek to eliminate the possibility of failure.
I know some are concerned that my system may impact their lives in a very profound way. Grade redistribution will undoubtedly cause some grade point average redistribution. And this, in turn, will mean that some people will not get into the law school or medical school of their choice. Or maybe some day you will be represented by a lawyer – or operated on by a doctor – who is not of the highest quality.
These are all, of course, legitimate long-term concerns. But I believe we need to remain focused on the short term. I think my new system will immediately help the self-esteem of those failing or in danger of failing. It should also help the self-esteem of those who are not in danger of failing. After all, it just feels good to give – even if the giving is compelled and not really “giving” in the literal sense.
Finally, I want to note that this idea was also inspired by a former presidential candidate named George McGovern. In a debate with the late William F. Buckley, McGovern said that people who earn more money should pay more taxes. Buckley replied that the rich do pay more in taxes – and more as a percentage of their income. McGovern looked confused.
But I don’t think there’s anything confusing about our pending social responsibilities. Whether we are talking about income or grades it does not matter how much or what percentage we are giving. The question is and should always be “Can we give more?”
Thursday, January 29, 2009
Wednesday, January 28, 2009
1/28/2009
Bank stocks on fire this morning are boosting the overall stock market in pre-market computer trading and putting some minor pressure on the bond market. Here comes the 'bad bank'; according to reports the so-called bad bank will be run by FDIC. The purpose; take a lot of the toxic assets off banks books and dump them on tax payers. Once again the little guy takes the pipe. The 'bad bank' idea is yet another ill conceived plan that eventually will be seen as just one more policy mis-step by Obama and previously by Bush. While setting up a bank to buy underwater assets is emerging as a favored approach, it will drive up the cost of the rescue in excess of $1 trillion.
The stock market opened better on the strength of financials. By 9:30 the 10 yr note slipped back to -3/32. Mortgage prices are doing better this morning on the news of a 'bad bank' being created. Taking some of the junk mortgages from banks is providing a momentary boost but it is only temporary unless treasuries can find traction. The 10 yr note is trading at its resistance level at 2.50%, to keep mortgages moving lower the 10 has to crack 2.50%.
Unclogging the credit markets is the front burner problem faced by politicians in Washington. So far there has been no real noticeable progress in opening up the credit markets. The $700B TARP plan has so far been nothing more than a piggy bank for banks to dip into when they need a buck or two. The bad bank looks as if it is gaining momentum as politicians wonder over Washington trying to come up with another plan that may work. It is a bad idea but there isn't much else to try. Paulson's TARP plan hasn't worked, the $825B Obama fiscal stimulus is a very questionable move; try and try again. At the end of all this America's budget deficit (taxpayers) will be so large interest rates will climb like a sky rocket.
A key question for the bad bank would be how to value the toxic assets it would buy. Geithner, in a Jan. 21 hearing before the Senate Finance Committee, outlined three possible alternatives: look at how the market is pricing similar assets; use computer model-based estimates from independent firms; and seek the judgment of bank supervisors. Does any of that hold water? Not in our judgment; the value of the junk can't be quantified using any of Geithner's ideas. Other similar assets? What similar assets? Computer models; models haven't been constructed to deal with the present financial collapse. Judgment of bank supervisors; are these the same supervisors that watched as banks went down?
The MBA mortgage applications index was slammed -38.8 last week with refis crunched -48% and purchasing applications -2.9%. The fixed 30-yr mortgage rate lightened to 5.22% from 5.24% while the 15-yr ran 4.98% frm 4.96% and 1-yr was boosted to 5.96% frm 5.89%. It was the largest decline in the weekly report in 16 yrs and is completely driven by the jump in interest rates.
The FOMC meeting will conclude at 2:15 with the statement. Normally the statement is full of platitudes and crafted to say what the Fed thinks the markets want to hear. What markets want now is some clarification from the Fed at how it will set monetary policy now that interest rates are zero; what deflation levels will worry the Fed; and will the Fed continue to dangle the carrot of buying treasuries to keep interest rates low.
The stock market opened better on the strength of financials. By 9:30 the 10 yr note slipped back to -3/32. Mortgage prices are doing better this morning on the news of a 'bad bank' being created. Taking some of the junk mortgages from banks is providing a momentary boost but it is only temporary unless treasuries can find traction. The 10 yr note is trading at its resistance level at 2.50%, to keep mortgages moving lower the 10 has to crack 2.50%.
Unclogging the credit markets is the front burner problem faced by politicians in Washington. So far there has been no real noticeable progress in opening up the credit markets. The $700B TARP plan has so far been nothing more than a piggy bank for banks to dip into when they need a buck or two. The bad bank looks as if it is gaining momentum as politicians wonder over Washington trying to come up with another plan that may work. It is a bad idea but there isn't much else to try. Paulson's TARP plan hasn't worked, the $825B Obama fiscal stimulus is a very questionable move; try and try again. At the end of all this America's budget deficit (taxpayers) will be so large interest rates will climb like a sky rocket.
A key question for the bad bank would be how to value the toxic assets it would buy. Geithner, in a Jan. 21 hearing before the Senate Finance Committee, outlined three possible alternatives: look at how the market is pricing similar assets; use computer model-based estimates from independent firms; and seek the judgment of bank supervisors. Does any of that hold water? Not in our judgment; the value of the junk can't be quantified using any of Geithner's ideas. Other similar assets? What similar assets? Computer models; models haven't been constructed to deal with the present financial collapse. Judgment of bank supervisors; are these the same supervisors that watched as banks went down?
The MBA mortgage applications index was slammed -38.8 last week with refis crunched -48% and purchasing applications -2.9%. The fixed 30-yr mortgage rate lightened to 5.22% from 5.24% while the 15-yr ran 4.98% frm 4.96% and 1-yr was boosted to 5.96% frm 5.89%. It was the largest decline in the weekly report in 16 yrs and is completely driven by the jump in interest rates.
The FOMC meeting will conclude at 2:15 with the statement. Normally the statement is full of platitudes and crafted to say what the Fed thinks the markets want to hear. What markets want now is some clarification from the Fed at how it will set monetary policy now that interest rates are zero; what deflation levels will worry the Fed; and will the Fed continue to dangle the carrot of buying treasuries to keep interest rates low.
Friday, January 23, 2009
01/22/2009
The long end of curve got hit hard this morning on follow-through from yesterday's technical breakdown; at 11:00 this morning the mortgage market prices were off as much as 12/32 and the 10 yr note yield had popped up to 2.64% frm 2.54% yesterday. This afternoon some rebound on the 10 yr and mortgages. Technically, the Fannie 30 yr has managed to sustain its 40 day MA, the 10 yr however, both the yield and futures contract have broken their respective 40 day averages.
We have been talking about supply adding pressure to the treasury markets, this afternoon Treasury announced it will sell record amounts of 2s & 5s ($40B next Tues and $30B next Thurs, respectively) with $29B 3-months and $28B 6-months Mon. Rounding things out will be $8B 20-yr TIPS next Mon. Supply pressures from massive borrowings will continue to be pressure points for treasuries through the remainder of this year and well into 2010.
Investors are turning away from treasuries and moving to high grade corporates, but will likely stay away from MBSs with the outlook still bleak for the housing markets and valuations. After being sucked in by Wall Street and those now about defunct banks on sub primes and other non-traditional mortgages (Alt A, interest only, option ARMS, etc). the MBS market is fried and investors see it as folly at the moment. The basis for the still hard to believe sub prime market was that property values would continue to increase 10% to 20% a year for years. One of the most ill-conceived thoughts ever believed; if that premise had any real credibility no one in the US except Warren Buffet and Bill Gates would be able to buy a home in 10 yrs---starter homes at $400K in the heartland. Who stopped to think? No one apparently, we did but by the time we got the picture the game was almost over.
This morning the weekly MBA mortgage applications index went down 9.8% last week with refis slumping 12.4% and purchasing applications up 2.5%. The fixed 30-yr mortgage rate lightened to 5.24% (-18 basis point) while the 15-yr dipped to 4.99% (-3 BPs) and the 1-yr adjustable rate mortgages dropped to 5.22% (-17 BPs). MBA, Freddie and Fannie use different days of the week to calculate the weekly changes. The average rate for a 30-year fixed-rate mortgage jumped back above 5% to 5.12% during the week ended Jan. 22, according to Freddie Mac.
BofA got another $138B from the government when Merrill announced a $15+B loss for the quarter. John Thain, CEO of Merrill got the axe as facing saving was the name of the game for Ken Lewis, CEO of BofA. The bank took over Merrill with the help of government money, but BofA apparently didn't do its home work, or Thain mis-represented the numbers and outlook. Either way, Lewis is on the hot seat. Yesterday in a show of confidence and to deflect criticism over his management Lewis bought some BofA stock and saw share price increase 23%, today down 11%.
No economic reports tomorrow. Next week on Wednesday the FOMC meets; the first with a new Pres and new Treasury Sec. Since the last FOMC meeting the economy has been deteriorating at a more rapid pace, Obama is about to launch his stimulus package. Bernanke is buying mortgages as previously announced. Will the Fed be successful in jaw-boning against the recent increase in rates? Between now and the statement next Wed afternoon markets will likely chop with not much change from where they trade now.
We have been talking about supply adding pressure to the treasury markets, this afternoon Treasury announced it will sell record amounts of 2s & 5s ($40B next Tues and $30B next Thurs, respectively) with $29B 3-months and $28B 6-months Mon. Rounding things out will be $8B 20-yr TIPS next Mon. Supply pressures from massive borrowings will continue to be pressure points for treasuries through the remainder of this year and well into 2010.
Investors are turning away from treasuries and moving to high grade corporates, but will likely stay away from MBSs with the outlook still bleak for the housing markets and valuations. After being sucked in by Wall Street and those now about defunct banks on sub primes and other non-traditional mortgages (Alt A, interest only, option ARMS, etc). the MBS market is fried and investors see it as folly at the moment. The basis for the still hard to believe sub prime market was that property values would continue to increase 10% to 20% a year for years. One of the most ill-conceived thoughts ever believed; if that premise had any real credibility no one in the US except Warren Buffet and Bill Gates would be able to buy a home in 10 yrs---starter homes at $400K in the heartland. Who stopped to think? No one apparently, we did but by the time we got the picture the game was almost over.
This morning the weekly MBA mortgage applications index went down 9.8% last week with refis slumping 12.4% and purchasing applications up 2.5%. The fixed 30-yr mortgage rate lightened to 5.24% (-18 basis point) while the 15-yr dipped to 4.99% (-3 BPs) and the 1-yr adjustable rate mortgages dropped to 5.22% (-17 BPs). MBA, Freddie and Fannie use different days of the week to calculate the weekly changes. The average rate for a 30-year fixed-rate mortgage jumped back above 5% to 5.12% during the week ended Jan. 22, according to Freddie Mac.
BofA got another $138B from the government when Merrill announced a $15+B loss for the quarter. John Thain, CEO of Merrill got the axe as facing saving was the name of the game for Ken Lewis, CEO of BofA. The bank took over Merrill with the help of government money, but BofA apparently didn't do its home work, or Thain mis-represented the numbers and outlook. Either way, Lewis is on the hot seat. Yesterday in a show of confidence and to deflect criticism over his management Lewis bought some BofA stock and saw share price increase 23%, today down 11%.
No economic reports tomorrow. Next week on Wednesday the FOMC meets; the first with a new Pres and new Treasury Sec. Since the last FOMC meeting the economy has been deteriorating at a more rapid pace, Obama is about to launch his stimulus package. Bernanke is buying mortgages as previously announced. Will the Fed be successful in jaw-boning against the recent increase in rates? Between now and the statement next Wed afternoon markets will likely chop with not much change from where they trade now.
Thursday, January 15, 2009
1/15/2009
Three economic readings at 8:30 put a slight bit of pressure on treasury and mortgage prices, but not much. Prior to 8:30 data the 10 yr note and mortgage prices were slightly better, but again not much. The stock index futures trading was about unchanged after 8:30 news. By 9:30 treasuries and mortgages were trading better as the equity markets opened weaker with the DJIA down 90 points in the first 15 minutes of trading.
Weekly jobless claims were expected to be up about 30K, we were looking for a 60K increase; claims were reported up 54K, continuing claims however were down to 4.5 mil from 4.6 mil last week and the 4 week average declined a little. Traders tend to watch the continuing claims these days. Next up; the Fed's NY Empire State manufacturing report. The overall index improved a little but from very bearish readings to -22.2 frm -27.8 in Dec, new orders component to -22.8 frm -23.5, employment component to -26.14 frm -23.4 and the price component to -18.8 frm -7.5 in Dec. Overall fractionally better. Finally at 8:30 Dec PPI; the overall was right on target at -1.9% and the core (ex food and energy) +0.2%.
Taken together the three reports had very little impact on interest rate markets. At 10:00 the final data of the day; the Philadelphia Fed business index. The Philly data has more teeth as it covers a wider NE region the the NY Empire State. The overall index was expected at -35.0, it hit at -24.3 frm -36.1 in Dec; new orders at -28.2 frm -22.3, prices pd at -25.5 frm -27.0, and employment at -28.6 frm -39.0. Somewhat better but still showing huge declines in the region. The stock market wasn't impressed and fell further after the 10:00 release.
The ECB cut its base rate this morning, from 2.50% to 2.0%. It was expected as Europe's economies are sliding as fast as here in the US. ECB's Trichet in the past had not been in favor of more rate cuts but had to face the reality; the bank will have to step up again in Feb.
The stock market opened weaker at 9:30; the remainder of the day for the rate markets will be watching stocks. A rebound in stocks will keep interest rate markets from improving; one the other hand a big hit similar to yesterday in the stock market (-248 on the DJIA) will keep safe haven moves into treasuries. Mortgage prices are stuck in a very narrow range and not likely to break into any big moves in either direction without more direct stimulus or favorable announcements from the Fed or Treasury.
RealtyTrac reported this morning foreclosures in 2008 were up 81% from 2007. No end in sight; the various modification plans to stem the tide have had only very marginal impact on foreclosures.
Crude oil is falling this morning, down $2.00. Gold about unchanged; the dollar better against the euro.
Money continues to chase safety and yield, moving to the longer end of the curve. The mortgage markets are not getting much lift with the housing markets continuing to erode. As long as the economy continues to decline investors won't buy mortgages, even with yields much better and loans currently being originated being substantially better risks than the junk originated in the past. Not only are mortgages not in favor, the spread between high grade corporate bonds and treasuries is widening implying investors want security not yield.
Weekly jobless claims were expected to be up about 30K, we were looking for a 60K increase; claims were reported up 54K, continuing claims however were down to 4.5 mil from 4.6 mil last week and the 4 week average declined a little. Traders tend to watch the continuing claims these days. Next up; the Fed's NY Empire State manufacturing report. The overall index improved a little but from very bearish readings to -22.2 frm -27.8 in Dec, new orders component to -22.8 frm -23.5, employment component to -26.14 frm -23.4 and the price component to -18.8 frm -7.5 in Dec. Overall fractionally better. Finally at 8:30 Dec PPI; the overall was right on target at -1.9% and the core (ex food and energy) +0.2%.
Taken together the three reports had very little impact on interest rate markets. At 10:00 the final data of the day; the Philadelphia Fed business index. The Philly data has more teeth as it covers a wider NE region the the NY Empire State. The overall index was expected at -35.0, it hit at -24.3 frm -36.1 in Dec; new orders at -28.2 frm -22.3, prices pd at -25.5 frm -27.0, and employment at -28.6 frm -39.0. Somewhat better but still showing huge declines in the region. The stock market wasn't impressed and fell further after the 10:00 release.
The ECB cut its base rate this morning, from 2.50% to 2.0%. It was expected as Europe's economies are sliding as fast as here in the US. ECB's Trichet in the past had not been in favor of more rate cuts but had to face the reality; the bank will have to step up again in Feb.
The stock market opened weaker at 9:30; the remainder of the day for the rate markets will be watching stocks. A rebound in stocks will keep interest rate markets from improving; one the other hand a big hit similar to yesterday in the stock market (-248 on the DJIA) will keep safe haven moves into treasuries. Mortgage prices are stuck in a very narrow range and not likely to break into any big moves in either direction without more direct stimulus or favorable announcements from the Fed or Treasury.
RealtyTrac reported this morning foreclosures in 2008 were up 81% from 2007. No end in sight; the various modification plans to stem the tide have had only very marginal impact on foreclosures.
Crude oil is falling this morning, down $2.00. Gold about unchanged; the dollar better against the euro.
Money continues to chase safety and yield, moving to the longer end of the curve. The mortgage markets are not getting much lift with the housing markets continuing to erode. As long as the economy continues to decline investors won't buy mortgages, even with yields much better and loans currently being originated being substantially better risks than the junk originated in the past. Not only are mortgages not in favor, the spread between high grade corporate bonds and treasuries is widening implying investors want security not yield.
Wednesday, January 14, 2009
1/14/2009
Another blow to the broker industry. JPMorgan Chase & Co. is closing down its remaining wholesale channel and will no longer offer prime mortgages through brokers, the New York banking company said Tuesday. Spokeswoman Christine Holevas said in an interview with American Banker Tuesday that JPMorgan Chase had made a "strategic decision" to "no longer purchase loans originated by brokers." The company will instead focus on direct-to-consumer originations, especially though its branches. The retail branch origination channel "has been a very, very successful channel for us," she said. "Customers like to work directly with their mortgage officers, and we have found that default rates are significantly lower." JPMorgan Chase's purchase of Washington Mutual Inc. last year, which bulked up its branch network to more than 5,000, also contributed to the decision to focus on direct originations through retail mortgage and branch locations, Ms. Holevas said. This is the final step away from wholesale originations for JPMorgan Chase, which spent last year unwinding itself from that channel. It stopped offering subprime and home equity loans through third-party brokers in May, and stopped offering nonagency jumbo mortgages in August. And in September, JPMorgan Chase announced plans to close four of its eight wholesale mortgage operations centers by the end of the year. Up to 800 employees may be eliminated along with the channel, although Ms. Holevas said, "We don't think it's going to be that" drastic because of a spike in refinance applications. Because JPMorgan Chase's refinanced mortgages have nearly tripled, "we need underwriters" and others, she said. "We're redeploying talent." She said the shutdown would take time to "wind its way through" the company and did not immediately know when it would be fully effective. She would not discuss facilities, including the fate of the four remaining wholesale mortgage operations centers, which JPMorgan Chase said in September would be enlarged "to absorb processing from" the closed ones. (Nat'l Mtg News)
“Fiscal actions are unlikely to promote a lasting recovery unless they are accompanied by strong measures to further stabilize and strengthen the financial system,” .....Bernanke in his speech at the London Scholl of Economics this morning. As we have noted stimulus package may have some benefit but not enough to turn the sinking ship around. Fiscal stimulus sounds good, and it is necessary but until the banks are cleaned up and functioning normally the economy can't make the turn.
The Fed chairman is realizing that the TARP money ($700B) has been directed in the wrong way, also as we have suggested here. The government has to buy or guarantee the "assets" sitting on the banks books that are in any other way is deeply under water and keeping banks from moving forward. Some are thinking Bernanke's remarks in his speech was his way of trying to influence Congress to use the rest of the TARP funds ($350B) to buy or in some manner remove the junk from banks' balance sheets. The government could agree to absorb, in exchange for warrants or a fee, part of the losses on a specified portfolio of troubled assets. Regulators used that method recently with their bailout of Citigroup Inc.
In another speech today, Fed Vice chair Kohn added his thoughts; use the rest of the TARP money to reduce foreclosures, help revive credit markets and continue direct aid to banks. “Although a number of efforts are under way to address the problem of preventable foreclosures, more needs to be done,” Kohn said in testimony prepared for a House Financial Services Committee hearing.
Although we deem the remarks today as significant; the Fed sounds like it is increasing its concern and coming out swinging instead of too little too late and in the wrong places that have marked Paulson's moves thus far, there has been little movement in the bond or mortgage markets all day.
Tomorrow Dec retail sales at 8:30; expectations are for sales to have declined 1.1% and when autos are extracted, down 1.2%. Nov business inventories are seen at -0.5%. Dec import and export prices are also out at 8:30 along with retail sales. Being Wed the weekly MBA mortgage applications and weekly crude oil inventories will be reported, (7:00 AM and 10:35 respectively).
Crude oil moved higher today after seeing strong selling in the past week. Crude was at $37.50 yesterday, back to its recent low levels at $36.50.
Bernanke's comments today, along with recent comments from Barney Frank, add more conviction that there is increasing momentum to get the housing sector moving with lower mortgage rates. What isn't being addressed outwardly is the huge fee pile-on that agencies, MIs and wholesalers are doing to offset the markets' moves to those lower rates.
“Fiscal actions are unlikely to promote a lasting recovery unless they are accompanied by strong measures to further stabilize and strengthen the financial system,” .....Bernanke in his speech at the London Scholl of Economics this morning. As we have noted stimulus package may have some benefit but not enough to turn the sinking ship around. Fiscal stimulus sounds good, and it is necessary but until the banks are cleaned up and functioning normally the economy can't make the turn.
The Fed chairman is realizing that the TARP money ($700B) has been directed in the wrong way, also as we have suggested here. The government has to buy or guarantee the "assets" sitting on the banks books that are in any other way is deeply under water and keeping banks from moving forward. Some are thinking Bernanke's remarks in his speech was his way of trying to influence Congress to use the rest of the TARP funds ($350B) to buy or in some manner remove the junk from banks' balance sheets. The government could agree to absorb, in exchange for warrants or a fee, part of the losses on a specified portfolio of troubled assets. Regulators used that method recently with their bailout of Citigroup Inc.
In another speech today, Fed Vice chair Kohn added his thoughts; use the rest of the TARP money to reduce foreclosures, help revive credit markets and continue direct aid to banks. “Although a number of efforts are under way to address the problem of preventable foreclosures, more needs to be done,” Kohn said in testimony prepared for a House Financial Services Committee hearing.
Although we deem the remarks today as significant; the Fed sounds like it is increasing its concern and coming out swinging instead of too little too late and in the wrong places that have marked Paulson's moves thus far, there has been little movement in the bond or mortgage markets all day.
Tomorrow Dec retail sales at 8:30; expectations are for sales to have declined 1.1% and when autos are extracted, down 1.2%. Nov business inventories are seen at -0.5%. Dec import and export prices are also out at 8:30 along with retail sales. Being Wed the weekly MBA mortgage applications and weekly crude oil inventories will be reported, (7:00 AM and 10:35 respectively).
Crude oil moved higher today after seeing strong selling in the past week. Crude was at $37.50 yesterday, back to its recent low levels at $36.50.
Bernanke's comments today, along with recent comments from Barney Frank, add more conviction that there is increasing momentum to get the housing sector moving with lower mortgage rates. What isn't being addressed outwardly is the huge fee pile-on that agencies, MIs and wholesalers are doing to offset the markets' moves to those lower rates.
Tuesday, January 13, 2009
Monday
1/13/2009
No economic releases to think about today, but this week does have a lot to look at, mostly confirming weakness in the economy (nothing new). At 9:00 this morning treasuries were trading weaker in price, 30 yr mortgage prices were down 9/32 frm Friday;s close but 15 mtg prices traded better, +5/32 frm Friday. (see below for 10:00 levels).
The Obama stimulus package is not yet finalized but markets are slightly more positive that it will help, and is motivating a very slight increase in investors' willingness to accept a little more risk. More talk from traders that market fact but if investor appetite for risk increases a little the demand for low rate treasuries will lessen and pressure treasury rates higher. So far though there is no hard market evidence investors are ready to dump treasuries in favor of mortgages and/or corporate bonds. What we do see is that recent market action isn't as aggressive in buying treasuries as in the past few months. The 10 yr note yield is trading in a 10 basis point range between 2.40% and 2.50% for the past week while mortgage rates have declined a little.
Q4 earnings are starting to dribble out; this week earnings will grab most of the attention in the equity markets with some sighs of pain and some positive surprises mixed in. The market is expecting the worst on any economic news so it won't take a lot to get a stock market bounce if we see some better than expected earnings, conversely worse than expected news is mostly baked in the cake. The stock market is too bullish at these levels in our judgment.
This week's Economic calendar:
Monday; (no releases)
Tuesday;
2:00 Dec Treasury balance ($33.0B)
Wednesday;
7:00 weekly MBA mortgage applications
8:30 Dec import and export prices (N/A)
Dec retail sales (-1.1%; ex auto sales -1.2%)
10:00 Nov business inventories (-0.5%)
2:00 Fed Beige Book (Fed's details on the economy)
Thursday;
8:30 Dec PPI -1.9%; ex food and energy components +0.1%)
Weekly jobless claims (+33K to 500K)
NY Empire State manufacturing index (-25.0 frm -25.8 in Dec)
10:00 Jan Philadelphia Fed business index (-35.0 frm -32.9 in Dec)
Friday;
8:30 Dec CPI (-.10%, ex food and energy +0.1%)
9:15 Dec Industrial production (-0.8%)
Dec factory usage (74.7% frm 75.4 in Nov)
9:55 U. of Michigan consumer sentiment index (60.0 frm 60.1 at the end of Dec)
2:00 Bond and Mortgage markets close early ahead of Monday's MLK holiday
Mortgage interest rates declined last week with the Fed stepping up and bought its first clump of MBSs from Fannie and Freddie as part of the $500B purchase of MBSs previously announced (last Nov). This morning some minor retreat but still holding rates in the high 4s and low 5s. The MBS markets remain unsettled and not functioning well. Wholesalers are moving in and out with pricing either aggressive or restrictive depending on their volume flows. With most wholesalers now out of the business those left are fighting volume flows when the mortgage markets rally hard as they did last Monday and Tuesday.
The FOMC in the minutes from the Dec 15-16 FOMC meeting, which were released last week, detailed the dismal state of the US economy and effectively promised to maintain extremely low interest rates for an extended period of time. The FOMC also said it is considering expanding its current liquidity programs and is considering explicit quantitative easing through the purchase of large quantities of longer-term Treasury securities.
No economic releases to think about today, but this week does have a lot to look at, mostly confirming weakness in the economy (nothing new). At 9:00 this morning treasuries were trading weaker in price, 30 yr mortgage prices were down 9/32 frm Friday;s close but 15 mtg prices traded better, +5/32 frm Friday. (see below for 10:00 levels).
The Obama stimulus package is not yet finalized but markets are slightly more positive that it will help, and is motivating a very slight increase in investors' willingness to accept a little more risk. More talk from traders that market fact but if investor appetite for risk increases a little the demand for low rate treasuries will lessen and pressure treasury rates higher. So far though there is no hard market evidence investors are ready to dump treasuries in favor of mortgages and/or corporate bonds. What we do see is that recent market action isn't as aggressive in buying treasuries as in the past few months. The 10 yr note yield is trading in a 10 basis point range between 2.40% and 2.50% for the past week while mortgage rates have declined a little.
Q4 earnings are starting to dribble out; this week earnings will grab most of the attention in the equity markets with some sighs of pain and some positive surprises mixed in. The market is expecting the worst on any economic news so it won't take a lot to get a stock market bounce if we see some better than expected earnings, conversely worse than expected news is mostly baked in the cake. The stock market is too bullish at these levels in our judgment.
This week's Economic calendar:
Monday; (no releases)
Tuesday;
2:00 Dec Treasury balance ($33.0B)
Wednesday;
7:00 weekly MBA mortgage applications
8:30 Dec import and export prices (N/A)
Dec retail sales (-1.1%; ex auto sales -1.2%)
10:00 Nov business inventories (-0.5%)
2:00 Fed Beige Book (Fed's details on the economy)
Thursday;
8:30 Dec PPI -1.9%; ex food and energy components +0.1%)
Weekly jobless claims (+33K to 500K)
NY Empire State manufacturing index (-25.0 frm -25.8 in Dec)
10:00 Jan Philadelphia Fed business index (-35.0 frm -32.9 in Dec)
Friday;
8:30 Dec CPI (-.10%, ex food and energy +0.1%)
9:15 Dec Industrial production (-0.8%)
Dec factory usage (74.7% frm 75.4 in Nov)
9:55 U. of Michigan consumer sentiment index (60.0 frm 60.1 at the end of Dec)
2:00 Bond and Mortgage markets close early ahead of Monday's MLK holiday
Mortgage interest rates declined last week with the Fed stepping up and bought its first clump of MBSs from Fannie and Freddie as part of the $500B purchase of MBSs previously announced (last Nov). This morning some minor retreat but still holding rates in the high 4s and low 5s. The MBS markets remain unsettled and not functioning well. Wholesalers are moving in and out with pricing either aggressive or restrictive depending on their volume flows. With most wholesalers now out of the business those left are fighting volume flows when the mortgage markets rally hard as they did last Monday and Tuesday.
The FOMC in the minutes from the Dec 15-16 FOMC meeting, which were released last week, detailed the dismal state of the US economy and effectively promised to maintain extremely low interest rates for an extended period of time. The FOMC also said it is considering expanding its current liquidity programs and is considering explicit quantitative easing through the purchase of large quantities of longer-term Treasury securities.
Wednesday, January 7, 2009
Wednesday
1/7/2009
At 9:00 this morning treasuries were trading weaker, mortgage prices were down 4/32 frm Tuesday's close. The stock index futures markets were lower pointing to a soft open at 9:30. Some perspective; from 9:00 yesterday to 9:00 this morning mortgage prices were up 21/32. Yesterday mortgages improved 35/32 frm the close on Monday. A good day no matter what time frame you use. By 10:00 mortgage prices are about unchanged on the day. (see below for 10:00 prices).
The ADP Dec employment report was out at 8:15 this morning, a shocker; ADP estimates are non-farm jobs declined by 693K in the month. ADP includes only private employment and does not take into account hiring by government agencies, which is included in the monthly payroll report issued by the Bureau of Labor Statistics that will hit on Friday. The estimates from economists for the BLS report is a loss of 500K jobs when government payrolls are added in. ADP data has been revised to more closely reflect the BLS data, we'll see on Friday. No matter the number, the job losses will be severe. Employers are cutting jobs rapidly as the recession deepens and expectations increase that the recession will last longer and more severe than earlier thought. The ADP data is sending stock indexes lower this morning.
The FOMC minutes released yesterday indicated the Fed has increased its length on the recession to well into 2010. As noted in the 4:30 report yesterday, the Fed is also beginning to be concerned that deflationary pressures may be increasing as consumers and businesses continue to resist spending, sending all prices (except oil) lower. Deflation in prices, if continued, keep consumers and businesses from spending on the perception next month prices will be better----and it goes on and on. The Fed wants some inflation and the economic recovery needs it; the Fed's target is a 1.0% annual inflation rate. Fed officials discussed providing “a more explicit indication of their views on what longer-run rate of inflation would best promote their goals of maximum employment and price stability,” the minutes said. Such a target may “help forestall the development of expectations that inflation would decline below desired levels, and hence keep real interest rates low.”
The latest weekly MBA mortgage applications fell -8.2% with the purchase index increasing +7.3% while the refinancing index declined -12.3%. The 30-year fixed mortgage rate in the latest week (the week ended Dec 25) fell another 5 BP to a new record low of 5.14%. That is down by 132 BP from the 4-month high of 6.46% posted as recently as the end of October. US mortgage rates have fallen sharply in the past two months following the Fed’s announcement of a $600 billion program to buy mortgage securities to help grease the pipeline of mortgage funding and also to buy the debt of Fannie Mae and Freddie Mac to reduce their financing costs.
Next up; at 1:00 this afternoon Treasury will auction a record $30B of 3 yr notes. With $16B of 10 yr notes hitting tomorrow markets will be focused on the demand for the 3 yr. While we don't draw direct conclusions comparing short rates to longer dated maturities, nevertheless markets will take note of today's demand measuring investors' continuing concerns on safe haven desires.
Volatility remains high for treasuries and mortgage prices and rates. Although we continue to expect lower mortgage rates, we also remain somewhat skeptical that 30 yr fixed rates will fall to 4.5%. The concern is that if longer term treasury rates continue to increase the pull against lower mortgage rates may keep investors away from mortgage rates that fall much below 5.00%. On the other side of it however, if the Fed increases its buying of MBSs from the agencies (more than the $500B already announced) mortgage rates would likely decline, possibly to that 4.5% level that has become the anticipated target consumers are expecting.
Treasuries and mortgages are trading weaker in early activity this morning. Mtg prices are trading 1/32 lower this morning, but still up 23/32 frm 10:00 yesterday. Pricing of mortgages to originators is becoming difficult as wholesalers struggle with less staff and fears of volatile markets. With many lenders having left the business the existing buyers of mortgages are seeing volume that they can't handle; it happened yesterday with one of the biggest wholesalers. As rates decline volume is surging forcing wild price changes that have little to do with the actual MBS trading in the markets.
At 9:00 this morning treasuries were trading weaker, mortgage prices were down 4/32 frm Tuesday's close. The stock index futures markets were lower pointing to a soft open at 9:30. Some perspective; from 9:00 yesterday to 9:00 this morning mortgage prices were up 21/32. Yesterday mortgages improved 35/32 frm the close on Monday. A good day no matter what time frame you use. By 10:00 mortgage prices are about unchanged on the day. (see below for 10:00 prices).
The ADP Dec employment report was out at 8:15 this morning, a shocker; ADP estimates are non-farm jobs declined by 693K in the month. ADP includes only private employment and does not take into account hiring by government agencies, which is included in the monthly payroll report issued by the Bureau of Labor Statistics that will hit on Friday. The estimates from economists for the BLS report is a loss of 500K jobs when government payrolls are added in. ADP data has been revised to more closely reflect the BLS data, we'll see on Friday. No matter the number, the job losses will be severe. Employers are cutting jobs rapidly as the recession deepens and expectations increase that the recession will last longer and more severe than earlier thought. The ADP data is sending stock indexes lower this morning.
The FOMC minutes released yesterday indicated the Fed has increased its length on the recession to well into 2010. As noted in the 4:30 report yesterday, the Fed is also beginning to be concerned that deflationary pressures may be increasing as consumers and businesses continue to resist spending, sending all prices (except oil) lower. Deflation in prices, if continued, keep consumers and businesses from spending on the perception next month prices will be better----and it goes on and on. The Fed wants some inflation and the economic recovery needs it; the Fed's target is a 1.0% annual inflation rate. Fed officials discussed providing “a more explicit indication of their views on what longer-run rate of inflation would best promote their goals of maximum employment and price stability,” the minutes said. Such a target may “help forestall the development of expectations that inflation would decline below desired levels, and hence keep real interest rates low.”
The latest weekly MBA mortgage applications fell -8.2% with the purchase index increasing +7.3% while the refinancing index declined -12.3%. The 30-year fixed mortgage rate in the latest week (the week ended Dec 25) fell another 5 BP to a new record low of 5.14%. That is down by 132 BP from the 4-month high of 6.46% posted as recently as the end of October. US mortgage rates have fallen sharply in the past two months following the Fed’s announcement of a $600 billion program to buy mortgage securities to help grease the pipeline of mortgage funding and also to buy the debt of Fannie Mae and Freddie Mac to reduce their financing costs.
Next up; at 1:00 this afternoon Treasury will auction a record $30B of 3 yr notes. With $16B of 10 yr notes hitting tomorrow markets will be focused on the demand for the 3 yr. While we don't draw direct conclusions comparing short rates to longer dated maturities, nevertheless markets will take note of today's demand measuring investors' continuing concerns on safe haven desires.
Volatility remains high for treasuries and mortgage prices and rates. Although we continue to expect lower mortgage rates, we also remain somewhat skeptical that 30 yr fixed rates will fall to 4.5%. The concern is that if longer term treasury rates continue to increase the pull against lower mortgage rates may keep investors away from mortgage rates that fall much below 5.00%. On the other side of it however, if the Fed increases its buying of MBSs from the agencies (more than the $500B already announced) mortgage rates would likely decline, possibly to that 4.5% level that has become the anticipated target consumers are expecting.
Treasuries and mortgages are trading weaker in early activity this morning. Mtg prices are trading 1/32 lower this morning, but still up 23/32 frm 10:00 yesterday. Pricing of mortgages to originators is becoming difficult as wholesalers struggle with less staff and fears of volatile markets. With many lenders having left the business the existing buyers of mortgages are seeing volume that they can't handle; it happened yesterday with one of the biggest wholesalers. As rates decline volume is surging forcing wild price changes that have little to do with the actual MBS trading in the markets.
Wednesday
1/07/2009
At 9:00 this morning treasuries were trading weaker, mortgage prices were down 4/32 frm Tuesday's close. The stock index futures markets were lower pointing to a soft open at 9:30. Some perspective; from 9:00 yesterday to 9:00 this morning mortgage prices were up 21/32. Yesterday mortgages improved 35/32 frm the close on Monday. A good day no matter what time frame you use. By 10:00 mortgage prices are about unchanged on the day. (see below for 10:00 prices).
The ADP Dec employment report was out at 8:15 this morning, a shocker; ADP estimates are non-farm jobs declined by 693K in the month. ADP includes only private employment and does not take into account hiring by government agencies, which is included in the monthly payroll report issued by the Bureau of Labor Statistics that will hit on Friday. The estimates from economists for the BLS report is a loss of 500K jobs when government payrolls are added in. ADP data has been revised to more closely reflect the BLS data, we'll see on Friday. No matter the number, the job losses will be severe. Employers are cutting jobs rapidly as the recession deepens and expectations increase that the recession will last longer and more severe than earlier thought. The ADP data is sending stock indexes lower this morning.
The FOMC minutes released yesterday indicated the Fed has increased its length on the recession to well into 2010. As noted in the 4:30 report yesterday, the Fed is also beginning to be concerned that deflationary pressures may be increasing as consumers and businesses continue to resist spending, sending all prices (except oil) lower. Deflation in prices, if continued, keep consumers and businesses from spending on the perception next month prices will be better----and it goes on and on. The Fed wants some inflation and the economic recovery needs it; the Fed's target is a 1.0% annual inflation rate. Fed officials discussed providing “a more explicit indication of their views on what longer-run rate of inflation would best promote their goals of maximum employment and price stability,” the minutes said. Such a target may “help forestall the development of expectations that inflation would decline below desired levels, and hence keep real interest rates low.”
The latest weekly MBA mortgage applications fell -8.2% with the purchase index increasing +7.3% while the refinancing index declined -12.3%. The 30-year fixed mortgage rate in the latest week (the week ended Dec 25) fell another 5 BP to a new record low of 5.14%. That is down by 132 BP from the 4-month high of 6.46% posted as recently as the end of October. US mortgage rates have fallen sharply in the past two months following the Fed’s announcement of a $600 billion program to buy mortgage securities to help grease the pipeline of mortgage funding and also to buy the debt of Fannie Mae and Freddie Mac to reduce their financing costs.
Next up; at 1:00 this afternoon Treasury will auction a record $30B of 3 yr notes. With $16B of 10 yr notes hitting tomorrow markets will be focused on the demand for the 3 yr. While we don't draw direct conclusions comparing short rates to longer dated maturities, nevertheless markets will take note of today's demand measuring investors' continuing concerns on safe haven desires.
Volatility remains high for treasuries and mortgage prices and rates. Although we continue to expect lower mortgage rates, we also remain somewhat skeptical that 30 yr fixed rates will fall to 4.5%. The concern is that if longer term treasury rates continue to increase the pull against lower mortgage rates may keep investors away from mortgage rates that fall much below 5.00%. On the other side of it however, if the Fed increases its buying of MBSs from the agencies (more than the $500B already announced) mortgage rates would likely decline, possibly to that 4.5% level that has become the anticipated target consumers are expecting.
Treasuries and mortgages are trading weaker in early activity this morning. Mtg prices are trading 1/32 lower this morning, but still up 23/32 frm 10:00 yesterday. Pricing of mortgages to originators is becoming difficult as wholesalers struggle with less staff and fears of volatile markets. With many lenders having left the business the existing buyers of mortgages are seeing volume that they can't handle; it happened yesterday with one of the biggest wholesalers. As rates decline volume is surging forcing wild price changes that have little to do with the actual MBS trading in the markets.
At 9:00 this morning treasuries were trading weaker, mortgage prices were down 4/32 frm Tuesday's close. The stock index futures markets were lower pointing to a soft open at 9:30. Some perspective; from 9:00 yesterday to 9:00 this morning mortgage prices were up 21/32. Yesterday mortgages improved 35/32 frm the close on Monday. A good day no matter what time frame you use. By 10:00 mortgage prices are about unchanged on the day. (see below for 10:00 prices).
The ADP Dec employment report was out at 8:15 this morning, a shocker; ADP estimates are non-farm jobs declined by 693K in the month. ADP includes only private employment and does not take into account hiring by government agencies, which is included in the monthly payroll report issued by the Bureau of Labor Statistics that will hit on Friday. The estimates from economists for the BLS report is a loss of 500K jobs when government payrolls are added in. ADP data has been revised to more closely reflect the BLS data, we'll see on Friday. No matter the number, the job losses will be severe. Employers are cutting jobs rapidly as the recession deepens and expectations increase that the recession will last longer and more severe than earlier thought. The ADP data is sending stock indexes lower this morning.
The FOMC minutes released yesterday indicated the Fed has increased its length on the recession to well into 2010. As noted in the 4:30 report yesterday, the Fed is also beginning to be concerned that deflationary pressures may be increasing as consumers and businesses continue to resist spending, sending all prices (except oil) lower. Deflation in prices, if continued, keep consumers and businesses from spending on the perception next month prices will be better----and it goes on and on. The Fed wants some inflation and the economic recovery needs it; the Fed's target is a 1.0% annual inflation rate. Fed officials discussed providing “a more explicit indication of their views on what longer-run rate of inflation would best promote their goals of maximum employment and price stability,” the minutes said. Such a target may “help forestall the development of expectations that inflation would decline below desired levels, and hence keep real interest rates low.”
The latest weekly MBA mortgage applications fell -8.2% with the purchase index increasing +7.3% while the refinancing index declined -12.3%. The 30-year fixed mortgage rate in the latest week (the week ended Dec 25) fell another 5 BP to a new record low of 5.14%. That is down by 132 BP from the 4-month high of 6.46% posted as recently as the end of October. US mortgage rates have fallen sharply in the past two months following the Fed’s announcement of a $600 billion program to buy mortgage securities to help grease the pipeline of mortgage funding and also to buy the debt of Fannie Mae and Freddie Mac to reduce their financing costs.
Next up; at 1:00 this afternoon Treasury will auction a record $30B of 3 yr notes. With $16B of 10 yr notes hitting tomorrow markets will be focused on the demand for the 3 yr. While we don't draw direct conclusions comparing short rates to longer dated maturities, nevertheless markets will take note of today's demand measuring investors' continuing concerns on safe haven desires.
Volatility remains high for treasuries and mortgage prices and rates. Although we continue to expect lower mortgage rates, we also remain somewhat skeptical that 30 yr fixed rates will fall to 4.5%. The concern is that if longer term treasury rates continue to increase the pull against lower mortgage rates may keep investors away from mortgage rates that fall much below 5.00%. On the other side of it however, if the Fed increases its buying of MBSs from the agencies (more than the $500B already announced) mortgage rates would likely decline, possibly to that 4.5% level that has become the anticipated target consumers are expecting.
Treasuries and mortgages are trading weaker in early activity this morning. Mtg prices are trading 1/32 lower this morning, but still up 23/32 frm 10:00 yesterday. Pricing of mortgages to originators is becoming difficult as wholesalers struggle with less staff and fears of volatile markets. With many lenders having left the business the existing buyers of mortgages are seeing volume that they can't handle; it happened yesterday with one of the biggest wholesalers. As rates decline volume is surging forcing wild price changes that have little to do with the actual MBS trading in the markets.
1/7/2009
The mortgage markets were the runaway winners today as mortgage rates for 30 yr fixed conforming loans in some areas hit 4.875% with a point origination. The mortgage markets continue to see interest in MBSs now that the Fed has actually started buying them. That said, the mortgage markets are still not functioning well and wholesalers are trying to control the flow by worsening prices at times when there is no direct market reason for it. How much lower will rates fall? We have been reluctant to jump on the 4.5% bandwagon that many are still waiting for, but with the Fed in the game, if it wants to it can get rates to that level and maybe lower. Right now, just buying $500B in MBSs from the agencies isn't enough to get to that 4.5% level. Furthermore, if treasury yields increase investors will go there if the spread between the 30 yr MBSs and the 10 yr note begins to narrow too much---what that level would be is impossible to speculate now.
The FOMC minutes from the Dec 16th meeting were released this afternoon. The most noticeable in the minutes; the Fed's concerns that inflation levels might fall below what the Fed needs to support the economic growth and price stability. We have brought it up a few times in the past months, a little inflation is a good thing, while deflation is as damaging to the economy as too much inflation. "Participants agreed that falling prices for energy and other commodities and diminished economic activity had resulted in an appreciable reduction in inflationary pressures. Those pressures were seen as likely to continue to abate because of the emergence of substantial slack in resource utilization and diminishing pricing power"...." Several participants observed that monitoring measures of inflation expectations for signs of disinflationary dynamics would be especially important going forward". The Fed wants inflation at 1.0%; without some inflation there is little motivation for consumers or businesses to spend which is what the economy needs now.
After strong selling through most of the session in the treasury markets, by mid-afternoon the treasury markets crawled back to unchanged. The 10 yr yield jumped to 2.57% this morning but will likely continue to hold its key technical support at 2.50% on a close later today.
Today's $8B 10 yr inflation indexed auction went well giving a slight lift to treasuries. Tomorrow Treasury will sell $30B of 3 yr notes and Thursday $16b of 10 yr notes on the re-open of the current 10 yr. Supply will continue to provide pressure for the long end of the curve. In the FOMC minutes released this afternoon the there was discussion about the Fed stepping up to buy treasuries to assist in keeping rates low.
Tomorrow the ADP employment guess for Dec and the $30B 3 yr note auction are the only headliners we know of.
Chase pulled the plug this afternoon, shutting down accepting rate locks by worsening their prices by 16/32; no reason we saw, the mortgage markets themselves are at their best levels of the day. One serious problem confronting the originations and re-finances is the lack of lenders. Many wholesalers are gone and those that are left cannot handle the volume such as we saw today. Chase should set limits for how many locks and not screw originators as they did today. One more graphic example of what the credit market shut down can do.
The FOMC minutes from the Dec 16th meeting were released this afternoon. The most noticeable in the minutes; the Fed's concerns that inflation levels might fall below what the Fed needs to support the economic growth and price stability. We have brought it up a few times in the past months, a little inflation is a good thing, while deflation is as damaging to the economy as too much inflation. "Participants agreed that falling prices for energy and other commodities and diminished economic activity had resulted in an appreciable reduction in inflationary pressures. Those pressures were seen as likely to continue to abate because of the emergence of substantial slack in resource utilization and diminishing pricing power"...." Several participants observed that monitoring measures of inflation expectations for signs of disinflationary dynamics would be especially important going forward". The Fed wants inflation at 1.0%; without some inflation there is little motivation for consumers or businesses to spend which is what the economy needs now.
After strong selling through most of the session in the treasury markets, by mid-afternoon the treasury markets crawled back to unchanged. The 10 yr yield jumped to 2.57% this morning but will likely continue to hold its key technical support at 2.50% on a close later today.
Today's $8B 10 yr inflation indexed auction went well giving a slight lift to treasuries. Tomorrow Treasury will sell $30B of 3 yr notes and Thursday $16b of 10 yr notes on the re-open of the current 10 yr. Supply will continue to provide pressure for the long end of the curve. In the FOMC minutes released this afternoon the there was discussion about the Fed stepping up to buy treasuries to assist in keeping rates low.
Tomorrow the ADP employment guess for Dec and the $30B 3 yr note auction are the only headliners we know of.
Chase pulled the plug this afternoon, shutting down accepting rate locks by worsening their prices by 16/32; no reason we saw, the mortgage markets themselves are at their best levels of the day. One serious problem confronting the originations and re-finances is the lack of lenders. Many wholesalers are gone and those that are left cannot handle the volume such as we saw today. Chase should set limits for how many locks and not screw originators as they did today. One more graphic example of what the credit market shut down can do.
Tuesday, January 6, 2009
01/06/2009
Treasuries traded weak at 7:00 with the 10 yr note down 40/32 and its yield at 2.50% +13 BPS from Friday's close. After a year when mortgages were the plague, with the Fed in the current picture buying mortgages and with expectations increasing that there will be more support for mortgages provided by the government, yesterday and so far this morning the mortgage market is showing its best performance against treasuries in over a year.
At 9:00 this morning the 10 yr note yield bumped up to 2.55% (+7 BP frm yesterday's close); mortgage prices increased 13/32 yesterday as the 10 yr price fell 33/32, this morning at 9:00 mortgage prices traded +10/32 with the 10 yr price -20/32. The spread between 30 yr mortgages and the 10 yr note has narrowed 35 basis points in the last three days.
Bernanke is intent on narrowing the spreads between consumer and corporate loans and the treasuries. After cutting the FF rate to zero investors are still unwilling to step off the treasury wagon and into other debt. The Fed is on the path now to open the credit markets and make it more attractive to investors. It has helped in the past few days, the spread between 30 yr mtgs and the 10 yr has narrowed by 50 basis points. Mortgage rates, based on normal spreads should be in the 4.20% area. One of the options under consideration: reviving the asset- purchase plan originally envisaged under the $700B Troubled Asset Relief Program run by the Treasury. The purchases could be combined with fresh injections of capital into banks, and the use of TARP money to help struggling home owners avoid foreclosure. Mortgages are benefiting in the last two sessions as treasuries are being liquidated somewhat.
We have been suspicious about getting mortgage rates to 4.50%, however it isn't impossible as long as the Fed lets it be known that it will do what it takes to, no matter the cost, to get the credit markets working. More purchases of MBSs from the agencies, taking some of the junk mortgages off the banks' books, arm twisting banks to begin lending. Treasury Secretary Henry Paulson originally envisaged using the $700B authorized by Congress under the TARP in October to buy troubled assets. He quickly shelved that plan as the crisis intensified. Get on the phone to Fannie and Freddie and instruct them to cut the fee raising episodes that have kept real rates higher than they should be. Fannie and Freddie are government owned and should not be in conflict with the Fed's intent in getting the housing sector turned around with low mortgage rates.
At 10:00 two economic reports; Nov factory orders, expected down 2.6%, were down 4.6%. The Dec ISM services sector index was expected at 37.0 frm 37.3, the overall index came in at 40.6; new orders component at 39.9 frm 35.4, price component at 36.0 frm 36.6 and employment at 34.7 frm 31.1---overall a much better ISM services report.
Nov pending home sales also at 10:00; was down 4.0% and -5.3% yr/yr. Nothing surprising in the report.
This afternoon Treasury will sell $8B of 10 yr inflation indexed notes; tomorrow $30B of 3 yr notes will be auctioned and on Thursday $16B of 10 yr notes will be sold by Treasury. Supply is adding to the recent treasury market selling at the long end of the curve.
Gold prices continue to fall; crude oil is up another $1.00. Gold is down over $30.00 since last Friday's close. The dollar is rallying well in the last few days; the dollar has improved by about $0.08 since last Friday---a big move in the currency world.
At 9:00 this morning the 10 yr note yield bumped up to 2.55% (+7 BP frm yesterday's close); mortgage prices increased 13/32 yesterday as the 10 yr price fell 33/32, this morning at 9:00 mortgage prices traded +10/32 with the 10 yr price -20/32. The spread between 30 yr mortgages and the 10 yr note has narrowed 35 basis points in the last three days.
Bernanke is intent on narrowing the spreads between consumer and corporate loans and the treasuries. After cutting the FF rate to zero investors are still unwilling to step off the treasury wagon and into other debt. The Fed is on the path now to open the credit markets and make it more attractive to investors. It has helped in the past few days, the spread between 30 yr mtgs and the 10 yr has narrowed by 50 basis points. Mortgage rates, based on normal spreads should be in the 4.20% area. One of the options under consideration: reviving the asset- purchase plan originally envisaged under the $700B Troubled Asset Relief Program run by the Treasury. The purchases could be combined with fresh injections of capital into banks, and the use of TARP money to help struggling home owners avoid foreclosure. Mortgages are benefiting in the last two sessions as treasuries are being liquidated somewhat.
We have been suspicious about getting mortgage rates to 4.50%, however it isn't impossible as long as the Fed lets it be known that it will do what it takes to, no matter the cost, to get the credit markets working. More purchases of MBSs from the agencies, taking some of the junk mortgages off the banks' books, arm twisting banks to begin lending. Treasury Secretary Henry Paulson originally envisaged using the $700B authorized by Congress under the TARP in October to buy troubled assets. He quickly shelved that plan as the crisis intensified. Get on the phone to Fannie and Freddie and instruct them to cut the fee raising episodes that have kept real rates higher than they should be. Fannie and Freddie are government owned and should not be in conflict with the Fed's intent in getting the housing sector turned around with low mortgage rates.
At 10:00 two economic reports; Nov factory orders, expected down 2.6%, were down 4.6%. The Dec ISM services sector index was expected at 37.0 frm 37.3, the overall index came in at 40.6; new orders component at 39.9 frm 35.4, price component at 36.0 frm 36.6 and employment at 34.7 frm 31.1---overall a much better ISM services report.
Nov pending home sales also at 10:00; was down 4.0% and -5.3% yr/yr. Nothing surprising in the report.
This afternoon Treasury will sell $8B of 10 yr inflation indexed notes; tomorrow $30B of 3 yr notes will be auctioned and on Thursday $16B of 10 yr notes will be sold by Treasury. Supply is adding to the recent treasury market selling at the long end of the curve.
Gold prices continue to fall; crude oil is up another $1.00. Gold is down over $30.00 since last Friday's close. The dollar is rallying well in the last few days; the dollar has improved by about $0.08 since last Friday---a big move in the currency world.
Monday, January 5, 2009
Monday 1/05/2009
Happy New Year
Treasuries traded weak at 7:00 with the 10 yr note down 40/32 and its yield at 2.50% +13 BPS from Friday's close. By 9:00 treasuries rebounded off their lows but still weaker on the session. Mortgages are doing much better this morning; after falling about 14/32 in price last week the 30 yr fixed price at 9:00 was up a solid 15/32; 15s +9/32 (see below for 10:00 levels). The NY Fed already announced it will begin to purchase MBSs today but will not announce the amount it is buying today. $500B will be purchased by the end of the 2nd quarter, the amount bought today will be released on Thursday. The Fed has said, if necessary it would buy more mortgages.
Later today Dec auto and truck sales report is expected to fall to 10.0 million units from 10.2 million units in November. US auto sales in the past year have plunged from the average of about 16.0 million units seen in 2007 to November’s 26-year low of 10.2 million units. US auto sales are currently weaker than at any time since 1982 after the double-dip recession.
Today it is about the Obama stimulus package; we get some details from the Obama camp. Obama is asking that tax cuts make up 40% of a stimulus package, the people say. The measure may be worth as much as $775B, a Democratic aide says, meaning tax cuts may constitute more than $300 billion of the legislation. Nancy Pelosi says she wants to have a stimulus package on Obama's desk one week after his taking office---not likely to be that swift though. Everyone wants a stimulus package; no voices out there saying no. That said, any infrastructure programs will take time to implement and show any progress in new jobs. Watch the Congress pour on the pork and waste money; politicians say they will be good but they can't---not in their gene pool.
The Fed is stepping up to call for "pulling out all the stops" as Janet Yellen (SF Fed Pres) said over the weekend. Her remarks underscore the view of many economists that unprecedented fiscal measures are needed to combat the yearlong recession, and come ahead of meetings this week between President-elect Obama and congressional leaders. They also reflect the failure of Fed efforts so far, including record rate cuts, emergency lending programs and backstops for debt markets, to halt the crisis.
At 10:00 Nov construction spending, expected down 1.4%, was down just 0.6%, Oct was revised from -1.2% to -0.4%.
This Week's Calendar:
Tuesday;
10:00 Nov Factory orders (-2.6%0
ISM services data (37.0 frm 37.3)
1:00 $8B 10 yr TIPS auction
2:00 FOMC minutes (12/16 meeting)
Wednesday;
7:00 weekly MBA mortgage applications
8:15 ADP Dec employment estimate
1:00 3 yr note auction (amount TBA)
Thursday;
8:30 weekly jobless claims (+58K to 550K)
3:00 Nov consumer credit (+0.5B)
1:00 10 yr note auction (amount TBA)
Friday;
8:30 Dec unemployment (7.0% frm 6.7%)
Non-Farm payrolls (-475K)
10:00 Nov wholesale inventories (-0.9%)
Supply this week will weigh on the treasury markets; tomorrow $8B of 10 yr TIPs, Wednesday a 3 yr note auction and on Thursday a 10 yr note auction (the 3 and 10 amounts will be released today). Mortgages this morning are finding strong support on the Fed's announcement it will purchase MBSs today to begin the $500B purchase announced last Nov. $500B is a nice number but only a drop in the bucket that is needed to jump start the residential housing sector.
The bellwether 10 yr treasury hit its key support this morning at 7:15 when its yield ran up to 2.50%; it held and is trading back at 2.41%. The double bottom on the 10 yr caps the rate decline on the note; now unlikely to break below 2.00%. The 10 yr needs to stay under 2.50%, if it climbs over that level it will project a move to 3.00%. The mortgage markets won't be hit that hard as long as the market believes the Fed is intent on not allowing mortgage rates to climb; presently that is the thinking. 4.50% for 30 yr fixed rates however, is not likely as we see it now. Treasuries have run their course; although mortgages will find support, investors are not likely to find an appetite for mortgages much lower than 5.00%. To drive mortgage rates to 4.5% the market will need the 10 yr note trading back at the 2.00% level.
Treasuries traded weak at 7:00 with the 10 yr note down 40/32 and its yield at 2.50% +13 BPS from Friday's close. By 9:00 treasuries rebounded off their lows but still weaker on the session. Mortgages are doing much better this morning; after falling about 14/32 in price last week the 30 yr fixed price at 9:00 was up a solid 15/32; 15s +9/32 (see below for 10:00 levels). The NY Fed already announced it will begin to purchase MBSs today but will not announce the amount it is buying today. $500B will be purchased by the end of the 2nd quarter, the amount bought today will be released on Thursday. The Fed has said, if necessary it would buy more mortgages.
Later today Dec auto and truck sales report is expected to fall to 10.0 million units from 10.2 million units in November. US auto sales in the past year have plunged from the average of about 16.0 million units seen in 2007 to November’s 26-year low of 10.2 million units. US auto sales are currently weaker than at any time since 1982 after the double-dip recession.
Today it is about the Obama stimulus package; we get some details from the Obama camp. Obama is asking that tax cuts make up 40% of a stimulus package, the people say. The measure may be worth as much as $775B, a Democratic aide says, meaning tax cuts may constitute more than $300 billion of the legislation. Nancy Pelosi says she wants to have a stimulus package on Obama's desk one week after his taking office---not likely to be that swift though. Everyone wants a stimulus package; no voices out there saying no. That said, any infrastructure programs will take time to implement and show any progress in new jobs. Watch the Congress pour on the pork and waste money; politicians say they will be good but they can't---not in their gene pool.
The Fed is stepping up to call for "pulling out all the stops" as Janet Yellen (SF Fed Pres) said over the weekend. Her remarks underscore the view of many economists that unprecedented fiscal measures are needed to combat the yearlong recession, and come ahead of meetings this week between President-elect Obama and congressional leaders. They also reflect the failure of Fed efforts so far, including record rate cuts, emergency lending programs and backstops for debt markets, to halt the crisis.
At 10:00 Nov construction spending, expected down 1.4%, was down just 0.6%, Oct was revised from -1.2% to -0.4%.
This Week's Calendar:
Tuesday;
10:00 Nov Factory orders (-2.6%0
ISM services data (37.0 frm 37.3)
1:00 $8B 10 yr TIPS auction
2:00 FOMC minutes (12/16 meeting)
Wednesday;
7:00 weekly MBA mortgage applications
8:15 ADP Dec employment estimate
1:00 3 yr note auction (amount TBA)
Thursday;
8:30 weekly jobless claims (+58K to 550K)
3:00 Nov consumer credit (+0.5B)
1:00 10 yr note auction (amount TBA)
Friday;
8:30 Dec unemployment (7.0% frm 6.7%)
Non-Farm payrolls (-475K)
10:00 Nov wholesale inventories (-0.9%)
Supply this week will weigh on the treasury markets; tomorrow $8B of 10 yr TIPs, Wednesday a 3 yr note auction and on Thursday a 10 yr note auction (the 3 and 10 amounts will be released today). Mortgages this morning are finding strong support on the Fed's announcement it will purchase MBSs today to begin the $500B purchase announced last Nov. $500B is a nice number but only a drop in the bucket that is needed to jump start the residential housing sector.
The bellwether 10 yr treasury hit its key support this morning at 7:15 when its yield ran up to 2.50%; it held and is trading back at 2.41%. The double bottom on the 10 yr caps the rate decline on the note; now unlikely to break below 2.00%. The 10 yr needs to stay under 2.50%, if it climbs over that level it will project a move to 3.00%. The mortgage markets won't be hit that hard as long as the market believes the Fed is intent on not allowing mortgage rates to climb; presently that is the thinking. 4.50% for 30 yr fixed rates however, is not likely as we see it now. Treasuries have run their course; although mortgages will find support, investors are not likely to find an appetite for mortgages much lower than 5.00%. To drive mortgage rates to 4.5% the market will need the 10 yr note trading back at the 2.00% level.
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