Mortgage Market

Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com



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Friday, September 30, 2011


In this world of uncertainty and confusion we have been subject to wild gyrations in equity markets that have influenced daily trading in the bond and mortgage markets. Yesterday the DJIA closed up 143, this morning in futures trading the index at 9:00 was down 130. Yesterday mortgages closed better by .12 bp and up .25 bp frm 9:30; the 10 yr traded slightly over 2.00% most of the day but managed to fall back and close at 2.00% a very key level. This morning at 9:00 the 10 yield traded at 1.94% with mortgage prices +.31 bp frm yesterday's close. Rate markets have been tied into a very narrow range this week; conflicting news out of Europe and choppy stock markets keeping interest rates generally higher from last Friday's closes.

At 8:30 August personal income expected up 0.1% fell 0.1%, spending was expected 0.2%, it hit at 0.2%. July income revised to +0.1% frm 0.3% originally reported, spending in July revised from +0.8% to +0.7%. Treasuries and mortgages got a further bounce on the weaker income levels while the stock indexes declined further.

Most recent data on the US and global economies is declining and looking like the US and the world will fall back into recession, or for those like us that have never believed we came out of recession, a double dip. Even though data is confirming the decline there are more optimists that believe these are buying opportunities with good bargains. On the Street the mantra is never admit pessimism even in the face of reality, that was evident in 2008 and the sub-prime bubble. Chinese manufacturing shrank for a third month, the longest contraction since 2009. German sales fell the most in more than four years, while European inflation unexpectedly quickened to the fastest in almost three years this month. Industrial production in Japan grew less than economists had forecast. Concern that Europe’s sovereign-debt crisis will spread and the U.S. economic recovery is faltering has wiped out more than $9 trillion of value from global equities this quarter.

In Germany the upper house of parliament approved the enhanced fund today after the lower house voted 523 in favor and 85 against. Lawmakers approved giving the EFSF powers to buy bonds in secondary markets, enable bank recapitalizations and offer precautionary credit lines. At the moment it looks increasingly like Greece will dodge the inevitable bullet on Oct 13th and avoid what will eventually end in default and restructuring Greece's banks. In less than 2 weeks (Oct 13th) Greece will default unless it gets the funds to get by; it will get the money it needs but it won't change much for Greece and the EU sovereign debt problems.

At 9:30 the DJIA opened -92, the 10 yr note +27/32 to 1.91% -9 bp. Mortgage prices +16/32 (.50 bp) frm yesterday's close.

At 9:45 Sept Chicago purchasing managers' index, expected at 54.0 jumped to 60.4 frm 56.5 in August. New orders component at 65.3 frm 56.9, employment at 606 frm 52.1 and prices pd at 62.3 frm 68.6. The data much better but there was no improvement in the stock market and the rate markets held their gains prior to the report. Any index over 50 is considered expansion, the higher the stronger.

Finally today, at 9:55 the U. of Michigan consumer sentiment index, expected at 57.5 was better at 59.4; current conditions 74.9 frm 74.5, expectations at 49.4 frm 47.0 and the 12 month outlook at 39 frm 38. Treasuries and mortgages slipped slighty on the better data and a stronger Chicago PM index.

The volatility in the equity markets show little chance it will decline any time soon. Many reasons and extruded rational explanations; Europe's debt mess, US fiscal stand-off with our political system, and a housing sector still in deep depression----and the list goes on. For all of the talk and ink on what is happening, the reality is investors and consumers get it more than any other entity, politician or Wall Street gurus. There is no end in sight for this choppy highly volatile condition.