When you travel as much as I do, eventually you cannot find new places to go, which is where I find myself as I have been just about everywhere I can go in my current aircraft. Mortgage bonds, however, with the aid of the Fed, have managed to break into new territory.
As promised, the Fed is no longer “all talk and no action” as they officially entered into the markets as the buyer of first resort when it comes to mortgage backed securities. You have heard me talk about the problems with artificially propping the markets, creating the “mortgage rate bubble” in effect, and the Fed is now well on their way to making that happen. Each week from now on, at least until the current 500 billion is gone, the Fed will release their level of involvement, with last week being a mere $10.2 billion. At that rate, the Fed can keep rates low for nearly a year if the market doesn’t kill them first.
Beyond the Fed, we saw some major data come in, especially along the jobs front. As expected, the jobs data was dismal again and unemployment rose, but it wasn’t as bad as was forecast by the ADP employment report, again marking its inaccuracy. Both the ISM Services Index and Initial Jobless Claims beat their expectations, though neither report indicate a strengthening economy. Stocks also were under selling pressure last week as numerous negative reports came from some big names, like the staple of the economy these days, Wal-Mart.
Mortgage rates did reach historic levels, however we are seeing pricing improve ever so slightly compared to the levels they should be going. This is indicative of lenders hedging against added risks, which I have also talked about before. As this week starts out, you can expect the Fed to be buying again, but their buying will likely only serve to prevent mortgage rate increases and not to lower rates any further, something only time will tell for sure as not even the charts can forecast the Fed’s level of involvement each week.
This week will see some more major players on the data front, along with at least one major speech from Bernanke. As is fairly typical these days as the Treasury is selling off debt to pay for their spending spree, numerous auctions will be occurring this week. Here is a breakdown of data…
- Monday: 3-month Bill Auction (1:00), 6-month Bill Auction (1:00)
- Tuesday: Bernanke Speech – London (8:00), 4-week Bill Auction (1:00), 52-week Bill Auction (1:00)
- Wednesday: MBA Purchase Applications (7:00), Retail Sales (8:30), Import/Export Prices (8:30), Business Inventories (10:00), Crude Inventories (10:30), Beige Book (2:00)
- Thursday: Producer Price Index (8:30), Initial Jobless Claims (8:30), Empire State Manufacturing Survey (8:30), Philadelphia Fed Survey (10:00), Money Supply (4:30)
- Friday: Consumer Price Index (8:30), Treasury International Capital (9:00), G.17 Statistical Release (9:15), Consumer Sentiment (10:00)
As you can see, I have added some reports to the list this week, along with Treasury auctions scheduled. Many of the reports you may not have even heard of before, but I am finding they are impacting the markets more these days. One report which you may find interesting is Money Supply, which has fallen by the wayside in recent years but is starting to make waves again. I am also going to start listing major Fed speeches, like tomorrow’s, when posted on the FRB main site. Other Fed speeches may occur as well, but I do not have the time to hunt for them each week and some never get posted much in advance anyway.
As this week gets started, you can see some big data plays coming, namely Retail Sales and CPI. On the technical side of things, mortgage backed securities remain on the overbought side again, though remain trapped in a sideways trading range as well, held within mostly by the Fed’s activity. So long as the Fed continues to artificially inflate prices, mortgage rate forecasting will be difficult due to the uncertainty about exactly what the Fed will do each day, let alone each week. We only know that they will be buying MBS and will report the results each Thursday. Beyond that, fundamentals and charts are showing mortgage rates will most likely remain steady this week unless the data starts showing an improving economy or increased inflation.
Chairman Ben S. Bernanke, Quantitative Easing Can’t Work.
In a Liquidity Trap although Saving (S) is abnormally high investment (I) is next to 0.
Hence, the Keynesian paradigm I = S is not verified.
The purpose of Quantitative Easing being to lower the yield on long-term savings and increase liquidity it doesn’t create $1 of investment.
In a Liquidity Trap the last thing the Market needs is liquidity. This is why, Mr Chairman, we call it a Liquidity Trap,
Force-feeding the Market won’t achieve anything useful.
If short-term risk free interest rates are at 0.00% doesn’t that mean that credit is worthless?
Quantitative Easing does diminish the yield on long-term US Treasury debt but lowers marginally, if at all, the asked yield on long-term savings.
Those purchases maintain the demand for long-term asset in an unstable equilibrium.
When this disequilibrium resolves the Market turns chaotic.
This and other issues are explored in my tract:
A Specific Application of Employment, Interest and Money
Plea for a New World Economic Order
Abstract:
This tract makes a critical analysis of credit based, free market economy, Capitalism, and proves that its dysfunctions are the result of the existence of credit.
It shows that income / wealth disparity, cause and consequence of credit and of the level of long-term interest-rates, is the first order hidden variable, possibly the only one, of economic development.
It solves most of the puzzles of macro economy: among which Unemployment, Business Cycles, Under Development, Trade Deficits, International Division of Labor, Stagflation, Greenspan Conundrum, Deflation and Keynes’ Liquidity Trap…
It shows that no fiscal or monetary policy, including the barbaric Quantitative Easing will get us out of depression.
A Credit Free, Free Market Economy will correct all of those dysfunctions.
The other option would be to wait till, on the long run, most of our productive assets get physically destroyed either by war or by rust.
It will be either awfully deadly or dramatically long.
In This Age of Turbulence People Want an Exit Strategy Out of Credit,
An Adventure in a New World Economic Order.
We Need, Hence, Abolish Interest Bearing Credit and Cancel All Interest Bearing Debt.
✔ Exit Strategy Out of Credit
http://edsk.org
✔ A Specific Application of Employment, Interest and Money
[Intended for my Fellows Economists].
http://edsk.org/interest.html
Press release of my open letter to Chairman Ben S. Bernanke:
Chairman Ben S. Bernanke, Quantitative Easing Can’t Work!
http://www.prlog.org/10165667.html
Yours Sincerely,
Shalom P. Hamou AKA ‘MC Shalom’
Chief Economist – Master Conductor
1776 – Annuit Cœptis.
Here is to hoping the Feds are doing the right thing here and we start to see the market improve; if not……oh my.
Do you happen to know if there is a breakdown of what your government is spending the money and and how much they are giving to whom? Though I’m up in Canada, we are getting some influence from the ripple in your economy right now so I am trying to keep up with it. Thanks!
500 Billion dollars….I just can’t wrap my head around that much money; lets hope it is enough to fix everything, but I am fearful that we are throwing money at a problem to only delay the result, instead of stopping it.
Lets hope that the mortgage rates stay steady beyond this week too; having some stability might earn a little trust in consumers and start helping out our economy…but we will soon see, I guess.
I do believe the FED ‘Let me take all your troubles’ approach is paying off, although very slowly. All the chatter about foreclosures has died down, and people seem to be expecting a turnaround in real estate. But it’ll be interesting to see what happens if the FED starts unloading these MBS. They do plan to unload it all, don’t they?
On Thursday last week the Bank of England chose to cut the base rate by a further half a percent to an all time low of 1.5%1.
All those on tracker rates without collars will once again benefit from the cuts. If your lender passes on the full half percent cut, a mortgage of £150,000 would see monthly payments fall by over £60.
However it is unlikely to have too much of an effect on new Mortgage loan
figures and as such is unlikely to provide much stimulus for new homeowners in the struggling housing market.
Savers will not be so happy to hear of the rate reduction as this cut is also likely to be passed on to them via reduced returns on their savings.
This leads one to ponder the effectiveness of such a decision. It isn’t likely to help the housing market, new mortgage rates aren’t likely to improve, savers are suffering and the regular rate cuts adversely affect the Pound and reduce confidence in the economy in general. Aside from the increase in disposable income for those already on tracker rates, it is questionable as to how this helps the economy at all.
The real challenging part is that so many people are underwater that it is difficult for them to take advantage of these rates. I also believe rates are staying down for a while but until it starts having positive affects on sales things aren’t going to turn around.
I wonder what will happen with the FED unloads all these mortgages; lets hope the bottom doesn’t fall again…
@Karl Barnes I’m not quite sure that the lower interest rates help; but at this point they really can’t hurt either. Hopefully, the lower rates will help people get their heads above water by refinancing, having lower payments on debt, and getting that debt paid off quickly, thus stimulating the economy with actual money, and not credit.
The low rates sure are making it attractive for first time home buyers,and home buyers in general, to go house hunting!
If you wish to make some mortgage calculations enter this site to know what would be your monthly payment in a mortgage
http://yourfinance.co.cc/mortgage_calculator.html
Regards
Here is another interesting viewpoint on what is happening with the mortgage market:
http://www.scotsmanguide.com/resmetrics
Here is to hoping the Feds are doing the right thing here and we start to see the market improve; if not……oh my.