Mortgage Market Update

Weekly Jobless Claims hit a 26 year high today, tipping the scales up 58K to 573K. The number of Continuing Claims is just as sick, rising 338K to 4.429 million. This is the largest jump since 1974. Part of this is “catch up” from the Thanksgiving holiday period but just the same, expect the number to top 600K next week.

The Trade Deficit was also released, widening 1.1% as both US imports and exports fell to their lowest levels in 7 months. China will be a huge driver in the US economy. If they fall from 10% growth to 5% or 6.0%, the effects will be felt not only on Wall Street but Main Street as well. Import prices reflect exactly what I'm talking about as they posted a record dip of 6.7%. Once again, the petroleum complex did the damage, falling 25.8%.

Technically, the 10 year note chart has been forming a “diamond or triangle” pattern and for a brief moment this morning, broke out to the upside. English translation means the market rallied and formed a more bullish pattern. The rally was short lived however and the plus 8/32’s we were seeing on mortgage backs are now plus 2/32’s. Nothing huge but a sign of things to come meaning a concession in pricing due to the holiday season and 16 billion of the 10 year notes coming to auction today is at hand.

In our opinion, the upside (further rally) is limited while any selling will be shallow. In other words, take advantage of this market and keep in mind that bears make money, bulls make money, and pigs get slaughtered!

Never a dull moment when it comes to the market. 

The Little 3 got pushed out of the driver seat last night as the Senate turned them down flat.  Republicans in the Senate want tighter restrictions and a "Car Czar" to monitor our tax dollars, hoping it can last long enough to turn the mess over to President Elect Obama. 

A crook of a different color was exposed yesterday as Bernie Madoff, prominent New York private investor/hedge fund manager was arrested for his Ponzi scheme.  A Ponzi scheme takes in the money of investors and then pays dividends, returns with the money of investors that follow.  His returns were excellent and for a good reason, they were too good to be true.  A number of big time Long Island families will lose a lot of money, many will lose most if not all  of their net worth.  50 billion is now "missing".  Word on the street has it his kids were all involved in the business, then cut a deal with the NY AG and turned him in.  I bet Bernie wishes their mother would have eaten them. 

News today was headlined by PPI, inflation at the wholesale level.  PPI fell 2.2% with the core index up .1%.  Record declines in gas prices pushed PPI lower for the fourth month in a row.  Retail Sales also hit the tape, down 1.8% with the ex-autos component down 1.6%.  Excluding gas and autos, Retail Sales rose .3%.  Overall, Retail Sales are down 7.4% year on year and down 2.9% excluding autos.  No doubt the consumer is still feeling the pinch. 

The Reuters/Michigan Sentiment Survey took the cleanup spot today, rising 3.8 points to 59.1.  The higher print was a big surprise given market expectations of a .3 drop.  Maybe it's all about the holiday season. 

Market reaction to all of the above has been a disappointment for both equities and fixed income.  Stocks didn't like the Senate kicking the Little 3 to the curb and the shock wave from the Madoff mess.  Heavy hedge fund liquidations could follow that mess.  Bonds, notes, and mortgage backs have come under pressure as well, more from the technical trading side than anything else.  Trend intensity have started to flat line and /or falter, while most of the other trading signals we follow have abandoned their bullish readings.  Buyers will need to resurface soon to keep the trend alive.  Not a huge deal if they don't as mortgage pricing will not fall too far from the tree.

-Courtesy PrimeLending Capital Markets Group