Friday, 3/12/10 4:12 PM
Rate markets started a little weaker this morning but at 8:30 markets were saved when Feb retail sales were better than expected; up 0.8% when the auto sector and gasoline expenses are ignored (+0.3% overall). It took most of the morning but the 10 yr turned up in price and held it the remainder of the day. Mortgages however barely made it back to unchanged after being down 4/32 (.12 bp) at 9:30. The short take; it was another quiet session with the equity markets clinking to relatively unchanged reads.
Most of the comments and commentary today lauded the increase in retail sales in Feb; but take another look. When Jan and Dec revisions are viewed retail sales have not improved for the past three months. No matter. reality isn't in play these days. All of the economic reports report changes from the previous month or from the previous year; a year of massive declines. Like falling into a 50 foot deep well; if you can climb up 5 feet it is a start but that next 45 feet will tell the tale of life or death. Not wanting to rain on any parade; we want the recovery as badly as anyone, but we cannot avoid reality. Yes, the economy is improving but it is only 5 feet above the water line.
There was little data this week to fret about; weekly jobless claims were hailed as evidence that the employment declines are ending. Down 6K in new filings last week but still 468K new filings. As noted above, it is all relative to the worst, which was so bad for so long that if it continued no one would be working. Recent stabilization in unemployment claims is good news, however, new hires are not likely to increase rapidly. Businesses don't have to hire much as long as worker productivity remains extremely high; up 6.9% in Q4 2009. Only 10 feet above the water line.
We have focused on consumer credit in these commentaries as a true sign of consumer desires to spend. Credit had declined every month for the past year until Jan when it increased $4.96B; again, it was accepted as the end of the decline in credit contraction. Taking another broader look; down $110B in 2009, overall now at the same level as 2006. Home mortgages dropped $58B in the quarter, $215B in 2009, also to 2006 totals. Total debt in the economy grew at the smallest rate ever measured, 1.6% in the 4th quarter; however, excluding the Treasury's massive borrowing it was 1% negative. Think that through: civilians and the real economy are starved of credit, and the Treasury borrows instead. 2 feet above the water line.
Most pundits are totally convinced the recovery is underway. We agree; but what we do not agree with is the euphoria being touted. Every analyst and talking head on CNBC today made a point to ignore the U.of Michigan consumer sentiment index that was expected to increase slightly but decline to 72.5 frm 73.6 at the end of Feb. The index is quite volatile and some reason to take it with that salt, but taking it on a wider basis consumer sentiment is running at very low levels.
How about the loan mods? There are 1.8 mil homeowners eligible but only 150K have been done and of those 1500 are already defaulting again. Mortgage bankers funded roughly $414B of new home loans in the fourth quarter, the industry's worst quarter of the year and an indication that production -- as anticipated -- will be weaker in 2010. Every way you look at it there is much that can be expected for the economic rebound until job growth begins (and continues to grow), not just a month or so.
Seems banks want to shut out more potential home buyers; an increase in the down payment on FHA loans from 3.5% where its been since FHA began in the 40s, to 5.0%. According to FHA an increase to 5.0% would shut out over 330K potential home buyers. Lobbyists are pushing it in Congress, employed by the banks. Sick of the big boy banks; they are the ones that were leading the charge, along with Wall Street, for all the sub prime loans they could get. Recall, back in the day, anyone breathing could be approved as a seller to any and all banks. Now whining over the potential of no more proprietary trading and their basket of s--t they wanted so badly. Have no sympathy for any of the big banks that were leaders in almost sinking the US and global economies. A shame politicians are so unknowledgeable about what happened that they lean heavily on lobbyists on the payrolls of banks.
This week the rate markets were mixed, lower yield on the 30 yr by 3 basis points, up on the 10 yr by 1 basis point and up 7 basis points on the 5 yr and up 6 basis points on the 2 yr. Rates increased as the troubles in Greece diminished. Mortgage rates were unchanged on the week; 30 yr FNMA price at 4:00 +1/32 (.03 bp) frm last Friday's close. Crude oil essentially unchanged; gold -$32.00. The DJIA +59, NASDAQ +41, S&P +11.
Next week; no Treasury borrowing. The giant in the room, the FOMC meeting on Tuesday; look for a change in that "extended period" phrase used to quantify when the Fed might begin to tighten. Potential market moving economic data all week after a thin week this week. Housing starts and permits, inflation reads on PPI and CPI, industrial production and factory usage, the Philly Fed business index and those weekly jobless claims.
PRICES @ 4:00 PM
10 yr note: 99.11 +8/32 3.70% -3 BP
5 yr note: 99.26 +1/32 2.41% unch
2 Yr note: 99.26 unch 0.96% unch
30 yr bond: 99.30 +22/32 4.63% +4 BP
Libor Rates: 1 mo 0.230%; 3 mo 0.257%; 6 mo 0.397%; 1 yr 0.868%
30 yr FNMA 4.5 Apr: 100.28 -1/32 (.03 bp) (+3/32 (.09 bp) frm 9:30)
15 yr FNMA 4.0 Apr: 101.27 -1/32 (.03 bp) (+1/32 (.03 bp) frm 9:30)
30 yr GNMA 4.5 Apr: 101.15 -1/32 (.03 bp) (+3/32 (.09 bp) frm 9:30)
15 yr GNMA 4.0 Apr: 102.19 +1/32 (.03 bp) (5/32 (.15 bp) frm 9:30)
Dollar/Yen: 90.44 -0.05 yen
Dollar/Euro: $1.3760 +$0.0083
Gold Apr: $1102.70 -$5.50
Crude Oil Apr: $81.21 -$0.90
Goldman-Sachs
Commodity Index: 523.80 -2.74
DJIA: 10624.69 +12.85
NASDAQ: 2367.66 -0.80
S&P 500: 1149.99 -0.25