Dow finishes down 140 points after S&P lowers outlook on U.S. debt.

This is just the beginning. It will get a lot worse if we can get rid of the fiat currency system that this country is enslaved to.

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Weekly Market Preview

Trade likely will be quiet with the religious holiday. Most all of the data points this week are centered on the housing sector; starts and permits for Mar, new and existing home sales, the NAHB housing market index Monday and the FHFA housing price index on Thursday. The only other releases are weekly claims on Thursday and the and the April Philadelphia Fed business index also on Friday. That's it for the week. Markets closed on Friday.
 
Until a week ago the overwhelming consensus in the markets was that the US economy would have a strong Q1 and optimism for the rest of the year was being touted as continued improvement. Over the past week investors were beginning to re-think the economic outlook and lowering expectations. It started with the IMF saying it is revising lower GDP Q1 growth from 2.0% to 1.5%; markets had accepted growth in Q1 at +3.0%. The Fed's Beige Book out last week, while remaining optimistic, showed indications that growth isn't as powerful as markets were thinking. The National Federation of Independent Business overall index fell in April, taking the optimism that had improved since last Oct totally away. Small businesses account for the majority of jobs. This is also earnings season with companies reporting Q1; so far earnings have been a little disappointing. 
 
Consumer spending declining, until recently, have been ignored by investors. Even with gasoline and food prices increasing markets generally didn't pay much attention----until last week. $4.00+ gasoline and rapidly increasing food prices will, as we have continued to mention, slow consumer spending. Bernanke out there saying the increase in energy and commodity prices are "transitory" may not be; markets beginning to understand that. With consumer spending less than expected and the housing markets still showing no signs of stabilizing, let alone improving, investors are getting a little nervous.  

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Loan Officer Compensation

The National Association of Independent Housing Professionals is throwing in the towel on its lawsuit against the Federal Reserve. However, NAIHP chief Marc Savitt promised that he's not done fighting the loan officer compensation rule. More to come on this for sure.

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Federal Reserve sanctions 10 banks for mortgage practices

The Federal Reserve said it's taken enforcement action against 10 banks over "a pattern of misconduct and negligence related to deficient practices in residential mortgage loan servicing and foreclosure processing. These deficiencies represent significant and pervasive compliance failures and unsafe and unsound practices at these institutions." The banks are
Bank of America (BAC), Citigroup (C), Ally Financial, the HSBC North America unit of HSBC Holdings (HBC) , J.P. Morgan Chase (JPM) , MetLife (MET) , PNC Financial Services (PNC) , SunTrust Banks (STI) , U.S. Bancorp (USB) and Wells Fargo (WFC) . In addition to the actions against the banking organizations, the Federal Reserve on Wednesday announced formal enforcement actions against Lender Processing Services, Inc. (LPS), a domestic provider of default-management services and other services related to foreclosures, and against MERSCORP, Inc., which provides services related to tracking and registering residential mortgage ownership and servicing, acts as mortgagee of record on behalf of lenders and servicers, and initiates foreclosure actions

From MarketWatch

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Closely Held Banks Still Waiting on SBLF Terms

There are 7,604 banks and thrifts in this country, and the core mission of nearly all of them is to lend locally. As currently structured, however, nearly 40% of these institutions are barred from taking part in the Small Business Lending Fund, the government's latest attempt to stimulate the national economy from the community level on up.

Cursed by its status as a subchapter S corporation, Riverside Bancshares Inc. is one of that sidelined minority.

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Japan upgrades nuclear-crisis assessment to level 7, on par with Chernobyl disaster
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Delinquency Rates & Foreclosures

BY THE NUMBERS - Lender Processing Services, Inc., a leading provider of integrated technology, data and analytics to the mortgage and real estate industries, reports the following "first look" at February 2011 month-end mortgage performance statistics derived from its loan-level database of nearly 40 million mortgage loans.

- Total U.S. loan delinquency rate (loans 30 or more days past due, but not in foreclosure): 8.80%

- Month-over-month change in delinquency rate: -1.2%

- Year-over-year change in delinquency rate: -18.4%

- Total U.S foreclosure pre-sale inventory rate: 4.15%

- Month-over-month change in foreclosure pre-sale inventory rate: -0.2%

- Year-over-year change in foreclosure pre-sale inventory rate: 7.4%

- Number of properties that are 30 or more days past due, but not in foreclosure: 4,659,000

- Number of properties that are 90 or more days delinquent, but not in foreclosure: 2,165,000

- Number of properties in foreclosure pre-sale inventory: 2,196,000

- Number of properties that are 30 or more days delinquent or in foreclosure: 6,856,000

- States with highest count of non-current loans: FL, NV, MS, NJ, GA

- States with the lowest count of non-current loans: MT, WY, AK, SD, ND
BLAME IT ON THE ARMs - Not so surprising, the report noted that "February's data also showed a 23 percent increase in Option ARM foreclosures over the last six months, far more than any other product type. In terms of absolute numbers, Option ARM foreclosures stand at 18.8 percent, a higher level than Subprime foreclosures ever reached."

The WSJ blames the housing dip is part caused by the disappearance of first-time homebuyers.

NAR reports that existing home sales dropped 9.6%, and the median price hit $156,100, a 10-year low. Taking this into account the WSJ says that the stage set for steep discounting in the spring market, according to the WSJ.

THE SILVER LINING - But good news can be found in the rental market, as it heats up. The average US apartment vacancy rates dropped to .5% last year from 8%. This has developers saliva ting over the potential for a multiyear rental boom, since the glut of foreclosed SFRs isn't proving much competition.

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Beware: Social Security numbers available online via indexed tax documents

As one who keeps up with the cutting edge of search engines and advanced search querying, it is with much reservation and disbelief that I bring you the results of my latest online investigative research. As of 4/10/2011, I have discovered in excess of 50 tax documents containing any given combination of Social Security numbers, credit card information, names, addresses, tax IDs, and phone numbers being made available online. However, unlike recent leaks of email addresses and password hashes being made available due to hackers compromising systems, these documents are being unknowingly made freely available to prying eyes by the very owners of said information.


Read more at http://www.zdnet.com/blog/seo/beware-social-security-numbers-available-online-via-indexed-tax-documents/2819?tag=nl.e539

The Department of Housing and Urban Development this week rescinded a controversial mortgagee letter that held homeowners or their heirs responsible for repaying, in full, a Home Equity Conversion Mortgage if they wished to keep the property.

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Weekly Market Preview

This Week not much in the way of economic reports. Interest rate markets will continue to take their lead from how the stock market performs each day. The bellwether 10  yr note, although likely to edge higher over the next few months, has twice found near term support when its yield climbs to 3.50% and in  turn is keeping mortgage interest rates from increasing. We continue our outlook that rates will increase but the level of increases won't be excessive; likely not over 4.00% for the 10 and another 40 basis points higher for mortgage rates for the rest of the year.
 
Tuesday the Fed will release the minutes from the FOMC meeting on March 15th; recently there has been an increase of the number of Fed officials that are wanting less easing and an end to QE 2. Global base lending rates are increasing and the Fed has to begin its moves to withdraw from easing. We do not expect the Fed will increase its base lending rate (FF) immediately, the first step will be ending QE 2, whether it ends prematurely is where the debate centers.
 
Two economic reports this week head up or focus; tomorrow the March ISM services sector index and on Thursday Feb consumer credit. Recent spikes in oil prices have likely caused consumers to cut back on other spending, the level of borrowing using credit cards should be watched. This week the ECB will meet with expectations that the bank will increase its base rate as inflation ion Europe has pushed up above the ECB target of 2.0%

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Facebook and Google Encroach on Banks' Turf

Facebook and Google are poised to go head to head with established financial services companies in online payments.

Both Internet companies have developed alternative payment networks that observers say could undermine the scale of dominant payments providers like MasterCard and Visa.

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Court Issues 11th-Hour Stay on Mortgage Loan Officer Pay Rule

An appellate court in Washington late Thursday night granted a stay delaying implementation of the Federal Reserve's loan officer compensation rule until April 5.

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Profit Opportunity: The Baby Boomers' Last Spending Spree

Don't even try to guess what the next big winner will be in the health care sector. Nobody knows which pharmaceutical company will come up with a blockbuster drug. Or which insurance company will benefit most from the new health care bill.

But you can make big profits by betting on just one thing: that the demand for health care will continue to increase. With the investment I mentioned yesterday, I believe you can make 10%+ gains and grab a 5%+ dividend every year for the foreseeable future.

As I said, the baby boomers are going to swamp the health care industry for the next 20 years.

So it makes sense to ride the coattails of this mega-trend.

And one of the easiest ways to do it is by investing in a health care REIT (real estate investment trust). Health care REITs own properties like senior housing, hospitals, skilled nursing facilities, and medical office buildings. And, like all REITs, they must pay out 90% of their taxable income in the form of dividends.

Why do I like REITs so much?

The main reason is that, because they own the health care facilities, they get paid no matter who the patient uses for insurance, what company manufactures their medication, etc.

And most of their properties are leased to health care providers for long periods of time, usually 10 to 15 years. So health care REITs aren't as worried about economic swings as, say, shopping mall REITs would be. If the economy drops, their retail tenants may go out of business. But because health care is virtually recession-proof, and their leases tend to be long-term, the health care REITs have a much more stable revenue stream.

The increasing demand for health care over the next 20 years means there will be an increasing need for more locations to deliver health care services. And with only 10% of health care real estate already owned by REITs, there's much more room for these REITs to grow.

But as an investor, you don't just get a great growth story. Because REITs have to pay out 90% of their income as dividends, you get a nice dividend check every quarter. And the yield on health care REITs (most average over 5%) is higher than that of most other investments.

Growth and income. The best of both worlds.

By Christian Hill

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Fed Won't Budge on Disputed Rule on LO Comp

The Federal Reserve Board is showing no signs of backing down on its loan officer compensation rule despite congressional requests and industry lawsuits to delay the April 1 effective date.

Here's my question, why does the Fed have anything at all to say about anything?

They are not a government agency, they are not even suppose to be in control of our monetary system! I don't have the space to explain here, but if you want to understand how our entire monetary system and economy has been hijacked, read "The Creature from Jekyll Island". This is one book that does a great job of explaining the fraud that has occurred since 1913.

I am just disgusted with the whole thing.

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Now And Then

NOW

Just when we thought that the housing industry was gaining strength it has taken another gut punch.
February is sizing up to be one of the weakest months ever for housing. First, starts, permits and existing home sales nose-dive. Then, last Wednesday new home sales followed with a staggering 16.9% plunge, to their lowest level since records began in 1963.

Housing has become massive headache for Washington. After months of attempting to micromanaging the industry with subsidies for Fannie, Freddie and buyers' tax credits and tweaking with underwriting, availability of money, the foreclosure process and the property appraisal process, they find the industry in a real quagmire.
The whole mess began with social engineering and messing with free market forces. When that grand experiment turned into an economic disaster of epic proportions, they are further manipulated the free market through central planning.

It's no wonder policymakers are stymied. It's no wonder builders, consumers and housing industry professionals are losing confidence, especially in Washington.

THEN - EARLY WARNINGS

This week's Wall Street Journal brought to light a 2006 internal report by Fannie Mae that warned of abuses in the way lenders and law firms were handling foreclosures. That is many months before regulators showed any concern.
The report cited routine abuses to the foreclosure processes, saying that attorneys in Florida had "routinely made" false statements in court to rush the process.

Fannie Mae's recent response: "Fannie Mae took the necessary steps to address the specific issues identified by the 2006 report and regularly evaluates and enhances oversight of its retained attorney network."

This is just one example of the mismanagement in Fannie and Freddie that led to a full government takeover in 2008, when losses resulted in taxpayers coughing up over $134 billion.

While the report did not address "robo-signing," it did question improper legal filings and the Mortgage Electronic Registration System that was intended to streamline the whole foreclosure process.

One perspective: It seems everyone in Washington is taking turns stirring the pot. It will likely take more than an act of Congress to straighten out the Housing Industry. Perhaps it is best let the market settle to its own levels of supply and demand. It will take time, but it will eventually right its self.

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Economic Calendar

Economic Calendar This week will be busy from start to finish... but the biggest news will hit on Friday! Right away Monday morning we’ll see the Personal Consumption Expenditures (PCE) Index, which is the Fed's favorite gauge of inflation. And as stated above, inflation is the archenemy of Bonds - which means it’s also bad for home loan rates. We’ll also see a new report Monday morning on Pending Home Sales, which comes after last week’s disappointing reports on Existing Home Sales and New Home Sales. This week, we’ll gain new insight on consumers - with the Personal Spending and Personal Income reports on Monday as well as the Consumer Confidence report on Tuesday. Manufacturing will also be in the news with Thursday’s release of the Chicago PMI, which reports on manufacturing in Chicago and is a good indicator of overall economic activity. But the big news to watch this week relates to employment, which kicks off Wednesday with the ADP National Employment Report on non-farm private employment. Next up is another round of Initial Jobless Claims on Thursday. Last week’s report indicated that Jobless Claims are improving on a weekly basis, but at a snail's pace and not enough to make a meaningful dent in our stubbornly high unemployment rate. Finally, the busy week culminates with the highly anticipated Jobs Report on Friday. This report features new data regarding job growth and the unemployment rate - needless to say, this report can be a big market mover! Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.

Weekly Market Preview

This week unlike last week there are events and data points everyday for the bond and mortgage markets to consider. This is employment week with the March employment data on Friday, early expectations are for non-farm jobs to increase 185K with non-farm private jobs up 203K, the unemployment rate is expected unchanged at 8.9%. In the meantime Feb personal income and spending out on Monday, Mar consumer confidence on Tuesday, Thursday has weekly jobless claims, the Chicago purchasing mgrs index, Friday the ISM national manufacturing index.
 
Recent better than expected earnings reports and relaxing of concerns from Japan has boosted equity markets and interest rate markets are taking on a more negative technical pattern. We remain bearish for the outlook on rates, however we are not looking for rates to move substantially higher. The prime and only reason the bond and mortgage markets rallied recently was over safety moves on the Japanese nuclear problems.
 
Not only economic data this week, but Treasury borrowing. Tuesday $35B of 2 yr notes, Wednesday $35B of 5 yr notes and Thursday $29B of 7 yr notes. Recent auctions still seeing OK demand but not quite as strong as auctions last year. Debt problems in Europe (Portugal, Spain, Greece and Ireland get coverage in the media but are not having any noticeable impact on US bond markets.

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The Obama Deception HQ Full length version

Economic Highlights

MONDAY, March 21st

Existing home sales fell 9.6% in February to an annual pace of 4.88 million compared to market expectations for a smaller decline and a rate of 5.10 million. All cash transactions accounted for a record 33% of sales, distressed sales accounted for 39% while investors accounted for 19% of total sales. Existing home sales are now 2.8% below their year ago level and off 32.7% from their September 2005 record high. Inventories increased 3.5% to 3.488 million which represents an 8.6 month-supply. Prices continued to retreat given the bulk of distressed properties working through the market. The median price for an existing home fell 5.2% over the past year to $156,100. Several months of moderate gains were once again followed by a sharp decline in home sales. Details in the data series show weakness in most areas of housing as well, from pricing to inventories to sales. Nevertheless, the h housing market is expected to improve from here amid high affordability and as the economy begins creating more jobs.
TUESDAY, March 22nd

The Federal Housing Finance Agency (FHFA) purchase-only house price index declined 0.3% in January from December and is now down 3.9% from January one year ago. The index includes conforming loans only. Pricing in this portion of the housing market has been on a downward trend for the last couple of years, basically for the duration of the downturn. Broader pricing trends like those measured by the S&P/Case Shiller index also show lower house prices, but just in the last six months. Given the large inventory of foreclosed homes and weakness in housing demand home prices will continue to come under pressure this year.

WEDNESDAY, March 23rd

The MBA mortgage applications index rose 2.7% to 524.4% for the week ending March 18. Both the purchase index and the refinance index rose by the same amount last week. Despite the increase, total mortgage activity is still 11.9% below its year ago level. Demand for home financing remains weak and will turnaround on stronger job and income growth, improved credit flows and once home prices stabilize.
New home sales plummeted 16.9% in February to an all time record low annual rate of 250k. This was the slowest pace of new home sales since this data series began in 1963. Moreover, it follows a sharp decline of 9.6% in January. The regional data showing enormous declines in the Northwest and Midwest suggest that severe winter weather may have played a role in the tremendous weakness last month. New home sales are now 28.0% below their year ago level and off a stunning 82.0% from their July 2005 peak. Inventories were unchanged at a 44-year low of 186k which reflects an 8.9 month-supply at the current sales pace. These data weaken the outlook for new home sales this year. The new home market remains mired at the bottom and it will take a significant turnaround in the economy, jobs and credit to get unstuck. Cheaper, distressed properties will also need to be worked through the market before fundamental support for new home sales returns.

THURSDAY, March 24th

Jobless claims fell 5k to 382k for the week ending March 19. The average level of initial claims has been below 400k in the last six weeks or so indicating slow, continuous improvement in the labor market. Job losses have slowed but job creation has yet to begin in earnest.

FRIDAY, March 25th

Fourth quarter GDP was upwardly revised to a 3.1% annual rate in its third and final estimate compared to a 2.8% rate of growth in the preliminary estimate and a 2.6% rate in Q3. Capital spending, home building and inventory investment were stronger than estimated while consumer spending, net exports and government purchases were weaker. The GDP price index was up just 1.3% from its year ago level as soft economic conditions make it difficult for companies to raise prices. Data released so far this year suggest that Q1 GDP grew at about the same pace as Q4 with estimates ranging from 2.5% to 3.5%.

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Who Knew What When?

The Journal said Fannie Mae was warned in a 2006 internal report of abuses in the way lenders and their law firms handled foreclosures, long before regulators launched investigations into the mortgage industry's practices. The report said foreclosure attorneys in Florida had "routinely made" false statements in court in an effort to more quickly process foreclosures and raised questions about whether some mortgage servicers or another entity had the legal standing to foreclose. Fannie Mae executives weren't the only ones who should have seen the housing crisis coming.

In the Times' "High and Low Finance" column, Floyd Norris wrote that former WaMu chief Kerry K. Killinger was talking about the "high risk" in the housing market in internal documents ? and finding signs of fraud in loans ? as early as 2005. But Norris said Killinger "was also convinced that Wall Street would reward the bank for taking on more risk" and it kept on doing so.

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U.S. new-home sales tumble 16.9% to a record low in February

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'Qualifying' Loan Definition May Disqualify Many Clients

Forthcoming regulations could make conventional mortgages more expensive to the wide swath of homebuyers and owners who can't put 20% down, depressing originations and potentially undermining the housing recovery.  

If 20% down becomes the standard for "qualifying residential mortgages," nearly half of all current homeowners with a mortgage, and 70% of first-time homebuyers would not make the cut, according to the data firm CoreLogic.  

Under the Dodd-Frank Act, lenders will have to retain 5% of the credit risk of any non-QRM home loan they securitize. Therefore, whether or not lenders held such loans in their portfolios, they'd have to hold capital against them - a cost that's apt to be passed on, in the form of higher mortgage rates, to borrowers without 20% equity.  

"The economics just don't work," said Cameron Findlay, chief economist at LendingTree, a unit of Tree.com Inc. He estimates that rates for low-down-payment loans could rise as much as 3 percentage points. "We think the housing market would be hurt through the endorsement of a mandatory down payment."  

Six federal agencies are expected to issue a proposal next month defining QRMs as having at least 20% equity from the borrower.  

The rule could drive more borrowers to seek Federal Housing Administration loans, which still allow down payments as low as 3.5% and are exempt from the risk-retention rule. Such an influx would further increase the government's already-sizable involvement in the mortgage market.  

"It does seem like it would put taxpayers on the dime for losses on those mortgages that go to FHA," said Ellen Schloemer, an executive vice president at the Center for Responsible Lending, a housing advocacy group.  

But the FHA, whose market share has swelled in recent years as other low-down-payment products went away, may not welcome the additional business. David Stevens, the departing FHA commissioner, had said one of the agency's goals was to shrink its market share to let the private market fill the void.  

"The concentration would significantly expand and move over to FHA at the same time that regulators are trying to reduce FHA's current 30% share of the market," Findlay said. "They are trying to figure out a way to adopt this change without crushing the market." He pointed out that the agency has already raised its annual premiums and that in September, higher loan limits will take effect that also will exclude some borrowers from getting FHA loans.  

Housing economists are still crunching the numbers, but CoreLogic's preliminary estimates show that 2.7 million borrowers last year put down less than 20% to buy a house. The Santa Ana, Calif., data firm estimates that 10.8 million current borrowers with outstanding mortgages have loan-to-value ratios above 80%, while another 11 million homeowners owe more on their mortgage than their home is worth.  

Sam Khater, CoreLogic's senior economist, said the typical household today has more debt than in the past, and asking borrowers to come up with additional cash would disproportionately affect the hardest-hit foreclosure states of Nevada, Arizona and Florida.  

"Though higher down payments would make the market less risky, clearly it would price some borrowers out of the market," Khater said.  

Though the proposal for stricter underwriting standards isn't even out yet, it has generated "a fair amount of furor" in the mortgage industry, Findlay said, creating some unlikely bedfellows. Housing advocates like the Center for Responsible Lending have sided with the National Association of Realtors and the National Association of Home Builders, claiming it now takes nearly 10 years for the average family to save for even a 10% down payment.  

Mark Calabria, the director of financial regulation studies at the libertarian Cato Institute, said regulators are likely to find a compromise. One option being discussed is letting QRMs include loans with a 10% cash down payment and private mortgage insurance on another 10% of the purchase price, so a lender could securitize the loan without retaining a sliver of risk, he said. "There certainly is some sensitivity to not kicking everybody out of the market."  

Some argue that even if it disqualified many consumers, making 20% down the standard is prudent. "So what if it excludes borrowers from the market?" said Rayman Mathoda, managing director of HausAngeles, a Los Angeles management consulting and real estate brokerage firm. "The point is the lender will have to retain 5% of the risk of excluded loans, which they should, so we have an alignment of incentives between loan originator (and usually also the servicer), loan investors and consumers."  

James R. Bennison, senior vice president of strategy and capital markets at Genworth Financial Inc.'s mortgage insurance unit, said that if regulators wanted to prevent risky lending they could have done so without excluding so many borrowers in one fell swoop, by requiring that loans getting the QRM exemption be fully documented instead of setting a specific down-payment requirement.  

"Low-down-payment lending isn't what drove the crisis. What drove the crisis was lousy underwriting," Bennison said.  

Bennison and others also argue that regulators need to pay more mind to the overhang of shadow inventory - seriously delinquent mortgages and foreclosed homes that have not yet been put on the market - and the number of borrowers already excluded from the market. So far, 6 million homeowners have been foreclosed on in the past three years and another 3 million are headed to foreclosure, according to RealtyTrac. Most of those people are ineligible for new mortgages for as long as five years. "If you're going to exclude low down payments, then the conventional market will not help much in clearing the shadow inventory," Bennison said. "The QRM is going to drive the economics of who gets a mortgage and at what price."  

By Kate Berry

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FHA Foreclosures Approach 176,000

The robo-signing scandal has left the Federal Housing Administration with a backlog of nearly 176,000 loans that were in the process of being foreclosed upon at the end of 2010.  

"FHA's in-foreclosure inventory is at a historic high and 27% higher than it was one year earlier," the agency said in its fiscal first-quarter report, released last week. This growing inventory pushed up the FHA's serious delinquency rate (90 days or more past due) by 19 basis points during the second half, to 8.78% as of Dec. 31.  

The FHA has investigated foreclosure processing problems at its servicers, but the Department of Housing and Urban Development has held back from taking enforcement actions while negotiations over a global servicing settlement are ongoing.

By Brian Collins

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Argument For Government To Drop The 30-Year Mortgage

This past week in an article written for Real Clear Markets, Edward Pinto outlined a solid argument for discontinuing the government's 30-year mortgage.

The following is a digest of his points:
Fact - A private 30-year fixed-rate mortgage is a bit more expensive than a government-backed 30-year.
Why? The lender is taking a longer-term risk on interest rates.

Who is taking the risk on the government loan? The lower cost of the government mortgage is subsidized by taxpayers in the form of government guarantees and eventual taxpayer bailouts.

Why should the government get out of the 30-year mortgage business?
30-year fixed mortgages have caused radical swings in origination volumes. When are down and equities are high it encourages homeowners to treat their homes as ATM. When rates go up lenders try to increase volume with looser underwriting [creating a volatile market].

30-year fixed mortgages amortizes slowly, keeping the borrower's equity low and debt level high in the early years [creating a high default environment].

Widespread refinancing resets the mortgage at the then current 'normal' market values. As a result mortgage origination grew from $1 trillion in 2000 to $4 trillion in 2004. Had these homeowners had to sell their homes to free cash equity it would have caused a collapse in prices. When values fell millions of homeowners discovered their homes had negative equity, not unlike a margin call when owing stock on margin [eventually creating an equity bubble].
Wall Street traders stuffed their pockets with millions churning each trade [mixing bad loans and good loans in securities].

Delinquency rates were kept deceptively low as seasoned loans were constantly being replaced with unseasoned loans [creating a false sense of confidence in investors].
Mortgage servicing rights experienced wild fluctuations [creating market instability].

This led to the two largest taxpayer bailouts ever [guess who got left holding the bag?].

"No proponent of government guarantees has ever explained why the taxpayers and other mortgage borrowers should be subsidizing this type of mortgage. For homeowners who want a thirty-year fixed-rate loan, it is available at a slightly higher cost without the risk of a taxpayer bailout," says Edward Pinto.
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U.S. existing-home sales drop 9.6% in February

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Feds Revamp Waitress Compensation Due to e coli Poisoning

Regulators are proposing a change in how food servers in the United States are paid due to recent e coli poisoning at a local restaurant. E Coli (short for "Escherichia coli" ), can cause serious food poisoning in humans and the bacteria is responsible for occasional product recalls due to unsanitary conditions at Major Slaughterhouse 's around the country. Clearly the fault of the food server known as the "Waiter" or "Waitress".

Mr. Tommy Aikey awoke a few days ago with food poisoning after having a Steak meal served by Wendy Knowfalt, a food server at "Steak and Ail".

After Tommy Aikey reported the incident to local authorities, the legislators and regulators quickly got to work on a new bill that will prevent this type of food poisoning in the future. From the experts within the government, all indications show that clearly the waitress was at fault for the ordeal.

Here is a breakdown of the new regulation and the three main components.

* and waitresses will no longer be able to have their tips or other compensation based on the type of the meal they serve or based on the servers experience level, or service levels to the customer. For example:

. A Waiter or Waitress may not be paid more for a steak dinner, than a Shrimp or chicken dinner. They must be paid the same regardless of whether the food comes out warm, or cold due to any delay where the food was prepared while the server was on break.

. When customers order their meal, they must be presented with a minimum of 3 different menus from competing restaurants in the area.

. The customer must wait 3 hours to order their meal after signing a disclosure showing what type of salad, starch and vegetable will be served with the meal. If the restaurant owner provides these "ancillary" items - he may not charge a higher margin on one item over the other.

* to the waiter/waitress must be either paid by TIPS from the consumer, or by credit card - NOT by BOTH.

i. Note that for these purposes, both the Restaurant itself AND the Wait staff are considered "Servers", thus - if the Credit card option is used to pay the cashier (owner of the restaurant), then NO TIPS may be accepted by the waitress.

* Provision and Safe Harbor.

i. A "Server" may not "Steer" a consumer into a meal by a certain animal type if they will receive greater compensation from that meal, than in other meals which may have been offered the consumer. unless the offered meal is in the consumers best interest (Safe Harbor).

* that it is unclear within the proposed law how far this legal definition goes, and the Feds are offering NO CLARIFICATION. If the same steak dinner is available 2 blocks away, is it in the best interest to send the client to the competing restaurant?

* serving Steak over Salmon in the best interest of the consumer's health. All questions that have severe penalties and will only be clarified during future inspections of the restaurant by the Food Inspector.

Lastly, in another unrelated law that is being considered called QRM, or Qualified Reluctant Meals- certain Restaurant owners should be aware that they may have to eat 5% of the consumers meal prior to serving.

On a serious note, I'll be releasing some tidbits from Thursday's Fed hosted Outlook webinar for those that missed it, or want clarification from it.  I'll also be releasing the RateAlert Executive Fed Comp Q&A Sessions schedule later this morning.
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T-Mobile to be purchased by AT&T for 39 Billion.

I need to say, this is awful. T-Mobile has very good service, great customer service, and terrific wireless programs. ATT has awful service. I had it in the past 2 years and can tell you from experience. They were always terrible, from the time they took over Cell One many years ago. Their customer service is an oxymoron, because it doesn't exist! And their wireless plans, expensive at best.
I hope there is some shining light to come from this announcement. But if this goes through, the only winners will be T-Mobile owners at Deutsche Telekom. The losers will be the customers. Like many large deals on Wall Street, it's all about greed. It's a rigged game anyway. But that is a discussion for another day.

Weekly Market Preview

This week the bond and equity markets face the problems coming out of Japan and the FOMC meeting on Tuesday. The economic data, while always important, is a little less so now while investors try and handicap the economic importance of the impact of Japan's earthquakes. Two reports on inflation with PPI and CPI due out on Wednesday and Thursday, inflation continues to get attention although there isn't any now, nor any on the horizon----tilting at windmills. Weekly claims are expected to be lower on Thursday and the Philadelphia Fed index of business strength on Thursday are the two keys for data.

The Fed meets Tuesday, we are not looking for anything significant from the meeting. The short statement will likely be about the same as in the past; the fed stands ready to keep rates low, the job market is still struggling, the Fed will complete QE 2 but will not completely abandon a possible QE 3 although that is not likely with the economic improvement. The bond and mortgage markets are somewhat more encouraging, both the 10 yr note and mortgages have moved through their respective resistance levels. That said, rates are tied directly to stock market direction; a rally in equities will push rate prices lower and could change the dynamics overnight.

"Investors should view June 30th, 2011… like D-Day"

The above quote is from Bond King Bill Gross – who manages the world's largest bond fund for PIMCO. On June 30, the government's second round of quantitative easing (QE2) ends – after a combined $900 billion between new money and maturing bonds.

As a massive purchaser of U.S. Treasury bonds and municipal bonds, PIMCO is worried. Currently, Gross says, "Bond yields and stock prices are resting on an artificial foundation of QE2 credit that may or may not lead to a successful private market handoff and stability in currency and financial markets."As Gross notes, the Fed has purchased nearly 70% of the U.S. government bonds issued since the beginning of QE2. China, Japan, and other sovereigns purchase the rest.

So the Treasury issues bonds, and the Fed buys them. It's a scam. And the important (and obvious) question Gross poses is, "Who will buy Treasurys when the Fed doesn't?"At current yields (10-year Treasurys at 3.24%), we'd say the government will have a hard time finding buyers… But everything is a buy at the right price. The next question is, what's that price?

In Gross' opinion, "Treasury yields are perhaps 150 basis points or 1.5% too low when viewed on a historical context and when compared with expected nominal GDP growth of 5%."Gross concluded his letter saying, "PIMCO's not sticking around" to see how this situation plays out. When one of the world's biggest investors issues such a dire warning, pay attention… 

What else is the Fed spending its QE2 money on? Fannie Mae and Freddie Mac, of course. As part of their takeover, Fannie and Freddie are required to pay a 10% dividend on the Treasury's preferred shares. It costs the firms around $15 billion a year.

According to the Wall Street Journal, "The firms have paid $7.5 billion in total dividend payments, while receiving injections of $5.7 billion to help keep them in business."It's ludicrous, but Fannie and Freddie say it's working. Fannie reported fourth-quarter income of $73 million last week – its first profitable quarter in 3.5 years. Oh… but that doesn't count the $2.2 billion Fannie had to pay the government (the government gave Fannie $2.6 billion that quarter)."Even in their best years, they rarely had the type of income to pay these dividends," said Mahesh Swaminathan, senior mortgage strategist at Credit Suisse.  

So the Treasury sells its bonds to the Fed, which it pays for in printed money. And the Treasury "loans" billions to Fannie and Freddie (the U.S. housing market), which they then pay back to the Treasury. This is a Ponzi scheme… plain and simple. Except in this case, the patsy and the beneficiary are the same entity. One day, this will all end. And it will be ugly.

U.S. mortgages in foreclosure tie a record high: Mortgage Bankers Association

1,000,000 Homes Missing

The analytics firm CoreLogic took aim at the National Association of Realtors in a report Tuesday that claims the trade group overestimated home sales last year by 15%-20%.

Mark Fleming, CoreLogic's chief economist, said there is a significant discrepancy — of at least 1.3 million home sales — between his firm's sales estimates and those of the Realtors group that can be attributed to their vastly different methodology.

CoreLogic estimated that home sales totaled 3.6 million last year, down 12% from 4.1 million in 2009.

The real estate agents' group said home sales fell 5% last year, to 4.9 million.

CoreLogic counts filings at county record offices nationwide and benchmarks the changes in ownership against data from the Mortgage Bankers Association, the Census Bureau and from bank filings that comply with the Home Mortgage Disclosure Act.

The Realtors' sales data comes from a sample of 40% of Multiple Listing Service data, said Walter Molony, a spokesman for the trade group.

In the last two months, the Realtor group has been consulting with outside housing economists, academics and government officials and is undertaking a "re-benchmarking using independent sources," Molony said.

The trade group expects to release revisions to its seasonally adjusted annual sales rates and to the month's supply of inventory for the past three years on Feb. 28.

"There has been a notable increase in non traditional sales outside the MLS's such as bulk transactions by investors," Molony said. "We disagree with CoreLogic's assumptions and think they were premature in putting their numbers out."

The disparity is more pronounced when looking at the monthly supply of unsold homes on the market, which often is used as a key determinant of health.

CoreLogic, of Santa Ana, Calif., estimates the 16-month supply of homes in November was the highest level since February 2009. The Realtor group estimates there was an eight-month supply of homes during the same period. A normal market has a six- to seven-month supply, Fleming said.

Lawrence Yun, the Realtor group's chief economist, said last month that home sales were on an uptrend and the market was "getting much closer to an adequate, sustainable level."

Fleming said the upcoming spring selling season will determine whether the market gets out of its doldrums.

"Our data tells us there are fewer homes being sold relative to the inventory level," Fleming said. "Moreover, there will be increased headwinds on borrowers' abilities to obtain financing, because loans will become more expensive as the market normalizes and begins to more appropriately price for risk."

Market Update

FNMA 30-YR 4.5%

Previous close 101.030
Opened Down 0.09bp @ 100.938

Key Economic Data:

EUR / USD 1.3483 Down 0.0004
USD / JPY 83.9053 Up 0.1390
GBP / USD 1.6016 Down 0.0110

OIL 84.98 Up 0.66
Gold 1,375.50 Up 1.40

Key Economic News:

Core Indexes Surge; Jump in Starts All in Multifamily
Core producer price indexes surge at both finished and intermediate goods stages of processing, with no single component responsible for these significant upside surprises. Housing starts also rise more than expected, but increase is entirely in multifamily sector and appears due to efforts to start construction before changes in building codes.

KEY NUMBERS:
Producer price index +0.8% in Jan (mom, +3.6% yoy) vs. median forecast +0.8%.
Ex food and energy +0.5% in Jan (mom, +1.6% yoy) vs. median forecast +0.2%.
Housing starts +14.6% in Jan (mom, -2.6% yoy) vs. median forecast +1.9%.
Permits -10.4% in Jan (mom, -10.7% yoy) vs. median forecast -10.9%.

MAIN POINTS:
1. The core indexes of the producer price index surged in January-up 0.5% for finished goods and 1.0% for intermediate goods. In the case of the finished goods component, the increases were sprinkled widely enough that no single factor can be blamed. Scanning the report, pharmaceuticals, tires and tubes, sanitary paper products, toys and games, sporting goods, commercial furniture, and truck trailers all posted monthly increases of 1% or more. In the intermediate sector, prices of industrial chemicals accounted for roughly ¼ of the 1.0% increase, according to the Bureau of Labor Statistics. Data for prior months were revised to update seasonal factors.

2. Although this was a huge and unexpectedly diverse increase in the core finished goods index, we would be reluctant to make much of it in terms of implications for core consumer inflation, as correlation between the two have been much weaker in the past 25 years than before. Surprisingly, food and energy were fairly tame, rising 0.3% and 1.8%, respectively.

3. Housing starts rose 14.6% in January to 596k, as a 77.7% surge in multi-family starts outweighed a 1% drop in single-family starts. Moreover, there were small downward revisions to December. Permits for new construction, however, fell 10.4%. In particular, permits for multi-family houses-which tend to have most predictive power for future housing activity-slumped by 23.8%. As noted last month, permits rose sharply at year-end 2010 to beat changes in building codes that went into effect in several states; this had a pronounced effect on the multifamily figures that will be fleeting.

9:15: Industrial production and capacity utilization for Jan...a decent gain? Although payroll gains in January were disappointing overall, the manufacturing sector managed to add 49,000 jobs. This plus an uptick in the workweek in that sector suggests another decent increase in industrial output, despite the poor weather.
On production, median forecast (of 80): +0.5%, ranging from -0.5% to +0.9%; last +0.8%.
On capacity utilization, median forecast (of 66): 76.3%, ranging from 75.4% to 78.00%; last 76.0%.

14:00: Minutes to the Jan 25-26 FOMC meeting...not as boring as the statement. Although the meeting itself did not produce any material surprises, the markets will nonetheless read these minutes carefully. The committee probably marked up its forecast for near-term growth. We'll also be interested in whether more members feel that the longer-run sustainable level of unemployment has moved up and in any color on the range of views about future policy.

Advice:

I would float and lock at the end of today, if the market permits.

Market Update

FNMA 30-YR 4.5%

Previous close 100.780
Opened Down 0.06bp @ 100.719

Key Economic Data:

EUR / USD 1.3522 Up 0.0033
USD / JPY 83.7950 Up 0.4703
GBP / USD 1.6157 Up 0.0119

OIL 85.30 Up 0.49
Gold 1,372.10 Up 7.00

Key Economic News:

Soft Sales, Due to Weather; Empire Index and Import Prices Both Firm
A weaker than expected retail sales report, mainly due to downward revisions to Nov and Dec. Weather clearly a factor in recent months as non-store retailers outperform relative to recent differentials. Empire index shows further gains in manufacturing in New York State while import prices surge in reaction to commodity price pressures.

KEY NUMBERS:
Retail sales +0.3% in Jan (mom, +7.1% yoy) vs. median forecast +0.5%.
Ex autos +0.3% in Jan (mom, +5.4% yoy) vs. median forecast +0.5%.
Import prices +1.5% in Jan (mom, % yoy) vs. median forecast +0.8%.
Empire index 15.43 in Feb vs. median forecast +15.

MAIN POINTS:
1. Retail sales rose less than expected in January, although the core component-sales ex autos, building materials, and gasoline-was in line with the consensus view (+0.4%) and just a touch less than we had thought (about ½%). However, data for November and December were revised down 0.2% and an additional 0.3%, respectively. We expect a small downward adjustment to the consumption component of the fourth-quarter real GDP growth rate (currently 4.4% at an annual rate for consumption) and see the tracking into the first quarter for purchases of goods at just over half the fourth quarter (nominal) 6.6% annual rate.

2. The report provides clear evidence of weather effects over the past three months in retail spending, as non-store retailers posted gains of 1.5%, 2.6%, and 1.2% for November, December and January, respectively. While this category is trending higher than the total as more Americans shop from the comfort of home, this three-month increase of 5.4% (not annualized) versus a paltry 0.9% for core sales is a much bigger difference than the difference in year-to-year trends (13.4% vs. 4.3%).

3. The Empire index rises from 11.92 in January to 15.43 in February. New orders remain broadly unchanged (down round half a point to 11.8) but shipments decline (by around 14 points to 11.31). The index for employees falls (by almost 5 points to 3.61) but the index for inventories rises (by almost 5 points to 9.64). The index for prices paid rises 10 points to 45.78.

4. Import prices rose 1.5% month-on-month in January (5.3% yoy), with increases across a variety of commodity-related categories: prices for "industrial supplies" rose 3.3% on the month, while foods and beverages were up 2.6%, and petroleum 3.4%. Categories dominated by manufactured goods, including capital goods and consumer goods, showed much lower inflation (+0.1% and +0.3% respectively).

10:00: Housing market index for Feb….still at a very low level? This index continues to hang in the mid teens, where it has been for most of the past three years. Nobody expects much of a change this month.

Median forecast (of 47): 16, ranging from 15 to 18; last 16.

10:00: Business inventories for Dec…did retail remain flat? The median forecast of a 0.7% increase implies no change in retail inventories given what has already been reported for manufacturing (+1.1%) and wholesale (+1.0%).

Median forecast (of 51): +0.7%, ranging from +0.2% to +1.0%; last +0.2%.

13:00: Treasury Secretary Timothy Geithner testifies on the administration's FY 2012 budget…before the House Ways and Means Committee.

14:00: OMB Director Jacob Lew testifies on the administration's FY 2012 budget…before the Senate Budget Committee.

17:00: ABC consumer comfort index…can't seem to hold those gains. This index fell back to -46 in the first week of February from a comparatively high -41 in the last week of January. Its nearly 3-year range is -54 to -40.

President Mubarak resigns, according to Egypt's vice president: reports

Don't give me 100%

You've probably heard it 1,000 times before.

A coach wants you to give your best effort. So what does he do? He says he wants you to give him "110 percent."

Not much has changed in my mind since I heard a coach use this line the very first time. In fact, I'm still trying to wrap my noggin around exactly what 110 percent would look like - or feel like.

After all, if everyone uses about 10 percent of his potential mind power, then why would I need 100 percent - much less 110 percent - in order to win? Seems to me if I was able to give 11% of my mind's power instead of 10%, I might move to the head of the pack.

Moreover, a one percent bump in performance is much easier to see and feel than 110. Former NBA coach Pat Riley figured this out long ago, when he coached the Los Angeles Lakers. After the team had already snagged a title, he re-motivated them by getting every single player to commit to a 1% improvement in rebounding, shooting, assists, free throws and so on.

This 1% commitment led to some staggering results. Some players, just by being able to see themselves giving 1% more, ended up doing 20% or more better than the year previous.

In Taoist internal martial arts, the focus is NEVER on giving 100% of your very best. Why? Because when you try to give 100%, you add unnecessary tension to the equation - and this tension never results in increased performance.

The other night I was warming my son, Frank, up in the bullpen prior to a Little League scrimmage. Unlike other days, he was way off in this throws. The balls were flying a couple feet over my head. Or wide right - or wide left.

I walked up to him and increased the depth of his inhale and exhale. Why? Because he was hardly breathing at all. And if someone isn't breathing with each pitch, guess what's he holding onto?

TENSION.

Just by getting him to relax via a good inhale and exhale, his aim improved 100 percent.

But then I added some other internal martial arts knowledge to his pitching. I gave him a specific percentage of his maximum I wanted him to be using when he throws. I based this number upon what I know will give him maximum velocity and control.

I can assure you the percentage I gave him was NOT 100 percent - much less the highly-touted "110 percent."

Guess what happened?

He started throwing perfect strikes to me. And they were stinging my hand. Let me tell you, when a 10-year old throws hard enough to sting your hand, he's got some ooomph.

When Frank took the mound a few minutes later, he looked great. One bullet after another. Three up three down.

Every pitcher has good days and bad days. It's rare that one who is doing poorly can be turned around on the same day. Yet, that's what happened with my son the other night.

It's a natural and typical occurrence with the kids I work with.

Last night I worked with a few of the other pitchers - all of whom are beginners. None of these kids could throw a perfect strike.

But after a few minutes of changing the mental pictures of what they're doing - they were tossing strikes.

Each kid went home believing in himself a little more than when he started out. And this belief will result in improved performance, not just in practice - but in the games as well.

Ridding your body of tension is key to superior performance. It's key to getting the most out of life.

It's key to turning wild pitches into perfect strikes.

Believe me, success isn't about giving 100 percent or 110 percent. It's about learning to get more out of yourself while feeling like you're doing less.

It's being in a relaxed-ready state that allows for maximum output.

Tension interferes with output. It creates physical, mental and spiritual resistance.

You're much better off with ZERO RESISTANCE .

Zero Interference from your mind-body.

By Matt Furey

Reports that Hosni Mubarak could imminently announce his resignation as president of Egypt moderately rattled world financial markets on Thursday, but investors have already discounted the political situation's broader impact, analysts say.

Rate Hits High Not Seen Since April 2010

The average weekly rate for a 30-year fixed-rate mortgage Thursday hit a high of 5.05% not seen in Freddie Mac's survey since April 2010 in a move attributed to positive economic data and a run-up in bond yields.

Thirty-year fixed mortgage rate hits highest level since April: Freddie Mac

Market Update

FNMA 30-YR 4.5%

Previous close 100.310
Opened Down 0.22bp @ 100.094

Key Economic Data:

EUR / USD 1.3617 Down 0.0116
USD / JPY 83.0450 Up 0.6880
GBP / USD 1.6043 Down 0.0059

OIL 86.25 Down 0.46
Gold 1,354.10 Down 11.40

Key Economic News:

Sharp drop probably affected by weather
Initial claims fall sharply, but may be due al least in part to poor weather. Continuing claims continue to drift lower.

Key Numbers:
Initial claims -36k to 383k in week ended Feb 5 vs. median forecast 410k.
Continuing claims -47k to 3.888 million in week ended Jan 29 vs. median forecast 3.9 million.

Main Points:
1. Initial claims fell sharply in the first week of February, to the lowest level since early July 2008. Although we think the trend is improving, this figure must be discounted on account of poor weather, at least until confirmed by the next week's report. Recall that major snow and ice storm blanketed most of the country during the week.

2. Continuing claims are generally less affected by the weather, and the week to which the latest data refer also did not have as serious a disturbance in this regard. Hence, we're more inclined to see the roughly in-line reading as consistent with gradual improvement in the labor market. The number of people receiving benefits from extended and emergency programs rose by about 84k in the week ended Jan 22, undoing a similar decline from the preceding week.

10:00: Wholesale inventories for Dec...a moderate increase? These inventories are goods that are essentially in transit from factories or from the docks to final destinations such as retail outlets and are therefore difficult to forecast, and they have been quite volatile of late. The median increase is about one-half of what the Commerce Department assumed in its preliminary GDP estimate for the fourth quarter.
Median forecast (of 35): +0.7%, ranging from -0.4% to +1.8%; last -0.2%.

14:00: The US budget balance for Jan...better than a year ago, once corrected for calendar quirks. The CBO estimates that the US Treasury ran a $53bn deficit in January. This is $10bn larger than in January 2010, but $16bn smaller once special calendar effects are taken into account. This would bring the four-month fiscal year total to $242bn. , versus $431bn at the same point in FY 2010.
CBO -$53bn; median forecast (of 29): -$55bn, ranging from -$70bn to +$60.5bn; last (Jan 2010): -$42.6bn.

16:30: Federal reserve balance sheet...Last week the balance sheet expanded by nearly $26bn. It is closing in on $2.5trn, on its way to what we expect will be about a $2.9trn level by the time the asset purchase program is done in June.

Advice:

With unemployment slowly improving, even with the effects of bad weather. I expect the market to slip back below 100.00 again.

I would lock short term and long term today.

Market Update

FNMA 30-YR 4.0%

Opened -19 BP from previous close (Opening Price 97.438)

Key Economic Data:

EUR / USD 1.3644 Up 0.0061
USD / JPY 82.1373 Down 0.1885
GBP / USD 1.6066 Down 0.0043

OIL 86.59 Down 0.89
Gold 1,356.50 Up 8.30

Key Economic News:

A few second- and third-tier indicators, on small business sentiment, job vacancies and turnover, and consumer confidence…

7:30: NFIB small business optimism index for Jan…another leg up? This index gave back a part of the gain it posted in November, but all 12 of the analysts who have forecasts for January look for another modest increase. The improvement in recent months reflects modestly better assessments for a wide range of business conditions, including expectations of easier credit, better general economic conditions, sales, and plans to increase employment.
Median forecast (of 12): 94, ranging from 93 to 96; last 92.6.

10:00 JOLTS (Job Openings and Labor Turnover Survey) for Dec…This monthly survey shows steady improvement in vacancies but only modest evidence of a pickup in hires.

17:00: ABC consumer comfort index…faint signal through a lot of noise. This index is back up to the old resistance level of -41, ready (hopefully) to push though again.

This Week - Market Update

After a big increase in interest rates last week the market will have supply to contend with. Treasury will conduct its quarterly refunding beginning Tuesday with $32B of 3yr notes, Wednesday $24B of new 10 yr notes and Thursday $16B of new 30 yr bonds. After the 10 yr not increased 29 basis points in yield and the 30 yr bond up 14 basis points the auctions should see good demand. This week doesn't provide much data, in fact only weekly jobless claims that carry any significance.
 
The bond and mortgage markets have solidly broken out of their long tight ranges to higher rates. The 10 yr note appears to have a clear path to 3.75% while mortgage rates are likely to increase another 10 to 15 basis points in rate. Concerns of higher interest rates in Europe, China and the rest of the BRICs as well as improving economic conditions will keep US rates from falling with the most likely path being up for rates. One key thing to keep in mind, US rates remain as low as we have had for generations. If lenders don't see it as a positive consumers certainly won't.

Bernanke Criticizes Efforts to Audit Fed

Below is an article I came across today that I wanted to share.

The main reason is that Auditing the Federal Reserve isn't exactly what we need to improve the economy. We need to abolish the Federal Reserve and follow the example of the original colonist that set up a monetary system using colonial script. This was money that was created in limited supply to be balanced with the demands of the time.
But the most important feature of their system was that they didn't have to borrow the money from the Central Bank of England and start off in debt. Nor did they have to pay taxes on the money earned.

I will write more about this in the future but the bottom line is this, the more people educate themselves about the Federal Reserve and the entire creation and operation of our monetary system, the more you understand why the Federal Reserve is something we can do without. Now see the article below.

Bernanke Criticizes Efforts to Audit Fed

Federal Reserve Board Chairman Ben Bernanke on Thursday admonished Congress for its efforts to reach further into the central bank's books, saying such pursuits would ultimately lead to a "bad outcome" for the U.S. economy.  

Rep. Ron Paul, R-Texas, who now chairs the House Financial Services subcommittee that oversees the Fed, has been pressing to audit the Fed's monetary policies in order to have greater oversight of the central bank's decisions, primarily how it sets interest rates.  

"It should be up to the Fed to make monetary policy decisions independently of short-term political influences and with an eye for long-term objectives of the economy," Bernanke said in a speech at the National Press Club.  

He said such an audit would be a significant step toward direct congressional oversight of the Fed's monetary policy decision-making.  

"Personally, I think it would be a very bad outcome," he said. "Central banks [that] are independent in their decision-making and have a clear mandate provide a much better outcome both in the economy and financial markets than a central bank which is being dictated by short-term considerations."  

Still, Bernanke made clear that in other areas, like its liquidity efforts, the Fed is an open book and will continue to be so.  
"Every aspect of the Fed's financial dealings are wide open, and we have invited" the Government Accountability Office "to come in and look at all of our extraordinary activities through the crisis and all of our ongoing financial activities," he said. "All of our assets, all of our transactions are open to the public and will be open to the public, and I'm committed to that transparency."  

Bernanke also reiterated hopes that banks will expand lending, though with proper underwriting.  

"We obviously don't want banks to make bad loans. … We want them to make sound loans," he said. "On the other hand, when you have a creditworthy borrower coming and asking for credit, it's in the interest of the bank, it's in the interest of the borrower and it's in the interest of the whole economy that loan get made, so we need to find the appropriate balance."

By Donna Borak

Market Update

FNMA 30-YR 4.0%

Previous close 98.060
Opened Down 0.25bp @ 97.813

Key Economic Data:

EUR / USD  1.3582  Down  0.0053
USD / JPY  81.7345  Up  0.1075
GBP / USD  1.6078  Down  0.0058

OIL  91.34  Up  0.80
Gold  1,352.50  Down  0.50

Key Economic News:

Jobless rate falls to 9.0% in January; Payrolls rise 36,000

The jobless rate unexpectedly fell in January to the lowest level since April 2009, while payrolls rose less than expected, depressed by winter storms. Unemployment declined to 9.0% from 9.4% in December. Employment rose by 36,000 workers, the smallest gain in four months, after 121,000 rise in December that was larger than initially reported. Payrolls were projected to climb to 146,000. Payrolls in construction and transportation, industries most effected by bad weather, dropped in January, while factory employment rose the most since August 1998.

Advice:

If you like to gamble, you might want to float today. But I would recommend you lock today.

Market Update

FNMA 30-YR 4.0%

Previous close 98.470
Opened Down 0.25bp @ 98.219

Key Economic Data:

EUR / USD  1.3687  Down  0.0133
USD / JPY  81.7590  Up  0.2113
GBP / USD  1.6189  Down  0.0002

OIL  91.15  Up  0.29
Gold  1,336.30  Down  4.20

Key Economic News:

Solid productivity growth; Jobless claims down

Data modestly better than expected across the board as jobless claims revert to lower levels while productivity growth posts a solid advance in Q4.

Key Numbers:
Nonfarm productivity +2.6% annualized in Q4 vs. consensus +2.0%.
Unit labor costs -0.6% annualized in Q4 vs. -1.0% consensus +0.2%.
Initial jobless claims 415,000 in week of Jan 29 vs. consensus 420,000.
Continuing claims 3.925m vs. consensus 3.95m.

Main Points:
1. Nonfarm productivity turned in another good showing, rising 2.6% annualized in the fourth quarter (+1.7% yoy). With labor compensation posting only modest gains, unit labor costs fell in Q4. Unit labor costs have fallen 6 of the past 8 quarters, consistent with the sharp increase in corporate profit margins over this period.

2. Jobless claims moved down to 415,000 in the week of January 29, reversing most of the prior week's increase. Even so, the four-week moving average of new claims is now 431,000, somewhat above its low of 411,000 at the end of 2010. The Labor Department indicated that the drop in claims was concentrated in states that saw storm-related increases the prior week, so we are inclined to take the recent numbers more as evidence of inclement weather than any change in the underlying trend.

3. Continuing claims fell to 3.925 million while the number of people receiving extended benefits fell by 68,000 to 4.55m.

10:00: ISM nonmfg index for Jan...will it improve? Its manufacturing counterpart was exceptionally strong this month. Ahead of tomorrow's payroll report, the employment index will be of particular interest, given generally encouraging labor market data.

Median forecast (of 73): 57.1, ranging from 54.5 to 62; last 57.1.

10:00: Factory orders for Dec....a small setback? The durable goods portion of this report is already known and was down 2.5% in December, hence forecasts for a decline in the overall orders measure.

Median forecast (of 67): -0.5%, ranging from -1.5% to +2.0%; last +0.7%.

13:00: Federal Reserve Chairman Ben Bernanke speaks...at the National Press Club. With the last Fed statement making clear that QE2 is essentially on autopilot at this stage, markets will likely focus on any differences in tone with respect to the economic outlook and any hints about the likely procedure and timing for winding down the asset purchase program.

16:30: Federal Reserve balance sheet...With QE2 underway, the Fed's balance sheet remains in expansion mode through midyear.

Advice:

My position on MBS stays neutral today.

 

Market Update

FNMA 30-YR 4.0%

Previous close 98.690
Opened Up 0.16bp @ 98.844

Key Economic Data:

EUR / USD  1.3787  Down  0.0043
USD / JPY  81.4440  Up  0.0993
GBP / USD  1.6186  Up  0.0044

OIL  91.05  Up  0.28
Gold  1,377.40  Down  2.90

Key Economic News:

The Mortgage Bankers Association's index of ,mortgage applications rose 11.3%, almost erasing the 12.9% drop in the prior week. The indexes of purchase loans and refinancing both shared in the increase, advancing 9.5% and 11.7%, respectively.

Another strong labor market reading
ADP report stronger than expected in January, although December figure revised down substantially. Although its forecasting record is spotty, the report is consistent with our expectation that the trend in private-sector hiring is picking up.

Key Numbers:
ADP reports predicts 187k in private non farm payrolls for Jan vs. median forecast +140k.

Analysis:
The ADP report on private-sector payrolls by 187k in January, coming in stronger than expected. The December figure, however, was revised down by 50k to 247k. The January increase was mainly driven by higher employment at service companies (up 166k), but employment at goods-producing firms also rose (+21k). Employment in manufacturing rose by 18k. The headline increase was mainly driven by hiring at small (+97k) and medium firms (+79k); employment at large firms rose only slightly (+11k).

9:00: Quarterly refunding announcement...will they shut down the SLGS window? We expect a package of 72bn-$32bn in 3-year notes, $24bn in 10-year notes, and $16bn in 30-year bonds-to redeem $23.4bn in maturing issue and to raise $48.6bn in net cash. This represents no change from the November refunding in either the size or composition of gross issuance. We do not expect any changes in the coupon schedule, but it is possible that Treasury will use this opportunity to suspend issuance of State and Local Government Securities (SLGS) in anticipation of reaching the debt ceiling sometime this spring. Absent a major surprise from Congress on the debt ceiling, that suspension is coming as the next logical step in creating room to continue the marketable borrowing schedule. It's just a question of when.

Advice:

I believe today we will see similar trading as yesterday, again in the range of 98.626 to 99.000.

I would lock today.

Market Update

FNMA 30-YR 4.0%

Previous close 99.125
Opened Down 0.25bp @ 98.875

Key Economic Data:

EUR / USD  1.3760  Up  0.0066
USD / JPY  81.6003  Down  0.4445
GBP / USD  1.6093  Up  0.0079

OIL  91.55  Down  0.64
Gold  1,339.30  Up  4.80

Key Economic News:

ISM manufacturing, construction outlays, vehicle sales, and the weekly confidence survey...

10:00: ISM manufacturing index for Jan...upside risk. This should be a solid report on momentum in the US manufacturing sector.
Median forecast (of 78): 58, ranging from 556 to 59.5; last 58.5 (revised from 57.0).

10:00: Construction outlays for Dec...which way? Most forecasters anticipate a small increase in outlays, but there are some expectations of significant declines.
Median forecast (of 49): +0.1%, ranging from -1.3% to +0.5%; last +0.4%.

Late morning/early afternoon: Lightweight vehicle sales for Jan...hurt by poor weather and limited supply? Anecodotal reports from the manufacturers suggest a modest hit to sales from poor weather and tight inventories for popular models, but others see a firmer outcome.
For total sales: median forecast (of 38): 12.6mm, ranging from 11.8mm to 12.9mm; last 12.53mm.
For domestic: median forecast (of 17): 9.42mm, ranging from 9.2mm to 9.7mm; last 9.46mm.

17:00: ABC consumer comfort index...faint signal through a lot of noise. If you squint real hard, this index exhibits a very small upward trend from early 2008 on, but it has backed off a 2 1/2 year high over the past two weeks.

Advice:

With the news out of Egypt, it looks like Friday will be a big day. The weaker dollar could help the MBS market, unless we see some crazy numbers out of vehicle sales. I see the market trading around the 99.000 mark.

I don't believe this is a time to gamble. I would lock today.



Sent via BlackBerry

Homeownership Makes $ense

Bring on the buyers! At last, the housing market is beginning to make sense again. The ownership line is finally crossing over the rental line on the great Homeownership graph.
It is now more expensive to rent than to buy a home in 72% of major metropolitan areas across the US, according to the Trulia Rent vs. Buy Index released Monday.

This is due to rising demand for rentals and falling home prices combined with low interest rates.

Pete Flint, chief executive and co-founder of Trulia says: "Since the start of the Great Recession, many former homeowners have flooded the rental market? Following the principles of supply and demand, renting has become relatively more expensive than buying in most markets."

The index compared the median list price and rent paid for a two-bedroom home in 50 cities. It then assigned a price-to-rent ration to each city with 15 signifying a buyer's market and 21 or more signifying a renter's market. The space between the two numbers signifies a balanced market.

The cost to rent includes rent and insurance. The cost of ownership includes mortgage principal and interest, closing costs, property taxes, hazard insurance and any homeowner association dues.

Not surprising, the most affordable markets are Las Vegas and Miami where the price-to-rent ration is 6 and where the foreclosure rates have topped the charts. Las Vegas was atop the foreclosures list in Q3 with one in every 25 homes was in foreclosure.
The index reported that homeownership was cheaper in the metro areas of San Francisco, Seattle, New York and Kansas City, MO, all of whom had price-to-rent ratios over 21.

Other metros like Oakland, Sacramento, Los Angeles, Miami and Phoenix are experiencing elevated rates of unemployment or foreclosures and close economic centers with projected job growth are still more affordable to renters.

This is truly great news for the Housing Industry.

Interest Points this Week

Two things in Sunday's New York Times may prove to be extremely important—and relatively soon.

The first was Gretchen Morgenson's discussion of the report published last Thursday by the Financial Crisis Inquiry Commission. As she said, the report didn't contain any news that hasn't already been parsed carefully in the press in what Morgenson calls the press's "flood-the-zone coverage and analysis of the crisis since it erupted four years ago."

No, it isn't so much the shocking factoids the report uncovers as it is the fact that it's pretty much all there, in print, for all to see. We cannot deny the many failures of our Federal Reserve, our regulators, our politicians or our bankers.

Now, with all of the information plainly in view, you'd think we could be confident that the kind of economic crunch we're only now just beginning to emerge from could be avoidable in the future. But that isn't the message here. It is as if this report declares, "This is how the whole thing happened, and it's how it could happen again."

Distressingly, to say the least—little has been done or is being done to prevent a future economic melt-down.

Why? Because it has never been made profitable to do something truly helpful about this mess. Instead, it is still profitable to continue gambling with investor money and relying on the likelihood that the American people—like, more recently, the Irish—will take on the debt.

A student of the facts about the economic crisis cannot fail to reach these conclusions. Oddly, though, the nation as a whole seems incapable of doing something genuinely helpful about them.

Why do I write of these things in this space? Because they are like ravenous dogs nipping at our backs as we try to flee the recession into recovery. They will continue to reappear, and we must be vigilant.

The second issue reported on in The Times—oddly related to the first—is the question of how much the use of cell phones and Internet sites have made it possible for the uprising to out flank the Egyptian government. Quite simply, the Mubarak government was largely ignorant of how to use the communications technology of the day. Instead of using it to track down the places where protests would begin and the people who began them, and instead of using it to present a counter-story among the Egyptian people, the government was relatively vulnerable to the uses of the technology—even (especially?) when it tried to cut off the Internet and cell phones.

The point is that the new technology can work for both sides. It isn't, as many have argued, a new force for democracy. And that insight reinforces the importance of taking the Egyptian uprising very seriously.

In spite of appointing a vice president a couple of days ago, Mubarak—should he fall, as he most likely will—leaves not even the weakest basis for a new government. And that becomes a very serious matter when we consider that, without surveillance, the Suez Canal could become a very risky channel for oil tankers. It is, you see, the only way oil gets from its producers to Europe.
Energy experts were already talking about the possibility of $4-a-gallon gasoline this coming summer before the current chaos visited Europe, making rising oil costs an even greater likelihood.

Our interest rates could be taken lower or, at the least, held back by all of this (given the investor rush to the safe haven of Treasury securities), and our economic recovery could be greatly hurt. Remarkably soon.

by: Bill Fisher

The Best Time in History to Buy a House

Right now, is the best time in history to buy a house in America.
Today, I'll show you why… based on a few cold, hard facts.

First off, mortgage rates are lower than they've ever been in American history…

Most investors have only seen a couple decades of mortgages rates on a chart. But my friends at Global Financial Data have databases – including real estate data – that literally go back centuries.

I had dinner with the Global Financial Data team over the weekend. And they told me about their "Winans International" real estate indexes, with housing prices back to the 1800s and mortgage rates going back over a century. I had to share it with you…

Take a look at this chart of mortgage interest rates since 1900:

As you can see, current mortgage rates are the lowest in U.S. history.

When were mortgage rates even close to this low in the past? Just after World War II…

And what happened, just after World War II, when mortgage rates were this low? The greatest postwar boom in housing prices – by far.

Take a look. Mortgage rates bottomed in the mid-1950s, and house prices bottomed about the same time. Then the greatest boom in home prices in our lifetimes started.

Today we have record-low mortgage rates. And we have another thing in our favor…

Homes are more affordable than ever.

Based on the 40-year history of the Housing Affordability Index… houses are more affordable than they've ever been. Take a look…

"Affordability" takes three factors into account: home prices, your income, and mortgage rates.

Home prices have crashed. And mortgage rates are at record lows. But incomes (nationwide) haven't fallen nearly as much…

So homes are now more affordable than ever.

"Most people" out there will only tell you the bad news about housing… That's the way it goes in a bear market. People drive looking in the rearview mirror.

Meanwhile, we have some darn compelling facts out there…

Home prices have fallen by a third… and mortgage rates are the lowest in history. Therefore, U.S. homes are more affordable than they've ever been.

You can listen to "most people." Or you can choose to ignore them and stick to these facts.

Based on these facts alone, now may be one of the best times in American history – even the very best time – to buy a house.

By Dr. Steve Sjuggerud

Market Update

FNMA 30-YR 4.0%

Previous close 99.125
Opened Down 0.32bp @ 98.813

Key Economic Data:

EUR / USD 1.3672 Down 0.0010
USD / JPY 82.1630 Down 0.0870
GBP / USD 1.5861 Up 0.0044

OIL 86.41 Up 0.22
Gold 1,329.90 Down 2.40

Key Economic News:

The Mortgage Bankers Association's index of mortgage applications tumbled 12.9% last week, with significant losses in both the purchase loan index (-8.7%) and the refinancing index (-15.3%). At 172.3 (March 16, 1990 = 100), the purchase loan index is at one of the lowest readings of the post homebuyer rebate period.

10:00: New home sales for Dec...flat or up? Although sales of existing home rose sharply in December, we think little of this carried over into the market for new homes. Other forecasts tilt toward a modest increase, on balance.
Median forecast (of 79): +3.5%, ranging from -6.9% to +8.6%; last +5.5%.

10:00: CBO budget and economic update...The Congressional Budget Office releases its updated baseline estimates for the federal budget over the next ten fiscal years, extending the horizon to fiscal 2021. This report will incorporate the extension of the tax cuts enacted at year-end as well as other provisions of that act. It will not include proposals by either the administration or the GOP house leadership to freeze discretionary spending; instead, the CBO baseline generally assumes growth in line with inflation for these components of the budget pending enactment of such proposals.

14:15: FOMC statement...all agreed? We expect no policy changes and only a few modest upgrades to the assessment of current growth and inflation trends. We suspect that all 11 voting members will approve the statement, though dissents from President Plosser and Fisher cannot be ruled out.

Advice:

With new home sales expected to come in with a modest gain, and as long as we have no surprises from the CBO. I would expect the market to trade around the 99.000 mark.

Float with caution.

My position on MBS stays neutral today.

Market Update

FNMA 30-YR 4.0%

Previous close 98.810
Opened Up 0.19bp @ 99.000

Key Economic Data:

EUR / USD 1.3595 Down 0.0043
USD / JPY 82.4505 Down 0.0750
GBP / USD 1.5764 Down 0.0224

OIL 86.63 Down 1.24
Gold 1,327.50 Down 17.00

Key Economic News:

9:00: Case-Shiller home price...another significant decline. We estimate a 0.5% drop in the seasonally adjusted month-on-month measure, vs. a -0.8% expectation for the consensus. July through October featured four consecutive drops, with the last two about a percentage point each.

10:00: Conference Board's consumer confidence index...perking up? We and consensus look for a slight improvement in the December reading of consumer confidence (to 53.5 and 54 respectively), from 52.5 reading in November. Historically the responses on the job market have been fairly well correlated with the unemployment rate, so they will particularly interesting given the notable improvement in the unemployment rate in December.

10:00: FHFA home price index...This conventional mortgage home price index (a narrower focus than the Case-Shiller report) is expected to be flat in December after a surprising 0.7% increase in November.

10:00: Richmond Fed survey...another regional manufacturing survey, this one canvassing both manufacturing and service-sector firms. The consensus forecast (for the manufacturing portion of the report) looks for strength to continue, with a reading of 22 expected vs 25 for the previous report.

17:00: ABC consumer comfort index...still in the doldrums. After setting a two-year high of -40 two weeks ago, this index slipped back to -43 last week, echoing weakness in other measures of confidence such as the mild setback reported for the Reuters/Michigan survey for early January.

21:00: President Obama delivers his State of the Union Address to Congress. The President is expected to focus mostly on economic issues, and a specific emphasis on tax reform-and in particular, corporate tax reform-and the need to balance near term increases in federal investment with medium term spending cuts. If the speech follows the usual pattern, it is likely to focus on concepts than specifics, so few detailed proposals should be expected, particularly in the area like corporate tax reform which is at an early stage of debate and in any case doesn't lend itself to a nationally televised address to Congress. On spending cuts, specifying a target is possible, though here the President may lack incentive to do so, given that the House of Representatives will pass a resolution today intended to bring spending down to 2008, far greater than the President is likely to support. The President does not look likely to make major new proposals on entitlement reform; the recent health reform law is still in the process of being implemented, complicating new proposals in that area, while reports indicate that he will not endorse his fiscal commission's proposal to raise the Social Security retirement age, as some had speculated late last week.

Advice:

With Housing expected to come in weaker, but Consumer confidence expected higher. Today will probably trade in a narrow range.

I would float today.

Homeownership Makes $ense

Bring on the buyers! At last, the housing market is beginning to make sense again. The ownership line is finally crossing over the rental line on the great Homeownership graph.
It is now more expensive to rent than to buy a home in 72% of major metropolitan areas across the US, according to the Trulia Rent vs. Buy Index released Monday.

This is due to rising demand for rentals and falling home prices combined with low interest rates.

Pete Flint, chief executive and co-founder of Trulia says: "Since the start of the Great Recession, many former homeowners have flooded the rental market? Following the principles of supply and demand, renting has become relatively more expensive than buying in most markets."

The index compared the median list price and rent paid for a two-bedroom home in 50 cities. It then assigned a price-to-rent ration to each city with 15 signifying a buyer's market and 21 or more signifying a renter's market. The space between the two numbers signifies a balanced market.

The cost to rent includes rent and insurance. The cost of ownership includes mortgage principal and interest, closing costs, property taxes, hazard insurance and any homeowner association dues.

Not surprising, the most affordable markets are Las Vegas and Miami where the price-to-rent ration is 6 and where the foreclosure rates have topped the charts. Las Vegas was atop the foreclosures list in Q3 with one in every 25 homes was in foreclosure.

The index reported that homeownership was cheaper in the metro areas of San Francisco, Seattle, New York and Kansas City, MO, all of whom had price-to-rent ratios over 21.

Other metros like Oakland, Sacramento, Los Angeles, Miami and Phoenix are experiencing elevated rates of unemployment or foreclosures and close economic centers with projected job growth are still more affordable to renters.

This is truly great news for the Housing Industry.

But I say not so fast. Where are the jobs? Less people are also in a position to buy a home. Not to mention the millions of foreclosures that haven't come onto the market yet. This will most likely keep the inventory high and still drive prices down further, but how much? And if they is the case, we will need to see interest rates remain low if any major impact could be expected. It will be interesting to see what the Fed does and how this will all play out. But those who can afford to buy, you should take advantage of this situation while all the factors are still in your favor.

This week...

The Lumpy Rising Path

Other than providing a lift to stock and bond market values, the past holiday-shortened four-day week gave scant insight into market trends. It appears, perhaps, that the current trend is not to have a trend.

There were the pleasing green shoots, though—hints of improvement in the overall economy and the real estate market itself. The former basked in the pleasure of seeing the Index of Leading Indicators climb by a full percentage point in December—reinforcing the strong 1.1% gain in November. The Conference Board, which compiles these figures, cautioned that the economic growth ahead—based on the current economic activity measured by a so-called "coincidence index"—will likely be uneven (to use their word). Yes…and what else is new?

What's new, in this observer's view, is that the improvement in the Leading Indicators looks quite good for two months in a row and, though the path may continue to be lumpy in the coming months, we can imagine—if not actually plan for—an improving economy six months from now.

And there are a few more relevant details involved. The strongest of the Leading Indicators, unusually, was the number of permits taken out last month to build new real estate structures. Now, the pleasant 16.7% overall jump in the number of permits (5.5% for single-family residences) was the most significant factor in the rising Index of Leading Indicators. Its size may have resulted in part from a rush among builders to get permits before new fees and codes are in place, but it is still a very strong advance. (Its strength was not reflected in the housing starts figures for the same time period—largely, it seems, because poor weather stalled a great many construction starts across the nation.)

The National Association of Realtors reported a 12.3% rise in completed sales of existing homes—and this offered a validation of the earlier Pending Home Sales Index reports from October and November that had suggested completed sales should increase by December. (Even the satisfying 12.3% rise in the number of sales failed to meet year-prior sales levels, though, falling 2.9% behind them.)

Also pleasing was the week's report on the prior week's new claims for unemployment insurance, which fell by 37,000 from two weeks ago to 404,000. While this decline does suggest the unemployment picture may be improving at last—though the jury is still out on this one—we really won't have a truly improving jobs situation until that number declines to about 300,000…just as we won't be able to say our employment picture is truly brightening until the economy is consistently adding about 200,000 jobs a month.

Current economic indicators, though, seem to suggest that we will see these goals reached—and, one would suspect, surpassed. Not soon, but the improvements are distant sparks on the horizon (or the smallest of green shoots in our still-weedy economic garden).

Most likely, in the bigger picture, interest rates will in the main continue to dance in place, rising very gradually, unless we run afoul of an unexpectedly bad piece of economic news…a small European nation defaulting, perhaps, or any number of other possibilities. The trend, weak and lumpy though it may be, is upward, in any case. Good time for wise home buyers and homeowners to finish their purchases and refis.

Market Update

FNMA 30-YR 4.0%

Previous close 98.970
Opened Down 0.09bp @ 98.875

Key Economic News:

EUR / USD 1.3596 Down 0.0025
USD / JPY 82.8550 Up 0.2890
GBP / USD 1.5939 Down 0.0061

OIL 88.69 Down 0.42
Gold 1,346.70 Up 5.70

Key Economic News:

No news items

Advice:

With a stronger dollar we might see the market improve today.

I would float today.

Market Open

The FNMA 30-YR 4.0% coupon opened +19 BP from previous close (Opening Price 98.781)

Market Update

FNMA 30-YR 4.0%

Previous close 99.250
Opened Down 0.28bp @ 98.969

Key Economic Data:

EUR / USD 1.3442 Down 0.0031
USD / JPY 82.6450 Up 0.6258
GBP / USD 1.5952 Down 0.0044

OIL 89.28 Down 1.58
Gold 1,348.10 Down 22.10

Key Economic News:

Labor Market improvement intact
Better-than-expected data on claims for unemployment insurance suggest ongoing improvement in the US labor market.

Key Numbers:
Initial claims -37k to 404k in week ended Jan 15 vs. median forecast 420k.
Continuing claims -26k to 3.861 million in week ended Jan 8 vs. median forecast 3.985 million.

Main Points:
1. Initial claims fell sharply in the second week of the new year, suggesting that the surge reported for the preceding week was probably a processing payback for earlier low holiday-week reading. At 411,750, the four-week average nearly matched its low from two weeks ago. This latest figure applies to the reference week for January payroll survey.

2. The latest reading on continuing claims, for the week that ended January 8, was also much better than expected. Whereas previously most large moves have been partially reversed in the following week, in this instance the number of recipients fell further from a level that was revised only slightly higher. Meanwhile, the number of people receiving extended/emergency benefits changed little in the week that ended January 1.

10:00: Philadelphia Fed business index for Jan...steady as she goes? The December index was originally reported at +24.3 but was revised to +20.8 in the annual re calculation of seasonal factors. From this lower, but still robust, level, the median forecast is for no change.
Median forecast (of 54): +20.8, ranging from +12.5 to +25; last +20.8.

10:00: Existing home sales for Dec...another increase? Expectations tilt toward another gain in home sales in the wake of increases of 10.1% and 3.5% for October and November, respectively.
Median forecast (of 72): +4.1%, ranging from -3.9% to +8.3%; last +5.6%.

10:00: Index of leading indicators for Dec...back to the more moderate increases. After a big pop driven by the ISM's supplier index, the index of leading indicators should post a smaller, but still solid increase this month. The biggest positive this month comes from the yield curve (+0.33bp), with smaller contributions from claims (+14), stock prices (+13), the Michigan expectations index (+8), and housing permits (+5). Supplier deliveries and the real money stock are the only notable negatives, each worth just under 10bp.
Median forecast (of 57): +0.6%, ranging from +0.4% to +1.2%; last +1.1%.

16:30: Federal Reserve balance sheet...The balance sheet continues to increase in size, albeit at an uneven pace from week to week. It was $2.47trn in the week ending Wednesday, Jan 5. We expect it to reach $2.9trn by about mid-2011 on the assumption that the FOMC sticks with its plan to increase its holdings of longer-term assets by $600bn from November 2010 through mid-2011.

Advice:

With unemployment better than expected, and if the other news items come out as expected. I can see the market selling today.

I would lock today.

Week in Review - Highlights for the Week Ending January 14, 2011

MONDAY, January 10th


Chain store sales grew 3.1% in December from December one year ago, a bit weaker than expected. December sales lagged expectations somewhat as severe weather moved in late during the month but they followed a very strong November. Taken together this was the best holiday shopping season since 2006.

TUESDAY, January 11th

The small business optimism index, as reported by the NFIB fell to 92.6 in January from a reading of 93.2 in December. The level of the index suggests that small businesses remain cautious amid continued uncertainty in economic conditions. In short, small businesses are still not hiring. But, details in the data do show that businesses are expecting hiring and sales to improve in coming months.

WEDNESDAY, January 12th

The MBA mortgage applications index increased 2.2% to 482.7% for the week ending January 7. The purchase index fell 3.7% during the week as the refinance index climbed 4.9%. Refinance activity is down 56.1% since early October as contract mortgage rates began to increase. Quantitative easing should help lower rates and revive refinance opportunities in the near term. Home buying is well below it tax credit fueled April level and is only modestly above its lowest levels of the past 15 years. Purchase activity will recover rapidly once prices bottom out and distressed properties have been worked through the market.

The Fed's round up of economic conditions in the twelve Federal Reserve Banking Districts, known as the beige book showed that economic activity improved in most areas of the country in late November and December. There was a pick-up in activity in most sectors with both commercial and residential real estate remaining the most obvious exceptions. The forecast has brightened though with most districts expecting hiring to increase in 2011 and with that, improvement in housing will follow.

THURSDAY, January 13th

The producer price index surged 1.1% in December compared to expectations for a 0.8% rise. Increases in food and energy prices, up 0.8% and 3.7% on the month respectively, pushed wholesale inflation higher. Excluding food and energy prices, the core PPI rose 0.2% and is now just 1.4% higher on the year. Prices at earlier stages of production remain quite high but because of slack in demand have not yet been passed through to finished goods.

The international trade deficit on goods and services narrowed slightly to $38.3 billion less than an expected shortfall of $40.7 billion. Nevertheless, the trade deficit is averaging around $41 billion over the past twelve months compared to an average trade gap of around $31 billion in 2009. The widening of the trade deficit is usually associated with a recovering domestic economy and stronger demand for imports.

Jobless claims jumped to 445k for the week ending January 8 from a level of 410k in the previous week. The outsized gain put claims at their highest level since October. Weather and holiday effects usually result in high volatility this time of year. The four-week average of 416,500 is more indicative of current trend in unemployment claims.

FRIDAY, January 14th

Retail sales rose 0.6% in December less than an expected 0.8% gain. With this month's gain, retails sales have just passed their pre-recession November 2007 peak. However, nearly one-third of the increase in spending was due to higher gasoline sales and higher gas prices. Consumers continue to shop despite sluggish labor and housing markets and tight credit. Real consumption added 1.67 points to Q3 GDP and will add even more in the fourth quarter.

The consumer price index rose 0.5% in December led by soaring energy prices. Even with this gain, consumer prices are just 1.4% above their year ago level. Excluding food and energy prices the core CPI rose 0.1% on the month and is up 0.6% on the year. Soft final demand and financial deleveraging are disinflationary so core consumer inflation should remain subdued over the next several quarters.