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Friday, January 15, 2016

Mortgage Bond Market Analysis - Weak Data Friday

It's Friday and we have lots of data today.  The politicians and many talking heads as well as the Fed have been trying to get us to believe the economy is recovering.  I guess everything is relative since the economy probably isn't as bad as 2007 - 2010.  However, about every piece of data that is released is weak.  Sometimes it's better than expectations and sometimes it's not but in the grand scheme of things it's not about expectations, it's about what the data is vs. what it needs to be for the economy to be healthy and the disparity, unfortunately, is huge.

Here's a look at this morning's data.  January Preliminary Consumer Sentiment Index came in at 93.3 vs. estimates of 93.  This is a good number and the various consumer confidence numbers have been strong but the reason they are strong isn't what is going to help a recovery.  Usually when the economy is strong, consumers are confident and the confidence shows because they are buying stuff.  When consumers buy enough stuff, the demand for stuff pushes prices upward (just like the current demand for bonds is pushing prices up and rates down).  I believe that there are two reasons for the good consumer confidence numbers we've been seeing for the last year or so:  1) consumers believe the talking heads who are telling us that the economy is recovering and 2) more people (depending on what stat you look at) have jobs which means more consumers can pay their bills - but not necessarily buy more stuff.  More data:  Business Inventories -.2% vs. expectations of -.1%.  The inventory numbers have been bad, for the most part.  When the economy is humming along, businesses build up their inventories in anticipation of increasing demand for their products.  This isn't happening.

Industrial Production -.4% vs. expectations of -.2%.  Capacity Utilization was 76.5% vs. expectations of 76.8%.  This is a very weak number and shows that there is plenty of room for growth; Because consumers aren't buying, factories don't need to produce anywhere near their capacity which also means factories don't need as many employees and the current employees probably aren't working as much overtime which means they have less discretionary income to buy stuff.  With regard to buying stuff, December Retail Sales were -.1% vs. expectations of .0% and the more important ex-auto Retail Sales number was -.1% vs. expectations of +.2%.  Consumers aren't buying stuff the way we need them to for a solid economic recovery.  By the way, the meltdown began in 2007 so we are in the 9th year since we started trying to fix this thing.  A very important data point for the Fed is the PPI and the MOM number was -.2% just as expected while the Core PPI (MOM) was .1%, also as expected.  Neither of these numbers shows any threat to inflation and one has to wonder why the Fed would consider raising rates other than to make us think that maybe the economy really is recovering and it's a good time for us to start buying stuff because all is well and good.

Excuse my cynicism but I'm tired of hearing about our economic recovery when it's just not there.  I don't mean to be Douglas Downer (my first name is Douglas) but we should be much further along than we are.  I won't get political but I will say that on the positive side the continued week data provides great opportunities for those looking to buy a home or refinance their current mortgages as rates remain at near historically low levels.  On Wednesday I recommended floating and while the FNMA benchmark bond sold off 11 basis points yesterday (no big deal), it is up 40 basis points so far today at 104.12 which is also the current 2nd resistance level.  We have to go back to October 29th when we were last at this level.  If you or a client has a mortgage that is closing in the next 15 days I would happily lock and then party like it was 1999.  If the loan closing is beyond 15 days, I'd float but as you may know, when floating I always recommend to keep a sharp eye on the market so that you can act quickly.  I'd love to get your thoughts on the "recovery" either in the comments section below or in an email.  If I can help with a pre-approval or anything else mortgage-related, please contact me at 702-812-1214 or 801-853-8720.  My email is  Make it a great day and a better weekend.

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