Sample Market Alert

Daily Commentary

By Larry Baer, Market Alert

SHORT-TERM TREND (20 days or less) The trend trajectory of the mortgage market continues to lean almost imperceptibly in favor of steady to fractionally higher rates and slightly lower prices.

SUGGESTED PIPELINE STRATEGY: Until/unless the price of the Fannie Mae 6.0% mortgage-backed security can muster the necessary momentum to climb above 100.875 on a closing basis -- I recommend that you avoid interest rate risk for loans in this category.

From a timing perspective it is worth noting that a number of short-term trading cycles will be merging between Thursday, January 4th and Monday, January 8th. During this period of time look for increased volatility in the mortgage market.

LONG-TERM TREND (21 days or more) Favors lower rates and higher prices.

SUGGESTED PIPELINE STRATEGY: I recommend that you maintain a “lock ‘em if you’ve got ‘em” pipeline risk management strategy for loans in this category until/unless the price of the Fannie Mae 6.0% mortgage-backed security can muster the momentum to close above a price of 100.875.


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Commentary: The Institute of Supply Management’s manufacturing index for December rose to a reading of 51.4% from November’s 49.5% level. Growth in exports and resilient consumer demand helped work down an inventory glut in many industries, stabilizing factory demand. Today’s report implies that businesses have a much smaller inventory bloat than many analysts had anticipated – which in-turn strongly suggests the manufacturing sector will not be a significant drag on economic growth in the first quarter of 2007.

The “so what?” factor from a mortgage interest rate perspective revolves around the idea that stronger than expected economic growth increases the demand of capital which by extension ultimately pushes mortgage interest rates higher.

The chance of any help from the Fed in the form of a short-term rate cut in the first quarter of 2007 now pivots almost exclusively on substantial weakness in the labor sector.

There will likely be some breath-holding among mortgage investors as Friday’s December nonfarm payroll numbers approach.

In my view it will take a headline nonfarm payroll number less than 100,000, a jobless rate of 4.6% or higher and/or a drop in average hourly earnings of at least 0.2% to spawn much of a rally in the mortgage market. Since we’re wishing and hoping here … it would be especially nice if Friday’s report shows big downward revisions for November and October payroll figures as well.

I’m not going to suggest such an outcome is not possible … I’m just going to say that in my opinion to bet on these mortgage market friendly numbers to appear on Friday morning would be closely equivalent to betting a month’s salary that you can draw one card and fill an inside straight flush. Definitely possible … just not likely.

Be patient … be disciplined … and play it by the numbers.