Rates falling like a shooting star

Friday, September 07, 2007

ECONOMIC DATA / NEWS

The old saying that “close only counts in horseshoes and hand grenades” could also be applied to economic data.  Within a certain range is still considered acceptable.  However, based on that notion, this morning’s jobs numbers relative to economists’ forecasts would be the equivalent of someone trying to hit the peg with the horseshoe from 20 feet away and missing by 30 feet.

The jobs market did not expand at all in August.  Rather, it shrunk by 4000 jobs.  Negative job growth (somewhat of an oxymoron) has not occurred in four years, when the economy was just attempting to come out of a recession.  Now, it looks as though this could be a signal that we are heading toward a recession.  Strangely, the unemployment rate stayed at 4.6%, but these two numbers are measured by entirely different methods, and therefore don’t always sync with one another.

Financial sector jobs were flat last month, and it’s amazing they weren’t negative given the turbulence in the financial realm right now.  But this is where a large portion of the new jobs were being created, so we lost those numbers that would normally have added to the tally.  Manufacturing and construction jobs fell again, as has been the trend lately.  If the economy does slow as much as we’ve been suggesting, then payrolls will be low for a quite a while, as they were back in 2001 and 2002.

In a speech late yesterday, former Fed Chairman Greenspan compared the current financial situation to the stock market crash of 1987 or the rough times in 1998 and shortly thereafter.  Things have not gotten as bad as they were during those periods yet, but a comment like that carries a lot of weight coming from him.  At the very least, we can expect some short-term panic, which I would say we’re seeing.  And, as we’ve been saying, a recession is a very real possibility.  The one point that we can take solace in is the fact that rates usually improve during rough economic patches like this.  The Fed will do whatever they can to make credit for everyone (not just mortgages) more readily available to try to re-stimulate the economy.  It’s kind of like that jolt of electricity doctors will use on a patient who is starting to flat line.  The Fed needs to do what they can to help resuscitate the economy.

TECHNICAL ANALYSIS

The FNMA 30-year 6.0% has flown so high, the 200-day moving average is just a dot in the distance.  We’re up 53bp!  That gives us a gain of 95bp over the last three days.  Resistance isn’t even a word right now, as far as MBS prices go.  Although prices are only at about a four month high right now, the steep losses that occurred from May to June have been completely erased.  This bond could easily climb another 25bp before running into the slightest bit of resistance.  The quick rise in altitude is the only thing that may make traders a little dizzy at this point.

Forget about 4.45%.  The 10-year Treasury yield is at a one-year low of 4.38%.  Last year we had been forecasting that the 10-year yield would drop to the high or even mid 3.0% range.  As of right now, mid-3.0% should be a piece of cake.  The yield could potentially fall back close to 3.0%, where it fell during the height of the refi and purchase of boom back in 2003.

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