Holding steady

Thursday, September 27, 2007

ECONOMIC DATA / NEWS

Today’s news that a deal to buyout student lender Sallie Mae could be falling apart may open some economists’ eyes that problems in the mortgage market are spilling over into other aspects of the economy.  Bernanke and others at the Fed would like to believe that the situation is contained to the housing market, but this development would suggest otherwise.  The proposed leveraged buyout coming from B of A, JP Morgan, and some private investment firms originated back in April.  The offer was for $60 per share.  However, Sallie Mae’s stock has since dropped to $45 in the wake of the tighter credit conditions, which have already made a deep impact on the mortgage market.  The would-be suitors are now considering backing out of the deal, not wanting to pay a premium of $15, especially as credit concerns have increased.

Probably the biggest report for the day is the new home sales for August.  They were down 8.3% to an annualized rate of 795,000.  It was a little more than expected, but really what it does gives more attention to the housing slowdown.  It is difficult to say at this point how investors or the Fed will view this, but it certainly gives reason to assume that the Fed will be more motivated to do whatever they can to bring rates down even further.

The second and final revision to 2^nd quarter GDP came in at 3.8%, which was a tad lower than the 4.0% that was expected.  This shouldn’t have any bearing on market activity, since it is only a slight revision and everyone is already looking forward at what the result of 3^rd quarter GDP will be.  Early expectations are that it will fall at least as low as 2.5% in the current quarter.

And no one foresaw the decline in weekly jobless claims, which dipped under 300K to 298,000 last week.  That pulled the four-week average down from 321,000 to 312,000.  Many expect a big rebound from the 4000 lost jobs last month.

TECHNICAL ANALYSIS

An early burst in prices has reverted back to unchanged for the day.  The FNMA 30-year 6.0% stands where it closed yesterday at 100.00.  It appears as though the 200-day moving average is regaining strength as a resistance level.  Prices may continue to run sideways at least until the jobs report next Friday.  There is still plenty of support from the upward trend line and several moving averages.

Treasuries are flat again as well.  They did get a late dip yesterday, knocked down by the 50-day moving average.  The 10-year yield is sitting perfectly on the sharp upward trend line, which will probably be broken by tomorrow morning.  The yield has potential to fall to the 25-day moving average at 4.53%.

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