San Diego Home Mortgage Blog

Continue to float today. Keep attention on the Instant re-pricing indicator at MBS Tracker.

Friday morning the US stock and bond markets were hit with selling of equities and safe haven buying of US treasuries on the news Thursday that Dubai was asking for debt relief on its debt for the building of Dubai World and other what now will be considered outlandish at best. Dubai built thinks that were beautiful and at the same time had little rational other than the belief that there would be no global recession. The lid blew last week when Dubai said it couldn't pay its debt. The UAE since has come out saying it will lend money to the Dubai banks involved and that has settled things a little this morning. What UAE has not said however, is whether that central bank will stand with Dubai World, the island making venture that has ruin out of buyers. Estimates of the combined debt being default are ranging from $80B to $120B but no one really has a handle yet. Dubai borrowed $80B in a four-year construction boom that transformed the sheikhdom into a regional tourism and financial hub. It suffered the world’s steepest property slump in the global recession, with home prices dropping 50% from their 2008 peak, according to Deutsche Bank AG.

Mohammad El Arian of PIMCO on CNBC this morning provided a chilling reminder that the Dubai problem is not an isolated incident; that over-building around the world and bad lending has yet to be dealt with in this recession. US credit losses are now set at $2.1T to $2.5T according to Goldman-Sachs. Al Arian made it clear that in his view government bailouts will not be enough to turn global unemployment around; what government's must do is address structural economic problems, job creation should be top priority or this recession may just be starting.

At 9:30 the DJIA opened -15 after falling 154 on Friday. The 10 yr note at 9:30 -6/32 after +16/32 on Friday; mortgage prices at 9:30 -1/32 after jumping 13/32 on Friday.

The first of a number of key economic releases this week hit at 9:45 with the Nov Chicago purchasing mgrs index; a measure of manufacturing in the mid=west region. The overall index was expected to be at 53.7 frm 54.2 in Oct; as reported the index increased to 56.1; new orders were up to 62.8 frm 61.4, prices pd at 52.6 frm 48.6 and employment component to 41.9 frm 38.3. Any index read over 50 is expansion; a better than expected report overall took the stock indexes to positive after being slightly weaker in early trading.

This Week's Economic Calendar:

Tuesday;

10:00 ISM manufacturing index (54.8 frm 55.7)

Oct construction spending (-0.4%)

Oct pending home sales (-0.3%)

2:00 Nov auto and truck sales

Wednesday;

7:00 Weekly MBA mortgage applications

8:15 ADP private jobs estimate for Nov (-155K)

2:00 Fed Beige Book

Thursday;

8:30 weekly jobless claims (+13K to 483K; continued claims +12K)

Q3 productivity revision (+8.5% frm +9.5%)

10:00 Nov ISM services sector index (51.4 frm 50.6)

Friday;

8:30 Nov employment report (-120K jobs, the unemployment rate unch at 10.2%)

10:00 Oct factory orders (+0.2%)

Thursday President Obama will begin to address the job markets with a job summit announcement. The employment report on Friday, while forecasts are not too bad, will be critical as markets have begun to believe job losses will continue to slow. Probably will; if we kept up the pace of a year ago there would be no one working in a year or so. Markets have become excessively bullish in the past few months, many bullish traders increasingly more nervous that a major correction may be in store yet so far investors continue to buy on dips with analysts saying any dip is a buying opportunity. Serious bets have been made that the global economy will continue to rebound and the US economy, while slower to come around, is going to follow. Not many believe there is any reason to worry about another economic decline.

US interest rates are likely to remain low for much longer than most had expected a few months ago. No inflation fears; if there are any fears in that regard they are increasing that deflation will be the concern as we move into 2010. PIMCO's Al Arian is convinced deflation will trump inflation through 2010. Good news in a sense, keeping mortgage rates manageable; not so good for retailers, home prices, or business profits.