San Diego Home Mortgage Blog

If you were not watching it early this morning you would think today wasn't much of a day given the employment report this morning. As is the case most of the time, the employment report sets off hip shooting that results in lots of traders getting their pocket books lightened. Today when the unemployment rate hit 10.2% the bond market exploded in a strong rally, the stock index futures rolled down hard and mortgage prices jumped. It took about 30 minutes to settle down, then by 9:30 selling took over in the bond market and the DJIA traded up as much as 75 points at 9:50. Mortgages and treasuries dropped their gains, went negative, sat weaker for 30 minutes before returning to spend the rest of the day unchanged on the 10 yr and stock market while mortgages bounced back to levels at 9:30. Who cares? Lenders that priced before 9:30, market commentators like us and traders licking wounds on their knees. Just a rehash of how volatile the employment report usually is.

Non-farm job losses in Oct were more than expected, -190K; but were offset by a cumulative increase in job losses previously reported by 91K in Sept and October. The upward revisions were the saving grace and provided the spin the rest of the day. While unemployment is increasing and likely to hit 11% in the next year, it generally is pushed aside by traders in favor of the non-farm jobs counts; that is, when it is convenient. When unemployment rates begin to decline that data will be the focus. Still putting lipstick on the sow and trying to get her to the prom; the employment situation is getting worse, not better; no matter the spinners that see non-farm jobs only falling 200K a month as "good news".

Consumers continue to cut credit; Sept declined $14.2B, mkts were expecting -$10B. The fourth consecutive month credit expansion declined. Banks are contributing by refusing to extend credit to otherwise qualified people.

President Obama signed legislation extending the $8,000 first-time homebuyer tax credit and giving additional tax breaks to certain homeowners trading up. Passed overwhelmingly by Congress, the bill would provide a $6,500 tax credit to homeowners who are buying a new primary residence beginning Dec. 1. The language mandates that to get the credit the homeowner must have owned their home for five consecutive years of the previous eight. But there are caps on the tax credits. They only apply to individual buyers who make no more than $125,000 and $250,000 for couples. There is also an anti-flipping provision: Any homeowner who collects the credit and sells within three years must return the money. The FTHB was extended to cover consumers signing a contract by April 30 and closing by June 30. Meanwhile, the Department of Labor reported Friday that the nation's unemployment rate rose above 10% for the first time since 1983 in October, a much worse jump than expected. The increase in joblessness will lead to an upswing in residential mortgage delinquencies. (Nat'l Mtg News)

I am philosophically and unabashedly opposed to big government; it always is costly and slowly removes personal choice and freedom. Some things however require government involvement; infrastructure projects, military, international relations, law enforcement, terrorist protection, interstate commerce, science initiatives to name some. Now comes another that I thought would never be needed; breaking up the large banks and reviving Glass-Siegel. Why? Obvious, banks have proven that left alone and without tight controls they will blow themselves up and put the country on its collective knees. Large banks have dragged us close to the cliff and what is as bad, increased the hand of government in the natual forces of business---supply and demand and the advent of a massive new round of regulations.

What is increasingly bothersome is there is an increasing move afoot in Washington by politicians to set up more financial regulators with powers to change rules at will that will if enacted lead down the path of socialism and big brother control of the private financial system that has served well for decades. To avoid that situation the large banks should be broken up into pieces now; don't wait until later when another mess crops up as it surely will as long as banks are so large they cannot be managed properly. Do it now, but no; too much political grease is sliding around Washington. Like John Reed today apologizing for his role at CitiGroup by building the bank to a size that was not controllable. He advocates breaking them up now; he along with many of us cheered when in 1999 Glass-Siegel was repealed. I also regret that my trust in the financial system was misplaced.

This week; interest rates increased at the long end of the curve (10s and 30s) while rates fell on 2s. Mortgage rates held about unchanged. The 10 yr yield jumped to 3.50% frm 3.39%, 5 yr note unch, 2 yr -5 BP to 0.85%, the 30 yr bond increased 17 basis points. Mortgage prices on 30s +5/32, FHAs +4/32 and 15s +5/32. The DJIA +311, NASDAQ +67, S&P +33. Gold +57, crude oil +0.65.

Next week; Treasury is back to the well with $81B to be borrowed; $40B of 3 yr notes on Monday, $25B of 10 yr notes on Tuesday and $16B of 30 yr bonds on Thursday. Wednesday is Veteran’s Day and the bond market is closed. No economic reports of substance until Thursday with weekly unemployment claims.