San Diego Home Mortgage Blog

The employment report stunk; treasuries and mortgages rallied nicely on the report but by 9:50 it all flipped; stocks opened weaker then rallied, the bond market opened strong and now weak at 10:00.

Blah, blah, blah; after the employment report this morning confirmed the employment sector is still a serious problem for the economic recovery we were treated to guests on CNBC spinning it as not so bad. Too early to be smoking that stuff this morning. As usual the headlines need some in depth clarification; Oct non-farm jobs fell more than expected to -190K against consensus of -175K, the unemployment rate also blew up, to +10.2%, much higher than 9.9% expected and up 0.4% from Sept. The average hourly earnings were up 0.3% about what BLS plugs in each month and is meaningless from a trading perspective; yr/yr earnings up 2.4%. The unemployment rate at 10.2% is the highest unemployment in 26 years going back to April 1983 and is going to increase; this isn't the end unfortunately. Now, on the more constructive side; Sept non-farm job losses originally reported at -263K was revised top -219K and August non-farm job losses were revised better to -154K from -201K. Huge revisions even for the BLS dart toss and drives the point that accuracy in the employment report isn't completely reliable; nevertheless a slight ray of sunshine in the employment eclipse.

At 8:35 the initial reaction to the 8:30 data; 10 yr +8/32, mortgages +5/32 and the DJIA -30 points. At 9:00 the 10 yr +11/32 3.48%, mtg prices +11/32 and the DJIA -63. At 9:30 the DJIA opened -68, 10 yr +7/32 and mortgages +5/32.

Later today Pres Obama is scheduled to sign the bill that extends first time homebuyers $8K tax credit to the end of April, and adds $6.5K tax credit for non-first timers. Also in the bill extension by 14 weeks and 20 weeks in weakest states of unemployment benefits. Still details on the tax credits that we don't have on when closings or contract dates are triggered. The increase in unemployment will dash those who have focused on declining continuing unemployment claims (us included); look for continuing claims to begin to increase again after falling for the past six weeks.

At 3:00 this afternoon Sept consumer credit; a key data series we pay a lot of attention to, but markets don't give it much because it rains on the parade in the equity markets. Consumer credit is declining rapidly as consumers cut back on borrowing and banks are helping out by cutting credit cards up and raising interest rates to as high as 30%. Barney is giving banks another free pass before the consumer protection agency is actually operational. Where is Barney when banks are jumping out ahead of consumer protection that will keep banks from hosing consumers? Once again Congress and Barney their main man will close the door after the house caves in.

Health care reform is up for votes tomorrow (Sat); the AMA and AARP have come out in favor of it. It is now a done deal but the voting and procedural issues in the Senate may drag off until Jan.

Break up the big banks; a plan we have advocated since the bank blow up. No one in Congress led by Barney are willing to consider it; way too much lobbying money floating around and Barney wants his cut. No less than John Reed former CEO of Citi Group and one of the leaders in banking that led to banks getting into businesses they should not be in apologized for his role in building a company that has taken $45B in direct U.S. aid and said banks that big should be divided into separate parts. “I would compartmentalize the industry for the same reason you compartmentalize ships,” ..... “If you have a leak, the leak doesn’t spread and sink the whole vessel. So generally speaking you’d have consumer banking separate from trading bonds and equity.”

Trade today has been extremely volatile so far; treasuries and mortgage markets opened strong on the jump in unemployment, the stock market indexes were hammered. By 9:50 however it all flipped over. The DJIA rallying, treasuries and mortgage selling off. Most lenders that priced prior to 9:30 are thinking re-price. Always a wild day when employment hits. Markets focusing on upward revisions on non-farm jobs in Sept and August.