6/11/09

Good morning. There’s a lot of information today. Mortgage backed securities (MBS) prices opened lower, but have since turned positive after release of economic data that was at best luke warm. I don’t have to tell you that rates have increased. The 30yr fixed FNMA required net yield (60 day) is now 5.59%, up from 4.91% on June 1st. The good news is that stocks have increased 35% since March, which helps to recover some of the losses in our portfolio. This morning, the DOW is up another 100pts in early activity. Traders continue to believe that long term interest rates are headed higher on concern surging budget deficits and a falling dollar will prompt investors to reduce holdings of U.S. fixed income assets, like MBS. Crude oil prices climbed over $72 a barrel today with increased global consumption outlook amid signs the recession is bottoming out. Retail sales rebounded moderately in May, first time in three months with the gain related to higher gasoline prices and shoppers seeking bargains from ailing automakers. Retail sales on a year ago basis in May were and show little sign of an underlying rebound in spending. Jobless claims fell 24K, fewer than forecasted and the lowest level since January, from a revised higher figure the prior week as businesses are slowing staff reductions. The improvement is clearly evident in the 4 week moving average, a less volatile measure, which fell to its lowest level since February confirming global expectations that U.S. payroll contraction has peaked. Business inventories fell in April following a decline in March indicating that businesses were not anticipating better conditions; however May appears to have a much less weak month so watch for a pivot in inventory data as retail sales increase. Index consumer’s economic enthusiasm faded this month as the jobless rate reached a 26 year high, gas prices climbed daily and the initial fervor for the government's economic remedies waned, even though consumer expectations continue to show improvement. Despite current financial woes increasing numbers are starting to believe the worst is behind them. There is still some devastating mortgage news on the horizon. 1 million option ARMs (negative amortization loans) will reset higher in the next four years, with 750,000 adjusting in 2010 and 2011 and the peak coming August 2011 when 54,000 loans recast. The delinquency rate for payment option ARMs originated in 2006 is soaring to 42.44% For 2007 loans, the rate went from 10.1% to 35.25% on loans 60 days or more past due. U.S. foreclosure filings reached 321, 480 properties last month, up 18% from a year earlier. One in 400 U.S. households received a filing last month. As you can see, there is so much mixed news that it is impossible to forecast the direction of the market. Please bear with me. Good or bad, I will always be honest with you.