6/18/09

Good morning. Mortgage backed securities (MBS) prices opened sharply lower amid concern the administration's record borrowing will overwhelm demand as the recession shows signs of easing and the release of today's economic reports. The administration projects a record $1.85 trillion budget deficit this year and pushed the marketable debt to an unprecedented $6.45 trillion, while relying on foreign central banks to finance the massive debt. Treasury Secretary Geithner is testifying today before the Senate Banking Committee on financial industry regulatory reform. Market participants will be listening intently. Initial jobless claims rose from the prior week, while the 4-week moving average fell to the lowest level since February. The total number receiving unemployment benefits plunged, ending a long streak of increases. The data indicates the economy is stabilizing. Leading Economic Indicators jumped in May, pointing to economic leveling followed by a mild recovery. Contraction in new orders slowed substantially, but the good news is the general business conditions index rose more than 10pts. Employment is certain to lag as manufacturers hold off on new hiring until six months down the road. All in all, this morning’s data will increase talk that government stimulus, whether fiscal or monetary, may have to be withdrawn sooner than later. Stay tuned and as always, call me with any questions.