Really not a whole heck of a lot to report about the markets today because the price movement is expected. Mortgages and US Treasuries are both up on very little economic news or I should say not enough bearish news to fight the Fed. I did receive some interesting mortgage trading news yesterday from multiple sources. The Fed is the only buyer of mortgages. Now this can and will change daily but this is not a comfortable feeling for anyone who has exposure to price movements in the mortgage markets.
There was also a report that foreign holdings of mortgages dropped by 11.1 billion in July and 8.7 billion in June. So letâ€™s enjoy the artificial ride while it lasts because this mortgage rally is a classic example of whipped cream on top of dog s*it. Once you scratch below the surface you are not going to like what you see (or smell). Thankfully for us in the short-term the Fed will ultimately win. As the saying goes, â€œyou canâ€™t fight the Fedâ€. There is a lot of resistance but in the end the 800lb. gorilla will always defeat the 50lb. monkey.
There was a very encouraging housing report yesterday from the NAHB (National Association of Home Builders). The NAHB Housing Market Index, which measures builder confidence, hit a six year high in September.
The HMI rose to 40 (vs. an expected 38) which is the highest reading since June 2006. The Index is based on a monthly survey among NAHBâ€™s members who are asked to rank current home sales as good, fair, or poor and to predict conditions six months into the future. A score of 50 indicates that more respondents view conditions positively instead of poorly. So there are signs out there of an economic rebound and if it was not for the Fed it may have come with some selling in bonds. As these positive reports build up then the Fedâ€™s QE3 policies will be heavily debated.