Mortgage Rates


Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com




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Friday, February 04, 2011


It is the first Friday of the month, the day each month we suffer through the monthly employment report. Suffering to understand and make sense of it is the norm and today is no different. Recent employment reports are getting even more difficult to manage than the norm. Today non-farm payrolls were expected to be up about 140K give or take, with private non-farm jobs +160K give or take; what we got was non farm jobs up just 36K and private jobs up 50K. In Dec the unemployment rate fell from 9.6% in Nov to 9.4%, Jan was supposed to see the rate up to 9.5%, what got was the unemployment rate fell to 9.0%.

Unless you are a mystic or an economist that can twist data like spaghetti on a fork, the employment report always has something for everyone, at the end of the day though it will remain difficult to understand. One has to just accept what analysts settle on. The report this morning makes little sense; we know that the unemployment rate is determined by telephone surveys, we know that a respondent that answers that he/she is not looking for a job even though unemployed, they are not considered unemployed. The non-farm jobs also begs debate, every regional report and the two national ISM reports (manufacturing and services) have shown increases in the employment component yet today's anemic 36K total non-farm jobs gain and +50K private jobs doesn't square.

That job growth was well short of forecasts is likely due to weather; construction jobs and other jobs that bad weather can impact may have caused the soft job gains. Dec and Nov revisions added an additional 40K jobs from previous reports. Average hourly earnings increased 0.4% one of the biggest increases seen in a long time and that in itself has put pressure in the rate markets as another indication inflation may be getting a toe hold.

Summing; the employment report today should be taken with that grain of salt. Job growth is better than the report indicated, the unemployment rate is closer to 10.0% than 9.0% and if those not looking for jobs want jobs then the unemployment is closer to 15%.

Interest rates have broken out of their well-defined and long term range; the 10 yr at 3.58% at 10:00 is headed to 3.75% the next target and mortgage rates will also increase. Inflation fears, the economic strength, increasing interest rates around the globe coming; all will keep rates from declining.

The DJIA opened -4 points at 9:30, the 10 yr note -9/32 at 3.59% +4 bp and mortgage prices at 9:30 -4/32 (.12 BP).

Nothing else for the markets to think about today. Next week Treasury will auction $72B of notes and bonds. We are now sellers on any rallies in the rate markets.