Forwarded exclusively by:

Anthony Hood

Equity Investment Capital

Office: 949-891-0067

Email: tony@equityinvestmentcapital.com

website: www.equityinvestmentcapital.com

Building Strong, Lasting Relationships; One Client at a Time.

Friday, September 03, 2010

Interest rates spiking higher this morning, the stock indexes jumping; both moves huge. The August employment report has nailed the bond and mortgage markets that had already looked very weak this week. Early this morning the 30 yr FNMA Sept coupon is trading below its key 20 day moving average, the first time we have seen that since last April. The 10 yr note yield at 9:00 this morning up 13 more basis points at 2.76%, mortgage prices down 18/32 (.56 bp) from yesterday's closing levels. At 9:30 the DJIA opened +95, the 10 yr -32/32 at 2.74% +11 bp, mtg prices at 9:30 -13/32 (.41 bp) on 30 yr mtgs.

The August unemployment rate at 9.6% was right on, up 0.1% from July; non-farm payrolls declined just 54K against general estimates of -100K, private job payrolls reported up 67K against estimates of +20K. The BLS reported revisions to June and July; the original totals for the two months was a decline of 351K jobs, revised to -229K. While employment remains a serious impediment to economic growth, the surprising improvements in the data released this morning are sending interest rate higher and stock indexes opening strong. The take away on the data is that while the economy is struggling, it isn't going off the cliff.

Some better news on the housing sector yesterday, July pending home sales were up 5.2% while estimates were for a slight decline. Pending home sales, contracts signed but not yet closed. While better, the housing sector remains in depression.

Yesterday afternoon in a surprise announcement the White House announced the President would make a statement at 10:00 this morning. Markets expecting some announcement on tax reductions for small businesses, as this is being delivered he hasn't begun his remarks.

At 10:00 the August ISM services sector report; the estimates for the overall index was a read of 53 frm 54.3, it fell to 51.5 the second lowest index reading this year. The employment component fell to 48.2 frm 50.9, new orders slipped to 52.4 frm 56.7 and prices 60.3 frm 52.7. The weaker data stopped the selling in treasuries and mortgages and took some wind out of the buying in equities. (Any index over 50 is considered expansion, under 50 contraction).

We have been warning for over a week that the interest rate markets were softening, after the employment report today the 10 yr note yield had jumped 20 basis points in rates since the close on Wednesday, mortgage rates on 30s up 7 basis points. Trading over the past two weeks implied investors were becoming less interested in treasuries as safety moves with the rates so low it had changed the risk equation between hiding in treasuries and accepting a little more risk in equities. While rates are increasing it is unlikely they will increase too much more; the worst we can expect for the 10 yr is another 25 basis points higher to test 3.00% and mortgage rates up another 15 basis points on 30s. We continue to expect high levels of trading volatility; we suggest taking advantage of any rallies in the bond market, it is very likely we have seen the lows now for mortgages and treasury rates. While the news today (and this week) was stronger than expected, it was not really great news, but the Treasury market seemed to be priced to a worst case scenario.

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Anthony Hood

Equity Investment Capital

Office: 949-891-0067

Email: tony@equityinvestmentcapital.com

website: www.equityinvestmentcapital.com

Building Strong, Lasting Relationships; One Client at a Time.

Thursday, August 26, 2010

Weekly jobless claims hit at 8:30 and were better than expected, down 31K compared to the estimates of down 15K. 473K new filings for unemployment isn't good but in this paranoid market environment it did put a bid in stock indexes and turned the treasury markets from early price gains to unchanged at 9:00. Last week new claims were at 500K, in the data this morning that was revised to 504K, Continuing claims fell to 4.456 mil to 4.518 mil. The better claims is nothing to celebrate, at 473K new unemployment claims and no real increase in new job creation the outlook for increased employment remains bleak as the economy struggles along in what will be a very long period of recovery. The likelihood that job growth is on the horizon is wishful but hopeful thinking.

At 9:30 the DJIA opened +33, the 10 yr note -2/32 at 2.55% +1 BP and mortgage prices at 9:30 holding minor gains, +3/32 (.09 bp) frm yesterday's close.

As long as the housing sector is still declining as was evident in this week's July data on existing and new home sales and consumers unwilling to spend the economy will at best muddle along. Almost every measurement of the economy that has hit over the past six weeks has been soft; manufacturing is slowing, consumers are holding back, there is no market of consequence for home purchases, and businesses uncertain how all the actions out of Congress will impact their business (heath care, FinRegs). While the outlook has changed from exuberance over the recovery to one of uncertainty, markets are adjusting to that "new normal" that was so roundly ignored by most analysts. Still don't expect that double dip that seems to surface any day the equity market declines, but it is unlikely economic growth and lower unemployment is on the radar.

Tomorrow's revision of Q2 GDP and Bernanke's comments opening the annual Jackson Hole Conference of economists should limit any significant moves in either the stock or bond markets today. Bernanke will open the conference with what is anticipated to be some additional clarity as to what the Fed is expecting and what the Fed's sketchy plans might be to support the economy. Very low interest rates are going to be with us for at least another year, the Fed has little ammo now other than to keep interest rates low. There is some chatter the Fed will begin to "punish" banks that are stashing huge sums at the Fed instead of using it to stimulate borrowing and investments. Whatever Bernanke has to say tomorrow it will likely be couched with Fedspeak and clouded with unrealistic positives about economic improvement----the Fed can't openly say what most of its officials are now worrying about.

The MBA said this morning that 13.97% of all mortgage loans are delinquent or in foreclosure; a huge number but a little better than last month. No silk purses out of that pigs ear.

At 1:00 this afternoon Treasury will auction $29B of 7 yr notes to complete this week's borrowing to fund the growing federal deficit. Yesterday the 5 yr note auction was not the best, it came with a higher yield than what traders were expecting yesterday morning but overall still not bad. The rate the 5 yr got was about 2 basis points higher than trading in the WI market. Today's 7 yr should do better as investors are moving farther out the curve on strong belief that recovery will be moderate at best, that the Fed will have to maintain low rates at least through 2011, and deflation might be brewing. Tuesday's 2 yr auction and yesterday's 5 yr auction are both underwater based on what the yields were at each auction, but only slightly.

We are not expecting much change in stock indexes or the rate markets today ahead of tomorrow's GDP report and Bernanke's comments from Jackson Hole. The rate market remains bullish, the equity market bearish. Looking for the DJIA to decline to 9000 before the end of the year and long term rates to decline another 25 basis points on the 10 yr note but mortgage rates down another 15 basis points frm present levels.

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Forwarded exclusively by:

Anthony Hood

Equity Investment Capital

Office: 949-891-0067

Email: tony@equityinvestmentcapital.com

website: www.equityinvestmentcapital.com

Building Strong, Lasting Relationships; One Client at a Time.

Thursday, August 19, 2010

Treasuries and mortgages opened weak again this morning prior to weekly jobless claims at 8:30. Weekly unemployment claims were expected to have declined by 4K to 6K frm last week; as reported claims were up again to 500K filings for unemployment last week, the highest weekly filings since Nov 14th 2009. Last week's claims were revised higher, from 484K to 488K. Unemployment claims have been climbing for the past month as economic optimists remain convinced the economy is recovering. Recovery! What recovery? The economy needs jobs but jobs are being lost; the claims this morning have been met with the usual smoke that the data is skewed because of summer lay-offs. Continuing unemployment claims declined a little, to 4.478 mil frm 4.49 mil last week as more are losing entitlements. The 4 week moving average of claims increased to 4.825 mil frm 4.745 mil. The market reaction was not what many would have expected; the 10 yr note didn't rally, the key stock indexes didn't sell off but lost early gains. By 9:00 this morning the 10 yr note traded down 7/32 at 2.66% +2 BP and mortgage prices were 2/32 weaker (.06 bp) frm yesterday's close.

At 9:30 the DJIA opened -35, the 10 yr note at 9:30 -3/32 2.65% +0.5% and mortgage prices holding key technical levels +2/32 (.06 bp).

At 10:00, a few minutes ago, the Philadelphia Fed released its business index; expected to have increased from 5.1 to 7.0, took a huge hit falling to -7.7; new orders component fell to -7.1 frm -4.3, employment fell to -2.7 frm +4.0 and prices pd fell to 11.8 frm 13.1. The report was a huge surprise to those remaining economic bulls and sent the stock market down, from -77 prior to the report to -137 in two minutes. Any of the index readings under zero is contraction. The data today should send rates lower and stock indexes lower. We continue to warn that there is no recovery, now after manufacturing has run its course of cost cutting, inventory building and job cuts there isn't anything more that can be expected.

Also at 10:00 July leading economic indicators expected to have increased 0.1% was right on at +0.1%, it held little interest however with the Philly fed taking all the attention.

More Treasury borrowing next week, at 11:00 Treasury will announce the specifics for next week's bi-weekly borrowing to fund the deficit. 2 yr, 5 yr and 7 yr notes up; last month the total of the three auctions was $104B, should be the same next week.

Later today the Congressional Budget Office will release recent data on the budget deficit with its estimate for this year's deficit. Estimates are for the US 2010 fiscal deficit at $1.3T to 1.4T. The Obama Administration and the late days of the Bush Administration along with Congress panicked when the sub prime meltdown occurred and spread money around like fertilizer to save the banks and Wall Street firms that were at the epicenter of the causes that broke the economic back of the US, setting off massive firings and a collapse of the housing industry that is still in deep depression. The perfect storm; politicians saving their friends in NY, passing a health care bill in the midst of the crisis that has and will continue to hamper any recovery, and made only feeble attempts to create jobs.

Breathing a sigh of relief after the 10:00 data rallied the mortgage prices; as note previously, the 4.0 FNMA coupon has not traded below its 20 day average since mid-April; this morning on the open it traded slightly below it but the continued weak economic data has sent mortgage prices up and back above the 20 day, saving the market's bullish trend. By 10:10 mortgage prices jumped 8/32 (.25 bp) frm 9:30 levels.

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