Hover over this image for caption and link ↓↓↓

I thought about taking today off from the commentary to celebrate, since yesterday I won all 4 quarters of my office’s Super Bowl pool! And then I remembered that I was the only one in the pool, don’t really have an office, and that the net effect of my $50 a square winnings was about the same as the US Government buying back their own securities. Oh well.

Bernanke’s Bailout Exit Strategy
On Wednesday at 10AM EST, Federal Reserve Chairman Bernanke plans to testify before the House Financial Services on that day about the central bank’s plans to withdraw emergency stimulus from the U.S. economy. No one believes that the goal of the Fed is to mess up the markets, or the recover, but the Fed has options in unwinding emergency aid “while not causing inflationary fears, hurting job growth or stunting the fragile economy recovery underway.” We already know that they will keep overnight rates near 0% for quite some time. And in fact late last week a Fed official (the president of the Federal Reserve Bank of New York) said the Fed might reconsider ending the mortgage buying program if rates rose sharply. more…

For the past three weeks, rates have closed market trading days within .25% of record lows. But the intraday rate swings have been dramatic as mortgage bond traders sort through economic data releases.

Case in point: how rate markets reacted to today’s Jobs Report. Stocks rallied and mortgage bonds (that rates are tied to) sold off on the initial reaction to unemployment decreasing from 10% in December to 9.7% in January. But the report also said that actual January job losses of -20k were greater than the 15k new jobs estimates called for, and December’s previously reported -85k job losses was revised up to -150k. Markets seemed to realize this as the trading day continued because stocks went negative and bonds rallied.

All told, mortgage bonds traded in a 68 basis point range today, which caused rates to trade in a .25% to .375% range as lenders issued new rate sheets throughout the day (Sidebar: can we still say “rate sheets” in this online era). more…

The Bureau of Labor Statistics non-farm payroll report showed that the economy lost 20,000 private sector jobs in January, and December was revised from -85k to -150k. This means 24 of the last 25 months have shown losses, putting the job loss toll since January 2008 at 8.42 million. In 2009, 4.8m jobs were lost. BLS also reported that 14.8 million people are unemployed. This is a 9.7% unemployment rate, up 4.8% since the recession began in December 2007. See charts below.

Additionally there are now 8.3 million people who would like to work full time but are working part time because their hours have been cut or they can’t find full-time jobs. This forced-into-part-time-work category is up 3.6 million since January 2008, but dropped significantly this month for the fist time in nine months (it was 9.2m last month). This is the fine print of the jobs report—the headline job loss and unemployment statistics show that these 8.3 million people are employed and therefore not in the job loss category, but because of their job status these 8.3 million workers aren’t likely to be consuming at normal levels. But the significant drop this month along with the drop in unemployment is encouraging. more…

Economic Worries
Yesterday’s stock market drop dominated the financial news. And a slowing economy helps rates and mortgage loan agents, right? (It’s a two-edged sword.) So the markets did not pay much attention to Non-Farm Productivity increasing over 6% during the fourth quarter of 2009. Efficiency in the last nine months of 2009 soared at the fastest pace since 1966 as companies cut worker hours even after sales stabilized. Factory Orders for November were up 1%, better than expected. And 4Q09 GDP was 5.7% at the first reading last week. But the focus, and one of the reasons given for stocks taking a beating, was on Jobless Claims which hit a 7-week high.

There is certainly a lot to be nervous about. There is the concern that around-the-world budget deficits will need to be financed by issuing more debt. California, with the 8th largest economy in the world, is continuing to have budget problems. On top of all that, oil prices declined over 5% while gold prices also fell, down over 4%. The dollar was weaker to the yen, but firmer to the euro as the risk aversion trade returned, and this helped Treasuries and mortgage security prices, dropping rates to December levels. more…

Finally had a chance to watch this trailer for Wall Street: Money Never Sleeps, the sequel to the original and best all-time movie about money (except for maybe Rodney Dangerfield’s Easy Money). There’s almost no way this movie won’t be entertaining. Trailer is below (along with a trailer for Easy Money—watch that one to the end, when voiceover asks you to mail your request for information about new movie releases. Classic. Truly.)

Comeback For Jumbo Loans
What is the American Securitization Forum? Darned if I know, exactly, but they were meeting in Washington DC and came out with a statement conjecturing that non-agency product (a $1.2 trillion market 4-5 years ago, $25 billion in ‘08 and $44 billion in ‘09) may start to be securitized again later this year. The reason? There’s more talk about it this year than last! Right now, however, jumbo loan production is pretty small, and profit margins are pretty slim since jumbo rates aren’t all that much higher than agency rates. (I have an idea! Let’s split the pools into tranches, and then have Wall Street work with the rating agencies… oh, never mind, I guess we tried that.) As I mentioned yesterday, banks are holding onto this product, but if other buyers materialize and the loans can be sold at profits, things could loosen up. Whole loan packages and syndications of interests in pools of loans may be steps in the right direction.

More on the return of Jumbo mortgages and mortgage securitization overall from this Bloomberg report. more…

Hitler on Home Appraisals
OK, for anyone who deals with appraisals in any form, here’s a great YouTube video: a Hitler rant on new appraisal regulations. One of the better lines is, “Wells Fargo and BofA getting appraisals done by appraisal companies they own – It’s like Michael Jackson running a freaking boys camp! My E&O is going to go through the roof!” Definitely worth 2-3 minutes.

Here’s Nouriel Roubini’s quick take on Obama’s budget. The full report is here (subscription required):

The Obama administration released its FY2011 budget, which forecasts fiscal deficits of US$1.55 trillion (10.6% of GDP) and US$1.3 trillion (8.3% of GDP) for FY2010 and FY2011 respectively. To support economic recovery in the near term, the administration plans to increase spending on several stimulus measures: extending unemployment benefits and health-care subsidies for unemployed workers, providing tax and credit incentives for small businesses to invest and hire workers, extending payroll tax cuts for the middle class and increasing funding for states, infrastructure and transportation. Meanwhile, the administration plans to begin to reduce the fiscal deficit in 2012 and bring it below 4.0% of GDP by 2014 by adopting fiscal consolidation measures and reducing the primary deficit through raising taxes on high-income households and investors and cutting spending on health care and discretionary programs.

These proposals fall short of aggressive fiscal reforms, and the fiscal deficit is likely to remain near US$1 trillion and exceed 5.0% of GDP over the next decade (and trend higher thereafter). Near-term spending on fiscal stimulus and defense will remain high at least until 2011, as Obama’s proposed three-year freeze on discretionary spending excludes defense and entitlements. A sluggish and jobless economic recovery and weaknesses in the financial and household sectors will keep revenues subdued and constrain tax hikes. Rather than yielding savings, as projected by Congress and the administration, the health-care reform legislation will burden the fiscal deficit over the next decade. Health-care mandates and subsidies will raise government spending, while cost savings from the proposed reforms will be small and accrue only in the longer term. The elimination of the “public option” might reduce fiscal costs, but the lack of it will keep insurance premiums high. more…

New Bank Definition
I thought I knew what a bank was, until those clever folks at the internet gave me something else to contemplate.

Groundhog Day Predictions Worse Than Coin Toss
Happy Groundhog Day. Few offices outside of Punxsutawney, PA use this as a holiday, whereby since 1887 if the groundhog (Punxsutawney Phil) sees his shadow we have six more weeks of winter. If he doesn’t see his shadow, we will have an early spring. (Never to be outdone, the Great State of Texas chose its state mammal, an armadillo, to predict the weather for their first Armadillo Day.) The National Climatic Data Center reports that Phil’s predictions have been correct only 39% of the time. Worse than a coin toss!

Fed Report of Credit Standards
Do we really need, in the United States, a return to more lenient credit? Self-employed borrowers aside, probably not, as many believe that it helped contribute to the credit issues we have now. Yet the press makes a big deal out of banks in the United States not loosening the flow of credit to consumers and businesses. It is truly a “supply and demand thing”, the credit markets are, and a recent report by the Federal Reserve shows banks aren’t tightening credit standards as much as they were a year or two ago, but they haven’t yet loosened the flow of credit to consumers or businesses. “The net percentage of banks that were tightening standards was close to zero but positive for most types of loans,” the Fed said in its quarterly survey of senior loan officers at 55 U.S. banks and 23 foreign banks doing business in the country. In the January survey, most banks reported that demand for most types of loans is still weakening further, the Fed reported. more…

Overall Personal Consumption Expenditures, the Fed’s favorite measure of consumer inflation, were 0.1% in December and 2.1% year-over-year through December. Excluding volatile oil and food costs from the readings, “Core” PCE price index for December was 0.1% and 1.5% YOY through December. The Fed looks closely at Core PCE excluding food and energy prices because of the price volatility of these two items, and the Fed’s zone for reasonable inflation is 1-2% per year. At 1.5%, Core inflation is within their comfort zone, as confirmed by the FOMC’s statement last week that inflation is likely to be subdued for some time, and the fact that PCE inflation has been stable since summer 2009.

Personal income increased 0.4% percent in December, and wages were up 0.1% from last month. Households kept hoarding cash with Personal Savings Rate rising to 4.8%, which marks a four-month trend of savings in this range, bringing the 12 month average to 4.6%. In May, personal savings hit an all-time record high of 6.9%. Below are all key details from the Personal Income & Outlays report.