Mark's Blog Report

The MBS market slowed down on Monday, but changes may be in the near future. On Tuesday morning, several factors point to good things for MBS.

• The ICSC Store Sales Numbers showed a .4% decrease month over month and the year/year gain of 1.3% last month dropped to 1.0% this month.  This data does not impact the rates too much, but it does not hurt our case for a full-blown recession.  This data coincides with the Redbook release which also showed a modest gain of 1.4%, likely bolstered somewhat by holiday sales.  Weak store sales are another indicator of a slowing economy.  This tends to drive a bit of investment towards fixed income securities which helps mortgage rates stay low.

• The Case-Schiller Home Price Index posted its 19th consecutive drop.  The reading this time was a fall of 11.4% in January, the largest since the index first started reporting in 1987.  The composite index (a broader measure), also fell 10.7%, marking the first time both indexes have crested double digits.

• Yesterday was a fairly "big dipper" for the fixed-income markets as stocks rallied.  This is historically likely after a holiday weekend, but nonetheless, MBS and US Treasuries gave up huge losses.  And why is this point in a list of factors that will have a good impact today?  The pendulum effect, and/or technical analysis.  We've been in a bit of a trend channel for the past week or so with the price of a FNMA 5.5% MBS unwilling to go above a certain amount, but also unwilling to go below.  We approached the lower range of that channel yesterday which, on a purely technical read of the data suggests a greater upward for will be exerted on MBS today.  Think of the price graph line like a rubber band: the farther you pull it from the middle, the more it wants to snap back. 
  
• Consumer Confidence, set to release in 30 minutes, will likely post another decline.  February's Confidence numbers were the worst in about five years, with the "expectation" component reading its worst since 1991.  If we hit or even surpass analysts' estimates of weakness here, it will be a bit of a cold shower for the stock market, and will generally help bonds such as MBS.

More bombs are on the way, and there are more cliffs for the lemmings to test their perceived new-found ability to fly.  It's not going to happen right now, and as long as home prices continue to drop, it would take a miracle of education in financial discipline for the current situation to do ANYTHING BUT continue to drive the consumer into the ground.  One thing the talking heads can seem to agree on is the importance of the consumer to the economy.  Weak consumer, generally, will help MBS for that reason.

The consumer confidence index read at a level of 64.5, down from 75.0 last month.  These numbers have not been seen for many many years and are in line with what economists have considered previous recessions in the US.