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Wednesday, August 18, 2010

Morning Market Report

It was a great day for all markets across the board yesterday with all three indices showing strong gains of about one percent. They all look to be slightly higher today from yesterday. Meanwhile, mortgage applications are the highest in fifteen months.

U.S. mortgage applications leaped last week as rock-bottom rates lifted demand for home refinancing loans to its highest level in 15 months, the Mortgage Bankers Association said on Wednesday.

Home loan refinancing puts extra cash into consumers' hands that can be used to pay off existing debt or funnel into the economy through purchases. By lowering a monthly mortgage payment it may also help some homeowners avoid default and foreclosure.

The MBA said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended Aug. 13, increased 13.0 percent. The four-week moving average of mortgage applications, which smoothes the volatile weekly figures, was up 2.6 percent.

It was just yesterday when I said that mortgage applications weren't showing any strength even as mortgage rates were at or near all time lows. There's some talk about reforming Fannie/Freddie.

In response to criticism by many in Congress that it should have added GSE reform to the financial reform bill, the Obama administration has repeatedly said the housing and mortgage markets are simply too fragile right now to weather the inevitable storm that debate would entail.

Still, next Tuesday, financial industry leaders, academics, economists and dozens of TV cameras will meet in a room at the Treasury Department for the first public forum on reforming the two mortgage giants which have been bleeding cash while still controlling 70 percent of today's mortgage market.

Administration officials have told me over and over that there will be no policy announcement on Tuesday; this is an open forum to look at and discuss the many proposals for reform of and transition from the current GSE conservatorship.

As I've said over and over, reforming Fannie/Freddie is really simple. You break them up and fully privatize them. As my old boss used to say,

it's simple but not easy

So, we'll see. I don't expect our fair politicians to get this right.

Treasury bonds are showing strength again. The ten year U.S. Treasury bond is now just below 2.60% at 2.5928%. The yield spread between the two and ten year continues to hold at 2.1%. Bonds in Britain were relatively unchanged while in Germany we saw some strength.

Both Gold and Oil are taking a breather. Oil is off about 50 cents a barrel to $75.18 and Gold is off $1.40 an ounce to $1226.90. Meanwhile, the Dollar is showing some weakness this morning. It's off .19% against the Euro, .51% against the British Pound and off .29% against the Japanese Yen.

It was a mixed day for equities around the world. The Hang Seng in China was off .54%, the NIKKEI in Japan was up .86% and the Straits Time Index in Hong Kong was off .14%. In Europe, the DAX in Germany was off .08%, the FTSE in London was off .45% but the Spanish index was up .03%.


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