Market Analysis

Mortgage rates continue to sustain levels that are not supported by economic realities. The primary investor purchasing mortgages continues to be the Federal Reserve and they are electing to purchase mortgages at levels that are pricing out all other investors. This effort has the effect of forcing investors who would normally purchase Agency debt (mortgage-backed securities issued by Fannie Mae and Freddie Mac) to purchase US Treasury securities or invest in stocks. While the Federal Reserve program to purchase mortgages officially is set to end in March of 2010, they are expected to begin tapering off their purchases sooner than that. There are some who project that the Federal Reserve will both extend and expand their mortgage purchase program. However, even if they were to do this, rates would still most likely increase due to the fact that they will need to print more money on top of a mountain of debt that the Treasury is on schedule to auction in 2010. The combination of running the printing presses further and of bombarding the credit markets with record amounts of US Treasury auctions week after week will almost inevitably finally cause us to reach a point where more rational “pricing” of US Treasury and Fannie and Freddie debt will occur and we will experience a sudden move to higher rates. For now, we need to take advantage of these historically low rates.

Below is a recap of the economic calendar for this week:

Monday, November 30, 2009

November Chicago PMI (Business Barometer Index for the Chicago area) – up to 56.1 vs last month 54.2 and expectations for a 53.0 reading.

Tuesday, December 1, 2009

November Institute of Supply Management (ISM) Manufacturing Index – expected 55.0 vs October 55.7 (anything over 50 signifies growth in the manufacturing sector).

October Construction Spending – expected down .4% vs September up .8%

October Pending Home Sales – expected down .3% vs up 6.1% in September

Wednesday, December 2, 2009

ADP Employment estimate – expected 155,000 private sector job losses in November

Thursday, December 3, 2009

Revised Qtr 3 Productivity & Unit Labor Costs – productivity expected up 8.6% vs prior estimated increase of 9.5%. Unit labor costs expected down 4.2% bs prior estimated decrease of 5.2%.

Initial jobless claims week ended 11/28 – expected up 14,000

November Institute of Supply Management (ISM) Service Sector Index – expected 51.5 vs last month 50.6

Friday, December 4, 2009

November Nonfarm Payroll Report – expected job losses in range of 100,000 to 130,000 and unemployment rate flat at 10.2%.

October Factory Orders – expected up .2% vs September up .9%