Just a quick note as the market is starting to slip again. Treasuries opened a bit higher (lower yields) and mortgage backs followed suit (up 2/32’s) but have given way to selling pressure from the fast money crowd.
Stocks are not the reason as we are off 139 points on the big board. PPI, inflation at the wholesale level, is not the culprit either as the print was up .4% headline and down .6% ex-autos, giving some cover for the Fed’s pressing QE2. October Industrial production hung an egg (unchanged) and the National Association of Home Builders Index was up slightly yet not very impressive. Even the Fed buying 5.4 billion in paper can’t plug the dam.
What you have here is a mentality surrounding QE2 that is worried about inflation, economic growth, Federal balance sheets, and was priced in “before” the operation took place. Now we have fast money accounts (trading accounts, hedge funds, money managers, etc.) pressing the trade, blowing through technical support levels like a tsunami. Studies are bearish on every time frame.
Given the economic backdrop (high unemployment, etc.) we feel this move is close to a bottom. Trouble is, picking bottoms are like catching falling knifes, hard to do without some pain. Best bet for Austin mortgage borrowers is to use the float down option (“option to lower your interest rate one time”) to guard against a reversal (rally).
Markets like this are dangerous and sometime do not follow logic. If it looks like a bear and walks like a bear, it probably is a bear.