It’s not the cost of money, stupid

The MBA said the average 30 yr mortgage rate fell another 26 bps to 4.63%, the lowest in at least 20 years as the Fed’s purchases of MBS is working in impacting this metric. However, the response remains predominantly in the huge increase in refi’s with barely a ripple in purchases. Refi’s for the past week rose 41.5% and are 400% off the lows of mid Nov right before the Fed announced their purchase plan. Purchases though while rising 4.2% for the week, are just back to where they were in mid Nov, thus there has been ZERO net impact on the buying of homes as the Fed spends billions.

Price has been the main driver of activity as evidenced by the level of foreclosures and not the cost of money. While refi’s are very helpful, the Fed embarked on this path to spur demand for buying homes. ABC confidence fell 2 pts but the State of Economy component rose to a 3 mo high. Personal Finances fell to a 1 1/2 mo low. German IFO was in line with estimates. Durable Goods and New Home Sales are out today.

UK failed Gilt auction

Out a little while ago, the UK government failed to get enough bids for its 40 year Gilt auction. This comes even with the UK government in the market weekly to buy Gilts to influence longer term interest rates lower. The UK 10 yr yield is now at a 3 week high and demonstrates the huge risk that the UK and now the Fed is taking on in buying bonds to manipulate the level of interest rates.

Durable Goods
Feb new orders for Durable Goods surprised to the upside, rising 3.4% headline and 3.9% ex transports and comes after a big revision downward to Jan which fell 7.3% headline and 5.9% ex transports. Non Defense Capital Goods ex Aircraft rose 6.6% after falling sharply in the prior two months. Helping orders were gains in computers/electronics, electrical equipment, machinery and fabricated metals. Shipments however, which gets directly plugged into GDP, fell .5% so the key is turning the Feb orders into future shipments instead of seeing them get canceled. The inventory to shipments ratio did tick a touch lower to 1.88 from 1.89 in Jan which was the highest since 1992.

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