Rate Snapshot: Will the economy ever be self-sustainable?

by MPA04 Nov 2014

By David Shirmeyer, CEO at Sigma Research

Not much movement again today in the MBS and treasury markets; stock indexes also marking time ahead of employment on Friday. September factory orders this morning were down 0.6% as was widely expected; August orders were -10.0% while July orders were up 10.5%; a very volatile series over the last three months.
Market bulls discount any negative headline these days with explanations that seem to hold water but it is a leaking bucket. Factory orders in the U.S. will continue to slow as long as the US dollar continues to rise against the yen and euro currency. That said, currently markets’ thoughts are directed to the data that is better than estimates such as the October ISM manufacturing released on Monday. Tomorrow the October ISM services sector index is expected at 58.0 from 58.6 in September. The estimate is the same as the forecasts for the manufacturing index that was expected to be slightly lower but was better than thought. Also tomorrow at 8:15 ADP will report its private jobs data, expected at an increase of 230,000 jobs.
I get many e-mailed market forecasts from a variety of pundits and authors every week. What is interesting now is the tone of many of them; while most are still strongly bullish and forecast continued growth and higher stock market levels, what is changing is many of the people I read are beginning to change, becoming more cautious and out-right frightening in their longer range outlooks. Some of them like Marc Farber have been forecasting a deep recession ahead for over a year; others are quickly moving away from the optimistic view recently.
Today on Bloomberg News an article about fund manager Paul Singer, he is 70 (important because he has been around the barn many more times than the current market rock stars) and manages $25.4B. Singer is adding his name to the serious decline for the economy.
His reasoning; “Nobody can predict how long governments can get away with fake growth, fake money, fake jobs, fake financial stability, fake inflation numbers and fake income growth.”… “When confidence is lost, that loss can be severe, sudden and simultaneous across a number of markets and sectors.” …. “We do not think this optimism is warranted, and we think a lot of the data is cooked or misleading,”…. “A good deal of the economic and jobs growth since the crisis has been fake growth, with very little chance of being self-reinforcing and sustainable.”
Why do I mention it? Because as I said I am seeing a noticeable change in long-term sentiment from more newsletter writers and analysts,  mostly based on the increasing understanding that central banks cannot in themselves grow decent jobs, improve the housing sector, increase production.
What central banks so far have been able to do is drive investors into stocks with the belief that eventually there will be trickle down to the diminishing middle class. The banks have been successful from the perspective of making more billionaires and millionaires but after six years of it the U.S. economy’s foundation is still unstable.
Paul Singer’s comments in the Bloomberg article strikes a sour note and should not be ignored; what he said is right on from my perspective. Is all of the back scene increased concerns be wrongful thinking? I certainly hope so, but we would not be doing our job not pointing out the growing pessimism under the surface.
All of our technical models and chart formations are now completely neutral; not bullish but also not bearish. That condition is not likely to last through the week; Friday’s employment and Thursday’s ECB meeting will take the rate markets into a directional move, one way or the other. In the meantime, we don’t want to play in the sand box.

PRICES @ 4:00 PM
10-year note:                    +2/32 (6 bp) 2.34% unch
5-year note:                      unch 1.63% unch
2-year note:                      unch 0.51% unch
30-year bond:                   +10/32 (31 bp) 3.05% -1 bp
Libor Rates:                 1 mo 0.155%; 3 mo 0.232%; 6 mo 0.327%; 1 year 0.553%
30 year FNMA 3.5 Nov:    103.25 unch (-2 bp from 9:30)
15 year FNMA 3.0 Nov:    103.66 +7 bp (+5 bp from 9:30)
30 year GNMA 3.5 Nov:    104.28 -1 bp (-7 bp from 9:30)
Dollar/Yen:                   113.63 -0.42 yen
Dollar/Euro:                 $1.2546 +$0.0064
Gold:                            $1168.90 -$0.90
Crude Oil:                    $77.22 -$1.56 ( the low today $75.40, a 4 year low)
DJIA:                           17,383.71 +17.47
NASDAQ:                    4623.64 -15.27
S&P 500:                     2012.08 -5.73


Should CFPB have more supervision over credit agencies?