It seems our economy is unable to promote a significant level of consumer spending without some sort of Federal Assistance. 

Given that this is an election year where the outcome has the potential to be especially significant, it is reasonable to anticipate that lawmakers returning to Washington after their Labor Day recess will be motivated to enact legislation to stimulate economic activity.

One idea being circulated is to re-authorize the recently expired Homebuyer Tax Credits.  While that may seem like a step in the right direction, it is not. In fact, just talking about another homebuyer tax credit could slow sales in the here and now as consumers put off purchase plans in hopes they too will be able to benefit from such incentives.

I’ve been on the road for the past three weeks, mostly performing reviews of mortgage bankers for warehouse lenders.  I am happy to report that all channels of origination are doing well. 

I’m no longer hearing the grumblings we heard earlier in the year as record low rates have sparked a mini-refi boom throughout the country and in certain areas the purchase market is also doing well thanks to record high levels of home affordability.  If one is gainfully employed and has excellent credit, it is a great time to buy a home. Referral based retail and internet retail shops are generating impressive profits.  Contrary to the naysayers, the broker business is thriving and wholesale lenders are quite busy. Everyone appears to have adjusted to the new RESPA regulations and companies are settling into the new FNMA Loan Quality Control Initiative (LQI).

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Mortgage rates had a great day yesterday. This is the message we communicated to readers...

Stocks are rallying and the bond market is taking a beating after a much better than expected read on the manufacturing sector. 

The August ISM Manufacturing Index came in at 56.3 vs. economist estimates for a read of 53.0.  The 'Prices' index rose 4 points to 61.5 from 57.5, quelling deflationary fears and giving bond traders a reason to fade the rally.

Stocks were up before 10am data but didn't take flight until after ISM flashed. S&P futures are currently up 27 handles at 1075.25.

The bull flattener is unwinding again. The 2s/10s curve is 9bps steeper at 209bps. The long bond is 14.7bps higher at 3.668%. The 7-year note is +12.5bps at 2.046%. The 10yr note is +12.3bps at 2.593%. Volume was heavy into the downtrade.

Rates continue to trend lower, helped yesterday by the release of the FOMC meeting's minutes which alluded to the possibility of the Fed reinvesting in MBS's. (But heck, as one trader told me, low mortgage rates are helping agency-qualified borrowers, not others in the economy like renters who can't qualify, not those that don't have jobs or those that simply pay cash for houses.) 'A few members worried that reinvesting principal from agency debt and MBS in Treasury securities could send an inappropriate signal to investors about the Committee's readiness to resume large-scale asset purchases,' the Fed said in the report, referring to mortgage-backed securities. The minutes from the August 10 meeting made it clear that the Fed is far from ready to restart Quantitative Easing Round 2.

The first day of September looks to open strongly while investors await key data on employment and manufacturing.
 
About ninety minutes before the opening bell, S&P 500 futures are up nearly 12 points to 1,060 and Dow futures are jumping 75 points higher at 10,081. Interest rates are moving higher in the wake of improved sentiment in equities. The 10 year Treausry note is -0-10 at 101-01 yielding 2.507%. The October delivery FNCL 4.0 is -0-02 at 103-05.

European stocks are also about 1.5% higher and Asian markets finished stronger (a notable exception being China’s Shanghai index, which fell 0.6%).

At 8:15, the ADP Employment Report is anticipated to show that 18,000 private jobs were created in August, according to economists polled by Reuters. Investors will be watching the numbers closely to forecast the official employment numbers released this Friday.