November 5, 2012 by Leave a comment

Mortgage pricing is improving this morning following a late improvement in mortgage rates following somewhat positive economic news last week.  Normally we would expect good economic data to cause mortgage rates to rise, but given events in Europe, tomorrow’s election, and the general climate of uncertainty we’re seeing counter-intuitive market movement.  I don’t think we will see any great changes before the election is decided as the markets hold their collective breath waiting to see who our next president will be.

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The only economic report of note was ISM’s Non-manufacturing activity, which dropped to 54.2%, down from 55.1% in September (readings above 50 indicate growth, below 50, contraction). This is below the consensus expectation, but still firmly in growth territory.  The employment component of the report increased from 51.1% in September to 54.9% this month, which is a positive sign for future job growth, assuming we continue to trend in this direction.  All told, this report is not really strong enough to have a large impact on the markets today.

Meanwhile in Greece, the Greek parliament is set to vote on a variety of austerity measures tied to the beleaguered country’s next bailout package.  Greek workers are threatening general strikes over additional austerity (unemployment is already about 25%).  It is unclear what will happen if the measures are voted down, but I’m certain this would be interpreted as increasing the risk of a Greek exit from the Euro (or will speed Greece’s exit from the Euro).  This is something that bears watching because the outcome of the vote could a large impact on the market (more so in the event that the measures are rejected than if they are approved).

It’s probably worth addressing the election briefly.  My gut feeling is that we will see an Obama victory (despite the Redskins’ loss – RGIII may think differently about openly taunting the other team’s quarterback before their next game), the Republicans will retain the house, and the Senate will be a toss-up.  In this scenario, I’m thinking that people will see an increased risk of a fiscal cliff showdown, which will lead to a bond rally and a stock sell-off, and probably somewhat better rates.  Whether or not the theory of increased fiscal cliff risk is true, I think this will be the interpretation.  Once the fiscal cliff issue is solved (which it will be, one way or the other, no matter who is elected), all bets are off.  The economy will still face many headwinds, but a major factor in keeping rates in their current low range will be cleared and we could see an increase in the coming year.

I still believe that the possible downside risk of rising rates balances out the possible upside of falling rates, and that those that are looking for mortgages would do well to lock in a rate sooner rather than later.

Today’s Links:

ISM: Non-manufacturing activity at 54.2, down from 55.1, below the consensus of 54.9, but still firmly in expansionary territory.

Joe Posnanski: Wedding Dances and Super Bowl Trophies.  If you haven’t watched Chuck Pagano address the Colts this past Sunday, I recommend you do so.

Guardian: Greece Flirts With Tyranny and Europe Looks Away.  25% unemployment will make people do crazy things.

Reuters: Greece Makes Austerity Push, Workers Gear For Strike.  More austerity?  Genius plan.

Wired: November 5, 1955: A Flux of Genius.

ProPublica: Obama Has Granted Clemency More Rarely Than Any Modern President.  I don’t know that this really fundamentally means anything.  I’m guessing the president doesn’t want to open himself to accusations of being “soft on crime.”

Scientific American: Humans Think Like Quantum Particles.

Marginal Revolution: A Bet is a Tax on Bull****.  On Nate Silver and the NYT Public Editor.

NYT: Gasoline Runs Short, Adding Woes to Storm Recovery.

Reuters: HSBC Fears U.S. Money Laundering Fines to Top $1.5 Billion.  How does this entire article go without mentioning drugs, cartels, and the 60,000 or so Mexicans that have died in that country in the past 5-6 years?  See next link:

David Simon: A Fight to the Last Mexican.  See also:

Forbes: HSBC Helped Terrorists, Iran, Mexican Drug Cartels Launder Money, Senate Report Says. Is this not the kind of activity that should get someone shut down?  Shouldn’t someone go to jail for this?

NYT: The Permanent Militarization of America.

Foreign Policy: The Myth That Screwed Up 50 Years of U.S. Foreign Policy.

The Onion: Undecided Voters Pretty Sure He’s Some Kind of Idiot.

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