Good Morning on this windy Friday from your Hometown Lender,

We had the final important set of economic data with the Retail Sales report this am.

It was expected to be stronger than the past month and it was at the topline number. Also, backward revisions came in much stronger but when we removed autos and transportation from the mix, the number was weak. Bonds though have been looking for a reason to be on sale this week and they used today’s data and yesterday’s fireside chat with Chairman Powell where he reiterated that the Fed is not on a preset course and that rates may not fall as quickly as markets were expecting, as a reason.

For us bean counters, the numbers were: Retail Sales 0.4 vs 0.3; Ex Autos 0.1 vs 0.3.

The 10-yr is stuck in the 4.30% – 4.50% range and at 4.47% now, we are closer to the top now than to the bottom. Let’s hope we get some normal trading and that next week we start back down the channel closer to 4.30%. if not and we break 4.50%, it opens the next channel higher to 4.65%. There has been a lot of speculation that the 10yr note could hit 5% on expectation of how new policies will cause inflation. I think markets are quick to trade on speculation and I hope calmer heads prevail. The 10-yr at current levels is very restrictive. We are seeing that not only in housing but all facets of financing. Credit card debt is starting to strangle consumers no differently than Federal debt is strangling the government. I am hopeful that the new administration will find a way to reduce rates and debt service.

Here’s a primer from Hammer Helmer which is on point.

Rates sheets this morning will be worse and reprice risk on the day is high. Rates took a blow from Powell’s comments yesterday and took another shot from this morning’s retail sales data that came in higher than expected (with an increase to last month’s numbers as well). I don’t know who is going to “win” tonight’s Tyson/Paul fight (if it is a legit fight I put my money on Tyson) but either way I feel like we were the warmup bout. The outlook for rates is that they will not move much lower than what we see now and could actually move higher. This is a full 180-degree opposite of what the outlook was two months ago on September 15th.

Yesterday Fed Chair Jerome Powell put the nail in the coffin for mortgage rates. While it’s easy to get mad at JP, I gotta say that it really isn’t his fault… he’s only responding and reacting to the data that we continue to get showing the economy and labor market are both doing just fine.

Yesterday Powell said in a speech that the economy is doing “remarkably good” and “…is not sending any signals that we need to be in a hurry to lower rates.” There is no wishy-washy, mumble mouth stuff going on here… Powell is flat out telling the markets that we will soon see a pause in Fed rate cuts, and the market listened. Before Powell’s speech yesterday, markets were pricing in about an 80% expectation of another quarter point Fed rate cut in December, and more cuts early in 2025. After Powell’s comments, markets dropped the betting on next month’s cut to 55%, and expectations of future cuts also fell off big.

If you talk to the average American, many folks are struggling to cover the bills, and are living paycheck to paycheck. More than that, they are sinking deeper and deeper in debt… and as I’ve said many times before, it is the unprecedented access to consumer credit that is really driving the economy. I’m concerned that this can’t go on forever, and that we are going to see one helluva recession sometime in the next couple of years. While Trump is going to be blamed since he is the one in office, it was really caused by the last few years. This isn’t a political dig, it’s a reality check… the economy is sick, but it isn’t obvious yet (although a lot of folks smarter than me can point out where you can see the signs of the illness). When that happens, we will see mortgage rates plummet and it will be a time of plenty for originators… unfortunately we always do best when the rest of the economy does worse.

On to next week and hopes of some buying in the bond market.

Stay safe, enjoy the weekend and first, make today great!!!