Residential Part Two

After I posted this, "Residential Update" this afternoon, I received an email from a subscriber who works as a loan officer for a bank.


 "By the way, I would say the mortgage applications are down why more than they are letting on.  I have taken maybe two decent applications in the last month, compared to 10-15 a month up til the end of October.  Volume has dropped off a cliff with the rise in rates.  More bad news for the housing industry; as rates rise the payment goes up, which drops the amount a potential buyer can qualify for.  As a result, home prices will need to come down to a level of the buyers. In addition, keep in mind that this dramatic drop in refinance activity to nearly zero will also affect the early prepayment of MBS loans on the Fed's balance sheet.  It is this prepayment of MBS loans that the Fed is using to fund the POMO program.  Where is the money going to come from to continue the program through next year, more printing?"


Later in the day today, ZH published this article, this one straight from the Fed.


Once again today the Price/Volume relationship for at least a 3rd day was the most bearish, stocks close up on diminishing volume. At this point, the market is rising on fractional gains +.06% for the NAS 100, +.34 for the S&P-500 and +.23 for the Dow, not even a gain of a half a percent for any of the averages. This is not bullish market momentum, we haven't seen a 1% gain, which still would be mediocre, in nearly 3 trading weeks. Instead it seems that either the Fed or institutions are simply trying to keep the market green to finish the year. Remember, prospectuses for the new year need to look as strong as possible, especially in light of the outflow of funds from the market and various funds. Domestic equity funds have seen an unbelievable 33 consecutive weeks of outflows of capital. At this point, with distribution being as high as it is (3C has been showing this since August) it's no wonder with that kind of capital exiting the markets, funds must sell stock to redeem the outflows. 


This is a ticking time bomb to the likes I've never seen or even read about historically. There' no confidence in our markets, these fractional gains are proof of that and in my opinion, proof of manipulation to keep the markets green throughout the year. Jan. 3rd should be an interesting day. Until then, the cats and dogs rally (stocks like XOMA) seems to be taking hold, I'll be posting more of these trades as they tend to give large 1-2 day gains in the double digits. The cats and dogs rally in my experience has always preceded a market decline. People who feel they missed the rally tend to look for inexpensive stocks that haven't taken off yet in sectors that have done well. These are the cats and dogs and the market seems to be aware of this behavior as they accumulate these stocks and quickly distribute them into 1-3 day double digit gains.


Needless to say, residential related equities will remain on the radar as a central theme.