For anyone following the recent collapse in mortgage applications, the recent "strength" in new and existing home sales is nothing but the latest joke to spin the nth bounce from the bottom as the "this is it" moment which Cramer has been trying to do with disastrous results ever since the summer of 2009. Oddly, reading a recent surprisingly bearish Goldman economic outlook (or not so surprising: it lays out the framework for Goldman to start advocating MBS purchases as part of QE3) piece from Sven Jari Stehn confirms our concerns that any attempt at shining light behind the headlines exposes ever more cockroaches. In "Mortgage Applications Point to Near-Term Home Sales Weakness" Stehn highlights the same issues we have been pounding on the table for months: namely that near contemporaneous plunge in mortgage applications is far more troubling and should be given far more impact than new, pending and existing home sales in any one prior period. Goldman summarizes: "The number of mortgage applications, however, has declined sharply in recent weeks. Specifically, the volume of mortgage applications for purchase—reported in a timely fashion every week by the Mortgage Bankers Association—declined by a cumulative 14% during the last three weeks. Does the decline in mortgage applications suggest that home sales are set to decline again in coming months?" In short the answer is yes, and the full note below explains it. Additionally, we have provided some technical perspectives from Peak Theories which predict a 7% drop based on recent chart patterns. Needless to say, we believe the drop will be far greater when all is said and done, now that the Bernank has given up on attempting to keep mortgage rates low and only cares about boosting stock prices. (more)
The Weekly Peak - January 28, 2011
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