How the Mortgage Market Will Look in 2011

This was kind of a bizarre year for the mortgage market. In the first half of the year, you had a decent number of home sales keeping mortgages for purchases stable, thanks to the home buyer credit. In the second half of the year, that changed as demand crumbled when the credit was withdrawn. At the same time, you had very low mortgage interest rates throughout much of the year cause a mini-refinancing boom. 2011 will look very different, as the housing demand continues to struggle and mortgage interest rates have begun rising.

Michele Lerner has a pretty good list of seven mortgage trends we can expect to see in 2011, over at Investopedia. A few are relatively trivial if you assume her first trend, rising mortgage interest rates, will hold. That will predictably continue to lower the demand for mortgages and refinancing, while increasing the portion of purchase applications. Lerner's last three predictions are a little more interesting, however.

First, she says that jumbo mortgages, those which exceed the conforming limit (between $417,000 and $729,750, depending on location) will become cheaper. Lerner notes that these mortgage interest rates were higher than conforming rates in 2009 and early 2010, but began to fall in the latter part of this year. This mostly has to do with the funding available for mortgages. Since the mortgage-backed securities (MBS) market died with the financial crisis, banks had to rely on government sources of financing. As investors become more comfortable again with private MBS, jumbo loans will become cheaper. For this to happen in 2011, the MBS market will have to improve accordingly. (more)

Crude Oil Declines From 26-Month High on Concerns China's Growth May Ease

Crude oil fell from a two-year high in New York as China’s second interest-rate increase since October bolstered concern that economic growth will slow in the biggest energy-consuming country.

Futures snapped five days of gains after the People’s Bank of China boosted benchmark one-year lending and deposit rates by 25 basis points Dec. 25 to curb inflation. Oil advanced earlier as temperatures fell and storms blanketed the eastern U.S. with snow, raising demand for heating fuels.

“There’s a feeling that the Chinese interest-rate move will slow economic growth,” said Peter Beutel, president of Cameron Hanover Inc., a trading-advisory company in New Canaan, Connecticut. “This could diminish demand for energy or at least slow projected growth, which has powered the recent rally.”

Crude oil for February delivery fell 51 cents, or 0.6 percent, to settle at $91 a barrel on the New York Mercantile Exchange. Futures earlier climbed to $91.88 a barrel, the highest intraday level since Oct. 7, 2008. Prices are up 15 percent this year. (more)

"JP Morgue" Silver Manipulation Explained, Part 2

China's Christmas Present To The World: Another Interest Rate Hike

Following Friday's failed 3 Month Bill auction, things in China are once again getting interesting, just as the rest of the world has decided to sleep right into 2011. The PBoC, in a surprise move, hiked its lending and deposits rates by 0.25%, the second time the bank has done so since October 19, when its then-raise was the first in 3 years. And by all accounts the PBoC is not done: consensus is for three 25 bps moves by the end of 2011: that the PBoC is starting early may be an indication that the country is starting to seriously worry about its soft landing prospects. Yet one thing that is certain is this move cements the CNYUSD peg: despite all the rhetoric, China will keep the currency peg come hell or high water, as it eliminates any monetary trump card Bernanke may have (just as Germany loves being part of the EUR which has such insolvent countries as all PIIGS members backing up the rear). What is unclear is whether the PBoC has now decided to avoid the RRR hike path as the preferred approach to combating inflation. It is assumed that his action will have a soothing impact on the Chinese 7 and 30 Day Repo rates come Monday, as else more failed bond auctions are certain to be in store for Shanghai in 2011.

From the just released PBoC statement:

The People's Bank of China, starting December 26, 2010 has raised the financial institutions' benchmark deposit and lending rates. The one-year deposit and lending rates by 0.25 percentage points, respectively, other deposit and lending interest rate adjusted accordingly (see table). - Full release link.

And the biggest irony is that as China turns off the liquidity spigot, and the hot money follows the path of least resistance in a world of connected liquidity vessels, we expect that commodity prices in the US will jump that much higher, as the speculators slowly abandon the SHCOMP and related exchanges and bring their full sound and fury on fertile for manipulation US soil.

Chart of the Day: Market Bullishness

"Investors Intelligence now shows the bull share heading up to 58.8% from 55.8% a week ago, and the bear share is up to 20.6% from 20.5%. So bullish sentiment has now reached a new high for the year and is now the highest since 2007 ― just ahead of the market slide."

King World News Weekly Metals Wrap

The KWN Weekly Metals Wrap - We have added new segments to the KWN Weekly Metals Wrap covering gold, silver, trading and a plethora of other factors affecting the precious metals markets. I am giving King World News listeners globally access to what has long been my secret weapons in researching where gold and silver are headed directionally along with the COT Report. We Cover the Commitment of Traders Report in detail as well as a number of other factors which can influence the gold and silver market price action. (click here for audio)

Nine 2011 Predictions By David Chu

1. The U.S. will implement QE3/4 when the $600 billion of QE2 is not enough (already it is not enough as admitted by the Fed's chairman Benjamin Shalom Bernanke recently on CBS' 60 Minutes). Except it won't be called as such in the lamestream media. QE3/4 will be in the trillions of U.S. dollars (USD) of quantitative easing, i.e., fake digital money printing from the Fed to sop up unwanted U.S. Treasuries. The unstated and ONLY purpose of QE2 and QE3/4 is to buy up all of the U.S. Treasury debts that the foreign nations are beginning to refuse to buy while they are quietly dumping what they possess on the U.S. and world markets in exchange for real and tangible assets and resources.

2. The major export nations like China, Russia, Brazil, India, Argentina, and others will engage in and increase their non USD-denominated trading among themselves, as exemplified by the recent China-Russia trade agreements whereby they would start trading in Rubles and Yuans, and not use USD as is typically transacted in international trades for commodities and oil. This will put increasing devaluation pressures on the USD. So, look forward to the US Dollar Index to drop further from the low 80s now to the low 70s or even lower in 2011.

3. Retail food prices in the U.S. will increase in the low to medium DOUBLE digit ranges (10% to 40%) for everything from the junk/GMO "foods" served by corporations like McDonald's to healthy/organic foods supplied by companies like Whole Foods Market. This will take place noticeably in the first half of 2011. (more)