mtg purchase apps fall again…

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>   (email exchange)
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>   Seems like Bullard is calming mkt down ahead of bernankes testimony
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FED’S BULLARD:WOULD GET WORRIED IF INFL FALLS BELOW 1% – MNI


BULLARD:NO NEED TO REDUCE VOLUME OF BOND-BUYING IN NEAR TERM – MNI

Right
Some of the headline hawks suddenly turned a bit dovish.
And yellen got a bit more hawkish?
Seems they are converging?

Bernanke has to make the case that weakness justifies QE if he wants to do it to keep mtg rates down, which he does. He doesn’t want housing to sag and then get blamed. Recall that part of the QE logic last year was to try to stay ahead of the cliff risks as much as possible. But he also has to ‘manage expectations’ in that he believes if he is negative on the economy his take can cause it to sag.

Tough spot.

And, ironically, the macro back drop of course is that QE removes interest income from the economy, with MBS having the highest coupons.

So stocks rally as portfolio indifference levels adjust to the mistaken belief that QE somehow supports stocks, when in fact it’s doing the opposite, which shows up in weak top line growth/weak nominal GDP and weak earnings growth, etc.

And currently it’s all in the context of the deficit perhaps getting too small to support the kind of private sector credit growth necessary to overcome the demand leakages (including the recent proactive govt deficit reduction) and print positive GDP numbers.

Mortgage Applications Tumble as Interest Rates Jump

May 22 (Reuters) — Applications for home mortgages dropped for a second week in a row last week as a spike in interest rates stymied demand for refinancing, data from an industry group showed on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, tumbled 9.8 percent in the week ended May 17.

The index of refinancing applications slumped 11.7 percent, while the gauge of loan requests for home purchases, a leading indicator of home sales, fell 3 percent.

Yes, I know it’s not all that good of an indicator, but it’s an indicator nonetheless.