PUMP UP THE VOLUME…It’s not just the kids who are back to school. Traders returned from summer vacations in full force last week, so expect volume levels of trading to increase in the coming days. And might this finally cause some motion in the markets? It would appear so – after sluggish summer trading, volatility finally spiked higher. Mortgage Bonds were tugged in both directions, but home loan rates ended the week slightly improved.

Big Al took the microphone last week, and chose his words carefully as he prepared the markets for another .25% Fed Funds Rate hike on September 21st. Traders, investors and consumers all listened closely to hear Mr. Greenspan’s take on the economy, and the Chairman didn’t disappoint as he brought yet another new “buzz-phrase” to light, stating that the economy has “regained some traction”. He did indicate that inflation seemed to be fairly tame at this point, in spite of high oil prices, but the expectation of a rate hike at the next Federal Open Market Committee meeting still seems to be a lock.

AND SPEAKING OF VOLUME…DID YOU KNOW THAT THE BEST WAY TO GET SOMEONE’S ATTENTION…IS TO whisper? THE “WHISPER NUMBERS” IN THE TRADING PITS HAVE BEEN GAINING MORE ATTENTION OF LATE, BUT WHAT ARE THESE MYSTERIOUS “WHISPER NUMBERS”, AND HOW DO THEY IMPACT THE MARKET? FOR THE INSIDE SCOOP, LEAN IN CLOSE AND CHECK OUT THIS WEEKS MORTGAGE MARKET VIEW.

Been out shopping lately? If the crowds out at the malls are any indication, back to school action is in full swing, and it would seem likely that Tuesday’s Retail Sales Report could come in with a strong showing. Mortgage Bonds are trading at very high levels, and they may not be strong enough to weather the altitude much longer. Remember that bad news for the economy generally spells good news for Bonds and home loan rates and vice versa, but even after last weeks important Producer Price Index came in weak, Bonds were unable to muster up much of a run higher. Thursday’s Consumer Price Index – which is a measure of retail inflation – could be a mover this week as well, but in the absence of major surprises, expect home loan rates to worsen slightly.

Take a quick look at the chart below. The green “candle” on the far right shows that even in light of weak economic news on Friday, Bonds were unable to hold the gains made early in the day. This is a particularly weak signal. Over the past several months, we have seen Bonds hold gains heading into the weekend, riding a “flight to quality” bid as Traders worry about potential terrorist activity over the weekend. Considering that the weekend marked the third anniversary of the September 11th tragedy, it again underscores the weakness in Bonds, as they were unable to retain the high water mark for the day on Friday, even on a “flight to quality” concern.

“It isn’t what they say about you…it’s what they whisper.” Errol Flynn

When an economic report or a stock earnings report is released – there is always an “official” forecast of what the numbers will be. These official estimates are made by a consensus of Wall Street analysts, and are based on their analysis of known information about the sector, industry or company, as well as their opinion of the economy overall. The financial markets do not like surprises, so when a report exceeds or misses expectations; the market can react dramatically in response.

But there’s another number gaining attention and causing market reactions…the “whisper number”. Whisper numbers are much like they sound, and are based on the rumors and rumblings that can come from insiders, online chat rooms or even just the speculation and “gut feelings” of traders in the pits. And they are most attention getting when they differ significantly from the consensus forecast.

As a recent example, last months Jobs Report was forecast to show 150,000 new jobs created, but the whisper number was closer to 125,000. When the actual number came in at 144,000, it would normally have caused a positive reaction for Bonds due to the “miss”, or because the number was below consensus estimates. However, because the actual number came in higher than the whisper number, the markets actually discounted the miss, and reacted to this news as a positive for the economy, and a negative for Bonds.

To learn more about whisper numbers and look up some examples – check out these two websites: www.theWhisperNumber.com and www.WhisperNumber.com

The economic calendar picks up a fresh head of steam this week beginning with the Retail Sales Report Tuesday at 8:30am ET, followed by a few more potential movers on Thursday with the Consumer Price Index (CPI) and Initial Jobless Claims.

Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.