Tuesday - January 14, 2014, 12:00pm ET

Current Trend Direction: Early signs of topping out

Float/Lock Bias: Locking with impending negative re-pricing to come. Current Price of FNMA 4.0% Bond: $103.78, -25bp

After the 2-day rally in Mortgage Bonds, prices are stalling and are off their best levels so far this morning.

Retail Sales in December rose by 0.2%, above the 0.0% expected. This number was lower than the 0.4% recorded in November, which was also revised down from a previously reported 0.7%. With auto sales excluded, sales were up 0.7%, above the 0.4% expected and up nicely from the 0.1% from November. The headline report was not so great, nor were the downward revisions to November. The x-auto Retail Sales figure was a decent number. We dont see this report having any effect on QE tapering thoughts.

JPMorgan's profits declined by 7.3% in Q4 due to massive legal costs. Stripping out the legal costs, the bank reported profits of $1.40, above expectations of $1.35. The legal costs pulled down the net earnings to $1.30 a share. JPMorgan paid roughly $20B in the past 12 months for legal costs. Whoa!!!

Wells Fargo reports Q4 profits rose 10%, slightly ahead of estimates, mortgage applications came in at $65B for the fourth quarter, of which 42% were refinancings. Applications were down from $152B in Q4 of 2012, of which 72% were for refinancing. These production numbers year-over- year mimic a lot of what we are seeing amongst the hundreds of companies Vantage Production works with.

Reuters reports that almost 10 out of every 11 earnings pre-announcements for the current earnings season from S&P 500 companies have lowered estimates, which would be the lowest on record if it continues. This is not good sign and if Stocks continue to move lower in response Bonds may be the beneficiary.

Technically, the 4% did manage to close above resistance at the 50 and 100-day Moving Averages yesterday, but are trading right at those levels so far this morning. We will continue to recommend a floating stance, but ready to lock should the Bond move lower still.

Joe Shamie NMLS # 241432

First Choice Loan Services NMLS # 210764

First Choice Bank NMLS# 177877

866-970-3400 x-5135

jshamie@fcbmtg.com