(My apologies for not realizing this post didn’t get uploaded last night, the internet in the islands was a little quirky.)
Greetings from Providenciales (Provo for short). That’s right, this week’s Mortgage Market Update comes to you from the Turks and Caicos. Well, so put some suntan lotion on or you may get burned.
As you probably have noticed, the markets are not easy to predict right now. Why? Fear. Fear is the most powerful of emotions and when fear controls decisions, it is unpredictable.
As I have mentioned before, the fundamentals have not changed, at least not significantly and those point to one thing, stagflation. Simply put, as the data shows, we are in a slowing economy and face increased inflation. Since bonds don’t like inflation, they should be pressured lower. Yet fears of recession keep bonds going higher (truth be told, they are higher because stocks suck right now and traders need a "safe haven" to place their money.)
Last week saw stocks continue to drop and bonds rallied, with all of this occurring based on fear and hope. Hope? Yes, hope that the Fed will cut rates at least 50 basis points (some are saying even 1.00%). So, now we have the markets factoring at least a 50 basis point cut. Major problem for the Fed now. More on that problem next week.
Bonds ended the week a little better than they started, but now what? Well, shortened week again with the markets closed today. This week is also lacking in the news, at least our regularly scheduled programing. Thursday is all there is basically with the following:
- Initial Jobless Claims (8:30)
- Existing Home Sales (10:00)
- Crude Inventories (10:30)
So, we have technicals and stocks and fear running the show this week. Where do I stand? I favor locking still, but if the same fear runs the show this week, bonds may hang on another week. But keep in mind that anything inflationary hitting the airwaves will likely fuel a drop. Additionally, if anything gives stocks a push higher, bonds will drop. Odds are they will drop.
Well, the FED cut rates by 75 basis points, and true that stocks will climb a bit after all the panic and bonds will drop. Qualifier: Personally, I don’t see a need for all the panic, except for the talking heads predicting a big recession, but who knows…
great post!