I am writing this week’s update Sunday since I will be a little busy tomorrow. A lot of things happened this last week, some good, and much bad, starting with the whole housing bill that is going to be crammed down our throats. More in that later this week, if I can find the time. I mentioned that bonds needed a “correction” and we may have just gotten all we are going to get.
As for last week, we saw many big name lending institutions coming forth with huge losses and CEOs claiming “adequate capital”. That alone should scare you because that is what Bear Stearns, IndyMac Bancorp, Fannie Mae and Freddie Mac all said and we know where they are today. So, Wachovia, which announced its exit from wholesaling, along with Washington Mutual, are worth keeping a close eye on. Add the fact the the FDIC took over two more banks Friday, exactly two weeks after IndyMac’s takeover, and things look a little dicey.
Despite all of the institutional news, bonds had a very up and down week controlled by economic data, again sending mixed signals. First off, we had Plosser talking up inflation, but also said the Fed should act sooner, rather than later, to raise rates (hurrah, Plosser!). Homes data was mixed with Existing Home Sales worse than expectations, but New Home Sales were better. When you look at housing on a local scale, some that have been beat down, like South Florida, are showing signs of improvement, but are too early to tell if we reached bottom.
Along came Initial Jobless Claims much higher than expected, but Friday beat bonds back down with a better than expected Durable Goods Orders release and better than expected Consumer Sentiment. Data is rather skewed again in some arenas, but the data did move mortgage bonds nonetheless and they ended the week slightly higher and mortgage rates notched down a bit.
This week will be a major player in the direction mortgage backed securities move with the week ending with a bang, the Jobs Jamboree. We have several other big players in the week, bringing most of the attention onto “recession” (or not), which may be a boost to bonds. here is the break down:
- Monday: No data
- Tuesday: Consumer Confidence (10:00)
- Wednesday: ADP Report (8:15), Crude Inventories (10:30)
- Thursday: Initial Jobless Claims (8:30), Chicago PMI (8:30), Employment Cost Index (8:30), GDP (8:30), Chain Deflator (8:30)
- Friday: Nonfarm Payrolls (8:30), Unemployment Rate (8:30), Hourly Earnings (8:30), Average Work Week (8:30), ISM Index (10:00)
As you can see, there will be plenty of “action” to move bonds, with the only question being…in what direction? Looking at the technical side of things, bonds are still very much locked in the downtrend. With a 50% retracement having taken place last week, they may very well keep going down, but with some weak economic news, they could buck the trend, at least near term. Stochastics lean more towards oversold, but are not truly there again yet.
As we move through this week, locking is most likely the better choice, at least as the week starts. If enough data comes in negative regarding the economy, you may want to switch stances, but watch out for volatility and “the big picture”, as they both could bite you.
Hi Robert another great post! How do you feel the new legislation will affect bond markets?
“Add the fact the the FDIC took over two more banks Friday, exactly two weeks after IndyMac’s takeover, and things look a little dicey.”
First National Bank of Arizona was included in that group. I remember one of the programs they brought to market was a 95% LTV 620 No Doc. That program was the epitome of the housing-excess of yeteryear.
Thanks for the post, alwasy look forward to reading and seeing what congress is upto for the week. Everyweek isa roller coaster and this one is no different. who knows where we will be two months from now.
Where can we get the list of the latest Banks that were closed? Do you have a link?
Despite the size of the aid in the housing bill, doesn’t seem like its going to have any immediate impact. They’re now squabbling over how long it’ll take to implement the aid. I’d say the effects of the housing bill should be entirely discounted for now.
Joe – one place to look is the press release section of the FDIC:
http://www.fdic.gov/news/news/press/2008/index.html
Thanks for the info Chris!
You Rock!
How come no one is talking about the new bills tax credit for first time home buyers?
What were the final numbers?
8K for couples and 4K for individuals?
Cliff – Thank you. As for the legislation, it will be a temporary boost only. People are already seeing it for what it is worth, absolutely nothing.
Paul – Loan programs are not typically the reason for the problems. I put the blame on irresponsible homeowners, misuse of the loan program, and even mortgage professionals who simply “sell” mortgages.
VA Refinance – Two months from now the odds favor higher rates, but only time can tell for sure. Economic data, news, Fedspeak, and market sentiment all play a role and sometimes the markets just don’t do what is expected.
Ling – The housing bill will ultimately do more harm than good, as with virtually every solution the government develops. I did a post about the new “demotivator” out from despair.com which I think nails the housing bill.
Joe – I have talked about the tax implications on my personal blog. The credit is virtually useless and the tax implications throughout the bill are huge.
Error
This is little doubt that the U.S. economy is not out of the woods yet when it comes to this entire Mortgage Crisis. With banks like Indymac and First national bank of Omaha going out of business so suddenly, nobody knows when the next shoe will drop. I do believe that the best option is for “Covered Bonds” to be used to securitize some of the riskier Mortgage Backed Securities. This idea has been floated by a few members of Treasury and I see this idea gaining traction. Expect alot more pain in the months ahead unless Treasury manages to come up with a viable solution to the current situation