Sometimes change can be very good, sometimes not. Greetings from Bolivia this morning, having just arrived here this morning, a place I will be frequenting a lot this month as I have a set schedule again, a very good change. And speaking of good changes, the Fed may very well have broken the downtrend mortgage backed securities were in, finally bringing lower mortgage rates back into a possibility.
This last week was full of more negative data, particularly Friday’s Jobs Jamboree and the ever increasing Unemployment Rate, now at 8.1%. While most, if not all, economic forecasters are expecting a recovery to start before the year’s end, a forecast which may very well be getting backed up by economic data as we saw as well this last week, mortgage bonds are reaping the benefits of the continued fall of the stock markets. Adding to that, the Fed stepped up their MBS purchasing spree to the most it has ever been, purchasing a net amount greater than $31 billion, that’s right, a “net amount.”
With the Fed’s increased buying spree, coupled with more stock market troubles, money flowed over into mortgage bonds and MBS pricing broke through the roof this time, even climbing up to their 50-day moving average. As with any big move, a retracement will occur, so be ready for that, but unless we get a huge retracement, it appears that the downward trend is now broken and we will see either a sideways pattern, or dare I say, an uptrend begin.
OK, enough of what happened, let’s look at what can be expected now that the picture has changed. Expect more Fed Speak to move the markets, starting with today. As far as data goes, the schedule is light and only has one major player, Retail Sales. It will also be interesting to see how this weeks Treasury Auctions go and how well the added supply is absorbed into the markets. Here is the breakdown…
- Monday: Ben Bernanke Speech, 3-month T-Bill Auction (1:00), 6-month T-Bill Auction (1:00)
- Tuesday: Ben Bernanke Speech (8:30), 4-week T-Bill Auction (1:00), 52-week T-Bill Auction (1:00), 3-year T-Note Auction (1:00)
- Wednesday: MBA Purchase Applications (7:00), Crude Inventories (10:30), 10-year T-Note Auction (1:00)
- Thursday: Retail Sales (8:30), Jobless Claims (8:30), 30-year T-Bond Auction (1:00), Money Supply (4:30)
- Friday: Balance of Trade (8:30), Consumer Sentiment (9:55)
As you can see, things will be fairly quiet this week in terms of news and scheduled events, which is good since next week is the next FOMC Meeting. It also means that technical indications are likely to control the future, which is looking pretty good right now.
The charts show that mortgage backed securities should retrace this week and test their 25-day moving average. If the 25-day moving average holds, the downtrend will be broken and a new trend will officially have begun. Stochastics back up the need for this retracement to occur as they are moving toward the overbought spectrum. The added supply of Treasuries will likely make this retracement occur and may even form a strong test of the 25-day moving average. Retail Sales is expected to be bad, so unless it misses by a long shot, don’t expect much help. Then there is the Fed, which you can expect to continue to artificially skew the markets.
The bottom line this week is that we should see mortgage rates hold steady for the most part, with them moving slightly higher as a correction takes place, then beginning to form a new pattern.
I think the biggest fear these days is nationalisation for the banks. You think that’s on the cards? I mean, it’s the uncertainity that’s creating all the panic. They should decide one way or the other and make an announcement soon.
It seems to me that we haven’t found what is going to work yet. Thanks for your take on what is going on in our economy.
It seems the nationalization of banks is now imminent. I still don’t believe the average home-buyer has any idea what that means though. Therefore I don’t agree with that being a downside to the real estate lending industry right now.
i agree – Every day I expect the announcement. It is amazing thought how here in america we are not just letting people fail
Surely the bail out means banks are already nationalised, its just the use of words. I agree that no-one understands the impact of this and the only impact on the individual is whether they get their loan or not.
Thanks for this interesting article.
How do you think the Make Home Affordable act will affect the mortgage rates? I’ve been going over all the information and would enjoy hearing your thoughts.
Have a nice trip in Bolivia! The Treasury Auctions this week will be interesting to watch; I will enjoy hearing your thoughts on their impact
Thanks for your take on the US economy; I am always interested in what your economy does since we are closely tied neighbors. I wonder though, since the stimulus doesn’t seem to be working, do you think tax cuts might be in your future? That seems like a great way to help everyone and free up some money for spending and bills.
The possibility of bringing mortgage rates lower is a good news. I hope that would be realized.
On and on it goes the downward spiral – let’s see what happens next. Thanks.
The biggest boogie man in the closet is the Congress.
Real bottoms have the sudden gaps and then clean up the inventory. I think it is trying to happen now. Money is available if Pelosi get derailed. They are getting our international sovereign investors upset with our irresponsibility to the true reason they are buying our treasuries. The U.S. is raising capital at rates that are staggering; we can’t show our disrespect for the help of our investors in our paper by not using the money to solve our crisis!
If this finally is understood, as some moderate Democrat’s in the senate, are now standing up for, we can get this debatable behind us. Spend the money to solve the problem, not on all your pet earmarks! I gave an example a week ago; it is like someone comes to you to borrow money to pay their rent. You feel bad and you lend it to them. The next day they return with a new fur coat they found on sale. That’s us and the countries of the world who are putting up all this money for our debt!
Although a loan does not start out as income to the borrower, it becomes income to the borrower if the borrower is discharged of indebtedness.
Make sure to know the state of your finances before contacting your lender. Determine how much income you’re bringing in each month, how much you’re paying in bills and where you can cut costs. Just a tip!
It will be an interesting year to say the least. Our adaptibility will be tested in the coming months.