Good Morning
Everyone-
We have 19 days left to the
Fiscal Cliff and 10 days left to the end of the world (based on the Mayan
calendar). Assuming we make it through the end of the world, then the Fiscal
Cliff will have to be dealt with.
In the next few weeks, if a deal
is struck, please expect our market to rally. Some experts feel we could see a
1000 point rally on the DOW, others feel if a deal is reached, we might see one
or two days of a rally and then we will return to business as usual. No matter
what happens though, when a deal is reached our mortgage rates will go up. So
make sure you are watching the TV business channels everyday. A deal can happen
at anytime as negotiations typically go through the night.
On Friday of last week we had
the Non Farm Payrolls released. This number came in about 40K better than
expected and the unemployment rate came down to 7.7% which caused our interest
rates to open up higher on Friday. However, after the initial sell off in
Mortgage Bonds we gained half of it back before the market even opened. The
main reason is that the previous months jobs number was revised higher by 45K.
So when we received the October jobs number in November, it was adjusted
higher by 45k (30%). That's why when data is released we see movement but it
takes time for the market to "digest" everything as typically numbers
are revised 3 to 4 times before they are finalized. The only reason why the
unemployment rate fell is many Americans are falling out of the unemployment
survey (by not getting unemployment benefits anymore), or taking early
retirement.
Also what is going on is the
FOMC (Federal Open Market Committee) meeting ends today. These meetings happen
8 times a year were short term interest rate policy and bond purchases are
discussed. Ben Bernanke will be speaking around 11:30 our time. What is
expected that he will say is another round of bond buying will be announced as
the last round, called Operation Twist, will be ending. We might see a relative
flat market until he makes his announcement. At this meeting here, they will
also decide whether to raise prime. Prime is expected to stay put until late
2014.
One more item on the Cliff, if
we do go over it, the average tax hike on the American household is said to be
around $3500. So that is $3500 less of disposable income or income to pay bills
and live on depending on the health of that household. The only positives that
could possibly come with going over the cliff is lower rates and it is forcing
our government to cut spending and get closer to balancing our budget.
So what to take from all of
this, is that the market is going to get choppy. We will not see the stability
in our rates until we have more certainty about the Fiscal Cliff.
Be aware of your market, educate
your clients and let's close some deals
Josh
