Market Update 12-12-12

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