The Week Ahead in the Capital Markets

We have a world class secondary market department and they are kind enough to send out weekly updates to us sales monkeys. I like posting it as it is both a great source of technical and anecdotal information. Please let me know your thoughts!

The Week Ahead in the Capital Markets - February 11, 2008

Stuck in the middle with you.  More evidence of recession pushed short-term rates lower and fears of stimulus-led inflation pushed long-term rates higher.  Fixed mortgage rates are somewhere in the middle, and didn’t change much.  The two-year Treasury yield closed the week below 2.00%, and amongst other things, a weak Treasury auction (where investors balked at super-low yields) sent long-term rates soaring.

“Odds for more rate cuts have done nothing but increase, and traders have begun rumors of another rate cut prior to the March 18 FOMC meeting.  April fed-funds futures place 100% probability on a 0.50% cut to 2.50%.  There is a 30% chance the Fed will cuts rates by 0.75% by then.  Chairman Bernanke speaks before Congress on Thursday about monetary policy.

Bankers cheered lower funding costs brought on by the steepening yield curve.  The curve is as steep as it has been in several years, closing the week at +1.72%.  With more short-term rate volatility on the horizon, mortgage rates remain historically high relative to Treasury yields.

Fixed rate jumbo mortgage rates have not improved, and jumbo prices are withering around three points behind conforming prices.  Effects of the expanded loan limits in the government stimulus plan are not certain, and the higher-limit loans are unlikely to trade at the same prices as their conforming brethren.  In related news, Countrywide Securities let go a large group of professionals due to substantially-reduced levels of activity.

In other news, have you seen www.youwalkaway.com?  The website offers borrowers help/advice on how to “walk away” from their mortgage obligations.  What a world.”

Stocks had another tough week.  They’re off 15% from the October highs.  In Barron’s this weekend, an investing icon, Jeremy Grantham (his firm manages $150 billion), offered some advice for the year ahead.  He thinks the market will bottom in 2010, and “trend-line value” puts stocks about 15% lower by then.  The fourth year of a presidential cycle, where you have a lame-duck president, is usually not good, and we should expect the market to fall about 5% for the year.  The first year of a new presidency, especially one where the party in power changes (no predictions here) usually ends up with the same thing:  a market decline on the order of 5% or so.  If you’re going to stay in the stock market, “value is cheaper than growth,” according to Grantham.

From David Letterman's Top Ten Reasons Mitt Romney Dropped Out of the Presidential Race: #4, Apparently America is not ready for a white male president.  #3, There is that thing about not getting any votes.  And #1, He lost all of his money betting on the Patriots.

Comments

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