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 - October 1, 2007
Jumbo loan prices have improved dramatically from their lows. Most notably in recent days, prices improved at Wells Fargo. Other major jumbo investors also have moved pricing tighter. Relative to conforming pricing, the average jumbo price has improved a full point from the worst levels. Several investors improved their pricing by two points from the worst. Spread markets are still too volatile to sound the ‘all clear’ bell, but recent market action bodes well.
Jumbo prices are but one of the markets showing improvement. Citigroup said that certain homebuilders – D.R. Horton and Lennar – are a “buy.” The Dow is trading above 14,000. Corporate bond spreads have moved tighter, and investors are upping allocations to corporates. The volume of commercial paper, on the other hand, continues to shrink. Asset-backed commercial paper issuance remains in free-fall. The decline (or increase) in the amount of CP outstanding is a key, forward-looking economic indicator. Fortunately, energized by the Fed’s recent cuts to the discount rate, bank lending is replacing the lost CP liquidity.
“The bank was saved but the money was ruined.” So says William Gouge (1796-1863), one of the best political economists of the American 19th century. He spoke of the panic of 1819, but his words are being repeated by critics of the Fed’s rate cut. The core argument is that as the Fed works overtime to save banks from their bad mortgage investments, they are risking dollar-based inflation and a loss of confidence. In the worst case, a collapse of the dollar would result, leading to inflation and high interest rates.
The outcome depends on whether or not the U.S. economy heads in to recession, and its broader effect on the global economy. Which leads me to the hemline theory, as recently reported in Time magazine: The length of hemlines predicts how the U.S. stock market will do – the shorter the hemlines, the better the performance. The hemline theory’s record is hit-and-miss. Hemlines were short in the Roaring Twenties and got longer just prior to the 1929 stock market crash. Mini skirts in the 1960s were credited with, among other things, a stock market rally. Short hemlines accompanied a great market in 2006. Longer hemlines are showing up in fashions for spring 2008, perhaps predicting economic woes ahead.
As you know, the Iranian president said a lot of stupid things yesterday. My favorite is when he said there are no homosexuals in Iran. Many Americans disputed his claim. In fact, Idaho Senator Larry Craig volunteered to go over there on a fact-finding mission. – (Jay Leno)
The market will close early on Friday.
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