Hello Everyone,
It was a quiet week for interest rates as most trading desks where a bit short staffed going into the long holiday weekend. There also wasn't much on the news front building up to the big event of the week, today's employment report. Early week news showed a nice jump in productivity for the 2nd quarter and a slightly less than expected jump in factory orders (but a jump nonetheless). The ISM index for August came in above 50, the first time we've had a 50+ reading in a while. A reading above 50 on the ISM is suggested to indicate an economy that is growing not receding! Can we really be saying bye-bye to the deepest and longest recession since the great depression? I sure hope so!
The week culminated with today's report of a loss of 216,000 jobs last month and an increase in the unemployment rate to 9.7% (the worst in 26 years). While today's news was bad, it was better than expected. Again, in the markets ‘warped' way of thinking, news that is ‘less worse' than expected is perceived as good news. From that point of view, the news overall this week pointed to an economy on the mend. While that is good news and exciting to hear; news like this generally comes with a price. That price being higher interest rates. Well hold on to your hats ladies and gentlemen because the icing on the cake for us this week was that this good news did not have it's usually effect of raising interest rates. In fact, rates managed to dip slightly this week over last, despite a sell off after today's news. The muted reaction this week could be due in part to thin holiday markets with most traders already headed out for the long holiday weekend. The markets will be closed on Monday and we hope that you enjoy your long weekend as well.
Another interesting note in the news this week is that a lawsuit against the rating agencies (Moody's, S&P and Fitch) is gaining some traction. As you may recall, these agencies played a role (a HUGE roll in my opinion) in the sub-prime debacle that initiated all the problems we now ‘enjoy' in the housing arena. Remember it was these agencies that reviewed and rated the structure of mortgage-backed securities that were backed by sub-prime mortgages as "AAA". This meant to the investing public that these securities were safe and represented a sound investment. This despite the fact that the underlying mortgages were junk! Once the sub-prime mortgages lived up to (or more correctly down to) their expected performance, the securities they backed became worthless. Had the agencies done their job properly (and I firmly believe they did not, either by intention or by incompetence) these securities would not have been purchased. Had no one bought them the sub-prime loan programs would have died a quiet death a long time ago. Long before they grew to be the problem that lead to the meltdown of the financial system around the world. I personally would love to see the rating agencies ‘fry' over this. I feel that they colluded with the security issuers to sell these junk bonds off as prime assets under the belief that they could not be held accountable for their ‘errors in judgment' regarding these securities. Enough of my soapbox rant, it's a holiday. Nonetheless, I'll be watching this closely and keeping you informed!
It is unclear how long these low rates will last. Let's not forget that the low rates we are enjoying are also due in part to some heavy intervention by the Treasury in the mortgage-backed security markets. The Fed continues to buy some $23 billion in mortgages each and every week. The program is expected to end by year-end and there has been a great deal of discussion about the Fed ending this early or scaling back on its purchases. However and whenever it happens, when these funds dry up, I feel certain that interest rates will move higher. Don't wait for that to happen, buy or refinance now! Also don't forget the 1st time buyer tax credit expires at the end of November. Don't let that potential $8,000 pass you bye. Have a successful weekend and please call on me if I may be of service.
Blaine R. Bailey
Sr. Mortgage Consultant
Prestige Mortgage
678-990-9229 (fax)
404-402-7184 (mobile)
baileybr@bellsouth.net
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