Well the stock market continues to tumble and surprise with bad news. Last week I saw something I had never seen before – the targeted price of a stock (GM in this case which makes it all the more unusual) was in an analysts report projected to be $0.00. That’s right, nothing. A couple of weeks ago Mattel, the maker of Hot Wheels cars made news when it had a market cap greater than GM and now it looks like most companies might. This is a sad statement on a decades-slow response to market demands and workforce contracts. Let’s hope there isn’t a string-free, massive taxpayer funding of this and every “me too” industry that will need help. The redirection of TARP funds toward capitalizing the credit system rather than buying the tainted assets is working slowly to free up credit and I believe is a good shift for this program. Wall Street is decrying the change, wanting steadiness, but I haven’t heard anyone disagree that this is a better use of the funds.
Consumer sentiment and retail sales continue to shock. The October reported drop of 2.8% in retail was the largest ever reported in the 16+years of the report. There is a lot of speculation on holiday sales and I think we will have to wait and see. All of the bad news on the economy has a cooling effect on inflation fears and would normally create a favorable impact to mortgage rates. But at this point, bond markets have baked-in the deflation we are experiencing and are mostly responding only to supply and demand. Unfortunately the money flowing from the stock market are still not flowing into mortgage-backed securities. Today, MBS are down just slightly even though money is still pouring out of stocks. At the same time, Treasuries are up 44 bps. This is another good example of how important it is in the mortgage world to understand and watch MBS rather than Treasuries. Even on a banner day for Treasuries, banks might increase their mortgage pricing slightly.
Oil is down to $56/bbl today and CITI announced a worldwide job cut of 50,000 people. We’ll have more initial jobless info out on Thursday this week. Tuesday and Wednesday we’ll see reports on the CPI and PPI and the minutes of the last FOMC meeting where the Fed rates were cut. I am expecting to see more evidence of deflation rather than inflation in these reports. The summary for mortgage rates is that they are still very good and all of the technical indicators are positive. The investor demand for mortgage backed securities is just at a medium level right now and still we have good rates, so a return of investor confidence will mark an improvement in the rates. We’ll keep you posted and you keep helping people reach their dreams. If you didn’t see it, take a look at Sunday’s Bend Bulletin article (click here) by Andrew Moore about a Bend company, Rocketbux, enabling MLS data via text message for people driving by for sale signs. Watch this one - I think it sounds like a winner!
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