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Saturday, October 11, 2008

Buyer Thank You

"Marty, just wanted to thank you again for all you did in helping us get our daughters into the home we were able to purchase as our "Investment Property". Your can-do attitude is to be emmulated by all in your industry. We depended on you, in spite of not even knowing you at the time, and you came through like a champ. Once again, you are an inspiration to Loan Officers around the globe. Charge on and keep impressing your customers, you will go far, there is a special place in Heaven for people of your caliber." Sincerely, Tony and Pam Martinez, Loan#081205

Stocks: Bear Market Basics

After learning more about what a Bear Market is and how it may effect the recovery of the Bond Market, I wanted to share what I learned today.

A Bear Market "Correction" is when there is a 10% decline in the S&P 500 stock value and a Bear Market Decline is when there is a 20% decline in value.

The last Bear Market was from 3/24/2000 to 10/09/02 and there was a 49% drop in Stock value. During the last Bear market we had to deal with terrorism and the attacks on the U.S., and the dot com bubble bursting.

The average Bear Market lasts for 12.3 months, with an average decline in Stock value of 32%.

This Brutal Bear Market began 10/09/07 (yes 10/09!) and as of yesterday is now 1 year old. Stocks have declined a staggering 41%.

Many analysts and market observers are saying that this Bear Market is different because we are dealing with liquidity issues in the marketplace and non performing mortgages. Yes, this is a new problem we are facing, but it's always something new, just like the dot com situation and terrorism attacks on U.S. soil hadn't been seen before the last Bear Market.

It helped me to put things into perspective: This Bear market is worse than average, but not as severe (41% vs. 49% value decline), nor as long lasting (12 months vs. 30 months). Hang in there! It WILL get better!

Friday, October 10, 2008

Rate Watch 10/10/08: Lock

"You buy when there's blood in the streets." Baron Rothschild. You should buy stocks when there is maximum pessimism, and we may be approaching, or may have reached that point already. And as for the day, stocks opened up 700 points lower than the close yesterday, recovered completely and at this writing, are down 328 points.

And what about Bonds? Well, they are not faring any better, either. They opened off 59 basis points, and are now trading off 91 bps. Bonds are down heavily and we are in for another mid day rate reprice for the worse. The market closes at Noon MST and will be closed Monday for Columbus Day. My next Rate Watch report will be on Tuesday, 10/14/08.

For the short term, I am recommending Locking. Because there is a floor of support in the Bond Charts at the 100 day moving average (we have already fallen below the 50 and 200 day moving average), we may be seeing the worst Bond Prices, but I am recommending locking just in case we continue to fall.

P.S. In a seperate BLOG Post, I am writing more details on the Stock Market and the Brutal Bear Market we are in. VERY interesting research and findings this morning that I look forward to sharing with you!

Tuesday, October 7, 2008

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Rate Watch 10/7/08: Cautiously Floating to Lock Bias

Stocks are trying to stabilize today after the largest point swing in history yesterday. This morning, Bond prices have already been all over the place, but as long as prices remain above the 25 day moving average at close today, I recommend floating. In good news for stability and confidence in the stock market, the Fed and Treasury Department will begin to purchase short term commercial paper from businesses to meet their short term capital needs. I will continue to monitor the situation and a lock bias will be prudent if Bond Prices close lower than the 25 day moving average. Rumors are surfacing this morning that the Fed will make an emergency cut in the Fed funds rate, but remember, Bonds have not liked this Fed action in the past 4 rate cuts because it is viewed as inflationary. If there is an emergency cut, be ready for increased volatility in Stocks and Bonds.

Monday, October 6, 2008

Rate Watch 10/6/08: Floating

Stock markets world wide are in negative territory overnight as the $700 Billion bailout plan is looked at as less than a cure all to the financial problems in the United States. As I have mentioned before, the bailout will help us to recover in 12-18 months, as compared to a recovery in 4-5 years without it. Financial markets are in a mess, with or without the Bailout package. Bonds are benefiting from the movement of money out of the stock market into Bonds. Currently, Stocks are currently off 350 points. The Federal Reserve Bank is pumping liquidity into the market (one of the biggest problems our loan world is experiencing) with their Term Auction Facility, doubling the amount available from $450 to $900 Billion. If there could be a Rate Cut Coordination with other World Banks, we could see some bigger benefit in the mortgage market. As it stands right now, bonds are showing a 84% chance that the Fed will lower the Fed Funds rate by .5% when they meet on 10/29. Remember last month, there was a 100% prediction in the market that the Fed was going to lower the discount rate and they held the rate the same! So much for trying to predict the Fed moves, right?! On the technical side, the 25 day moving average is a solid floor below and the overhead resistance is at 101.31 (current 5.50% trading at 100.88). For now I recommend floating as we watch to see if we can get some additional improvement in the Bond Market.