Florida Mortgage Rates – Market Recap

by Florida's #1 Mortgage Planner on September 22, 2008

Locking Stance:  LOCKING     Mortgage Bonds:  -59bp

If you aren’t puking, chances are you have not been watching the markets.  Today was a down day for both stocks and mortgage backed securities, which is not a good sign of things to come.  Add to that the price oil was up over $25 at one point, though it did settle at only $16.37.  Gold also shot higher, nearly $45 worth.  So, just what the heck is going on?

Traders remain worried about the government’s plan which requires a swap of U.S. Treasuries for illiquid mortgages and related securities from financial institutions, allowing them to free up credit markets.  Those worries spread worldwide and sent the dollar lower and commodities higher.  Since the government’s solution to the problems is to throw money at it, they have to add that money to the markets since they don’t already have it and that drives dollar valuations down.  When the dollar drops, commodities rise and that creates worries about inflation climbing out of control, which I eluded to earlier.

As I have mentioned before, continued weakness has been seen in the charts and today saw mortgage bonds drop below their secondary support layer.  Now, their next floor of support is their 200-day moving average, but that may even fail based on what we are seeing.  On a day when the DOW is down 372 points, bonds should be higher, not 59 basis points lower. 

{ 1 comment… read it below or add one }

Mortgage Jack September 23, 2008 at 1:43 am

Uncertainty is a killer for exchange markets. Stocks and bonds move in opposite directions (like a pendulum) only under normal trading conditions. Last Friday exchanges rallied when the bailout plan was announced. The mood was that FED “has a plan” – albeit no details were given, all hoped it will be announced shortly. Monday came and it became clear that there is no specific plan and that Paulson does not yet know how to “execute the plan”. Right and left wings of congress rebelled against creating unsupervised “Finance Tsar”.

If securities are bought at a price that is too low – banks will be hosed (it will wipe out bank’s capital), if too high – taxpayers will be hosed. In both cases – we will be facing inflation (printing more money and selling more treasury bills overseas), inflating deficit and weakening dollar. Democrats demanded that banks that sell MBS assets will have to surrender equity to FED (partial large scale nationalization). If the price for MBS “assets” is set too low, it will force banks to further write downs, sucking capital out.

Result? Dollar in free-fall, capital fleeing US stock exchanges – hence both bonds and stocks down. Where the money went? Into commodities and cash reserves. Unprecedented $25 jump in crude oil price proves it.

But this scenario still can be stopped – by appointing efficient management body that will acquire frozen mortgage securities at price that is fair to both banks and taxpayers. I propose 70 cents on the dollar.

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