My New Blog

September 17,2008

The mid-day market was in the middle of a sell off probably due to the financial problems of some of the larger lender and insurance companies. Add to that the fact that last months housing starts were down leads me to maintain my view that there are bargains out there in the sale of existing homes as well as new construction that still has not been sold. The mortgage market is tight as far as qualifying conditions are concerned but the current rates are attractive.

Stocks open higher a day after huge drop

Carnage on Wall Street attracts bargain hunters; bailout bill still a mystery

NEW YORK - Stocks staged a partial rebound early Tuesday after their biggest sell-off in years, though financial markets remained troubled a day after lawmakers rejected a $700 billion rescue plan for the financial sector. A key rate that banks charge to lend to one another shot higher, a tightening of the availability of credit that could spill through the economy.

A snapback in stocks wasn’t unexpected as carnage on Wall Street often attracts bargain hunters, though questions remain about how investors will proceed. Without a bailout plan in place to absorb soured mortgage debt and other bad loans from banks’ balance sheets, investors are wondering what might restore confidence in lending.

While stocks turned higher, moves in the credit markets were more ominous. The benchmark London Interbank Offered Rate, or LIBOR, that banks charge to lend to one another rose sharply Tuesday, making it more expensive and difficult for consumers and businesses to borrow money. In addition, credit card debt and more than half of adjustable-rate mortgages are tied to LIBOR, so an increase isn’t welcome for many consumers.

LIBOR for 3-month dollar loans rose to 4.05 percent from 3.88 percent on Monday. LIBOR for 3-month euro loans, meanwhile, rose to 5.27 percent, from 5.22 percent Monday.

Many on Wall Street had expected the government’s plan would help sweep away some of the fear and pessimism that has hobbled credit markets, which are where businesses turn to finance their day-to-day operations. The worry is now basic operations like making payroll will be difficult or perhaps impossible for some companies. Critics of the plan said, however, that it was too costly and wouldn’t have done enough to jump-start lending.

While U.S. political leaders have vowed to revisit the issue, the House isn’t slated to meet again until Thursday. To maintain pressure, President Bush said in a statement from the White House early Tuesday that the damage to the economy will be “painful and lasting” unless Congress passes the bailout measure.

On Wall Street, many traders likely will proceed cautiously while they gauge prospects for resurrecting the bailout effort, which was backed by leaders of both parties.

Traders also will likely focus on how the bloodshed will look on paper. Tuesday marks the final session of the third quarter — and what is typically the worst month for the stock market — so some portfolio managers might try to do what they can to dress up their performance. Others might simply wish to dump holdings in an unpopular corners of the market like the financial sector.

In midmorning trading, the Dow Jones industrial average rose 237.19, or 2.29 percent, to 10,602.64 after falling more than 777 points, or nearly 7 percent, Monday to its lowest close in nearly three years. It was the blue chips’ largest point drop and 17th largest percentage drop. The percentage decline was far less severe than the 20-plus-percent drops seen in the stock market crash of October 1987 and before the Great Depression.

Broader stock indicators also bounced higher Tuesday. The Standard & Poor’s 500 index rose 34.25, or 3.10 percent, to 1,140.67, and the Nasdaq composite index rose 53.31, or 2.69 percent, to 2,037.04.

The S&P fell 8.79 percent Monday, while the Nasdaq lost 9.14 percent.

The yield on the 3-month Treasury bill rose Tuesday to 0.67 percent from 0.14 percent late Monday. The yield fell Monday as investors clamored for the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.71 percent from 3.58 percent late Monday. The dollar rose against other major currencies and gold prices advanced.

While investors focused on what might come from Washington this week, Wall Street was cheered by several economic readings.

A private research group reported that consumer confidence rose unexpectedly in September. The Conference Board said Tuesday its Consumer Confidence Index rose to 59.8 from a revised 58.5 in August; Wall Street had expected a reading of 55.5, according to Thomson/IFR. The reading, which doesn’t reflect attitudes following Monday’s steep stock market sell-off, remains near a 16-year low.

The Chicago Purchasing Managers’ index, which measures business conditions across Illinois, Michigan and Indiana, came in at 56.7 compared with 57.9 in August — a second straight month of a strong reading.

 

My Thougthts:

 

It looks like the world did not fly apart after the defeat of the bailout. Maybe there is a need for this cash influx, but if its going to be done, shouldnt all of the excess and pork be taken out first? Maybe then there wont be a need for $700 Billion, perhaps only $400 or $500 Billion. At any rate, no need to rush into this. Lets look at all of the options.

 

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In the aftermath of unprecedented actions from the U.S. Treasury and the Fed earlier on Friday, U.S. Treasury Secretary Henry Paulson said Fannie Mae and Freddie Mac will resume buying mortgage debt under the surveillance of the Treasury Department, and an expansion of the Mortgage- Backed Security purchase program.

"These two steps will provide some initial support to mortgage assets, but they are not enough. Many of the illiquid assets clogging our system today do not meet the regulatory requirements to be eligible for purchase by the GSEs or by the Treasury program," said Paulson.

The Treasury secretary also said he planned on working closely will congressional leaders to allow for the government to purchase illiquid assets in the market in an effort to bolster financial confidence, and eventually implement new legislation to reinforce the financial marketplace.

"Right now, our focus is restoring the strength of our financial system so it can again finance economic growth," said Paulson. "The financial security of all Americans - their retirement savings, their home values, their ability to borrow for college, and the opportunities for more and higher-paying jobs - depends on our ability to restore our financial institutions to a sound footing."

In the question answer session that followed, Paulson said he projected the asset plan would cover hundreds of billions.

By Erik Kevin Franco and edited by Sarah Sussman
CEP News Ltd. 2008

In an unprecedented series of actions from the U.S. Treasury Department, the U.S. Federal Reserve and the U.S. Securities and Exchange Commission over the last 24 hours, the administration has announced plans to purchase illiquid assets from financial institutions. It also promised to buy up Fannie Mae and Freddie Mac Debt, it will launch an initiative to lend to banks for the purchase of commercial paper, created a fund geared at insuring money market mutual funds and banned short selling on 799 financial stocks.

After a meeting with Congressional leaders, and Fed Chairman Ben Bernanke on Thursday night, Treasury Secretary Henry Paulson said he is working on legislation that would allow the removal of illiquid assets from the balance sheets of financial institutions. The Treasury Secretary pledged to continue working closely with Congress on a proposal, but warned that that systemic risks in markets need to be dealt with.

The U.S. Securities and Exchange Commission enforced a temporary ban Friday on the short selling of 799 financial stocks in an effort to calm investor fear and markets in general. The ban is in place until 11:59 p.m. EDT on Oct. 2, and can be extended 10 days or beyond if deemed necessary. The move follows similar actions in the UK late Thursday evening. Meanwhile, Australia said it plans to institute a similar rule on Monday.

Hours later, in an effort to continue bolstering investor confidence, the U.S. Treasury announced on Friday that it is launching an Exchange Stabilization Fund worth up to $50 billion geared at insuring money market mutual fund holding assets. The insurance program triggers when the net asset value for a money market mutual fund falls under $1.

Following the announcement a Treasury official told reporters that the action is geared to providing the same confidence that the FDIC does in ensuring bank deposits.

The money market is a critical part of the financial system, said the spokesperson.

In an announcement made on Friday, the U.S. Federal Reserve announced its intentions to purchase federal agency discount notes from primary dealers and launch an initiative allowing banks to borrow money for the purchase of asset-backed commercial paper. The bank loan includes a non-recourse lending at the primary credit rate for the purchase of "high-quality" ABCP. Under the provision, the Fed will be able to purchase debt from Fannie Mae and Freddie Mac.

In an interview with Bloomberg Television on Friday, U.S. House Financial Services Chairman Barney Frank said that government buying up illiquid assets would help boost market psychology. Although the lawmaker stressed the need for better rules on leverage and disclosure practices, Frank said the costs of not acting would be must worse than the double digit billions it would cost government to aid the markets.

By Erik Kevin Franco
CEP News Ltd. 2008

My Comments:

Seems like more of the same as yesterday. Buying and holding Real Estate has always been a good move over time. I believe that to be true today. There was a similar situation in 1987 when banks were being taken over daily. Real Estate sales were almost nil; Real Estate values were all below sea level; but they all came back and increased over their original levels and beyond. This is not new folks, just history repeating itself.

From the AP

VIENNA, Austria - Oil prices broke back above $100 a barrel as investors sought a haven from the financial sector’s turmoil, but crude later gave back its gains as the tenuous state of the global economy raised concerns about future demand.
Light, sweet crude for October delivery was down 47 cents at $96.70 a barrel in afternoon trading on the New York Mercantile Exchange. Earlier, the contract reached as high as $102.24 as worries intensified about the stability of the U.S. financial system and investors fled the equities market in favor of commodities.
“It’s interesting to me that traders would view a commodity such as oil that can move up and down by 40 percent in six months as a safe haven,” said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill. “I certainly wouldn’t recommend it as such.”
Ritterbusch expects worldwide demand deterioration to ultimately trump the temporary flight to quality. Oil prices have steadily fallen since reaching an all-time high of $147.27 a barrel on July 11 as investors fear a weakening economy could curb demand for the commodity. Last Friday, oil had fallen below $100 for the first time since April.
New liquidity injected into the global financial system Thursday also helped to calm markets, said Phil Flynn, an energy analyst at Alaron Trading Corp. in Chicago.
On Thursday, the Federal Reserve along with other foreign central banks pumped as much as $180 billion into global money markets in an effort to stem a worsening global credit crisis. The emergency measure follows a week of chaos on Wall Street that saw the demise of Lehman Brothers Holdings Inc., the forced takeover of Merrill Lynch and Co., and the unprecedented government bailout of American International Group Inc.
Oil had jumped Wednesday as investors fled equities to crude, gold and other commodities as a short-term safe haven amid global market unrest.
Stepped-up attacks by Nigerian militants against the country’s oil infrastructure helped support oil prices earlier Thursday. In a fifth day of violence, Nigeria’s main militant group said Wednesday that it had destroyed an oil-pumping station and a pipeline crossing southern Nigeria in a rare daylight attack.
A spokesman for Nigeria’s state oil company said Wednesday that militant attacks are now cutting the country’s daily oil production by about 1 million barrels a day, 40 percent of what the country produced before the militant campaign began three years ago.
“In the last few days, militant attacks in Nigeria have been stirring up again, but that’s on the back burner right now,” said Victor Shum, an energy analyst with consultancy Gertz & Purvin in Singapore. “I see downward pressure on oil in the near-term, with the key support level at US$90.”
Meanwhile, the U.S. government reported Wednesday a bigger-than-expected drop in crude supplies, reflecting the shutdown of virtually all Gulf Coast oil production because of Hurricane Ike and Hurricane Gustav.
The Energy Information Administration said U.S. crude stocks fell by 6.3 million barrels for the week ending Sept. 12, much bigger than the 3.7 million barrel drop expected by analysts surveyed by the energy research firm Platts.
In other Nymex trading, heating oil futures fell nearly 2 cents to $2.7685 a gallon, while gasoline prices lost 2.56 cents to $2.40 a gallon. Natural gas for October delivery slipped 5.39 cents to $7.484 per 1,000 cubic feet.
In London, November Brent crude declined 11 cents to $94.73 a barrel on the ICE Futures exchange.

My Comments:

It is interesting to note that in spite of the devastation in Texas and the oil rigs, that prices of gas stayed relatively stable. During Katrina however, prices of gas at the pumb skyrocketed.

Anyway, lower prices for fuel means people will have more in their pockets. And that means that hopefully, the housing market may continue its sideways movement, and more people will be more comfortable in buying a home. Rates are still relatively low so there are bargains out there.

September 16,2008

Monday's bond market has opened up sharply following a steep sell-off in stocks during early trading. The stock markets are reacting to news that Lehman Brothers filed for bankruptcy and other related financial sector news.

Whether this spike in bond prices will hold is unknown at this time, but what is a safe bet is that more news like this weekend's reports could make mortgage-related bonds much more attractive to investors and may lead to a downward trend in mortgage rates. Also contributing to this morning's bond gains was a much larger decline in industrial production than analysts had expected. This morning's release of August's Industrial Production report revealed a 1.1% decline in factory output. This was much weaker than analysts' forecasts of a 0.3% decline and indicates that the manufacturing sector was weaker than thought in August. This is good news for bonds and mortgage rates because slowing economic activity eases inflation concerns.

On the real good news side, the prices of crude oil dropped to $92/ barrel. This is from a high point of $142. barrel. The continuation of this trend would ultimately mean that prices for everything SHOULD start drifting back down slowly.

Homes for sale have come down quite a bit, coupled with still low rates, there are bargains out there.

Monday's bond market has opened down slightly following strong gains in stocks. The stock markets are rallying as the news of the government's takeover of Fannie Mae and Freddie Mac is being taken as positive for the markets. Also contributing to early stock gains were rallies in international markets overnight. The bond market is currently down 7/32 as investor interest has turned towards stocks. However, due to strength in bonds Friday and reassurances by the Fed that Fannie and Freddie have enough funds to conduct business, we should see mortgage rates improve this morning by .250 - .375 of a discount point.

This week brings us the release of four pieces of economic data, with three of them likely to affect mortgage rates. There is no relevant data scheduled for release until Thursday and the most important reports are all scheduled for release Friday. Therefore, look for the biggest changes to rates the latter part of the week.

The first r eport of the week is not considered to be of high importance. July's Goods and Services Trade Balance data will be posted Thursday morning, giving us the size of the U.S. trade deficit. It is expected to show a deficit of approximately $58.0 billion, which would be an increase from June's $56.8 billion.

Overall, the latter part of the week will likely be pretty active for the bond market and mortgage rates. Friday's Retail Sales and PPI reports are the week's most important and make Friday the biggest day of the week. If we see weaker than expected readings in that data, we should see mortgage rates move lower for the week.

Little news is due out today. Friday should be more newsworthy as there are several reports due out. The Real Estate market in this area seems to be showing a slight increase in activity. Interest rates are slightly lower. All of this news seems to point to a slight improvement in the Real Estate market.