Brief note from the desk of Miguel
Velazco Sr. MBA
Week of: Monday, December 05, 2011
Present Market Conditions
Mortgage Bonds are down a skosh on word that new Italian Prime
Minister Mario Monti is rolling out a proposal to lower the country's debt,
which happens to be the second largest in the European Union.
The plan contains tough cuts, which will delay retirement, bring
back a tax on first homes and enforce tax evasion - the latter being a common
practice in Italy. The plan is $30B and that sounds like a small number
compared to the $500B of debt that has to be refinanced in the next three years
alone. We still believe that austerity measures in Italy and other troubled
countries are just short-term band-aids that simply buys time for the ECB (
European Central Bank) and Germany to come to an agreement to fire up the
printing presses in order to build a credible firewall around these debt-laden
This is a big week in Europe with the ECB holding a policy meeting
this Thursday and the European Union Summit on Friday. The markets are hoping
that Germany and the ECB will come to an agreement to backstop troubled
countries - but don't hold your breath. On a Dec 2nd speech, German Chancellor
Angela Merkel likened the process to fix Europe as a "marathon" -
where she wants to re-draft Euro treaties and enforce stricter budget rules. So
we should not expect Merkel to get her running shoes on and get into sprint
mode. We will likely be looking at the Eurodrama for a much longer time - and
we should not expect it to get fixed this week or even next. As a result - US
Bonds should benefit from some safe haven buying and expect flat or improvement
in mortgage rates.
The rest of the week is fairly light in terms of economic releases.
There are only two more monthly or quarterly reports on the agenda that have
the potential to influence mortgage rates and neither of them is considered to
be highly important. Both of them don’t come until Friday morning. That means
that the stock markets could be the focal point the next couple of days.
I don't believe we will see as much volatility in the stock markets as we saw
last week though. Interestingly, despite the sizable rally in stocks last week,
mortgage rates didn’t take much of a hit. Even though mortgage bonds showed
resilience last week, I still think that the upward risk outweighs the
likelihood of seeing noticeable improvements in rates in the immediate future.
Therefore, I recommend maintaining contact with us as your Real Estate