damage done, but be on guard
the past couple of days, we've been painfully reminded just how quickly things
can change in the Bond Market. Just when prices are muddling along in a sideways
trend...clients get complacent about rates...they delay making a
decision...BANG! The Bond market drops, rates rise and as we typically see time
and again, the sell-off is not just a 24 hour event, it can be a multi-day or
even week long sell-off. Now what? Let's dig in and discuss
talking with clients and referral partners, this move lower in Bonds should
really have been no surprise...not only because we passed along the Alert to
Lock, but yields had moved to ultra-low levels, so from an investor standpoint,
Bonds really didn't make sense when compared to other assets like Stocks. Bond
prices were simply due to give up some of their frothy gains. So when the Fed's
silence on QE3 was deafening...that was the straw that broke the proverbial
camel's back. Traders were hoping that the Fed would elude to even more easing
in the form of QE3, which would likely push Bond prices higher in the
near-term. When that didn't happen, their disappointment has turned into a
This is precisely why clients need a professional like us
to decipher the economic reports, which have the potential to be highly market
moving going forward. And a clear understanding of where the Bond Market is
trading technically will also be a must.
that said, this morning's economic news showed Initial Jobless Claims at
351,000, a smidge lower than the 355,000 expected. The Empire State
Manufacturing Index, which is a read on manufacturing in the NYC area, came in
at 20.2, nicely above the 15.0 expected. And wholesale producer inflation as
measured by the Producer Price Index came in at 0.4%, less than the 0.5%
expected. The Core PPI came in at 0.2%, meeting expectations.
Overall, today's news was good for the economy and shows
that things are indeed improving...hence why Mortgage Bonds remain under
selling pressure. Going forward, if the economic news shows continued
improvement, we could see rates move higher still.
we have said over and over..."be careful what you wish for"...as
lower rates likely means there is increased uncertainty, confusion or pain
somewhere in the economy or world. There are still plenty of fundamental land
mines that could blow at any point and quickly renew a safe haven trade into US
Bonds. Pick your poison - whether it is the Eurodrama, which is far from over,
the likelihood of Greece's eventual default, Portugal lining up next with
problems, along with Spain, making waves as the country will likely fail to
meet an even lower revised budget deficit target. Oh, then there's Israel and Iran
- is this story going to just disappear? Not likely. Not to mention uncertainty
within our US political environment - we get to enjoy another wonderful
(add the heavy sarcasm) year of political divide - but now on very big issues -
including Taxes. And Stocks - having risen so sharply over the past several
months - a correction or move lower is due. But that may not come tomorrow. We
would not be surprised to see a repeat of last year, when we saw Stocks
"sell in May and go away"...this to the benefit of Bonds.
you can see, there's a lot to consider and many wild cards. After such a swift
decline, the Bond is ripe to rebound some - but as we've said, it may not
happen today or tomorrow, as Traders won't rush into the market and "try
to catch a falling knife."
MIGUEL VELAZCO Sr., M.B.A.
CEO & President STOPRE Corp.
DRE # 01361531
Active Realty 4056 Decoto Rd. Fremont, CA 94555
Owned Properties / REO (Real Estate Owned) Consultant
Certif.; CDPE, RESNET, REOMAC, FiveStarInstitute, REO, BPO, Commercial,
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