Good Morning! It does appear as though we are waking up to what looks the warmest day of the year! I have been mentioning for most of the first quarter of 2009 that rates will more than likely rise by summer. I wish this is an area I am wrong, but I don't thinik I am. This past week the interim executive of Freddie Mac stated he feels as though rates are at the bottom. For those of you who are still on the fence as to refinancing, GET OFF. Make a phone call to your mortgage professional and start looking at your options.
"LET'S GIVE THEM SOMETHING TO TALK ABOUT..." Bonnie Raitt. Better believe that last week's news gave us plenty to talk about, and even a few things to smile about. Here are the highlights.
You know this newsletter has been talking about the mark-to-market issue for some time now, and everyone was talking last Thursday about the Financial Accounting Standards Board's (FASB) favorable vote to relax mark-to-market accounting, which will help to unlock the continuing freeze in the credit markets. The big change is to allow financial companies to use alternate models, like cash flow analysis, in valuing their assets. This was great news for the financial markets and our economy at large, as this will help money and credit flow more normally in our economy again.
In fact, since the March 12th Congressional hearing on mark-to-market, Stocks have risen 23% just on the speculation a change could be coming. And just one short day after the FASB mark-to-market ruling, there were stories of banks already saying they may not need to sell assets to raise capital, as they will no longer have to take massive paper losses by pricing their assets to the "fire-sale" comps that were created in some of the illiquid markets. Capital ratios are now more in line for many institutions, which will also help their ability to lend - in turn helping consumers and businesses alike. Yesterday's ruling is a dramatic step towards unwinding the negative spiral created by mark to market, and in fact, the ruling on mark-to-market accounting could well go down in history as a turning point in the US financial crisis.
Speaking of turning points, while Friday's Jobs Report certainly had its share of the bad (the economy lost 663,000 jobs in March) and the ugly (there have been 5.1 million jobs lost since the recession began in December of 2007), there was also some good. For the first time in a very long while, there were no downward revisions to a prior month's reading, as February's number came back with no change. This, as well the actual job losses for this month being improved from January's levels, and not much worse than expectations, could mean there is some level of stabilization at hand for the labor market. Something else worth smiling over on the job front was Sallie Mae said it plans to create 2,000 jobs by returning its overseas operations to the U.S. In addition, Gad Levanon, a senior economist at the Conference Board, said in a statement, �The most intense stage of job losses may be behind us� .
While Stocks were buoyed by the Mark-to-Market announcement and optimism that the G20 meeting in London will lead to an agreement on ways to pull global economies out of the current recession, Bonds were unable to hold onto recent gains. As a result, Bonds and rates ended the week .125-.25 percent worse than where they began.
There aren't too many scheduled economic reports to talk about this week, but don't expect the rest of the news to be quiet. First quarter earnings season begins, and while the change to mark-to-market take effect for the second quarter, it can be applied to first quarter earnings. In fact, rumors are already swirling that the change in mark-to-market will boost earnings of banks by 20% or more for the first quarter.
In addition, the US is prepared to sell an estimated $59 Billion in notes and inflation-indexed securities this week, and it will be important to see what impact that supply has on Bonds and home loan rates. And as we continue to watch the labor market, it will also be important to keep an eye on Thursday's Initial Jobless Claims report to see if the news is good, bad, or ugly.
But remember: Strong economic news will likely cause Stocks to move higher, and Bonds and home loan rates may worsen in response as we saw last week. Bonds worsened on the heels of last week's positive mark-to-market ruling, as well as Friday's Jobs Report failing to meet the worst fears.
It will be shortened week for the bond market as it will be closed on Friday for Good Friday. Have a great week - Denelle
