Daily Commentary: Different
day - same story.
[The following four (5) paragraphs are a
repeat from yesterday's commentary. The
last two (2) paragraphs of this section contain new information.]
The threat the result of Sunday's Greek
elections* could prompt a panicky run on banks from
Athens to Switzerland continues to send massive amounts of capital into U.S.
denominated assets like Treasury debt obligations and agency eligible
mortgage-backed securities. As it has for months, this process is currently
providing massive support for the prospects of steady to perhaps fractionally
lower mortgage interest rates on Main
Street, U.S.A. That's the good news.
The bad news part of this story will show-up
with a bang if the broadly anticipated "worst-case scenario" which is
already well priced into the credit markets fails to develop. The pendulum of investor sentiment has a very
nasty habit of swinging too far in one direction - forming the basis for the
old, but proven adage that holds "the majority of investors are always
wrong at major market turning points."
Up to this point global investors have been willing to essentially pay
the U.S.
government to hold their money -- largely because the high probability outcomes
of the struggles within the euro-zone are unknown. If the Greek vote on Sunday is conclusive -
one way or the other - we will be increasingly vulnerable to a slow but steady
reversal of the "flight-to-quality" buying spree that has supported
super-low mortgage interest rates here in the states. It probably won't be long before global
investors begin to execute the second half of a "buy the rumor - sell the
fact" risk management strategy.
Don't get me wrong - I am not suggesting we are going to see a major sell-off
in our mortgage market within the next hour - but I do think it would be prudent
to begin to consider what it would mean in general to your pipeline -- and
specifically to your refinance pipeline -- if the music stops - and interest
rates begin a slow but steady rise.
The idea that mortgage interest rates will
remain at current levels forever is as ludicrous as the idea 30-year fixed-rate
would remain at 18.625% when that benchmark was reached back in October of
1981. There is an uncomfortable chance
much of the refinance pipeline that currently exists (more than 75% of the
total national pipeline according to Mortgage Bankers of America figures) will
become like the frog that is placed in a pan of lukewarm water. As the temperature is slowly turned up the
frog sinks to the bottom of the pan in a tranquil stupor, exactly like one of
us in a hot bath, and before
long, with a smile on its face, it looses its ability to jump out . and I have
no doubt you know rest of the story.
My timing algorithms continue to suggest
mortgage interest rates will probably begin a more sustained move to higher
levels sometime between June 21st and the end of July. For the time being investors will be
reluctant to begin aggressively reducing their safe-haven investments in dollar
denominated assets like U.S. Treasury debt obligations and agency eligible
mortgage-backed securities before results of the Greek elections on June 17th
are known and the Fed has concluded its Open Market Committee meeting on June
20th. Until then, expect
mortgage interest rates here at home to chop nervously back and worth in a
relatively tight range.
Looking ahead to next week the credit markets
will be dominated by the conclusion of the Federal Open Market Committee's
two-day meeting on Wednesday. In the
unlikely event central bankers announce the launch of another round of
mortgage-backed security purchases as part of a new Quantitative Easing
stimulus program (QE3) -- mortgage interest rates may creep fractionally
lower from current levels. If on the
other hand, the Fed chooses to do nothing more than extend the expiration
of "Operation Twist" beyond
its current expiration date of June 29th - the impact of Wednesday's
Fed meeting on the trend trajectory of mortgage interest rates will be much
less pronounced.
Other items on the coming weeks calendar include
Tuesday's June Housing Starts and Building Permit figures, Thursday's weekly
jobless claims report and the June Existing Home Sales numbers also scheduled
to released on Wednesday.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
