Daily Commentary by Larry Baer: News the Cypriot government has imposed a 10% tax
on all deposits held in that tiny nation's banks has created
"flight-to-quality" buying of U.S. dollar denominated assets like
Treasury debt obligations and agency-eligible mortgage-backed
securities. The ill-conceived bank rescue plan has ignited fears of
a bank-run contagion spreading through other struggling European countries.
As long as the fear persists - a surprising but nonetheless welcome support for
the prospects of steady to perhaps fractionally lower mortgage interest rates
here on Main Street U.S.A. will be in place.
The primary focus of
mortgage investors this week will be on the results of the Federal Open Market
Committee's two-day monetary policy strategy meeting scheduled for Tuesday and
Wednesday. Market participants, both stock jocks and bond daddies,
broadly anticipate Chairman Bernanke and his fellow central bankers will maintain
their ultra-loose monetary policy, including monthly purchases of $85 billion
worth of Treasury debt obligations and agency eligible mortgage-backed
securities, at least through the end of the year.
If, as expected, the
post-meeting statement and Mr. Bernanke's press conference later the same day
shows the Fed remains firmly committed to the repeated vow to keep short-term
interest rates near zero and to support the economy with quantitative easing
efforts until the jobless rate falls to 6.5% and/or inflation at the consumer
level rises above 2.5% -- mortgage interest rates will continue to hove near
current levels.
On the other hand,
in the high unlikely event there is a shift in the terminology contained in the
Fed's post-meeting statement to be released at 2:00 p.m. ET Wednesday -- and/or
in Chairman Bernanke's public comments at a new conference scheduled for 2:30
p.m. ET that same afternoon - that suggests the Fed is considering
throttling back their QE3 purchase program sooner rather than later -- look for
the stock market to take a nosedive - to the direct benefit of the prospects
for fractionally lower mortgage interest rates.
This week's Fed
meeting will be bookended by Tuesday's February Housing Start and Building
Permit report and Thursday's weekly jobless claims and the February Existing
Home Sales figure.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
