An Optimist

"AN OPTIMIST STAYS UP UNTIL MIDNIGHT TO SEE THE NEW YEAR IN. A PESSIMIST STAYS UP TO MAKE SURE THE OLD YEAR LEAVES." Bill Vaughan. 2008 turned out to be a historic year on many counts, and optimists and pessimists alike were glad to close the books and say goodbye to the old year. In observance of the New Year's holiday, the Bond market closed early last Wednesday and was closed all day Thursday, but there was still plenty of time for volatility due to several noteworthy news items. With a great deal of midweek activity, Bond pricing ended the week slightly worse with home loan rates about .125% higher than where they began.

Early last week, a renewal of military conflict between Hamas in Palestinian Gaza and Israel sent crude oil jumping higher on concerns of supply disruption, causing volatile activity in both Stocks and Bonds. The strife in the region continues, and may cause more movement in the financial markets over the coming weeks.

GMAC received a $6 Billion lifeline from the Treasury to help stave off a bankruptcy protection filing or complete shutdown. This would have spelled big trouble for GM, as GMAC helps to finance purchases of most GM vehicles. This assistance is part of a larger effort to help aid the troubled auto industry, and GMAC announced that they will immediately resume financing to a wider range of car buyers. Stocks moved higher on the good news, which pulled a bit of money out of Bonds and caused home loan rates to rise.

NOTE: Stocks have made some nice moves higher of late, breaking above a key line in the sand at their own 50-day Moving Average. And with a great deal of cash on the sidelines waiting to be put back to work, as well as retirement money getting ready to be invested before tax time, this could spell better days ahead for Stocks. While money flowing into Stocks can sometimes pull money from Bonds and cause home loan rates to rise, the Fed has said they will be doing some buying of Mortgage Bonds, which could help home loan rates weather the storm much better than they have in the past.

In economic report news, the Chicago Purchasing Managers Index - which measures manufacturing activity - came in at 34.1, very close to estimates of 33.0. But Consumer Confidence somewhat unsurprisingly missed advance expectations of 45.5, arriving at a dismal, record low of 38.0. Just by way of perspective, last year at this time, Consumer Confidence was at 88.6...so there's been quite a decline during 2008.

Also adding to the movement in the markets last week, the Securities and Exchange Commission recommended against suspending FASB 157, otherwise known as fair-value accounting rules or "mark to market". These rules led to the failure of many financial institutions that really weren't in bad shape, but simply made them appear to be overleveraged as they were forced to value their assets against distressed institutions selling at steep discounts. This announcement was not a surprise, as it wasn't expected that they would completely eliminate the rule and go back to the days of Enron-style accounting and valuation systems which lacked transparency. For now, the SEC is instead suggesting "improvements" to deal with illiquid markets and reducing the number of models used to measure impaired assets...but the details of those "improvements" are yet unknown.

Rest assured that as 2009 kicks into full gear, I will be watching closely and keeping you updated as to all the latest financial news stories, market action, and home loan rate developments. Because windows of opportunity can be fleeting, please call me to look over your own financial situation so that we are ready to act on your behalf.

Mortgage Market Guide