Phil Grossfield's Blog

Bear Excursion or Ziplining In Ketchikan? I pictured salmon jumping into the air and bears catching them in their mouths. In fact, my in-laws went to Alaska last year and that’s exactly what they saw and showed us about a thousand pictures. But that was not the case for us in Ketchikan, Alaska.

Our excursion started around noon…they took Colleen and I to the rain forest and we headed out on a bear hunt. We positioned ourselves above on viewing bridges and then waited…and waited…and waited some more…no bears. An hour passed by…no bears. Ninety minutes passed by…no bears. Apparently the river was so low that bears were down-stream since salmon weren’t fighting the shallow water. Colleen and I were beginning to regret our decision to take this excursion in place of zip-lining, particularly since the zip-liners were cruising over our heads from tree to tree and squealing with pleasure. I was not pleased, not pleased at all.

And then we saw him. He was a big black bear and headed right for us. I have to say, it was pretty anti-climatic for me. Yes, it’s a bear alright. All he did was walk past us and head up-stream. Big whoop. Here’s a 23-second video I took of the bear. In hindsight, the bear excursion was not a highlight of the trip. Still, it was nice to get out into nature. But……..zip-lining anyone?

My Schedule: I have a call from 1:00 – 2:30p…otherwise available.

My Market Watch: The Fed Speaks Tomorrow! Bonds Up This Morning – Pricing Improved. The Fannie Mae bond is up +44bps on the day. Yes! It’s about time, geez! I presume the increase in bond buying by traders is purely an attempt to take advantage of low prices from the last few business days. But that’s not the story…the Fed speaks tomorrow and my guess is that it’s going to be a big deal. What are they going to say? Will they affirm the recent decision to taper QE? If so, how soon and to what extent? Are they going to accelerate the tapering? HOLD ON TO YOUR BOOTIES!

What is Quantitative Easing – QE? Quantitative Easing is a term used to describe the Fed’s intervention strategy into the bond market. In an effort to stabilize the market by keeping interest rates low, the Fed employed a strategy of buying billions of dollars of bonds. Put another way, the Fed created an artificial market of low-interest rates during our economic crisis by buying bonds each month. This strategy has kept rates low and stimulated the mortgage business for a long time.
What does tapering QE mean? A few months ago Ben Bernanke and the Fed announced their strategic decision to begin tapering QE. This means they intend to decrease the amount of bonds the Fed buys. They are doing this because they feel the economy has recovered enough to withstand a more natural lending environment where they don’t have to buy billions of bonds each day. Because the Fed has said it will decrease, or taper its buying of bonds, traders have pulled their investments out of bonds and as a result rates and pricing have worsened dramatically over the last 3 months.

What is all the buzz about tomorrow’s meeting? Many believe our economy is strong enough to withstand tapering…they want the Fed to significantly decrease the buying of bonds, and right now. Others, like myself, feel the economy is still extremely fragile and want the government to continue buying bonds…or at the very least limit tapering to a minimum and stretch it out over a long period of time. Tomorrow everyone is expecting some insight from the Fed on what they intend to do.

How will tomorrow’s Fed Meeting affect us? If traders interpret tomorrow’s meeting as a reaffirmation of QE tapering, and if they feel the Fed intends to accelerate either the amount of tapering or the speed of tapering, then the bond market will drop like the Tower of Terror at Disneyland. If that happens, our rates/pricing will get worse…much worse. On the other hand, if the Fed softens their language, and they give traders the impression that QE will continue in strong force for some time to come, then we could see a significant reversal in bond trading. In this case traders would invest in bonds and when that happens the bond price increases and our rates/pricing will improve greatly.

What’s going to happen? How should I know?! If I knew such things I’d be a billionaire. But I will try. First, Ben Bernanke and a few other bigs will not be attending tomorrow’s meeting and I think this is to our advantage. I am hoping that no significant policy to increase tapering is disclosed in their absence. I’m putting my money on improved pricing tomorrow. However, according to Bloomberg 65% of economists believe the Fed will begin scaling back QE as early as next month by nearly 10%. If there is any reference to these kind of numbers it will get ugly. I hope tomorrow is a non-event…if so I think it will benefit us. Let’s just hope nobody puts their foot in their mouth when they see the reporters….

My Disclaimer

Perspective. 30-Year Fixed Average Rates: Past 40 years: 8.15% Past 30 years: 7.45% Past 20 years: 6.52% Past 10 years: 5.72%

A word on locks. Even though turn-times are fast, I advise longer term locks or at least a pricing cushion to account for possible lock extensions. Flexibility in getting additional days is not as elastic. I advise 45 day Locks. If you must lock 30 days then be sure to build in additional rebate in case you need to pay for an extension. This is good smart business.

Distinguish Yourself. In order to succeed in this business and in this market, you must find a way to distinguish yourself from other LOs. That is, if you are going to get more reliable referral sources, you must be able to clearly convey several compelling reasons why they should use you….My calendar is getting full – I am scheduling presentations to discuss (1) How to Be Successful In The Future Market, (2) Where to Look For Additional Referral Sources, and (3) How To Distinguish Yourself From Other LOs. Let me know if you’re interested in a presentation….