Phil Grossfield's Blog

A LITTLE EXTRA…

Terrorism; Jobs Report – How Will You Advise Your Client?

Terrorism.  Unfortunately it’s here to stay. Traders typically view terrorism as bad for the economy since it has a potential effect on global markets.  Therefore, traders usually stray away from investing in the stock market when terrorism strikes. terrosimThis typically will result in more investments in the safer bond market and when that happens our rates/pricing improve.

Strange isn’t it…terrorism can actually benefit us in the form of improved rates/pricing.  But not today.  Despite the brutal terrorist attack at a French satirical magazine, which published a cartoon depiction of Muslim prophet Muhammad, the markets appear unaffected. This surprises me. Have we gotten to a point where terrorism is so mainstream, like this terrorist attack that left 12 dead including 2 police officers, that traders just aren’t swayed by it anymore? Lord help us.  Click the graphic for more details at CNBC…

My Market Update – 01/07/2015

The 30-year Fannie Mae bond is trading down -20bps this morning since yesterday’s close.  Generally a lender’s pricing worsens when the bond is being sold off. This was expected after enjoying gains since December 24…that is, we expected traders to take gains and as a result bonds were poised for a reversal.

Now the focus turns to Friday’s Jobs & Unemployment Reports.  Each report is an indicator as to the perceived strength or weakness of the economy.  Trader’s will interpret these reports in this way…more jobs equals a stronger economy and conversely fewer jobs equals a weaker economy. Traders will typically invest in stocks if they feel the economy is stronger and in bonds if they feel the economy is weaker…it’s one or the other…rarely both.  This inverse relationship isn’t always true, but almost always can be relied upon in your analysis and counsel to your client borrowers.  Most importantly, as it pertains to mortgage rates/pricing, if traders sell off bonds to invest in stocks, then rates/pricing worsen but if they buy bonds then rates/pricing will improve.

Jobs_Report_Analysis

I’m a firm believer that the more information you can provide your clients serves to reinforce their confidence and trust in you. They want your opinion, right?  The question they’ll ultimately ask of you is, ‘will rates get worse and should I lock now, or, will rates improve and should I hold off on locking?’ How will you advise them?  Short of giving an actual opinion and being potentially wrong, I advise you explain how it works coupled with a disclaimer that it’s impossible to know for sure.  Of course, if you’re Dan Aykroyd or Eddie Murphy, then you’ll already know the results of the report and you’ll be looking and feeling good.  Let me know if you want to discuss the upcoming reports in more detail…

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