Phil Grossfield's Blog

FIRE!!!  Here’s a little advice I now offer you after first-hand experiencing this morning…after you buy a delicious pastry from your local neighborhood non-chain coffee shop, and after you bring it home to split and share with your lovely adorable wife, and before you stick it in the microwave for eleven seconds in an attempt to warm it up to the perfect temperature, I strongly advise you take your tasty pastry out of the paper bag the coffee shop person so thoughtfully placed it in.  Of course, if you do not remove your tasty pastry from the paper bag, the microwave will try to do it all by itself.  Voila…FIRE!!!

My reaction to this delightful event was not much different from Tom Hank’s reaction to building fire in the movie Castaway – at the 55 second point.

My Market Watch:  Bonds Down -26bps.  Jobs Report Comes In Strong.  The Fannie Mae 30-Year Bond is down -26bps since yesterday’s close.  A lender’s rates/pricing get worse when the bond loses ground…prices are worse today.  Hopefully you followed my advice yesterday and locked in ahead of this morning’s report.

This morning the Jobs Report came in at 175,000 new jobs. That’s a lot more than what was expected…25,000 more.  Since traders only expected 150,000 new jobs to be reported, the economy appears to be stronger than thought.  When traders feel the economy is stronger they want to invest in the stock market, so, they sell off bonds to free up Capital. When traders sell off bonds our rates/pricing worsen.

The Unemployment Rate has a similar analysis.  It came in at 6.7% which is just slightly higher than the expected 6.6%.  Although this means there is more unemployment, which indicates a weaker economy, it wasn’t enough to counter the big Jobs Report number. At best, maybe it kept the bond from losing even more ground.

Because the bond is now trading lower new moving averages are in play.  Traders are watching the bond’s movement to decide when and if it’s a good time to start buying again, or, if they should keep selling.  As long as the bond trading doesn’t escalate one way or the other this afternoon rates/pricing should stabilize.

Below is a 12-month recap of the Jobs Reports, courtesy of MBS Highway:

I Was John Travolta.  I must be John Travolta…why else would I put in my post yesterday that I love Jimmy Carson?  JOHNNY Carson…I love JOHNNY Carson.  Man!  So if you’re completely lost as to why I would claim I’m John Travolta it’s because he monumentally screwed up the pronunciation of Idina Menzel’s name when he introduced her at the Oscars.  IT WAS BEAUTIFUL…I’ve watched it a dozen times.  See it here on Conan in first 20 seconds.

Want to master the art of saying the wrong name?  There’s a website for that.  Yes, here you can enter any name and it will tell you exactly how John would say it…here’s your chance to be just like John Travolta. 🙂

My Market Watch:  Bonds Down Just -6bps.  Jobs Report Tomorrow.  The Fannie Mae 30-Year Bond is down but only by -6bps since yesterday’s close.  Generally a lender’s rates/pricing get worse when the bond loses ground.  I usually attribute 0.125 in price to about 20-25bps or so.  So, since the bond is only down -6bps rates/pricing should be the same as yesterday.

Tomorrow are the big Jobs and Unemployment Reports…these reports traditionally has the power to significantly influence trading. A trader’s job is to buy low and sell high. Therefore, traders try to predict what will happen and invest accordingly. If the either report is off, then traders will react based on how well they guessed.

The Jobs Report tells us how many new jobs were created in February and the Unemployment Rate tells what percentage is out of work.  If the Jobs Report shows more new jobs than expected (indicating a stronger economy), then traders will invest in the stock market.  In order to free up money to invest in stocks, traders will sell off bonds and when that happens our rates/pricing get worse.  Conversely, if the Jobs Report shows less new jobs than expected (indicating a weaker economy), then traders will sell their stocks and invest in safer bonds instead.  When that happens our rates/pricing get better.  I hope that makes sense.

The Unemployment Rate has a similar analysis…if the unemployment rate goes up, it means a weaker economy, right?  More unemployed = weaker economy.  If the unemployment rate goes down then the economy should be considered stronger.

Traders try to predict what will happen and react sharply when either report is significantly off.  For example, if there are a ton more or less jobs created than expected, then the amount of stocks and bonds traders buy or sell goes up greatly.  It is expected that 150,000 new jobs will be reported and the Unemployment Rate will be 6.6%. The number of expected new jobs seems low to me…I’m betting it comes in higher.  Therefore I advise locking today before the report is published.  But MBS Highway disagrees with me…they think less new jobs will be reported and they are recommending you float your locks until after the report is published.

Please do your own research and rely on the same before you decide to lock or float your loans. Feel free to call me to discuss….

My Disclaimer

She Can Blow!  Man! There are not many singers that have the range and power of Idina Menzel…she has SERIOUS PIPES. And to prove it you have to watch her performance on The Tonight Show with Jimmy Fallen.  As a side note, I love Jimmy Fallen…I always have…he’s the closest thing we’ve had to Johnny Carson, and I loved Johnny Carson. Not to take a shot at Conan, but Jimmy has more range, and he has infectious energy…I just love the guy…serious man-crush.  Anyway, he does a lot of music videos with his guests, and they’re pretty cool. My favorite is Miley Cyrus – “We Can’t Stop” (A Cappella).

The other night he had Idina Menzel on his show to sing Let It Go, from the Disney Frozen movie.  As I said in my post-Oscars post, Frozen is now one of my all-time favorite Disney movies, and this song is the best Disney song so far. YOU GOT TO CHECK OUT IDINA’S PIPES!

My Market Watch:  Bonds Flat +6bps.  The Fannie Mae 30-Year Bond is flat, up just 6bps after a big sell-off yesterday.  When traders sell off bonds our rates/pricing get worse.  There really isn’t much going on, and without something more enticing to write about I won’t waste my time, or yours. I’ll keep an eye on things today and if something should spark my interest I’ll fill you in….

Bonds Down -34bps – Nearing Moving Average Floor. The Fannie Mae 30-Year Bond is down -34bps since yesterday’s close. When traders sell off bonds our rates/pricing get worse. More importantly, the bond price has reached a level that is very concerning…it has touched a floor of support and is now testing its strength. I’ll use my Glass Elevator Analogy to explain.

Earlier this morning the bond elevator was heading down to the first floor from traders selling off bonds and then it stopped. But traders want to buy low and sell high…when the bond reached Floor 1 they figured it had reached its low. So, traders started buying bonds again at this low price and the elevator reversed direction and headed back up towards the second floor. So, Floor 1 is now a level of support…we expect traders to start buying at this point, unless some news or report gives them reason to keep selling off bonds.  But now the elevator is heading back down towards Floor 1 because traders are once again selling off bonds. The question is, will Floor 1 hold…is it strong enough that traders will start buying again? A trader’s job is to buy low and sell high…as the bond reaches Floor 1, will traders think it’s hit the low and start buying again like this morning? If so, the bond price will reverse and we’ll be safe from rates/pricing getting worse. But if traders continue to sell, and the bond price drops below Floor 1, then you can bet on rates getting worse, probably in the form of a mid-day reprice worsening.

The reason for all this volatility is the overseas conflict between Russia & Ukraine over Crimea, and now the U.S. has gotten into the mix. When military action seemed probable yesterday, traders sold off stocks since global markets were considered a bad bet. Trader’s put their money into bonds instead because they figured it was a safer investment and as a result we saw a little improvement in rates/pricing. Since the U.S. got involved Russia has essentially backed down, at least for now, and for that reason traders felt more confident in investing in stocks. Therefore, they invested into the stock market and sold off bonds to free up the capital to do so…this is what is causing this predicament.

Top 10 Reasons We Watch The Oscars.  As long as I record the Oscars so I can skip through the boring stuff, I like watching.  I asked my wife and in-laws who were in town this weekend for their top reasons to watch the Oscars:

1. To see what they’re wearing – per my mother-in-law, Grandma Ellen.
2. To see what they’re not wearing – per my father-in-law, Papa Tom.
3. To see all the pretty people – I made this one up although I really don’t care…I just thought it should be on the list. However, it doesn’t pain me to see Charlize Theron and Scarlett Johansson …yowza!
4. To watch Ellen DeGeneres – per Papa Tom although Grandma Ellen was approvingly nodding her head.  My favorite line was when she told Jonah Hill he revealed something in Wolf of Wall Street that she hadn’t seen in a long time.
5. To laugh at their stupid acceptance speeches – per Grandma Ellen. This is why I record the Oscars…so I can skip past the mundane.
6. To hear Idina Menzel sing the Frozen song – per my wife, the Travel Mama.  I have to say, Frozen is now one of my all-time favorite Disney movies …right up there with Toy Story, Pirates of the Caribbean, and Finding Nemo. But the song Let It Go is the best Disney song so far and Menzel kills it…in a good way. You can listen to the song in the animated scene.
7. To find out who won – per papa Tom with a dissenting opinion from Grandma Ellen since you can simply look it up on the Internet after the show.
8. To watch the Memoriam and see who passed away over the year – per Papa Tom but I agree.  I’m always astonished at how many names I recognize.
9. To watch U2 perform Ordinary Love – this one is mine because any chance to watch U2 perform live is AWESOME.
10. AND THE NUMBER ONE REASON TO WATCH THE OSCARS IS ………………… drum roll please ……………….. to watch people get acknowledged for following their dreams – gee, I wonder who said this? Yes, it was me…on this side of the family I guess I’m the sappy one.

My Market Watch:  Bonds Up +17bps From Friday’s Close. The Fannie Mae 30-Year Bond is up +17bps since Friday’s close. When traders buy bonds a lender’s rates/pricing improve…it’s as simple as that.

The stock market is down which is why bond trading is up. As you probably know there is an inverse relationship between stocks and bonds…when traders would rather invest in bonds they sell off stocks to free up capital…most of the time. So, why are traders more interested in bonds rather than stocks?

From what I’m reading it’s because of the conflict overseas between Ukraine and Russia over Crimea which was transferred to Ukraine from Russia in 1954…Russia has taken it back. The potential for war always freaks out traders as it pertains to stocks because global instability affects the global markets…everything is connected in a matter of typing. So, the safe bet is to sell off stocks and invest in bonds instead.

Translation. This was my gift the other day from my boy who is turning 6 years old tomorrow:

“I love you daddy you will open this and you will see what’s inside here”

My Market Watch: Bonds Up +13bps From Yesterday’s Close.  The Fannie Mae 30-Year Bond is up +13bps from yesterday’s close.  When traders buy bonds a lender’s rates/pricing improve…it’s as simple as that.  The trend in bond trading is looking good and I’m hoping for a nice rally.  Of course, Janet Yellen speaks today and depending on what she says we could see a move one way or the other. But my gut tells me that today will be innocuous.

Vacation Giveaway – Last Day to Enter! The Travel Mama strikes again! My wife is the Travel Mama in case you didn’t know…she is a travel writer and has a giveaway contest you can enter. TODAY IS THE LAST DAY TO ENTER! YOU COULD WIN!!!! You have to follow the instructions to get entered…you have nothing to lose so sign up and win!

My Market Watch: Bonds Flat – Pricing Same. The Fannie Mae 30-Year Bond is basically flat this morning +0bps from yesterday’s close…par. When traders buy bonds our rates/pricing improve and when they sell off bonds our rates/pricing get worse…the bond tells it like it is…it is a direct indicator…it’s as simple as that. Today it is flat, like a pancake…like a tortilla…like an Iowa countryside.

There are some conflicting reports in housing data and quite frankly it confuses me. For example, purchase applications are down 15% in 2014 but new home sales came in very high…tell me that doesn’t sound confusing. Maybe that’s why the bond is flat today.

In analyzing the 30-year Fannie Mae bond it’s interesting to point out that it was selling off early and dropped down to the 25-day moving average. A moving average is a trend in the buying and selling of the bond. Traders use moving averages to make guesses on when the price of the bonds (and stocks) will reach highs and lows. As you know, traders want to buy low and sell high…if they see the price of the bond approaching a moving average floor, they usually conclude the price has reached it’s low and figure it’s a good time to start buying, unless of course there is some compelling report or news to suggest otherwise.

Early this morning the bond dropped down to the 25-day moving average…then it stopped and headed back up. I created the glass elevator analogy to explain this. Imagine the glass elevator is heading downward towards the Lobby. As the elevator nears the Lobby it slows down and eventually stops…will it go down to the garage or reverse and go up to higher floors in the building? If there are no economic reports or news to suggest the elevator should continue heading downward towards the garage, then traders will push the “up” button (buy bonds) and the elevator will reverse and go up to higher floors…this is what traders count on…this is why they start buying bonds at the lobby. The lobby today is the 25-day moving average.

As of now the bond is trading well above the Lobby…this is a very good thing. As long as the bond doesn’t fall below the Lobby, then rates/pricing will hold. Let me know if you have questions or comments…

Iron Man Sings.  I love music…you know this to be true. But did you know I’m a science fiction geek?  You probably knew that as well, eh?  I wonder how much your other AEs reveal about their personal lives. No matter. Yes, it’s true, I’m a science fiction geek who loves music. That’s why I found this particularly interesting…Robert Downey Jr., otherwise known as Iron Man, sings Driven to Tears with Sting.

As long as Iron Man is now on all of our minds, I’ll go on record to say that my favorite of the trilogy was Iron Man 3, then Iron Man 1, and last Iron Man 2 which I thought was just okay. As far as his singing ability goes…not too shabby!

My Market Watch:  Bonds Up – Pricing Improved.  The Fannie Mae 30-Year Bond is up this morning +30bps from yesterday’s close.  When traders buy bonds our rates/pricing improve…it’s as simple as that.

Since the bond opened much higher this morning from yesterday’s close, Capital Markets has already priced these gains into this morning’s rate sheet. Therefore, logic dictates that it would be unlikely we’d see a mid-day reprice improvement.  However, I have seen a pattern with Interbank where they will come out with conservative pricing after a big jump from the previous day’s close. Then, after waiting a few hours to see how the market reacts they will issue a reprice improvement. I’m hoping this trend comes true again today.

Positive housing data takes credit for trader’s motivation to buy bonds.  For example, it was reported the price of homes increased for December. This is good news because some of the guesstimates I was reading inferred the housing data might be weaker than anticipated. One reason analysts may have thought this is because of bad weather. But some of the housing data is being reported before the real nasty weather kicked in, i.e., December. Regardless, the good economic reports in housing data are resulting in traders investing in bonds, and when they do that our pricing improves.

The 30-year Fannie bond is trading in a comfortable space, away from any impending ceilings of resistance or floors of support. That is, there is no technical reason for traders to feel the bond will sell off. Assuming the bond levels out this afternoon, we could have a nice week in rates/pricing. The only barrier to this is if traders feel compelled to take gains realized and sell off bonds, but I think this is unlikely based on how things look presently. Let me know if you have any comments or questions….

Case Of The Mondays?  “People who are not happy on Mondays give up 14.3% of the available happiness in their life,” wrote one of my long-time clients and neighbors. Although David is also a math teacher here in San Diego, you don’t need to be one to figure out this calculation.  He went on to say, “so if you ask me, be happy and try not to worry a lot.”  If you ask me these are words to type in bold font, print on an 8×11 piece of paper, frame, and hang on the wall, next to the picture of me you no doubt already have hanging.

These comments came in response to my post I’ve Gone Viral! which was a play on my post My Verse.  And the lesson continued, “My verse will include getting people to say not only Happy Birthday or Merry Christmas, etc., but Happy Monday, Happy Tuesday, and Happy Every-Day-of-the-Week.  Since I have started saying my Happy Day to everyone I see at school, many of my colleagues are picking it up and I even hear it in the morning announcements every day.”

The Moral of the Story:  Positivity is contagious…so influence others around you in a positive way, and for the sake of not wasting 14.3% of your life, don’t have a case of the Mondays, or Tuesdays, or Wednesdays, or…

I believe you get your ass kicked saying something like that man.

My Market Watch:  Bonds Down Slightly – Pricing Improved. Instill Trust – Build A Strong Relationship.  The Fannie Mae 30-Year Bond was trading flat but just started to decline and is now negative from Friday’s close by -11bps.  When traders sell off bonds our rates/pricing worsen…it’s as simple as that. But it’s too early to be worried…the bond would have to drop another 8-10bps or so in order to trigger a mid-day rate change by Capital Markets.

According to MBS Highway this could be a volatile week in mortgage rates because of all the housing data being released.  If you’re talking to clients and they are concerned about whether to lock or float, you might want to mention this to them.

Obviously it’s a delicate discussion because on the one hand you want to protect your client from a decline in pricing and on the other hand you don’t want to lock them in to early and then worry they’ll bail on you if the market improves. It’s got to be one of the toughest things about being an LO. I guess it comes down to how well you communicate and advise them on what’s going on. I suppose the best way to ensure they won’t seek a lower rate after you’ve already locked them in is to do your best to instill trust.

Building the relationship as strong as possible can be challenging since many times you have a very short period of time to interact with them.  But from my experience, the LOs who have mastered this skill are the most successful. Additionally, the most successful LOs seem to find a way to discuss what’s going on in the market and ultimately have the client decide what to do, that is, the decision on whether to float or lock is a resulting directive from the client.  If you need help with this aspect of your business, I suggest you seek out an LO you admire and ask them for advice…find out what they do and then incorporate the skill into your bag.  I’d love to hear some feedback….

Ask And Ye Shall Receive. Have you seen this? A music student who was attending a Q&A with Billy Joel at Vanderbilt University raised his hand and asked if he could play with him. If he hadn’t asked, he never would have realized this incredible opportunity.

This is a good lesson for those of us in sales. We have to ask for it…it’s basic stuff…sales 101. The most successful sales people have mastered the art of knowing when and how to ask for what they want, which should be what the customer needs, can you feel me? But make no mistake about it…to be successful in sales you have to go after it…and once you’ve gone after it you have to close the deal…and in order to close the deal you have to ask for the sale. That’s pretty basic stuff, am I right? Ask, and ye shall receive!

My Market Watch: Bonds Up – Pricing Improved. The Fannie Mae 30-Year Bond is trading positive…up +11bps since yesterday’s close and up +17bps since our rates were published this morning. When traders purchase bonds our rates/pricing improve…it’s as simple as that.

Interbank’s pricing this morning is very aggressive. According to a LoanSifter report we’re leading the charge. If pricing holds all day, I advise you hold off locking and wait for Sunday to pick up 2 additional days on your lock term. Yes, you can lock online over the weekend…our rates/pricing at the end of the day today will still be available on Sunday. Of course, if the bond market shifts south today then you’d want to lock in before a reprice worsening. But at this point that doesn’t seem likely. So, if bonds hold, wait until Sunday. Let me know if you have questions.