The Great American Puppet Show, ACT II

By
Mortgage and Lending with Union Home Mortgage Corp.

Do They or Don't They?

We open this Act with the Fed cutting rates by 50 basis points and wondering what it is they know that we do not.  Do they have access to economic data before it is released? Is Ben acting on popular opinion in the markets? Is the economy in bad shape?  Unfortunately, I think that this will be one of those plays that will have an ending that we will have to wait for the sequel!!

Lets start with Wednesday when the fed cut rates.  In the morning the ADP estimates for employment came out showing an expectation of 130K new jobs created in January. That would be a block buster number and about 50K more than what economists had been predicting. The problem is that the ADP report is wrong about as much as your local weather man! The funny thing is that the talking heads in the financial media have been defending the report stating that after revisions come out the ADP report is usually more accurate than the government report. They even went as far as saying the Fed may pay more attention to this report. So........... with a block buster number in the morning along with some other economic indicators maybe the Fed should not make this 50 basis point cut in the afternoon. The question is what do they know that we do not know?  The Fed makes the cut as confident as a Tom Brady pass to Randy Moss in double coverage and states they are willing to do it again.  The stock market gives a small rally and everyone cheers. The problem is that the fundamental numbers that came out prior to the cut show they should have stayed pat.

Thursday morning rolls around and it is looking like GDP is the worse it has been in a long time, but still a barely positive number at .6% growth.  Looks like the fed may have known what they were doing?

Friday morning the markets wake up to a non-solicited bid by Microsoft to take over Yahoo!  The Dow futures are soaring. It is hard to find any news coverage about the impending jobs report. 8:30 am we hear -17,000 jobs created, unemployment at 4.9% and some slight upward revisions for December numbers.  What the heck? NO ONE WAS EXPECTING US TO LOSE JOBS, ESPECIALLY ADP!  Does the Fed have access to economic data prior to its release?  The bond market rally keeps mortgage backed securities off of the slide ( when bond prices go down rates go up) but not to the tune we expected since the market was still in a euphoric state over the Microsoft news.

OK, so we have a poorly written history of the week. Mortgage rates are still great and the market reacted some what like we expected.  The media kept saying how the fed rate cut lowered mortgage rates and mortgage professionals all over the land began to bang their heads against the wall trying to explain that the Fed funds rate has nothing to do with mortgage rates. We tried to believe that Big Ben was not a puppet of Wall Street but began to wonder if the Fed Chairman had access to economic data prior to its official release.  Do you think he should?

 Stay tuned for our next exciting episode!!!!!!  (Although, the Fed does not meet again until March)

Your Mortgage Your Money

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Rainer
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Andrew Lowell
Andrew Lowell Broker - Granite Bay, CA
Consulting Broker for 30 years

good blog thanks for your effort

 

Andrew

Feb 02, 2008 12:09 PM #1
Rainer
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Tony Grego, 317-663-4173 #1 Trade Association for Alternative Inv
REISA - 317-663-4173 - Indianapolis, IN

Thanks for your post Rick.

In todays environment of rushing to post news before it is confirmed it is not out of the question that Big Ben could have found things out. In fact even folks like you and I can if we have the resources.

With the exception of the 3/4 cut the other week (which may have just saved the world economy) not much is a secret or surprise anymore. What has hurt our business the most has been the press and I not hope the press will save it. Guess we will see.

Happy Selling!

Tony Grego - Indiana Mortgage Broker 

Feb 02, 2008 12:12 PM #2
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Rick Pilger
Union Home Mortgage Corp. - Liberty Township, OH

Thanks for the comments Andrew and Tony.  Tony, I have to say that I am not sure what the Fed did last week was a good thing. While it may have propped up the world economy I believe that the markets have to find their own level.  We have to see an honest correction before we can recover.  Wall Street is just to blame for the housing market as any but people like you and I are taking the heat from the media and the public while the large majority of our profession are honest, hard working advisers who truly have the clients best interest at heart. 

 Best to you and Happy Selling (something we actually have to do again)

Feb 02, 2008 06:54 PM #3
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Rick Pilger

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