Daily Report | 9 March 2010
Current Trend Direction: Sideways
Risks favor: Carefully Floating
Current Price of FNMA 4.5% Bond: $101.31, +12bp
Today is a bit of a slow news day so far, with no economic reports in store although Cisco will be making an announcement later this morning that they say will change the internet forever, so it will be exciting to see what they have up their sleeve.
In the meantime it is an interesting day to take a look back to just one year ago as today marks the 1 year anniversary of the recent bottom in the Stock market. Back on March 9th, 2009 the Dow was at 6,547, and has risen 62% since then. You may remember that we called this bottom in the Daily Update on the morning of March 10th 2009:
The previous Stock market crash, which lasted from March 2000 through October of 2002, ended on October 9th 2002. On that very day, the headline on the front page of USA Today read “No End In Sight to Stock Market’s Decline.” Yesterday, the headline in the Wall Street Journal read “Dow 5000?” Could this represent a major turning point? We think there is reason to believe so.
That same day, we again discussed our ongoing analysis of the mark to market accounting issues right before the Congressional hearing to fix the problem, which is what ultimately drove the Stock market rally:
Federal Reserve Chairman Ben Bernanke spoke in front of the Council on Foreign Relations in Washington this morning It’s great to see that the mark-to-market issue is finally getting the attention it needs…Mr. Bernanke stated that mark-to-market needs to be addressed and that there has been evidence that present accounting rules have indeed made the current crisis much worse. While he does not support suspending mark-to-market, he does feel that it needs to be modified expeditiously. As you know, this issue has been a strong rallying cry on our part for several months now, and Mr. Bernanke’s statements today are exactly in line with the position we have had.
It was the Congressional hearing later that week, and the eventual modification to mark to market accounting rules on April 1st that helped right the Stock market and put the financial recovery on course.
When talking to prospects and potential home buyers, remind them that we saw the bottom in Stocks when the headlines turned overly negative, fear had risen and it seemed no one wanted to buy Stocks. Right now we are seeing a similar sentiment in the home purchase market. When something is out of popular favor, its exactly when smart people should be buying. In fact, legendary investor Warren Buffet has this timeless rule, “Be greedy when others are fearful and fearful when others are greedy”. Another legend, Dean of Investing Sir John Templeton similarly said You want to be a buyer on the most pessimistic day, and a seller on the most optimistic day. As we enter Spring and the snow seems finally behind us in many parts of the country, remind people of the incredible opportunity in housing, and exactly how fearful Stock investors may have felt one year ago today right before Stocks bottomed and turned higher.
Mortgage Bonds are trading higher, but at 1pm ET, a $40B offering of 3-Year Notes kicks off another round of auctions.
We can continue to Carefully Float for now but be mindful that should prices move lower, the next floor of support lies at the 100-day Moving Average, about 30bp beneath current levels.
Note: Today after the close of trading, Mortgage Bonds will undergo their Monthly Bond Rollover. The Rollover doesn’t affect pricing on your rate sheet, but you must factor its negative impact on the price of the Bond, as well as the appearance of the Japanese Candle on the Bond Page.
Keep your dreams big and your worries small.