Mortgage Market Week in Review

First, the jobs that are getting cut.  
The August employment numbers came out and they were frankly quite
dismal.   We lost 84,000 jobs in August and both June and July’s
numbers were revised downward.   In addition to that, the unemployment
rate jumped upward to 6.1%, the highest level in, I believe, 5
years.    The numbers were not only bad, they were worse than the
markets had expected and that has correspondingly renewed the use of
the “R” word (not Republican, recession) and has reduced the fear of
inflation.    The silver lining in that dark cloud is that mortgage
rates have benefited this week.   The dark side is that there are a lot
more people out of work.

So what does that mean?  Let’s focus on the “obvious” first:

1. It means that there are very few if
any employers who are expanding right now.   I’ve heard discussions
that in order to handle the growth in our society, we need to create an
additional 100,000 plus jobs every month.   We aren’t even close to
that number.   So that’s not a good sign for the overall economic
picture.

2. It’s probably also a byproduct of the
fact that the credit crunch is moving from just being a subprime
mortgage problem to being a mortgage problem to being an overall credit
problem.   Why is that so?   If you were a business owner who was
looking to expand but can’t borrow the money needed to expand, it is
going to be harder to hire more people.  It’s a vicious cycle, know
what I mean?

3. If more people are afraid of losing
their jobs, then more people are going to eat at McDonalds rather than
Applebees and put off spending any extra money that they can.    This
in turn causes other employers to see lower sales and therefore be less
inclined to hire more people or even keep the same staff.    Which
therefore causes more people to be afraid for their jobs……

Essentially, here’s the way I see it.  
We still don’t know exactly where or when the end of this credit crunch
is going to show up.   We don’t know how bad it’s going to get, how
many loans are going to go under, how many banks are going to take
major hits to their financial picture, how tight credit is going to
become and how hard it’s going to be to get a loan.   Until we can
establish that, we aren’t going to have the opportunity to establish a
bottom in housing, start working off inventory and start turning things
around.   Are there signs that we might be close to that?   Jeff Brown
and I have been discussing that at great length and yes there are some
of the reports that have come out lately that MIGHT be showing a start
to the kind of numbers that we need to have to see a bottom to this.  
Manufacturing Index numbers, some home sales statistics, the rate of
price declines have all shown a “glimmer” of hope, but it’s too early
to tell whether they really are improvements or they are merely
seasonal or otherwise “blips” in the numbers.   Time will tell.

Now for a few thoughts on the whole
political situation and it’s ramifications on the markets.   I’m going
to admit to some gross stereotyping, so don’t write me back and accuse
me of that since I’m already admitting it.   Here’s my take on it:

1. At the end of last week, the Democrats
had their “shining” moment and got a lot of good press on their
convention.   The markets (the Wall Street ones) tend to favor the
Republicans rather than the Democrats because of the
“deregulation/lower taxes vs. the tax and spend” issues.   So that
markets weren’t that happy looking at a very charismatic Democratic
ticket vs. an “old guy” for the Republicans.

2. Then the Republicans made a very bold
(to say the least) move and picked Alaska Governor Sarah Palin for the
VP spot.   Sarah who?  I have to say that I did actually know who she
was because I had read something about her, but she wasn’t well known
by any means.  So suddenly, there were a lot of people wondering, “Oh
great, what did John do now?   Did he blow everything?”

3. Then Wednesday night roles around, and
Governor Palin delivers what was literally the speech of her life.   
She was articulate, candid, honest, funny and also had the “right”
amount of aggressiveness.   Suddenly, John McCain is looking like a 
lot wiser of a Senator than he was looking just a few days before.

So what does that have to do with the
bond markets?   Like I said before, Wall St. tends to like the impact
that a Republican administration can have on the markets and suddenly
we’re looking at a situation where there’s a much better chance of a
Republican president and a much more invigorated campaign.    Is it a
coincidence that this happens at the same time that we see the lowest
mortgage rates we’ve had in months?   I don’t think so.   Is it the
only reason?   Nope.   But what do you think?

Thanks!

Tom Vanderwell

Quote of the week: “What’s the difference
between a hockey mom and a pit bull?  Lipstick!”   Vice Presidential
candidate and Governor of Alaska, Sarah Palin, Wednesday, September 3,
2008

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